[Title 34 CFR ]
[Code of Federal Regulations (annual edition) - July 1, 2003 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

   

                    34


          Part 400 to End

                         Revised as of July 1, 2003

Education





          Containing a codification of documents of general 
          applicability and future effect
          As of July 1, 2003
          With Ancillaries
          Published by
          Office of the Federal Register
          National Archives and Records
          Administration

A Special Edition of the Federal Register



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                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003



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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 34:
          Subtitle B--Regulations of the Offices of the 
          Department of Education (Continued)                        1
          Chapter IV--Office of Vocational and Adult 
          Education, Department of Education                         5
          Chapter V--Office of Bilingual Education and 
          Minority Languages Affairs, Department of Education      161
          Chapter VI--Office of Postsecondary Education, 
          Department of Education                                  171
          Chapter VII--Office of Educational Research and 
          Improvement, Department of Education [Reserved]
          Chapter XI--National Institute for Literacy              923
          Chapter XII--National Council on Disability              931
  Findings Aids:
      Material Approved for Incorporation by Reference........     943
      Table of CFR Titles and Chapters........................     945
      Alphabetical List of Agencies Appearing in the CFR......     963
      List of CFR Sections Affected...........................     973



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                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  34 CFR 400.1 refers 
                       to title 34, part 400, 
                       section 1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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    To determine whether a Code volume has been amended since its 
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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
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INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
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This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
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20408, or call (202) 741-6010.

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separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Statutory 
Authorities and Agency Rules (Table I). A list of CFR titles, chapters, 
and parts and an alphabetical list of agencies publishing in the CFR are 
also included in this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

[[Page vii]]


REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

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    For a legal interpretation or explanation of any regulation in this 
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or write to the Director, Office of the Federal Register, National 
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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

July 1, 2003.



[[Page ix]]



                               THIS TITLE

    Title 34--Education is presently composed of three volumes (parts 1 
to 299, parts 300 to 399, and part 400 to End). The contents of these 
volumes represent all regulations codified under this title of the CFR 
as of July 1, 2003.

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[[Page 1]]



                           TITLE 34--EDUCATION




                  (This book contains part 400 to End)

  --------------------------------------------------------------------

 SUBTITLE B--Regulations of the Offices of the Department of Education 
                                (Continued)

                                                                    Part

chapter IV--Office of Vocational and Adult Education, 
  Department of Education...................................         400

chapter V--Office of Bilingual Education and Minority 
  Languages Affairs, Department of Education................         535

chapter VI--Office of Postsecondary Education, Department of 
  Education.................................................         600

chapter VII--Office of Educational Research and Improvement, 
  Department of Education [Reserved]........................         700

chapter XI--National Institute for Literacy.................        1100

chapter XII--National Council on Disability.................        1200

[[Page 3]]

 Subtitle B--Regulations of the Offices of the Department of Education 
                               (Continued)

[[Page 5]]



  CHAPTER IV--OFFICE OF VOCATIONAL AND ADULT EDUCATION, DEPARTMENT OF 
                                EDUCATION




  --------------------------------------------------------------------
Part                                                                Page
400             Vocational and applied technology education 
                    programs--general provisions............           7
401             Indian vocational education program.........          17
402             Native Hawaiian vocational education program          22
403             State vocational and applied technology 
                    education program.......................          25
406             State-administered tech-prep education 
                    program.................................          71
410             Tribally controlled postsecondary vocational 
                    institutions program....................          75
411             Vocational education research program.......          79
412             National network for curriculum coordination 
                    in vocational and technical education...          83
413             National center or centers for research in 
                    vocational education....................          86
415             Demonstration centers for the training of 
                    dislocated workers program..............          92
421             Business and education standards program....          95
425             Demonstration projects for the integration 
                    of vocational and academic learning 
                    program.................................          98
426             Cooperative demonstration program...........         101
427             Bilingual vocational training program.......         109
428             Bilingual vocational instructor training 
                    program.................................         113
429             Bilingual vocational materials, methods, and 
                    techniques program......................         116
460             Adult education--general provisions.........         119
461             Adult education State-administered basic 
                    grant program...........................         122
464             State literacy resource centers program.....         136
472             National workplace literacy program.........         140
477             State program analysis assistance and policy 
                    studies program.........................         146
489             Functional literacy for State and local 
                    prisoners program.......................         149

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490             Life skills for State and local prisoners 
                    program.................................         153
491             Adult education for the homeless program....         156

[[Page 7]]



PART 400--VOCATIONAL AND APPLIED TECHNOLOGY EDUCATION PROGRAMS--GENERAL 
PROVISIONS--Table of Contents




Sec.
400.1  What is the purpose of the Vocational and Applied Technology 
          Education Programs?
400.2  What programs are governed by these regulations?
400.3  What other regulations apply to the Vocational and Applied 
          Technology Education Programs?
400.4  What definitions apply to the Vocational and Applied Technology 
          Education Programs?
400.5  Under what conditions may funds under the Act be used for the 
          joint funding of programs?
400.6  What are the requirements for establishing a State Committee of 
          Practitioners?
400.7  What are the provisions governing the issuance of State core 
          standards and measures of performance and State rules or 
          regulations?
400.8  What are the provisions governing student assistance?
400.9  What additional requirements govern the Vocational and Applied 
          Technology Education Programs?
400.10  What are the reporting requirements?

    Authority: 20 U.S.C. 2301 et seq., unless otherwise noted.

    Source: 57 FR 36724, Aug. 14, 1992, unless otherwise noted.



Sec. 400.1  What is the purpose of the Vocational and Applied Technology 
Education Programs?

    (a) The purpose of the Vocational and Applied Technology Education 
Programs is to make the United States more competitive in the world 
economy by developing more fully the academic and occupational skills of 
all segments of the population.
    (b) The purpose will be achieved principally through concentrating 
resources on improving educational programs leading to academic and 
occupational skill competencies needed to work in a technologically 
advanced society.

(Authority: 20 U.S.C. 2301)



Sec. 400.2  What programs are governed by these regulations?

    The regulations in this part apply to the Vocational and Applied 
Technology Education Programs as follows:
    (a) State-administered programs. (1) State Vocational and Applied 
Technology Education Program (34 CFR part 403).
    (2) State-Administered Tech-Prep Education Program (34 CFR part 
406).
    (3) Supplementary State Grants Program (34 CFR part 407).
    (b) National discretionary programs. (1) Indian Vocational Education 
Program (34 CFR part 401).
    (2) Native Hawaiian Vocational Education Program (34 CFR part 402).
    (3) National Tech-Prep Education Program (34 CFR part 405).
    (4) Community Education Employment Centers Program (34 CFR part 
408).
    (5) Vocational Education Lighthouse Schools Program (34 CFR part 
409).
    (6) Tribally Controlled Postsecondary Vocational Institutions 
Program (34 CFR part 410).
    (7) Vocational Education Research Program (34 CFR part 411).
    (8) National Network for Curriculum Coordination in Vocational and 
Technical Education (34 CFR part 412).
    (9) National Center or Centers for Research in Vocational Education 
(34 CFR part 413).
    (10) Materials Development in Telecommunications Program (34 CFR 
part 414).
    (11) Demonstration Centers for the Training of Dislocated Workers 
Program (34 CFR part 415).
    (12) Vocational Education Training and Study Grants Program (34 CFR 
part 416).
    (13) Vocational Education Leadership Development Awards Program (34 
CFR part 417).
    (14) Vocational Educator Training Fellowships Program (34 CFR part 
418).
    (15) Internships for Gifted and Talented Vocational Education 
Students Program (34 CFR part 419).
    (16) Business and Education Standards Program (34 CFR part 421).
    (17) Educational Programs for Federal Correctional Institutions (34 
CFR part 422).

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    (18) Vocational Education Dropout Prevention Program (34 CFR part 
423).
    (19) Model Centers of Regional Training for Skilled Trades Program 
(34 CFR part 424).
    (20) Demonstration Projects for the Integration of Vocational and 
Academic Learning Program (34 CFR part 425).
    (21) Cooperative Demonstration Programs (34 CFR part 426).
    (22) Bilingual Vocational Training Program (34 CFR part 427).
    (23) Bilingual Vocational Instructor Training Program (34 CFR part 
428).
    (24) Bilingual Materials, Methods, and Techniques Program (34 CFR 
part 429).

(Authority: 20 U.S.C. 2301 et seq.)



Sec. 400.3  What other regulations apply to the Vocational and Applied 
Technology Education Programs?

    The following regulations apply to the Vocational and Applied 
Technology Education Programs:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs) (applicable to parts 401, 
402, 405, 408, 409, 410, 411, 412, 413, 414, 415, 416, 417, 418, 419, 
421, 422, 423, 424, 425, 426, 427, 428, and 429 except that 34 CFR 
75.720(b) does not apply to performance reports under parts 401, 402, 
405, 408, 409, 412, 413, 415, 416, 417, 419, 422, 423, 424, 425, 426, 
427, and 428, and to financial reports under parts 412 and 413).
    (3) 34 CFR part 76 (State-Administered Programs) (applicable to 
parts 403, 406, and 407).
    (4) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (5) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities) (not applicable to parts 401, 410, 
411, 413, 418, and 419).
    (6) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (7) 34 CFR part 81 (General Education Provisions Act-- Enforcement).
    (8) 34 CFR part 82 (New Restrictions on Lobbying) (not applicable to 
parts 401 and 410).
    (9) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (10) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The Federal Acquisition Regulation (FAR) in 48 CFR chapter 1 and 
the Education Department Acquisition Regulation (EDAR) in 48 CFR chapter 
34 (applicable to contracts under parts 401, 402, 411, 412, 426, 427, 
428, and 429).
    (c) The regulations in this part 400.
    (d) The regulations in 34 CFR parts 401, 402, 403, 405, 406, 407, 
408, 409, 410, 411, 412, 413, 414, 415, 416, 417, 418, 419, 421, 422, 
423, 424, 425, 426, 427, 428, and 429.

(Authority: 20 U.S.C. 2301 et seq.)



Sec. 400.4  What definitions apply to the Vocational and Applied Technology 
Education Programs?

    (a) Definitions in EDGAR. The following terms used in regulations 
for the Vocational and Applied Technology Education Programs are defined 
in 34 CFR 77.1:

Acquisition
Applicant
Application
Award
Budget
Contract
Department
EDGAR
Elementary school
Facilities
Federally recognized Indian tribal government
Fiscal year
Grant
Grantee
Grant period
Nonprofit
Private
Project
Public
Recipient
Secondary school
Secretary
State educational agency
Subgrant
Subgrantee
Supplies

    (b) Other definitions. The following definitions also apply to the 
regulations for Vocational and Applied Technology Education Programs.
    Act means the Carl D. Perkins Vocational and Applied Technology 
Education Act (20 U.S.C. 2301 et seq.), as amended by Public Law 101-
392, 104 Stat. 753 (1990), and Public Law 102-103, 105 Stat. 497 (1991), 
unless otherwise indicated.

[[Page 9]]

    Administration means activities of a State necessary for the proper 
and efficient performance of its duties under the Act, including 
supervision, but not including curriculum development activities, 
personnel development, or research activities.
    All aspects of an industry includes, with respect to a particular 
industry that a student is preparing to enter, planning, management, 
finances, technical and production skills, underlying principles of 
technology, labor and community issues, health and safety, and 
environmental issues related to that industry.
    Americans with Disabilities Act of 1990 or ADA mean the Act in 42 
U.S.C. 12101 et seq.
    Apprenticeship training program means a program registered with the 
Department of Labor or the State apprenticeship agency in accordance 
with the Act of August 16, 1937, known as the National Apprenticeship 
Act (29 U.S.C. 50), that is conducted or sponsored by an employer, a 
group of employers, or a joint apprenticeship committee representing 
both employers and a union, and that contains all terms and conditions 
for the qualification, recruitment, selection, employment, and training 
of apprentices.
    Area vocational education school means--
    (1) A specialized high school used exclusively or principally for 
the provision of vocational education to individuals who are available 
for study in preparation for entering the labor market;
    (2) The department of a high school exclusively or principally used 
for providing vocational education in not less than five different 
occupational fields to individuals who are available for study in 
preparation for entering the labor market;
    (3) A technical institute or vocational school used exclusively or 
principally for the provision of vocational education to individuals who 
have completed or left high school and who are available for study in 
preparation for entering the labor market; or
    (4) The department or division of a junior college, community 
college, or university that operates under the policies of the State 
board and provides vocational education in not less than five different 
occupational fields leading to immediate employment but not necessarily 
leading to a baccalaureate degree, if, in the case of a school, 
department, or division described in paragraph (3) of this definition or 
in this paragraph, it admits as regular students both individuals who 
have completed high school and individuals who have left high school.
    Career guidance and counseling means programs that--
    (1) Pertain to the body of subject matter and related techniques and 
methods organized for the development in individuals of career 
awareness, career planning, career decision-making, placement skills, 
and knowledge and understanding of local, State, and national 
occupational, educational, and labor market needs, trends, and 
opportunities; and
    (2) Assist those individuals in making and implementing informed 
educational and occupational choices.
    Chapter 1 means chapter 1 of title I of the Elementary and Secondary 
Education Act of 1965, as amended (20 U.S.C. 2701 et seq.).
    Coherent sequence of courses means a series of courses in which 
vocational and academic education are integrated, and which directly 
relates to, and leads to, both academic and occupational competencies. 
The term includes competency-based education, academic education, and 
adult training or retraining, including sequential units encompassed 
within a single adult retraining course, that otherwise meet the 
requirements of this definition.
    Community-based organization means a private nonprofit organization 
of demonstrated effectiveness that is representative of communities or 
significant segments of communities and that provides job training 
services (for example, Opportunities Industrialization Centers, the 
National Urban League, SER-Jobs for Progress, United Way of America, 
Mainstream, the National Puerto Rican Forum, National Council of La 
Raza, WAVE, Inc., Jobs for Youth, organizations operating career intern 
programs, neighborhood groups and organizations, community action

[[Page 10]]

agencies, community development corporations, vocational rehabilitation 
organizations, rehabilitation facilities (as defined in section 7(10) of 
the Rehabilitation Act of 1973 (29 U.S.C. 706(10)), agencies serving 
youth, agencies serving individuals with disabilities, including 
disabled veterans, agencies serving displaced homemakers, union-related 
organizations, and employer-related nonprofit organizations), and an 
organization of demonstrated effectiveness serving non-reservation 
Indians (including the National Urban Indian Council), as well as tribal 
governments and Native Alaskan groups.


(Authority: 20 U.S.C. 2471(6); 41 U.S.C. 1503(5))

    Construction includes construction of new buildings and acquisition, 
expansion, remodeling, and alteration of existing buildings, and 
includes site grading and improvement and architect fees.
    Cooperative education means a method of instruction of vocational 
education for individuals who, through written cooperative arrangements 
between the school and employers, receive instruction, including 
required academic courses and related vocational instruction by 
alternation of study in school with a job in any occupational field. The 
two experiences must be planned and supervised by the school and 
employers so that each contributes to the student's education and 
employability. Work periods and school attendance may be on alternate 
half days, full days, weeks, or other periods of time in fulfilling the 
cooperative program.
    Criminal offender means any individual who is charged with, or 
convicted of, any criminal offense, including a youth offender or a 
juvenile offender.
    Correctional institution means any--
    (1) Prison;
    (2) Jail;
    (3) Reformatory;
    (4) Work farm;
    (5) Detention center; or
    (6) Halfway house, community-based rehabilitation center, or any 
other similar institution designed for the confinement or rehabilitation 
of criminal offenders.
    Curriculum materials means instructional and related or supportive 
material, including materials using advanced learning technology, in any 
occupational field that is designed to strengthen the academic 
foundation and prepare individuals for employment at the entry level or 
to upgrade occupational competencies of those previously or presently 
employed in any occupational field, and appropriate counseling and 
guidance material.
    Disadvantaged refers to individuals (other than individuals with 
disabilities) who have economic or academic disadvantages and who 
require special services and assistance in order to enable these 
individuals to succeed in vocational education programs. This term 
includes individuals who are members of economically disadvantaged 
families, migrants, individuals of limited English proficiency, and 
individuals who are dropouts from, or who are identified as potential 
dropouts from, secondary school. For the purpose of this definition, an 
individual who scores at or below the 25th percentile on a standardized 
achievement or aptitude test, whose secondary school grades are below 
2.0 on a 4.0 scale (on which the grade ``A'' equals 4.0), or who fails 
to attain minimum academic competencies may be considered ``academically 
disadvantaged.'' The definition does not include individuals with 
learning disabilities.
    Displaced homemaker means an individual who--
    (1) Is an adult;
    (2) Has worked as an adult primarily without remuneration to care 
for the home and family, and for that reason has diminished marketable 
skills; and
    (3)(i) Has been dependent on public assistance or on the income of a 
relative but is no longer supported by that income;
    (ii) Is a parent whose youngest dependent child will become 
ineligible to receive assistance under part A of title IV of the Social 
Security Act (42 U.S.C. 601), Aid to Families with Dependent Children, 
within two years of the parent's application for assistance under the 
Carl D. Perkins Vocational and Applied Technology Education Act;
    (iii) Is unemployed or underemployed and is experiencing difficulty 
in obtaining any employment or suitable employment, as appropriate; or

[[Page 11]]

    (iv) Is described in paragraphs (1) and (2) of this definition and 
is a criminal offender.
    Economically disadvantaged family or individual means a family or 
individual that is--
    (1) Eligible for any of the following:
    (i) The program for Aid to Families with Dependent Children under 
part A of title IV of the Social Security Act (42 U.S.C. 601).
    (ii) Benefits under the Food Stamp Act of 1977 (7 U.S.C. 2011).
    (iii) To be counted for purposes of section 1005 of chapter 1 of 
title I of the Elementary and Secondary Education Act of 1965, as 
amended (chapter 1) (20 U.S.C. 2701).
    (iv) The free or reduced-price meals program under the National 
School Lunch Act (42 U.S.C. 1751).
    Note to paragraph (1)(iv): The National School Lunch Act prohibits 
the identification of students by name. However, State and local 
projects may use the total number of students participating in a free or 
reduced-priced meals program to determine eligibility for projects, 
services, and activities under the Vocational and Applied Technology 
Education Programs.
    (v) Participation in programs assisted under title II of the JTPA.
    (2) In receipt of a Pell grant or assistance under a comparable 
State program of need-based financial assistance.
    (3) Determined by the Secretary to be low-income according to the 
latest available data from the Department of Commerce or the Department 
of Health and Human Services Poverty Guidelines.
    (4) Identified as low income according to other indices of economic 
status, including estimates of those indices, if a grantee demonstrates 
to the satisfaction of the Secretary that those indices are more 
representative of the number of economically disadvantaged students 
attending vocational education programs. The Secretary determines, on a 
case-by-case basis, whether other indices of economic status are more 
representative of the number of economically disadvantaged students 
attending vocational education programs, taking into consideration, for 
example, the statistical reliability of any data submitted by a grantee 
as well as the general acceptance of the indices by other agencies in 
the State or local area.


(Authority: 20 U.S.C. 2341(d)(3))

    Eligible recipient means, except as otherwise provided, a local 
educational agency, an area vocational education school, an intermediate 
educational agency, a postsecondary educational institution, a State 
corrections educational agency, or an eligible institution as defined in 
34 CFR 403.117(a).
    General occupational skills means strong experience in, and 
understanding of, all aspects of an industry.
    High technology means state-of-the-art computer, microelectronic, 
hydraulic, pneumatic, laser, nuclear, chemical, telecommunication, and 
other technologies being used to enhance productivity in manufacturing, 
communication, transportation, agriculture, mining, energy, commercial, 
and similar economic activity, and to improve the provision of health 
care.
    IDEA means the Individuals with Disabilities Education Act (20 
U.S.C. 1400 et seq.), formerly entitled ``Education of the Handicapped 
Act.''
    Individual with disabilities means any individual with any 
disability (as defined in section 3(2) of the Americans With 
Disabilities Act of 1990), which includes any individual who--
    (1) Has a physical or mental impairment that substantially limits 
one or more of the major life activities of that individual;
    (2) Has a record of an impairment described in paragraph (1) of this 
definition; or
    (3) Is regarded as having an impairment described in paragraph (1) 
of this definition.
    Note: This definition necessarily includes any individual who has 
been evaluated under part B of the IDEA and determined to be an 
individual with a disability who is in need of special education and 
related services; and any individual who is considered disabled under 
section 504 of the Rehabilitation Act of 1973.


(Authority: 42 U.S.C. 12102(2))

    Individualized education program means a written statement for a 
disabled individual developed in accordance with sections 612(4) and 
614(a)(5) of

[[Page 12]]

the IDEA (20 U.S.C. 1412(4) and 1414(a)(5)).
    Institution of higher education. (1) The term means an educational 
institution in any State that--
    (i) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;
    (ii) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (iii) Provides an educational program for which it awards a 
bachelor's degree or provides not less than a two-year program that is 
acceptable for full credit toward such a degree;
    (iv) Is a public or other nonprofit institution; and
    (v) Is accredited by a nationally recognized accrediting agency or 
association, or if not so accredited--
    (A) Is an institution with respect to which the Secretary has 
determined that there is satisfactory assurance, considering the 
resources available to the institution, the period of time, if any, 
during which it has operated, the effort it is making to meet 
accreditation standards, and the purpose for which this determination is 
being made, that the institution will meet the accreditation standards 
of such an agency or association within a reasonable time; or
    (B) Is an institution whose credits are accepted, on transfer, by 
not less than three institutions which are so accredited, for credit on 
the same basis as if transferred from an institution so accredited.
    (2) The term also includes--
    (i) Any school which provides not less than a one-year program of 
training to prepare students for gainful employment in a recognized 
occupation and that meets the provisions of paragraphs (1) (i), (ii), 
(iv), and (v) of this definition; and
    (ii) A public or nonprofit private educational institution in any 
State which, in lieu of the requirement in paragraph (1) of this 
definition, admits as regular students persons who are beyond the age of 
compulsory school attendance in the State in which the institution is 
located and who meet the requirements of section 484(d) of the Higher 
Education Act of 1965 (20 U.S.C. 1091(d)).


(Authority: 20 U.S.C. 1141(a))

    Intermediate educational agency means a combination of school 
districts or counties (those divisions of a State utilized by the 
Secretary of Commerce in compiling and reporting data regarding 
counties) as are recognized in a State as an administrative agency for 
that State's vocational or technical education schools or for vocational 
programs within its public elementary or secondary schools. This term 
includes any other public institution or agency having administrative 
control and direction over a public elementary or secondary school.


(Authority: 20 U.S.C. 2891(5))

    JTPA means the Job Training Partnership Act (29 U.S.C. 1501 et 
seq.).
    Limited English proficiency, if used with reference to individuals, 
means individuals--
    (1)(i) Who were not born in the United States or whose native 
language is a language other than English;
    (ii) Who come from environments where a language other than English 
is dominant; or
    (iii) Who are American Indian and Alaska Natives and who come from 
environments where a language other than English has had a significant 
impact on their level of English language proficiency; and
    (2) Who by reason thereof, have sufficient difficulty speaking, 
reading, writing, or understanding the English language to deny those 
individuals the opportunity to learn successfully in classrooms where 
the language of instruction is English or to participate fully in our 
society.


(Authority: 20 U.S.C. 3223(a)(1))

    Local educational agency means a board of education or other legally 
constituted local school authority having administrative control and 
direction of public elementary or secondary schools in a city, county, 
township, school district, or political subdivision in a State, or any 
other public educational

[[Page 13]]

institution or agency having administrative control and direction of a 
vocational education program. For the purposes of sections 114, 115, 
116, 117, and 240 of the Act (implemented at 34 CFR 403.31 (e) and (f), 
403.32(c)(3), 403.190, 403.191, 403.192, 403.201, 403.202, and 403.204), 
this term includes a State corrections educational agency.
    Measure means a description of an outcome.


(Authority: H.R. Rep. No. 41, 101st Cong., 1st Sess. 13 (1989))

    Postsecondary educational institution means an institution legally 
authorized to provide postsecondary education within a State, a Bureau 
of Indian Affairs-controlled postsecondary institution, or any 
postsecondary educational institution operated by, or on behalf of, any 
Indian tribe that is eligible to contract with the Secretary of the 
Interior for the administration of programs under the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450) or under the 
Act of April 16, 1934 (25 U.S.C. 452).
    Preparatory services means services, programs, or activities 
designed to assist individuals who are not enrolled in vocational 
education programs in the selection of, or preparation for participation 
in, an appropriate vocational education training program. Preparatory 
services may include, but are not limited to--
    (1) Services, programs, or activities related to outreach to, or 
recruitment of, potential vocational education students;
    (2) Career counseling and personal counseling;
    (3) Vocational assessment and testing; and
    (4) Other appropriate services, programs, or activities.
    Private vocational training institution means a business or trade 
school, or technical institution or other technical or vocational 
school, in any State, that--
    (1) Admits as regular students only persons who have completed or 
left elementary or secondary school and who have the ability to benefit 
from the training offered by the institution;
    (2) Is legally authorized to provide, and provides within that 
State, a program of postsecondary vocational or technical education 
designed to fit individuals for useful employment in recognized 
occupations;
    (3) Has been in existence for two years or has been specially 
accredited by the Secretary as an institution meeting the other 
requirements of this definition; and
    (4) Is accredited--
    (i) By a nationally recognized accrediting agency or association 
listed by the Secretary;
    (ii) If the Secretary determines that there is no nationally 
recognized accrediting agency or association qualified to accredit 
schools of a particular category, by a State agency listed by the 
Secretary; or
    (iii) If the Secretary determines that there is no nationally 
recognized or State agency or association qualified to accredit schools 
of a particular category, by an advisory committee appointed by the 
Secretary and composed of persons specially qualified to evaluate 
training provided by schools of that category. The committee shall 
prescribe the standards of content, scope, and quality that must be met 
by those schools and shall also determine whether particular schools 
meet those standards.
    Program effectiveness panel means the panel of experts in the 
evaluation of education programs and in other areas of education, at 
least two-thirds of whom are not Federal employees, who are appointed by 
the Secretary, and who review and assign scores to programs according to 
the criteria in 34 CFR 786.12 or 787.12.
    Program year or academic year mean the twelve-month period during 
which a State operates its vocational education program (which is most 
generally a period beginning on July 1 and ending on the following June 
30).


(Authority: 20 U.S.C. 1225(a))

    Rehabilitation Act of 1973 means the Act in 29 U.S.C. 701 et seq.
    School facilities means classrooms and related facilities, including 
initial equipment, and interests in lands on which the facilities are 
constructed. The term does not include any facility intended primarily 
for events for which

[[Page 14]]

admission is to be charged to the general public.
    Sequential course of study means an integrated series of courses 
that are directly related to the educational and occupational skills 
preparation of individuals for jobs, or preparation for postsecondary 
education.
    Single parent means an individual who--
    (1) Is unmarried or legally separated from a spouse; and
    (2)(i) Has a minor child or children for which the parent has either 
custody or joint custody; or
    (ii) Is pregnant.
    Small business means a for-profit enterprise employing 500 or fewer 
employees.
    Special populations refers to individuals with disabilities, 
educationally and economically disadvantaged individuals (including 
foster children), individuals of limited English proficiency, 
individuals who participate in programs designed to eliminate sex bias, 
and individuals in correctional institutions.
    Specific job training means training and education for skills 
required by an employer to provide the individual student with the 
ability to obtain employment and to adapt to the changing demands of the 
workplace.
    Spread means the degree to which--
    (1) Project activities and results are demonstrated to others;
    (2) Technical assistance is provided to others to help them 
replicate project activities and results;
    (3) Project activities and results are replicated at other sites; or
    (4) Information and material about or resulting from the project are 
disseminated.
    Standard means the level or rate of an outcome.


(Authority: H.R. Rep. No. 41, 101st Cong., 1st Sess. 13 (1989))

    State means any of the 50 States, the Commonwealth of Puerto Rico, 
the District of Columbia, Guam, American Samoa, the Virgin Islands, the 
Commonwealth of the Northern Mariana Islands, and Palau (until the 
Compact of Free Association with Palau takes effect pursuant to section 
101(a) of Public Law 99-658 (48 U.S.C. 1681)).
    State board means a State board designated or created by State law 
as the sole State agency responsible for the administration of 
vocational education or for supervision of the administration of 
vocational education in the State.
    State corrections educational agency means the State agency or 
agencies responsible for carrying out corrections education programs in 
the State.
    State council means the State council on vocational education 
established in accordance with 34 CFR 403.17 through 403.19.
    Supplementary services means curriculum modification, equipment 
modification, classroom modification, supportive personnel, and 
instructional aids and devices.
    Technology education means an applied discipline designed to promote 
technological literacy that provides knowledge and understanding of the 
impacts of technology including its organizations, techniques, tools, 
and skills to solve practical problems and extend human capabilities in 
areas such as construction, manufacturing, communication, 
transportation, power, and energy.
    Transportability means the ease by which project activities and 
results may be replicated at other sites, such as through the 
development and use of guides or manuals that provide step-by-step 
directions for others to follow in order to initiate similar efforts and 
reproduce comparable results.
    Tribally controlled community college means an institution that 
receives assistance under the Tribally Controlled Community College 
Assistance Act of 1978 (25 U.S.C. 1801 et seq.) or the Navajo Community 
College Act (25 U.S.C. 640a).
    Vocational education means organized educational programs offering a 
sequence of courses or instruction in a sequence or aggregation of 
occupational competencies that are directly related to the preparation 
of individuals for paid or unpaid employment in current or emerging 
occupations requiring other than a baccalaureate or advanced degree. 
These programs must include competency-based applied learning that 
contributes to an individual's academic knowledge, higher-order

[[Page 15]]

reasoning and problem-solving skills, work attitudes, general 
employability skills, and the occupational-specific skills necessary for 
economic independence as a productive and contributing member of 
society. This term also includes applied technology education.
    Vocational student organizations means those organizations for 
individuals enrolled in vocational education programs that engage in 
activities as an integral part of the instructional program. These 
organizations may have State and national units that aggregate the work 
and purposes of instruction in vocational education at the local level.
    Wagner-Peyser Act means the Act in 29 U.S.C. 49 et seq.

(Authority: 20 U.S.C. 2471)



Sec. 400.5  Under what conditions may funds under the Act be used for the joint funding of programs?

    (a) Funds made available under the Act may be used to provide 
additional funds under any of the programs in--
    (1) Title II, section 123 and title III of the JTPA; or
    (2) The Wagner-Peyser Act.
    (b) Funds used to carry out paragraph (a) of this section may be 
used only if the--
    (1) Program otherwise meets the requirements of the Act and the 
requirements of the programs in paragraph (a) (1) and (2) of this 
section;
    (2) Program serves the same individuals that are served under the 
Act;
    (3) Program provides services in a coordinated manner with services 
provided under the Act; and
    (4) Funds would be used to supplement, and not supplant, funds 
provided from non-Federal sources.
    (c) Funds that meet the conditions in paragraphs (a) and (b) of this 
section may be used as matching funds.

(Authority: 20 U.S.C. 2468)



Sec. 400.6  What are the requirements for establishing a State Committee 
of Practitioners?

    (a) Consultation. A State shall appoint a State Committee of 
Practitioners (Committee) after consulting with--
    (1) Local school officials representing eligible recipients;
    (2) Representatives of--
    (i) Organized labor;
    (ii) Business;
    (iii) Superintendents;
    (iv) Community-based organizations;
    (v) Private industry councils established under section 102(a) of 
the JTPA (29 U.S.C. 1512);
    (vi) State councils;
    (vii) Parents;
    (viii) Special populations; and
    (ix) Correctional institutions;
    (3) The administrator appointed under 34 CFR 403.13(a);
    (4) The State administrator of programs assisted under part B of the 
IDEA;
    (5) The State administrator of programs assisted under chapter 1;
    (6) The State administrator of programs for students of limited 
English proficiency; and
    (7) Guidance counselors.
    (b) Committee selection. The State shall select the Committee from 
nominees solicited from--
    (1) State organizations representing school administrators;
    (2) Teachers;
    (3) Parents;
    (4) Members of local boards of education; and
    (5) Appropriate representatives of institutions of higher education.
    (c)(1) Committee membership. The Committee must consist of--
    (i) Representatives of local educational agencies, who must 
constitute a majority of the members of the committee;
    (ii) School administrators;
    (iii) Teachers;
    (iv) Parents;
    (v) Members of local boards of education;
    (vi) Representatives of institutions of higher education; and
    (vii) Students.
    (2) School administrators, teachers, and members of local boards of 
education may be counted as representatives of LEAs for purposes of 
paragraph (c)(1)(i) of this section.

(Authority: 20 U.S.C. 2325 (a) and (d)(1); 2468a)

[[Page 16]]



Sec. 400.7  What are the provisions governing the issuance of State core 
standards and measures of performance and State rules or regulations?

    (a)(1) State standards and measures. A State shall convene, on a 
regular basis, the Committee established under Sec. 400.6 to review, 
comment on, and propose revisions to a draft proposal that the State 
board develops for a statewide system of core standards and measures of 
performance for secondary, postsecondary, and adult vocational education 
programs.
    (2) The Committee shall make recommendations to the State board with 
respect to modifying statewide standards and measures based on 
information provided by the State under 34 CFR 403.201(d).
    (b)(1) State rules and regulations. Except as provided in paragraph 
(b)(2) of this section, before a State publishes any proposed or final 
State rule or regulation for programs, services, or activities covered 
by the Act, the State shall convene the Committee for the purpose of 
reviewing the rule or regulation.
    (2) In an emergency, in which a rule or regulation must be issued 
within a very limited time period to assist eligible recipients with the 
operation of projects, services, or activities, the State--
    (i) May issue a proposed rule or regulation without meeting the 
requirements in paragraph (b)(1) of this section; but
    (ii) Shall immediately convene the Committee to review the rule or 
regulation before it is issued in final form.

    Cross-Reference: See Sec. 400.9(c).

    (3) If a State policy is binding on eligible recipients and has the 
same effect as a formal rule or regulation, although it is not issued as 
one, that policy is covered by this section.

(Authority: 20 U.S.C. 2325(a); 2468a)



Sec. 400.8  What are the provisions governing student assistance?

    (a) The portion of any student financial assistance received under 
the Act that is made available for attendance costs described in 
paragraph (b) of this section may not be considered as income or 
resources in determining eligibility for assistance under any other 
program funded in whole or in part with Federal funds.
    (b) For purposes of this section, attendance costs are --
    (1) Tuition and fees normally assessed a student carrying the same 
academic workload as determined by the institution, including costs for 
rental or purchases of any equipment, materials, or supplies required of 
all students in the same course of study; and
    (2) An allowance for books, supplies, transportation, dependent 
care, and miscellaneous personal expenses for a student attending an 
institution on at least a half-time basis, as determined by the 
institution.

(Authority: 20 U.S.C. 2466d)



Sec. 400.9  What additional requirements govern the Vocational and Applied 
Technology Education Programs?

    In addition to the Act, applicable Federal laws, and regulations, 
the following requirements apply to Vocational and Applied Technology 
Education Programs:
    (a) A State that receives funds under the Act shall cooperate with 
the Secretary in supplying the information the Secretary requires, in 
the form the Secretary requires, and shall comply in its reports with 
the information system developed by the Secretary under section 421 of 
the Act.
    (b) Nothing in the Act is to be construed to be inconsistent with 
applicable Federal laws guaranteeing civil rights, or is intended to, or 
has the effect of, limiting or diminishing any obligations imposed under 
the IDEA or section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 
794).
    (c) Any State rule, regulation, or policy imposed on the 
administration or operation of programs funded under the Act, including 
any rule, regulation, or policy based on a State's interpretation of any 
Federal law, regulation, or guideline, must be identified as a State 
imposed requirement.
    (d) Funds provided under the Act may not be used for the purpose of 
directly providing incentives or inducements to relocate a business or 
enterprise from one State to another State if the relocation would 
result in a reduction in the number of jobs available

[[Page 17]]

in the State where the business enterprise is located before the 
incentives or inducements are offered.
    (e) A State may not take into consideration payments under the Act 
in determining for any educational agency or institution in that State 
the eligibility for State aid or the amount of State aid with respect to 
public education within the State.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2421, 2424, 2466c, 2468b, 2468c, and 2468e(a)(2))



Sec. 400.10  What are the reporting requirements?

    (a) Recipients of grants and cooperative agreements shall report 
information about students, projects, evaluations, dissemination, 
expenditures, accomplishments, and any other information, as may be 
required by the Secretary.
    (b) Recipients of grants and cooperative agreements under--
    (1) Parts 401, 402, 405, 408, 409, 413, 415, 416, 417, 419, 422, 
423, 424, 425, 426, 427, and 428 shall submit performance reports at 
least semi-annually;
    (2) Part 412 shall submit monthly progress and financial status 
reports and an annual impact report; and
    (3) Part 413 shall submit monthly exception reports and quarterly 
financial status reports.
    (c) Recipients of grants under parts 403, 406, and 407 shall submit 
annual performance and financial reports.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2301 et seq.)



PART 401--INDIAN VOCATIONAL EDUCATION PROGRAM--Table of Contents




                           Subpart A--General

Sec.
401.1  What is the Indian Vocational Education Program?
401.2  Who is eligible for an award?
401.3  What activities may the Secretary fund?
401.4  What regulations apply?
401.5  What definitions apply?

               Subpart B--How Does One Apply for an Award?

401.10  How are applications submitted?

            Subpart C--How Does the Secretary Make an Award?

401.20  How does the Secretary evaluate an application?
401.21  What selection criteria does the Secretary use?
401.22  What additional factors may the Secretary consider?
401.23  Is the Secretary's decision not to make an award under the 
          Indian Vocational Education Program subject to a hearing?

         Subpart D--What Conditions Must Be Met After an Award?

401.30  How do the Indian Self-Determination Act and the Act of April 
          16, 1934 affect awards under the Indian Vocational Education 
          Program?
401.31  What are the evaluation requirements?

    Authority: 20 U.S.C. 2313(b), unless otherwise noted.

    Source: 57 FR 36730, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 401.1  What is the Indian Vocational Education Program?

    The Indian Vocational Education Program provides financial 
assistance to projects that provide vocational education for the benefit 
of Indians.

(Authority: 20 U.S.C. 2313(b))



Sec. 401.2  Who is eligible for an award?

    (a) The following entities are eligible for an award under this 
program:
    (1) A tribal organization of any Indian tribe that is eligible to 
contract with the Secretary of the Interior under the Indian Self-
Determination and Education Assistance Act or under the Act of April 16, 
1934.
    (2) A Bureau-funded school offering a secondary program.
    (b) Any tribal organization or Bureau-funded school described in 
paragraph (a) of this section may apply individually or jointly as part 
of a consortium with one or more eligible tribal organizations or 
schools.

[[Page 18]]

    (c)(1) A consortium shall enter into an agreement signed by all 
members of the consortium, and designating one member of the consortium 
as the applicant and grantee.
    (2) The agreement must detail the activities each member of the 
consortium plans to perform, and must bind each member to every 
statement and assurance made in the application.
    (3) The applicant shall submit the agreement with its application.

    Cross-Reference: See 34 CFR 75.127-75.129--Group applications.

(Authority: 20 U.S.C. 2313(b))



Sec. 401.3  What activities may the Secretary fund?

    (a) The Secretary provides financial assistance through grants, 
contracts, or cooperative agreements to plan, conduct, and administer 
projects or portions of projects that are authorized by and consistent 
with the purposes of the Act. In the case of a grant to a Bureau-funded 
school, the Secretary provides a minimum grant of $35,000.
    (b) Projects funded under this program are in addition to other 
programs, services, and activities made available under other provisions 
of the Act to--
    (1) Eligible Indians in need of vocational education; and
    (2) Eligible Indian tribes as community-based organizations that 
receive State vocational education assistance.
    (c) An award under this program may be used to provide a stipend to 
a student who--
    (1) Is enrolled in a vocational education project funded under this 
program; and
    (2) Has an acute economic need that cannot be met through work-study 
programs.
    (d) The amount of a stipend may be the greater of either the minimum 
hourly wage prescribed by State or local law, or the minimum hourly wage 
set under the Fair Labor Standards Act. A stipend may not be paid for 
time a student is not in attendance in a project.

(Authority: 20 U.S.C. 2313(b) (1) and (3))



Sec. 401.4  What regulations apply?

    The following regulations apply to the Indian Vocational Education 
Program:
    (a) The regulations in 34 CFR part 400 (except that 34 CFR parts 79 
and 82 do not apply to this program).
    (b) The regulations in this part 401.

(Authority: 20 U.S.C. 2313(b))



Sec. 401.5  What definitions apply?

    (a) The definitions in 34 CFR 400.4 apply to this part.
    (b) The following definitions also apply to this part:
    Act of April 16, 1934 means the Federal law commonly known as the 
``Johnson-O'Malley Act'' that authorizes the Secretary of the Interior 
to make contracts for the education of Indians and other purposes (25 
U.S.C. 455-457).
    Acute economic need means an income that is at or below the national 
poverty level according to the latest available data from the Department 
of Commerce or the Department of Health and Human Services Poverty 
Guidelines.
    Bureau means the Bureau of Indian Affairs, Department of the 
Interior.
    Bureau-funded school means--
    (1) A Bureau-operated elementary or secondary day or boarding school 
or a Bureau-operated dormitory for students attending a school other 
than a Bureau school;
    (2) An elementary or secondary school or a dormitory that receives 
financial assistance for its operation under a contract or agreement 
with the Bureau under sections 102, 104(1), or 208 of the Indian Self-
Determination and Education Assistance Act (25 U.S.C. 450f, 450h(1), and 
458d); or
    (3) A school for which assistance is provided under the Tribally 
Controlled Schools Act of 1988.


(Authority: 20 U.S.C. 2313(b); 25 U.S.C. 2019 (3), (4), and (5))

    Indian means a person who is a member of an Indian tribe.

(Authority: 25 U.S.C. 450b(d))

    Indian tribe means any Indian tribe, band, Nation, or other 
organized group or community, including any Alaska Native village or 
regional or village corporation as defined in or established

[[Page 19]]

pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) that 
is federally recognized as eligible for the special programs and 
services provided by the United States to Indians because of their 
status as Indians.


(Authority: 25 U.S.C. 450b(e))

    Stipend means a subsistence allowance for a student that is 
necessary for the student to participate in a project funded under this 
program.
    Tribal organization means the recognized governing body of any 
Indian tribe or any legally established organization of Indians that is 
controlled, sanctioned, or chartered by that governing body or that is 
democratically elected by the adult members of the Indian community to 
be served by the organization and that includes the maximum 
participation of Indians in all phases of its activities. However, in 
any case where a contract is let or grant made to an organization to 
perform services benefiting more than one Indian tribe, the approval of 
each of those Indian tribes must be a prerequisite to the letting or 
making of that contract or grant.

(Authority: 20 U.S.C. 2313(a)(1)(A), (b); 25 U.S.C. 450b(l))



               Subpart B--How Does One Apply for an Award?



Sec. 401.10  How are applications submitted?

    (a) An application from a tribal organization, other than a Bureau-
funded school, must be submitted to the Secretary by the Indian tribe.
    (b) An application for a project to serve more than one Indian tribe 
must be approved by each tribe to be served.
    (c) An application from a Bureau-funded school may be submitted 
directly to the Secretary.

(Authority: 20 U.S.C. 2313(b)(1); 25 U.S.C. 450b)



            Subpart C--How Does the Secretary Make an Award?



Sec. 401.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 401.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 401.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition, as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 401.21.
    (e) In addition to the 100 points to be awarded based on the 
criteria in Sec. 401.21, the Secretary awards--
    (1) Up to 5 points to applications that propose exemplary approaches 
that involve, coordinate with, or encourage tribal economic development 
plans; and
    (2) Five points to applications from tribally controlled community 
colleges that--
    (i) Are accredited or are candidates for accreditation by a 
nationally recognized accreditation organization as an institution of 
postsecondary vocational education; or
    (ii) Operate vocational education programs that are accredited or 
are candidates for accreditation by a nationally recognized 
accreditation organization and issue certificates for completion of 
vocational education programs.

(Authority: 20 U.S.C. 2313(b))



Sec. 401.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:

[[Page 20]]

    (a) Program factors. (20 points) The Secretary reviews each 
application to determine the extent to which it--
    (1) Proposes measurable goals for student enrollment, completion, 
and placement (including placement in jobs or military specialties and 
in continuing education or training opportunities) that are realistic in 
terms of stated needs, resources, and job opportunities in each 
occupation for which training is to be provided;
    (2) Proposes goals that take into consideration any related goals or 
standards developed for Job Opportunities and Basic Skills (JOBS) 
programs (42 U.S.C. 681 et seq.) and Job Training Partnership Act (JTPA) 
(29 U.S.C. 1501 et seq.) training programs operating in the area, and, 
where appropriate, any goals set by the State board for vocational 
education for the occupation and geographic area;
    (3) Describes, for each occupation for which training is to be 
provided, how successful program completion will be determined in terms 
of academic and vocational competencies demonstrated by enrollees prior 
to completion and any academic or work credentials acquired by enrollees 
upon completion;
    (4) Demonstrates the active commitment in the project's planning and 
operation by advisory committees, tribal planning offices, the JOBS 
program office, the JTPA program director, and potential employers such 
as tribal enterprises, private enterprises (on or off reservation), and 
other organizations;
    (5) Is targeted to individuals with inadequate skills to assist 
those individuals in obtaining new employment; and
    (6) Includes a thorough description of the approach to be used 
including some or all of the following components:
    (i) Methods of participant selection.
    (ii) Assessment and feedback of participant progress.
    (iii) Coordination of vocational instruction, academic instruction, 
and support services such as counseling, transportation, and child care.
    (iv) Curriculum and, if appropriate, approaches for providing on-
the-job training experience.
    (b) Need. (15 points) The Secretary reviews each application to 
determine the extent to which the project addresses specific needs, 
including--
    (1) The job market and related needs (such as educational level) of 
the target population;
    (2) Characteristics of that population, including an estimate of 
those to be served by the project;
    (3) How the project will meet the needs of the target population; 
and
    (4) A description of any ongoing and planned activities relative to 
those needs, including, if appropriate, how the State plan developed 
under 34 CFR 403.30 through 403.34 is designed to meet those needs.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The establishment of objectives that are clearly related to 
project goals and activities and are measurable with respect to 
anticipated enrollments, completions, and placements;
    (2) A management plan that describes the chain of command, how staff 
will be managed, how coordination among staff will be accomplished, and 
timelines for each activity; and
    (3) The way the applicant intends to use its resources and personnel 
to achieve each objective.
    (d) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications of the project director;
    (ii) The qualifications of each of the other key personnel to be 
used on the project;
    (iii) The time, including justification for the time that each one 
of the key personnel, including the project director, will commit to the 
project; and
    (iv) Subject to the Indian preference provisions of the Indian Self-
Determination Act (25 U.S.C. 450 et seq.) that apply to grants and 
contracts to tribal organizations, how the applicant, as part of its 
nondiscriminatory employment practices, will ensure that its personnel 
are selected for employment without regard to race, color, national 
origin, gender, age, or disabling condition.
    (2) To determine personnel qualifications, the Secretary considers--

[[Page 21]]

    (i) The experience and training of key personnel in project 
management and in fields particularly related to the objectives of the 
project; and
    (ii) Any other qualifications of key personnel that pertain to the 
quality of the project.
    (e) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is adequate to support the project activities;
    (2) Costs are reasonable in relation to the objectives of the 
project and the number of participants to be served; and
    (3) The budget narrative justifies the expenditures.
    (f) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which--
    (1) The plan identifies, at a minimum, types of data to be collected 
and reported with respect to the academic and vocational competencies 
demonstrated by participants and the number and kind of academic and 
work credentials acquired by participants who complete the training;
    (2) The plan identifies, at a minimum, types of data to be collected 
and reported with respect to the achievement of project goals for the 
enrollment, completion, and placement of participants. The data must be 
broken down by sex and by occupation for which the training was 
provided;
    (3) The methods of evaluation are appropriate for the project and, 
to the extent possible, are objective and produce data that are 
quantifiable; and
    (4) The methods of evaluation provide periodic data that can be used 
by the project for ongoing program improvement.
    (g) Employment opportunities. (10 points) The Secretary reviews each 
application to determine the quality of the plan for job placement of 
participants who complete training under this program, including--
    (1) The expected employment opportunities (including any military 
specialties) and any additional educational or training opportunities 
that are related to the participants' training;
    (2) Information and documentation concerning potential employers' 
commitment to hire participants who complete the training; and
    (3) An estimate of the percentage of trainees expected to be 
employed (including self-employed individuals) in the field for which 
they were trained following completion of the training.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2313(b))



Sec. 401.22  What additional factors may the Secretary consider?

    The Secretary may decide not to award a grant or cooperative 
agreement if--
    (a) The proposed project duplicates an effort already being made; or
    (b) Funding the project would create an inequitable distribution of 
funds under this part among Indian tribes.

(Authority: 20 U.S.C. 2313(b))



Sec. 401.23  Is the Secretary's decision not to make an award under the 
Indian Vocational Education Program subject to a hearing?

    (a) After receiving written notice from an authorized official of 
the Department that the Secretary will not award a grant or cooperative 
agreement to an eligible applicant under Sec. 401.2(a)(1), an Indian 
tribal organization has 30 calendar days to make a written request to 
the Secretary for a hearing to review the Secretary's decision.
    (b) Within 10 business days of the Department's receipt of a hearing 
request, the Secretary designates a Department employee who is not 
assigned to the Office of Vocational and Adult Education to serve as a 
hearing officer. The hearing officer conducts a hearing and issues a 
written decision within 75 calendar days of the Department's receipt of 
the hearing request. The hearing officer establishes rules for the 
conduct of the hearing. The hearing officer conducts the hearing solely 
on the basis of written submissions unless the officer determines, in 
accordance with standards in 34 CFR 81.6(b), that oral argument or 
testimony is necessary.

[[Page 22]]

    (c) The Secretary does not make any award under this part to an 
Indian tribal organization until the hearing officer issues a written 
decision on any appeal brought under this section.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2313(b); 25 U.S.C. 450f)



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 401.30  How do the Indian Self-Determination Act and the Act of April 
16, 1934 affect awards under the Indian Vocational Education Program?

    (a) Grants, cooperative agreements, or contracts with tribal 
organizations are subject to the terms and conditions of section 102 of 
the Indian Self-Determination Act (25 U.S.C. 450f). These awards must be 
conducted by the recipient or contractor in accordance with the 
provisions of sections 4, 5, and 6 of the Act of April 16, 1934, that 
are relevant to the projects administered under this part. Section 4 
contains requirements pertaining to submission of an education plan by a 
contractor. Section 5 pertains to participation of parents of Indian 
children. Section 6 pertains to reimbursement for educating non-resident 
students.
    (b) Grants to Bureau-funded schools are not subject to the 
requirements of the Indian Self-Determination Act or the Act of April 
16, 1934.

(Authority: 20 U.S.C. 2313 (b)(1)(A)(ii)(I) and (II))



Sec. 401.31  What are the evaluation requirements?

    (a) Each grantee shall annually provide and budget for either an 
internal or external evaluation, or both, of its activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) The annual evaluation must include--
    (1) Descriptions and analyses of the accuracy of records and the 
validity of measures used by the project to establish and report on the 
academic and vocational competencies demonstrated and the academic and 
work credentials acquired;
    (2) Descriptions and analyses of the accuracy of records and the 
validity of measures used by the project to establish and report on 
participant enrollment, completion, and placement by sex and socio-
economic status for each occupation for which training has been 
provided;
    (3) The grantee's progress in achieving the objectives in its 
approved application, including any approved revisions of the 
application;
    (4) If applicable, actions taken by the grantee to address 
significant barriers impeding progress; and
    (5) The effectiveness of the project in promoting key elements for 
participants' job readiness, including--
    (i) Coordination of services;
    (ii) Improved attendance rates; and
    (iii) Improved basic and vocational skills competencies.

(Approved by the Office of Management and Budget under Control Number 
1830-0013)

(Authority: 20 U.S.C. 2313(b))



PART 402--NATIVE HAWAIIAN VOCATIONAL EDUCATION PROGRAM--Table of Contents




                           Subpart A--General

Sec.
402.1  What is the Native Hawaiian Vocational Education Program?
402.2  Who is eligible for an award?
402.3  What activities may the Secretary fund?
402.4  What regulations apply?
402.5  What definitions apply?

Subpart B [Reserved]

            Subpart C--How does the Secretary Make an Award?

402.20  How does the Secretary evaluate an application?
402.21  What selection criteria does the Secretary use?

         Subpart D--What Conditions Must Be Met After an Award?

402.30  What are the evaluation requirements?

    Authority: 20 U.S.C. 2313(c), unless otherwise noted.

    Source: 57 FR 36733, Aug. 14, 1992, unless otherwise noted.

[[Page 23]]



                           Subpart A--General



Sec. 402.1  What is the Native Hawaiian Vocational Education Program?

    The Native Hawaiian Vocational Education Program provides financial 
assistance to projects that provide vocational training and related 
activities for the benefit of native Hawaiians.

(Authority: 20 U.S.C. 2313(c))



Sec. 402.2  Who is eligible for an award?

    Any organization that primarily serves and represents native 
Hawaiians and that is recognized by the Governor of the State of Hawaii 
is eligible to apply for an award under this program.

(Authority: 20 U.S.C. 2313(c))



Sec. 402.3  What activities may the Secretary fund?

    The Secretary provides assistance through grants, contracts, or 
cooperative agreements to plan, conduct, and administer programs, or 
portions of programs, that provide vocational training and related 
activities for the benefit of native Hawaiians.

(Authority: 20 U.S.C. 2313(c))



Sec. 402.4  What regulations apply?

    The following regulations apply to the Native Hawaiian Vocational 
Education Program:
    (a) The regulations in 34 CFR part 400.
    (b) The regulations in this part 402.

(Authority: 20 U.S.C. 2313(c))



Sec. 402.5  What definitions apply?

    The following definitions apply to the Native Hawaiian Vocational 
Education Program:
    (a) The definitions in 34 CFR 400.4 apply to this part.
    (b) The following definition also applies to this part:
    Native Hawaiian means any individual who has any ancestors who were 
natives, prior to 1778, of the area that now comprises the State of 
Hawaii.

(Authority: 20 U.S.C. 2313(a)(1)(B))

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 402.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 402.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 402.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
points for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition, as announced in a notice published in the 
Federal Register, the Secretary may assign the reserved 15 points among 
the criteria in Sec. 402.21.

(Authority: 20 U.S.C. 2313(c))



Sec. 402.21  What selection criteria does the Secretary use?

    The Secretary uses the following selection criteria to evaluate an 
application:
    (a) Program design. (35 points) The Secretary reviews each 
application to determine the extent to which--
    (1) The application presents a complete program design, including 
identifying the services to be provided, who will provide them, how they 
will be provided, and the expected outcomes for each activity;
    (2) The proposed program is designed to meet the identified 
vocational education needs of native Hawaiians;
    (3) The application proposes an effective plan for coordination with 
the office of the Hawaii State director for vocational education; and
    (4) If vocational training is proposed within the project--
    (i) Proposes measurable goals for student enrollment, completion, 
and placement.
    (ii) Proposes goals that take into consideration any related 
standards and measures developed for Job Opportunities and Basic Skills 
(JOBS) programs (42 U.S.C. 681 et seq.) and any Job Training Partnership 
Act (JTPA) (29

[[Page 24]]

U.S.C. 1501 et seq.) programs in that geographic area;
    (iii) Proposes goals that take into consideration any standards set 
by the State board for vocational education for the occupation and 
geographic area; and
    (iv) Describes how successful program completion will be determined 
for each occupation for which training is to be provided, in terms of 
the academic and vocational competencies demonstrated by enrollees prior 
to successful completion and any academic or work credentials acquired 
upon completion.
    (b) Management plan. (25 points) The Secretary reviews each 
application to determine the quality of the management plan for the 
project, including--
    (1) The chain of command, how staff will be managed, how 
coordination among staff will be accomplished, and timelines for each 
activity;
    (2) A clear description of the interrelationship among goals, 
objectives, and activities;
    (3) The way the applicant plans to use the resources and personnel 
from the grant to achieve each objective; and
    (4) How any contracts awarded by the grantee will be awarded, 
monitored, and evaluated.
    (c) Key personnel. (10 points)
    (1) The Secretary reviews each application to determine the quality 
of key personnel the applicant plans to use on the project, including--
    (i) The qualifications of the project director;
    (ii) The qualifications of each of the other key personnel to be 
used on the project;
    (iii) The time, including justification for the time, that each one 
of the key personnel, including the project director, will commit to the 
proposed project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that personnel for this project are selected for 
employment without regard to race, color, national origin, gender, age, 
or disabling condition.
    (2) To determine personnel qualifications, the Secretary considers--
    (i) The experience and training of key personnel in project 
management and in fields particularly related to the objectives of the 
project; and
    (ii) Any other qualifications of key personnel that pertain to the 
quality of the project.
    (d) Evaluation plan. (10 points)
    (1) The Secretary reviews each application to determine the quality 
of the project's plan for an independent evaluation of the project, 
including, if applicable, the extent to which the plan includes 
activities during the formative stages of the project to help guide and 
improve the project, as well as a final evaluation that includes summary 
data and recommendations.
    (2) The Secretary reviews each application to determine whether, for 
any training programs proposed--
    (i) The plan identifies, at a minimum, types of data to be collected 
and reported with respect to the academic and vocational competencies 
demonstrated by participants and the number and kinds of academic and 
work credentials acquired by completers; and
    (ii) The plan identifies, at a minimum, types of data to be 
collected and reported with respect to enrollment, completion, and 
placement of participants by sex and socio-economic status for each 
occupation for which training is provided.
    (e) Budget and cost-effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is detailed and tied to the proposed activities;
    (2) The budget narrative is explanatory and justifies expenses;
    (3) The budget is adequate to support the project; and
    (4) Costs are reasonable in relation to the objectives of the 
project.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2313(c))

[[Page 25]]



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 402.30  What are the evaluation requirements?

    (a) Each grantee shall annually provide and budget for an external 
evaluation of its activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) The annual evaluation must include--
    (1) The grantee's progress in achieving the objectives in its 
approved application, including any approved revisions of the 
application; and
    (2) If applicable, actions taken by the grantee to address 
significant barriers impeding progress when training is provided by the 
project, including--
    (i) Descriptions and analyses of the accuracy of records and the 
validity of measures used by the project to establish and report on the 
academic and vocational competencies demonstrated and the academic and 
work credentials acquired; and
    (ii) Descriptions and analyses of the accuracy of records and the 
validity of measures used by the project to establish and report on 
participant enrollment, completion, and placement by sex and socio-
economic status for each occupation for which training has been 
provided.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2313(c))



PART 403--STATE VOCATIONAL AND APPLIED TECHNOLOGY EDUCATION PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
403.1  What is the State Vocational and Applied Technology Education 
          Program?
403.2  Who is eligible for an award?
403.3  What regulations apply?
403.4  What definitions apply?

      Subpart B--What Are the State's Organizational and Planning 
                            Responsibilities?

403.10  What is the State board?
403.11  What are the principal responsibilities of the State board?
403.12  What are the additional responsibilities of the State board?
403.13  What are the personnel requirements regarding the elimination of 
          sex discrimination and sex stereotyping?
403.14  What are the personnel requirements regarding coordination with 
          services for individuals with disabilities?
403.15  What are the personnel requirements regarding coordination with 
          services under chapter 1 of title I of the Elementary and 
          Secondary Education Act?
403.16  What are the personnel requirements regarding coordination with 
          programs for individuals of limited English proficiency?
403.17  What are the State's responsibilities regarding a State council 
          on vocational education?
403.18  What are the membership requirements of a State council on 
          vocational education?
403.19  What are the responsibilities of a State council on vocational 
          education?

             Subpart C--How Does a State Apply for a Grant?

403.30  What documents must a State submit to receive a grant?
403.31  How is the State plan developed?
403.32  What must the State plan contain?
403.33  What procedures does a State use to submit its State plan?
403.34  When are amendments to the State plan required?

       Subpart D--How Does the Secretary Make a Grant to a State?

403.50  How does the Secretary make allotments?
403.51  How does the Secretary make reallotments?
403.52  When does the Secretary approve State plans and amendments?

Subpart E--What Kinds of Activities Does the Secretary Assist Under the 
                             Basic Programs?

                                 General

403.60  What are the basic programs?
403.61  What projects, services, and activities are permissible under 
          the basic programs?
403.62  What administrative provisions apply?
403.63  How does a State carry out the State Vocational and Applied 
          Technology Education Program?

             State Programs and State Leadership Activities

403.70  How must funds be used under the State Programs and State 
          Leadership Activities?

[[Page 26]]

403.71  In what additional ways may funds be used under the State 
          Programs and State Leadership Activities?

 Single Parents, Displaced Homemakers, and Single Pregnant Women Program

403.80  Who is eligible for a subgrant or contract?
403.81  How must funds be used under the Single Parents, Displaced 
          Homemakers, and Single Pregnant Women Program?
403.82  In what settings may the Single Parents, Displaced Homemakers, 
          and Single Pregnant Women Program be offered?

                           Sex Equity Program

403.90  Who is eligible for a subgrant or contract?
403.91  How must funds be used under the Sex Equity Program?
403.92  Under what circumstances may the age limit under the Sex Equity 
          Program be waived?

                     Programs for Criminal Offenders

403.100  What are the requirements for designating a State corrections 
          educational agency to administer the Programs for Criminal 
          Offenders?
403.101  How must funds be used under the Programs for Criminal 
          Offenders?
403.102  What other requirements apply to the Program for Criminal 
          Offenders?

    Secondary, Postsecondary, and Adult Vocational Education Programs

403.110  Who is eligible for a subgrant or contract?
403.111  How must funds be used under the Secondary School Vocational 
          Education Program and the Postsecondary and Adult Vocational 
          Education Programs?
403.112  How does a State allocate funds under the Secondary School 
          Vocational Education Program to local educational agencies?
403.113  How does a State allocate funds under the Secondary School 
          Vocational Education Program to area vocational education 
          schools and intermediate educational agencies?
403.114  How does a State determine the number of economically 
          disadvantaged students attending vocational education programs 
          under the Secondary School Vocational Education Program?
403.115  What appeal procedures must be established under the Secondary 
          School Vocational Education Program?
403.116  How does a State allocate funds under the Postsecondary and 
          Adult Vocational Education Programs?
403.117  What definitions apply to the Postsecondary and Adult 
          Vocational Education Programs?
403.118  Under what circumstances may the Secretary waive the 
          distribution requirements for the Postsecondary and Adult 
          Vocational Education Programs?
403.119  Under what circumstances may the State waive the distribution 
          requirements for Secondary School Vocational Education Program 
          or the Postsecondary and Adult Vocational Education Programs?
403.120  How does a State reallocate funds under the Secondary School 
          Vocational Education Program and the Postsecondary and Adult 
          Vocational Education Programs?

Subpart F--What Kinds of Activities Does the Secretary Assist Under the 
                            Special Programs?

                                 General

403.130  What are the Special Programs?
403.131  Who is eligible for an award under the Special Programs?

 Vocational Education Support Programs by Community-Based Organizations

403.140  What activities does the Secretary support under the State 
          Assistance for Vocational Education Support Programs by 
          Community-Based Organizations?
403.141  What are the application requirements for the State Assistance 
          for Vocational Education Support Programs by Community-Based 
          Organizations?

               Consumer and Homemaking Education Programs

403.150  What activities does the Secretary support under the Consumer 
          and Homemaking Education Programs?
403.151  How must funds be used under the Consumer and Homemaking 
          Education Programs?

          Comprehensive Career Guidance and Counseling Programs

403.160  What activities does the Secretary support under the 
          Comprehensive Career Guidance and Counseling Programs?
403.161  How must funds be used under the Comprehensive Career Guidance 
          and Counseling Programs?

        Business-Labor-Education Partnership for Training Program

403.170  What activities does the Secretary support under the Business-
          Labor-Education Partnership for Training Program?
403.171  Who is eligible to apply to a State board for an award?
403.172  What special considerations must the State board give in 
          approving projects, services, and activities?

[[Page 27]]

403.173  What expenses are allowable?
403.174  What additional fiscal requirements apply to the Business-
          Labor-Education Partnership for Training Program?

      Subpart G--What Financial Conditions Must Be Met by a State?

403.180  How must a State reserve funds for the basic programs?
403.181  What are the cost-sharing requirements applicable to the basic 
          programs?
403.182  What is the maintenance of fiscal effort requirement?
403.183  Under what circumstances may the Secretary waive the 
          maintenance of effort requirement?
403.184  How does a State request a waiver of the maintenance of effort 
          requirement?
403.185  How does the Secretary compute maintenance of effort in the 
          event of a waiver?
403.186  What are the administrative cost requirements applicable to a 
          State?
403.187  How may a State provide technical assistance?
403.188  What is a State's responsibility for the cost of services and 
          activities for members of special populations?

       Subpart H--What Conditions Must Be Met by Local Recipients?

403.190  What are the requirements for receiving a subgrant or contract?
403.191  What are the requirements for program evaluation?
403.192  What are the requirements for program improvement?
403.193  What are the information requirements regarding special 
          populations?
403.194  What are the comparability requirements?
403.195  What are the administrative cost requirements applicable to 
          local recipients?
403.196  What are the requirements regarding supplanting?
403.197  What are the requirements for the use of equipment?

Subpart I--What Are the Administrative Responsibilities of a State Under 
     the State Vocational and Applied Technology Education Program?

403.200  What are the State's responsibilities for ensuring compliance 
          with the comparability requirements?
403.201  What are the State's responsibilities for developing and 
          implementing a statewide system of core standards and measures 
          of performance?
403.202  What must each State's system of core standards and measures of 
          performance include?
403.203  What are the State's responsibilities for a State assessment?
403.204  What are the State's responsibilities for program evaluation 
          and improvement?
403.205  What are the State's responsibilities for members of special 
          populations?
403.206  What are the State's responsibilities regarding a State 
          occupational information coordinating committee?
403.207  What are the State's responsibilities to the National Center or 
          Centers for Research in Vocational Education?
403.208  What are the requirements regarding supplanting?

Appendix A to Part 403--Examples for 34 CFR 403.111(a) and 403.111(c)(3)
Appendix B to Part 403--Examples for 34 CFR 403.194--Comparability 
          Requirements

    Authority: 20 U.S.C. 2301 et seq., unless otherwise noted.

    Source: 57 FR 36735, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 403.1  What is the State Vocational and Applied Technology Education 
Program?

    (a) Under the State Vocational and Applied Technology Education 
Program, the Secretary makes grants to States, to assist them, local 
educational agencies, postsecondary educational institutions, and other 
agencies and institutions to administer and conduct vocational education 
programs that are authorized by the Act.
    (b) The State Vocational and Applied Technology Education Program 
consists of the programs under the basic programs for vocational 
education authorized by title II of the Act and listed in Sec. 403.60, 
and the special programs authorized by title III of the Act that are 
covered by the State plan and listed in Sec. 403.130.

(Authority: 20 U.S.C. 2301 et seq.)



Sec. 403.2  Who is eligible for an award?

    Except as otherwise provided in Sec. 403.131, a State is eligible 
for an award under the State Vocational and Applied Technology Education 
Program.

(Authority: 20 U.S.C. 2311 and 2311a)

[[Page 28]]



Sec. 403.3  What regulations apply?

    The following regulations apply to the State Vocational and Applied 
Technology Education Program:
    (a) The regulations in 34 CFR part 400.
    (b) The regulations in this part 403.

(Authority: 20 U.S.C. 2301 et seq.)



Sec. 403.4  What definitions apply?

    The definitions in 34 CFR 400.4 apply to the State Vocational and 
Applied Technology Education Program.

(Authority: 20 U.S.C. 2471)



      Subpart B--What Are the State's Organizational and Planning 
                            Responsibilities?



Sec. 403.10  What is the State board?

    A State that desires to participate in the programs authorized by 
the Act shall, consistent with State law, designate or establish a State 
board of vocational education (State board). The State board must be the 
sole State agency responsible for the administration or the supervision 
of the State's vocational and applied technology education program.

(Authority: 20 U.S.C. 2321(a))



Sec. 403.11  What are the principal responsibilities of the State board?

    The principal responsibilities of the State board must include--
    (a) The coordination of the development, submission, and 
implementation of the State plan;
    (b) The evaluation of the programs, services, and activities 
assisted under the Act, as required by Secs. 403.32 (a)(7) and (b)(9) 
and 403.201 through 403.204;
    (c) The development, in consultation with the State council on 
vocational education, of the State plan and its submission to the 
Secretary, as required by Secs. 403.30 through 403.34;
    (d) Consultation with the State council on vocational education and 
other appropriate agencies, groups, and individuals, including business, 
industry, and labor, involved in the planning, administration, 
evaluation, and coordination of programs funded under the Act;
    (e) Convening and meeting as a State board, consistent with 
applicable State law and procedure, when the State board determines it 
is necessary to meet to carry out its functions under the Act, but not 
less than four times annually; and
    (f) The adoption of those procedures the State board considers 
necessary to implement State level coordination with the State job 
training coordinating council in order to encourage cooperation between 
programs under the Act and programs under the Job Training Partnership 
Act (JTPA) (29 U.S.C. 1501 et seq.).

(Authority: 20 U.S.C. 2321(a))



Sec. 403.12  What are the additional responsibilities of the State board?

    (a) The State board shall make available to each private industry 
council established within the State under section 102 of the JTPA a 
current listing of all programs assisted under the Act.
    (b)(1) The State board, in consultation with the State council on 
vocational education established under Sec. 403.17, shall establish a 
limited number of (but at least two) technical committees to advise the 
State council and the State board on the development of model curricula 
to address State labor market needs. The technical committees shall 
develop an inventory of skills that may be used by the State board to 
define state-of-the-art model curricula. This inventory must identify 
the type and level of knowledge and skills needed for entry, retention, 
and advancement in occupational areas taught in the State.
    (2) The State board shall establish procedures that are consistent 
with the purposes of the Act for membership, operation, and duration of 
the technical committees. Their membership must be composed of 
representatives of--
    (i) Employers from any relevant industry or occupation for which the 
committee is established;
    (ii) Trade or professional organizations representing any relevant 
occupations; and
    (iii) Organized labor, if appropriate.
    (c) Except for the functions described in Sec. 403.11, the State 
board may delegate any of its other administrative,

[[Page 29]]

operational, or supervisory responsibilities, in whole or in part, to 
one or more appropriate State agencies.
    (d) The State board shall carry out the responsibilities described 
in Secs. 403.13 through 403.18 and 403.200 through 403.208.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2321(a)(1), (f), (g))



Sec. 403.13  What are the personnel requirements regarding the elimination 
of sex discrimination and sex stereotyping?

    (a) A State that desires to participate in the State Vocational and 
Applied Technology Education Program shall assign one individual, within 
the appropriate agency established or designated by the State board 
under Sec. 403.12(c), to administer vocational education programs within 
the State, to work full-time to assist the State board to fulfill the 
purposes of the Act by--
    (1) Administering the program of vocational education for single 
parents, displaced homemakers, and single pregnant women described in 
Sec. 403.81, and the sex equity program described in Sec. 403.91;
    (2) Gathering, analyzing, and disseminating data on the--
    (i) Adequacy and effectiveness of vocational education programs in 
the State in meeting the education and employment needs of women, 
including the preparation of women for employment in technical 
occupations, new and emerging occupational fields, and occupations 
regarded as nontraditional for women; and
    (ii) Status of men and women students and employees in the programs 
described in paragraph (a)(2)(i) of this section;
    (3) Reviewing and commenting upon, and making recommendations 
concerning, the plans of local educational agencies, area vocational 
education schools, intermediate educational agencies, and postsecondary 
educational institutions to ensure that the needs of women and men for 
training in nontraditional jobs are met;
    (4)(i) Reviewing vocational educational programs, including career 
guidance and counseling, for sex stereotyping and sex bias, with 
particular attention to practices that tend to inhibit the entry of 
women in high technology occupations; and
    (ii) Submitting recommendations, to the State board for inclusion in 
the State plan, for programs and policies to overcome sex bias and sex 
stereotyping in the programs described in paragraph (a)(4)(i) of this 
section;
    (5) Submitting to the State board an assessment of the State's 
progress in meeting the purposes of the Act with regard to overcoming 
sex discrimination and sex stereotyping;
    (6) Reviewing proposed actions on grants, contracts, and the 
policies of the State board to ensure that the needs of women are 
addressed in the administration of the Act;
    (7) Developing recommendations for programs of information and 
outreach to women concerning vocational education and employment 
opportunities for women, including opportunities for careers as 
technicians and skilled workers in technical fields and new and emerging 
occupational fields;
    (8) Providing technical assistance and advice to local educational 
agencies, postsecondary institutions, and other interested parties in 
the State on expanding vocational opportunities for women;
    (9) Assisting administrators, instructors, and counselors in 
implementing programs and activities to increase access for women, 
including displaced homemakers and single heads of households, to 
vocational education and to increase male and female students' 
enrollment in nontraditional programs;
    (10) Developing an annual plan for the use of all funds available 
for programs described in Secs. 403.81 and 403.91;
    (11) Managing the distribution of funds pursuant to Secs. 403.81 and 
403.91;
    (12) Monitoring the use of funds distributed to recipients under 
Secs. 403.81 and 403.91;
    (13) Evaluating the effectiveness of programs and activities 
supported by funds under Secs. 403.81 and 403.91;
    (14) On a competitive basis, allocating and distributing to eligible 
recipients or community-based organizations subgrants or contracts to 
carry out the Programs for Single Parents, Displaced Homemakers, and 
Single

[[Page 30]]

Pregnant Women and the Sex Equity Program;
    (15) Ensuring that each subgrant or contract awarded under the 
Programs for Single Parents, Displaced Homemakers, and Single Pregnant 
Women and the Sex Equity Program is of sufficient size, scope, and 
quality to be effective;
    (16) Developing procedures for the collection from eligible 
recipients or community-based organizations that receive funds under 
Secs. 403.81 and 403.91 of data appropriate to the individuals served in 
programs under Secs. 403.81 and 403.91 in order to permit an evaluation 
of effectiveness of those programs as required by paragraph (a)(13) of 
this section; and
    (17) Cooperating in the elimination of sex bias and sex stereotyping 
in Consumer and Homemaking Education Programs.
    (b) A State shall, in accordance with Sec. 403.180(b)(4)(i), reserve 
at least $60,000 to carry out the provisions of paragraph (a) of this 
section, including the provision of necessary and reasonable staff 
support.
    (c) For the purposes of this section, the term ``State'' includes 
only the fifty States and the District of Columbia.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2312(a)(4)(A), 2321(b), 2335b, 2362(a)(3))



Sec. 403.14  What are the personnel requirements regarding coordination 
with services for individuals with disabilities?

    (a) A State desiring to participate in programs authorized by the 
Act shall designate or assign the head of the State office responsible 
for administering part B of the Individuals with Disabilities Education 
Act (IDEA) (20 U.S.C. 1400 et seq.) to review the implementation of the 
provisions of the Act as they relate to students with disabilities by 
reviewing all or a representative sample of applications of eligible 
recipients to ensure that--
    (1) Individuals with disabilities are receiving vocational 
educational services;
    (2) Applications of the eligible recipients provide assurances of 
compliance with the requirements of section 504 of the Rehabilitation 
Act of 1973 (29 U.S.C. 794) and the IDEA and regulations implementing 
those statutes, regarding equal access to programs; and
    (3) Eligible recipients have--
    (i) Identified the number of students with disabilities enrolled in 
the eligible recipients' vocational programs;
    (ii) Assessed the vocational needs of those students; and
    (iii) Developed an adequate plan to provide supplementary services 
sufficient to meet the needs of those students.
    (b) For the purposes of this section, the term ``State'' includes 
only the fifty States, the District of Columbia, and the Commonwealth of 
Puerto Rico.

(Authority: 20 U.S.C. 2321(c))



Sec. 403.15  What are the personnel requirements regarding coordination 
with services under chapter 1 of title I of the Elementary and Secondary Education Act?

    (a) A State desiring to participate in programs authorized by the 
Act shall designate or assign the head of the State office or other 
appropriate individual responsible for coordinating services under 
chapter 1 of title I of the Elementary and Secondary Education Act of 
1965, as amended (chapter 1) (20 U.S.C. 2701 et seq.) to review all or a 
representative sample of applications from eligible recipients to ensure 
that--
    (1) The number of economically disadvantaged students has been 
identified; and
    (2) The needs of economically disadvantaged students are being met 
as outlined in the applications of eligible recipients.
    (b) For the purposes of this section, the term ``State'' includes 
only the fifty States, the District of Columbia, and the Commonwealth of 
Puerto Rico.

(Authority: 20 U.S.C. 2321 (c) and (d))



Sec. 403.16  What are the personnel requirements regarding coordination 
with programs for individuals of limited English proficiency?

    (a) A State desiring to participate in programs authorized by the 
Act shall designate or assign the head of the

[[Page 31]]

State office or other appropriate individual responsible for 
administering programs for students of limited English proficiency to 
review all or a representative sample of applications from eligible 
recipients to ensure that--
    (1) The number of students of limited English proficiency has been 
identified; and
    (2) The needs of students of limited English proficiency for 
participation in vocational education programs are being met as outlined 
in the applications of eligible recipients.
    (b) For the purposes of this section, the term ``State'' includes 
only the fifty States, the District of Columbia, and the Commonwealth of 
Puerto Rico.

(Authority: 20 U.S.C. 2321 (c) and (e))



Sec. 403.17  What are the State's responsibilities regarding a State council 
on vocational education?

    (a) A State desiring to participate in the State Vocational and 
Applied Technology Education Program shall establish a State council on 
vocational education. The State council must be appointed--
    (1) By the Governor; or
    (2) By the State board of education, in a State in which the members 
of the State board of education are elected, including election by the 
State legislature.
    (b) Each State shall certify to the Secretary the establishment and 
membership of the State council by June 1 prior to the beginning of each 
State plan period described in Sec. 403.30.
    (c) Each State shall recertify to the Secretary any new member of 
the State council not more than 60 days after a position on the State 
council is vacated.

(Authority: 20 U.S.C. 2322 (a), (b))



Sec. 403.18  What are the membership requirements of a State council on 
vocational education?

    (a) Each State council must be composed of 13 individuals, and must 
be broadly representative of citizens and groups within the State having 
an interest in vocational education.
    (b) Each State council must consist of--
    (1) Seven individuals who are representative of the private sector 
in the State and who must constitute a majority of the membership--
    (i) Five of whom must be representatives of business, industry, 
trade organizations, and agriculture including--
    (A) One member who is representative of small business concerns; and
    (B) One member who is a private sector member of the State job 
training coordinating council established pursuant to section 122 of the 
JTPA; and
    (ii) Two of whom must be representatives of labor organizations; and
    (2) Six individuals, one of whom must be representative of special 
education, who are representative of--
    (i) Secondary and postsecondary vocational institutions (equitably 
distributed among those institutions);
    (ii) Career guidance and counseling organizations within the State; 
and
    (iii) Individuals who have special knowledge and qualifications with 
respect to the special educational and career development needs of 
special populations, including women, disadvantaged individuals, 
individuals with disabilities, individuals with limited English 
proficiency, and minorities.
    (c) The State council may include members of vocational student 
organizations and school boards but may not include employees of the 
State board of vocational education.
    (d) In selecting individuals to serve on the State council on 
vocational education, the State shall give due consideration to the 
appointment of individuals who serve on a private industry council under 
the JTPA, or on State councils established under other related Federal 
programs.

(Authority: 20 U.S.C. 2322(a))



Sec. 403.19  What are the responsibilities of a State council on vocational 
education?

    (a)(1) The State council on vocational education shall meet as soon 
as practical after the Secretary accepts its certification and shall 
select from among its membership a chairperson who must be a 
representative of the private sector.
    (2) The State council on vocational education shall adopt rules that 
govern

[[Page 32]]

the time, place, and manner of meeting, as well as council operating 
procedures and staffing. The rules must provide for at least one public 
meeting each year at which the public is given an opportunity to express 
views concerning the vocational education program of the State.
    (b) Each State council on vocational education, during each State 
plan period described in Sec. 403.30 unless otherwise indicated in the 
regulations in this section, shall--
    (1) Meet with the State board or its representatives to advise on 
the development of the subsequent State plan, or any amendments to the 
current State plan, while the State plan or amendment is being 
developed;
    (2) Make recommendations to the State board and make reports to the 
Governor, the business community, and general public of the State, 
concerning--
    (i) The State plan;
    (ii) Policies the State should pursue to strengthen vocational 
education, with particular attention to programs for individuals with 
disabilities; and
    (iii) Initiatives and methods the private sector could undertake to 
assist in the modernization of vocational education programs;
    (3) Analyze and report on the distribution of all vocational 
education funds in the State and on the availability of vocational 
education activities and services within the State;
    (4) Consult with the State board on the establishment of evaluation 
criteria for vocational education programs within the State;
    (5) Submit recommendations to the State board on the conduct of 
vocational education programs conducted in the State that emphasize the 
use of business concerns and labor organizations;
    (6) Assess and report on the distribution of financial assistance 
under the Act, particularly the distribution of financial assistance 
between secondary vocational education programs and postsecondary 
vocational education programs;
    (7) Recommend procedures to the State board to ensure and enhance 
the participation of the public in the provision of vocational education 
at the local level within the State, particularly the participation of 
local employers and local labor organizations;
    (8) Report to the State board on the extent to which individuals who 
are members of special populations are provided with equal access to 
quality vocational education programs;
    (9) Analyze and review corrections education programs; and
    (10)(i) At least once every two years--
    (A) Evaluate the extent to which vocational education, employment, 
and training programs in the State represent a consistent, integrated, 
and coordinated approach to meeting the economic needs of the State;
    (B) Evaluate the vocational education program delivery system 
assisted under the Act, and the job training program delivery system 
assisted under the JTPA, in terms of the delivery systems' adequacy and 
effectiveness in achieving the purposes of both Acts; and
    (C) Make recommendations to the State board on the adequacy and 
effectiveness of the coordination that takes place between vocational 
education and the JTPA;
    (ii) Comment on the adequacy or inadequacy of State action in 
implementing the State plan;
    (iii) Make recommendations to the State board on ways to create 
greater incentives for joint planning and collaboration between the 
vocational education system and the job training system at the State and 
local levels; and
    (iv) Advise, in writing, the Governor, the State board, the State 
job training coordinating council, the Secretary, and the Secretary of 
Labor of these findings and recommendations.
    (c)(1) Each State council on vocational education may--
    (i) Obtain the services of the professional, technical, and clerical 
personnel necessary to enable it to carry out its functions under the 
Act;
    (ii) Contract for the services necessary to enable it to carry out 
its evaluation functions; and
    (iii) Submit a statement to the Secretary reviewing and commenting 
upon the State plan.
    (2)(i) The expenditure of funds awarded to a State council on 
vocational education by the Secretary must be

[[Page 33]]

solely determined by that State council and may not be diverted or 
reprogrammed for any other purpose by any State board, agency, or 
individual.
    (ii) Each State council on vocational education shall designate an 
appropriate State agency, or other public agency, eligible to receive 
funds under the Act, to act as its fiscal agent for purposes of 
disbursement, accounting, and auditing.
    (3) Each State council on vocational education shall carry out its 
functions, whether directly or by way of contract for services, 
independent of programmatic and administrative control by other State 
boards, agencies, and individuals.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2322(c)-(e) and (f)(2); 2323(c))



             Subpart C--How Does A State Apply for a Grant?



Sec. 403.30  What documents must a State submit to receive a grant?

    (a) A State that desires to participate in the State Vocational and 
Applied Technology Education Program shall submit to the Secretary a 
State plan for a three-year period, in the case of the initial plan, and 
a two-year period thereafter, together with annual revisions the State 
board determines to be necessary.
    (b) Each State shall carry out its programs under the State 
Vocational and Applied Technology Education Program on the basis of 
program years that coincide with program years under section 104(a) of 
the JTPA.
    (c) The provisions of 34 CFR 76.103 do not apply to the State 
Vocational and Applied Technology Education Program.

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2323)



Sec. 403.31  How is the State plan developed?

    (a) In formulating the State plan, and any amendments to the State 
plan, the State board shall meet with, and utilize, the State council on 
vocational education established under Sec. 403.17.
    (b) After providing appropriate and sufficient notice to the public, 
the State board shall conduct at least two public hearings in the State 
for the purpose of affording all segments of the public and interested 
organizations and groups an opportunity to present their views and make 
recommendations regarding the State plan.
    (c) A State shall provide public notice of hearings on the State 
plan at least 30 days prior to the hearings.
    (d) In developing a State plan, the State shall conduct an 
assessment according to Sec. 403.203.
    (e) The State board shall develop the portion of each State plan 
relating to the amount and uses of any funds proposed to be reserved for 
adult education, postsecondary education, tech-prep education, and 
secondary education after consultation with the State agency responsible 
for supervision of community colleges, technical institutes, or other 
two-year postsecondary institutions primarily engaged in providing 
postsecondary vocational education and the State agency responsible for 
secondary education. If a State agency finds that a portion of the final 
State plan is objectionable, that agency shall file its objections with 
the State board.
    (f) The State board shall, in developing the State plan, take into 
consideration the relative training and retraining needs of secondary, 
adult, and postsecondary students.

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2323(a)(2) and 2324(a))



Sec. 403.32  What must the State plan contain?

    (a) Assurances. To participate in the programs authorized under the 
State Vocational and Applied Technology Program, the State shall, in its 
State plan, provide assurances that --
    (1) The State board will comply with the applicable requirements of 
titles I, II, III, and V of the Act and regulations implementing those 
requirements (including the maintenance of fiscal effort requirement in 
Sec. 403.182);
    (2) Eligible recipients will comply with the requirements of titles 
I, II,

[[Page 34]]

III, and V of the Act and the regulations implementing those 
requirements;
    (3) The State board will develop measurable goals and accountability 
measures for meeting the needs of individuals who are members of special 
populations;
    (4) The State board will conduct adequate monitoring of projects, 
services, and activities conducted by eligible recipients to ensure that 
the eligible recipients are meeting the goals described in paragraph 
(a)(3) of this section;
    (5) To the extent consistent with the number and location of 
individuals who are members of special populations enrolled in private 
secondary schools, the State will provide for the participation of those 
individuals in the vocational education projects, services, and 
activities assisted under Secs. 403.112 and 403.113;

    Cross-Reference: See 34 CFR 76.650-76.662, Participation of Students 
Enrolled in Private Schools.

    (6) The State will comply with the provisions of Sec. 403.180, and 
will distribute all of the funds reserved for the Secondary School 
Vocational Education Program and the Postsecondary and Adult Vocational 
Education Programs to eligible recipients pursuant to Secs. 403.112, 
403.113, and 403.116;
    (7) The State will develop and implement a system of standards for 
performance and measures of performance for vocational education 
programs at the State level that meets the requirements of Secs. 403.201 
and 403.202;
    (8) In the use of funds available for programs for single parents, 
displaced homemakers, or single pregnant women under Sec. 403.81, the 
State will--
    (i) Emphasize assisting individuals with the greatest financial 
need; and
    (ii) Give special consideration to displaced homemakers who, because 
of divorce, separation, or the death or disability of a spouse, must 
prepare for paid employment;
    (9) The State will furnish relevant training and vocational 
education activities to men and women who desire to enter occupations 
that are not traditionally associated with their sex;
    (10) The State will fund programs of personnel development and 
curriculum development to further the goals identified in the State 
plan;
    (11) The State has thoroughly assessed the vocational education 
needs of identifiable segments of the population in the State that have 
the highest rates of unemployment, and those needs are reflected in and 
addressed by the State plan;
    (12) The State board will cooperate with the State council in 
carrying out the Board's duties under the State plan;
    (13) None of the funds expended under the Act will be used to 
acquire equipment (including computer software) in any instance in which 
that acquisition results in a direct financial benefit to any 
organization representing the interests of the purchasing entity or its 
employees or any affiliate of such an organization;
    (14) State and local funds will be used in the schools of each local 
educational agency that are receiving funds under the Act to provide 
services that, taken as a whole, are at least comparable to services 
being provided in schools in those agencies that are not receiving funds 
under the Act;

    Cross-Reference: See Secs. 403.194 and 403.200.

    (15)(i) The State board will provide leadership (qualified by 
experience and knowledge in guidance and counseling), supervision, and 
resources for comprehensive career guidance, vocational counseling, and 
placement programs; and
    (ii) As a component of the assurances described in paragraph 
(a)(15)(i) of this section, the State board will annually assess and 
include in the State plan a report on the degree to which expenditures 
aggregated within the State for career guidance and vocational 
counseling from allotments under title II of the Act are not less than 
expenditures for guidance and counseling within the State under the Carl 
D. Perkins Vocational Education Act in Fiscal or Program Year 1988;


(Authority: H.R. Rep. No. 660, 101st Cong., 1st Sess. 111 (1990))


[[Page 35]]


    (16) The State will provide for such fiscal control and fund 
accounting procedures as may be necessary to ensure the proper 
disbursement of, and accounting for, Federal funds paid to the State, 
including those funds paid by the State to eligible recipients under the 
Act;
    (17) Funds made available under title II of the Act will be used to 
supplement, and to the extent practicable increase, the amount of State 
and local funds that would in the absence of those Federal funds be made 
available for the uses specified in the State plan and the local 
application, and in no case supplant those State or local funds;

    Cross-Reference: See Secs. 403.196 and 403.208.

    (18) Individuals who are members of special populations will be 
provided with equal access to recruitment, enrollment, and placement 
activities;
    (19) Individuals who are members of special populations will be 
provided with equal access to the full range of vocational education 
programs available to individuals who are not members of special 
populations, including occupationally specific courses of study, 
cooperative education, apprenticeship programs, and, to the extent 
practicable, comprehensive career guidance and counseling services, and 
will not be discriminated against on the basis of their status as 
members of special populations;
    (20) Vocational education programs and activities for individuals 
with disabilities will be provided in the least restrictive environment 
in accordance with section 612(5)(B) of the IDEA and will, if 
appropriate, be included as a component of the individualized education 
program developed under section 614(a)(5) of that Act;
    (21) Students with disabilities who have individualized education 
programs developed under section 614(a)(5) of the IDEA, with respect to 
vocational education programs, will be afforded the rights and 
protections guaranteed those students under sections 612, 614, and 615 
of that Act;
    (22) Students with disabilities who do not have individualized 
education programs developed under section 614(a)(5) of the IDEA or who 
are not eligible to have such a program, with respect to vocational 
education programs, will be afforded the rights and protections 
guaranteed those students under section 504 of the Rehabilitation Act of 
1973 (29 U.S.C. 794) and, for the purpose of the State Vocational and 
Applied Technology Education Programs, those rights and protections will 
include making vocational education programs readily accessible to 
eligible individuals with disabilities through the provision of services 
described Sec. 403.190(b)(3);
    (23) Vocational education planning for individuals with disabilities 
will be coordinated among appropriate representatives of vocational 
education, special education, and State vocational rehabilitation 
agencies;
    (24) The provision of vocational education to each student with 
disabilities will be monitored to determine if that education is 
consistent with the individualized education program developed for the 
student under section 614(a)(5) of the IDEA, in any case in which an 
individualized education program exists;
    (25) The provision of vocational education will be monitored to 
ensure that disadvantaged students and students of limited English 
proficiency have access to that education in the most integrated setting 
possible;
    (26)(i) The requirements of the Act relating to individuals who are 
members of special populations--
    (A) Will be carried out under the general supervision of individuals 
in the appropriate State educational agency or State board who are 
responsible for students who are members of special populations; and
    (B) Will meet education standards of the State educational agency or 
State board;
    (ii) With respect to students with disabilities, the supervision 
carried out under paragraph (a)(26)(i) of this section will be carried 
out consistent with, and in conjunction with, supervision by the State 
educational agency or State board carried out under section 612(6) of 
the IDEA;
    (27) Funds received under the Business-Labor-Education Partnership 
for Training Program will be awarded on a competitive basis solely for 
vocational

[[Page 36]]

education programs, including programs that--
    (i) Provide apprenticeships and internships in industry;
    (ii) Provide new equipment;
    (iii) Provide teacher internships or teacher training;
    (iv) Bring representatives of business and organized labor into the 
classroom;
    (v) Increase the access to, and quality of, programs for individuals 
who are members of special populations;
    (vi) Strengthen coordination between vocational education programs 
and the labor and skill needs of business and industry;
    (vii) Address the economic development needs of the area served by 
the partnership;
    (viii) Provide training and career counseling that will enable 
workers to retain their jobs;
    (ix) Provide training and career counseling that will enable workers 
to upgrade their jobs; and
    (x) Address the needs of new and emerging industries, particularly 
industries in high-technology fields;
    (28) In administering the Business-Labor-Education Partnership for 
Training Program, the State board will--
    (i) Give preference to partnerships that coordinate with local 
chambers of commerce (or the equivalent), local labor organizations, or 
local economic development plans;
    (ii) Give priority to programs offered by partnerships that provide 
job training in areas or skills where there are significant labor 
shortages; and
    (iii) Ensure an equitable distribution of assistance under this part 
between urban and rural areas;
    (29) Except as provided in paragraph (a)(30) of this section, not 
less than 50 percent of the aggregate cost of programs and projects 
assisted under the Business-Labor-Education Partnership for Training 
Program will be provided from non-Federal sources, and not less than 50 
percent of the non-Federal share will be provided by businesses or labor 
organizations participating in the partnerships; and
    (30) In the event that a partnership includes a small business or 
labor organization, 40 percent of the aggregate cost of the programs and 
projects assisted under the Business-Labor-Education Partnership for 
Training Program will be provided from non-Federal sources and not less 
than 50 percent of the non-Federal share will be provided by 
participating business or labor organizations.
    (b) Descriptions. To participate in programs authorized under the 
State Vocational and Applied Technology Education Program, the State 
must include the following descriptions in the State plan:
    (1) The procedures and criteria for, and the results of, each of the 
assessments required by Sec. 403.203, including the needs identified by 
the assessments.
    (2) The plans for the use of the funds and how those planned uses 
reflect the needs described in paragraph (b)(1) of this section.
    (3) The manner in which the State will comply with the requirements 
in the Act regarding access and services for individuals who are members 
of special populations and a description of the responsiveness of 
programs to the special needs of those students.
    (4) The estimated distribution, for each instructional level--
secondary, postsecondary, and adult--of funds to corrections educational 
agencies as prescribed by Sec. 403.100, of funds to local educational 
agencies, area vocational education schools, or intermediate educational 
agencies as prescribed by Secs. 403.112 and 403.113, and of funds to 
eligible institutions or consortia of eligible institutions as 
prescribed by Sec. 403.116.
    (5) The criteria the State board will use --
    (i) In approving applications of eligible recipients; and
    (ii) For spending the amounts reserved for the State under 
Sec. 403.180(b).
    (6) How funds expended for occupationally specific training will be 
used for occupations in which job openings are projected or available, 
based on a labor market analysis that is not limited to the area in 
which the school is located.


(Authority: H.R. Rep. No. 660, 101st Cong., 1st Sess. 109 (1990))

    (7) In each State plan submitted after Fiscal Year 1991, the 
progress the State

[[Page 37]]

has made in achieving the goals described in previous State plans.
    (8) The methods of administration necessary for the prompt and 
efficient administration of programs under the Act.
    (9) How the State will implement program evaluations with eligible 
recipients as prescribed in Secs. 403.191, 403.192, 403.201(a) (3) and 
(4), and 403.204.
    (10) The methods proposed for the joint planning and coordination of 
programs carried out under the Act with programs conducted under the 
JTPA, the Adult Education Act (20 U.S.C. 1201 et seq.), chapter 1, the 
IDEA, and the Rehabilitation Act of 1973, and with apprenticeship 
programs.
    (11) Procedures by which an area vocational educational school, 
intermediate educational agency, or local educational agency may appeal 
decisions adverse to its interests with respect to programs assisted 
under the Act.

    Cross-Reference: See 34 CFR 76.401.

    (12) How the State will comply with the provisions of 
Secs. 403.32(a)(18)-(26), 403.115, and 403.205.
    (13) The State's rationale for distribution of funds under the 
Secondary School Vocational Education Program and the Postsecondary and 
Adult Vocational Education Programs.
    (14) The State corrections educational agency or agencies designated 
to administer vocational education programs assisted under the Act, and 
the plan for the use of funds provided under Sec. 403.180(b)(5).
    (15) Any delegation of functions under Sec. 403.12(c).
    (16) The manner in which the State board will comply with the 
applicable requirements of titles I, II, III, and V of the Act 
(including the maintenance of fiscal effort requirements in 
Sec. 403.182).
    (17) A summary of recommendations made at public hearings on the 
State plan and the State board's response.
    (18) How the State will determine which LEAs are located in a rural 
sparsely-populated area for purposes of Sec. 403.112(d)(3).
    (19) Which indices of economic status the State will use to 
determine the number of economically disadvantaged students attending 
vocational educational programs for the purposes of Sec. 403.114.
    (20) What method the State will use to distribute minimal amounts 
for the purpose of Sec. 403.119(a).
    (21) As appropriate, what method the State will use to distribute 
funds under Sec. 403.118.
    (c) Consultations. A State desiring to participate in the State 
Vocational and Applied Technology Education Program shall include in its 
State plan--
    (1) A statement, if any, from the State advisory council on 
vocational education reviewing and commenting on the State plan;
    (2) As necessary, the State's reasons for not accepting the 
recommendations of the State Committee of Practitioners for modifying 
standards and measures to be used in the statewide system of core 
standards and measures of performance; and
    (3) As necessary, the State's response to any objections raised by 
State agencies consulted during the development of the State plan as 
required by Sec. 403.31(e).

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2321(a)(2); 2322(e); 2323(a)(2)(B), (b); 2324(a); 
2325(a), (d)(3); 2328(a); 2336(a)(1); 2341(b)(2), (d)(3); 2341b(a); 
2392(b); 2463; and 2468e(a)(1))

[57 FR 36735, Aug. 14, 1992, as amended at 59 FR 38512, July 28, 1994]



Sec. 403.33  What procedures does a State use to submit its State plan?

    (a)(1) The State board shall submit its State plan for review and 
comment to the State job training coordinating council under section 122 
of the JTPA not less than sixty days before the State plan is submitted 
to the Secretary.
    (2) If the matters raised by the comments of the State job training 
coordinating council are not addressed in the State plan, the State 
board shall submit those comments to the Secretary with the State plan.
    (b) The State board shall submit its State plan for review and 
comment to the State council on vocational education not less than sixty 
days before the State plan is submitted to the Secretary.

[[Page 38]]


    Cross-Reference: See Sec. 403.19(c)(1)(iii).

    (c) Each State plan must be submitted to the Secretary by May 1 
preceding the beginning of the first fiscal year for which the plan is 
to be in effect.
    (d) The State plan is considered to be the general application 
required by section 435 of the General Education Provisions Act (20 
U.S.C. 1232d).

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2322(d)(1) and (2)(A), (e); 2323(a)(2)(A); and 
2324(b))



Sec. 403.34  When are amendments to the State plan required?

    The State board, in consultation with the State council, shall 
submit amendments to the State plan to the Secretary when required by 34 
CFR 76.140 or when changes in program conditions, labor market 
conditions, funding, or other factors require substantial amendment of 
an approved State plan. All amendments must be submitted for review by 
the State job training coordinating council and the State council on 
vocational education before submittal to the Secretary.

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2323(c))



       Subpart D--How Does the Secretary Make a Grant to a State?



Sec. 403.50  How does the Secretary make allotments?

    (a)(1) From funds made available under section 3(c) of the Act for 
the basic programs listed in Sec. 403.60, and under section 3(d) of the 
Act for the special programs listed in Sec. 403.130, the Secretary 
allots funds each fiscal year according to the provisions of section 101 
of the Act to the 50 States, the Commonwealth of Puerto Rico, the 
District of Columbia, and the Virgin Islands.
    (2) Upon approval of its State plan and any annual amendments, the 
Secretary makes one or more grant awards from those allotments to a 
State.
    (b)(1) From funds made available under sections 3(b)(2) of the Act, 
the Secretary allots funds each fiscal year for State councils on 
vocational education according to the provisions of section 112(f)(1) of 
the Act.
    (2) The Secretary makes an award to a State council upon the State 
council's submission of an annual budget covering the proposed 
expenditures of the State council for the following program year, and 
when the Secretary has determined that the State plan is in 
substantially approvable form.
    (c) From funds made available under section 3(b)(1)(B) of the Act 
for the territories, the Secretary allots funds each fiscal year 
according to the provisions of section 101A(a) of the Act.
    (d)(1) The Secretary awards funds remaining after allotments are 
made under paragraph (c) of this section to the Center for the 
Advancement of Pacific Education (CAPE) or its successor entity, such as 
the Pacific Regional Educational Laboratory.
    (2) CAPE or its successor entity shall make grants for vocational 
education and training in Guam, American Samoa, Palau, the Commonwealth 
of the Northern Marianas, the Federated States of Micronesia, and the 
Republic of the Marshall Islands for the purpose of providing direct 
educational services, including--
    (i) Teacher and counselor training and retraining;
    (ii) Curriculum development; and
    (iii) Improving vocational education and training programs in 
secondary schools and institutions of higher education (as defined in 
Sec. 403.117(b)), or improving cooperative programs involving both 
secondary schools and institutions of higher education.
    (3) CAPE may not use more than five percent of the funds received 
under paragraph (d)(1) of this section for administrative costs.

(Authority: 20 U.S.C. 2311; 2311a; and 2461)



Sec. 403.51  How does the Secretary make reallotments?

    (a)(1) If the Secretary determines that any amount of a State's 
allotment under Sec. 403.50(a) will not be required for any fiscal year 
for carrying out the program for which the allotment was made, the 
Secretary reallots those funds to one or more States that demonstrate a 
current need for additional

[[Page 39]]

funds and the ability to use them promptly and effectively upon 
reallotment.
    (2) The Secretary announces in the Federal Register the dates on 
which funds will be reallotted.
    (b)(1) No funds reallotted under paragraph (a) of this section may 
be used for any purpose other than the purposes for which they were 
appropriated.
    (2) Any amount reallotted to a State under paragraph (a) of this 
section remains available for obligation during the succeeding fiscal 
year and is deemed to be part of the State's allotment for the fiscal 
year in which the reallotted funds are obligated.

(Authority: 20 U.S.C. 2311(b))



Sec. 403.52  When does the Secretary approve State plans and amendments?

    (a)(1) The Secretary approves a State plan, or an amendment to a 
State plan, within sixty days of its receipt unless the plan or 
amendment is--
    (i) Inconsistent with the requirements and purposes of the Act; or
    (ii) Not of sufficient quality to meet the objectives of the Act, 
including the objective of developing and implementing program 
evaluations and improvements.
    (2) Before the Secretary finally disapproves a State plan, or an 
amendment to a State plan, the Secretary gives reasonable notice and an 
opportunity for a hearing to the State board.
    (b)(1) In reviewing a State plan, or an amendment to a State plan, 
the Secretary considers available comments from--
    (i) The State council on vocational education;
    (ii) The State agency responsible for supervision of community 
colleges, technical institutes, or other two-year postsecondary 
institutions primarily engaged in providing postsecondary vocational 
education;
    (iii) The State agency responsible for secondary education;
    (iv) The State Committee of Practitioners established under 34 CFR 
400.6; and
    (v) The State job training coordinating council.
    (2) In reviewing an amendment to a State plan, the Secretary 
considers available comments from the State job training coordinating 
council and the State council on vocational education.

(Authority: 20 U.S.C. 2323(c), 2324, and 2325(d)(3))



Subpart E--What Kinds of Activities Does the Secretary Assist Under the 
                             Basic Programs?

                                 General



Sec. 403.60  What are the basic programs?

    The following basic programs are authorized by title II of the Act:
    (a) State Programs and State Leadership Activities.
    (b) Programs for Single Parents, Displaced Homemakers, and Single 
Pregnant Women.
    (c) Sex Equity Programs.
    (d) Programs for Criminal Offenders.
    (e) Secondary School Vocational Education Programs.
    (f) Postsecondary and Adult Vocational Education Programs.

(Authority: 20 U.S.C. 2302)



Sec. 403.61  What projects, services, and activities are permissible under 
the basic programs?

    Projects, services, and activities described in Secs. 403.70, 
403.71, 403.81, 403.91, 403.101, and 403.111 may include--
    (a) Work-site programs such as cooperative vocational education, 
programs with community-based organizations, work-study, and 
apprenticeship programs;
    (b) Placement services and activities for students who have 
successfully completed vocational education programs; and
    (c) Programs that involve students in addressing the needs of the 
community in the production of goods or services that contribute to the 
community's welfare or that involve the students with other community 
development planning, institutions, and enterprises.

(Authority: 20 U.S.C. 2468e(c))



Sec. 403.62  What administrative provisions apply?

    (a) Any project assisted with funds made available for the basic 
programs must be of sufficient size, scope, and quality to give 
reasonable promise of

[[Page 40]]

meeting the vocational education needs of the students involved in the 
project.
    (b) Each State board receiving financial assistance for the basic 
programs may consider granting academic credit for vocational education 
courses that integrate core academic competencies.

(Authority: 20 U.S.C. 2468e (b) and (d))



Sec. 403.63  How does a State carry out the State Vocational and Applied 
Technology Education Program?

    (a) Unless otherwise indicated in the regulations in this part, a 
State board shall carry out projects, services, and activities under the 
State Vocational and Applied Technology Education Program--
    (1) Directly;
    (2) Through a school operated by the State board;
    (3) Through awards to State agencies or institutions, such as 
vocational schools or correctional institutions; or
    (4) Through awards to eligible recipients.
    (b) For the purpose of paragraph (a) of this section, a State board 
acts directly if it--
    (1) Carries out projects, services, or activities using its own 
staff (except at a school operated by the State board); or
    (2) Contracts for statewide projects, services, or activities such 
as research, curriculum development, and teacher training.
    (c) The regulations in this part also authorize a State to carry out 
certain projects, services, and activities under the State Vocational 
and Applied Technology Education Program by making an award to an entity 
other than an eligible recipient, such as a community-based 
organization, employers, private vocational training institutions, 
private postsecondary education institutions, labor organizations, and 
joint labor management apprenticeship programs.
    (d) If projects, services, and activities are carried out by a 
school operated by the State board under paragraph (a)(2) of this 
section or are carried out by a State agency or institution under 
paragraph (a)(3) of this section, the requirements dealing with local 
applications (Secs. 403.190 and 403.32(b)(5)(i)) apply in the same 
manner as to other eligible recipients.

(Authority: 20 U.S.C. 2323(b)(5), (6); 2335(a)(3); 2335b; 2342(c)(2)(N); 
and 2343)

             State Programs and State Leadership Activities



Sec. 403.70  How must funds be used under the State Programs and State 
Leadership Activities?

    A State shall use funds reserved under section 102(a)(3) of the Act 
for the State Programs and State Leadership Activities in accordance 
with Sec. 403.180(b)(3) to conduct programs, projects, services, and 
activities that include--
    (a) Professional development activities--
    (1) For vocational teachers and academic teachers working with 
vocational education students, including corrections educators and 
counselors and educators and counselors in community-based 
organizations; and
    (2) That include inservice and preservice training of teachers in 
programs and techniques, including integration of vocational and 
academic curricula, with particular emphasis on training of minority 
teachers;
    (b) Development, dissemination, and field testing of curricula, 
especially curricula that--
    (1) Integrate vocational and academic methodologies; and
    (2) Provide a coherent sequence of courses through which academic 
and occupational skills may be measured; and
    (c) Assessment of programs conducted with assistance under the Act 
including the development of--
    (1) Performance standards and measures for those programs; and
    (2) Program improvement and accountability with respect to those 
programs.

(Authority: 20 U.S.C. 2331(b))



Sec. 403.71  In what additional ways may funds be used under the State 
Programs and State Leadership Activities?

    In addition to the required activities in Sec. 403.70, a State may 
use funds reserved under section 102(a)(3) of the Act for the State 
Programs and State

[[Page 41]]

Leadership Activities in accordance with Sec. 403.180(b)(3) for 
programs, projects, services, and activities that include--
    (a) The promotion of partnerships among business, education 
(including educational agencies), industry, labor, community-based 
organizations, or governmental agencies;
    (b) The support for tech-prep education as described in 34 CFR part 
406;
    (c)(1) The support of vocational student organizations that are an 
integral part of the vocational education instructional program, 
especially with respect to efforts to increase minority participation in 
those organizations.
    (2) The support of vocational student organizations may include, but 
is not limited to, expenditures for--
    (i) The positions of State executive secretaries and State advisors 
for vocational student organizations;
    (ii) Leadership development workshops;
    (iii) The development of curriculum for vocational student 
organizations; and
    (iv) Field or laboratory work incidental to vocational training so 
long as the activity is supervised by vocational education personnel who 
are qualified in the occupational area and is available to all students 
in the instructional program without regard to membership in any student 
organization.
    (3) The support of vocational student organizations may not include-
-
    (i) Lodging, feeding, conveying, or furnishing transportation to 
conventions or other forms of social assemblage;
    (ii) Purchase of supplies, jackets, and other effects for students' 
personal ownership;
    (iii) Cost of non-instructional activities such as athletic, social, 
or recreational events;
    (iv) Printing and disseminating non-instructional newsletters;
    (v) Purchase of awards for recognition of students, advisors, and 
other individuals; or
    (vi) Payment of membership dues;
    (d) Leadership and instructional programs in technology education; 
and
    (e) Data collection.

(Authority: 20 U.S.C. 2331(c); H.R. Rep. No. 660, 101st Cong., 1st Sess. 
117 (1990))

 Single Parents, Displaced Homemakers, and Single Pregnant Women Program



Sec. 403.80  Who is eligible for a subgrant or contract?

    Eligible recipients and community-based organizations are eligible 
for an award under the Single Parents, Displaced Homemakers, and Single 
Pregnant Women Program.

(Authority: 20 U.S.C. 2335(a)(2), (3); 2335b(1))



Sec. 403.81  How must funds be used under the Single Parents, Displaced 
Homemakers, and Single Pregnant Women Program?

    A State shall use funds reserved in accordance with 
Sec. 403.180(b)(2)(i) for individuals who are single parents, displaced 
homemakers, or single pregnant women only to--
    (a) Provide, subsidize, reimburse, or pay for preparatory services, 
including instruction in basic academic and occupational skills, 
necessary educational materials, and career guidance and counseling 
services in preparation for vocational education and training that will 
furnish single parents, displaced homemakers, and single pregnant women 
with marketable skills;
    (b) Make grants to eligible recipients for expanding preparatory 
services and vocational education services if the expansion directly 
increases the eligible recipients' capacity for providing single 
parents, displaced homemakers, and single pregnant women with marketable 
skills;
    (c) Make grants to community-based organizations for the provision 
of preparatory and vocational education services to single parents, 
displaced homemakers, and single pregnant women if the State determines 
that the community-based organizations have demonstrated effectiveness 
in providing comparable or related services to single parents, displaced 
homemakers, and single pregnant women, taking into account the 
demonstrated performance of such organizations in terms of cost, the 
quality of training, and the characteristics of the participants;
    (d) Make preparatory services and vocational education and training 
more

[[Page 42]]

accessible to single parents, displaced homemakers, and single pregnant 
women by assisting those individuals with dependent care, transportation 
services, or special services and supplies, books, and materials, or by 
organizing and scheduling the programs so that those programs are more 
accessible; or
    (e) Provide information to single parents, displaced homemakers, and 
single pregnant women to inform those individuals of vocational 
education programs, related support services, and career counseling.

(Authority: 20 U.S.C. 2335(a))



Sec. 403.82  In what settings may the Single Parents, Displaced Homemakers, 
and Single Pregnant Women Program be offered?

    The programs and services described in Sec. 403.81 may be provided 
in postsecondary or secondary school settings, including area vocational 
education schools, and community-based organizations that meet the 
requirements of Sec. 403.81(c), that serve single parents, displaced 
homemakers, and single pregnant women.

(Authority: 20 U.S.C. 2335(b))

                           Sex Equity Program



Sec. 403.90  Who is eligible for a subgrant or contract?

    Eligible recipients and community-based organizations are eligible 
for an award under the Sex Equity Program.

(Authority: 20 U.S.C. 2335b(1))



Sec. 403.91  How must funds be used under the Sex Equity Program?

    Except as provided in Sec. 403.92, each State shall use amounts 
reserved for the Sex Equity Program in accordance with 
Sec. 403.180(b)(2)(ii) only for--
    (a) Programs, services, comprehensive career guidance and 
counseling, and activities to eliminate sex bias and stereotyping in 
secondary and postsecondary vocational education;
    (b) Preparatory services and vocational education programs, 
services, and activities for girls and women, aged 14 through 25, 
designed to enable the participants to support themselves and their 
families; and
    (c) Support services for individuals participating in vocational 
education programs, services, and activities described in paragraphs (a) 
and (b) of this section, including dependent-care services and 
transportation.

(Authority: 20 U.S.C. 2335a(a))



Sec. 403.92  Under what circumstances may the age limit under the Sex 
Equity Program be waived?

    The individual appointed under Sec. 403.13(a) may waive the 
requirement in Sec. 403.91(b) with respect to age limitations if the 
individual determines (through appropriate research) that the waiver is 
essential to meet the objectives of Sec. 403.91.

(Authority: 20 U.S.C. 2335a(b))

                     Programs for Criminal Offenders



Sec. 403.100  What are the requirements for designating a State corrections 
educational agency to administer the Programs for Criminal Offenders?

    (a) The State Board shall designate one or more State corrections 
educational agencies to administer programs assisted under the Act for 
juvenile and adult criminal offenders in correctional institutions in 
the State including correctional institutions operated by local 
authorities.
    (b) Each State corrections educational agency that desires to be 
designated under paragraph (a) of this section shall submit to the State 
board a plan for the use of funds.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2336(a))



Sec. 403.101  How must funds be used under the Programs for Criminal 
Offenders?

    In administering programs receiving funds reserved under 
Sec. 403.180(b)(5) for criminal offenders, each State corrections 
educational agency designated under Sec. 403.100(a) shall--
    (a) Give special consideration to providing--
    (1) Services to offenders who are completing their sentences and 
preparing for release; and

[[Page 43]]

    (2) Grants for the establishment of vocational education programs in 
correctional institutions that do not have such programs;
    (b) Provide vocational education programs for women who are 
incarcerated;
    (c) Improve equipment; and
    (d) In cooperation with eligible recipients, administer and 
coordinate vocational education services to offenders before and after 
their release.

(Authority: 20 U.S.C. 2336(b))



Sec. 403.102  What other requirements apply to the Program for Criminal 
Offenders?

    Each State corrections educational agency designated under 
Sec. 403.100(a) shall meet the requirements in Secs. 403.191 and 
403.192.

(Authority: 20 U.S.C. 2471(22))

    Secondary, Postsecondary, and Adult Vocational Education Programs



Sec. 403.110  Who is eligible for a subgrant or contract?

    (a) Subject to the requirements of paragraph (c) of this section, 
the following entities are eligible for an award under the Secondary 
School Vocational Education Program:
    (1) A local educational agency.
    (2) An area vocational education school or intermediate educational 
agency that meets the requirements in Sec. 403.113.
    (b) Subject to the requirements of paragraph (c) of this section, 
the following entities are eligible for an award under the Postsecondary 
and Adult Vocational Education Programs:
    (1) An institution of higher education as defined in 
Sec. 403.117(b), including a nonprofit institution that satisfies the 
conditions set forth in Sec. 403.111(d)(14).
    (2) A local educational agency serving adults.
    (3) An area vocational education school serving adults that offers 
or will offer a program that meets the requirements of Sec. 403.111 and 
seeks to receive assistance under the Secondary School Vocational 
Education Program or the Postsecondary and Adult Vocational Education 
Programs.
    (c) Only an entity that provides or will provide vocational 
education in a program that meets the requirements of Sec. 403.111 is 
eligible to receive an award under the Secondary School Vocational 
Education Program or the Postsecondary and Adult Vocational Education 
Program.

(Authority: 20 U.S.C. 2341(a) and (d); 2341a (a) and (d)(1); and 
2342(c))



Sec. 403.111  How must funds be used under the Secondary School Vocational 
Education Program and the Postsecondary and Adult Vocational Education 
Programs?

    (a)(1) Each eligible recipient that receives an award under 
Sec. 403.112, Sec. 403.113, or Sec. 403.116 shall use funds under that 
award to improve vocational education programs.
    (2) Projects assisted with funds awarded under Sec. 403.112, 
Sec. 403.113, or Sec. 403.116 must--
    (i) Provide for the full participation of individuals who are 
members of special populations by providing the supplementary and other 
services required by Sec. 403.190(b) necessary for them to succeed in 
vocational education; and

    Cross-Reference: See appendix A to part 403 and Secs. 403.190(c) and 
403.193(e).

    (ii) Operate at a limited number of sites or with respect to a 
limited number of program areas.
    (3) If an eligible recipient that receives an award under 
Sec. 403.112, Sec. 403.113, or Sec. 403.116 meets the requirements in 
this section and Secs. 403.190(b) and 403.193, it may use those Federal 
funds to serve students who are not members of special populations.
    (b) Each eligible recipient that receives an award under 
Sec. 403.112, Sec. 403.113, or Sec. 403.116 shall give priority for 
assistance under those sections to sites or program areas that serve the 
highest concentrations of individuals who are members of special 
populations.

    Examples: Methods by which an eligible recipient may give priority 
to sites or program areas that serve the highest concentrations of 
individuals who are members of special populations include, but are not 
limited to, the following:
    Example 1: Method to give priority to a limited number of sites. 
Based on data from the preceding fiscal year--
    (a) First, a local educational agency ranks each site based on the 
percentage of the

[[Page 44]]

site's total enrollment of students who are members of special 
populations.
    (b) Second, the local educational agency establishes a funding cut-
off point for sites above the district-wide percentage of special 
populations enrollment. The local educational agency funds sites above 
the cut-off point but does not fund sites below that point.
    Example 2: Method to give priority to a limited number of program 
areas. Based on data from the preceding fiscal year--
    (a) First, a postsecondary institution ranks each program area based 
on the percentage of the program area's total enrollment of students who 
are members of special populations.
    (b) Second, the postsecondary institution establishes a funding cut-
off point for program areas that rank above the institution-wide average 
percentage of special populations enrollment. The postsecondary 
institution funds projects in a program area that is above the cut-off 
point but does not fund projects in program areas below that point.
    Example 3: Method to give priority to a limited number of sites. 
Based on data from the preceding fiscal year--
    (a) First, an LEA or postsecondary institution identifies a site 
with a high concentration of special populations;
    (b) Second, the LEA or postsecondary institution identifies a 
program area at the site (such as health occupations) in which the 
participation rate for members of special populations has been lower 
than the overall rate of participation for members of special 
populations at the site; and
    (c) Third, the LEA or postsecondary institution funds a project at 
the site designed to improve the participation rate of members of 
special populations in that program area.
    Note to examples in Sec. 403.111: Absolute counts of special 
population members may be used to determine the sites or program areas 
with the highest concentrations of special population members instead 
of, or in combination with, percentages of special population members.

    (c) Funds made available from an award under Sec. 403.112, 
Sec. 403.113, or Sec. 403.116 must be used to provide vocational 
education in programs that--
    (1) Are of sufficient size, scope, and quality as to be effective;
    (2) Integrate academic and vocational education in those programs 
through coherent sequences of courses so that students achieve both 
academic and occupational competencies; and
    (3) Provide for the equitable participation of members of special 
populations in vocational education consistent with the assurances and 
requirements in Secs. 403.190(b) and 403.193, so that these populations 
have an opportunity to enter vocational education that is equal to that 
afforded to the general student population.

    Cross-Reference: See appendix A to part 403.

    (d) In carrying out the provisions of paragraph (c) of this section, 
an eligible recipient under Secs. 403.112, 403.113, or Sec. 403.116 may 
use funds for activities that include, but are not limited to--
    (1) Upgrading of curriculum;
    (2) Purchase of equipment, including instructional aids;
    (3) Inservice training of both vocational instructors and academic 
instructors working with vocational education students for integrating 
academic and vocational education;
    (4) Guidance and counseling;
    (5) Remedial courses;
    (6) Adaptation of equipment;
    (7) Tech-prep education programs;
    (8) Supplementary services designed to meet the needs of special 
populations;
    (9) Payment in whole or in part with funds under Sec. 403.112, 
Sec. 403.113, or Sec. 403.116 for a special populations coordinator, who 
must be a qualified counselor or teacher, to ensure that individuals who 
are members of special populations are receiving adequate services and 
job skill training;
    (10) Apprenticeship programs;
    (11) Programs that are strongly tied to economic development efforts 
in the State;
    (12) Programs that train adults and students for all aspects of an 
occupation in which job openings are projected or available;
    (13) Comprehensive mentor programs in institutions of higher 
education offering comprehensive programs in teacher preparation, which 
seek to use fully the skills and work experience of individuals 
currently or formerly employed in business and industry who are 
interested in becoming classroom instructors and to meet the need of 
vocational educators who wish to upgrade their teaching competencies; or
    (14) Provision of education and training through arrangements with 
private

[[Page 45]]

vocational training institutions, private postsecondary educational 
institutions, employers, labor organizations, and joint labor-management 
apprenticeship programs if those institutions, employers, labor 
organizations, or programs can make a significant contribution to 
obtaining the objectives of the State plan and can provide substantially 
equivalent training at a lesser cost, or can provide equipment or 
services not available in public institutions.

(Authority: 20 U.S.C. 2342)



Sec. 403.112  How does a State allocate funds under the Secondary School 
Vocational Education Program to local educational agencies?

    (a) Reservation of funds. From the portion of its allotment under 
Sec. 403.180(b)(1) for the basic programs, each fiscal year a State may 
reserve funds for the Secondary School Vocational Education Program.
    (b) General rule. Except as provided in paragraphs (c) and (d) of 
this section and Sec. 401.119, a State shall distribute funds reserved 
for the Secondary School Vocational Education Program to local 
educational agencies (LEAs) according to the following formula:
    (1) From 70 percent of the amount reserved, an LEA must be allocated 
an amount that bears the same relationship to the 70 percent as the 
amount the LEA was allocated under section 1005 of chapter 1 (20 U.S.C. 
2711) in the fiscal or program year preceding the fiscal or program year 
in which the allocation is made bears to the total amount received under 
section 1005 of chapter 1 by all LEAs in the State in that preceding 
year.
    (2) From 20 percent of the amount reserved, an LEA must be allocated 
an amount that bears the same relationship to the 20 percent as the 
number of students with disabilities who have individualized education 
programs under section 614(a)(5) of the IDEA served by the LEA in the 
fiscal or program year preceding the fiscal or program year in which the 
allocation is made bears to the total number of those students served by 
all LEAs in the State in that preceding year.
    (3) From 10 percent of the amount reserved, an LEA must be allocated 
an amount that bears the same relationship to the 10 percent as the 
number of students enrolled in schools and adults enrolled in vocational 
education training programs under the jurisdiction of the LEA in the 
fiscal or program year preceding the fiscal or program year in which the 
allocation is made bears to the number of students enrolled in schools 
in kindergarten through 12th grade and adults enrolled in vocational 
education training programs under the jurisdiction of all LEAs in the 
State in that preceding year.

    Example: Assume that a State has reserved $5,000,000 of its basic 
programs funds under Title II of the Act for secondary school programs.
    (a)(1) All LEAs in the State were allocated a total of $80,000,000 
under section 1005 of Chapter 1 in the preceding fiscal year. Of that 
amount, school district ``A'' was allocated $400,000.
    (2) The allocation for school district ``A'' is calculated by 
multiplying $3,500,000 (70 percent of $5,000,000) by .005 of the State 
total ($400,000/$80,000,000). The allocation for school district ``A'' 
would be $17,500 under paragraph (b)(1) of this section.
    (b)(1) All LEAs in a State served a total of 100,000 students with 
disabilities who have individualized education programs under section 
614(a)(5) of the IDEA in the preceding fiscal year. Of that total, 
school district ``A'' served 400 of those students in the preceding 
fiscal year.
    (2) The allocation for school district ``A'' is calculated by 
multiplying $1,000,000 (20 percent of $5,000,000) by .004 of the State 
total (400/100,000). The allocation for school district ``A'' would be 
$4,000 under paragraph (b)(2) of this section.
    (c)(1) All LEAs in a State enrolled a total of 1,000,000 students 
(including adults enrolled in vocational education training programs in 
those LEAs) in the preceding fiscal year. Of that number school district 
``A'' enrolled 3,500 of those students in the preceding fiscal year.
    (2) The allocation for school district ``A'' is calculated by 
multiplying 500,000 (10 percent of $5,000,000) by .0035 of the State 
total (3,500/1,000,000). The allocation for school district ``A'' would 
be $1,750 under paragraph (b)(3) of this section.

    (c) Exception to the general rule. In applying the provisions in 
paragraph (b) of this section, a State may not distribute funds to an 
LEA that operates only elementary schools, but shall instead distribute 
funds that would have been allocated for those ineligible LEAs as 
follows:

[[Page 46]]

    (1) If an LEA that operates only elementary schools sends its 
graduating students to a single local or regional educational agency 
that provides secondary school services to secondary school students in 
the same attendance area, a State shall distribute to that local or 
regional educational agency any amounts under paragraph (b) of this 
section that would otherwise have been allocated to LEAs operating only 
elementary schools.
    (2) If an LEA that operates only elementary schools sends its 
graduating students to two or more local or regional educational 
agencies that provide secondary school services to secondary students in 
the same attendance area, the State shall distribute to those local or 
regional educational agencies an amount based on the proportionate 
number of students each agency received in the previous year from the 
LEA that operates only elementary schools.
    (d)(1) Minimum grant amount. Except as provided in paragraph (d)(3) 
of this section, an LEA is not eligible for a grant under the Secondary 
School Vocational Education Program unless the amount allocated to the 
LEA under paragraph (b) of this section is not less than $15,000.
    (2)(i) An LEA may enter into a consortium with one or more LEAs for 
the purpose of providing services under the Secondary School Vocational 
Education Program in order to meet the minimum grant requirement in 
paragraph (d)(1) of this section.
    (ii) A consortium arrangement under paragraph (d)(2)(i) of this 
section must serve primarily as a structure for operating joint projects 
that provide services to all participating local educational agencies.
    (iii) A project operated by a consortium must meet the size, scope, 
and quality requirement of Sec. 403.111(c)(1).

    Example: Under the distribution formula for the Secondary School 
Vocational Education Program, three LEAs earn $5,000 each (which is less 
than the $15,000 minimum grant amount for each LEA). The LEAs form a 
consortium in order to receive an award. One of the LEAs is designated 
as the fiscal agent for the consortium and receives the $15,000 award 
for the consortium. The consortium may operate and fund with the $15,000 
a project or projects for the benefit of all participating LEAs. The 
fiscal agent of the consortium may not subgrant back to the 
participating LEAs the amounts they contributed to the consortium.

    (3) A State may waive paragraph (d)(1) of this section in any case 
in which the LEA--
    (i) Is located in a rural, sparsely populated area;
    (ii) Demonstrates that it is unable to enter into a consortium for 
purposes of providing services under the Secondary School Vocational 
Education Program; and
    (iii) Demonstrates that the projects to be assisted meet the size, 
scope, and quality requirements in Sec. 403.111(c)(1).
    (4) Any amounts that are not distributed by reason of paragraph 
(d)(1) of this section must be redistributed in accordance with the 
provisions in paragraph (b) of this section.

    Cross-Reference: See 34 CFR 403.113(d).

(Authority: 20 U.S.C. 2341 (a), (b), and (c))



Sec. 403.113  How does a State allocate funds under the Secondary School 
Vocational Education Program to area vocational education schools and 
intermediate 
          educational agencies?

    (a) A State shall distribute funds reserved under Sec. 403.112(a) 
directly to the appropriate area vocational education school or 
intermediate educational agency in any case in which--
    (1) The area vocational education school or intermediate educational 
agency and an LEA--
    (i) Have formed or will form a consortium for the purpose of 
receiving funds reserved under Sec. 403.112(a); or
    (ii) Have entered into or will enter into a cooperative arrangement 
for the purpose of receiving funds reserved under Sec. 403.112(a); and
    (2)(i) The area vocational education school or intermediate 
educational agency serves a proportion of students with disabilities and 
students who are economically disadvantaged that is approximately equal 
to or greater than the proportion of those students attending the 
secondary schools under the jurisdiction of all of the LEAs sending 
students to the area vocational education school or the intermediate 
educational agency; or

[[Page 47]]

    (ii) The area vocational education school or intermediate 
educational agency demonstrates that it is unable to meet the criterion 
in paragraph (a)(2)(i) of this section due to the lack of interest by 
students with disabilities and students who are economically 
disadvantaged in attending vocational education programs in that area 
vocational education school or intermediate educational agency.
    (b) If an area vocational education school or intermediate 
educational agency meets the requirements of paragraph (a) of this 
section, then the amount that would otherwise be allocated to the LEA 
may be distributed to the area vocational education school, the 
intermediate educational agency, and the LEA--
    (1) Based on each school's or entity's relative share of students 
with disabilities and students who are economically disadvantaged who 
are attending vocational education programs that meet the requirements 
of Sec. 403.111 (based, if practicable, on the average enrollment for 
the prior 3 years); or
    (2) On the basis of an agreement between the LEA and the area 
vocational education school or intermediate educational agency.
    (c) Notwithstanding paragraphs (a) and (b) of this section, and 
Secs. 403.114 and 403.115, prior to distributing funds to any LEA that 
would receive an allocation that is not sufficient to conduct a program 
that meets the requirements of Sec. 403.111(c), a State shall encourage 
the LEA to--
    (1) Form a consortium or enter a cooperative agreement with an area 
vocational education school or intermediate educational agency offering 
programs that meet the requirements of Sec. 403.111(c), and that are 
accessible to economically disadvantaged students and students with 
disabilities that would be served by the LEA; and
    (2) Transfer its allocation to an area vocational education school 
or intermediate educational agency.
    (d) If an LEA's allocation under Sec. 403.112 meets the minimum 
grant requirement in Sec. 403.112(d), and the allocation is distributed 
in part to an area vocational education school or an intermediate 
educational agency pursuant to paragraphs (a) and (b) of this section, 
the LEA may retain the amount not distributed to the area vocational 
education school or an intermediate educational agency even though that 
amount is less than the minimum grant required by Sec. 403.112(d).

(Authority: 20 U.S.C. 2341(d) (1), (2), and (5))



Sec. 403.114  How does a State determine the number of economically 
disadvantaged students attending vocational education programs under 
the Secondary School 
          Vocational Education Program?

    (a) For the purposes of Sec. 403.113, a State may determine the 
number of economically disadvantaged students attending vocational 
education programs on any of the following bases:
    (1) Eligibility for one of the following:
    (i) Free or reduced-price meals under the National School Lunch Act 
(42 U.S.C. 1751 et seq.).
    (ii) The program for aid to Families with Dependent Children under 
part A of title IV of the Social Security Act (42 U.S.C. 601).
    (iii) Benefits under the Food Stamp Act of 1977 (7 U.S.C. 2011).
    (iv) To be counted for purposes of section 1005 of chapter 1.
    (v) Participation in programs assisted under title II of the JTPA.
    (2) Receipt of a Pell grant or assistance under a comparable State 
program of need-based financial assistance.
    (3) Status of an individual who is determined by the Secretary to be 
low-income according to the latest available data from the Department of 
Commerce or the Department of Health and Human Services Poverty 
Guidelines.
    (4) Other indices of economic status, including estimates of those 
indices, if the State demonstrates to the satisfaction of the Secretary 
that those indices are more representative of the number of economically 
disadvantaged students attending vocational education programs. The 
Secretary determines, on a case-by-case basis, whether other indices of 
economic status are more representative of the number of economically 
disadvantaged students attending vocational education programs, taking 
into consideration, for example, the statistical reliability of

[[Page 48]]

any data submitted by a grantee as well as the general acceptance of the 
indices by other agencies in the State or local area.
    (b) If a State elects to use more than one factor described in 
paragraph (a) of this section for purposes of determining the number of 
economically disadvantaged students enrolled in vocational education 
programs, the State shall ensure that the data used are not duplicative.

(Authority: 20 U.S.C. 2341(d)(3) and 2471(15))



Sec. 403.115  What appeal procedures must be established under the Secondary 
School Vocational Education Program?

    The State board shall establish an appeals procedure for resolution 
of any dispute arising between an LEA and an area vocational education 
school or an intermediate educational agency with respect to the 
allocation procedures described in Secs. 403.112 and 403.113, including 
the decision of an LEA to leave a consortium.

    Cross-Reference: See 34 CFR 76.401, Disapproval of an application--
opportunity for a hearing.

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2341(d)(4))



Sec. 403.116  How does a State allocate funds under the Postsecondary and 
Adult Vocational Education Programs?

    (a) Reservation of funds. From the portion of its allotment under 
Sec. 403.180(b)(1) for the basic programs, each fiscal year a State may 
reserve funds for the Postsecondary and Adult Vocational Education 
Programs.
    (b) General rule. (1) A State shall distribute funds reserved for 
Postsecondary and Adult Vocational Education Programs to eligible 
institutions or consortia of eligible institutions within the State.
    (2) Except as provided in paragraph (c) of this section and 
Secs. 403.118 and 403.119, each eligible institution or consortium of 
eligible institutions must receive an amount that bears the same 
relationship to the amount of funds reserved for the Postsecondary and 
Adult Vocational Education Programs as the number of Pell Grant 
recipients and recipients of assistance from the Bureau of Indian 
Affairs enrolled in programs meeting the requirements of Sec. 403.111, 
including meeting the definition of vocational education in 34 CFR 
400.4, offered by the eligible institution or consortium of eligible 
institutions in the fiscal or program year preceding the fiscal or 
program year in which the allocation is made bears to the number of 
those recipients enrolled in these programs within the State in that 
preceding year.
    (c) Minimum grant amount. (1) A State may not provide a grant under 
paragraph (b) of this section to any institution or consortium of 
eligible institutions for an amount that is less than $50,000.
    (2) Any amounts that are not allocated by reason of paragraph (c)(1) 
of this section must be redistributed to eligible institutions or 
consortia of eligible institutions in accordance with the provisions of 
paragraph (b) of this section.
    (d) In order for a consortium of eligible institutions to receive 
assistance under this section, the consortium must operate joint 
projects that--
    (1) Provide services to all postsecondary institutions participating 
in the consortium; and
    (2) Are of sufficient size, scope, and quality as to be effective.

(Authority: 20 U.S.C. 2341a (a) and (c))

[57 FR 36735, Aug. 14, 1992, as amended at 59 FR 38513, July 28, 1994]



Sec. 403.117  What definitions apply to the Postsecondary and Adult 
Vocational Education Programs?

    For the purposes of Secs. 403.116, 403.118, and 403.120 the 
following definitions apply:
    (a) Eligible institution means an institution of higher education, 
an LEA serving adults, or an area vocational education school serving 
adults that offers or will offer a program that meets the requirements 
of Sec. 403.111 and seeks to receive assistance under Sec. 403.116.
    (b)(1) Institution of higher education means an educational 
institution in any State that--

[[Page 49]]

    (i) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of that certificate, or who are beyond the age of 
compulsory school attendance;
    (ii) Is legally authorized within the State to provide a program of 
education beyond secondary education;
    (iii) Provides an educational program for which it awards a 
bachelor's degree or provides not less than a two-year program which is 
acceptable for full credit toward such a degree, or in the case of a 
hospital or health care facility, that provides training of not less 
than one year for graduates of accredited health professions programs, 
leading to a degree or certificate upon completion of that training;
    (iv) Is a public or other nonprofit institution; and
    (v) Is accredited by a nationally recognized accrediting agency or 
association approved by the Secretary for this purpose or, if not so 
accredited--
    (A) Is an institution with respect to which the Secretary has 
determined that there is satisfactory assurance, considering the 
resources available to the institution, the period of time, if any, 
during which it has operated, the effort it is making to meet 
accreditation standards, and the purpose for which this determination is 
being made, that the institution will meet the accreditation standards 
of such an agency or association within a reasonable time; or
    (B) Is an institution whose credits are accepted, on transfer, by 
not less than three institutions that are so accredited, for credit on 
the same basis as if transferred from an institution so accredited.
    (2) This term also includes any school that provides not less than a 
one-year program of training to prepare students for gainful employment 
in a recognized occupation and that meets the provisions of paragraphs 
(b)(1) (i), (ii), (iv), and (v) of this definition. If the Secretary 
determines that a particular category of these schools does not meet the 
requirements of paragraph (b)(1)(v) because there is no nationally 
recognized accrediting agency or association qualified to accredit 
schools in that category, the Secretary, pending the establishment of 
such an accrediting agency or association, appoints an advisory 
committee, composed of persons specially qualified to evaluate training 
provided by schools in that category, that must--
    (i) Prescribe the standards of content, scope, and quality that must 
be met in order to qualify schools in that category to participate in 
the program pursuant to this part; and
    (ii) Determine whether particular schools not meeting the 
requirements of paragraph (b)(1)(v) of this definition meet those 
standards.


(Authority: 20 U.S.C. 1085)

    (c) Pell Grant recipient means a recipient of financial aid under 
subpart 1 of part A of title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070a-l et seq.).

(Authority: 20 U.S.C. 2341a(d))



Sec. 403.118  Under what circumstances may the Secretary waive the distribution 
requirements for the Postsecondary and Adult Vocational Education Programs?

    The Secretary may waive Sec. 403.116(b)(2) for any fiscal or program 
year for which a State submits to the Secretary an application for such 
a waiver that--
    (a) Demonstrates that the formula in Sec. 403.116(b)(2) does not 
result in a distribution of funds to the institutions or consortia of 
eligible institutions within the State that have the highest numbers of 
economically disadvantaged individuals and that an alternative formula 
would result in such a distribution.
    (b) Includes a proposal for an alternative formula that may include 
criteria relating to the number of individuals attending institutions or 
consortia of eligible institutions within the State who--
    (1) Receive need-based postsecondary financial aid provided from 
public funds;
    (2) Are members of families participating in the program for aid to 
families with dependent children under part A of title IV of the Social 
Security Act (42 U.S.C. 601);

[[Page 50]]

    (3) Are enrolled in postsecondary educational institutions that--
    (i) Are funded by the State;
    (ii) Do not charge tuition; and
    (iii) Serve only economically disadvantaged students;
    (4) Are enrolled in programs serving economically disadvantaged 
adults;
    (5) Are participants in programs assisted under the JTPA;
    (6) Are Pell Grant recipients; and
    (c) Proposes an alternative formula that--
    (1) Includes direct counts of students enrolled in the institutions 
or consortia of eligible institutions;
    (2) Directly relates to the status of students as economically 
disadvantaged individuals;
    (3) Is to be uniformly applied to all eligible institutions;
    (4) Does not include fund pools for specific types of institutions 
or consortia of eligible institutions;
    (5) Does not include the direct assignment of funds to a particular 
institution or consortium of eligible institutions on a non-formula 
basis; and
    (6) Identifies a more accurate count of economically disadvantaged 
individuals in the aggregate than does the formula in 
Sec. 403.116(b)(2).

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2341a(b))

[57 FR 36735, Aug. 14, 1992, as amended at 59 FR 38513, July 28, 1994]



Sec. 403.119  Under what circumstances may the State waive the distribution 
requirements for Secondary School Vocational Education Program or the 
Postsecondary 
          and Adult Vocational Education Programs?

    (a) This section applies in any fiscal or program year in which a 
State reserves 15 percent or less under Sec. 403.180(b)(1) for 
distribution under--
    (1) The Secondary School Vocational Education Program; or
    (2) The Postsecondary and Adult Vocational Education Programs.
    (b) Notwithstanding the provisions and Sec. 403.112, Sec. 403.113, 
or Sec. 403.116, as applicable, in order to result in a more equitable 
distribution of funds for programs serving the highest numbers of 
economically disadvantaged individuals, the State may distribute the 
funds described in paragraph (a) of this section--
    (1) On a competitive basis; or
    (2) Through any alternative method determined by the State.

(Authority: 20 U.S.C. 2341b)



Sec. 403.120  How does a State reallocate funds under the Secondary School 
Vocational Education Program and the Postsecondary and Adult Vocational 
Education 
          Programs?

    (a) In any fiscal or program year that an LEA, area vocational 
school, intermediate school district, or consortium of those entities, 
or an eligible institution, or consortium of eligible institutions, does 
not obligate all of the amounts it is allocated for that year under the 
Secondary School Vocational Education Program or the Postsecondary and 
Adult Vocational Education Programs, the LEA, area vocational education 
school, intermediate school district, or consortium of those entities, 
or the eligible institution, or consortium of eligible institutions, 
shall return any unobligated amounts to the State to be reallocated 
under Sec. 403.112(b), Sec. 403.113, or Sec. 403.116(b), as applicable.
    (b) In any fiscal or program year in which amounts allocated under 
Sec. 403.112(b), Sec. 403.113, Sec. 403.116(b), or Sec. 403.118 are 
returned to the State and the State is unable to reallocate those 
amounts according to those sections in time for the amounts to be 
obligated in the fiscal or program year, the State shall retain the 
amounts to be distributed in combination with amounts reserved under 
Sec. 403.112(b), Sec. 403.113, Sec. 403.116(b), or Sec. 403.118 for the 
following fiscal or program year.

(Authority: 20 U.S.C. 2341c)

[57 FR 36735, Aug. 14, 1992, as amended at 59 FR 38513, July 28, 1994]

[[Page 51]]



Subpart F--What Kinds of Activities Does the Secretary Assist Under the 
                            Special Programs?

                                 General



Sec. 403.130  What are the Special Programs?

    The following special programs are authorized by title III of the 
Act and are subject to the requirements of the State plan:
    (a) State Assistance for Vocational Education Support Programs by 
Community-Based Organizations.
    (b) Consumer and Homemaking Education Program.
    (c) Comprehensive Career Guidance and Counseling Programs.
    (d) Business-Labor-Education Partnerships for Training Program.

(Authority: 20 U.S.C. 2302(d)(A)-(D))



Sec. 403.131  Who is eligible for an award under the Special Programs?

    (a) The fifty States, the District of Columbia, Puerto Rico, and the 
Virgin Islands are eligible for an award under the--
    (1) State Assistance for Vocational Education Support and Programs 
by Community-Based Organizations;
    (2) Consumer and Homemaking Education Programs; and
    (3) Comprehensive Career Guidance and Counseling Programs.
    (b) States, as defined in 34 CFR 400.4(b), are eligible for the 
Business-Labor-Education Partnerships for Training Program.

(Authority: 20 U.S.C. 2302(d)(A)-(D))

 Vocational Education Support Programs by Community-Based Organizations



Sec. 403.140  What activities does the Secretary support under the State 
Assistance for Vocational Education Support Programs by Community-Based 
Organizations?

    (a) The State shall provide, in accordance with its State plan, and 
from its allotment for this program, financial assistance to joint 
projects of eligible recipients and community-based organizations within 
the State that provide the following special vocational education 
services and activities:
    (1) Outreach programs that facilitate the entrance of youth into a 
program of transitional services and subsequent entrance into vocational 
education, employment, or other education and training.
    (2) Transitional services such as attitudinal and motivational 
prevocational training programs.
    (3) Prevocational educational preparation and basic skills 
development conducted in cooperation with business concerns.
    (4) Special prevocational preparations programs targeted to inner-
city youth, non-English speaking youth, Appalachian youth, and the youth 
of other urban and rural areas having a high density of poverty who need 
special prevocational education programs.
    (5) Career intern programs.
    (6) Model programs for school dropouts.
    (7) The assessment of students' needs in relation to vocational 
education and jobs.
    (8) Guidance and counseling to assist students with occupational 
choices and with the selection of a vocational education program.
    (b) Individuals with disabilities who are educationally or 
economically disadvantaged may participate in projects under this 
program.

(Authority: 20 U.S.C. 2352, 2471(6))



Sec. 403.141  What are the application requirements for the State Assistance 
for Vocational Education Support Programs by Community-Based Organizations?

    (a) Each community-based organization and eligible recipient that 
desire to participate in this program shall jointly prepare and submit 
an application to the State board at the time and in the manner 
established by the State board.
    (b) The State board also may establish requirements relating to the 
contents of the applications, except that each application must contain-
-
    (1) An agreement among the community-based organization and the 
eligible recipients in the area to be served that includes the 
designation of one or more fiscal agents for the project;

[[Page 52]]

    (2) A description of how the funds will be used, together with 
evaluation criteria to be applied to the project;
    (3) Assurances that the community-based organization will give 
special consideration to the needs of severely economically and 
educationally disadvantaged youth, ages sixteen through twenty-one, 
inclusive;
    (4) Assurances that business concerns will be involved, as 
appropriate, in services and activities for which assistance is sought;
    (5) A description of the efforts the community-based organization 
will make to collaborate with the eligible recipients participating in 
the joint project;
    (6) A description of the manner in which the services and activities 
for which assistance is sought will serve to enhance the enrollment of 
severely economically and educationally disadvantaged youth into the 
vocational education programs; and
    (7) Assurances that the projects conducted by the community-based 
organization will conform to the applicable standards of performance and 
measures of effectiveness required of vocational education programs in 
the State.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2351)

               Consumer and Homemaking Education Programs



Sec. 403.150  What activities does the Secretary support under the Consumer 
and Homemaking Education Programs?

    (a) The State shall conduct, in accordance with its State plan, and 
from its allotment for this program, consumer and homemaking education 
projects that may include--
    (1) Instructional projects, services, and activities that prepare 
youth and adults for the occupation of homemaking;
    (2) Instruction in the areas of--
    (i) Food and nutrition;
    (ii) Individual and family health;
    (iii) Consumer education;
    (iv) Family living and parenthood education;
    (v) Child development and guidance;
    (vi) Housing and home management, including resource management; and
    (vii) Clothing and textiles.
    (b) The State shall use the funds for this program for projects, 
services, and activities--
    (1) For residents of economically depressed areas;
    (2) That encourage the participation of traditionally underserved 
populations;
    (3) That encourage, in cooperation with the individual appointed 
under Sec. 403.13(a), the elimination of sex bias and sex stereotyping;
    (4) That improve, expand, and update Consumer and Homemaking 
Education Programs, especially those that specifically address needs 
described in paragraphs (b) (1), (2), and (3) of this section; and
    (5) That address priorities and emerging concerns at the local, 
State, and national levels.
    (c) The State may use the funds described in paragraph (a) of this 
section for--
    (1) Program development and the improvement of instruction and 
curricula relating to--
    (i) Managing individual and family resources;
    (ii) Making consumer choices;
    (iii) Balancing work and family;
    (iv) Improving responses to individual and family crises (including 
family violence and child abuse);
    (v) Strengthening parenting skills (especially among teenage 
parents);
    (vi) Preventing teenage pregnancy;
    (vii) Assisting the aged, individuals with disabilities, and members 
of at risk populations (including the homeless);
    (viii) Improving individual, child, and family nutrition and 
wellness;
    (ix) Conserving limited resources;
    (x) Understanding the impact of new technology on life and work;
    (xi) Applying consumer and homemaking education skills to jobs and 
careers; and
    (xii) Other needs as determined by the State; and
    (2) Support services and activities designed to ensure the quality 
and effectiveness of programs, including--
    (i) The demonstration of innovative and exemplary projects;

[[Page 53]]

    (ii) Community outreach to underserved populations;
    (iii) The application of academic skills (such as reading, writing, 
mathematics, and science) through consumer and homemaking education 
programs;
    (iv) Curriculum development;
    (v) Research;
    (vi) Program evaluation;
    (vii) The development of instructional materials;
    (viii) Teacher education;
    (ix) The upgrading of equipment;
    (x) Teacher supervision;
    (xi) State leadership, including the activities of student 
organizations; and
    (xii) State administration, subject to Sec. 403.151(c).

(Authority: 20 U.S.C. 2361, 2362(a), (b))



Sec. 403.151  How must funds be used under the Consumer and Homemaking 
Education Programs?

    (a) A State shall use not less than one-third of its allotment under 
the Consumer and Homemaking Education Program in economically depressed 
areas or areas with high rates of unemployment for projects, services, 
and activities designed to assist consumers, and to help improve the 
home environment and the quality of family life.
    (b)(1) The State board shall ensure that the experience and 
information gained through carrying out projects, services, and 
activities under this program are shared with program administrators for 
the purpose of program planning.
    (2) The State board shall use funds from its allotment under this 
program to provide State leadership and one or more full-time State 
administrators qualified by experience and educational preparation in 
home economics education.
    (3) For purposes of the Consumer and Homemaking Education Program, 
State leadership includes, but is not limited to, curriculum 
development, personnel development, research, dissemination activities, 
and technical assistance.
    (c) A State may use, in addition to funds reserved under 
Sec. 403.180(b)(4), not more than six percent of its allotment under 
this program for State administration of projects, services, and 
activities under this program.

(Authority: 20 U.S.C. 2362(c), 2363)

          Comprehensive Career Guidance and Counseling Programs



Sec. 403.160  What activities does the Secretary support under the Comprehensive 
Career Guidance and Counseling Programs?

    (a) The State shall conduct, in accordance with its State plan, from 
its allotment for this program, career guidance and counseling projects, 
services, and activities that are--
    (1) Organized and administered by certified counselors; and
    (2) Designed to improve, expand, and extend career guidance and 
counseling programs to meet the career development, vocational 
education, and employment needs of vocational education students and 
potential students.
    (b) The purposes of the projects, services, and activities described 
in paragraph (a) of this section must be to--
    (1) Assist individuals to--
    (i) Acquire self-assessment, career planning, career decision-
making, and employability skills;
    (ii) Make the transition from education and training to work;
    (iii) Maintain the marketability of their current job skills in 
established occupations;
    (iv) Develop new skills to move away from declining occupational 
fields and enter new and emerging fields in high-technology areas and 
fields experiencing skill shortages;
    (v) Develop mid-career job search skills and to clarify career 
goals; and
    (vi) Obtain and use information on financial assistance for 
postsecondary and vocational education, and job training; and
    (2)(i) Encourage the elimination of sex, age, disabling conditions, 
and race bias and stereotyping;
    (ii) Provide for community outreach;
    (iii) Enlist the collaboration of the family, the community, 
business, industry, and labor; and
    (iv) Be accessible to all segments of the population, including 
women, minorities, individuals with disabilities, and economically 
disadvantaged individuals.

[[Page 54]]

    (c) The projects, services, and activities described in paragraph 
(a) of this section must consist of--
    (1) Instructional activities and other services at all educational 
levels to help students develop the skills described in paragraph (b)(1) 
of this section;
    (2) Services and activities designed to ensure the quality and 
effectiveness of career guidance and counseling projects such as--
    (i) Counselor education, including the education of counselors 
working with individuals with limited English proficiency;
    (ii) Training support personnel;
    (iii) Curriculum development;
    (iv) Research and demonstration projects;
    (v) Experimental projects;
    (vi) The development of instructional materials;
    (vii) The acquisition of equipment;
    (viii) State and local leadership;
    (ix) The development of career information delivery systems; and
    (x) Local administration, including supervision;
    (xi) State administration, including supervision, subject to 
Sec. 403.161(c);
    (3) Projects that provide opportunities for counselors to obtain 
firsthand experience in business and industry; and
    (4) Projects that provide students with an opportunity to become 
acquainted with business, industry, the labor market, and training 
opportunities, including secondary educational programs that--
    (i) Have at least one characteristic of an apprenticeable occupation 
as recognized by the Department of Labor or the State Apprenticeship 
Agency, in accordance with the National Apprenticeship Act (29 U.S.C. 
50);
    (ii) Are conducted in concert with local business, industry, labor, 
and other appropriate apprenticeship training entities; and
    (iii) Are designed to prepare participants for an apprenticeable 
occupation or provide information concerning apprenticeable occupations 
and their prerequisites.

(Authority: 20 U.S.C. 2382(a), (b))



Sec. 403.161  How must funds be used under the Comprehensive Career Guidance 
and Counseling Programs?

    (a) A State shall use not less than twenty percent of its allotment 
under the Career Guidance and Counseling Program for projects, services, 
and activities designed to eliminate sex, age, and race bias and 
stereotyping under Sec. 403.160(b)(2) to ensure that projects, services, 
and activities under this program are accessible to all segments of the 
population, including women, disadvantaged individuals, individuals with 
disabilities, individuals with limited English proficiency, and 
minorities.
    (b)(1) The State board shall ensure that the experience and 
information gained through carrying out projects, services, and 
activities under this program are shared with program administrators for 
the purpose of program planning.
    (2) The State board shall use funds from its allotment under this 
program to provide State leadership that is qualified by experience and 
knowledge in guidance and counseling.
    (3) For purposes of Comprehensive Career Guidance and Counseling 
Programs, State leadership includes, but is not limited to curriculum 
development, personnel development, research, dissemination activities, 
and technical assistance; and
    (c) A State may use, in addition to funds reserved under 
Sec. 403.180(b)(4), not more than six percent of its allotment under 
this program for State administration of projects, services, and 
activities under this program.

(Authority: 20 U.S.C. 2382(c), 2383)

        Business-Labor-Education Partnership for Training Program



Sec. 403.170  What activities does the Secretary support under the 
Business-Labor-Education Partnership for Training Program?

    The State board shall, in accordance with the State plan, from its 
allotment for this program, support the establishment and operation of 
projects, services, and activities, that--

[[Page 55]]

    (a) Provide incentives for the coordination of the Business-Labor-
Education Partnership for Training Program with related efforts under 
the--
    (1) National Tech-Prep Education Program in 34 CFR part 405;
    (2) State-Administered Tech-Prep Education Program in 34 CFR part 
406; and
    (3) JTPA; and
    (b) May only include, in addition to the activities described in 
Sec. 403.32(a)(27) through (30),--
    (1) Training and retraining of instructional and guidance personnel;
    (2) Curriculum development and the development or acquisition of 
instructional and guidance equipment and materials;
    (3) Acquisition and operation of communications and 
telecommunications equipment and other high technology equipment for 
programs authorized by this part;
    (4) Other activities authorized by title III of the Act as may be 
essential to the successful establishment and operation of projects, 
services, and activities under the Business-Labor-Education Partnership 
for Training Program, including activities and related services to 
ensure access of women, minorities, individuals with disabilities, and 
economically disadvantaged individuals; and
    (5) Providing vocational education to individuals in order to assist 
their entry into, or advancement in, high-technology occupations or to 
meet the technological need of other industries or businesses.

(Authority: 20 U.S.C. 2392(b) and 2393 (a), (d)(1))



Sec. 403.171  Who is eligible to apply to a State board for an award?

    (a) The State board awards subgrants or contracts to partnerships 
between--
    (1) An area vocational education school, a State agency, a local 
educational agency, a secondary school funded by the Bureau of Indian 
Affairs, an institution of higher education, a State corrections 
educational agency, or an adult learning center; and
    (2) Business, industry, labor organizations, or apprenticeship 
programs.
    (b) A partnership receiving an award from a State board must include 
as partners at least one entity from paragraph (a)(1) of this section 
and at least one entity from paragraph (a)(2) of this section, and may 
include more than one entity from each group.

(Authority: 20 U.S.C. 2392(a)(1))



Sec. 403.172  What special considerations must the State board give in 
approving projects, services, and activities?

    The State board, in approving projects, services, and activities 
assisted under the Business-Labor-Education Partnership Training 
Program, shall give special consideration to the following:
    (a) The level and degree of business and industry participation in 
the development and operation of the program.
    (b) The current and projected demand within the State or relevant 
labor market area for workers with the level and type of skills the 
program is designed to produce.
    (c) The overall quality of the proposal, with particular emphasis on 
the probability of successful completion of the program by prospective 
trainees and the capability of the eligible recipient, with assistance 
from participating business or industry, to provide high quality 
training for skilled workers and technicians in high technology.
    (d) The commitment to serve, as demonstrated by special efforts to 
provide outreach, information, and counseling, and by the provision of 
remedial instruction and other assistance, all segments of the 
population, including women, minorities, individuals with disabilities, 
and economically disadvantaged individuals.
    (e) Projects, services, and activities to provide vocational 
education for individuals who have attained 55 years of age in order to 
assist their entry into, or advancement in, high-technology occupations 
or to meet the technological needs of other industries or businesses.

(Authority: 20 U.S.C. 2393-(b) and (d)(2))



Sec. 403.173  What expenses are allowable?

    The State board shall use funds awarded under the Business-Labor-
Education Partnership for Training Program only for--

[[Page 56]]

    (a) Expenses incurred in carrying out the programs, services, and 
activities described in Sec. 403.170, including, for example, expenses 
for--
    (1) The introduction of new vocational education programs, 
particularly in economically depressed urban and rural areas;
    (2) The introduction or improvement of basic skills instruction, 
including English-as-a-second-language instruction, in order for an 
individual to be eligible for employment, to continue employment, or to 
be eligible for career advancement;
    (3) Costs associated with coordination between vocational education 
programs, business, and industry, including advisory council meetings 
and newsletters; and
    (4) Transportation and child-care services for students necessary to 
ensure access of women, minorities, individuals with disabilities, and 
economically disadvantaged individuals to projects, services, and 
activities authorized by the Business-Labor-Education Partnership for 
Training Program; and
    (b)(1) Subject to paragraph (b)(2) of this section, expenditures for 
necessary and reasonable administrative costs of the State board and of 
eligible partners.
    (2) Total expenditures for administrative costs of the State board 
and of eligible partners may not exceed 10 percent of the State's 
allotment for this program in the first year and five percent of that 
allotment in each subsequent year.

(Authority: 20 U.S.C. 2392(d) and 2393(a)(1))



Sec. 403.174  What additional fiscal requirements apply to the 
Business-Labor-Education Partnership for Training Program?

    (a) The business and industrial share of the costs required in 
Sec. 403.32(a)(29) may be in the form of either allowable costs or the 
fair market value of in-kind contributions such as facilities, overhead, 
personnel, and equipment.
    (b) The State board shall use equal amounts from its allotment under 
this program and from its allotment for basic programs to provide the 
Federal share of cost of projects, services, and activities under this 
program.
    (c) If an eligible partner demonstrates to the satisfaction of the 
State that it is incapable of providing all or part of the non-Federal 
portion of the costs of projects, services, and activities, as required 
by Sec. 403.32(a)(29), the State board may designate funds available 
under parts A and C of title II of the Act or funds available from State 
sources in place of the non-Federal portion.

(Authority: 20 U.S.C. 2392(c))



      Subpart G--What Financial Conditions Must Be Met by a State?



Sec. 403.180  How must a State reserve funds for the basic programs?

    (a)(1) Except as provided in paragraph (a)(2) of this section, each 
State shall reserve from its allotment under the basic programs 
authorized by title II of the Act, for--
    (i) The Program for Single Parents, Displaced Homemakers, and Single 
Pregnant Women under Sec. 403.81, and the Sex Equity Program under 
Sec. 403.91, respectively, an amount that is not less than the amount 
the State reserved for each of those programs under section 202 of the 
Carl D. Perkins Vocational Education Act (CDPVEA) from its Fiscal Year 
(FY) 1991 grant from the FY 1990 appropriation; and
    (ii) The Program for Criminal Offenders under Sec. 403.101 an amount 
that is not less than--
    (A) The amount the State reserved for projects, services, or 
activities under section 202(6) of the CDPVEA from its FY 1991 grant 
from the FY 1990 appropriation; and
    (B) The amount of Federal funds under the CDPVEA, other than the one 
percent reserved under section 202(6) of the Act, that the State and its 
eligible recipients obligated for projects, services, and activities for 
criminal offenders in correctional institutions from its FY 1991 grant 
from the FY 1990 appropriation.
    (2) In any year in which a State receives an amount for purposes of 
carrying out programs under title II of the Act that is less than the 
amount the State received for those purposes in its FY 1991 grant award 
from the FY 1990 appropriation under the CDPVEA, the

[[Page 57]]

State shall ratably reduce the amounts reserved under paragraph (a)(1) 
of this section in the same proportion that the amount for carrying out 
programs under title II of the Act is less than the amount the State 
received for those purposes from the FY 1990 appropriation.
    (b) Except as provided in paragraph (a) of this section, from its 
allotment for the basic programs authorized by title II of the Act, a 
State shall reserve--
    (1) At least 75 percent for the Secondary School Vocational 
Education Program and the Postsecondary and Adult Vocational Education 
Programs described in Sec. 403.111;
    (2) Ten and one-half percent for the Program for Single Parents, 
Displaced Homemakers, and Single Pregnant Women described in Sec. 403.81 
and the Sex Equity Program described in Sec. 403.91, as follows:
    (i) Not less than seven percent for the Program for Single Parents, 
Displaced Homemakers, and Single Pregnant Women.
    (ii) Not less than three percent for the Sex Equity Program;
    (3) Not more than eight and one-half percent for State Programs and 
State Leadership Activities described in Secs. 403.70 and 403.71;
    (4) Not more than five percent or $250,000, whichever is greater, 
for administration of the State plan, of which--
    (i) Not less than $60,000 must be available for carrying out the 
provisions in Sec. 403.13, regarding the personnel requirements for 
eliminating sex discrimination and sex stereotyping; and
    (ii) The remaining amounts may be used for the costs of--
    (A) Developing the State plan;
    (B) Reviewing local applications;
    (C) Monitoring and evaluating program effectiveness;
    (D) Providing technical assistance;
    (E) Ensuring compliance with all applicable Federal laws, including 
required services and activities for individuals who are members of 
special populations; and
    (F) Supporting the activities of the technical committees it 
establishes under Sec. 403.12(b)(1); and
    (5) One percent for Programs for Criminal Offenders described in 
Sec. 403.101.
    (c) The procedure for meeting the ``hold-harmless'' requirements in 
Sec. 403.180(a) and the $250,000 minimum for State administration 
provision in Sec. 403.180(b)(4) is as follows:
    (1) If the five percent reserved for administration is less than the 
$250,000 minimum allowed by paragraph (b)(4) of this section, or if any 
of the amounts reserved for the Program for Single Parents, Displaced 
Homemakers, and Single Pregnant Women in Sec. 403.81, the Sex Equity 
Program in Sec. 403.91, or the Program for Criminal Offenders in 
Sec. 403.101, respectively, is less than the amount reserved for that 
program in FY 1990 (funds from the FY 1990 appropriation awarded in the 
States FY 1991 grant), a State shall subtract any amount necessary to 
satisfy the $250,000 minimum for State administration or any of the 
``hold-harmless'' amounts from the total basic programs award received 
by the State.
    (2) The State shall reserve $250,000 for administration and shall 
reserve for any program not meeting the ``hold-harmless'' requirement an 
amount necessary to meet that requirement.
    (3) The State shall reserve from the remainder of the basic program 
award an amount for each of the remaining programs that is proportionate 
to the amount that program would have received in the absence of a 
shortfall in the amounts reserved for administration or to meet the 
``hold-harmless'' requirements in paragraph (a)(1) of this section.

    Example 1: (a) A State receives a basic programs award of 
$4,000,000. Five percent of the basic programs award equals $200,000, 
which is $50,000 less than the $250,000 minimum that may be reserved for 
State administration. To determine the amount of funds that will be 
reserved for each program under title II, parts A, B, and C of the Act, 
the State first subtracts $250,000 for State administration from the 
$4,000,000 basic programs award ($4,000,000 -$250,000 = $3,750,000).
    (b) Second, the State determines the amount that would have been 
reserved for each of the programs under title II, parts A, B, and C of 
the Act in the absence of a shortfall in the set-aside amount for 
administration, as follows:

3.0% x$4,000,000 =                $120,000  for Sex Equity Programs.

[[Page 58]]

 
7.5% x$4,000,000 =                 300,000  for Programs for Single
                                             Parents, Displaced
                                             Homemakers, and Single
                                             Pregnant Women.
8.5% x$4,000,000 =                 340,000  for State Programs and State
                                             Leadership Activities.
1.0% x$4,000,000 =                  40,000  for Programs for Criminal
                                             Offenders.
75% x$4,000,000 =                3,000,000  for part C of title II.
                              -------------
                                 3,800,000
 

    (c) Third, the State converts each of these amounts into a 
percentage by dividing each amount by the sum of the amounts the 
programs would have received in the absence of a shortfall ($3,800,000) 
and multiplies the remaining basic programs award ($3,750,000) by these 
percentages to determine the amount to reserve for each program under 
parts A, B, and C of title II of the Act, as follows:

($120,000/$3,800,000)             $118,421  for Sex Equity Programs.
 x$3,750,000 =
($300,000/$3,800,000)              296,053  for Programs for Single
 x$3,750,000 =                               Parents, Displaced
                                             Homemakers, and Single
                                             Pregnant Women.
($340,000/$3,800,000)              335,526  for State Programs and State
 x$3,750,000 =                               Leadership Activities.
($40,000/$3,800,000)                39,474  for Programs for Criminal
 x$3,750,000 =                               Offenders.
($3,000,000/$3,800,000)          2,960,526  for part C of title II.
 x$3,750,000 =
                              -------------
                                 3,750,000
 

    This example assumes that amounts reserved meet the ``hold-
harmless'' requirement of section 102(c)(1) of the Act.
    Example 2: A State's seven percent reserve from its FY 1992 grant 
for the Program for Single Parents, Displaced Homemakers, and Single 
Pregnant Women is $1,400,000 and the amount reserved for that program 
from its FY 1991 grant was $1,581,000. Therefore, the amount of FY 1992 
funds reserved for that program is $181,000 less than the amount 
reserved in FY 1991. The State received a basic programs award of 
$20,000,000 in FY 1992. The other programs under title II, part B meet 
the ``hold-harmless'' requirement in Sec. 403.180(a)(1), and the amount 
reserved for State administration exceeds $250,000. The State determines 
the amount of funds to be reserved for each program under title II, 
parts A, B, and C of the Act as follows:
    (a) First, the State subtracts $1,581,000 from the $20,000,000 total 
basic programs award ($20,000,000 -$1,581,000 = $18,419,000).
    (b) Second, the State determines the amount that would have been 
reserved for each of the programs under parts A, B, and C of title II of 
the Act in the absence of a shortfall in the set-aside amount for the 
Program for Single Parents, Displaced Homemakers, and Single Pregnant 
Women, as follows:

5.0% x$20,000,000 =             $1,000,000  for administration.
3.5% x$20,000,000 =                700,000  for Sex Equity Programs.
8.5% x$20,000,000 =              1,700,000  for State Programs and State
                                             Leadership Activities.
1.0% x$20,000,000 =                200,000  for Programs for Criminal
                                             Offenders.
75.0% x$20,000,000 =            15,000,000  for part C of title II.
                              -------------
                                18,600,000
 

    (c) Third, the State converts each of these amounts into a 
percentage by dividing each amount by the sum of the amounts the 
programs would have earned in the absence of a shortfall ($18,600,000) 
and multiplies the remaining basic programs award ($18,419,000) by these 
percentages to determine the amount to reserve for each program under 
parts A, B, and C of title II of the Act, as follows:

($1,000,000/$18,600,000)          $990,269  for administration.
 x$18,419,000 =
($700,000/$18,600,000)             693,188  for Sex Equity Programs.
 x$18,419,000 =
($1,700,000/$18,600,000)         1,683,457  for State Programs and State
 x$18,419,000 =                              Leadership Activities.
($200,000/$18,600,000)             198,054  for Programs for Criminal
 x$18,419,000 =                              Offenders.
($15,000,000/$18,600,000)       14,854,032  for part C of title II.
 x$18,419,000 =
                              -------------
                                18,419,000
 

    This example assumes that amounts reserved for the Sex Equity 
Program and Programs for Criminal Offenders meet the ``hold-harmless'' 
requirement of section 102(c) (1) and (2) of the Act.
    Example 3: A State's one percent reserved from its FY 1992 grant for 
Programs for Criminal Offenders is $200,000 and the amount reserved for 
that program under section 202(6) of the CDPVEA plus other amounts 
obligated for projects, services, and activities for criminal offenders 
in correctional institutions from its FY 1991 grant from the FY 1990 
appropriations totals $250,000. Therefore, the amount of FY 1992 funds 
reserved for that program is $50,000 less than the amount reserved and 
obligated for that program in FY 1991. The State received a basic 
programs award of $20,000,000 in FY 1992. The other programs under title 
II, part B meet the ``hold-harmless'' requirement of Sec. 403.180(a)(1) 
and the amount reserved for State administration exceeds $250,000. The 
State determines the amount of funds to be reserved for each program 
under title II, parts A, B, and C of the Act as follows:

[[Page 59]]

    (a) First, the State subtracts $250,000 from the $20,000,000 total 
basic programs award ($20,000,000 -$250,000 = $19,750,000).
    (b) Second, the State determines the amount that would have been 
reserved for each of the programs under parts A, B, and C of title II of 
the Act in the absence of a shortfall in the set-aside amount for the 
Programs for Criminal Offenders, as follows:

5.0% x20,000,000 =              $1,000,000  for administration.
3.5% x20,000,000 =                 700,000  for Sex Equity Programs.
7.0% x20,000,000 =               1,400,000  for Programs for Single
                                             Parents, Displaced
                                             Homemakers, and Single
                                             Pregnant Women.
8.5% x20,000,000 =               1,700,000  for State Programs and State
                                             Leadership Activities.
75.0% x20,000,000 =             15,000,000  for part C of title II.
                              -------------
                                19,800,000
 

    (c) Third, the State converts each of these amounts into a 
percentage by dividing each amount by the sum of the amounts the 
programs would have earned in the absence of a shortfall ($19,800,000) 
and multiplies the remaining basic programs award ($19,750,000) by these 
percentages to determine the amount to reserve for each program under 
parts A, B, and C of title II of the Act, as follows:

($1,000,000/$19,800,000)          $997,475  for administration.
 x$19,750,000 =
($700,000/$19,800,000)            $698,232  for Sex Equity Programs.
 x$19,750,000 =
($1,400,000/$19,800,000)        $1,396,465  for Programs for Single
 x$19,750,000 =                              Parents, Displaced
                                             Homemakers, and Single
                                             Pregnant Women.
($1,700,000/$19,800,000)        $1,695,707  for State Programs and State
 x$19,750,000 =                              Leadership Activities.
($15,000,000/$19,800,000)      $14,962,121  for part C of title II.
 x$19,750,000 =
                             --------------
                               $19,750,000
 

    This example assumes that amounts reserved for the Sex Equity 
Program and for the Program for Single Parents, Displaced Homemakers, 
and Single Pregnant Women meet the ``hold-harmless'' requirement of 
sections 102(c) (1) and (2) of the Act.

    (d) The procedure for meeting the ratable reduction provision in 
paragraph (a)(2) of this section is as follows:
    (1) If a State's basic programs award under title II of the Act for 
FY 1992 or in future years is less than that State's basic grant amount 
in FY 1991, a State shall determine the percentage that the basic 
programs award is of the FY 1991 basic programs award.
    (2) The State shall multiply the amounts reserved in FY 1991 for 
each of the three programs covered by the ``hold-harmless'' provisions 
in paragraph (a)(1) of this section by this percentage.
    (3) The State shall compare the amounts that would be reserved for 
these programs in FY 1992 to determine if these amounts are less than 
the ratably reduced hold-harmless amounts, and if so, shall proceed with 
the calculation required by paragraph (c) of this section except using 
the ratably reduced ``hold-harmless'' amounts.

(Authority: 20 U.S.C. 2312)



Sec. 403.181  What are the cost-sharing requirements applicable to the 
basic programs?

    (a) A State shall match, from non-Federal sources and on a dollar-
for-dollar basis, the funds reserved for administration of the State 
plan under Sec. 403.180(b)(4).
    (b) The matching requirement under paragraph (a) of this section may 
be applied overall, rather than line-by-line, to State administrative 
expenditures.
    (c) A State shall provide from non-Federal sources for State 
administration under the Act an amount that is not less than the amount 
provided by the State from non-Federal sources for State administrative 
costs for the preceding fiscal or program year.

    Example for paragraph (b): From the five percent reserved for the 
administration of the State plan, a State must reserve $60,000 to carry 
out the provisions in Sec. 403.13. The $60,000 must be matched, but the 
matching funds need not be used for the activities described in 
Sec. 403.13.

(Authority: 20 U.S.C. 2312(b) and 2468d; H.R. Rep. No. 660, 101st Cong., 
2nd Sess. 103-104 (1990))



Sec. 403.182  What is the maintenance of fiscal effort requirement?

    The Secretary may not make a payment under the Act to a State for 
any fiscal year unless the Secretary determines that the fiscal effort 
per student, or the aggregate expenditures of that

[[Page 60]]

State, from State sources, for vocational education for the fiscal year 
(or program year) preceding the fiscal year (or program year) for which 
the determination is made, at least equaled its effort or expenditures 
for vocational education for the second preceding fiscal year (or 
program year).

(Authority: 20 U.S.C. 2463(a))



Sec. 403.183  Under what circumstances may the Secretary waive the maintenance 
of effort requirement?

    (a) The Secretary may waive the maintenance of effort requirement in 
Sec. 403.182 for a State for one year only if--
    (1) The Secretary determines that a waiver would be equitable due to 
exceptional or uncontrollable circumstances affecting the State's 
ability to maintain fiscal effort; and
    (2) The State has decreased its expenditures for vocational 
education from non-Federal sources by no more than five percent.
    (b) For purposes of this section, ``exceptional or uncontrollable 
circumstances'' include, but are not limited to, the following:
    (1) A natural disaster.
    (2) An unforeseen and precipitous decline in financial resources.
    (c) The Secretary does not consider tax initiatives or referenda to 
be exceptional or uncontrollable circumstances.

(Authority: 20 U.S.C. 2463(b))



Sec. 403.184  How does a State request a waiver of the maintenance of 
effort requirement?

    A State seeking a waiver of the maintenance of effort requirement in 
Sec. 403.182 shall--
    (a) Submit to the Secretary a request for a waiver; and
    (b) Include in the request--
    (1) The reason for the request;
    (2) Information that demonstrates that a waiver is justified; and
    (3) Any additional information the Secretary may require.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2463(b))



Sec. 403.185  How does the Secretary compute maintenance of effort in 
the event of a waiver?

    If a State has been granted a waiver of the maintenance of effort 
requirement that allows it to receive a grant for a fiscal year, the 
Secretary determines whether the State has met that requirement for the 
grant to be awarded for the year after the year of the waiver by 
comparing the amount spent for vocational education from non-Federal 
sources in the first preceding fiscal year (or program year) with the 
amount spent in the third preceding fiscal year (or program year).

    Example: Because exceptional or uncontrollable circumstances 
prevented a State from maintaining its level of fiscal effort in a 
program year 1989 (July 1, 1988-June 30, 1989) at the level of its 
fiscal effort in program year 1988 (July 1, 1987-June 30, 1988), the 
Secretary granted the State a waiver of the maintenance of effort 
requirement that permits the State to receive its fiscal year 1990 grant 
(a grant that is awarded on or after July 1, 1990 from funds 
appropriated in the fiscal year 1990 appropriation). To be eligible to 
receive its fiscal year 1991 grant (the grant to be awarded for the year 
after the year of the waiver), the State's expenditures from the first 
preceding program year (July 1, 1989-June 30, 1990) must equal or exceed 
its expenditures from the third preceding program year (July 1, 1987 to 
June 30, 1988).

(Authority: 20 U.S.C. 2463(c))



Sec. 403.186  What are the administrative cost requirements applicable 
to a State?

    (a) Basic Programs. A State may use only funds reserved under 
Sec. 403.180(b)(4) to administer the programs under title II of the Act, 
including Programs for Criminal Offenders.
    (b) Special Programs. (1) A State may use the funds reserved under 
Sec. 403.180(b)(4) to administer any of the special programs listed in 
Sec. 403.130.
    (2) In addition to the funds reserved under Sec. 403.180(b)(4), a 
State may use only an amount of funds from its allotment for the State 
Assistance for Vocational Education Support Programs by Community-Based 
Organizations that is necessary and reasonable for the proper and 
efficient State administration of that program.
    (3) In addition to the funds reserved under Sec. 403.180(b)(4), a 
State may use

[[Page 61]]

the amounts reserved for the Consumer and Homemaking Education Program, 
the Comprehensive Career Guidance and Counseling Program, and the 
Business-Labor-Education Partnership for Training Program under 
Secs. 403.151(c), 403.161(c), and 403.173(b), respectively, for the 
proper and efficient administration of each program.

(Authority: 20 U.S.C. 2302(d) (A)-(D) and 2312(a))



Sec. 403.187  How may a State provide technical assistance?

    (a) Except as provided in paragraph (b) of this section, a State may 
use only an amount of the funds reserved for each of the basic programs 
listed in Sec. 403.60 and the special programs listed in Sec. 403.130 to 
pay the costs of providing technical assistance that is necessary and 
reasonable to promote or enhance the quality and effectiveness of that 
program.
    (b) A State may not use funds reserved under Sec. 403.180(b)(1) for 
the Secondary School Vocational Education Program and the Postsecondary 
and Adult Vocational Education Program to pay the costs of providing 
technical assistance.
    (c) In providing technical assistance under paragraph (a) of this 
section, a State may not use amounts to an extent that would interfere 
with achieving the purposes of the program for which the funds were 
awarded.

(Authority: 20 U.S.C. 2302(d) (A)-(D), 2312(a), and 2323(b)(5))



Sec. 403.188  What is a State's responsibility for the cost of services 
and activities for members of special populations?

    A State is not required to use non-Federal funds to pay the cost of 
services and activities that it provides to members of special 
populations pursuant to Sec. 403.32(a) (18)-(26) or to pay the cost of 
services and activities that eligible recipients provide to members of 
special populations pursuant to Secs. 403.111 (a)(2)(i) and (c)(3), 
403.190(b), or 403.193, unless this requirement is imposed by other 
applicable laws.

(Authority: 20 U.S.C. 2328)



       Subpart H--What Conditions Must be Met by Local Recipients?



Sec. 403.190  What are the requirements for receiving a subgrant or contract?

    (a) Each eligible recipient desiring financial assistance under the 
Secondary School Vocational Education Program or the Postsecondary and 
Adult Vocational Education Program must submit to the State board, 
according to requirements established by the State board, an application 
covering the same period as the State plan, for the use of that 
assistance. The State board shall determine requirements for local 
applications, except that each application must--
    (1) Contain a description of--
    (i) The vocational education program to be funded, including--
    (A) The extent to which the program incorporates each of the 
requirements described in Sec. 403.111 (a), (b), and (c); and
    (B) How the eligible recipient will use the funds available under 
Sec. 403.112, Sec. 403.113, or Sec. 403.116 and from other sources to 
improve the program with regard to each requirement and activity 
described in Sec. 403.111 (c) and (d);
    (ii) How the needs of individuals who are members of special 
populations will be assessed and the planned use of funds to meet those 
needs;
    (iii) How access to programs of good quality will be provided to 
students who are economically disadvantaged (including foster children), 
students with disabilities, and students of limited English proficiency 
through affirmative outreach and recruitment efforts;
    (iv) The program evaluation standards the applicant will use to 
measure its progress;
    (v) The methods to be used to coordinate vocational education 
services with relevant programs conducted under the JTPA, including 
cooperative arrangements established with private industry councils 
established under section 102(a) of that Act, in order to avoid 
duplication and to expand the range of and accessibility to vocational 
education services;

[[Page 62]]

    (vi) The methods used to develop vocational educational programs in 
consultation with parents and students of special populations;
    (vii) How the eligible recipient coordinates with community-based 
organizations;
    (viii) The manner and the extent to which the eligible recipient 
considered the demonstrated occupational needs of the area in assisting 
programs funded under the Act;
    (ix) How the eligible recipient will provide a vocational education 
program that--
    (A) Integrates academic and occupational disciplines so that 
students participating in the program are able to achieve both academic 
and occupational competence; and
    (B) Offers coherent sequences of courses leading to a job skill; and
    (x) How the eligible recipient will monitor the provision of 
vocational education to individuals who are members of special 
populations, including the provision of vocational education to students 
with individualized education programs developed under the IDEA;
    (2) Provide assurances that--
    (i) The programs funded under Sec. 403.112, Sec. 403.113, or 
Sec. 403.116 will be carried out according to the requirements regarding 
special populations;
    (ii) The eligible recipient will provide a vocational program that--
    (A) Encourages students through counseling to pursue coherent 
sequences of courses;
    (B) Assists students who are economically disadvantaged, students of 
limited English proficiency, and students with disabilities to succeed 
through supportive services such as counseling, English-language 
instruction, child care, and special aids;
    (C) Is of a size, scope, and quality as to bring about improvement 
in the quality of education offered by the school; and
    (D) Seeks to cooperate with the sex equity program carried out under 
Sec. 403.91; and
    (iii) The eligible recipient will provide sufficient information to 
the State to enable the State to comply with the requirements in 
Sec. 403.113; and
    (3) Contain a report on the number of individuals in each of the 
special populations.
    (b) Each eligible recipient desiring financial assistance under 
title II of the Act must provide assurances to the State board that, 
with respect to any project that is funded under a basic program listed 
in Sec. 403.60 or a special program listed in Sec. 403.130, it will--
    (1) Assist students who are members of special populations to enter 
vocational education programs, and, with respect to students with 
disabilities, assist in fulfilling the transitional service requirement 
of section 626 of the IDEA;
    (2) Assess the special needs of students participating in projects 
receiving assistance under a basic program listed in Sec. 403.60 or a 
special program listed in Sec. 403.130, with respect to their successful 
completion of the vocational education program in the most integrated 
setting possible;
    (3) Provide supplementary services, as defined in 34 CFR 400.4(b), 
to students who are members of special populations;
    (4) Provide guidance, counseling, and career development activities 
conducted by professionally trained counselors and teachers who are 
associated with the provision of those special services; and
    (5) Provide counseling and instructional services designed to 
facilitate the transition from school to post-school employment and 
career opportunities.
    (c) Each eligible recipient desiring financial assistance under 
Title II of the Act must provide the services and activities described 
in paragraph (b) of this section, to the extent possible with funds 
awarded under the Act, and indicate in its local application whether any 
non-Federal funds will be used for this purpose.

    Cross-Reference: See Sec. 403.193(e).

    (d) Each eligible recipient desiring financial assistance under the 
Act shall provide sufficient information to the State, as the State 
board requires, to demonstrate to the State board that the eligible 
recipient's projects comply with Sec. 403.32(a)(18)-(26).

[[Page 63]]

    (e) Each eligible recipient desiring financial assistance under the 
Act shall--
    (1) Provide the assurance described in Sec. 403.14(a)(2); and
    (2) Include in its application, as appropriate--
    (i) The number of disabled students, economically disadvantaged 
students, and students with limited English proficiency in its 
vocational program;
    (ii) An assessment of the vocational needs of its students with 
disabilities, economically disadvantaged students, and students with 
limited English proficiency; and
    (iii) A plan to provide supplementary services sufficient to meet 
the needs identified in the assessment described in paragraph 
(e)(2)(ii).

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2321(c)(1), (d), (e); 2328; and 2343)



Sec. 403.191  What are the requirements for program evaluation?

    (a)(1) Beginning in the 1992-1993 school year, each recipient of 
financial assistance under Sec. 403.112, Sec. 403.113, or Sec. 403.116 
shall evaluate annually the effectiveness of the particular projects, 
services, and activities receiving assistance under a basic program 
listed in Sec. 403.60, or a special program listed in Sec. 403.130, 
unless the State board determines pursuant to Sec. 403.201(a)(3) that a 
broader evaluation is required. A recipient may conduct the evaluation 
required under this paragraph by evaluating either the entire population 
of participants or a representative sample of participants.
    (2) The annual evaluation must be based on the standards and 
measures developed by the State board in accordance with Secs. 403.201 
and 403.202, including any modifications made by the recipient in 
accordance with paragraph (b) of this section.
    (b)(1) Each recipient may modify the State standards and measures 
based on--
    (i) Economic, geographic, or demographic factors; or
    (ii) The characteristics of the populations to be served.
    (2) Modifications must conform to the assessment criteria contained 
in the State plan.
    (c) Each recipient, as part of the annual evaluation required in 
paragraph (a) of this section, and with the full participation of 
representatives of special populations, shall--
    (1) Identify and adopt strategies to overcome barriers that are 
resulting in lower rates of access to, or success in, vocational 
education programs for members of special populations; and
    (2) Evaluate the progress of individuals who are members of special 
populations.
    (d) Each recipient, as a part of the annual evaluation required in 
paragraph (a) of this section, shall evaluate its progress in providing 
vocational education students with strong experience in and 
understanding of all aspects of the industries the students are 
preparing to enter.
    (e) Each recipient may use funds awarded under a basic program 
listed in Sec. 403.60 or a special program listed in Sec. 403.130 to 
support the cost of conducting the evaluation required under paragraphs 
(a) through (d) of this section to the extent that the costs are--
    (1) Reasonable and necessary;
    (2) Related to the purposes for which the funds were awarded; and
    (3) Consistent with applicable requirements, such as the requirement 
in Sec. 403.196 to use funds awarded under title II of the Act to 
supplement, and not to supplant, State and local funds.

(Authority: 20 U.S.C. 2325(a) and 2327(a))



Sec. 403.192  What are the requirements for program improvement?

    (a) If, beginning not less than one year after implementing the 
program evaluation required in Sec. 403.191, a recipient determines, 
through its annual evaluation, that it is not making substantial 
progress in meeting the standards and measures developed by the State 
under Secs. 403.201 and 403.202, the recipient shall develop a plan for 
program improvement for the succeeding school year.
    (b) The plan must be developed in consultation with teachers, 
parents, and students concerned with or affected by the program, and 
must describe how the recipient will identify

[[Page 64]]

and modify projects, services, and activities receiving assistance under 
the programs listed in Secs. 403.60 and 403.130 that are in need of 
improvement, including a description of--
    (1) Vocational education and career development strategies designed 
to achieve progress in improving the effectiveness of the recipient's 
projects, services, and activities receiving assistance under the 
programs listed in Secs. 403.60 and 403.130 evaluated under 
Sec. 403.191(a)(1); and
    (2) If necessary, the strategies designed to improve supplementary 
services provided to individuals who are members of special populations.

    Cross Reference: See 34 CFR 403.204.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2327(b))



Sec. 403.193  What are the information requirements regarding special 
populations?

    (a)(1) Each local educational agency that receives funds under Title 
II of the Act shall provide to students who are members of special 
populations and their parents information concerning--
    (i) The opportunities available in vocational education;
    (ii) The requirements for eligibility for enrollment in those 
vocational education programs;
    (iii) Special courses that are available;
    (iv) Special services that are available;
    (v) Employment opportunities; and
    (vi) Placement.
    (2) Each area vocational education school or intermediate 
educational agency that receives funds under title II of the Act shall 
provide the information described in paragraph (a)(1) of this section to 
the students who are members of special populations and their parents in 
any local educational agency whose allocation was distributed in its 
entirety under Sec. 403.113 to the area vocational education school or 
intermediate educational agency.
    (b) The information described in paragraph (a)(1) of this section 
must be provided at least one year before the students enter, or are of 
an appropriate age for, the grade level in which vocational education 
programs are first generally available in the State, but in no case 
later than the beginning of the ninth grade.
    (c) Each eligible institution or consortium of eligible institutions 
that receives funds under Title II of the Act shall--
    (1) Provide the information described in paragraph (a)(1) of this 
section to each individual who requests information concerning, or seeks 
admission to, vocational education programs offered by the institution 
or consortium of eligible institutions; and
    (2) If appropriate, assist in the preparation of applications 
relating to that admission.
    (d) Information described under paragraph (a)(1) of this section 
must, to the extent practicable, be in a language and form that parents 
and students understand.
    (e) An eligible recipient is not required by this part to use non-
Federal funds to pay the cost of services and activities required by 
this section and Secs. 403.111(a)(2)(i) and (c)(3) and 403.190(b) unless 
this requirement is imposed by other applicable laws.

(Authority: 20 U.S.C. 2328(b) and (c) and 2342(a) and (c)(1)(C))

[57 FR 36735, Aug. 14, 1992, as amended at 59 FR 38513, July 28, 1994]



Sec. 403.194  What are the comparability requirements?

    (a) A local educational agency may receive an award of Federal funds 
under the State plan only if--
    (1) The local educational agency uses State and local funds to 
provide services in secondary schools or sites served with Federal funds 
awarded under the State plan that, taken as a whole, are at least 
comparable to those services being provided in secondary schools or 
sites that are not being served with Federal funds awarded under the 
State plan; or
    (2) In the event that the local educational agency serves all its 
secondary schools or sites with Federal funds awarded under the State 
plan, the local educational agency uses State and local funds to provide 
services that, taken as a whole, are substantially comparable in each 
secondary school or site.

[[Page 65]]


    Cross-Reference: See appendix B to part 403.

    (b) The comparability requirements in paragraph (a) of this section 
do not apply to--
    (1) A local educational agency with only one secondary school or 
site; or
    (2) A consortium composed of more than one local educational agency, 
except that, within a consortium, each local educational agency itself 
must meet the comparability requirements unless it is exempt under 
paragraph (b)(1) of this section.
    (c)(1) A local educational agency shall develop written procedures 
for complying with the comparability requirements in paragraph (a) of 
this section, including a process for demonstrating annually that State 
and local funds are used to provide services in served schools and sites 
that are at least comparable to the services provided with State and 
local funds in schools or sites in the local educational agency that are 
not served with funds awarded under the State plan.
    (2) In reaching the determination as to whether comparability 
requirements in paragraph (a) of this section were met, the local 
educational agency's written procedures--
    (i) Do not have to take into account unpredictable changes in 
student enrollment or personnel assignments that occur after the 
beginning of a school year; and
    (ii) May not take into account any State and local funds spent in 
carrying out the following types of programs:
    (A) Special local programs designed to meet the educational needs of 
educationally deprived children, including compensatory education for 
educationally deprived children, that were excluded in the preceding 
fiscal year from comparability determinations under section 
1018(d)(1)(B) of chapter 1 (20 U.S.C. 2728(d)(1)(B)).
    (B) Bilingual education for children of limited English proficiency.
    (C) Special education for children with disabilities.
    (D) State phase-in programs that were excluded in the preceding 
fiscal year from comparability determinations under section 
1018(d)(2)(B) of chapter 1 (20 U.S.C. 2728(d)(2)(B)).

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2323(b)(19))



Sec. 403.195  What are the administrative cost requirements applicable to 
local recipients?

    (a) Except as provided in paragraphs (b) and (c) of this section, 
each eligible recipient, including a State corrections educational 
agency, that receives an award under a basic program listed in 
Sec. 403.60 or a special program listed in Sec. 403.130, may use no more 
than the amount of funds from each award that is necessary and 
reasonable for the proper and efficient administration of the projects, 
services, and activities for which the award was made.
    (b) Each eligible recipient that receives an award under 
Sec. 403.112, Sec. 403.113, or Sec. 403.116 may use no more than five 
percent of those funds for administrative costs.
    (c) Each eligible partner that receives an award under the Business-
Labor-Education Partnership for Training Program may use no more funds 
under that award for administrative costs than the amounts prescribed in 
Sec. 403.173(b).

(Authority: 20 U.S.C. 2342(c); 2393(a)(1) and (c))



Sec. 403.196  What are the requirements regarding supplanting?

    (a) Funds made available under title II of the Act must be used to 
supplement, and to the extent practicable increase the amount of State 
and local funds that would in the absence of funds under title II of the 
Act be made available for the purposes specified in the State plan and 
the local application.
    (b) Notwithstanding paragraph (a) of this section and 
Sec. 403.32(a)(17), funds made available under title II of the Act may 
be used to pay the costs of vocational education services required by an 
individualized education program developed pursuant to sections 612(4) 
and 614(a)(5) of the IDEA (20 U.S.C. 1412(4) and 1414(a)(5)), in a 
manner consistent with section 614(a)(1) of that Act, and services 
necessary to meet the

[[Page 66]]

requirements of section 504 of the Rehabilitation Act of 1973 with 
respect to ensuring equal access to vocational education.
    (c) Any expenditures pursuant to paragraph (b) of this section must 
increase the amount of funds that would otherwise be available to meet 
the costs of an individualized education program or to comply with 
section 504 of the Rehabilitation Act of 1973.

(Authority: 20 U.S.C. 2468e(a)(1))



Sec. 403.197  What are the requirements for the use of equipment?

    (a) Equipment purchased with funds under Sec. 403.112, Sec. 403.113, 
or Sec. 403.116, when not being used to carry out the purposes of the 
Act for which it was purchased, may be used for other vocational 
education purposes if the acquisition of the equipment was reasonable 
and necessary for the purpose of conducting a properly designed project 
or activity under the Secondary School Vocational Education Program or 
the Postsecondary and Adult Vocational Education Program.
    (b) Equipment purchased with funds under Sec. 403.112, Sec. 403.113, 
or Sec. 403.116, when not being used to carry out the purposes of the 
Act for which it was purchased or other vocational education purposes, 
may be used for other instructional purposes if--
    (1) The acquisition of the equipment was reasonable and necessary 
for the purpose of conducting a properly designed project or activity 
under the Secondary School Vocational Education Program or the 
Postsecondary and Adult Vocational Education Program; and
    (2) The other use of the equipment is after regular school hours or 
on weekends.
    (c) The use of equipment under paragraphs (a) and (b) of this 
section must--
    (1) Be incidental to the use of that equipment for the purposes 
under the Secondary School Vocational Education Program or the 
Postsecondary and Adult Vocational Education Program for which it was 
purchased;
    (2) Not interfere with the use of that equipment for the purposes 
under the Secondary School Vocational Education Program or the 
Postsecondary and Adult Vocational Education Program for which it was 
purchased; and
    (3) Not add to the cost of using that equipment for the purposes 
under the Secondary School Vocational Education Program or the 
Postsecondary and Adult Vocational Education Program for which it was 
purchased.

(Authority: 20 U.S.C. 2342(c)(3))



Subpart I--What Are the Administrative Responsibilities of a State Under 
     the State Vocational and Applied Technology Education Program?



Sec. 403.200  What are the State's responsibilities for ensuring compliance 
with the comparability requirements?

    (a) The State board may not make a payment under the Act to a local 
educational agency unless the LEA is in compliance with Sec. 403.194. As 
indicated in Sec. 403.194(a), an LEA may demonstrate its compliance with 
the comparability requirements by filing an appropriate assurance.
    (b) The State board shall monitor each local educational agency's 
compliance with the comparability requirements in Sec. 403.194.
    (c) If, after a local educational agency receives an award of 
Federal funds under the State plan, the local educational agency is 
found not to be in compliance with the comparability requirements, the 
State board shall--
    (1) Withhold all or a portion of the local educational agency's 
grant award, but not less than the amount or percentage by which the 
local educational agency failed to achieve comparability under the local 
educational agency's procedures established pursuant to Sec. 403.194(c); 
or
    (2) Require repayment of the amount or percentage by which the local 
educational agency failed to achieve comparability if the local 
educational agency is found not to be in compliance after the period of 
availability of the funds awarded has ended.

(Authority: 20 U.S.C. 2323(b)(19))

[[Page 67]]



Sec. 403.201  What are the State's responsibilities for developing and 
implementing a statewide system of core standards and measures of performance?

    (a)(1) Each State board receiving funds under the Act shall develop 
and implement a statewide system of core standards and measures of 
performance for secondary, postsecondary, and adult vocational education 
programs.
    (2) This system must--
    (i) Be developed and implemented by September 25, 1992; and
    (ii) Apply to all programs assisted under the Act.
    (3) The State board must determine whether a recipient of funds 
under Sec. 403.112, Sec. 403.113, or Sec. 403.116 must evaluate more 
than the particular projects, services, and activities receiving 
assistance under a basic program listed in Sec. 403.60 or a special 
program listed in Sec. 403.130 in order to carry out a valid, reliable, 
and otherwise meaningful evaluation of the effectiveness of these 
projects, services, and activities as required by Sec. 403.191(a)(1), 
using the standards and measures developed pursuant to paragraph (a)(1) 
of this section.
    (4) If a State board determines under paragraph (a)(3) of this 
section that a recipient must evaluate more than the particular 
projects, services, and activities receiving assistance under a basic or 
special program, the State board shall--
    (i) Determine whether the entire local vocational education program-
-or which projects, services, and activities in addition to the ones 
assisted under a basic or special program--must be evaluated to assess 
the effectiveness of the particular projects, services, and activities 
receiving assistance under a basic program or a special program; and
    (ii) Require a recipient to conduct an evaluation consistent with 
the State board's determination under paragraph (a)(4)(i) of this 
section.
    (b) To assist in the development and implementation of the Statewide 
system addressed in paragraph (a) of this section, the State board shall 
appoint a State Committee of Practitioners (Committee), as prescribed in 
34 CFR 400.6.
    (c) The State board shall convene the Committee on a regular basis 
to review, comment on, and propose revisions to the State board's draft 
proposal for a system of core standards and measures of performance for 
vocational education programs assisted under the Act.
    (d) To assist the Committee in formulating recommendations for 
modifying standards and measures of performance, the State board shall 
provide the Committee with information concerning differing types of 
standards and measures including--
    (1) The advantages and disadvantages of each type of standard or 
measure; and
    (2) Instances in which those standards and measures--
    (i) Have been effective; and
    (ii) Have not been effective.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2325(a) and (d))



Sec. 403.202  What must each State's system of core standards and measures 
of performance include?

    (a) The statewide system of core standards and measures of 
performance for vocational education programs must include--
    (1) Measures of learning and competency gains, including student 
progress in the achievement of basic and more advanced academic skills;
    (2) One or more measures of the following:
    (i) Student competency attainment.
    (ii) Job or work skill attainment or enhancement including student 
progress in achieving occupational skills necessary to obtain employment 
in the field for which the student has been prepared, including 
occupational skills in the industry the student is preparing to enter.
    (iii) Retention in school or completion of secondary school or its 
equivalent.
    (iv) Placement into additional training or education, military 
service, or employment;
    (3) Incentives or adjustments that are--
    (i) Designed to encourage service to targeted groups or special 
populations; and

[[Page 68]]

    (ii) Developed for each student, and, if appropriate, consistent 
with the student's individualized education program developed under 
section 614(a)(5) of the IDEA; and
    (4) Procedures for using existing resources and methods developed in 
other programs receiving Federal assistance.
    (b) In developing the standards and measures included in the system 
developed under paragraph (a) of this section, the State board shall 
take into consideration and shall provide, to the extent appropriate, 
for consistency with--
    (1) Standards and measures developed under job opportunities and 
basic skills training programs established and operated under a plan 
approved by the Secretary of Health and Human Services that meets the 
requirements of section 402(a)(19) of the Social Security Act (42 U.S.C. 
687); and
    (2) Standards prescribed by the Secretary of Labor under section 106 
of the JTPA.

    Cross-Reference: See 34 CFR 400.6.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2325(b), (c))



Sec. 403.203  What are the State's responsibilities for a State assessment?

    (a) Each State board receiving assistance under the Act shall 
conduct an assessment of the quality of vocational education programs 
throughout the State using measurable objective criteria.
    (b) In developing the assessment criteria, the State board shall--
    (1) Consult with representatives of the groups described in 34 CFR 
400.6(c); and
    (2) Use information gathered by the National Occupational 
Information Coordinating Committee and, if appropriate, other 
information.
    (c) Each State board shall--
    (1) Develop assessment criteria no later than the beginning of the 
1991-1992 school year; and
    (2) Widely disseminate those criteria.
    (d) Assessment criteria must include at least the following factors, 
but may include others:
    (1) Integration of academic and vocational education.
    (2) Sequential courses of study leading to both academic and 
occupational competencies.
    (3) Increased student work skill attainment and job placement.
    (4) Increased linkages between secondary and postsecondary 
educational institutions.
    (5) Instruction and experience, to the extent practicable, in all 
aspects of an industry the students are preparing to enter.
    (6) The ability of the eligible recipients to meet the needs of 
special populations with respect to vocational education.
    (7) Raising the quality of vocational education programs in schools 
with a high concentration of poor and low-achieving students.
    (8) The relevance of programs to the workplace and to the 
occupations for which students are to be trained, and the extent to 
which those programs reflect a realistic assessment of current and 
future labor market needs, including needs in areas of emerging 
technologies.
    (9) The ability of the vocational curriculum, equipment, and 
instructional materials to meet the demands of the work force.
    (10) Basic and higher order current and future workplace 
competencies that will reflect the hiring needs of employers.
    (11) The capability of vocational education programs to meet the 
needs of individuals who are members of special populations.
    (12) Other factors considered appropriate by the State board.
    (e) The assessment must include an analysis of--
    (1) The relative academic, occupational, training, and retraining 
needs of secondary, adult, and postsecondary students; and
    (2) The capability of vocational education programs to provide 
vocational education students, to the extent practicable, with--
    (i) Strong experience in, and understanding of, all aspects of the 
industry the students are preparing to enter (including planning, 
management, finances, technical and production skills, underlying 
principles of technology, labor and community issues,

[[Page 69]]

and health, safety, and environmental issues); and
    (ii) Strong development and use of problem-solving skills and basic 
and advanced academic skills (including skills in the areas of 
mathematics, reading, writing, science, and social studies) in a 
technological setting.
    (f)(1) Each State board shall complete the initial assessment 
required by paragraph (a) of this section before March 25, 1991, and, 
therefore, at least six months prior to the required submission of a new 
State plan to the Secretary.
    (2) Each State board shall conduct an assessment under this section 
prior to the submission of each new State plan to the Secretary.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2323(a)(3), (b)(3)(B), and 2326)



Sec. 403.204  What are the State's responsibilities for program evaluation 
and improvement?

    (a) If, one year after an eligible recipient has implemented its 
program improvement plan described in Sec. 403.192, the State finds that 
the eligible recipient has not made sufficient progress in meeting the 
standards and measures developed as required by Secs. 403.201 and 
403.202, the State shall work jointly with the recipient and with 
teachers, parents, and students concerned with or affected by the 
program, to develop a joint plan for program improvement.
    (b) Each joint plan required by paragraph (a) of this section must 
contain--
    (1) A description of the technical assistance and program activities 
the State will provide to enhance the performance of the eligible 
recipient;
    (2) A reasonable timetable to improve school performance under the 
plan;
    (3) A description of vocational education strategies designed to 
improve the performance of the program as measured by the local 
evaluation; and
    (4) If necessary, a description of strategies designed to improve 
supplementary services provided to individuals who are members of 
special populations.
    (c) The State, in conjunction with the eligible recipient, shall 
annually review and revise the joint plan developed under paragraph (a) 
of this section and provide appropriate assistance until the recipient 
sustains fulfillment of State and local standards and measures developed 
under Secs. 403.201 and 403.202 for more than one year.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2327(c), (d))



Sec. 403.205  What are the State's responsibilities for members of special 
populations?

    The State board shall--
    (a) Establish effective procedures, including an expedited appeals 
procedure, by which students who are members of special populations and 
their parents, teachers, and concerned area residents will be able to 
participate directly in State and local decisions that influence the 
character of programs under the Act affecting their interests; and
    (b) Provide technical assistance and design procedures necessary to 
ensure that those individuals referred to in paragraph (a) of this 
section are given access to the information needed to use those 
procedures.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2328(d))



Sec. 403.206  What are the State's responsibilities regarding a State 
occupational information coordinating committee?

    (a) A State that receives funds under the Act shall establish a 
State occupational information coordinating committee composed of 
representatives of the State board, the State employment security 
agency, the State economic development agency, the State job training 
coordinating council, and the agency administering the vocational 
rehabilitation program.
    (b) With funds made available to it by the National Occupational 
Information Coordinating Committee, the State occupational information 
coordinating committee shall--
    (1) Implement an occupational information system in the State that 
will

[[Page 70]]

meet the common needs for the planning for, and the operation of, 
programs of the State board assisted under the Act and of the 
administering agencies under the JTPA; and
    (2) Use the occupational information system to implement a career 
information delivery system.

(Authority: 20 U.S.C. 2422(b))



Sec. 403.207  What are the State's responsibilities to the National 
Center or Centers for Research in Vocational Education?

    A State shall forward to the National Center for Research in 
Vocational Education a copy of an abstract for each new research, 
curriculum development, or personnel development project it supports, 
and the final report on each project.

(Authority: 20 U.S.C. 2404(c))



Sec. 403.208  What are the requirements regarding supplanting?

    (a) The State board is subject to the prohibition against 
supplanting in Sec. 403.196.
    (b) The State board shall monitor each eligible recipient's 
compliance with the supplanting requirements in Sec. 403.196.

(Authority: 20 U.S.C. 2468e(a)(1))

Appendix A to Part 403--Examples for 34 CFR 403.111(a) and 403.111(c)(3)

    Illustration of providing full participation under 34 CFR 
403.111(a). An educationally disadvantaged student is enrolled in a 
course that is part of a vocational education program and is having 
trouble understanding a math concept (e.g., negative numbers) necessary 
to succeed in the course. To ensure the student's full participation in 
the course, a local educational agency may use funds awarded under 
Sec. 403.112 as needed to provide tutoring in negative numbers to enable 
the student to understand the concept well enough to complete the 
vocational education course.
    Illustrations of providing equitable participation under 34 CFR 
403.111(c)(3). Example 1: An area vocational education school conducts 
an informal meeting to provide the information required in 
Sec. 403.193(a) regarding the area vocational education school's 
vocational education programs, to parents of students who are members of 
special populations in a local educational agency whose allocation was 
distributed to the area vocational education school under Sec. 403.113. 
The area vocational education school conducts the meeting at a time and 
in a location convenient for these parents and students. At the meeting, 
the area vocational education school provides a staff person to assist 
students or their parents to complete any forms necessary to enroll in 
the area vocational education school's vocational education program.
    Example 2: A hearing-impaired student in a local educational agency 
could participate in the vocational education program only if an 
interpreter is provided for that student. The local educational agency 
cannot refuse to admit the student because of the need for an 
interpreter.

   Appendix B to Part 403--Examples for 34 CFR 403.194--Comparability 
                              Requirements

    Methods by which a local educational agency can demonstrate its 
compliance with the comparability requirements in 34 CFR 403.194(a) 
include the following:
    Example 1: The local educational agency files with the State board a 
written assurance that it has established and implemented--
    (a) A district-wide salary schedule;
    (b) A policy to ensure equivalence among secondary schools or sites 
in teachers, administrators, and auxiliary personnel; and
    (c) A policy to ensure equivalency among secondary schools or sites 
in the provision of curriculum materials and instructional supplies.
    Example 2: The local educational agency establishes and implements 
other procedures for ensuring comparability, such as the following:
    (a) Comparing the average number of students per instructional staff 
in each secondary school or site served with Federal funds awarded under 
the State plan with the average number of students per instructional 
staff in secondary schools or sites not served with Federal funds 
awarded under the State plan. A served school is considered comparable 
if its average does not exceed 110 percent of the average of schools or 
sites in the local educational agency not served with Federal funds 
awarded under the State plan; or
    (b) Comparing the average instructional staff salary expenditures 
per student in each secondary school or site served with Federal funds 
awarded under the State plan with the average instructional staff salary 
expenditure per student in schools or sites in the local educational 
agency not served with Federal funds awarded under the State plan. A 
served school is considered comparable if its average is at least 90 
percent of the average of schools or sites not served with Federal funds 
awarded under the State plan.

[[Page 71]]



PART 406--STATE-ADMINISTERED TECH-PREP EDUCATION PROGRAM--Table of Contents




                           Subpart A--General

Sec.
406.1  What is the State-Administered Tech-Prep Education Program?
406.2  Who is eligible for an award?
406.3  What activities may the Secretary fund?
406.4  What regulations apply?
406.5  What definitions apply?

             Subpart B--How Does a State Apply for a Grant?

406.10  What must the State application contain?

       Subpart C--How Does the Secretary Make a Grant to a State?

406.20  How does the Secretary make allotments?
406.21  How does the Secretary make reallotments?

 Subpart D--What Conditions Must Be Met After a State Receives an Award?

406.30  Who is eligible to apply to a State for an award?
406.31  How does a State carry out the State-Administered Tech-Prep 
          Education Program?
406.32  What are the local application requirements?
406.33  What are the reporting requirements?

    Authority: 20 U.S.C. 2394-2394e, unless otherwise noted.

    Source: 57 FR 36763, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 406.1  What is the State-Administered Tech-Prep Education Program?

    If the annual appropriation for tech-prep education exceeds 
$50,000,000, the State-Administered Tech-Prep Education Program provides 
financial assistance for--
    (a) Planning and developing four-year or six-year programs designed 
to provide a tech-prep education program leading to a two-year associate 
degree or certificate; and
    (b) Planning and developing, in a systematic manner, strong, 
comprehensive links between secondary schools and postsecondary 
educational institutions.

(Authority: 20 U.S.C. 2394(b))

[57 FR 36763, Aug. 14, 1992, as amended at 59 FR 38513, July 28, 1994]



Sec. 406.2  Who is eligible for an award?

    A State board of vocational education (State board) in the fifty 
States, Puerto Rico, the District of Columbia, or the Virgin Islands is 
eligible for an allotment under this program.

(Authority: 20 U.S.C. 2394a(b))



Sec. 406.3  What activities may the Secretary fund?

    (a) The Secretary makes allotments to State boards to provide 
funding for consortia described in Sec. 406.30 for tech-prep education 
projects.
    (b) A State board assists projects that must--
    (1) Be carried out under an articulation agreement between the 
members of the consortium;
    (2) Consist of the two years or four years of secondary school 
preceding graduation and two years of higher education, or an 
apprenticeship training program of at least two years following 
secondary instruction, with a common core of required proficiency in 
mathematics, science, communications, and technologies designed to lead 
to an associate degree or certificate in a specific career field;
    (3) Include the development of tech-prep education program curricula 
appropriate to the needs of the consortium participants;
    (4) Include in-service training for teachers that--
    (i) Is designed to train teachers to implement tech-prep education 
program curricula effectively;
    (ii) Provides for joint training for teachers from all participants 
in the consortium; and
    (iii) May provide training on weekends, evenings, or during the 
summer in the form of sessions, institutes, or workshops;
    (5) Include training activities for counselors designed to enable 
counselors to more effectively--
    (i) Recruit students for tech-prep education programs;

[[Page 72]]

    (ii) Ensure that students successfully complete tech-prep education 
programs; and
    (iii) Ensure that students are placed in appropriate employment;
    (6) Provide equal access to the full range of tech-prep education 
programs to individuals who are members of special populations, 
including the development of tech-prep education program services 
appropriate to the needs of these individuals so that these individuals 
have an opportunity to enter tech-prep education that is equal to the 
opportunity afforded to the general student population; and
    (7) Provide preparatory services that assist all populations to 
participate in tech-prep education programs.
    (c) A project assisted under this part may also--
    (1) Provide for the acquisition of tech-prep education program 
equipment; and
    (2) Acquire, as part of the planning activities of the tech-prep 
education program, technical assistance from State or local entities 
that have successfully designed, established, and operated tech-prep 
education programs.

(Authority: 20 U.S.C. 2394a, 2394b)

[57 FR 36763, Aug. 14, 1992, as amended at 59 FR 38514, July 28, 1994]



Sec. 406.4  What regulations apply?

    The following regulations apply to the State-Administered Tech-Prep 
Education Program:
    (a) The regulations in this part 406.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2394-2394e)



Sec. 406.5  What definitions apply?

    (a) The definitions in 34 CFR 400.4 apply to this part.
    (b) The following definitions also apply to this part:
    Articulation agreement means a commitment to a program designed to 
provide students with a non-duplicative sequence of progressive 
achievement leading to competencies in a tech-prep education program.
    Community college--
    (1) Has the meaning provided in 34 CFR 400.4 for the term 
Institution of higher education for an institution that provides not 
less than a two-year program that is acceptable for full credit toward a 
bachelor's degree; and
    (2) Includes tribally controlled community colleges.
    Institution of higher education includes an institution offering 
apprenticeship programs of at least two years beyond the completion of 
secondary school, and includes, in addition to the institutions covered 
by the definition of the term institution of higher education in 34 CFR 
400.4, a--
    (1) Proprietary institution of higher education;
    (2) Postsecondary vocational institution;
    (3) Department, division, or other administrative unit in a college 
or university that provides primarily or exclusively an accredited 
program of education in professional nursing and allied subjects leading 
to the degree of bachelor of nursing, or to be an equivalent degree, or 
to a graduate degree in nursing; and
    (4) Department, division, or other administrative unit in a junior 
college, community college, college, or university that provides 
primarily or exclusively an accredited two-year program of education in 
professional nursing and allied subjects leading to an associate degree 
in nursing or an equivalent degree.
    Tech-prep education program means a combined secondary and 
postsecondary program that--
    (1) Leads to an associate degree or two-year certificate;
    (2) Provides technical preparation in at least one field of 
engineering technology, applied science, mechanical, industrial, or 
practical art or trade, or agriculture, health, or business;
    (3) Builds student competence in mathematics, science, and 
communications (including through applied academics) through a 
sequential course of study; and
    (4) Leads to placement in employment.

(Authority: 20 U.S.C. 1088 and 2394e)

[[Page 73]]



             Subpart B--How Does a State Apply for a Grant?



Sec. 406.10  What must the State application contain?

    To receive a grant under this program, a State board shall submit an 
application to the Secretary at such time, in such manner, as the 
Secretary prescribes. The State board may submit an application along 
with the State plan submitted in accordance with 34 CFR 403.30. The 
application must include a description of--
    (a) The requirements for State board approval of funding of a local 
tech-prep education project, including--
    (1) Whether the State board intends to make awards on a competitive 
basis or on the basis of a formula; and
    (2) If a formula is to be used, a description of that formula;
    (b) How the State board will perform the following:
    (1) Approve applications based on their potential to create an 
effective tech-prep education program as described in Sec. 406.3(b).
    (2) Give special consideration to applicants that--
    (i) Provide for effective employment placement activities or 
transfer of students to four-year baccalaureate degree programs;
    (ii) Are developed in consultation with business, industry, labor 
unions, and institutions of higher education that award baccalaureate 
degrees; and
    (iii) Address effectively the issues of dropout prevention and re-
entry and the needs of minority youth of limited English proficiency, 
youth with disabilities, and disadvantaged youth;
    (3) Ensure an equitable distribution of assistance between urban and 
rural consortium participants;
    (c) How the State board will ensure that local recipients meet the 
requirements of this program; and
    (d) How activities under this program will be coordinated with other 
tech-prep education programs, services, and activities provided under 
the State plan.

(Approved by the Office of Management and Budget under Control No. 1830-
0029)

(Authority: 20 U.S.C. 2394c (b)-(e))

[57 FR 36763, Aug. 14, 1992, as amended at 59 FR 38514, July 28, 1994]



       Subpart C--How Does the Secretary Make a Grant to a State?



Sec. 406.20  How does the Secretary make allotments?

    The Secretary determines the amount of each State's allotment 
according to a formula in section 101(a)(2) of the Act.

(Authority: 20 U.S.C. 2394a(b)(1))



Sec. 406.21  How does the Secretary make reallotments?

    (a)(1) If the Secretary determines that any amount of a State's 
allotment under Sec. 406.20 will not be required for any fiscal year for 
carrying out the program under this part, the Secretary reallots those 
funds to one or more States that demonstrate a current need for 
additional funds and the ability to use them promptly and effectively 
upon reallotment.
    (2) The Secretary announces in the Federal Register the dates on 
which funds will be reallotted.
    (b)(1) No funds reallotted under paragraph (a) of this section may 
be used for any purpose other than the purposes for which they were 
appropriated.
    (2) Any amount reallotted to a State under paragraph (a) of this 
section remains available for obligation during the succeeding fiscal 
year and is deemed to be part of the State's allotment for the fiscal 
year in which the reallotted funds are obligated.

(Authority: 20 U.S.C. 2311(a) and (d) and 2394a(b)(1))

[[Page 74]]



 Subpart D--What Conditions Must Be Met After a State Receives an Award?



Sec. 406.30  Who is eligible to apply to a State for an award?

    (a) A State board shall provide subgrants or contracts to consortia 
between--
    (1) A local educational agency, intermediate educational agency, 
area vocational education school serving secondary school students, or 
secondary school funded by the Bureau of Indian Affairs; and
    (2) A nonprofit institution of higher education that--
    (i) Is qualified as an institution of higher education as defined in 
Sec. 406.5, including institutions receiving assistance under the 
Tribally Controlled Community College Assistance Act of 1978 (25 U.S.C. 
1801 et seq.);
    (ii) Is not prohibited from receiving assistance under part B of the 
Higher Education Act of 1965 pursuant to the provisions of section 
435(a)(3) of that Act; and
    (iii) Offers a two-year associate degree program, a two-year 
certificate program, or a two-year apprenticeship training program that 
follows secondary instruction; or
    (3) A proprietary institution of higher education that--
    (i) Is qualified as an institution of higher education as defined in 
Sec. 406.5;
    (ii) Is not subject to a default management plan required by the 
Secretary; and
    (iii) Offers a two-year associate degree program.
    (b) A consortia must include at least one entity from paragraph 
(a)(1) of this section and at least one entity from either paragraph 
(a)(2) or (a)(3) of this section, and may include more than one entity 
from each group.

(Authority: 20 U.S.C. 2394a)



Sec. 406.31  How does a State carry out the State-Administered Tech-Prep 
Education Program?

    (a) A State board carries out the program by--
    (1) Providing State administration of its grant; and
    (2) Awarding subgrants or contracts to eligible consortia on a 
competitive basis or on the basis of a formula determined by the State 
board.
    (b) A State board may use funds reserved under 34 CFR 403.180(b)(3) 
to provide support for the State-administered Tech-Prep Education 
Program.
    (c) A State board may use no more than the amount of funds from its 
award under this part that is necessary and reasonable for--
    (1) The proper and efficient administration of this program; and
    (2) Technical assistance to promote or enhance the quality and 
effectiveness of the State's tech-prep education program.

(Authority: 20 U.S.C. 2331(c)(2); 2394a(b))



Sec. 406.32  What are the local application requirements?

    (a) Each consortium that desires to receive an award shall submit an 
application to the State board.
    (b) The application must be submitted at the time and contain the 
information prescribed by the State board, and must contain--
    (1) An articulation agreement between the participants in the 
consortium; and
    (2) A three-year plan for the development and implementation of 
activities under this part.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2394c(a)-(b))



Sec. 406.33  What are the reporting requirements?

    The State board shall, in conjunction with recipients of subgrants 
and contracts, with respect to assistance received under this part, 
submit to the Secretary reports as may be required by the Secretary to 
ensure that grantees are complying with the requirements of this part.

(Approved by the Office of Management and Budget under Control No. 1830-
0030)

(Authority: 20 U.S.C. 2394a-2394e)

[[Page 75]]



PART 410--TRIBALLY CONTROLLED POSTSECONDARY VOCATIONAL INSTITUTIONS 
PROGRAM--Table of Contents




                           Subpart A--General

Sec.
410.1  What is the Tribally Controlled Postsecondary Vocational 
          Institutions Program?
410.2  Who is eligible for an award?
410.3  What activities may the Secretary fund?
410.4  What regulations apply?
410.5  What definitions apply?

               Subpart B--How Does One Apply for an Award?

410.10  What must an application contain?

            Subpart C--How Does the Secretary Make an Award?

410.20  How does the Secretary apply the selection criteria in 
          Sec. 410.21?
410.21  What selection criteria does the Secretary use for institutional 
          support grants?
410.22  What additional factors does the Secretary consider?
410.23  How does the Secretary select grantees for institutional support 
          grants?
410.24  How does the Secretary award additional grants?

         Subpart D--What Conditions Must Be Met After an Award?

410.30  What expenses are allowable under an institutional support 
          grant?
410.31  What other provisions apply to this program?

    Authority: 20 U.S.C. 2397-2397h, unless otherwise noted.

    Source: 57 FR 36773, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 410.1  What is the Tribally Controlled Postsecondary Vocational 
Institutions Program?

    The Tribally Controlled Postsecondary Vocational Institutions 
Program provides grants for the operation and improvement of tribally 
controlled postsecondary vocational institutions to ensure continued and 
expanded educational opportunities for Indian students, and to allow for 
the improvement and expansion of the physical resources of those 
institutions.

(Authority: 20 U.S.C. 2397 and 2397c)



Sec. 410.2  Who is eligible for an award?

    A tribally controlled postsecondary vocational institution is 
eligible for assistance under this part if it--
    (a) Is governed by a board of directors or trustees, a majority of 
whom are Indians;
    (b) Demonstrates adherence to stated goals, a philosophy, or a plan 
of operation that fosters individual Indian economic and self-
sufficiency opportunity, including programs that are appropriate to 
stated tribal goals of developing individual entrepreneurships and self-
sustaining economic infrastructures on reservations;
    (c) Has been in operation for at least three years;
    (d) Holds accreditation with or is a candidate for accreditation by 
a nationally recognized accrediting authority for postsecondary 
vocational education; and
    (e) Enrolls the full-time equivalency of not fewer than 100 
students, of whom a majority are Indians.

(Authority: 20 U.S.C. 2397b)



Sec. 410.3  What activities may the Secretary fund?

    The Secretary provides grants for basic support for the education 
and training of Indian students, including--
    (a) Training costs;
    (b) Educational costs;
    (c) Equipment costs;
    (d) Administrative costs; and
    (e) Costs of operation and maintenance of the institution.

(Authority: 20 U.S.C. 2397a)



Sec. 410.4  What regulations apply?

    The following regulations apply to the Tribally Controlled 
Postsecondary Vocational Institutions Program:
    (a) The regulations in this part 410.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2397-2397h)

[[Page 76]]



Sec. 410.5  What definitions apply?

    (a) The definitions in 34 CFR 400.4 apply to this part, except for 
the definition of the term Act.
    (b) The following definitions also apply to this part:
    Act means the Tribally Controlled Vocational Institutions Support 
Act of 1990.
    Indian means a person who is a member of an Indian tribe.
    Indian student count means a number equal to the total number of 
Indian students enrolled in each tribally controlled vocational 
institution, determined as follows:
    (1) The registrations of Indian students as in effect on October 1 
of each year.
    (2) Credits or clock hours toward a certificate earned in classes 
offered during a summer term must be counted toward the computation of 
the Indian student count in the succeeding fall term.
    (3) Credits or clock hours toward a certificate earned in classes 
during a summer term must be counted toward the computation of the 
Indian student count if the institution at which the student is in 
attendance has established criteria for the admission of the student on 
the basis of the student's ability to benefit from the education or 
training offered. The institution is presumed to have established those 
criteria if the admission procedures for those studies include 
counseling or testing that measures the student's aptitude to 
successfully complete the course in which the student has enrolled. 
Credit earned by the student for purposes of obtaining a high school 
degree or its equivalent may not be counted toward the computation of 
the Indian student count.
    (4) Indian students earning credits in any continuing education 
program of a tribally controlled vocational institution must be included 
in determining the sum of all credit or clock hours.
    (5) Credits or clock hours earned in a continuing education program 
must be converted to the basis that is in accordance with the 
institution's system for providing credit for participation in those 
programs.
    Indian tribe means any Indian tribe, band, nation, or other 
organized group or community, including any Alaskan native village or 
regional or village corporation as defined in or established pursuant to 
the Alaskan Native Claims Settlement Act (43 U.S.C. 1601 et seq.), that 
is federally recognized as eligible for the special programs and 
services provided by the United States to Indians because of their 
status as Indians.
    Tribally controlled postsecondary vocational institution means an 
institution of higher education that is formally controlled, or has been 
formally sanctioned or chartered by the governing body of an Indian 
tribe or tribes, and that offers technical degrees or certificate 
granting programs. This term does not include an institution that is a 
tribally controlled community college as defined in 34 CFR 400.4. (See 
Cong. Rec. S4116 (daily ed. April 5, 1990) (Statement of Senator 
Bingaman); Cong. Rec. H1708 (daily ed. May 9, 1989) (Statement of Rep. 
Richardson)).

(Authority: 20 U.S.C. 2397h and 25 U.S.C. 1801 (1) and (2))



               Subpart B--How Does One Apply for an Award?



Sec. 410.10  What must an application contain?

    (a) An application for a grant under the Tribally Controlled 
Postsecondary Vocational Institutions Program must include the 
following:
    (1) Documentation showing that the institution is eligible according 
to the requirements in Sec. 410.2.
    (2) A description of the fiscal control and fund accounting 
procedures to be used for all funds received under this program that 
will allow the Secretary to monitor expenditures and the Education 
Department Inspector General, the U.S. Comptroller General, or an 
independent non-Federal auditor to audit the institution's programs.
    (3) The institution's operating expenses for the preceding fiscal 
year, including allowable expenses listed in Sec. 410.30.
    (4) The institution's Indian student count.
    (b) An application for an institutional support grant must also 
contain a comprehensive development plan addressing the following:

[[Page 77]]

    (1) The institutional mission statement, i.e., a broad statement of 
purpose, that identifies the institution's distinguishing 
characteristics, including the characteristics of the students the 
institution serves and plans to serve and the programs of study it 
offers and proposes to offer.
    (2) Data for the past three academic years reflecting the number and 
required qualifications of the teaching and administrative staff, the 
number of students enrolled, attendance rates, dropout rates, graduation 
rates, rate of job placement or college enrollment after graduation, and 
the most significant scholastic problems affecting the student 
population.
    (3) A description of how the institution is responsive to the 
current and projected labor market needs in its geographic area, 
including the institution's plans for placement of students.
    (4) Assumptions concerning the institutional environment, the 
potential number of students to be served, enrollment trends, and 
economic factors that could affect the institution.
    (5) Major problems or deficiencies that inhibit the institution from 
realizing its mission.
    (6) Long-range and short-range goals that will chart the growth and 
development of the institution and address the problems identified under 
paragraph (b)(5) of this section.
    (7) Measurable objectives related to reaching each goal.
    (8) Time-frames for achieving the goals and objectives described in 
paragraphs (b)(6) and (7) of this section.
    (9) Priorities for implementing improvements concerning 
instructional and student support, capital expenditures, equipment, and 
other priority areas.
    (10) Major resource requirements necessary to achieve the 
institution's goals and objectives, including personnel, finances, 
equipment, and facilities.
    (11) A detailed budget identifying the costs to be paid with a grant 
under this program and resources available from other Federal, State, 
and local sources that will be used to achieve the institution's goals 
and objectives. Budget and cost information must be sufficiently 
detailed to enable the Secretary to determine the amount of payments 
pursuant to section 386(b)(2) of the Act. The statement must include 
information on allowable expenses listed in Sec. 410.30.
    (12) Strategies and resources for objectively evaluating the 
institution's progress towards, and success in, achieving its goals and 
objectives.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2397b, 2397c(a), 2397d(b)(2)(B), and 2397f)



            Subpart C--How Does the Secretary Make an Award?



Sec. 410.20  How does the Secretary apply the selection criteria in Sec. 
410.21?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 410.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 410.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion in Sec. 410.21 is indicated in parentheses 
after the heading for each criterion.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 410.21.

(Authority: 20 U.S.C. 2397-2397h)



Sec. 410.21  What selection criteria does the Secretary use for institutional 
support grants?

    The Secretary uses the following criteria to evaluate an application 
for an institutional support grant:
    (a) Institutional goals and objectives. (10 points) The Secretary 
reviews each application to determine the extent to which the 
applicant's current and future institutional goals and objectives are--
    (1) Realistic and defined in terms of measurable results; and
    (2) Directly related to the problems to be solved.
    (b) Comprehensive development plan. (25 points) The Secretary 
reviews each application to determine the extent to

[[Page 78]]

which the plan is effectively designed to meet the applicant's current 
and future institutional goals and objectives, including instructional 
and student support needs, and equipment and capital requirements.
    (c) Implementation strategy. (20 points) The Secretary reviews each 
application to determine the extent to which an applicant's 
implementation strategy--
    (1) For each major activity funded under this program, is 
comprehensive and likely to be effective, taking into account the 
applicant's past performance and the data for the past three academic 
years reflecting the number and required qualifications of the teaching 
and administrative staff, the number of students enrolled, attendance 
rates, dropout rates, graduation rates, rate of job placement or college 
enrollment after graduation, and the most significant scholastic 
problems affecting the student population;
    (2) Includes a realistic timetable for each such activity; and
    (3) Includes a staff management plan likely to ensure effective 
administration of the project activities.
    (d) Budget and cost effectiveness. (20 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is adequate to support the proposed activities to be 
funded under this program, including capital expenditures and 
acquisition of equipment, if applicable;
    (2) Costs are necessary and reasonable in relation to similar 
activities the institution carried out in previous years; and
    (3) The budget narrative justifies the expenditures.
    (e) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the evaluation plan the 
institution plans to use to determine its progress towards, and success 
in, achieving its goals and objectives, including the extent to which--
    (1) The plan identifies, at a minimum, types of data to be 
collected, expected outcomes, and how those outcomes will be measured;
    (2) The methods of evaluation are appropriate and, to the extent 
possible, are objective and produce data that are quantifiable; and
    (3) The methods of evaluation provide periodic data that can be used 
for ongoing program improvement.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2397-2397h)



Sec. 410.22  What additional factors does the Secretary consider?

    (a) After evaluating applications according to the criteria in 
Sec. 410.21 and consulting, to the extent practicable, with boards of 
trustees and the tribal governments chartering the institutions being 
considered, the Secretary determines whether the most highly rated 
applications are equitably distributed among Indian tribes.
    (b) The Secretary may select other applications for funding if doing 
so would improve the distribution of projects among Indian tribes.
    (c) In addition to the criteria in Sec. 410.21, the Secretary 
considers whether funding a particular applicant duplicates an effort 
already being made.

(Authority: 20 U.S.C. 2397-2397h)



Sec. 410.23  How does the Secretary select grantees for institutional 
support grants?

    (a) The Secretary selects at least two eligible applicants for 
funding.
    (b) If only one or two applicants are eligible, the Secretary 
selects each eligible applicant. The amount of each grant is determined 
by the quality of the application, based on the selection criteria in 
Sec. 410.22, and the respective needs of the applicants.
    (c) If there are more than two eligible applicants, the Secretary 
ranks each application using the selection criteria in Sec. 410.22. The 
Secretary funds two or more applicants. The number of grants made and 
the amount of each grant is determined by taking into account the 
quality of the applications and the respective needs of the applicants.
    (d) For fiscal years subsequent to the first year of funding, the 
Secretary follows the procedure in paragraphs (a) through (c) of this 
section, except that if appropriations for that fiscal year are not 
sufficient to pay in full the total amount that approved applicants are 
eligible to receive, the Secretary

[[Page 79]]

allocates the available grant amounts as required by section 388(a) of 
the Act.

(Authority: 20 U.S.C. 2397c(b))



Sec. 410.24  How does the Secretary award additional grants?

    If funds remain after providing grants to all eligible institutions, 
the Secretary makes awards as follows:
    (a) The Secretary allocates funds to institutions receiving their 
first grant under this part in an amount equal to the training equipment 
costs necessary to implement training programs.
    (b) If funds remain after the Secretary makes awards under paragraph 
(a) of this section, the Secretary reviews training equipment needs at 
each institution receiving assistance under this part at the end of the 
five-year period beginning on the first day of the first year for which 
the institution received a grant under this part, and provides 
allocations for other training equipment needs if it is demonstrated by 
the institution that its training equipment has become obsolete for its 
purposes, or that the development of other training programs is 
appropriate.

(Authority: 20 U.S.C. 2397d(d))



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 410.30  What expenses are allowable under an institutional support 
grant?

    An institutional support grant may only be used to pay expenses 
associated with the following:
    (a) The maintenance and operation of the program, including--
    (1) Development costs;
    (2) Costs of basic and special instruction, including special 
programs for individuals with disabilities and academic instruction;
    (3) Materials;
    (4) Student costs;
    (5) Administrative expenses;
    (6) Boarding costs;
    (7) Transportation;
    (8) Student services;
    (9) Day care and family support programs for students and their 
families, including contributions to the costs of education for 
dependents; and
    (10) Training equipment costs necessary to implement training 
programs.
    (b) Capital expenditures, including operations and maintenance, 
minor improvements and repair, and physical plant maintenance costs.
    (c) Costs associated with repair, upkeep, replacement, and upgrading 
of instructional equipment.

(Authority: 20 U.S.C. 2397d(a), (d))



Sec. 410.31  What other provisions apply to this program?

    (a) Except as specifically provided in the Act, eligibility for 
assistance under this part may not preclude any tribally controlled 
postsecondary vocational institution from receiving Federal financial 
assistance under any program authorized under the Higher Education Act 
of 1965 (20 U.S.C. 1001 et seq.) or any other applicable program for the 
benefit of institutions of higher education or vocational education.
    (b) No tribally controlled postsecondary vocational institution for 
which an Indian tribe has designated a portion of the funds appropriated 
for the tribe from funds appropriated under the Act of November 2, 1921 
(25 U.S.C. 13) may be denied a contract for that portion under the 
Indian Self-Determination and Education Assistance Act (25 U.S.C. 450 et 
seq.) (except as provided in that Act), or denied appropriate contract 
support to administer that portion of the appropriated funds.

(Authority: 20 U.S.C. 2397e)



PART 411--VOCATIONAL EDUCATION RESEARCH PROGRAM--Table of Contents




                           Subpart A--General

Sec.
411.1  What is the Vocational Education Research Program?
411.2  Who is eligible for an award?
411.3  What activities may the Secretary fund?
411.4  What regulations apply?
411.5  What definitions apply?

Subpart B [Reserved]

[[Page 80]]

             Subpart C--How Does the Secretary Make a Grant?

411.20  How does the Secretary evaluate an application?
411.21  What selection criteria does the Secretary use?
411.22  What additional factors may the Secretary consider?
411.23  How does the Secretary evaluate unsolicited applications?
411.24  How does the Secretary select an unsolicited application for 
          funding?

    Authority: 20 U.S.C. 2401 and 2402, unless otherwise noted.

    Source: 57 FR 36776, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 411.1  What is the Vocational Education Research Program?

    The Vocational Education Research Program is designed to--
    (a) Improve access to vocational educational programs for 
individuals with disabilities, individuals who are disadvantaged, men 
and women who are entering nontraditional occupations, adults who are in 
need of retraining, single parents, displaced homemakers, single 
pregnant women, individuals with limited English proficiency, and 
individuals who are incarcerated in correctional institutions;
    (b) Support research and development activities that make the United 
States more competitive in the world economy by developing more fully 
the academic and occupational skills of all segments of the population 
by concentrating resources on improving educational programs leading to 
academic and occupational skill competencies needed to work in a 
technologically advanced society;
    (c) Improve the competitive process by which research projects are 
awarded;
    (d) Encourage the dissemination of findings of research projects 
assisted under the Act to all States; and
    (e) Support research activities that are readily applicable to the 
vocational education setting and are of practical application to 
vocational education administrators, counselors, instructors, and others 
involved in vocational education.

(Authority: 20 U.S.C. 2401)



Sec. 411.2  Who is eligible for an award?

    (a) Any individual or public or private agency, organization, or 
institution may apply for an award under this part.
    (b) Any individual researcher, community college, State advisory 
council, or State or local educator may submit an unsolicited research 
application.

(Authority: 20 U.S.C. 2402(a), (b))



Sec. 411.3  What activities may the Secretary fund?

    The Secretary may directly, or through grants, cooperative 
agreements, or contracts, conduct applied research on aspects of 
vocational education that are specially related to the Act, including 
the following:
    (a) Applied research on--
    (1) Effective methods for providing quality vocational education to 
individuals with disabilities, disadvantaged individuals, men and women 
in nontraditional fields, adults, single parents, displaced homemakers, 
single pregnant women, individuals with limited English proficiency, and 
individuals who are incarcerated in correctional institutions;
    (2) The development and implementation of performance standards and 
measures that fit within the needs of State boards of vocational 
education or eligible recipients as defined in 34 CFR 400.4 in carrying 
out the provisions of the Act and on the relationship of those standards 
and measures to the data system established under section 421 of the 
Act. Research may include an evaluation of existing performance 
standards and measures and dissemination of that information to State 
boards of vocational education and eligible recipients;
    (3) Strategies for coordinating local, State, and Federal vocational 
education, employment training, and economic development programs to 
maximize their efficacy and for improving worker training and 
retraining;
    (4) The constructive involvement of the private sector in public 
vocational education;
    (5) Successful methods of reinforcing and enhancing basic and more 
advanced academic and problem-solving skills in vocational settings;

[[Page 81]]

    (6) Successful methods for providing students, to the maximum extent 
practicable, with experience in and understanding of all aspects of the 
industry those students are preparing to enter; and
    (7) The development of effective methods for providing quality 
vocational education to individuals with limited English proficiency, 
including research related to bilingual vocational training.
    (b) An evaluation of the use of performance standards and measures 
under the Act and the effect of those standards and measures on the 
participation of students in vocational education programs and on the 
outcomes of students in those programs, especially students who are 
members of special populations as defined in 34 CFR 400.4.

(Authority: 20 U.S.C. 2402(a))



Sec. 411.4  What regulations apply?

    The following regulations apply to the Vocational Education Research 
Program:
    (a) The regulations in this part 411.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2401 and 2402)



Sec. 411.5  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part.

(Authority: 20 U.S.C. 2401 and 2402)

Subpart B [Reserved]



             Subpart C--How Does the Secretary Make a Grant?



Sec. 411.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 411.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of the 
section, based on the criteria in Sec. 411.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 411.21.
    (e) The Secretary awards five points to applications submitted by 
public or private postsecondary institutions.

(Authority: 20 U.S.C. 2402)



Sec. 411.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) National need. (20 points) The Secretary reviews each 
application to determine the extent to which the project would make a 
contribution of national significance, as measured by such factors as--
    (1) The need for the project in relation to any program priority 
announced in the Federal Register; and
    (2) The likelihood that the project will make an important 
contribution to vocational education.
    (b) Plan of operation. (25 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) High quality in the design of the project;
    (2) An effective plan of management that ensures proper and 
efficient administration of the project;
    (3) A clear description of how the objectives of the project relate 
to the purposes of the program;
    (4) The quality of the applicant's plans to use its resources and 
personnel to achieve each objective; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disability.
    (c) Key personnel. (15 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications of the project director;
    (ii) The qualifications of each of the other key personnel to be 
used in the project;

[[Page 82]]

    (iii) The appropriateness of the time that each one of the key 
personnel, including the project director, will commit to the project; 
and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disability.
    (2) To determine personnel qualifications under paragraphs (c)(1)(i) 
and (ii) of this section, the Secretary considers--
    (i) Experience and training in fields related to the objectives of 
the project;
    (ii) Experience and training in project management; and
    (iii) Any other qualifications that pertain to the quality of the 
project.
    (d) Budget and cost effectiveness. (10 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget for the project is adequate to support the project 
activities; and
    (2) Costs are reasonable and necessary in relation to the objectives 
of the project.
    (e) Evaluation plan. (5 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Are clearly explained and appropriate to the project;
    (2) To the extent possible, are objective and produce data that are 
quantifiable;
    (3) Includes activities during the formative stages of the project 
to help guide and improve the project, as well as a summative evaluation 
that includes recommendations for replicating project activities and 
results;
    (4) If appropriate, identifies expected outcomes of the project 
participants and how those outcomes will be measured;
    (5) If appropriate, will provide a comparison between intended and 
observed results, and lead to the demonstration of a clear link between 
the observed results and the specific treatment of project participants; 
and
    (6) To the extent possible, include a third party evaluation.
    (f) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the resources that the 
applicant plans to devote to the project, including facilities, 
equipment, and supplies.
    (g) Dissemination plan. (5 points) The Secretary reviews each 
application to determine the quality of the dissemination plan for the 
project, including--
    (1) The extent to which the project is designed to yield outcomes 
that can be readily disseminated;
    (2) A clear description of the project outcomes; and
    (3) A detailed description of how information and materials will be 
disseminated, including--
    (i) Provisions for publicizing the project at the local, State, and 
national levels by conducting or delivering presentations at 
conferences, workshops, and other professional meetings and by preparing 
materials for journals articles, newsletters, and brochures;
    (ii) Provisions for demonstrating the methods and techniques used by 
the project to others interested in replicating these methods and 
techniques; and
    (iii) Provisions for assisting others to adopt and successfully 
implement the project or methods and techniques used by the project.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2402)



Sec. 411.22  What additional factors may the Secretary consider?

    After evaluating the applications according to the criteria in 
Sec. 411.21 the Secretary may select other than the most highly rated 
applications for funding if doing so would--
    (a) Improve the geographical distribution of projects funded under 
this program; or
    (b) Contribute to the funding of a variety of approaches for 
carrying out the activities under this part.

(Authority: 20 U.S.C. 2401 and 2402)



Sec. 411.23  How does the Secretary evaluate unsolicited applications?

    (a) At any time during a fiscal year, the Secretary may accept and 
consider

[[Page 83]]

for funding an unsolicited application that has not been submitted under 
a competition announced in the Federal Register for that fiscal year, if 
the project proposes activities described in Sec. 411.3.
    (b) Notwithstanding the provisions of 34 CFR 75.100, the Secretary 
may fund an unsolicited application without publishing an application 
notice in the Federal Register.
    (c) The Secretary may select an unsolicited application for funding 
in accordance with the procedures in Secs. 411.20(e) and 411.24.
    (d) The Secretary assigns the 15 points reserved under 
Sec. 411.20(b) as follows:
    (1) Ten points to the selection criterion in Sec. 411.21(a)--
national need.
    (2) Five points to the selection criterion in Sec. 411.21(b)--plan 
of operation.

(Authority: 20 U.S.C. 2402)



Sec. 411.24  How does the Secretary select an unsolicited application for funding?

    (a) After evaluating an unsolicited research application on the 
basis of the criteria in Sec. 411.21, the Secretary compares that 
application to other unsolicited research applications the Secretary has 
received.
    (b) The Secretary may fund an unsolicited research application at 
any time during the fiscal year.

(Authority: 20 U.S.C. 2402)



PART 412--NATIONAL NETWORK FOR CURRICULUM COORDINATION IN VOCATIONAL AND 
TECHNICAL EDUCATION--Table of Contents




                           Subpart A--General

Sec.
412.1  What is the National Network for Curriculum Coordination in 
          Vocational and Technical Education?
412.2  Who is eligible for an award?
412.3  What activities may the Secretary fund?
412.4  What is the National Network of Directors Council?
412.5  What regulations apply?
412.6  What definitions apply?

Subpart B [Reserved]

            Subpart C--How Does the Secretary Make an Award?

412.20  How does the Secretary evaluate an application?
412.21  What selection criteria does the Secretary use?

         Subpart D--What Conditions Must Be Met After an Award?

412.30  What additional activities must be carried out by Curriculum 
          Coordination Centers?
412.31  What existing dissemination systems must be used?

    Authority: 20 U.S.C. 2402(c), unless otherwise noted.

    Source: 57 FR 36778, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 412.1  What is the National Network for Curriculum Coordination in 
Vocational and Technical Education?

    The National Network for Curriculum Coordination in Vocational and 
Technical Education (Network) is a system of six curriculum coordination 
centers that disseminate information resulting from research and 
development activities carried out under the Act, in order to ensure 
broad access at the State and local levels to the information being 
disseminated.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.2  Who is eligible for an award?

    State and local educational agencies, postsecondary educational 
institutions, and other public and private agencies, organizations, and 
institutions are eligible for an award under this program.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.3  What activities may the Secretary fund?

    (a) The Secretary provides grants, cooperative agreements, or 
contracts to six regional curriculum coordination centers (CCCs).
    (b) Each CCC must--(1) Provide for national dissemination of 
information on effective vocational and technical education programs and 
materials, with particular attention to regional programs;
    (2) Be accessible by electronic means;

[[Page 84]]

    (3) Provide leadership and technical assistance in the design, 
development, and dissemination of curricula for vocational education;
    (4) Coordinate the sharing of information among the States with 
respect to vocational and technical education curricula;
    (5) Reduce duplication of effort in State activities for the 
development of vocational and technical education curricula; and
    (6) Promote the use of research findings with respect to vocational 
education curricula.
    (c) The six regional CCCs assisted with funds under this program 
must serve States according to the Department of Education's regional 
alignment as follows:
    (1) The Northeast Curriculum Coordination Center serves Connecticut, 
Maine, Massachusetts, New Hampshire, New Jersey, New York, Puerto Rico, 
Rhode Island, Vermont, and the Virgin Islands.
    (2) The Southeast Curriculum Coordination Center serves Alabama, 
Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, 
and Tennessee.
    (3) The East Central Curriculum Coordination Center serves Delaware, 
the District of Columbia, Indiana, Illinois, Maryland, Michigan, 
Minnesota, Ohio, Pennsylvania, Virginia, West Virginia, and Wisconsin.
    (4) The Midwest Curriculum Coordination Center serves Arkansas, 
Iowa, Kansas, Louisiana, Missouri, Nebraska, New Mexico, Oklahoma, and 
Texas.
    (5) The Northwest Curriculum Coordination Center serves Alaska, 
Colorado, Idaho, Montana, North Dakota, Oregon, South Dakota, Utah, 
Washington, and Wyoming.
    (6) The Western Curriculum Coordination Center serves American 
Samoa, Arizona, California, Guam, Hawaii, Nevada, the Northern Mariana 
Islands, and Palau until the Compact of Free Association with Palau 
takes effect.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.4  What is the National Network of Directors Council?

    (a) The National Network of Directors Council (Council) enhances the 
effectiveness of the Network by--
    (1) Planning for inter-center coordination, dissemination, and 
diffusion activities;
    (2) Providing leadership to ensure cohesiveness for overall Network 
functions;
    (3) Promoting the adoption and adaptation of curriculum materials;
    (4) Maintaining liaison with dissemination systems described in 
Sec. 412.32;
    (5) Convening at least twice a year; and
    (6) Planning for and participating in an annual meeting of CCCs that 
includes activities such as displays of current curriculum materials 
from each CCC, inservice training sessions, and hands-on experience with 
new technologies in vocational and technical education. This meeting 
must be held in a different region each year.
    (b) The Council is composed of the six CCC directors and a liaison 
from the Department. One of the CCC directors serves as chair for the 
Council and has responsibilities for submitting minutes of Council 
meetings to the Secretary.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.5  What regulations apply?

    The following regulations apply to the National Network for 
Curriculum Coordination in Vocational and Technical Education:
    (a) The regulations in this part 412.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.6  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part.

(Authority: 20 U.S.C. 2402(c))

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 412.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 412.21.

[[Page 85]]

    (b) The Secretary may award up to 100 points, including 15 points to 
be distributed in accordance with paragraph (d) of this section, based 
on the criteria in Sec. 412.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 412.21.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Regional need. (30 points) The Secretary reviews each 
application to determine the applicant's understanding of and 
responsiveness to the needs of the region, including the extent to which 
the applicant--
    (1) Demonstrates an understanding of the leadership responsibilities 
associated with serving as a resource center and facilitator for States 
in a region, including the region's need for inservice training, holding 
regional meetings, providing technical assistance, coordinating with 
State directors of vocational education, maintaining a lending library, 
and disseminating information regularly;
    (2) Proposes adequate mechanisms and procedures for reporting the 
results of curriculum networking services and activities of the 50 
States, District of Columbia, Puerto Rico, and the Outlying Areas;
    (3) Demonstrates the capacity to disseminate information on 
effective vocational education materials, including curriculum 
materials;
    (4) Demonstrates an understanding of the operation of the Vocational 
Education Curriculum Materials and ADVOCNET Systems and the need for 
establishing a Tech-Prep education clearinghouse; and
    (5) Demonstrates the capacity to undertake the responsibilities 
associated with participation as a member of the Network Directors 
Council described in Sec. 412.4.
    (b) Plan of operation. (25 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The quality of the design of the project;
    (2) The extent to which the management plan ensures proper and 
efficient administration of the project;
    (3) How well the objectives of the project relate to the purpose of 
the program;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disability.
    (c) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the proposed project, including--
    (i) The qualifications of the project director;
    (ii) The qualifications of each of the other key personnel to be 
used in the project;
    (iii) The appropriateness of the time that each person referred to 
in paragraphs (c)(1) (i) and (ii) of this section will commit to the 
project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disability.
    (2) To determine the personnel qualifications under paragraphs 
(c)(1)(i) and (ii) of this section, the Secretary considers--
    (i) The experience and training of key personnel in project 
management and in the fields related to the objectives of the project; 
and
    (ii) Any other qualifications of key personnel that pertain to the 
quality of the project.
    (d) Institutional commitment. (10 points) The Secretary reviews each 
application to determine the extent to which the applicant--
    (1) Has experience with vocational education curriculum and 
dissemination;

[[Page 86]]

    (2) Will initiate and maintain liaison functions with regional 
States; and
    (3) Will provide adequate facilities, equipment, and supplies.
    (e) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is cost effective and adequate to support the project 
activities; and
    (2) The budget contains costs that are reasonable in relation to the 
objectives of the project.
    (f) Evaluation plan. (5 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the plan--
    (1) Is clearly explained and is appropriate to the project; and
    (2) Identifies expected outcomes of the services provided and how 
those services will be measured.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2402(c))



         Subpart D--What Conditions Must Be Met After An Award?



Sec. 412.30  What additional activities must be carried out by Curriculum 
Coordination Centers?

    In carrying out the activities described in Sec. 412.3, each CCC 
must perform the following activities:
    (a) Assist States in the development, adaptation, adoption, 
dissemination, and use of curriculum materials and services and other 
information resulting from research and development activities carried 
out under the Act, including performing these activities during at least 
two regional meetings involving States served by the CCC. One of these 
regional meetings must be conducted jointly with the other five CCCs and 
their regional States at the meeting described in Sec. 412.4(a)(6).
    (b) Coordinate with other curriculum coordination centers funded 
under this part.
    (c) Coordinate with the State salaried State liaison representative 
(SLR), who is appointed by the State director of vocational education. 
The SLR has primary responsibilities for liaison activities within the 
States, including--
    (1) Obtaining new curriculum and research and development materials 
for Network sharing;
    (2) Informing localities and State agencies of Network services;
    (3) Disseminating CCC related materials;
    (4) Arranging for intrastate and interstate development and 
dissemination activities;
    (5) Arranging for technical assistance and inservice training 
workshops;
    (6) Participating in regional CCC meetings; and
    (7) Fostering adoption and adaptations of materials available 
through the CCC.
    (d) Maintain a lending library with a collection of vocational 
education curriculum, research, and development materials for use by the 
States served by the CCC.
    (e) Each CCC must participate in the Council activities described in 
Sec. 412.4.

(Authority: 20 U.S.C. 2402(c))



Sec. 412.31  What existing dissemination systems must be used?

    In carrying out its activities, each CCC must use existing 
dissemination systems, including the National Diffusion Network and the 
National Center or Centers for Research in Vocational Education, in 
order to ensure broad access at the State and local levels to the 
information being disseminated.

(Authority: 20 U.S.C. 2402(c))



PART 413--NATIONAL CENTER OR CENTERS FOR RESEARCH IN VOCATIONAL EDUCATION--
Table of Contents




                           Subpart A--General

Sec.
413.1  What is the National Center or Centers for Research in Vocational 
          Education?
413.2  Who is eligible to apply for the National Center or Centers?
413.3  What kinds of activities are carried out?
413.4  How does the Secretary designate a National Center or Centers?
413.5  What regulations apply?
413.6  What definitions apply?

Subpart B [Reserved]

[[Page 87]]

            Subpart C--How Does the Secretary Make an Award?

413.20  How does the Secretary evaluate an application?
413.21  What selection criteria does the Secretary use to evaluate an 
          application proposing research and development activities?
413.22  What selection criteria does the Secretary use to evaluate an 
          application proposing dissemination and training activities?

         Subpart D--What Conditions Must Be Met After an Award?

413.30  What are the restrictions on the use of funds?
413.31  Must a National Center have a director?
413.32  What are the requirements for coordination?
413.33  What substantive studies must the National Center or Centers 
          conduct and submit?
413.34  What activities must be performed during the final year of an 
          award?

    Authority: 20 U.S.C. 2404, unless otherwise noted.

    Source: 57 FR 36780, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 413.1  What is the National Center or Centers for Research in 
Vocational Education?

    The Secretary supports the establishment of one or two National 
Centers for Research in Vocational Education (National Center) in the 
areas of--
    (a) Applied research and development; and
    (b) Dissemination and training.

(Authority: 20 U.S.C. 2404)



Sec. 413.2  Who is eligible to apply for the National Center or Centers?

    An institution of higher education or consortium of institutions of 
higher education may apply to be a National Center under this part.

    Cross-Reference: See 34 CFR 75.127 through 75.129, Group 
Applications.

(Authority: 20 U.S.C. 2404(a)(5))



Sec. 413.3  What kinds of activities are carried out?

    The Secretary provides a grant or cooperative agreement to a 
National Center or Centers that are designed to perform either one or 
both of the following activities:
    (a) Applied research and development activities. (1) A major purpose 
of the National Center is to design and conduct research and development 
activities that are consistent with the purposes of the Act, including--
    (i) Longitudinal studies that extend over a period of years;
    (ii) Supplementary and short-term activities; and
    (iii) Upon negotiation with the center, and if funds are provided 
pursuant to section 404(d) of the Act, such other topics as the 
Secretary may designate.
    (2) The National Center shall conduct applied research and 
development activities that include examination of the following:
    (i) Economic changes that affect the skills that employers seek and 
entrepreneurs need.
    (ii) Integration of academic and vocational education.
    (iii) Efficient and effective practices for addressing the needs of 
special populations.
    (iv) Efficient and effective methods for delivering vocational 
education.
    (v) Articulation of school and college instruction with high quality 
work experience.
    (vi) Recruitment, education, and enhancement of vocational teachers 
and other professionals in the field.
    (vii) Accountability processes in vocational education, including 
identification and evaluation of the use of appropriate performance 
standards for student, program, and State-level outcomes.
    (viii) Effective practices that educate students in all aspects of 
the industry the students are preparing to enter.
    (ix) Effective methods for identifying and inculcating literacy and 
other communication skills essential for effective job preparation and 
job performance.
    (x) Identification of strategic, high priority occupational skills 
and skills formation approaches needed to maintain the competitiveness 
of the United States workforce, sustain high-wage, high-technology jobs, 
and address national priorities such as technical jobs

[[Page 88]]

needed to protect and restore the environment.
    (xi) Identification of practices and strategies that address 
entrepreneurial development for minority-owned enterprises.
    (3) The applied research and development activities must include--
    (i) An emphasis on the recruitment, education, and enhancement of 
minority and female vocational teachers and professionals; and
    (ii) Activities that aid in the development of minorities and women 
for leadership roles in vocational education.
    (b) Dissemination and training activities. (1) A major purpose of 
the National Center is to design and conduct dissemination and training 
activities that are consistent with the purposes of the Act, including--
    (i) The broad dissemination of the results of the research and 
development conducted by the National Center;
    (ii) The development and utilization of a national level 
dissemination network including functions such as clearinghouses, 
databases, and telecommunications;
    (iii) Planning, developing, and conducting training activities; and
    (iv) Upon negotiation with the Center and if funds are provided 
pursuant to section 404(d) of the Act, such other topics as the 
Secretary may designate.
    (2) The National Center shall conduct dissemination and training 
activities that include the following:
    (i) Teacher and administrator training and leadership development.
    (ii) Technical assistance to ensure that programs serving special 
populations are effective in delivering well-integrated and 
appropriately articulated vocational and academic offerings for 
secondary, postsecondary, and adult students.
    (iii) Needs assessment, design, and implementation of new and 
revised programs with related curriculum materials to facilitate 
vocational-academic integration.
    (iv) Evaluation and follow-through to maintain and extend quality 
programs.
    (v) Assistance in technology transfer and articulation of program 
offerings from advanced technology centers to minority enterprises.
    (vi) Assistance to programs and States on the use of accountability 
indicators, including appropriate and innovative performance standards.
    (vii) Delivery of information and services using advanced 
technology, if appropriate, to increase the effectiveness and efficiency 
of knowledge transfer.
    (viii) Development of processes for synthesis of research, in 
cooperation with a broad array of users, including vocational and non-
vocational educators, employers and labor organizations.
    (ix) Dissemination of exemplary curriculum and instructional 
materials, and development and publication of curriculum materials (in 
conjunction with vocational and nonvocational constituency groups, if 
appropriate).
    (x) Technical assistance in recruiting, hiring, and advancing 
minorities in vocational education.
    (3) The training and leadership development activities must include 
an emphasis on--
    (i) Training minority and female teachers; and
    (ii) Programs and activities that aid in the development of 
minorities and women for leadership roles in vocational education.
    (4) Advanced technology may include audio-video cassettes, 
electronic networking, satellite-assisted programming, computer-based 
conferencing, and interactive video.

(Authority: 20 U.S.C. 2404 (b) and (c); House Report No. 101-660, 101st 
Cong. 2nd Sess. p. 143 (1990))



Sec. 413.4  How does the Secretary designate a National Center or Centers?

    (a) The Secretary designates a National Center or Centers once every 
five years.
    (b) In designating the National Center or Centers for Research in 
Vocational Education, the Secretary may support--
    (1) One National Center that conducts both research and development 
activities and dissemination and training activities; or

[[Page 89]]

    (2) Two National Centers: one that conducts research and development 
activities and one that conducts dissemination and training activities.

(Authority: 20 U.S.C. 2404)



Sec. 413.5  What regulations apply?

    The following regulations apply to the National Center or Centers:
    (a) The regulations in this part 413.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2404)



Sec. 413.6  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part, except that the 
term ``institution of higher education'' has the same meaning as 
provided in 34 CFR 403.117(b).

(Authority: 20 U.S.C. 1085(b) and 2404)

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 413.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Secs. 413.21 and 413.22.
    (b) The Secretary may award up to 100 points to each set of criteria 
in Secs. 413.21 and 413.22, including a reserved 10 points for each set 
of criteria to be distributed in accordance with paragraph (d) of this 
section.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Secs. 413.21 and 413.22.
    (e) The Secretary may hold two separate competitions, with the same 
closing date, for the National Center or Centers. One competition will 
be held for research and development activities and the second 
competition will be held for dissemination and training activities. An 
institution of higher education or consortium of higher education 
institutions may submit a research and development application; a 
dissemination and training application; or both as separate applications 
under separate covers.
    (f) The Secretary evaluates applications for the research and 
development center and the dissemination and training center 
independently against the criteria in Secs. 413.21 and 413.22 whether an 
institution or consortium of institutions is competing for either or 
both sets of activities.
    (g) In accordance with section 404(a)(5) of the Act, the Secretary 
will give preference in grant selection to institutions or consortia of 
institutions that demonstrate the ability to carry out both the research 
and development and the dissemination and training activities 
effectively, either directly or by contract.
    (h) An institution or consortium of institutions that has submitted 
two applications and applied for a single grant for the purpose of 
carrying out both activities and that has earned 80 points or higher on 
each of its two applications, will be deemed by the Secretary to have 
demonstrated the ability to carry out both activities effectively.
    (i) The Secretary will award a single grant to an institution or 
consortium of institutions that has both--
    (1) Demonstrated the ability to carry out both program activities 
effectively, in accordance with paragraph (h) of this section; and
    (2) Earned the highest combined score among those institutions or 
consortia of institutions that have demonstrated the ability to carry 
out both activities effectively.
    (j) If no institution or consortium of institutions is selected for 
a single grant award, the institution or consortia of institutions 
ranking highest in each of the two competitions will each receive a 
grant award.

(Authority: 20 U.S.C. 2404)



Sec. 413.21  What selection criteria does the Secretary use to evaluate 
an application proposing research and development activities?

    The Secretary uses the following selection criteria in evaluating 
each research and development application:

[[Page 90]]

    (a) Program factors. (20 points) The Secretary reviews each 
application to determine the extent to which each of the required 
research and development activities described in Sec. 413.3(a)(2) will 
be of high quality and effective.
    (b) Plan of operation. (35 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
proposed center, including--
    (1) The applicant's plan for managing the National Center;
    (2) The procedures the applicant will use to implement the National 
Center particularly with regard to the public or private nonprofit 
institution of higher education with which it is associated and, in the 
case of a consortium, with the other member institutions of the 
consortium;
    (3) The applicant's plan for managing the National Center's 
activities and personnel, including--
    (i) Quality control procedures for its activities;
    (ii) Procedures for assuring compliance with timelines;
    (iii) Coordination procedures for communicating among staff, 
subcontractors, members of the consortium, if any, and the Department of 
Education;
    (iv) Procedures for ensuring that adequate progress is being made 
toward achieving the goals of the grantee by subcontractors, and members 
of a consortium; and
    (v) Procedures for ensuring that adequate budget, accounting, and 
recordkeeping procedures will be used;
    (4) The quality of the applicant's detailed plans for year one of 
the National Center, including--
    (i) Methodology and plan of operation;
    (ii) Tasks and timelines;
    (iii) Deliverables; and
    (iv) Dissemination plans for each project; and
    (5) The quality of the applicant's general plans for developing 
appropriate, coherent, and effective vocational education research and 
development activities, or dissemination and training activities, or 
both, for years two through five.
    (c) Key personnel. (10 points) The Secretary reviews each 
application to determine the qualifications of the key personnel the 
applicant plans to use for the National Center, including--
    (1) The extent to which the Director of the National Center has--
    (i) Appropriate professional qualifications, relevant project 
management experience, and administrative skills;
    (ii) A commitment to work full-time at the National Center;
    (iii) A clear commitment to the goals of the project; and
    (iv) Sufficient authority to effectively manage the activities of 
the National Center;
    (2) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disability; and
    (3) The extent to which other key personnel to be used for the 
National Center--
    (i) Have experience and training in project management and in fields 
related to the proposed activities they will be carrying out; and
    (ii) Will commit sufficient time to the project.
    (d) Vocational education experience. (10 points) The Secretary 
reviews each application to determine the extent to which the applicant 
understands the state of knowledge and practice related to vocational 
education, including--
    (1) The applicant's experience in conducting applied research and 
development activities, dissemination and training activities, or both, 
in the field of vocational education of the type described in 
Sec. 413.3;
    (2) The applicant's capacity for conducting applied research and 
development activities, dissemination and training activities, or both, 
in the field of vocational education of the type described in 
Sec. 413.3; and
    (3) How the activities of the National Center will contribute to the 
advancement of relevant theory and practice in vocational education.
    (e) Budget and cost effectiveness. (10 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The Center has an adequate budget that is cost effective;

[[Page 91]]

    (2) The budget is adequate to support the Center's activities; and
    (3) Costs are reasonable in relation to the objectives of the 
Center.
    (f) Coordination activities. (5 points) The Secretary reviews each 
application to determine the extent to which there is an effective plan 
for the coordination of activities described in Sec. 413.3 (a) and (b), 
and whether these activities are carried out between two institutions or 
within one institution.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2404)



Sec. 413.22  What selection criteria does the Secretary use to evaluate 
an application proposing dissemination and training activities?

    The Secretary uses the following selection criteria in evaluating 
each dissemination and training application:
    (a) Program factors. (20 points) The Secretary reviews each 
application to determine the extent to which each of the required 
dissemination and training activities, described in Sec. 413.3(b), will 
be of high quality and effective.
    (b) The selection criteria and points in Sec. 413.21 (b), (c), (d), 
(e), and (f).

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2404)



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 413.30  What are the restrictions on the use of funds?

    (a) A National Center that performs both research and development 
activities and dissemination and training activities shall use at least 
two-thirds of its award for applied research and development.
    (b) Not more than 10 percent of each year's budget for a National 
Center may be used to respond to field-initiated needs unanticipated 
prior to the annual funding period and that are in the mission of the 
National Center, but not part of the scope of work of the grant or 
cooperative agreement.

(Authority: 20 U.S.C. 2404(a)(3) and (b))



Sec. 413.31  Must a National Center have a director?

    A National Center must have a full-time director who is appointed by 
the institution serving as the grantee.

(Authority: 20 U.S.C. 2404)



Sec. 413.32  What are the requirements for coordination?

    If the Secretary designates two National Centers, the two centers 
must coordinate their activities.

(Authority: 20 U.S.C. 2404)



Sec. 413.33  What substantive studies must the National Center or Centers 
conduct and submit?

    (a) The National Center conducting research and development 
activities shall annually prepare a study on the research conducted on 
approaches that lead to effective articulation for the education-to-work 
transition, including tech-prep programs, cooperative education or other 
work-based programs, such as innovative apprenticeship or mentoring 
approaches.
    (b) The National Center conducting dissemination and training 
activities shall annually prepare a study of its dissemination and 
training activities.
    (c) Annual studies described in paragraphs (a) and (b) of this 
section must be submitted to the Secretary of Education, the Secretary 
of Labor, the Secretary of Health and Human Services, the Committee on 
Labor and Human Resources of the Senate, and the Committee on Education 
and Labor of the House of Representatives.

(Authority: 20 U.S.C. 2404 (b)(2) and (c)(2))



Sec. 413.34  What activities must be performed during the final year of 
an award?

    During the fifth year of the award cycle, the National Center or 
Centers shall develop and remain prepared to implement a contingency 
plan for completing all substantive work by the end of the eleventh 
month of that year and transferring all projects, services, and 
activities to a successor during the twelfth month of that year.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2404)

[[Page 92]]



PART 415--DEMONSTRATION CENTERS FOR THE TRAINING OF DISLOCATED WORKERS 
PROGRAM--Table of Contents




                           Subpart A--General

Sec.
415.1  What is the Demonstration Centers for the Training of Dislocated 
          Workers Program?
415.2  Who is eligible for an award?
415.3  What activities may the Secretary fund?
415.4  What regulations apply?
415.5  What definitions apply?

Subpart B [Reserved]

            Subpart C--How Does the Secretary Make an Award?

415.20  How does the Secretary evaluate an application?
415.21  What selection criteria does the Secretary use?
415.22  What additional factors may the Secretary consider?

         Subpart D--What Conditions Must Be Met After an Award?

415.30  What are the evaluation requirements?

    Authority: 20 U.S.C. 2413, unless otherwise noted.

    Source: 57 FR 36784, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 415.1  What is the Demonstration Centers for the Training of 
Dislocated Workers Program?

    The Demonstration Centers for the Training of Dislocated Workers 
Program provides financial assistance for establishing one or more 
demonstration centers for the retraining of dislocated workers.

(Authority: 20 U.S.C. 2413(a))



Sec. 415.2  Who is eligible for an award?

    A private nonprofit organization that is eligible to receive funding 
under title III of the Job Training Partnership Act (29 U.S.C. 1651 et 
seq.) is eligible to receive an award under this program.

(Authority: 20 U.S.C. 2413(d))



Sec. 415.3  What activities may the Secretary fund?

    (a) The Secretary provides grants or cooperative agreements for one 
or more centers that demonstrate the retraining of dislocated workers.
    (b) Each center funded by the Secretary must be designed and 
operated to provide for the use of appropriate existing Federal, State, 
and local programs and resources.
    (c) Each center may use funds to provide for--
    (1) The recruitment of unemployed workers;
    (2) Vocational evaluation;
    (3) Assessment and counseling services;
    (4) Vocational and technical training;
    (5) Support services; or
    (6) Job placement assistance.

(Authority: 20 U.S.C. 2413(a))



Sec. 415.4  What regulations apply?

    The following regulations apply to the Demonstration Centers for the 
Training of Dislocated Workers Program:
    (a) The regulations in this part 415.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2413)



Sec. 415.5  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part.

(Authority: 20 U.S.C. 2413)

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 415.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 415.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 415.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score

[[Page 93]]

for each criterion is indicated in parentheses after the heading for 
each criterion.
    (d) For each competition, as announced in a notice published in the 
Federal Register, the Secretary may assign the reserved 15 points among 
the criteria in Sec. 415.21.

(Authority: 20 U.S.C. 2413)



Sec. 415.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (10 points) The Secretary reviews each 
application to assess the extent to which the proposed demonstration 
center for the training of dislocated workers will--
    (1) Be located in a service area with a high concentration of 
dislocated workers, as supported by specific evidence of the need for 
the proposed demonstration center;
    (2) Provide vocational education and technical training to meet 
current and projected occupational needs;
    (3) Provide trainees with appropriate vocational evaluation, 
assessment, and counseling, support services, and job placement 
assistance;
    (4) Result in trainees becoming employed in jobs related to their 
training upon completion of their training; and
    (5) Use other appropriate Federal, State, and local programs to 
retrain, or provide services to, dislocated workers.
    (b) Educational significance. (10 points) The Secretary reviews each 
application to determine the extent to which the applicant--
    (1) Bases the proposed demonstration center for the training of 
dislocated workers on successful model vocational education programs 
that include components similar to the components required by this 
program, as evidenced by empirical data from those programs, in such 
factors as--
    (i) Student performance and achievement in vocational and technical 
training;
    (ii) High school graduation;
    (iii) Placement of students in jobs, including military service; and
    (iv) Successful transfer of students to a variety of postsecondary 
education programs;
    (2) Proposes project objectives that contribute to the improvement 
of education; and
    (3) Proposes to use innovative techniques to address educational 
problems and needs that are of national significance.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The quality of the project design, especially the establishment 
of measurable objectives for the project that are based on the project's 
overall goals;
    (2) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project over the 
award period;
    (3) How well the objectives of the project relate to the purpose of 
the program;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective including the use of appropriate 
existing Federal, State, and local programs; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disability.
    (d) Evaluation plan. (15 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the plan--
    (1) Is clearly explained and is appropriate to the project;
    (2) To the extent possible, is objective and will produce data that 
are quantifiable;
    (3) Identifies expected outcomes of the participants and how those 
outcomes will be measured;
    (4) Includes activities during the formative stages of the project 
to help guide and improve the project, as well as a summative evaluation 
that includes recommendations for replicating project activities and 
results;
    (5) Will provide a comparison between intended and observed results, 
and lead to the demonstration of a clear link between the observed 
results and the specific treatment of project participants; and

[[Page 94]]

    (6) Will yield results that can be summarized and submitted to the 
Secretary for review by the Department's Program Effectiveness Panel as 
defined in 34 CFR 400.4(b).
    (e) Demonstration and dissemination. (10 points) The Secretary 
reviews each application for information to determine the effectiveness 
and efficiency of the plan for demonstrating and disseminating 
information about project activities and results throughout the project 
period, including--
    (1) High quality in the design of the dissemination plan and 
procedures for evaluating the effectiveness of the dissemination plan;
    (2) Provisions for publicizing the project at the local, State, and 
national levels by conducting or delivering presentations at 
conferences, workshops, and other professional meetings and by preparing 
materials for journal articles, newsletters, and brochures;
    (3) Identification of target groups and provisions for demonstrating 
the methods and techniques used by the project to others interested in 
replicating these methods and techniques, such as by inviting them to 
observe project activities;
    (4) A description of the types of materials the applicant plans to 
make available to help others replicate project activities and the 
methods for making the materials available; and
    (5) Provisions for assisting others to adopt and successfully 
implement the project or methods and techniques used by the project.
    (f) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications, in relation to project requirements, of the 
project director;
    (ii) The qualifications, in relation to project requirements, of 
each of the other key personnel to be used in the project;
    (iii) The appropriateness of the time that each person referred to 
in paragraphs (f)(1) (i) and (ii) of this section will commit to the 
project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disability.
    (2) To determine personnel qualifications under paragraphs (f)(1) 
(i) and (ii) of this section, the Secretary considers--
    (i) The experience and training of key personnel in project 
management and in fields related to the objectives of the project; and
    (ii) Any other qualifications of key personnel that pertain to the 
quality of the project.
    (g) Budget and cost effectiveness. (10 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is cost effective and adequate to support the project 
activities;
    (2) The budget contains costs that are reasonable and necessary in 
relation to the objectives of the project; and
    (3) The budget proposes using non-Federal resources available from 
appropriate employment, training, and education agencies in the State to 
provide project services and activities and to acquire demonstration 
center equipment and facilities.
    (h) Adequacy of resources and commitment. (5 points) (1) The 
Secretary reviews each application to determine the extent to which the 
applicant plans to devote adequate resources to the project. The 
Secretary considers the extent to which--
    (i) The facilities that the applicant plans to use are adequate; and
    (ii) The equipment and supplies that the applicant plans to use are 
adequate.
    (2) The Secretary reviews each application to determine the 
commitment to the project, including whether the--
    (i) Uses of non-Federal resources are adequate to provide project 
services and activities, especially resources of community organizations 
and State and local educational agencies; and
    (ii) Applicant has the capacity to continue, expand, and build upon 
the

[[Page 95]]

project when Federal assistance under this part ends.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2413)



Sec. 415.22  What additional factors may the Secretary consider?

    After evaluating the applications according to the criteria in 
Sec. 415.21, the Secretary may select applications other than the most 
highly rated applications if doing so would improve the geographical 
distribution of projects funded under this program.

(Authority: U.S.C. 2413)



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 415.30  What are the evaluation requirements?

    (a) Each grantee shall provide and budget for an independent 
evaluation of grant activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) The evaluation must be based on student achievement, completion, 
and placement rates and project and product spread and transportability.
    (d) A proposed project evaluation design must be submitted to the 
Secretary for review and approval prior to the end of the first year of 
the project period.
    (e) A summary of evaluation activities and results that can be 
reviewed by the Department's Program Effectiveness Panel, as defined in 
34 CFR 400.4(b), must be submitted to the Secretary during the last year 
of the project period.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2413)



PART 421--BUSINESS AND EDUCATION STANDARDS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
421.1  What is the Business and Education Standards Program?
421.2  Who is eligible for an award?
421.3  What activities may the Secretary fund?
421.4  What regulations apply?
421.5  What definitions apply?

Subpart B [Reserved]

            Subpart C--How Does the Secretary Make an Award?

421.20  How does the Secretary evaluate an application?
421.21  What selection criteria does the Secretary use?

         Subpart D--What Conditions Must Be Met After an Award?

421.30  What is the cost-sharing requirement?

    Authority: 20 U.S.C. 2416, unless otherwise noted.

    Source: 57 FR 36796, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 421.1  What is the Business and Education Standards Program?

    The Business and Education Standards Program provides financial 
assistance for organizing and operating business-education-labor 
technical committees that will develop national standards for 
competencies in industries and trades.

(Authority: 20 U.S.C. 2416)



Sec. 421.2  Who is eligible for an award?

    The following entities are eligible for an award under this program:
    (a) Industrial trade associations.
    (b) Labor organizations.
    (c) National joint apprenticeship committees.
    (d) Comparable national organizations, such as educational 
associations, industry councils, business and industry organizations, 
and associations of private or national research organizations.

(Authority: 20 U.S.C. 2416)



Sec. 421.3  What activities may the Secretary fund?

    The Secretary provides grants and cooperative agreements for 
projects that organize and operate business-labor-education technical 
committees that propose national standards for competencies in 
industries and trades, including standards for--

[[Page 96]]

    (a) Major divisions or specialty areas identified within occupations 
studied;
    (b) Minimum hours of study to be competent in those divisions or 
specialty areas;
    (c) Minimum tools and equipment required in those divisions or 
specialty areas;
    (d) Minimum qualifications for instructional staff; and
    (e) Minimum tasks to be included in any course of study purporting 
to prepare individuals for work in those divisions or specialty areas.

(Authority: 20 U.S.C. 2416)



Sec. 421.4  What regulations apply?

    The following regulations apply to the Business and Education 
Standards Program:
    (a) The regulations in this part 421.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2416)



Sec. 421.5  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part.

(Authority: 20 U.S.C. 2416)

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 421.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperation agreement on the basis of the criteria in Sec. 421.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 421.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 421.21.

(Authority: 20 U.S.C. 2416)



Sec. 421.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (15 points) The Secretary reviews each 
application to assess the quality and effectiveness of the applicant's 
approach to developing national standards for competencies in industries 
and trades, including the extent to which the application proposes--
    (1) To develop standards for--
    (i) The competencies required for actual jobs, including the 
increased competency requirements created by the changing workplace;
    (ii) Major divisions or specialty areas identified within the 
occupations the applicant proposes to study;
    (iii) The minimum hours of study needed to be competent in those 
divisions or specialty areas;
    (iv) Minimum tools and equipment required in those divisions or 
specialty areas;
    (v) Minimum tasks to be included in any course of study purporting 
to prepare individuals for work in those divisions or specialty areas; 
and
    (vi) Minimum qualifications for instructional staff in those 
divisions or specialty areas; and
    (2) An adequate needs assessment of the program factors described in 
paragraph (a)(1) of this section as a part of the project.
    (b) Extent of need for the project. (15 points) The Secretary 
reviews each application to determine the extent to which the project 
meets specific needs, including--
    (1) The extent of the need for national standards for competencies 
in the major division or specialty areas identified within the 
occupations that the applicant proposes to study;
    (2) How the applicant identified and documented those needs;
    (3) How the standards to be developed will meet those needs, 
including the need of business for competent entry-level workers in the 
occupations to be studied; and
    (4) The benefits to business, labor, and education that will result 
from meeting those needs.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to

[[Page 97]]

determine the quality of the plan of operation for the project, 
including the extent to which--
    (1) The plan of management will be effective, will ensure proper and 
efficient administration of the program, and includes timelines that 
show starting and ending dates for all tasks;
    (2) The specific procedures proposed will accomplish the project's 
objectives, including how the procedures for selecting the business-
labor-education technical committees will ensure that the members are 
knowledgeable about the occupations to be studied and include 
representatives of business, labor, and education;
    (3) The applicant plans to organize and operate the business-labor-
education technical committees effectively in developing national 
standards for competencies in industries and trades;
    (4) The development of proposed competencies for major divisions or 
specialty areas within occupations will be coordinated with education 
and industrial trade associations, labor organizations, and businesses;
    (5) The methods the applicant proposes to use to select project 
participants, if applicable, will ensure that project participants who 
are otherwise eligible to participate are selected without regard to 
race, color, national origin, gender, age, or disability.
    (d) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the plan includes specific 
procedures for--
    (1) A formative evaluation to help assess and improve the accuracy 
of standards for competencies; and
    (2) A summative evaluation conducted by an independent evaluator.
    (e) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the extent of the applicant's experience in 
fields related to the objectives of the project.
    (2) The Secretary reviews each application to determine the quality 
of key personnel the applicant plans to use including--
    (i) The qualifications, in relation to project requirements, of the 
project director, if one is to be used;
    (ii) The qualifications, in relation to project requirements, of 
each of the other key personnel to be used in the project;
    (iii) The appropriateness of the time that each person referred to 
in paragraphs (e)(2) (i) and (ii) of this section will commit to the 
project; and
    (iv) The experience and training of the project director and key 
personnel in project management.
    (f) Budget and cost effectiveness. (10 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is adequate to support the project; and
    (2) Costs are reasonable in relation to the objectives of the 
project.
    (g) Dissemination plan. (10 points) The Secretary reviews each 
application to determine the quality of the dissemination plan for the 
project, including--
    (1) A clear description of the dissemination procedures;
    (2) A description of the types of materials the applicant plans to 
make available;
    (3) Provisions for publicizing the proposed national standards for 
competencies in industries and trades; and
    (4) Provisions for encouraging the adoption and use of the proposed 
standards by education and training programs.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2416)



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 421.30  What is the cost-sharing requirement?

    (a) The Secretary pays no more than 50 percent of the cost of a 
project.
    (b) Each recipient of an award under this part shall provide at 
least 50 percent of the cost of the business-labor-education technical 
committees established under the award.

(Authority: 20 U.S.C. 2416(c))

[[Page 98]]



PART 425--DEMONSTRATION PROJECTS FOR THE INTEGRATION OF VOCATIONAL AND 
ACADEMIC LEARNING PROGRAM--Table of Contents




                           Subpart A--General

Sec.
425.1  What is the Demonstration Projects for the Integration of 
          Vocational and Academic Learning Program?
425.2  Who is eligible for an award?
425.3  What activities may the Secretary fund?
425.4  What regulations apply?
425.5  What definitions apply?

Subpart B [Reserved]

            Subpart C--How Does the Secretary Make an Award?

425.20  How does the Secretary evaluate an application?
425.21  What selection criteria does the Secretary use?
425.22  What additional factors does the Secretary consider?

         Subpart D--What Conditions Must Be Met After an Award?

425.30  What are the evaluation requirements?

    Authority: 20 U.S.C. 2420, unless otherwise noted.

    Source: 57 FR 36803, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 425.1  What is the Demonstration Projects for the Integration of 
Vocational and Academic Learning Program?

    The Demonstration Projects for the Integration of Vocational and 
Academic Learning Program provides financial assistance to projects that 
develop, implement, and operate programs using different models of 
curricula that integrate vocational and academic learning.

(Authority: 20 U.S.C. 2420(a))



Sec. 425.2  Who is eligible for an award?

    (a) The following entities are eligible for an award under the 
Demonstration Projects for the Integration of Vocational and Academic 
Learning Program:
    (1) An institution of higher education.
    (2) An area vocational education school.
    (3) A secondary school funded by the Bureau of Indian Affairs.
    (4) A State board of vocational education.
    (5) A public or private nonprofit organization.
    (6) A local educational agency.
    (b) Consortia composed of the entities described in paragraph (a) of 
this section also are eligible for awards under this program.

(Authority: 20 U.S.C. 2420(a))



Sec. 425.3  What activities may the Secretary fund?

    (a) The Secretary provides grants or cooperative agreements to 
projects that develop, implement, and operate programs using different 
models of curricula that integrate vocational and academic learning by--
    (1) Designing integrated curricula and courses;
    (2) Providing inservice training for teachers of vocational 
education students and administrators in integrated curricula; and
    (3) Disseminating information regarding effective integrative 
strategies to other school districts through the National Diffusion 
Network (NDN) under section 1562 of the Elementary and Secondary 
Education Act of 1965, as amended (20 U.S.C. 2962), or, in the case of 
projects that will be funded for less than three years, disseminating 
information about the design of a project necessary for effective 
integrative strategies to be supported, so that they may be disseminated 
through the NDN.
    (b) Each project supported under this part must serve--
    (1) Individuals who are members of special populations;
    (2) Vocational students in secondary schools;
    (3) Vocational students at postsecondary institutions;
    (4) Individuals enrolled in adult programs; or
    (5) Single parents, displaced homemakers, and single pregnant women.

(Authority: 20 U.S.C. 2420(a), (b)(3) and (4))

[[Page 99]]



Sec. 425.4  What regulations apply?

    The following regulations apply to the Demonstration Projects for 
the Integration of Vocational and Academic Learning Program:
    (a) The regulations in this part 425.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2420)



Sec. 425.5  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part.

(Authority: 20 U.S.C. 2420)

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 425.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 425.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 425.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses.
    (d) For each competition, as announced in a notice published in the 
Federal Register, the Secretary may assign the reserved 15 points among 
the criteria in Sec. 425.21.

(Authority: 20 U.S.C. 2420)



Sec. 425.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (10 points) The Secretary reviews each 
application to assess the quality of the proposed project, including--
    (1) The extent to which the project involves creative or innovative 
methods for integrating vocational and academic learning; and
    (2) The quality of the services that the project will provide to--
    (i) Individuals who are members of special populations;
    (ii) Vocational students in secondary schools and at postsecondary 
institutions;
    (iii) Individuals enrolled in adult programs; or
    (iv) Single parents, displaced homemakers, and single pregnant 
women.
    (b) Educational significance. (10 points) The Secretary reviews each 
application to determine the extent to which the applicant--
    (1) Bases the proposed project on successful model vocational 
education programs that include components similar to the components 
required by this program, as evidenced by empirical data from those 
programs in such factors as--
    (i) Student performance and achievement;
    (ii) High school graduation;
    (iii) Placement of students in jobs, including military service; and
    (iv) Successful transfer of students to a variety of postsecondary 
education programs;
    (2) Proposes project objectives that contribute to the improvement 
of education; and
    (3) Proposes to use unique and innovative techniques that address 
the need to integrate vocational and academic learning, and produce 
benefits that are of national significance.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The quality of the project design, especially the establishment 
of measurable objectives for the project that are based on the project's 
overall goals;
    (2) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project over the 
award period;
    (3) How well the objectives of the project relate to the purpose of 
the program;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disability.

[[Page 100]]

    (d) Evaluation plan. (15 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the plan--
    (1) Carries out the requirements in Sec. 425.30;
    (2) Is clearly explained and is appropriate to the project;
    (3) To the extent possible, is objective and will produce data that 
are quantifiable;
    (4) Includes quality measures to assess the effectiveness of the 
curricular developed by the project;
    (5) Identifies expected outcomes of the participants and how those 
outcomes will be measured;
    (6) Includes activities during the formative stages of the project 
to help guide and improve the project, as well as a summative evaluation 
that includes recommendations for replicating project activities and 
results;
    (7) Will provide a comparison between intended and observed results, 
and lead to the demonstration of a clear link between the observed 
results and the specific treatment of project participants; and
    (8) Will yield results that can be summarized and submitted to the 
Secretary for review by the Department's Program Effectiveness Panel as 
defined in 34 CFR 400.4(b).
    (e) Demonstration and dissemination. (10 points) The Secretary 
reviews each application for information to determine the effectiveness 
and efficiency of the plan for demonstrating and disseminating 
information about project activities and results throughout the project 
period, including--
    (1) High quality in the design of the dissemination plan and 
procedures for evaluating the effectiveness of the dissemination plan;
    (2) Identification of the audience to which the project activities 
will be disseminated and provisions for publicizing the project at the 
local, State, and national levels by conducting, or delivering 
presentations at, conferences, workshops, and other professional 
meetings and by preparing materials for journal articles, newsletters, 
and brochures;
    (3) Provisions for demonstrating the methods and techniques used by 
the project to others interested in replicating these methods and 
techniques, such as by inviting them to observe project activities;
    (4) A description of the types of materials the applicant plans to 
make available to help others replicate project activities and the 
methods for making the materials available; and
    (5) Provisions for assisting others to adopt and successfully 
implement the methods, approaches, and techniques developed by the 
project.
    (f) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications, in relation to project requirements, of the 
project director;
    (ii) The qualifications, in relation to project requirements, of 
each of the other key personnel to be used in the project;
    (iii) The appropriateness of the time that each person referred to 
in paragraphs (f)(1) (i) and (ii) of this section will commit to the 
project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disability.
    (2) To determine personnel qualifications under paragraphs (f)(1) 
(i) and (ii) of this section, the Secretary considers--
    (i) The experience and training of key personnel in project 
management and in fields related to the objectives of the project; and
    (ii) Any other qualifications of key personnel that pertain to the 
quality of the project.
    (g) Budget and cost effectiveness. (10 points) The Secretary reviews 
each application to determine the extent to which the budget--
    (1) Is cost effective and adequate to support the project 
activities;
    (2) Contains costs that are reasonable and necessary in relation to 
the objectives of the project; and
    (3) Proposes using non-Federal resources available from appropriate 
employment, training, and education agencies in the State to provide 
project

[[Page 101]]

services and activities and to acquire project equipment and facilities, 
to ensure that funds awarded under this part are used to provide 
instructional services.
    (h) Adequacy of resources and commitment. (5 points) (1) The 
Secretary reviews each application to determine the extent to which the 
applicant plans to devote adequate resources to the project. The 
Secretary considers the extent to which--
    (i) The facilities that the applicant plans to use are adequate; and
    (ii) The equipment and supplies that the applicant plans to use are 
adequate.
    (2) The Secretary reviews each application to determine the 
commitment to the project including whether the--
    (i) Uses of non-Federal resources are adequate to provide project 
services and activities, especially resources of community organizations 
and State and local educational agencies; and
    (ii) Applicant has the capacity to continue, expand, and build upon 
the project when Federal assistance under this part ends.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420)



Sec. 425.22  What additional factors does the Secretary consider?

    (a) After evaluating the applications according to the criteria in 
Sec. 425.21, the Secretary determines whether the most highly rated 
applications--
    (1) Are equitably distributed throughout the Nation;
    (2) Offer significantly different approaches to integrating 
vocational and academic curricula; and
    (3) Serve individuals described in Sec. 425.3(b).
    (b) The Secretary may select other applications for funding if doing 
so would improve the geographical distribution of, diversity of 
approaches in, or the diversity of populations to be served by projects 
funded under this program.

(Authority: 20 U.S.C. 2420(b))



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 425.30  What are the evaluation requirements?

    (a) Each grantee shall provide and budget for an independent 
evaluation of grant activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) Each grantee shall employ adequate measures to evaluate the 
effectiveness of the curriculum approaches supported by the project.
    (d) The evaluation must be based on student achievement, completion, 
and placement rates and project and product spread and transportability.
    (e) A proposed project evaluation design must be submitted to the 
Secretary for review and approval prior to the end of the first year of 
the project period.
    (f) A summary of evaluation activities and results that can be 
reviewed by the Department's Program Effectiveness Panel, as defined in 
34 CFR 400.4(b), must be submitted to the Secretary during the last year 
of the project period.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420(b)(5))



PART 426--COOPERATIVE DEMONSTRATION PROGRAM--Table of Contents




                           Subpart A--General

Sec.
426.1  What is the Cooperative Demonstration Program?
426.2  Who is eligible for an award?
426.3  What activities may the Secretary fund?
426.4  What activities does the Secretary fund under the Demonstration 
          Projects?
426.5  What activities does the Secretary fund under the Program for 
          Model Consumer and Homemaking Education Projects?
426.6  What activities does the Secretary fund under the Community-Based 
          Organization Projects?
426.7  What activities does the Secretary fund under the Agriculture 
          Action Centers?
426.8  What regulations apply?
426.9  What definitions apply?

Subpart B [Reserved]

[[Page 102]]

            Subpart C--How Does the Secretary Make an Award?

426.20  How does the Secretary evaluate an application?
426.21  What selection criteria does the Secretary use for the 
          Demonstration Projects?
426.22  What selection criteria does the Secretary use for the Program 
          for Model Consumer and Homemaking Education Projects?
426.23  What selection criteria does the Secretary use for the 
          Community-Based Organization Projects?
426.24  What selection criteria does the Secretary use for Agriculture 
          Action Centers?
426.25  What additional factors may the Secretary consider?

         Subpart D--What Conditions Must Be Met After an Award?

426.30  What is the requirement regarding cost-sharing?
426.31  What is the requirement regarding dissemination?
426.32  What are the evaluation requirements?
426.33  May the Secretary restrict the use of funds for equipment?

    Authority: 20 U.S.C. 2420a, unless otherwise noted.

    Source: 57 FR 36805, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 426.1  What is the Cooperative Demonstration Program?

    The Cooperative Demonstration Program provides financial assistance 
for--
    (a) Model projects providing improved access to quality vocational 
education programs for individuals who are members of special 
populations and for men and women seeking nontraditional occupations;
    (b) Projects that are examples of successful cooperation between the 
private sector and public agencies in vocational education;
    (c) Projects to overcome national skill shortages;
    (d) Projects that develop consumer and homemaking education 
programs, including child growth and development centers;
    (e) Projects that assist disadvantaged youths in preparing for 
technical and professional health careers; and
    (f) Model projects providing access to vocational education programs 
through agriculture action centers.

(Authority: 20 U.S.C. 2420a(a))



Sec. 426.2  Who is eligible for an award?

    (a) The following entities are eligible to apply for an award for 
activities described in Secs. 426.4, 426.5, and 426.7:
    (1) State educational agencies.
    (2) Local educational agencies.
    (3) Postsecondary educational institutions.
    (4) Institutions of higher education.
    (5) Other public and private agencies, organizations, and 
institutions.
    (b)(1) Awards for activities described in Sec. 426.6 are provided to 
partnerships between--
    (i) Community-based organizations; and
    (ii) Local schools, institutions of higher education, and 
businesses.
    (2) A partnership formed for the purpose of receiving an award under 
Sec. 426.6 shall include as partners at least one community-based 
organization and at least one entity from the groups listed in paragraph 
(b)(1)(ii) of this section, and may include more than one entity from 
each group.
    (3) The partners shall apply jointly to the Secretary for an award 
under this part.
    (4) The partners shall enter into an agreement, in the form of a 
single document signed by all partners, designating one member of the 
partnership as the applicant and the grantee. The agreement must also 
detail the role each partner plans to perform, and must bind each 
partner to every statement and assurance made in the application.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420a(a))



Sec. 426.3  What activities may the Secretary fund?

    (a) The Secretary supports, directly or through grants, cooperative 
agreements, or contracts, the following types of projects:

[[Page 103]]

    (1) Demonstration Projects. The Secretary supports model projects 
providing improved access to high quality vocational education for 
members of special populations and men and women seeking to enter non-
traditional occupations, projects that are models of successful 
cooperation between the private sector and public agencies in vocational 
education, and projects to overcome national skill shortages, as 
described in Sec. 426.4.
    (2) Program for Model Consumer and Homemaking Education Projects. 
The Secretary supports model projects that improve instruction and 
curricula related to consumer and homemaking skills, as described in 
Sec. 426.5.
    (3) Community-Based Organization Projects. The Secretary supports 
community-based organizations in partnerships with entities listed in 
Sec. 426.2(b)(1)(ii), to operate projects that assist disadvantaged 
youths in preparing for technical and professional health careers, as 
described in Sec. 426.6.
    (4) Agriculture Action Centers. The Secretary supports model 
projects providing improved access to vocational education programs 
through agriculture action centers, as described in Sec. 426.7.
    (b) All projects assisted under the Cooperative Demonstration 
Program must be--
    (1) Of direct service to the individuals enrolled; and
    (2) Capable of wide replication by service providers.

(Authority: 20 U.S.C. 2420a(a))



Sec. 426.4  What activities does the Secretary fund under the Demonstration 
Projects?

    The Secretary supports the following types of projects:
    (a) Model projects providing improved access to quality vocational 
education programs for--
    (1) Individuals with disabilities;
    (2) Educationally and economically disadvantaged individuals 
(including foster children);
    (3) Individuals of limited English proficiency;
    (4) Individuals who participate in programs designed to eliminate 
sex bias;
    (5) Individuals in correctional institutions; and
    (6) Men and women seeking to enter nontraditional occupations.
    (b)(1) Projects that are examples of successful cooperation between 
the private sector (including employers, consortia of employers, labor 
organizations, building trade councils, and private agencies, 
organizations, and institutions) and public agencies in vocational 
education (including State boards of vocational education and eligible 
recipients as defined in 34 CFR 400.4).
    (2) The projects described in paragraph (b)(1) of this section must 
be designed to demonstrate ways in which vocational education and the 
private sector of the economy can work together effectively to assist 
vocational education students to attain the advanced level of skills 
needed to make the transition from school to productive employment, 
including--
    (i) Work experience and apprenticeship projects;
    (ii) Transitional work site job training for vocational education 
students that is related to their occupational goals and closely linked 
to classroom and laboratory instruction provided by an eligible 
recipient;
    (iii) Placement services in occupations that the students are 
preparing to enter;
    (iv) If practical, projects that will benefit the public, such as 
the rehabilitation of public schools or housing in inner cities or 
economically depressed rural areas; or
    (v) Employment-based learning programs.
    (3) The projects described in paragraphs (b) (1) and (2) of this 
section may include institutional and on-the-job training, supportive 
services authorized by the Act, and other assistance as the Secretary 
determines to be necessary for the successful completion of the project.
    (c) Projects to overcome national skill shortages, as designated by 
the Secretary in cooperation with the Secretary of Labor, Secretary of 
Defense, and Secretary of Commerce.

(Authority: 20 U.S.C. 2420a(a) (1)-(3) and (b)(1))

[[Page 104]]



Sec. 426.5  What activities does the Secretary fund under the Program for 
Model Consumer and Homemaking Education Projects?

    The Secretary supports model projects that develop programs and 
improve instruction and curricula related to--
    (a) Managing individual and family resources;
    (b) Making consumer choices;
    (c) Balancing work and family;
    (d) Improving responses to individual and family crises, including 
family violence and child abuse;
    (e) Strengthening parenting skills, especially among teenage 
parents;
    (f) Preventing teenage pregnancy;
    (g) Assisting aged individuals with disabilities, and members of at-
risk populations, including the homeless;
    (h) Conserving limited resources;
    (i) Improving individual, child, and family nutrition and wellness;
    (j) Understanding the impact of new technology on life and work;
    (k) Applying consumer and homemaking education skills to jobs and 
careers;
    (l) Other needs to be determined by the State board of vocational 
education; and
    (m) Developing child growth and development centers.

(Authority: 20 U.S.C. 2420a(4))



Sec. 426.6  What activities does the Secretary fund under the Community-Based 
Organization Projects?

    (a) The Secretary supports projects that assist disadvantaged youths 
in preparing for technical and professional health careers.
    (b) The Secretary may require partnerships described in 
Sec. 426.2(b)(1) to provide in-kind contributions from participating 
schools, institutions, and businesses and to involve health 
professionals serving as instructors and counselors.

(Authority: 20 U.S.C. 2420a(5))



Sec. 426.7  What activities does the Secretary fund under the Agriculture 
Action Centers?

    The Secretary supports model Agriculture Action Centers that provide 
improved access to vocational education programs and that--
    (a) Assist individuals--
    (1) Who are adversely affected by farm and rural economic downturns;
    (2) Who are dislocated from farming; and
    (3) Who are dislocated from agriculturally related businesses and 
industries that are adversely affected by farm and rural economic 
downturns;
    (b) Provide services, including--
    (1) Crisis management counseling and outreach counseling that would 
include members of the family of the affected individual;
    (2) Evaluation of vocational skills and counseling on enhancement of 
these skills;
    (3) Assistance in obtaining training in basic, remedial, and 
literacy skills;
    (4) Assistance in seeking employment and training in employment-
seeking skills; and
    (5) Assistance in obtaining training related to operating a business 
or enterprise;
    (c) Provide for formal and on-the-job training to the extent 
practicable; and
    (d) Are coordinated with activities and discretionary programs under 
title III of the Job Training Partnership Act (29 U.S.C. 1651 et seq.).

(Authority: 20 U.S.C. 2420a(6))



Sec. 426.8  What regulations apply?

    The following regulations apply to the Cooperative Demonstration 
Program:
    (a) The regulations in this part 426.
    (b) The regulations in 34 CFR part 400.

(Authority: 20 U.S.C. 2420a)



Sec. 426.9  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this part.

(Authority: 20 U.S.C. 2420a)

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 426.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 426.21, Sec. 426.22, Sec. 426.23, or Sec. 426.24.

[[Page 105]]

    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 426.21, Sec. 426.22, Sec. 426.23, 
or Sec. 426.24.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition, as announced in a notice published in the 
Federal Register, the Secretary may assign the reserved 15 points among 
the criteria in Sec. 426.21, Sec. 426.22, Sec. 426.23, or Sec. 426.24.

(Authority: 20 U.S.C. 2420a)



Sec. 426.21  What selection criteria does the Secretary use for the 
Demonstration Projects?

    The Secretary uses the following criteria to evaluate an application 
for a demonstration project:
    (a) Program factors. (10 points) The Secretary reviews the 
application to assess the quality of the proposed project, including the 
extent to which the project will provide--
    (1) Vocational education to meet current and projected occupational 
needs; and
    (2) For adequate and appropriate involvement and cooperation of the 
public and private sectors in the project, including--
    (i) A clear identification of the public and private sector entities 
involved in the project;
    (ii) A description of public and private sector involvement in the 
planning of the project; and
    (iii) A description of public and private sector involvement in the 
operation of the project.
    (b) Educational significance. (10 points) The Secretary reviews each 
application to determine the extent to which the applicant--
    (1) Bases the proposed project on successfully designed, 
established, and operated model vocational education programs that 
include components similar to the components required by this program, 
as evidenced by empirical data from those programs in such factors as--
    (i) Student performance and achievement;
    (ii) High school graduation;
    (iii) Placement of students in jobs, including military service; and
    (iv) Successful transfer of students to a variety of postsecondary 
education programs;
    (2) Proposes project objectives that contribute to the improvement 
of education; and
    (3) Proposes to use unique and innovative techniques to produce 
benefits that address educational problems and needs that are of 
national significance.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The quality of the project design, especially the establishment 
of measurable objectives for the project that are based on the project's 
overall goals;
    (2) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project over the 
award period;
    (3) How well the objectives of the project relate to the purpose of 
the program;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disability.
    (d) Evaluation plan. (15 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the plan--
    (1) Is clearly explained and is appropriate to the project;
    (2) To the extent possible, is objective and will produce data that 
are quantifiable;
    (3) Identifies expected outcomes of the participants and how those 
outcomes will be measured;
    (4) Includes activities during the formative stages of the project 
to help guide and improve the project, as well as a summative evaluation 
that includes recommendations for replicating project activities and 
results;

[[Page 106]]

    (5) Will provide a comparison between intended and observed results, 
and lead to the demonstration of a clear link between the observed 
results and the specific treatment of project participants; and
    (6) Will yield results that can be summarized and submitted to the 
Secretary for review by the Department's Program Effectiveness Panel as 
defined in 34 CFR 400.4(b).
    (e) Demonstration and dissemination. (10 points) The Secretary 
reviews each application for information to determine the effectiveness 
and efficiency of the plan for demonstrating and disseminating 
information about project activities and results throughout the project 
period, including--
    (1) High quality in the design of the demonstration and 
dissemination plan and procedures for evaluating the effectiveness of 
the dissemination plan;
    (2) Disseminating the results of the project in a manner that would 
meet the requirement in Sec. 426.31;
    (3) Identification of target groups and provisions for publicizing 
the project at the local, State, and national levels by conducting or 
delivering presentations at conferences, workshops, and other 
professional meetings and by preparing materials for journal articles, 
newsletters, and brochures;
    (4) Provisions for demonstrating the methods and techniques used by 
the project to others interested in replicating these methods and 
techniques, such as by inviting them to observe project activities;
    (5) A description of the types of materials the applicant plans to 
make available to help others replicate project activities and the 
methods for making the materials available; and
    (6) Provisions for assisting others to adopt and successfully 
implement the project or methods and techniques used by the project.
    (f) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications, in relation to project requirements, of the 
project director;
    (ii) The qualifications, in relation to project requirements, of 
each of the other key personnel to be used in the project. For the 
Community-Based Organization Projects, the Secretary determines the 
qualifications, in relation to project requirements, of health 
professionals serving as preceptors and counselors and of each of the 
other key personnel to be used in the project;
    (iii) The appropriateness of the time that each person referred to 
in paragraphs (f)(1) (i) and (ii) of this section will commit to the 
project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disability.
    (2) To determine personnel qualifications under paragraphs (f)(1) 
(i) and (ii) of this section, the Secretary considers--
    (i) The experience and training of key personnel in project 
management and in fields related to the objectives of the project. For 
the Program for Model Consumer and Homemaking Education Projects, the 
Secretary also considers the experience and training of key personnel in 
consumer and homemaking education; and
    (ii) Any other qualifications of key personnel that pertain to the 
quality of the project.
    (g) Budget and cost effectiveness. (10 points) The Secretary reviews 
each application to determine the extent to which the budget--
    (1) Is cost effective and adequate to support the project 
activities;
    (2) Contains costs that are reasonable and necessary in relation to 
the objectives of the project; and
    (3) Proposes using non-Federal resources available from appropriate 
employment, training, and education agencies in the State to provide 
project services and activities and to acquire project equipment and 
facilities. For the Community-Based Organization Projects, the Secretary 
also determines the extent to which the budget includes in-kind 
contributions from partnership members.
    (h) Adequacy of resources and commitment. (5 points) (1) The 
Secretary reviews each application to determine the extent to which the 
applicant plans to devote adequate resources to the

[[Page 107]]

project. The Secretary considers the extent to which the--
    (i) Facilities that the applicant plans to use are adequate; and
    (ii) Equipment and supplies that the applicant plans to use are 
adequate.
    (2) The Secretary reviews each application to determine the 
commitment to the project, including whether the--
    (i) Uses of non-Federal resources are adequate to provide project 
services and activities, especially resources of community organizations 
and State and local educational agencies; and
    (ii) Applicant has the capacity to continue, expand, and build upon 
the project when Federal assistance under this part ends.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420a)



Sec. 426.22  What selection criteria does the Secretary use for the 
Program for Model Consumer and Homemaking Education Projects?

    (a) The Secretary uses the following criteria to evaluate an 
application for a model consumer and homemaking education project:
    (1) Program factors. (10 points) The Secretary reviews the quality 
of the proposed project to assess the extent to which project activities 
will improve, expand, and update programs that will--
    (i) Be conducted for residents of economically depressed areas or 
areas with high rates of unemployment;
    (ii) Encourage participation of traditionally underserved 
populations;
    (iii) Encourage the elimination of sex bias and sex stereotyping; 
and
    (iv) Address priorities and emerging concerns at the local, State, 
and national levels, such as the articulation of secondary and 
postsecondary consumer and homemaking education programs and the 
integration of basic skills in consumer and homemaking education 
programs.
    (2) Demonstration program design. (10 points) The Secretary reviews 
each application to determine the extent to which the applicant--
    (i) Bases the proposed consumer and homemaking education project on 
successful model education programs that include components similar to 
the components required by this program, as evidenced by empirical data 
from those programs in such factors as--
    (A) Student performance and achievement;
    (B) Placement of students in jobs, including the preparation of 
students for the occupation of homemaking; and
    (C) Successful transfer of students to a wide variety of 
postsecondary educational programs;
    (ii) Proposes project objectives that contribute to the improvement 
of consumer and homemaking education; and
    (iii) Proposes to use unique and innovative techniques to produce 
benefits that address educational problems and needs that are of 
national significance.
    (b) The Secretary also uses the criteria and points in Sec. 426.21 
(c) through (h) to evaluate an application.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420a)



Sec. 426.23  What selection criteria does the Secretary use for the 
Community-Based Organization Projects?

    The Secretary uses the following criteria to evaluate an application 
for a community-based organization project:
    (a) Program factors. (10 points) The Secretary reviews the quality 
of a proposed community-based organization project to assess the extent 
to which the proposed project--
    (1) Will assist disadvantaged youths in preparing for technical and 
professional health careers;
    (2) Provides for adequate and appropriate involvement of local 
schools, institutions of higher education, and businesses in the 
project, including--
    (i) Clear identification of partnership members;
    (ii) Involvement of partnership members in the planning of the 
project;
    (iii) Involvement of partnership members in the operation of the 
project; and
    (3) Will coordinate activities to ensure that the project will help 
meet current and projected occupational needs in the area.
    (b) Other criteria. The Secretary also uses the criteria and points 
in Sec. 426.21

[[Page 108]]

(b) through (h) to evaluate an application.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420a)



Sec. 426.24  What selection criteria does the Secretary use for Agriculture 
Action Centers?

    The Secretary uses the following criteria to evaluate an application 
for an Agriculture Action Center:
    (a) Program factors. (10 points) The Secretary reviews each 
application for an Agriculture Action Center to determine the extent to 
which the proposed center will--
    (1) Provide vocational education to meet current and projected 
occupational needs; and
    (2) Be located in a service area that includes a high concentration 
of individuals who are--
    (i) Adversely affected by farm and rural economic downturns;
    (ii) Dislocated from farming; and
    (iii) Dislocated from agriculturally-related businesses and 
industries that are adversely affected by farm and rural economic 
downturns.
    (b) Other criteria. The Secretary also uses the criteria and points 
in Sec. 426.21 (b) through (h) to evaluate an application.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420a)



Sec. 426.25  What additional factors may the Secretary consider?

    After evaluating applications according to criteria in Sec. 426.21, 
Sec. 426.22, Sec. 426.23, or Sec. 426.24, the Secretary may fund other 
than the most highly rated applications if doing so would improve the 
geographical distribution of projects funded under this part.

(Authority: 20 U.S.C. 2420a)



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 426.30  What is the requirement regarding cost-sharing?

    (a) A recipient of an award under this part shall provide not less 
than 25 percent of the total cost (the sum of the Federal and non-
Federal shares) of the project it conducts under this program.
    (b) In accordance with subpart G of 34 CFR part 74, the non-Federal 
share may be in the form of cash or in-kind contributions, including the 
fair market value of facilities, overhead, personnel, and equipment.

(Authority: 20 U.S.C. 2420a(b)(2))



Sec. 426.31  What is the requirement regarding dissemination?

    Recipients must disseminate the results of projects assisted under 
this part in a manner designed to improve the training of teachers, 
other instructional personnel, counselors, and administrators who are 
needed to carry out the purposes of the Act.

(Authority: 20 U.S.C. 2420a(d))



Sec. 426.32  What are the evaluation requirements?

    (a) Each grantee shall provide and budget for an independent 
evaluation of grant activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) The evaluation must be based on student achievement, completion, 
and placement rates and project and product spread and transportability.
    (d) A proposed project evaluation design must be submitted to the 
Secretary for review and approval prior to the end of the first year of 
the project period.
    (e) A summary of evaluation activities and results that can be 
reviewed by the Department's Program Effectiveness Panel, as defined in 
34 CFR 400.4(b), must be submitted to the Secretary during the last year 
of the project period.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2420a)



Sec. 426.33  May the Secretary restrict the use of funds for equipment?

    The Secretary may restrict the amount of Federal funds made 
available for equipment purchases to a certain percentage of the total 
grant for a project. The Secretary may announce

[[Page 109]]

through a notice published in the Federal Register the percentage of 
Federal funds that may be used for the purchase of equipment.

(Authority: 20 U.S.C. 2420a)



PART 427--BILINGUAL VOCATIONAL TRAINING PROGRAM--Table of Contents




                           Subpart A--General

Sec.
427.1  What is the Bilingual Vocational Training Program?
427.2  Who is eligible for an award?
427.3  What activities may the Secretary fund?
427.4  What regulations apply?
427.5  What definitions apply?

               Subpart B--How Does One Apply for an Award?

427.10  What must an application contain?

            Subpart C--How Does the Secretary Make an Award?

427.20  How does the Secretary evaluate an application?
427.21  What selection criteria does the Secretary use?
427.22  What additional factors does the Secretary consider?

         Subpart D--What Conditions Must Be Met After an Award?

427.30  What are the evaluation requirements?

    Authority: 20 U.S.C. 2441(a), unless otherwise noted.

    Source: 57 FR 36810, Aug. 14, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 427.1  What is the Bilingual Vocational Training Program?

    The Bilingual Vocational Training Program provides financial 
assistance for bilingual vocational education and training for limited 
English proficient out-of-school youth and adults, to prepare these 
individuals for jobs in recognized occupations and new and emerging 
occupations.

(Authority: 20 U.S.C. 2441(a))



Sec. 427.2  Who is eligible for an award?

    (a) The following entities are eligible for an award under this 
program:
    (1) State agencies.
    (2) Local educational agencies (LEAs).
    (3) Postsecondary educational institutions.
    (4) Private nonprofit vocational training institutions.
    (5) Other nonprofit organizations specially created to serve or 
currently serving individuals who normally use a language other than 
English.
    (b) Private for-profit agencies and organizations are eligible only 
for contracts under this program.

(Authority: 20 U.S.C. 2441(a))



Sec. 427.3  What activities may the Secretary fund?

    (a) The Secretary provides grants, cooperative agreements, or 
contracts for--
    (1) Bilingual vocational training projects for limited English 
proficient out-of-school youth and adults who are available for training 
and employment;
    (2) Bilingual vocational education and training projects for limited 
English proficient out-of-school youth and adults who have already 
entered the labor market but who desire or need English language skills 
and job skills training or retraining to achieve employment in a 
recognized occupation or new and emerging occupations, adjust to 
changing work force needs, expand their range of skills, or advance in 
employment; and
    (3) Training stipends for participants in bilingual vocational 
training projects.
    (b) Bilingual vocational training projects must include instruction 
in the English language to ensure that participants in that training 
will be equipped to pursue occupations in an English language 
environment.
    (c) In the Commonwealth of Puerto Rico, the Bilingual Vocational 
Training Program may provide for the needs of students of limited 
Spanish proficiency.

(Authority: 20 U.S.C. 2441(a), (e)(2))

[[Page 110]]



Sec. 427.4  What regulations apply?

    The following regulations apply to the Bilingual Vocational Training 
Program:
    (a) The regulations in 34 CFR part 400.
    (b) The regulations in this part 427.

(Authority: 20 U.S.C. 2441(a))



Sec. 427.5  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this program.

(Authority: 20 U.S.C. 2441(a))



               Subpart B--How Does One Apply for an Award?



Sec. 427.10  What must an application contain?

    (a) An application must--
    (1) Provide an assurance that the activities and services for which 
assistance is sought will be administered by or under the supervision of 
the applicant;
    (2) Propose a project of a size, scope, and design that will make a 
substantial contribution toward carrying out the purpose of the 
Bilingual Vocational Training Program;
    (3) Contain measurable goals for the enrollment, completion, and 
placement of program participants;
    (4) Include a comparison of how the applicant's goals take into 
consideration any related standards and measures in the geographic area 
for the Job Opportunities and Basic Skills Training (JOBS) program (42 
U.S.C. 681 et seq.) and any Job Training Partnership Act (JTPA) programs 
(29 U.S.C. 1501 et seq.) and any standards set by the State Board for 
Vocational Education for the occupational and geographic area;
    (5) Describe, for each occupation for which training is to be 
provided, how successful program completion will be determined and 
reported to the Secretary in terms of the academic and vocational 
competencies to be demonstrated by enrollees prior to successful 
completion and any academic or work credentials expected to be acquired 
upon completion; and
    (6) Be submitted to the State board for vocational education (State 
board) established under section 111 of the Act for review and comment, 
including comment on the relationship of the proposed project to the 
State's vocational education program.
    (b) An applicant shall include any comments received under paragraph 
(a)(6) of this section with the application.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2441(a), (d)(1) and (2))



            Subpart C--How Does the Secretary Make an Award?



Sec. 427.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 427.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 427.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
points for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 427.21.

(Authority: 20 U.S.C. 2441(a))



Sec. 427.21  What selection criteria does the Secretary use?

    The Secretary uses the following selection criteria to evaluate an 
application:
    (a) Need. (15 points) The Secretary reviews each application for 
specific information that shows the need for the proposed bilingual 
vocational training project in the local geographic area, including--
    (1) The employment training need of limited English proficient 
individuals to be met;
    (2) The labor market need to be met; and
    (3) The relationship of the proposed project to other employment 
training programs in the community.
    (b) Plan of operation. (15 points) (1) The Secretary reviews each 
application

[[Page 111]]

to determine the extent to which the project proposes measurable goals 
for student enrollment, completion, and placement and describes how the 
applicant sets the goals taking into consideration the standards and 
measures for JOBS programs and JTPA programs and any standards set by 
the State Board established under section 111 of the Act for the 
occupation and geographic area.
    (2) The Secretary reviews each application to determine the extent 
to which the project defines successful program completion (or describes 
how successful program completion will be defined and reported to the 
Secretary) in a way consistent with the goals of the program for each 
occupation for which training is to be provided.
    (3)(i) The Secretary reviews each application for specific 
information that, upon completion of their training, more than 65 
percent of the trainees will be employed in jobs (including military 
specialties) related to their training, or will be enrolled for further 
training related to their training under this program. This information 
must correspond to the information described in paragraph (a) of this 
section.
    (ii) The estimated job placement rate must be supported by past 
records, actual employer job commitments, anticipated job openings, or 
other pertinent information.
    (4) The Secretary reviews each application for an effective plan of 
management that ensures proper and efficient administration of the 
project, including--
    (i) Clearly defined project objectives that relate to the purpose of 
the Bilingual Vocational Training Program;
    (ii) For each objective, the specific tasks to be performed in order 
to achieve the specified project objective;
    (iii) How the applicant plans to use its resources and personnel to 
achieve each objective; and
    (iv) If the applicant plans to use a project advisory committee, a 
clear plan for using a project advisory committee to assist in project 
development, to review curriculum materials, and to make recommendations 
about job placements.
    (c) Program factors. (20 points) (1) The Secretary reviews each 
application to determine the quality of training to be provided, 
including--
    (i) Provision of vocational skills instruction in English and the 
trainees' native languages;
    (ii) Provision of job-related English-as-a-second language 
instruction;
    (iii) Coordination of the job-related English-as-a-second language 
instruction with the vocational skills instruction;
    (iv) Recruitment procedures that are targeted towards limited 
English proficient out-of-school youth and adults who have the greatest 
need for bilingual vocational training;
    (v) Assessment procedures that evaluate the language and vocational 
training needs of the trainees;
    (vi) Provision of counseling activities and employability skills 
instruction that prepare trainees for employment in an English language 
environment; and
    (vii) Job development and job placement procedures that provide 
opportunities for career advancement or entrepreneurship.
    (2) The Secretary reviews each application to determine the 
project's potential to have a lasting impact in the local geographic 
area, including the potential impact of the project on--
    (i) Program participants;
    (ii) The agency or agencies responsible for administering the 
bilingual vocational training program;
    (iii) Other employment training services in the local area; and
    (iv) The community.
    (d) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications of the director and other key personnel to be 
used in the project;
    (ii) The appropriateness of the time that each person referred to in 
paragraph (d)(1)(i) of this section will commit to the project; and
    (iii) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that personnel will be selected without regard to 
race, color, national origin, gender, age, or disability.

[[Page 112]]

    (2) To determine personnel qualifications under paragraph (d)(1)(i) 
of this section, the Secretary considers--
    (i) Experience and training in fields related to the objectives of 
the project;
    (ii) Experience and training in project management; and
    (iii) Any other qualifications that pertain to the quality of the 
project.
    (e) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is sufficient to support the proposed project, and 
that it represents a cost effective use of Bilingual Vocational Training 
Program funds;
    (2) Costs are necessary and reasonable in relation to the objectives 
of the proposed project; and
    (3) The facilities, equipment, and supplies that the applicant plans 
to use are adequate for the proposed project.
    (f) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the plan--
    (1) Is clearly explained and appropriate for the project;
    (2) Identifies at a minimum, types of data to be collected and 
reported with respect to the English-language competencies and academic 
and vocational competencies demonstrated by participants and the number 
and kinds of academic and work credentials acquired by individuals who 
complete the training;
    (3) Identifies at a minimum, types of data to be collected and 
reported with respect to enrollment, completion, and placement of 
participants by sex, racial or ethnic group, socio-economic status, and 
if appropriate, by level of English proficiency, for each occupation for 
which training is provided;
    (4) Includes activities during the formative stages of the project 
to help guide and improve the project, as well as a summative evaluation 
that includes recommendations for replicating project activities and 
results; and
    (5) Makes use of an external evaluator.
    (g) Demonstration and dissemination. (10 points) The Secretary 
reviews each application for information to determine the effectiveness 
and efficiency of the plan for demonstrating and disseminating 
information about project activities and results throughout the project 
period, including--
    (1) High quality in the design of the demonstration and 
dissemination plan and procedures for evaluating the effectiveness of 
the dissemination plan;
    (2) Provisions for publicizing the project at the local, State, and 
national levels by conducting or delivering presentations at 
conferences, workshops, and other professional meetings and by preparing 
materials for journal articles, newsletters, and brochures;
    (3) Provisions for making available the methods and techniques used 
by the project to others interested in replicating these methods and 
techniques, such as by inviting them to observe project activities;
    (4) A description of the types of materials the applicant plans to 
make available to help others replicate project activities and the 
methods for making the materials available; and
    (5) Provisions for assisting others to adopt and successfully 
implement the project or methods and techniques used by the project.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2441(a))



Sec. 427.22  What additional factors does the Secretary consider?

    (a) After evaluating the applications according to the criteria in 
Sec. 427.21 and consulting with the appropriate State board established 
under section 111 of the Act, the Secretary determines whether the most 
highly rated applications are equitably distributed among populations of 
individuals with limited English proficiency within the affected State.
    (b) The Secretary may select other applications for funding if doing 
so would improve the--
    (1) Equitable distribution of assistance among populations of 
individuals with limited English proficiency within a State; or
    (2) Geographical distribution of projects funded under this program.

(Authority: 20 U.S.C. 2441(d)(5))

[[Page 113]]



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 427.30  What are the evaluation requirements?

    (a) Each grantee shall annually provide and budget for an 
independent evaluation of its activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) The annual evaluation must include descriptions and analyses of 
the accuracy of records and validity of measures by the project to 
establish and report on the English-language competencies and academic 
and vocational competencies demonstrated and the academic and work 
credentials acquired.
    (d) The annual evaluation must contain descriptions and analyses of 
the accuracy of records and validity of measures used by the project to 
establish and report on participant enrollment, completion, and 
placement by sex, racial or ethnic group, socio-economic status, and, if 
appropriate, by level of English proficiency for each occupation for 
which training has been provided.
    (e) The annual evaluation must also include--
    (1) The grantee's progress in achieving the objectives in its 
approved application, including any approved revisions of the 
application;
    (2) If applicable, actions taken by the grantee to address 
significant barriers impeding progress; and
    (3) The effectiveness of the project in promoting key elements for 
participants' job readiness, including--
    (i) Coordination of services; and
    (ii) Improved English-language, academic, and vocational skills 
competencies.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2441(a))



PART 428--BILINGUAL VOCATIONAL INSTRUCTOR TRAINING PROGRAM--Table of Contents




                           Subpart A--General

Sec.
428.1  What is the Bilingual Vocational Instructor Training Program?
428.2  Who is eligible for an award?
428.3  What activities may the Secretary fund?
428.4  What regulations apply?
428.5  What definitions apply?

               Subpart B--How Does One Apply for an Award?

428.10  What must an application contain?

            Subpart C--How Does the Secretary Make an Award?

428.20  How does the Secretary evaluate an application?
428.21  What selection criteria does the Secretary use?
428.22  What additional factors does the Secretary consider?

    Authority: 20 U.S.C. 2441(b), unless otherwise noted.

    Source: 57 FR 36812, Aug. 14, 1992, ubless otherwise noted.



                           Subpart A--General



Sec. 428.1  What is the Bilingual Vocational Instructor Training Program?

    The Bilingual Vocational Instructor Training Program provides 
financial assistance for preservice and inservice training for personnel 
participating in or preparing to participate in bilingual vocational 
education and training programs for limited English proficient 
individuals.

(Authority: 20 U.S.C. 2441(b))



Sec. 428.2  Who is eligible for an award?

    (a) The following entities are eligible for grants, contracts, or 
cooperative agreements under this program:
    (1) State agencies.
    (2) Public and private nonprofit educational institutions.
    (b) Private for-profit educational institutions are eligible only 
for contracts under this program.

(Authority: 20 U.S.C. 2441(b)(1))



Sec. 428.3  What activities may the Secretary fund?

    (a) The Secretary provides assistance through grants, contracts, or 
cooperative agreements for--
    (1) Preservice and inservice training for instructors, aides, 
counselors, or other ancillary personnel participating

[[Page 114]]

in or preparing to participate in bilingual vocational training 
programs; and
    (2) Fellowships and traineeships for individuals participating in 
preservice or inservice training.
    (b) The Secretary does not make an award under this program unless 
the Secretary determines that the applicant has an ongoing vocational 
education program in the field in which participants will be trained, 
and can provide instructors with adequate language capabilities in the 
language other than English to be used in the bilingual vocational 
training project.

(Authority: 20 U.S.C. 2441(b))



Sec. 428.4  What regulations apply?

    The following regulations apply to the Bilingual Vocational Training 
Program:
    (a) The regulations in 34 CFR part 400.
    (b) The regulations in this part 428.

(Authority: 20 U.S.C. 2441(b))



Sec. 428.5  What definitions apply?

    The definitions in 34 CFR 400.4 apply to this program.

(Authority: 20 U.S.C. 2441(b))



               Subpart B--How Does One Apply for an Award?



Sec. 428.10  What must an application contain?

    An application must--
    (a) Provide an assurance that the activities and services for which 
assistance is sought will be administered by or under the supervision of 
the applicant;
    (b) Propose a project of a size, scope and design that will make a 
substantial contribution toward carrying out the purpose of the 
Bilingual Vocational Instructor Training Program;
    (c) Describe the capabilities of the applicant, including vocational 
training or education courses offered by the applicant, accreditation, 
and any certification of courses by appropriate State agencies;
    (d) Describe the qualifications of principal staff to be used in the 
bilingual vocational instructor training project;
    (e) Describe the number of participants to be served, the minimum 
qualifications for project participants, and the selection process for 
project participants;
    (f) Include the projected amount of the fellowships or traineeships, 
if any;
    (g) Contain sufficient information for the Secretary to make the 
determination required by Sec. 428.3(b); and
    (h) Provide an assurance that preservice training will be provided 
to individuals who have indicated their intent to engage as personnel in 
a vocational education program that serves limited English proficient 
individuals.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2441(d)(1), (4))



            Subpart C--How Does the Secretary Make an Award?



Sec. 428.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 428.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) or this 
section, based on the criteria in Sec. 428.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
points for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition, in a notice published in the Federal 
Register, the Secretary may assign the reserved 15 points among the 
criteria in Sec. 428.21.

(Authority: 20 U.S.C. 2441(b), (d)(5))



Sec. 428.21  What selection criteria does the Secretary use?

    The Secretary uses the following selection criteria in evaluating 
each application:
    (a) Need. (15 points) (1) The Secretary reviews each application to 
determine the need for the proposed bilingual vocational instructor 
training project, including--
    (i) The need for the project in the specific geographic area or 
areas to be served by the proposed project;

[[Page 115]]

    (ii) The training needs of program participants to be served by the 
proposed project;
    (iii) How these needs will be met through the proposed project; and
    (iv) The relationship of the proposed project to other ongoing 
personnel development programs in the geographic area or areas to be 
served by the proposed project.
    (2) The Secretary reviews each application to determine the extent 
to which, upon completion of their training, program participants will 
work with programs that provide vocational education to limited English 
proficient individuals.
    (b) Program design. (20 points) The Secretary reviews each 
application to determine the quality of the program design and the 
potential of the project to have a lasting impact on the geographic area 
or areas to be served by the proposed project, including--
    (1) Potential to increase the skill level of program participants, 
with particular regard to the following areas:
    (i) Knowledge of the needs of limited English proficient individuals 
enrolled in vocational education programs, and how those needs should 
influence teaching strategies and program design.
    (ii) Understanding of bilingual vocational training methodologies.
    (iii) Techniques for preparing limited English proficient 
individuals for employment; and
    (2) Potential to increase access to vocational education for limited 
English proficient individuals.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application for an effective plan of management that ensures proper and 
efficient administration of the project, including--
    (1) Clearly defined project objectives that relate to the purpose of 
the Bilingual Vocational Instructor Training Program;
    (2) For each objective, the specific tasks to be performed in order 
to achieve the specified project objective; and
    (3) How the applicant plans to use its resources and personnel to 
achieve each objective.
    (d) Key personnel. (10 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications of the director and other key personnel to be 
used in the project;
    (ii) The appropriateness of the time that each person referred to in 
paragraph (d)(1)(i) of this section will commit to the project; and
    (iii) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that personnel will be selected without regard to 
race, color, national origin, gender, age, or disability.
    (2) To determine personnel qualifications under paragraph (d)(1)(i) 
of this section, the Secretary considers--
    (i) Experience and training in fields related to the objectives of 
the project;
    (ii) Experience and training in project management; and
    (iii) Any other qualifications that pertain to the quality of the 
project.
    (e) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is sufficient to support the proposed project, and 
that it represents a cost effective use of Bilingual Vocational 
Instructor Training Program funds;
    (2) Costs are necessary and reasonable in relation to the objectives 
of the proposed project; and
    (3) The facilities that the applicant plans to use are adequate for 
the proposed project;
    (f) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the plan--
    (1) Is clearly explained and appropriate for the bilingual 
vocational instructor training project;
    (2) To the extent possible, is objective and will produce data that 
are quantifiable;
    (3) Identifies outcomes of the project in terms of enrollment, 
completion and after-training work commitments of participants by sex, 
racial or ethnic group, and by level and kinds of language proficiency;
    (4) Identifies expected learning and skills outcomes for 
participants and

[[Page 116]]

how those outcomes will be measured; and
    (5) Includes activities during the formative stages of the project 
to help guide and improve the project, as well as a summative evaluation 
that includes recommendations for replicating project activities and 
results.
    (g) Dissemination plan. (10 points) The Secretary reviews each 
application to determine the effectiveness and efficiency of the plan to 
disseminate information about the project and demonstrate project 
activities and results, including--
    (1) High quality in its design and procedures for evaluating the 
effectiveness of the dissemination plan; and
    (2) A description of the types of materials the applicant plans to 
develop and make available to help others replicate project activities, 
and the methods to be used to make the materials available.

(Approved by the Office of Management and Budget under Control No. 1830-
0013)

(Authority: 20 U.S.C. 2441(b))



Sec. 428.22  What additional factors does the Secretary consider?

    (a) After evaluating the applications according to the criteria in 
Sec. 428.21, and consulting with the appropriate State board established 
under section 111 of the Act, the Secretary determines whether the most 
highly rated applications are equitably distributed among populations of 
individuals with limited English proficiency within the affected State.
    (b) The Secretary may select other applications for funding if doing 
so would improve the--
    (1) Equitable distribution of assistance among populations of 
individuals with limited English proficiency within the affected State; 
or
    (2) Geographical distribution of projects funded under this program.

(Authority: 20 U.S.C. 2441(d)(5))



PART 429--BILINGUAL VOCATIONAL MATERIALS, METHODS, AND TECHNIQUES PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
429.1  What is the Bilingual Vocational Materials, Methods, and 
          Techniques Program?
429.2  Who is eligible to apply for assistance under this program?
429.3  What regulations apply to this program?
429.4  What definitions apply to this program?

Subpart B--What Kinds of Activities Does the Secretary Assist Under This 
                                Program?

429.10  What types of projects may be funded?
429.11  How does the Secretary establish priorities for this program?

               Subpart C--How Does One Apply for a Grant?

429.20  What must an application include?

             Subpart D--How Does the Secretary Make a Grant?

429.30  How does the Secretary evaluate an application?
429.31  What selection criteria does the Secretary use?

    Authority: Sec. 441(c) of the Carl D. Perkins Vocational Education 
Act, 20 U.S.C. 2441(c), as enacted by Pub. L. 98-524, unless otherwise 
noted.

    Source: 50 FR 33255, Aug. 16, 1985, unless otherwise noted. 
Redesignated at 57 FR 36771, Aug. 14, 1992.



                           Subpart A--General



Sec. 429.1  What is the Bilingual Vocational Materials, Methods, and 
Techniques Program?

    The Bilingual Vocational Materials, Methods, and Techniques Program 
provides financial assistance for the development of instructional and 
curriculum materials, methods, or techniques for bilingual vocational 
training

[[Page 117]]

for individuals with limited English proficiency.

(Authority: Sec. 441(c)(1); 20 U.S.C. 2441(c)(1))



Sec. 429.2  Who is eligible to apply for assistance under this program?

    (a) The following are eligible to apply for grants, contracts, or 
cooperative agreements under this program:
    (1) State agencies.
    (2) Educational institutions.
    (3) Nonprofit organizations.
    (b) The following are eligible for contracts under this program:
    (1) Private for-profit organizations.
    (2) Individuals.

(Authority: Sec. 441(c)(1); 20 U.S.C. 2441(c)(1))



Sec. 429.3  What regulations apply to this program?

    The following regulations apply to the Bilingual Vocational 
Materials, Methods, and Techniques Program:
    (a) The regulations in 34 CFR part 400.
    (b) The regulations in this part.

(Authority: Sec. 441(c); 20 U.S.C. 2441(c))



Sec. 429.4  What definitions apply to this program?

    The definitions in 34 CFR 400.4 apply to this program.

(Authority: Sec. 441(c); 20 U.S.C. 2441(c))



Subpart B--What Kinds of Activities Does the Secretary Assist Under This 
                                Program?



Sec. 429.10  What types of projects may be funded?

    The Secretary provides assistance through grants, contracts, or 
cooperative agreements for--
    (a) Research in bilingual vocational training;
    (b) The development of instructional and curriculum materials, 
methods, or techniques;
    (c) Training projects to familiarize State agencies and training 
institutions with research findings and with successful pilot and 
demonstration projects in bilingual vocational education and training; 
and
    (d) Experimental, developmental, pilot, and demonstration projects.

(Authority: Sec. 441.(c)(2); 20 U.S.C. 2441(c)(2))



Sec. 429.11  How does the Secretary establish priorities for this program?

    (a) The Secretary may announce, through one or more notices 
published in the Federal Register, the priorities for this program, if 
any, from the types of projects described in Sec. 429.10.
    (b) The Secretary may establish a separate competition for one or 
more of the priorities selected. If a separate competition is 
established for one or more priorities, the Secretary may reserve all 
applications that relate to those priorities for review as part of the 
separate competition.

(Authority: Sec. 441(c)(2); 20 U.S.C. 2441(c)(2))

[50 FR 33255, Aug. 16, 1985. Redesignated at 57 FR 36771, Aug. 14, 1992, 
and amended at 59 FR 1652, Jan. 12, 1994]



               Subpart C--How Does One Apply for a Grant?



Sec. 429.20  What must an application include?

    An application under this part must--
    (a) Describe the qualifications of staff responsible for the 
project; and
    (b) Provide that the activities and services for which assistance is 
sought will be administered by or under the supervision of the 
applicant.

(Approved by the Office of Management and Budget under control number 
1830-0013)

(Authority: Sec. 441(d)(1), (3); 20 U.S.C. 2441(d)(1), (3))



             Subpart D--How Does the Secretary Make a Grant?



Sec. 429.30  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 429.31.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 429.31.

[[Page 118]]

    (c) Subject to paragraph (d) of this section, the maximum possible 
points for each criterion is indicated in parentheses after the heading 
for each criterion.
    (d) For each competition, as announced in a notice published in the 
Federal Register, the Secretary may assign the reserved 15 points among 
the criteria in Sec. 429.31.

(Authority: Sec. 441(c), 20 U.S.C. 2441(c))

[50 FR 33255, Aug. 16, 1985. Redesignated at 57 FR 36771, Aug. 14, 1992, 
and amended at 59 FR 1652, Jan. 12, 1994]



Sec. 429.31  What selection criteria does the Secretary use?

    The Secretary uses the following selection criteria in evaluating 
each application:
    (a) Need. (20 points) (1) The Secretary reviews each application for 
information that shows the need for the proposed services and activities 
for individuals with limited English proficiency.
    (2) The Secretary looks for information that shows--
    (i) Specific evidence of the need; and
    (ii) Specific information about how the need will be met.
    (b) Plan of operation. (20 points)
    (1) The Secretary reviews each application for information that 
shows the quality of the plan of operation for the project.
    (2) The Secretary looks for information that shows--
    (i) High quality in the design of the project;
    (ii) An effective plan of management that ensures proper and 
efficient administration of the project;
    (iii) A clear description of how the objectives of the project 
relate to the purpose of the program;
    (iv) The way the applicant plans to use its resources and personnel 
to achieve each objective; and
    (v) A clear description of how the applicant will provide equal 
access and treatment for eligible project participants who are members 
of groups that have been traditionally underrepresented, such as--
    (A) Members of racial or ethnic minority groups;
    (B) Women;
    (C) Handicapped persons; and
    (D) The elderly.
    (c) Quality of key personnel. (20 points)
    (1) The Secretary reviews each application for information that 
shows the qualifications of the key personnel the applicant plans to use 
on the project.
    (2) The Secretary looks for information that shows--
    (i) The qualifications of the project director (if one is to be 
used);
    (ii) The qualifications of each of the other key personnel to be 
used in the project;
    (iii) The time that each person referred to in paragraphs (c)(2) (i) 
and (ii) of this section will commit to the project; and
    (iv) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented, such as--
    (A) Members of racial or ethnic minority groups;
    (B) Women;
    (C) Handicapped persons; and
    (D) The elderly.
    (3) To determine personnel qualifications, the Secretary considers 
experience and training, in fields related to the objectives of the 
project, as well as other information that the applicant provides.
    (d) Budget and cost effectiveness. (10 points)
    (1) The Secretary reviews each application for information that 
shows that the project has an adequate budget and is cost effective.
    (2) The Secretary looks for information that shows--
    (i) The budget for the project is adequate to support the project 
activities; and
    (ii) Costs are reasonable in relation to the objectives of the 
project.
    (e) Evaluation plan. (10 points)
    (1) The Secretary reviews each application for information that 
shows the quality of the evaluation plan for the project.

    Cross-Reference: See 34 CFR 75.590 (Evaluation by the grantee).

    (2) The Secretary looks for information that shows methods of 
evaluation that are appropriate for the project

[[Page 119]]

and, to the extent possible, are objective and produce data that are 
quantifiable.
    (f) Adequacy of resources. (5 points)
    (1) The Secretary reviews each application for information that 
shows that the applicant plans to devote adequate resources to the 
project.
    (2) The Secretary looks for information that shows--
    (i) The facilities that the applicant plans to use are adequate; and
    (ii) The equipment and supplies that the applicant plans to use are 
adequate.

(Approved by the Office of Management and Budget under control number 
1830-0013)

(Authority: Sec. 441(c); 20 U.S.C. 2441(c))

[50 FR 33255, Aug. 16, 1985; 50 FR 38802, Sept. 25, 1985]



PART 460--ADULT EDUCATION--GENERAL PROVISIONS--Table of Contents




Sec.
460.1  What is the purpose of the Adult Education Act?
460.2  What programs are authorized by the Adult Education Act?
460.3  What regulations apply to the adult education programs?
460.4  What definitions apply to the adult education programs?

    Authority: 20 U.S.C. 1201 et seq., unless otherwise noted.

    Source: 54 FR 34409, Aug. 18, 1989, unless otherwise noted. 
Redesignated at 57 FR 24091, June 5, 1992.



Sec. 460.1  What is the purpose of the Adult Education Act?

    The purpose of the Adult Education Act (the Act) is to assist the 
States to--
    (a) Improve educational opportunities for adults who lack the level 
of literacy skills requisite to effective citizenship and productive 
employment;
    (b) Expand and improve the current system for delivering adult 
education services, including delivery of these services to 
educationally disadvantaged adults; and
    (c) Encourage the establishment of adult education programs that 
will--
    (1) Enable adults to acquire the basic educational skills necessary 
for literate functioning;
    (2) Provide adults with sufficient basic education to enable them to 
benefit from job training and retraining programs and obtain and retain 
productive employment so that they might more fully enjoy the benefits 
and responsibilities of citizenship; and
    (3) Enable adults who so desire to continue their education to at 
least the level of completion of secondary school.

(Authority: 20 U.S.C. 1201)



Sec. 460.2  What programs are authorized by the Adult Education Act?

    The following programs are authorized by the Act:
    (a) Adult Education State-administered Basic Grant Program (34 CFR 
part 426).
    (b) State-administered Workplace Literacy Program (34 CFR part 433).
    (c) State-administered English Literacy Program (34 CFR part 434).
    (d) State Literacy Resource Centers Program (34 CFR part 464).
    (e) National Workplace Literacy Program (34 CFR part 432).
    (f) National Workforce Literacy Strategies Program (34 CFR part 
473).
    (g) National English Literacy Demonstration Program for Individuals 
of Limited English Proficiency (34 CFR part 435).
    (h) Adult Migrant Farmworker and Immigrant Education Program (34 CFR 
part 436).
    (i) National Adult Literacy Volunteer Training Program (34 CFR part 
437).
    (j) State Program Analysis Assistance and Policy Studies Program (34 
CFR part 438).
    (k) Functional Literacy for State and Local Prisoners Program (34 
CFR part 489).
    (l) Life Skills for State and Local Prisoners Program (34 CFR part 
490).

(Authority: 20 U.S.C. 1201 et seq.)

[54 FR 34409, Aug. 18, 1989. Redesignated and amended at 57 FR 24091, 
June 5, 1992]



Sec. 460.3  What regulations apply to the adult education programs?

    The following regulations apply to the adult education programs:

[[Page 120]]

    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs) applies to parts 472, 
473, 474, 475, 476, 477, 489, and 490, except that 34 CFR 75.720(b), 
regarding the frequency of certain reports, does not apply.
    (3) 34 CFR part 76 (State-Administered Programs) applies to parts 
461, 462, 463, and 464, except that 34 CFR 76.101 (The general State 
application) does not apply.
    (4) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (5) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (6) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (7) 34 CFR part 81 (General Education Provisions Act--Enforcement).
    (8) 34 CFR part 82 (New Restrictions on Lobbying).
    (9) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (10) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 460.
    (c) The regulations in 34 CFR parts 461, 462, 463, 464, 472, 473, 
474, 475, 476, 477, 489, and 490.

(Authority: 20 U.S.C. 1201 et seq.)

[57 FR 24091, June 5, 1992]



Sec. 460.4  What definitions apply to the adult education programs?

    (a) Definitions in the Act. The following terms used in regulations 
for adult education programs are defined in sections 312 and 326(b) of 
the Act:

Academic education
Adult
Adult education
Community-based organization
Community school program
Correctional institution
Criminal offender
Educationally disadvantaged adult
English literacy program
Institution of higher education
Local educational agency
Out-of-school youth
Private industry council
State
State educational agency

    (b) Definitions in EDGAR. The following terms used in regulations 
for adult education programs are defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
Budget period
Contract
ED
EDGAR
Fiscal year
Grant
Grantee
Nonprofit
Private
Project
Project period
Public
Secretary
Subgrant
Subgrantee

    (c) Other definitions. The following definitions also apply to 
regulations for adult education programs:
    Act means the Adult Education Act (20 U.S.C. 1201 et seq.).
    Adult basic education means instruction designed for an adult who--
    (1) Has minimal competence in reading, writing, and computation;
    (2) Is not sufficiently competent to meet the educational 
requirements of adult life in the United States; or
    (3) Is not sufficiently competent to speak, read, or write the 
English language to allow employment commensurate with the adult's real 
ability.

If grade level measures are used, adult basic education includes grades 
0 through 8.9.

    Adult secondary education means instruction designed for an adult 
who--
    (1) Is literate and can function in everyday life, but is not 
proficient; or
    (2) Does not have a certificate of graduation (or its equivalent) 
from a school providing secondary education.


If using grade level measures, adult secondary education includes grades 
9 through 12.9.
    Adults with Limited English proficiency, persons with limited 
English proficiency, individuals of limited English proficiency, and 
limited English proficient adults mean individuals who--
    (1) Were not born in the United States or whose native language is a 
language other than English;

[[Page 121]]

    (2) Come from environments where a language other than English is 
dominant; or
    (3) Are American Indian or Alaska Natives and who come from 
environments where a language other than English has had a significant 
impact on their level of English language proficiency; and
    (4) Who, by reason thereof, have sufficient difficulty speaking, 
reading, writing, or understanding the English language to deny these 
individuals the opportunity to learn successfully in classrooms where 
the language of instruction is English or to participate fully in our 
society.


(Authority: 20 U.S.C. 3283(a)(1))

    Governor includes the chief executive officer of a State that does 
not have a Governor.
    Homeless or homeless adult:
    (1) The terms mean an adult lacking a fixed, regular, and adequate 
nighttime residence as well as an individual having a primary nighttime 
residence that is--
    (i) A supervised publicly or privately operated shelter designed to 
provide temporary living accommodations (including welfare hotels, 
congregate shelters, and transitional housing for the mentally ill);
    (ii) An institution that provides a temporary residence for 
individuals intended to be institutionalized; or
    (iii) A public or private place not designed for, or ordinarily used 
as, a regular sleeping accommodation for human beings.
    (2) The terms do not include any adult imprisoned or otherwise 
detained pursuant to an Act of the Congress or a State law.


(Authority: 42 U.S.C. 11301)

    Immigrant means any refugee admitted or paroled into this country or 
any alien except one who is exempt under the provisions of the 
Immigration and Nationality Act, as amended.


(Authority: 8 U.S.C. 1101(a)(15))

    Institutionalized individual means an adult, as defined in the Act, 
who is an inmate, patient, or resident of a correctional, medical, or 
special institution.
    Literacy means an individual's ability to read, write, and speak in 
English, compute, and solve problems, at levels of proficiency necessary 
to function on the job and in society, to achieve one's goals, and to 
develop one's knowledge and potential.
    Migrant farmworker means a person who has moved within the past 12 
months from one school district to another--or, in a State that is 
comprised of a single school district, has moved from one school 
administrative area to another-- to enable him or her to obtain 
temporary or seasonal employment in any activity directly related to--
    (1) The production or processing of crops, dairy products, poultry, 
or livestock for initial commercial sale or as a principal means of 
personal subsistence;
    (2) The cultivation or harvesting of trees; or
    (3) Fish farms.
    Outreach means activities designed to--
    (1) Inform educationally disadvantaged adult populations of the 
availability and benefits of the adult education program;
    (2) Actively recruit these adults to participate in the adult 
education program; and
    (3) Assist these adults to participate in the adult education 
program by providing reasonable and convenient access and support 
services to remove barriers to their participation in the program.
    Program year means the twelve-month period during which a State 
operates its adult education program.
    State administrative costs means costs for those management and 
supervisory activities necessary for direction and control by the State 
educational agency responsible for developing the State plan and 
overseeing the implementation of the adult education program under the 
Act. The term includes those costs incurred for State advisory councils 
under section 332 of the Act, but does not include costs incurred for 
such additional activities as evaluation,

[[Page 122]]

teacher training, dissemination, technical assistance, and curriculum 
development.

(Authority: 20 U.S.C. 1201 et seq.)

[54 FR 34409, Aug. 18, 1989. Redesignated and amended at 57 FR 24091, 
24092, June 5, 1992]



PART 461--ADULT EDUCATION STATE-ADMINISTERED BASIC GRANT PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
461.1  What is the Adult Education State-administered Basic Grant 
          Program?
461.2  Who is eligible for an award?
461.3  What are the general responsibilities of the State educational 
          agency?
461.4  What regulations apply?
461.5  What definitions apply?

             Subpart B--How Does a State Apply for a Grant?

461.10  What documents must a State submit to receive a grant?
461.11  How is the State plan developed?
461.12  What must the State plan contain?
461.13  What procedures does a State use to submit its State plan?
461.14  When are amendments to a State plan required?

       Subpart C--How Does the Secretary Make a Grant to a State?

461.20  How does the Secretary make allotments?
461.21  How does the Secretary make reallotments?
461.22  What criteria does the Secretary use in approving a State's 
          description of efforts relating to program reviews and 
          evaluations?
461.23  How does the Secretary approve State plans and amendments?

   Subpart D--How Does a State Make an Award to an Eligible Recipient?

461.30  Who is eligible for a subgrant or contract?
461.31  How does a State award funds?
461.32  What are programs for corrections education and education for 
          other institutionalized adults?
461.33  What are special experimental demonstration projects and teacher 
          training projects?

           Subpart E--What Conditions Must Be Met by a State?

461.40  What are the State and local administrative costs requirements?
461.41  What are the cost-sharing requirements?
461.42  What is the maintenance of effort requirement?
461.43  Under what circumstances may the Secretary waive the maintenance 
          of effort requirement?
461.44  How does a State request a waiver of the maintenance of effort 
          requirement?
461.45  How does the Secretary compute maintenance of effort in the 
          event of a waiver?
461.46  What requirements for program reviews and evaluations must be 
          met by a State?

   Subpart F--What Are the Administrative Responsibilities of a State?

461.50  What are a State's responsibilities regarding a State advisory 
          council on adult education and literacy?
461.51  What are the membership requirements of a State advisory 
          council?
461.52  What are the responsibilities of a State advisory council?
461.53  May a State establish an advisory body other than a State 
          advisory council?

    Authority: 20 U.S.C. 1201 et seq., unless otherwise noted.

    Source: 57 FR 24092, June 5, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 461.1  What is the Adult Education State-administered Basic Grant 
Program?

    The Adult Education State-administered basic Grant Program (the 
program) is a cooperative effort between the Federal Government and the 
States to provide adult education. Federal funds are granted to the 
States on a formula basis. Based on need and resources available, States 
fund local programs of adult basic education, programs of adult 
secondary education, and programs for adults with limited English 
proficiency.

(Authority: 20 U.S.C. 1203)



Sec. 461.2  Who is eligible for an award?

    State educational agencies (SEAs) are eligible for awards under this 
part.

(Authority: 20 U.S.C. 1203)

[[Page 123]]



Sec. 461.3  What are the general responsibilities of the State educational 
agency?

    (a) A State that desires to participate in the program shall 
designate the SEA as the sole State agency responsible for the 
administration and supervision of the program under this part.
    (b) The SEA has the following general responsibilities:
    (1) Development, submission, and implementation of the State 
application and plan, and any amendments to these documents.
    (2) Evaluation of activities, as described in section 352 of the Act 
and Sec. 461.46.
    (3) Consultation with the State advisory council, if a State 
advisory council has been established under section 332 of the Act and 
Sec. 461.50.
    (4) Consultation with other appropriate agencies, groups, and 
individuals involved in the planning, administration, evaluation, and 
coordination of programs funded under the Act.
    (5)(i) Assignment of personnel as may be necessary for State 
administration of programs under the Act.
    (ii) The SEA must ensure that--
    (A) These personnel are sufficiently qualified by education and 
experience; and
    (B) There is a sufficient number of these personnel to carry out the 
responsibilities of the State.
    (6) If the State imposes any rule or policy relating to the 
administration and operation of programs under the Act (including any 
rule or policy based on State interpretation of any Federal law, 
regulation, or guidance), the SEA shall identify the rule or policy as a 
State-imposed requirement.
    (7) By July 25, 1993, development and implementation, in 
consultation with a widely representative group of appropriate experts, 
educators, and administrators, of indicators of program quality to be 
used to evaluate programs assisted under this part, as required by 
section 352 of the Act and Sec. 461.46, to determine whether those 
programs are effective, including whether those programs are 
successfully recruiting, retaining, and improving the literacy skills of 
the individuals served under those programs.

(Authority: 20 U.S.C. 1205 (a) and (b)



Sec. 461.4  What regulations apply?

    The following regulations apply to the program:
    (a) The regulations in this part 461.
    (b) The regulations in 34 CFR part 460.

(Authority: 20 U.S.C. 1201 et seq.)



Sec. 461.5  What definitions apply?

    (a) The definitions in 34 CFR 460.4 apply to this part.
    (b) For the purposes of this part, ``State'' includes the Federated 
States of Micronesia and the Republic of the Marshall Island.

(Authority: 20 U.S.C. 1201 et seq.)



             Subpart B--How Does a State Apply for a Grant?



Sec. 461.10  What documents must a State submit to receive a grant?

    An SEA shall submit the following to the Secretary as one document:
    (a) A State plan, developed once every four years, that meets the 
requirements of the Act and contains the information required in 
Sec. 461.12.
    (b) A State application consisting of program assurances, signed by 
an authorized official of the SEA, to provide that--
    (1) The SEA will provide such methods of administration as are 
necessary for the proper and efficient administration of the Act;
    (2) Federal funds granted to the State under the Act will be used to 
supplement, and not supplant, the amount of State and local funds 
available for uses specified in the Act;
    (3) Programs, services, and activities funded in accordance with the 
uses specified in section 322 of the Act are designed to expand or 
improve the quality of adult education programs, including programs for 
educationally disadvantaged adults, to initiate new programs of high 
quality, or, if necessary, to maintain programs;
    (4) The SEA will provide such fiscal control and fund accounting 
procedures as may be necessary to ensure proper disbursement of, and 
accounting for, Federal funds paid to the State (including Federal funds 
paid by the State to eligible recipients under the Act);

[[Page 124]]

    (5) The SEA has instituted policies and procedures to ensure that 
copies of the State plan and all statements of general policy, rules, 
regulations, and procedures will be made available to the public;
    (6) The SEA will comply with the maintenance of effort requirements 
in section 361(b) of the Act;

    Cross-Reference: See Sec. 461.42 What is the maintenance of effort 
requirement?

    (7) Adults enrolled in adult basic education programs, including 
programs for adults with limited English proficiency, will not be 
charged tuition, fees, or any other charges, or be required to purchase 
any books or any other materials that are needed for participation in 
the program;
    (8) The SEA may use not more than 20 percent of the funds granted to 
the State under the Act for programs of equivalency for a certificate of 
graduation from secondary school;
    (9) As may be required by the Secretary, the SEA will report 
information concerning special experimental demonstration projects and 
teacher training projects supported under section 353 of the Act; and
    (10) The SEA annually will report information abut the State's adult 
education students, programs, expenditures, and goals, as may be 
required by the Secretary.

(Approved by the Office of Management and Budget under control number 
1830-0026)

(Authority: 20 U.S.C. 1203a(b)(2), 1206(a), 1206b, 1207a, 1208, and 
1209(b))



Sec. 461.11  How is the State plan developed?

    In formulating the State plan, the SEA shall--
    (a) Meet with and utilize the State advisory council, if a council 
is established under section 332 of the Act and Sec. 461.50;
    (b) After providing appropriate and sufficient notice to the public, 
conduct at least two public hearings in the State for the purpose of 
affording all segments of the public, including groups serving 
educationally disadvantaged adults, and interested organizations and 
groups, an opportunity to present their views and make recommendations 
regarding the State plan;
    (c) Make a thorough assessment of --
    (1) The needs of adults, including educationally disadvantaged 
adults, eligible to be served as well as adults proposed to be served 
and those currently served by the program; and
    (2) The capability of existing programs and institutions to meet 
those needs; and
    (d) State the changes and improvements required in adult education 
to fulfill the purposes of the Act and the options for implementing 
these changes and improvements.

(Approved by the Office of Management and Budget under control number 
1830-0026)

(Authority: 20 U.S.C. 1206a(a)(1) and (2), (b))



Sec. 461.12  What must the State plan contain?

    (a) Consistent with the assessment described in Sec. 461.11(c), a 
State plan must, for the four-year period covered by the plan--
    (1) Describe the adult education needs of all segments of the adult 
population in the State identified in the assessment, including the 
needs of those adults who are educationally disadvantaged:
    (2) Describe and provide for the fulfillment of the literacy needs 
of individuals in the State;
    (3) Set forth measurable goals for improving literacy levels, 
retention in literacy programs, and long-term learning gains of 
individuals in the State and describe a comprehensive approach for 
achieving those goals, including the development of indicators of 
program quality as required by section 331(a)(2) of the Act and 
Sec. 461.3(b)(7).
    (4) Describe the curriculum, equipment, and instruments that are 
being used by instructional personnel in programs and indicate how 
current these elements are;
    (5) Describe the means by which the delivery of adult education 
services will be significantly expanded (including efforts to reach 
typically underserved groups such as educationally disadvantaged adults, 
individuals of limited English proficiency, and adults with 
disabilities) through coordination

[[Page 125]]

by agencies, institutions, and organizations including the public school 
system, businesses, labor unions, libraries, institutions of higher 
education, public health authorities, employment or training programs, 
antipoverty programs, organizations providing assistance to the 
homeless, and community and voluntary organizations;
    (6) Describe the means by which representatives of the public and 
private sectors were involved in the development of the State plan and 
how they will continue to be involved in the implementation of the plan, 
especially in the expansion of the delivery of adult education services 
by cooperation and collaboration with those public and private agencies, 
institutions, and organizations;
    (7) Describe the capability of existing programs and institutions to 
meet the needs described in paragraph (a)(1) of this section, including 
the other Federal and non-Federal resources available to meet those 
needs;
    (8) Describe the outreach activities that the State intends to carry 
out during the period covered by the plan, including specialized 
efforts--such as flexible course schedules, auxiliary aids and services, 
convenient locations, adequate transportation, and child care services--
to attract and assist meaningful participation in adult education 
programs;
    (9)(i) Describe the manner in which the SEA will provide for the 
needs of adults of limited English proficiency or no English proficiency 
by providing programs designed to teach English and, as appropriate, to 
allow these adults to progress effectively through the adult education 
program or to prepare them to enter the regular program of adult 
education as quickly as possible.
    (ii) These programs may, to the extent necessary, provide 
instruction in the native language of these adults or may provide 
instruction exclusively in English.
    (iii) These programs must be carried out in coordination with 
programs assisted under the Bilingual Education Act and with bilingual 
vocational education programs under the Carl D. Perkins Vocational and 
Applied Technology Education Act;
    (10) Describe how the particular education needs of adult 
immigrants, the incarcerated, adults with disabilities, the chronically 
unemployed, homeless adults, the disadvantaged, and minorities in the 
State will be addressed;
    (11)(i) Describe the progress the SEA has made in achieving the 
goals set forth in each State plan subsequent to the initial State plan 
filed in 1989; and
    (ii) Describe how the assessment of accomplishments and the findings 
of program reviews and evaluations required by section 352 of the Act 
and Sec. 461.46 were considered in establishing the State's goals for 
adult education in the plan being submitted;
    (12) Describe the criteria the SEA will use in approving 
applications by eligible recipients and allocating funds made available 
under the Act to those recipients;
    (13) Describe the methods proposed for joint planning and 
coordination of programs carried out under the Act with programs 
conducted under applicable Federal and State programs, including the 
Carl D. Perkins Vocational and Applied Technology Education Act, the Job 
Training Partnership Act, the Rehabilitation Act of 1973, the 
Individuals with Disabilities Education Act, the Immigration Reform and 
Control Act of 1986, the Higher Education Act of 1965, and the Domestic 
Volunteer Service Act, to ensure maximum use of funds and to avoid 
duplication of services;
    (14) Describe the steps taken to utilize volunteers, particularly 
volunteers assigned to the Literacy Corps established under the Domestic 
Volunteer Service Act and volunteers trained in programs carried out 
under section 382 of the Act and 34 CFR part 476, but only to the extent 
that those volunteers supplement and do not supplant salaried employees;
    (15) Describe the measures to be taken to ensure that adult 
education programs, services, and activities under the Act will take 
into account the findings of program reviews and evaluations required by 
section 352 of the Act and Sec. 461.46;

    Cross-Reference: See Sec. 461.22. What criteria does the Secretary 
use in approving a State's description of efforts relating to program 
reviews and evaluation?


[[Page 126]]


    (16) Report the amount of administrative funds to be spent on 
program improvements;
    (17) Contain assurances that financial assistance provided under 
this part is used to assist and expand existing programs and to develop 
new programs for--
    (i) Adults whose lack of basic skills renders them unemployable;
    (ii) Adults whose lack of basic skills keeps them, whether employed 
or unemployed, from functioning independently in society; and
    (iii) Adults whose lack of basic skills severely reduces their 
ability to have a positive effect on the literacy of their children;
    (18) Describe the SEA's policies, procedures, and activities for 
carrying out special experimental demonstration projects and teacher 
training projects that meet the requirements of Sec. 461.33;
    (19) Describe the SEA's policies, procedures, and activities for 
carrying out corrections education and education for other 
institutionalized adults that meet the requirements of Sec. 461.32;
    (20) Describe the SEA's planned use of Federal funds for 
administrative costs under Sec. 461.40(a), including any planned 
expenditures for a State advisory council under Sec. 461.50.

    Note: An additional source of funding exists under section 356(g) of 
the Act and 34 CFR part 464, but need not be reported under this 
paragraph.


and
    (21) Include a summary of recommendations received and the SEA's 
responses to the recommendations made through the State plan development 
process required under Sec. 461.11(b).
    (b) Each State plan must provide assurance that public or private 
non-profit entities eligible under Sec. 461.30--local educational 
agencies, public or private nonprofit agencies, community-based 
organizations, correctional education agencies, postsecondary 
educational institutions, institutions that serve educationally 
disadvantaged adults, and any other institution that has the ability to 
provide literacy services to adults and families--will be provided 
direct and equitable access to all Federal funds provided under this 
part, including--
    (1) The right to submit applications directly to the SEA for those 
funds; and
    (2) Use by the SEA of a process for selecting recipients of those 
funds that gives each agency, institution, and organization a fair 
chance of receiving an award.
    (c) To be eligible to participate in the State-administered 
Workplace Literacy Program under section 371(b) of the Act, an SEA shall 
comply with the requirements in 34 CFR 462.10.
    (d) To be eligible to participate in the State-administered English 
Literacy Program under section 372(a) of the Act, an SEA shall comply 
with the requirements in 34 CFR 463.10.
    (e) In order for a State, or the local recipients within the State, 
to be eligible to apply for funds under the Adult Migrant Farmworker and 
Immigrant Education Program under section 381 of the Act and 34 CFR part 
475, an SEA shall describe the types of projects appropriate for meeting 
the educational needs of adult migrant farm workers and immigrants under 
section 381 of the Act.

(Approved by the Office of Management and Budget under control number 
1830-0026)

(Authority: 20 U.S.C. 1203a(a)(1); 1204; 1205(c); 1206a(a)(2), 
(b)(1)(B), (c), (d); 1208; 1211(b)(3)(A); 1211a(a)(2); and 1213(a))



Sec. 461.13  What procedures does a State use to submit its State plan?

    (a) An SEA shall submit its State plan to the Secretary not later 
than 90 days prior to the first program year for which the plan is in 
effect.
    (b)(1) Not less than sixty days prior to submitting the State plan 
to the Secretary, the SEA shall give the State advisory council, if one 
is established under section 332 of the Act and Sec. 461.50, an 
opportunity to review and comment on the plan.
    (2) The SEA shall respond to all timely and substantive objections 
of the State advisory council and include with the State plan a copy of 
those objections and its response.
    (c)(1) Not less than sixty days prior to submitting the State plan 
to the Secretary, the SEA shall give the following entities an 
opportunity to review and comment on the plan:

[[Page 127]]

    (i) The State board or agency for vocational education.
    (ii) The State Job Training Coordinating Council under the Job 
Training Partnership Act.
    (iii) The State board or agency for postsecondary education.
    (2) Comments (to the extent those comments are received in a timely 
fashion) of entities listed in paragraph (c)(1) of this section and the 
SEA's response must be included with the State plan.

(Approved by the Office of Management and Budget under control number 
1830-0026)

(Authority: 20 U.S.C. 1206(b) and 1206a(a)(3) (A) and (B))



Sec. 461.14  When are amendments to a State plan required?

    (a) General. If an amendment to the State plan is necessary, the SEA 
shall submit the amendment to the Secretary not later than 90 days prior 
to the program year of operation to which the amendment applies.
    (b) Indicators of program quality. Each SEA shall amend its plan by 
July 25, 1993, to include the indicators of program quality required by 
section 331 of the Act and Sec. 461.3(b)(7). Cross-Reference: See 34 CFR 
76.140-76.142 Amendments.

(Approved by the Office of Management and Budget under control number 
1830-0026)

(Authority: 20 U.S.C. 1207(a))



       Subpart C--How Does the Secretary Make a Grant to a State?



Sec. 461.20  How does the Secretary make allotments?

    The Secretary determines the amount of each State's grant according 
to the formula in section 313(b) of the Act.

(Authority: 20 U.S.C. 1201b(b))



Sec. 461.21  How does the Secretary make reallotments?

    (a) Any amount of any State's allotment under section 313(b) of the 
Act that the Secretary determines is not required, for the period the 
allotment is available, for carrying out that State's plan, is 
reallotted to other States on dates that the Secretary may fix.
    (b) The Secretary determines any amounts to be reallotted on the 
basis of--
    (1) Reports, filed by the States, of the amounts required to carry 
out their State plans; and
    (2) Other information available to the Secretary.
    (c) Reallotments are made to other States in proportion to those 
State's original allotments for the fiscal year in which allotments 
originally were made, unless the Secretary reduces a State's 
proportionate share by the amount the Secretary estimates will exceed 
the sum the State needs and will be able to use under its plan.
    (d) The total of any reductions made under paragraph (c) of this 
section is reallotted among those States whose proportionate shares were 
not reduced.
    (e)(1) Any amount reallotted to a State during a fiscal year is 
deemed part of the State's allotment for that fiscal year.
    (2) A reallotment of funds from one State to another State does not 
extend the period of time in which the funds must be obligated.

(Authority: 20 U.S.C. 1201b(c))



Sec. 461.22  What criteria does the Secretary use in approving a State's 
description of efforts relating to program reviews and evaluations?

    The Secretary considers the following criteria in approving a 
State's description of efforts relating to program reviews and 
evaluations under section 342(c)(13) of the Act and Sec. 461.12(a)(15):
    (a) The extent to which the State will have effective procedures for 
using the findings of program reviews and evaluations to identify, on a 
timely basis, those programs, services, and activities under the Act 
that are not meeting the educational goals set forth in the State plan 
and approved applications of eligible recipients.
    (b) The adequacy of the State's procedures for effecting timely 
changes that will enable programs, services, and activities identified 
under paragraph (a) of this section to meet the educational goals in the 
State plan and

[[Page 128]]

approved applications of eligible recipients.
    (c) The extent to which the State will continue to review those 
programs, activities, and services, and affect further changes as 
necessary to meet those educational goals.

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1206a(c)(13) and 1207a)



Sec. 461.23  How does the Secretary approve State plans and amendments?

    (a) The Secretary approves, within 60 days of receipt, a State plan 
or amendment that the Secretary determines complies with the applicable 
provisions of the Act and the regulations in this part.
    (b) In approving a State plan or amendment, the Secretary considers 
any information submitted in accordance with Sec. 461.13 (b) and (c).
    (c) The Secretary notifies the SEA, in writing, of the granting or 
withholding of approval.
    (d) The Secretary does not finally disapprove a State plan or 
amendment without first affording the State reasonable notice and 
opportunity for a hearing.

(Authority: 20 U.S.C. 1206(b), 1206a(a)(3), and 1207(b))



   Subpart D--How Does a State Make an Award to an Eligible Recipient?



Sec. 461.30  Who is eligible for a subgrant or contract?

    (a) The following public or private nonprofit entities are eligible 
to apply to the SEA for an award:
    (1) A local educational agency (LEA).
    (2) A public or private nonprofit agency.
    (3) A correctional education agency.
    (4) A community-based organization.
    (5) A postsecondary educational institution.
    (6) An institution that serves educationally disadvantaged adults.
    (7) Any other institution that has the ability to provide literacy 
services to adults and families.
    (b) A public or private nonprofit entity listed in paragraph (a) of 
this section may apply on behalf of a consortium that includes a for-
profit agency, organization, or institution that can make a significant 
contribution to attaining the objectives of the Act.
    (c)(1) Each State shall also use an amount of funds provided under 
this part, as determined by the State given the State's needs and 
resources for adult education, for competitive 2-year grants to public 
housing authorities for literacy programs and related activities. Any 
public housing authority that receives a grant under this paragraph 
shall consult with local adult education providers in conducting 
programs and activities with assistance provided under the grant. Any 
grant provided under this paragraph is referred to as a ``Gateway 
Grant.''
    (2) For the purposes of this part, ``public housing authority'' 
means a public housing agency, as defined in 42 U.S.C. 1437a(b)(6), that 
participates in public housing, as defined in 42 U.S.C. 1437a(b)(1).

(Authority: 20 U.S.C. 1203a(a)(1), (2), (3)(A))



Sec. 461.31  How does a State award funds?

    (a) In selecting local recipients, an SEA shall give preference to 
those local applicants that have demonstrated or can demonstrate a 
capability to recruit and serve educationally disadvantaged adults, 
particularly in areas with a high proportion of adults who do not have a 
certificate of graduation from a school providing secondary education or 
its equivalent.
    (b) An SEA shall award funds on the basis of applications submitted 
by eligible recipients.
    (c) In reviewing a local application, an SEA shall determine that 
the application contains the following:
    (1) A description of current programs, activities, and services 
receiving assistance from Federal, State, and local sources that provide 
adult education in the geographic area proposed to be served by the 
applicant.
    (2) A description of cooperative arrangements (including 
arrangements with business, industry, and volunteer literacy 
organizations as appropriate) that have been made to deliver services to 
adults.

[[Page 129]]

    (3) Assurances that the adult educational programs, services, or 
activities that the applicant proposes to provide are coordinated with 
and do not duplicate programs, services, or activities made available to 
adults under other Federal, State, and local programs, including the Job 
Training Partnership Act, the Carl D. Perkins Vocational and Applied 
Technology Education Act, the Rehabilitation Act of 1973, the 
Individuals with Disabilities Education Act, the Indian Education Act, 
the Higher Education Act of 1965, and the Domestic Volunteer Service 
Act.
    (4) The projected goals of the applicant with respect to participant 
recruitment, retention, and educational achievement and how the 
applicant will measure and report progress in meeting its goals.
    (5) Any other information the SEA considers necessary.
    (d) In determining which programs receive assistance, the SEA shall 
consider--
    (1) The past effectiveness of applicants in providing services 
(especially with respect to recruitment and retention of educationally 
disadvantaged adults and the learning gains demonstrated by those 
adults);
    (2) The degree to which the applicant will coordinate and utilize 
other literacy and social services available in the community; and
    (3) The commitment of the applicant to serve individuals in the 
community who are most in need of literacy services.
    (e) In reviewing a local application, an SEA may consider the extent 
to which the application--
    (1) Identifies the needs of the population proposed to be served by 
the applicant;
    (2) Proposes activities that are designed to reach educationally 
disadvantaged adults;
    (3) Describes a project that gives special emphasis to adult basic 
education;
    (4) Describes adequate outreach activities, such as--
    (i) Flexible schedules to accommodate the greatest number of adults 
who are educationally disadvantaged;
    (ii) Location of facilities offering programs that are convenient to 
large concentrations of the adult populations identified by the State in 
its four-year State plan or how the locations of facilities will be 
convenient to public transportation; and
    (iii) The availability of day care and transportation services to 
participants in the project;
    (5) Describes proposed programs, activities, and services that 
address the identified needs;
    (6) Describes the resources available to the applicant--other than 
Federal and State adult education funds--to meet those needs (for 
example, funds provided under the Job Training Partnership Act, the Carl 
D. Perkins Vocational and Applied Technology Education Act, the 
Rehabilitation Act of 1973, the Individuals with Disabilities Education 
Act, the Indian Education Act, the Higher Education Act of 1965, or the 
Domestic Volunteer Service Act, and local cash or in-kind 
contributions); and
    (7) Describes project objectives that can be accomplished within the 
amount of the applicant's budget request.
    (f) An SEA may not approve an application for a consortium that 
includes a for-profit agency, organization or institution unless the 
State has first determined that--
    (1) The for-profit entity can make a significant contribution to 
attaining the objectives of the Act; and
    (2) The public or private nonprofit agency, organization, or 
institution will enter into a contract with the for-profit agency, 
organization, or institution for the establishment or expansion of 
programs.
    (g) If an SEA awards funds to a consortium that includes a for-
profit agency, organization, or institution, the award must be made 
directly to the public or private nonprofit agency, organization, or 
institution that applies on behalf of the consortium.

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1203a(a) and 1206a(c)(4))



Sec. 461.32  What are programs for corrections education and education for 
other institutionalized adults?

    (a) An SEA shall use not less than 10 percent of its grant for 
educational

[[Page 130]]

programs for criminal offenders in corrections institutions and for 
other institutionalized adults. Those programs may include--
    (1) Academic programs for--(i) Basic education with special emphasis 
on reading, writing, vocabulary, and arithmetic;
    (ii) Special education, as defined by State law;
    (iii) Bilingual education or English-as-a-second-language 
instruction; and
    (iv) Secondary school credit;
    (2) Vocational training programs;
    (3) Library development and library service programs;
    (4) Corrections education programs, including training for teacher 
personnel specializing in corrections education, such as courses in 
social education, basis skills instruction, and abnormal psychology;
    (5) Guidance and counseling programs;
    (6) Supportive services for criminal offenders, with special 
emphasis on the coordination of educational services with agencies 
furnishing services to criminal offenders after their release; and
    (7) Cooperative programs with educational institutions, community-
based organizations of demonstrated effectiveness, and the private 
sector, that are designed to provide education and training.
    (b)(1) An SEA shall establish its own statewide criteria and 
priorities for administering programs for corrections education and 
education for other institutionalized adults.
    (2) The SEA shall determine that an application proposing a project 
under paragraph (a) of this section contains the information in 
Sec. 461.31(c) and any other information the SEA considers necessary.

(Authority: 20 U.S.C. 1203a(b)(1) and 1204)



Sec. 461.33  What are special experimental demonstration projects and 
teacher training projects?

    (a) In accordance with paragraph (b) of this section, an SEA shall 
use at least 15 percent of its grant for--
    (1) Special projects that--
    (i) Will be carried out in furtherance of the purposes of the Act;
    (ii) Will be coordinated with other programs funded under the Act; 
and
    (iii)(A) Involve the use of innovative methods (including methods 
for educating adults with disabilities, homeless adults, and adults of 
limited English proficiency), systems, materials, or programs that may 
have national significance or will be of special value in promoting 
effective programs under the Act; or
    (B) Involve programs of adult education, including education for 
adults with disabilities, homeless adults, and adults of limited English 
proficiency, that are part of community school programs, carried out in 
cooperation with other Federal, State, or local programs that have 
unusual promise in promoting a comprehensive or coordinated approach to 
the problems of adults with educational deficiencies; and
    (2)(i) Training persons engaged, or preparing to engage, as 
personnel in programs designed to carry out the purposes of the Act; and
    (ii) Training professional teachers, volunteers, and administrators, 
with particular emphasis on--
    (A) Training-- (1) Full-time professional adult educators;
    (2) Minority adult educators; and
    (3) Educators of adults with limited English proficiency; and
    (B) Training teachers to recognize and more effectively serve 
illiterate individuals with learning disabilities and individuals who 
have reading ability below the fifth grade level.
    (b) An SEA shall use at least--
    (1) 10 percent of its grant for the purposes in paragraph (a)(2) of 
this section; and
    (2) Five percent of its grant for the purposes in paragraph (a)(1) 
or (a)(2) of this section, or both.
    (c)(1) An SEA shall establish its own statewide criteria and 
priorities for providing and administering special experimental 
demonstration projects and teacher training projects.
    (2) The SEA shall determine that an application proposing a project 
under paragraph (a) of this section contains--
    (i) The information in Sec. 461.31(c); and
    (ii) Any other information the SEA considers necessary.

(Authority: 20 U.S.C. 1208)

[[Page 131]]



           Subpart E--What Conditions Must be Met by a State?



Sec. 461.40  What are the State and local administrative costs requirements?

    (a)(1) Beginning with the fiscal year 1991 grant (a grant that is 
awarded on or after July 1, 1991 from funds appropriated in the fiscal 
year 1991 appropriation), an SEA may use no more than 5 percent of its 
grant or $50,000--whichever is greater--for necessary and reasonable 
State administrative costs.
    (2) For grants awarded from funds appropriated for fiscal years 
prior to fiscal year 1991 (grants awarded before July 1, 1991), an SEA 
may determine what percent of its grant is necessary and reasonable for 
State administrative costs.
    (b)(1) At least 95 percent of an eligible recipient's award from the 
SEA must be expended for adult education instructional activities.
    (2) The remainder may be used for local administrative costs--
noninstructional expenses, including planning, administration, 
evaluation, personnel development, and coordination--that are necessary 
and reasonable.
    (3) If the administrative cost limits under paragraph (b)(2) of this 
section are insufficient for adequate planning, administration, 
evaluation, personnel development, and coordination of programs 
supported under the Act, the SEA shall negotiate with local grant 
recipients in order to determine an adequate level of funds to be used 
for noninstructional purposes.

(Authority: 20 U.S.C. 1203b and 1205(c))



Sec. 461.41  What are the cost-sharing requirements?

    (a) The Federal share of expenditures made under a State plan for 
any of the 50 States, the District of Columbia, and the Commonwealth of 
Puerto Rico may not exceed--
    (1) 90 percent of the costs of programs carried out with the fiscal 
year 1988 grant (a grant that is awarded on or after July 1, 1988 from 
funds appropriated in the fiscal year 1988 appropriation);
    (2) 90 percent of the costs of programs carried out with the fiscal 
year 1989 (a grant that is awarded on or after July 1, 1989 from funds 
appropriated in the fiscal year 1989 appropriation);
    (3) 85 percent of the costs of programs carried out with the fiscal 
year 1990 grant (a grant that is awarded on or after July 1, 1990 from 
funds appropriated in the fiscal year 1990 appropriation);
    (4) 80 percent of the costs of programs carried out with the fiscal 
year 1991 grant (a grant that is awarded on or after July 1, 1991 from 
funds appropriated in the fiscal year 1991 appropriation); and
    (5) 75 percent of the costs of programs carried out with the fiscal 
year 1992 grant (a grant that is awarded on or after July 1, 1992 from 
funds appropriated in the fiscal year 1992 appropriation) and from each 
grant thereafter.
    (b) The Federal share for American Samoa, Guam, the Northern Mariana 
Islands, the Federated States of Micronesia, the Republic of the 
Marshall Islands, Palau, and the Virgin Islands is 100 percent.
    (c) The Secretary determines the non-Federal share of expenditures 
under the State plan by considering--
    (1) Expenditures from State, local, and other non-Federal sources 
for programs, services, and activities of adult education, as defined in 
the Act, made by public or private entities that receive from the State 
Federal funds made available under the Act or State funds for adult 
education; and
    (2) Expenditures made directly by the State for programs, services, 
and activities of adult education as defined in the Act.

(Authority: 20 U.S.C. 1209(a); 48 U.S.C. 1681)



Sec. 461.42  What is the maintenance of effort requirement?

    (a) Basic standard. (1)(i) Except as provided in Sec. 461.43, a 
State is eligible for a grant from appropriations for any fiscal year 
only if the Secretary determines that the State has expended for adult 
education from non-Federal sources during the second preceding fiscal 
year (or program year) an amount not less than the amount expended 
during the third preceding fiscal year (or program year).

[[Page 132]]

    (ii) The Secretary determines maintenance of effort on a per student 
expenditure basis or on a total expenditure basis.
    (2) For purposes of determining maintenance of effort, the ``second 
preceding fiscal year (or program year)'' is the fiscal year (or program 
year) two years prior to the year of the grant for which the Secretary 
is determining the State's eligibility. The ``third preceding fiscal 
year (or program year)'' is the fiscal year (or program year) three 
years prior to the year of the grant for which the Secretary is 
determining the State's eligibility.
    Example: Computation based on fiscal year. If a State chooses to use 
the fiscal year as the basis for its maintenance of effort computations, 
the Secretary determines whether a State is eligible for the fiscal year 
1992 grant (a grant that is awarded on or after July 1, 1992 from funds 
appropriated in the fiscal year 1992 appropriation) by comparing 
expenditures from the second preceding fiscal year--fiscal year 1990 
(October 1, 1989-September 30, 1990)--with expenditures from the third 
preceding fiscal year--fiscal year 1989 (October 1, 1988-September 30, 
1989). If there has been no decrease in expenditures from fiscal year 
1989 to fiscal year 1990, the State has maintained effort and is 
eligible for its fiscal year 1992 grant.
    Computation based on program year. If a State chooses to use a 
program year running from July 1 to June 30 as the basis for its 
maintenance of effort computation, the Secretary determines whether a 
State is eligible for funds for the fiscal year 1992 grant by comparing 
expenditures from the second preceding program year--program year 1990 
(July 1, 1989-June 30, 1990)--with expenditures from the third preceding 
program year--program year 1989 (July 1, 1988-June 30, 1989). If there 
has been no decrease in expenditures from program year 1989 to program 
year 1990, the State has maintained effort and is eligible for its 
fiscal year 1992 grant.
    (b) Expenditures to be considered. In determining a State's 
compliance with the maintenance of effort requirement, the Secretary 
considers the expenditures described in Sec. 461.41(c).

(Authority: 20 U.S.C. 1209(b))



Sec. 461.43  Under what circumstances may the Secretary waive the 
maintenance of effort requirement?

    (a) The Secretary may waive, for one year only, the maintenance of 
effort requirement in Sec. 461.42 if the Secretary determines that a 
waiver would be equitable due to exceptional or uncontrollable 
circumstances. These circumstances include, but are not limited to, the 
following:
    (1) A natural disaster.
    (2) An unforeseen and precipitous decline in financial resources.
    (b) The Secretary does not consider a tax initiative or referendum 
to be an exceptional or uncontrollable circumstance.

(Authority: 20 U.S.C. 1209(b)(2))



Sec. 461.44  How does a State request a waiver of the maintenance of effort requirement?

    An SEA seeking a waiver of the maintenance of effort requirement in 
Sec. 461.42 shall--
    (a) Submit to the Secretary a request for a waiver; and
    (b) Include in the request--
    (1) The reason for the request; and
    (2) Any additional information the Secretary may require.

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1209(b)(2))



Sec. 461.45  How does the Secretary compute maintenance of effort in 
the event of a waiver?

    If a State has been granted a waiver of the maintenance of effort 
requirement that allows it to receive a grant from appropriations for a 
fiscal year, the Secretary determines whether the State has meet that 
requirement for the grant to be awarded for the year after the year of 
the waiver by comparing the amount spent for adult education from non-
Federal sources in the second preceding fiscal year (or program year) 
with the amount spent in the fourth preceding fiscal year (or program 
year.)

    Example: Because exceptional or uncontrollable circumstances 
prevented a State from maintaining effort in fiscal year 1990 (October 
1, 1989-September 30, 1990) or in program year 1990 (July 1, 1989-June 
30, 1990) at the level of fiscal year 1989 (October 1, 1988-September 
30, 1989) or program year 1989 (July 1, 1988-June 30, 1989), 
respectively, the Secretary grants the State a waiver of the maintenance 
of effort requirement that permits the State to receive its fiscal year 
1992 grant (a grant that is awarded on or after July 1,

[[Page 133]]

1992 from funds appropriated in the fiscal year 1992 appropriation). In 
order to determine whether a State has met the maintenance of effort 
requirement and therefore is eligible to receive its fiscal year 1993 
grant (the grant to be awarded for the year after the year of the 
waiver), the Secretary compares the State's expenditures from the second 
preceding fiscal year (or program year--fiscal year 1991 (October 1, 
1990-September 30, 1991) or program year 1991 (July 1, 1990-June 30, 
1991)--with expenditures from the fourth preceding fiscal year--fiscal 
year 1989 (October 1, 1988-September 30, 1989) or program year 1989 
(July 1, 1988-June 30, 1989). If the expenditures from fiscal year (or 
program year) 1991 are not less than the expenditures from fiscal year 
(or program year) 1989, the State has maintained effort and is eligible 
for its fiscal year 1993 grant.

(Authority: 20 U.S.C. 1209(b)(2))



Sec. 461.46  What requirements for program reviews and evaluations must 
be met by a State?

    (a) An SEA shall provide for program reviews and evaluations of all 
State-administered adult education programs, services, and activities it 
assists under the Act. The SEA shall use its program reviews and 
evaluations to assist LEAs and other recipients of funds in planning and 
operating the best possible programs of adult education and to improve 
the State's programs of adult education.
    (b) In reviewing programs, an SEA shall, during the four-year period 
of the State plan, gather and analyze data--including standardized test 
data--on the effectiveness of State-administered adult education 
programs, services, and activities to determine the extent to which--
    (1) The State's adult education programs are achieving the goals in 
the State plan, including the goal of serving educationally 
disadvantaged adults; and
    (2) Grant recipients have improved their capacity to achieve the 
purposes of the Act.
    (c)(1) An SEA shall, each year during the four-year period of the 
State plan, evaluate in qualitative and quantitative terms the 
effectiveness of programs, services, and activities conducted by at 
least 20 percent of the local recipients of funds so that at the end of 
that period 80 percent of all local recipients have been evaluated once.
    (2) An evaluation must consider the following factors:
    (i) Projected goals of the recipient as described in its application 
pursuant to section 322(a)(4) of the Act and Sec. 461.31(c)(4).
    (ii) Planning and content of the programs, services, and activities.
    (iii) Curriculum, instructional materials, and equipment.
    (iv) Adequacy and qualifications of all personnel.
    (v) Achievement of the goals set forth in the State plan.
    (vi) Extent to which educationally disadvantaged adults are being 
served.
    (vii) Extent to which local recipients of funds have improved their 
capacity to achieve the purposes of the Act.
    (viii) Success of the recipient in meeting the State's indicators of 
program quality after those indicators are developed as required by 
section 331(a)(2) of the Act and Sec. 461.3(b)(7).
    (ix) Other factors that affect program operations, as determined by 
the SEA.
    (d)(1) Within 90 days of the close of each program year, the SEA 
shall submit to the Secretary and make public within the State the 
following:
    (i) With respect to local recipients--
    (A) The number and percentage of local educational agencies, 
community-based organizations, volunteer groups, and other organizations 
that are grant recipients;
    (B) The amount of funds provided to local educational agencies, 
community-based organizations, volunteer groups, and other organizations 
that are grant recipients; and
    (C) The results of the evaluations carried out as required by 
paragraph (c)(1) of this section in the year preceding the year for 
which the data are submitted.
    (ii) The information required under Sec. 461.10(b)(10).
    (iii) A report on the SEA's activities under paragraph (b) of this 
section.
    (iv) A report on the SEA's activities under paragraph (c) of this 
section.
    (2) The reports described in paragraphs (d)(1)(ii) and (iii) of this 
section must include--

[[Page 134]]

    (i) The results of any program reviews and evaluations performed 
during the program year, and a description of how the SEA used the 
program reviews and evaluation process to make necessary changes to 
improve programs; and
    (ii) The comments and recommendations of the State advisory council, 
if a council has been established under Sec. 461.50.
    (e) If an SEA has established a State advisory council, the SEA 
shall--
    (1) Obtain approval of the plan for program reviews and evaluation 
from the State advisory council; and
    (2) Inform the State advisory council of the results of program 
reviews and evaluations so that the State advisory council may perform 
its duties under section 332(f)(7) of the Act.
    Note to Sec. 461.46: In addition to the Adult Education State-
administered Basic Grant Program in this part 461, State-administered 
adult education programs include the State-administered Workplace 
Literacy Program (See 34 CFR part 462) and the State-administered 
English Literacy Program (See 34 CFR part 463).

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1205a(f)(7) and 1207a)



   Subpart F--What are the Administrative Responsibilities of a State?



Sec. 461.50  What are a State's responsibilities regarding a State 
advisory council on adult education and literacy?

    (a) A State that receives funds under section 313 of the Act may--
    (1) Establish a State advisory council on adult education and 
literacy; or
    (2) Designate an existing body as the State advisory council.
    (b) If a State elects to establish or designate a State advisory 
council on adult education, the following provisions apply:
    (1) The State advisory council must comply with Secs. 461.51 and 
461.52.
    (2) Members to the State advisory council must be appointed by, and 
be responsible to, the Governor. The Governor shall appoint members in 
accordance with section 332(e) of the Act.
    (3) Costs incurred for a State advisory council that are paid for 
with funds under this part must be counted as part of the allowable 
State administrative costs under the Act.
    (4) The Governor of the State shall determine the amount of funding 
available to a State advisory council.
    (5) A State advisory council's staffing may include professional, 
technical, and clerical personnel as may be necessary to enable the 
council to carry out its functions under the Act.
    (6) Members of a State advisory council and its staff, while serving 
on the business of the council, may receive subsistence, travel 
allowances, and compensation in accordance with State law and 
regulations and State practices applicable to persons performing 
comparable duties and services.

(Authority: 20 U.S.C. 1205a(a)(1), (d)(1), (e))



Sec. 461.51  What are the membership requirements of a State advisory 
council?

    (a)(1) The membership of a State advisory council must be broadly 
representative of citizens and groups within the State having an 
interest in adult education and literacy. The council must consist of--
    (i) Representatives of public education;
    (ii) Representatives of private and public sector employment;
    (iii) Representatives of recognized State labor organizations;
    (iv) Representatives of private literacy organizations, voluntary 
literacy organizations, and community-based literacy organizations;
    (v) The Governor of a State, or the designee of the Governor;
    (vi) Representatives of--
    (A) The SEA;
    (B) The State job training agency;
    (C) The State human services agency;
    (D) The State public assistance agency;
    (E) The State library program; and
    (F) The State economic development agency;
    (vii) Officers of the State government whose agencies provide 
funding for literacy services or who may be designated by the Governor 
or the Chairperson of the council to serve whenever matters within the 
jurisdiction of the

[[Page 135]]

agency headed by such an officer are to be considered by the council; 
and
    (viii) Classroom teachers who have demonstrated outstanding results 
in teaching children or adults to read.
    (2) The State shall ensure that there is appropriate representation 
on the State advisory council of--
    (i) Urban and rural areas;
    (ii) Women;
    (iii) Persons with disabilities; and
    (iv) Racial and ethnic minorities.
    (b)(1) A State shall certify to the Secretary the establishment of, 
and membership of, its State advisory council.
    (2) The certification must be submitted to the Secretary prior to 
the beginning of any program year in which the State desires to receive 
a grant under the Act.
    (c) Members must be appointed for fixed and staggered terms and may 
serve until their successors are appointed. Any vacancy in the 
membership of the council must be filled in the same manner as the 
original appointment. Any member of the council may be removed for cause 
in accordance with procedures established by the council.

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1205a (a)(1), (b), (c), and (e))



Sec. 461.52  What are the responsibilities of a State advisory council?

    (a) Subject to paragraphs (b) and (c) of this section, the State 
advisory council shall determine its own procedures, staffing needs 
(subject to funding levels authorized by the Governor of the State), and 
the number, time, place, and conduct of meetings.
    (b) The State advisory council shall meet at least four times each 
year. At least one of those meetings must provide an opportunity for the 
genral public to express views concerning adult education in the State.
    (c) One member more than one-half of the members on the council 
constitute a quorum for the purpose of transmitting recommendations and 
proposals to the Governor of the State, but a lesser number of members 
may constitute a quorum for other purposes.
    (d) A State advisory council shall--
    (1) Meet with the State agencies responsible for literacy training 
during the planning year to advise on the development of a State plan 
for literacy and for adult education that fulfills the literacy and 
adult educations needs of the State, especially with respect to the 
needs of the labor market, economic development goals, and the needs of 
the individuals in the State;
    (2) Advise the Governor, the SEA, and other State agencies 
concerning--
    (i) The development and implementation of measurable State literacy 
and adult education goals consistent with section 342(c)(2) of the Act, 
especially with respect to--
    (A) Improving levels of literacy in the State by ensuring that all 
appropriate State agencies have specific objectives and strategies for 
those goals in a comprehensive approach;
    (B) Improving literacy programs in the State; and
    (C) Fulfilling the long-term literacy goals of the State;
    (ii) The coordination and monitoring of State literacy training 
programs in order to progress toward the long-term literacy goals of the 
State;
    (iii) The improvement of the quality of literacy programs in the 
State by supporting the integration of services, staff training, and 
technology-based learning and the integration of resources of literacy 
programs conducted by various agencies of State government; and
    (iv) Private sector initiatives that would improve adult education 
programs and literacy programs, especially through public-private 
partnerships;
    (3) Review and comment on the plan submitted pursuant to section 
356(h) of the Act and submit those comments to the Secretary;
    (4) Measure progress on meeting the goals and objectives established 
pursuant to paragraph (d)(2)(i) of this section;
    (5) Recommend model systems for implementing and coordinating State 
literacy programs for replication at the local level;
    (6) Develop reporting requirements, standards for outcomes, 
performance measures, and program effectiveness in State program that 
are consistent with

[[Page 136]]

those proposed by the Federal Interagency Task Force on Literacy; and
    (7)(i) Approve the plan for the program reviews and evaluations 
required in section 352 of the Act and Sec. 461.46 and participate in 
implementing and disseminating the program reviews and evaluations. In 
approving the plan for the program reviews and evaluations, the State 
advisory council shall ensure that persons knowledgeable of the daily 
operation of adult education programs are involved;
    (ii) Advise the Governor, the State legislature, and the general 
public of the State with respect to the findings of the program reviews 
and evaluations; and
    (iii) Include in any reports of the program reviews and evaluations 
the council's comments and recommendations.

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1205a (d) and (f), 1206a(a)(3)(B))



Sec. 461.53  May a State establish an advisory body other than a State 
advisory council?

    (a) A State may establish an advisory body that is funded solely 
from non-Federal sources.
    (b) The advisory body described in paragraph (a) of this section is 
not required to comply with the requirements of section 332 of the Act 
and this part.
    (c) The non-Federal funds used to support the advisory body may not 
be included in the non-Federal share of expenditures described in 
Sec. 461.41(c).

(Authority: 20 U.S.C. 1205a and 1209)



PART 464--STATE LITERACY RESOURCE CENTERS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
464.1  What is the State Literacy Resource Centers Program?
464.2  Who is eligible for a grant?
464.3  What kinds of activities may be assisted?
464.4  What regulations apply?
464.5  What definitions apply?

             Subpart B--How Does a State Apply for a Grant?

464.10  How do States apply?
464.11  What must an application contain?
464.12  How may States agree to develop a regional center?

       Subpart C--How Does the Secretary Make a Grant to a State?

464.20  What payment does the Secretary make?
464.21  May the Secretary require a State to participate in a regional 
          center?
464.22  May a State participating in a regional center use part of its 
          allotment for a State center?

              Subpart D--How Does a State Award Contracts?

464.30  With whom must a State contract to establish a State literacy 
          resource center?
464.31  Who may not review a proposal for a contract?
464.32  How is a regional literacy resource center established and 
          operated?

      Subpart E--What Post-Award Conditions Must Be Met by a State?

464.40  May a State use funds to establish a State advisory council?
464.41  What alternative uses may be made of equipment?
464.42  What limit applies to purchasing computer hardware and software?

    Authority: 20 U.S.C. 1208aa, unless otherwise noted.

    Source: 57 FR 24100, June 5, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 464.1  What is the State Literacy Resource Centers Program?

    The State Literacy Resource Centers Program assists State and local 
public and private nonprofit efforts to eliminate illiteracy through a 
program of State literacy resource center grants to--
    (a) Stimulate the coordination of literacy services;
    (b) Enhance the capacity of State and local organizations to provide 
literacy services; and
    (c) Serve as a reciprocal link between the National Institute for 
Literacy and service providers for the purpose of

[[Page 137]]

sharing information, data, research, and expertise and literacy 
resources.

(Authority: 20 U.S.C. 1208aa(a))



Sec. 464.2  Who is eligible for a grant?

    States are eligible to receive grants under this part.

(Authority: 20 U.S.C. 1208aa(c))



Sec. 464.3  What kinds of activities may be assisted?

    (a) The Secretary makes grants under this part for purposes of 
establishing a network of State or regional adult literacy resource 
centers.
    (b) Each State shall use funds provided under this part to conduct 
activities to--
    (1) Improve and promote the diffusion and adoption of state-of-the-
art teaching methods, technologies, and program evaluations;
    (2) Develop innovative approaches to the coordination of literacy 
services within and among States and with the Federal Government;
    (3) Assist public and private agencies in coordinating the delivery 
of literacy services;
    (4) Encourage government and industry partnerships, including 
partnerships with small businesses, private nonprofit organizations, and 
community-based organizations;
    (5) Encourage innovation and experimentation in literacy activities 
that will enhance the delivery of literacy services and address emerging 
problems;
    (6) Provide technical and policy assistance to State and local 
governments and service providers to improve literacy policy and 
programs and access to those programs;
    (7) Provide training and technical assistance to literacy 
instructors in reading instruction and in--
    (i) Selecting and making the most effective use of state-of-the-art 
methodologies, instructional materials, and technologies such as--
    (A) Computer-assisted instruction;
    (B) Video tapes;
    (C) Interactive systems; and
    (D) Data link systems; or
    (ii) Assessing learning style, screening for learning disabilities, 
and providing individualized remedial reading instruction; or
    (8) Encourage and facilitate the training of full-time professional 
adult educators.

(Authority: 20 U.S.C. 1208aa(b), (d))



Sec. 464.4  What regulations apply?

    The following regulations apply to the State Literacy Resource 
Centers Program:
    (a) The regulations in this part 464.
    (b) The regulations in 34 CFR part 460.

(Authority: 20 U.S.C. 1208aa)



Sec. 464.5  What definitions apply?

    The definitions in 34 CFR part 460 apply to this part.

(Authority: 20 U.S.C. 1208aa)



             Subpart B--How Does a State Apply for a Grant?



Sec. 464.10  How do States apply?

    (a) The Governor of a State may submit an application to the 
Secretary for a grant for a State adult literacy resource center.
    (b) The Governors of a group of States may submit an application to 
the Secretary for a grant for a regional adult literacy resource center.
    (c) A State may apply for and receive both a grant for a State adult 
literacy resource center and, as part of a group of States, a grant for 
a regional adult literacy resource center.
    (d) If appropriate, a State shall obtain the review and comments of 
the State council on the application.
    (e) An approved application remains in effect during the period of 
the State plan under 34 CFR part 461.
    (f) Through a notice published in the Federal Register, the 
Secretary sets an annual deadline before which a State may submit a new 
application or an amendment to its existing application.

(Authority: 20 U.S.C. 1208aa(h))



Sec. 464.11  What must an application contain?

    An application must describe how the State or group of States will--

[[Page 138]]

    (a) Develop a literacy resource center or expand an existing 
literacy resource center;
    (b) Provide services and activities with the assistance provided 
under this part;
    (c) Ensure access to services of the center for the maximum 
participation of all public and private programs and organizations 
providing or seeking to provide basic skills instruction, including 
local educational agencies, agencies responsible for corrections 
education, service delivery areas under the Job Training Partnership 
Act, welfare agencies, labor organizations, businesses, volunteer 
groups, and community-based organizations;
    (d) Address the measurable goals for improving literacy levels as 
set forth in the plan submitted under section 342 of the Act; and
    (e) Develop procedures for the coordination of literacy activities 
for statewide and local literacy efforts conducted by public and private 
organizations, and for enhancing the systems of service delivery.

(Approved by the Office of Management and Budget under control number 
1830-0501)

(Authority: 20 U.S.C. 1208aa(h))



Sec. 464.12  How may States agree to develop a regional center?

    A group of States may enter into an interstate agreement to develop 
and operate a regional adult literacy resource center for purposes of 
receiving assistance under this part if the States determine that a 
regional approach is more appropriate for their situation.

(Authority: 20 U.S.C. 1208aa(j)(1))



       Subpart C--How Does the Secretary Make a Grant to a State?



Sec. 464.20  What payment does the Secretary make?

    (a)(1) From sums available for purposes of making grants under this 
part for any fiscal year, the Secretary allots to each State, that has 
an application approved under Secs. 464.10-464.11, an amount that bears 
the same ratio to those sums as the amount allotted to the State under 
section 313(b) of the Act for the purpose of making grants under section 
321 of the Act bears to the aggregate amount allotted to all States 
under that section for that purpose.
    (2) In applying the formula in section 313(b) of the Act to 
calculate grants under this part, the Secretary counts the number of 
adults only in States that have approved applications under this part.
    (b)(1) The Secretary pays to each State the Federal share of the 
cost of activities described in the application.
    (2) For purposes of this section, the Federal share--
    (i) For each of the first two fiscal years in which the State 
receives funds under this part, may not exceed 80 percent;
    (ii) For each of the third and fourth fiscal years in which the 
State receives funds under this part, may not exceed 70 percent; and
    (iii) For the fifth and each succeeding year in which the State 
receives funds under this part, may not exceed 60 percent.
    (3) If a State receives funds under this part for participation in a 
regional center, the State is required to provide only 50 percent of the 
non-Federal share under paragraph (b)(2) of this section.
    (4) The non-Federal share of payments under this section may, in 
accordance with 34 CFR 80.24, be in cash or in kind, fairly evaluated, 
including plant, equipment, or services.

(Authority: 20 U.S.C. 1208aa(c)(1), (i), (j)(2))



Sec. 464.21  May the Secretary require a State to participate in a regional 
center?

    (a) If, in any fiscal year, a State's allotment under this part is 
less than $100,000, the Secretary may designate that State to receive 
the funds only as part of a regional center.
    (b) Paragraph (a) of this section does not apply to a State--
    (1) That demonstrates, in its application to the Secretary, that the 
total amount of Federal, State, local, and private funds expended to 
carry out the purposes of this part would equal or exceed $100,000; or

[[Page 139]]

    (2) That will use its funds to expand an existing State literacy 
resource center that meets the purposes of the Act and the requirements 
in this part.

(Authority: 20 U.S.C. 1208aa(j)(3), (4))



Sec. 464.22  May a State participating in a regional center use part of 
its allotment for a State center?

    In any fiscal year in which Sec. 464.20(b)(3) applies, the Secretary 
may allow certain States that receive funds as part of a regional center 
to reserve a portion of those funds for a State adult literacy resource 
center under this part.

(Authority: 20 U.S.C. 1208aa(j)(5))



              Subpart D--How Does a State Award Contracts?



Sec. 464.30  With whom must a State contract to establish a State literacy 
resource center?

    (a) To establish a new State literacy resource center, the Governor 
of each State that receives funds under this part shall contract on a 
competitive basis with--
    (1) The SEA;
    (2) One or more local educational agencies;
    (3) A State office on literacy;
    (4) A volunteer organization;
    (5) A community-based organization;
    (6) An institution of higher education; or
    (7) Another non-profit entity.
    (b) Paragraph (a) of this section does not apply to funds under this 
part that a State uses to expand an existing State literacy resource 
center.

(Authority: 20 U.S.C. 1208aa(c)(2))



Sec. 464.31  Who may not review a proposal for a contract?

    A party participating in a competition under Sec. 464.30 may not 
review its own proposal for a contract or any proposal of a competitor 
for that contract.

(Authority: 20 U.S.C. 1208aa(c)(2))



Sec. 464.32  How is a regional literacy resource center established and 
operated?

    (a) The States that participate in a regional literacy resource 
center shall agree on how the center is to be established and operated.
    (b) Subject to the requirements of the Act and the regulations in 
this part, the States have discretion to determine how to establish and 
operate the regional center.

(Authority: 20 U.S.C. 1208aa (h) and (j))



      Subpart E--What Post-Award Conditions Must Be Met by a State?



Sec. 464.40  May a State use funds to establish a State advisory council?

    (a) Each State receiving funds under this part may use up to five 
percent of those funds--
    (1) To establish and support a State advisory council on adult 
education and literacy under section 332 of the Act and 34 CFR 461.50-
461.52; or
    (2) To support an established State council to the extent that the 
State council meets the requirements of section 332 of the Act and 34 
CFR 461.50-461.52.
    (b) Each State receiving funds under this section to establish or 
support a State council under section 332 of the Act shall provide 
matching funds on a dollar-for-dollar basis.

(Authority: 20 U.S.C. 1208aa(g))



Sec. 464.41  What alternative uses may be made of equipment?

    Equipment purchased under this part, when not being used to carry 
out the provisions of this part, may be used for other instructional 
purposes if--
    (a) The acquisition of the equipment was reasonable and necessary 
for the purpose of conducting a properly designed project or activity 
under this part;
    (b) The equipment is used after regular program hours or on 
weekends; and
    (c) The other use is--
    (1) Incidental to the use of the equipment under this part;
    (2) Does not interfere with the use of the equipment under this 
part; and
    (3) Does not add to the cost of using the equipment under this part.

(Authority: 20 U.S.C. 1208aa(e))

[[Page 140]]



Sec. 464.42  What limit applies to purchasing computer hardware and software?

    Not more than ten percent of funds received under any grant under 
this part may be used to purchase computer hardware or software.

(Authority: 20 U.S.C. 1208aa(f))



PART 472--NATIONAL WORKPLACE LITERACY PROGRAM--Table of Contents




                           Subpart A--General

Sec.
472.1  What is the National Workplace Literacy Program?
472.2  Who is eligible for an award?
472.3  What activities may the Secretary fund?
472.4  What regulations apply?
472.5  What definitions apply?

Subpart B [Reserved]

            Subpart C--How Does the Secretary Make an Award?

472.20  What priorities may the Secretary establish?
472.21  How does the Secretary evaluate an application?
472.22  What selection criteria does the Secretary use?
472.23  What additional factor does the Secretary consider?

         Subpart D--What Conditions Must be Met After an Award?

472.30  What are the reporting requirements?
472.31  What are the evaluation requirements?
472.32  What other requirements must be met under this program?
472.33  How must projects that serve adults with limited English 
          proficiency provide for the needs of those adults?
472.34  Under what circumstances may a project continue if a partner 
          withdraws?

    Authority: 20 U.S.C. 1211(a), unless otherwise noted.

    Source: 54 FR 34418, Aug. 18, 1989, unless otherwise noted. 
Redesignated at 57 FR 24091, June 5, 1992.



                           Subpart A--General



Sec. 472.1  What is the National Workplace Literacy Program?

    The National Workplace Literacy Program provides assistance for 
demonstration projects that teach literacy skills needed in the 
workplace through exemplary education partnerships between business, 
industry, or labor organizations and educational organizations.

(Authority: 20 U.S.C. 1211(a)(1))



Sec. 472.2  Who is eligible for an award?

    (a) Awards are provided to exemplary partnerships between--
    (1) A business, industry, or labor organization, or private industry 
council; and
    (2) A State educational agency (SEA), local educational agency 
(LEA), institution of higher education, or school (including an area 
vocational school, an employment and training agency, or a community-
based organization).
    (b) A partnership shall include as partners at least one entity from 
paragraph (a)(1) of this section and at least one entity from paragraph 
(a)(2) of this section, and may include more than one entity from each 
group.
    (c)(1) The partners shall apply jointly to the Secretary for funds.
    (2) The partners shall enter into an agreement, in the form of a 
single document signed by all partners, designating one member of the 
partnership as the applicant and the grantee. The agreement must also 
detail the role each partner plans to perform, and must bind each 
partner to every statement and assurance made in the application.

(Authority: 20 U.S.C. 1211(a)(4)(A))



Sec. 472.3  What activities may the Secretary fund?

    The Secretary provides grants or cooperative agreements to projects 
designed to improve the productivity of the workforce through 
improvement of literacy skills in the workplace by--
    (a) Providing adult literacy and other basic skills services and 
activities;
    (b) Providing adult secondary education services and activities that 
may lead to the completion of a high school diploma or its equivalent;
    (c) Meeting the literacy needs of adults with limited English 
proficiency;

[[Page 141]]

    (d) Upgrading or updating basic skills of adult workers in 
accordance with changes in workplace requirements, technology, products, 
or processes;
    (e) Improving the competency of adult workers in speaking, 
listening, reasoning, and problem solving; or
    (f) Providing educational counseling, transportation, and child care 
services for adult workers during nonworking hours while the workers 
participate in the project.

(Authority: 20 U.S.C. 1211(a)(3))



Sec. 472.4  What regulations apply?

    The following regulations apply to the National Workplace Literacy 
Program:
    (a) The regulations in this part 472.
    (b) The regulations in 34 CFR part 425.

(Authority: 20 U.S.C. 1211(a))



Sec. 472.5  What definitions apply?

    (a) The definitions in 34 CFR 460.4 apply to this part.
    (b) The following definitions also apply to this part:
    Adult worker means an individual who has attained 16 years of age or 
who is beyond the age of compulsory school attendance under State law, 
and whose receipt of project services is expected to result in new 
employment, enhanced skills related to continued employment, career 
advancement, or increased productivity.
    Area vocational school means--
    (1) A specialized high school used exclusively or principally for 
the provision of vocational education to individuals who are available 
for study in preparation for entering the labor market;
    (2) The department of a high school exclusively or principally used 
for providing vocational education in no less than five different 
occupational fields to individuals who are available for study in 
preparation for entering the labor market;
    (3) A technical institute or vocational school used exclusively or 
principally for the provision of vocational education to individuals who 
have completed or left high school and who are available for study in 
preparation for entering the labor market; or
    (4) The department or division of a junior college or community 
college or university operating under the policies of the State board 
and that provides vocational education in no less than five different 
occupational fields leading to immediate employment but not necessarily 
leading to a baccalaureate degree, if, in the case of a school, 
department, or division described in paragraphs (3) and (4) of this 
definition it admits as regular students both individuals who have 
completed high school and individuals who have left high school.


(Authority: 20 U.S.C. 2471)

    Business and industry organizations include, but are not limited to-
-
    (1) For-profit businesses or industrial concerns;
    (2) Nonprofit businesses or industrial concerns, such as hospitals 
and nursing homes;
    (3) Associations of business and industry organizations, such as 
local or State Chambers of Commerce;
    (4) Associations of private industry councils; and
    (5) Educational associations--such as the American Association for 
Adult and Continuing Education, the American Council on Education, the 
National Association for Bilingual Education, the National Association 
of Independent Colleges and Universities, or the National Association of 
Technical and Trade Schools.
    Contractor means an individual or organization other than a partner 
that provides specific and limited services, equipment, or supplies to a 
partnership under a contractual agreement.
    Employment and training agency includes any nonprofit agency that 
provides--as a substantial portion of its activity--employment and 
training services, either directly or through contract.
    Helping organization means an entity other than a partner that 
voluntarily assists a partnership by providing services, technical 
assistance, or cash or in-kind contributions to the project. Helping 
organizations may not be recipients of funds from partners or serve as 
contractors.
    Partner means an entity included in the list of entities in 
Sec. 472.2(a) (1) or (2).

[[Page 142]]

    Private industry council means the private industry council 
established under section 102 of the Job Training Partnership Act (29 
U.S.C. 1512).
    Project director means the person with day-to-day operational 
responsibility for the project.
    Site means an entity other than a partner that participates in a 
project by providing adult workers to be trained and, at the site's 
option, space for this training. A site may not be a recipient of funds 
from partners or serve as a contractor.
    Small business means a business entity that--
    (1) Is organized for profit, with a place of business located in the 
United States and that makes a significant contribution to the U.S. 
economy through payment of taxes or use of American products, materials, 
or labor, or both; and
    (2) May be in the legal form of an individual proprietorship, 
partnership, corporation, joint venture, association, trust or a 
cooperative, except that if the form is a joint venture, there can be no 
more than 49 percent participation by foreign business entities in the 
joint venture; and
    (3) Meets the requirements found in 13 CFR part 121 concerning 
Standard Industrial Classification codes and size standards.

(Authority: 20 U.S.C. 1211(a))

[54 FR 34418, Aug. 18, 1989. Redesignated at 57 FR 24091, June 5, 1992, 
and amended at 59 FR 1443, Jan. 10, 1994]

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 472.20  What priorities may the Secretary establish?

    (a) The Secretary may announce through one or more notices published 
in the Federal Register the priorities for this program, if any, from 
the types of projects described in paragraph (b) of this section.
    (b) Priority may be given to projects training adult workers who 
have inadequate basic skills and who--
    (1) Are currently unable to perform their jobs effectively or are 
ineligible for career advancement due to an identified lack of basic 
skills;
    (2) Are employed in industries retooling with high technology and 
for whom training in basic skills is expected to result in continued 
employment;
    (3) Require training in English-as-a-second-language in order to 
increase productivity, to continue employment, or to be eligible for 
career advancement; or
    (4) Are employed in an industry adversely impacted by 
competitiveness in the world economy and for whom training is expected 
to result in the increased competitiveness of that industry in world 
markets.

(Authority: 20 U.S.C. 1211(a))

[54 FR 34418, Aug. 18, 1989. Redesignated and amended at 57 FR 24091, 
24102, June 5, 1992; 59 FR 1443, Jan. 10, 1994]



Sec. 472.21  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 472.22.
    (b) The Secretary may award up to 100 points, including a reserved 
10 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 472.22.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 472.22.
    (e) In addition to the points to be awarded based on the criteria in 
Sec. 472.22, the Secretary awards five points to applications from 
partnerships that include as a partner a small business that has signed 
the partnership agreement.

(Authority: 20 U.S.C. 1211(a))

[54 FR 34418, Aug. 18, 1989. Redesignated at 57 FR 24091, June 5, 1992, 
and amended at 59 FR 1443, Jan. 10, 1994]



Sec. 472.22  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:

[[Page 143]]

    (a) Program factors. (15 points) The Secretary reviews each 
application to determine the extent to which the project--
    (1) Demonstrates a strong relationship between skills taught and the 
literacy requirements of actual jobs, especially the increased skill 
requirements of the changing workplace;
    (2) Is targeted to adults with inadequate skills for whom the 
training described is expected to mean new employment, continued 
employment, career advancement, or increased productivity;
    (3) Includes support services, based on cooperative relationships 
within the partnership and from helping organizations, necessary to 
reduce barriers to participation by adult workers. Support services 
could include educational counseling, transportation, and child care 
during non-working hours while adult workers are participating in a 
project;
    (4) Demonstrates the active commitment of all partners to 
accomplishing project goals; and
    (5) Focuses on improving performance in jobs or job functions that 
have a broad representation within the Nation's workforce so that the 
products can be adapted for use by similar workplaces across the Nation.
    (b) Extent of need for the project. (10 points) (1) The extent to 
which the project will focus on demonstrated needs for workplace 
literacy training of adult workers;
    (2) The adequacy of the applicant's documentation of the needs to be 
addressed by the project;
    (3) How those needs will be met by the project; and
    (4) The benefits to adult workers and their industries that will 
result from meeting those needs.
    (c) Quality of training. (15 points) The Secretary reviews each 
application to determine the quality of the training to be provided by 
the project, including the extent to which the project will--
    (1) Develop or use curriculum materials for adults based on literacy 
skills needed in the workplace;
    (2) Use individualized educational plans developed jointly by 
instructors and adult learners;
    (3) Take place in a readily accessible environment conducive to 
adult learning;
    (4) Provide training through the partner classified under 
Sec. 472.2(a)(2), unless transferring this activity to the partner 
classified under Sec. 472.2(a)(1) is necessary and reasonable within the 
framework of the project; and
    (5) Provide, and document for others, a program of training for 
staff including, but not limited to, techniques of curriculum 
development and special methods of teaching that are appropriate for 
workplace environments.
    (d) Plan of operation. (15 points) (1) The quality of the project 
design, especially the establishment of measurable objectives for the 
project that are based on the project's overall goals;
    (2) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project, and 
includes--
    (i) A description of the respective roles of each member of the 
partnership in carrying out the plan;
    (ii) A description of the activities to be carried out by any 
contractors under the plan;
    (iii) A description of the respective roles, including any cash or 
in-kind contributions, of helping organizations;
    (iv) A description of the respective roles of any sites; and
    (v) A realistic time table for accomplishing project objectives;
    (3) How well the objectives of the project relate to the purposes of 
the program;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective; and
    (5) How the applicant will ensure that project participants, who are 
otherwise eligible to participate, are selected without regard to race, 
color, national origin, gender, age, or handicapping condition.
    (e) Applicant's experience and quality of key personnel. (8 points) 
(1) The Secretary reviews each application to determine the extent of 
the applicant's experience in providing literacy services to working 
adults.
    (2) The Secretary reviews each application to determine the quality 
of key personnel the applicant plans to use on the project including--

[[Page 144]]

    (i) The qualifications, in relation to project requirements, of the 
project director;
    (ii) The qualifications, in relation to project requirements, of 
each of the other key personnel to be used in the project;
    (iii) The time that each person referred to in paragraphs (e)(2) (i) 
and (ii) of this section will commit to the project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
handicapping condition.
    (3) To determine personnel qualifications under paragraphs (e)(2) 
(i) and (ii) of this section, the Secretary considers--
    (i) Experience and training in fields related to the objectives of 
the project;
    (ii) Experience and training in project management; and
    (iii) Any other qualifications that pertain to the quality of the 
project.
    (f) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the plan for an independent 
evaluation of the project, including the extent to which the applicant's 
methods of evaluation--
    (1) Are clearly explained and appropriate to the project;
    (2) To the extent possible, are objective and produce data that are 
quantifiable;
    (3) Identify expected outcomes of the participants and how those 
outcomes will be measured;
    (4) Include evaluation of effects on job advancement, job 
performance (including, for example, such elements as productivity, 
safety and attendance), and job retention;
    (5) Are systematic throughout the project period and provide data 
that can be used by the project on an ongoing basis for program 
improvement; and
    (6) Will yield results that can be summarized and submitted to the 
Secretary for review by the Department's Program Effectiveness Panel.
    Note to Sec. 472.22(f)(6): The Program Effectiveness Panel (PEP) is 
a mechanism the Department has developed for validating the 
effectiveness of educational programs developed by schools, 
universities, and other agencies. The PEP is composed of experts in the 
evaluation of educational programs and in other areas of education, at 
least two-thirds of whom are non-Federal employees who are appointed by 
the Secretary. Regulations governing the PEP are codified in 34 CFR 
parts 785-789. Specific criteria for PEP review are found in 34 CFR 
786.12 or 787.12.
    (g) Budget and cost-effectiveness. (7 points)
    (1) The budget is adequate to support the project;
    (2) Costs are reasonable and necessary in relation to the objectives 
of the project; and
    (3) The applicant has minimized the purchase of equipment and 
supplies in order to devote a maximum amount of resources to 
instructional services.
    (h) Demonstration. (5 points) The Secretary reviews each application 
to determine the quality of the applicant's plan, during the grant 
period, to disseminate the results of the project, including--
    (1) Demonstrating promising practices used by the project to others 
interested in implementing these techniques;
    (2) Conducting workshops or delivering papers at national 
conferences or professional meetings; and
    (3) Making available material that will help others implement 
promising practices developed in the project.
    (i) Commitment. (5 points) The Secretary reviews each application to 
determine the quality of the applicant's plan to institutionalize 
learning in the workplace based on promising practices demonstrated in 
the project. In making this determination, the Secretary considers--
    (1) The general, but realistic, forecast of literacy needs of 
members of the partnership and the capacity of the partners;
    (2) Activities that will increase, during the grant period, the 
capacity of partners to provide a coherent program of learning in the 
workplace; and
    (3) Activities that will lead to the continued provision or 
expansion of work-based literacy services built on successful outcomes 
of the project. For example, the partners could--
    (A) Integrate workplace literacy services into the long-term 
planning of partner organizations;

[[Page 145]]

    (B) Create and implement policies and practices that encourage 
worker participation in workplace literacy and other education and 
training opportunities;
    (C) Provide training that will enable partners to build a capacity 
to furnish necessary workplace literacy services in the future;
    (D) Establish relationships within the partnership or with other 
entities that will continue provision of necessary workplace literacy 
services after the project ends; or
    (E) Plan, after the project has ended, to expand services to other 
locations, divisions, or suppliers of the business or industry partners 
or labor organizations.

(Approved by the Office of Management and Budget under control numbers 
1830-0507 and 1830-0521)

(Authority: 20 U.S.C. 1211(a))

[54 FR 34418, Aug. 18, 1989. Redesignated at 57 FR 24091, June 5, 1992, 
and amended at 59 FR 1443, Jan. 10, 1994]



Sec. 472.23  What additional factor does the Secretary consider?

    In addition to the criteria in Sec. 472.22, the Secretary may 
consider whether funding a particular applicant would improve the 
geographical distribution of projects funded under this program.

(Authority: 20 U.S.C. 1211(a))



         Subpart D--What Conditions Must Be Met After an Award?



Sec. 472.30  What are the reporting requirements?

    (a) A recipient of a grant or cooperative agreement under this 
program shall submit to the Secretary performance and financial reports.
    (b) These reports must be submitted at times required by the 
Secretary and at least semi-annually.
    (c) These reports must contain information required by the 
Secretary.

(Authority: 20 U.S.C. 1211(a))

[59 FR 1444, Jan. 10, 1994]



Sec. 472.31  What are the evaluation requirements?

    (a) Each recipient of a grant or cooperative agreement under this 
program shall provide and budget for an independent evaluation of 
project activities.
    (b) The evaluation must be both formative and summative in nature.
    (c) The evaluation must be based on student learning gains and the 
effects on job advancement, job performance (including, for example, 
such elements as productivity, safety, and attendance), and project and 
product spread and transportability.
    (d) A proposed project evaluation design for the entire project 
period, expanding on the plans outlined in the application pursuant to 
Sec. 472.22(f), must be submitted to the Secretary for review and 
approval prior to the end of the first year of the project period.
    (e) A summary of evaluation activities and results that can be 
reviewed by the Department's Program Effectiveness Panel, as described 
in 34 CFR parts 785-789, must be submitted to the Secretary during the 
last year of the project period.
    (f) If a grantee cooperates in a Federal evaluation of its project, 
the Secretary may determine that the grantee fully or partially meets 
the evaluation requirements of this section and the reporting 
requirements in Sec. 472.30.

    Note to Sec. 472.31: As used in Sec. 472.31(c)--
    ``Spread'' means the degree to which--
    (1) Project activities and results are demonstrated to others;
    (2) Technical assistance is provided to others to help them 
replicate project activities and results;
    (3) Project activities and results are replicated at other sites; or
    (4) Information and material about or resulting from the project are 
disseminated; and
    ``Transportability'' means the ease by which project activities and 
results may be replicated at other sites, such as through the 
development and use of guides or manuals that provide step-by-step 
directions for others to follow in order to initiate similar efforts and 
reproduce comparable results.

(Approved by Office of Management and Budget under OMB control number 
1830-0522)

(Authority: 20 U.S.C. 1211(a))

[59 FR 1444, Jan. 10, 1994]



Sec. 472.32  What other requirements must be met under this program?

    (a) An applicant shall use funds to supplement and not supplant 
funds

[[Page 146]]

otherwise available for the purposes of this program.
    (b)(1) The project period may include a start-up period, not to 
exceed six months, during which the project is being established and 
prior to the time services are provided to adult workers.
    (2) Applicants shall minimize the start-up period, if any, proposed 
for their projects.
    (c) [Reserved]
    (d) An award under this program may be used to pay--
    (1) 100 percent of the administrative costs incurred in establishing 
a project during the start-up period described in paragraph (b) of this 
section by an SEA, LEA, or other entity described in Sec. 472.2(a), that 
receives a grant under this part; and
    (2) 70 percent of the costs of a project after the start-up period.
    (e) Each recipient of an award under this program shall provide for 
a project director.

(Authority: 20 U.S.C. 1211(a)(2) and (4)(E))

[54 FR 34418, Aug. 18, 1989. Redesignated and amended at 57 FR 24091, 
24102, June 5, 1992. Redesignated and amended at 59 FR 1444, 1445, Jan. 
10, 1994]



Sec. 472.33  How must projects that serve adults with limited English proficiency provide for the needs of those adults?

    (a) Projects serving adults with limited English proficiency or no 
English proficiency shall provide for the needs of these adults by 
teaching literacy skills needed in the workplace.
    (b) Projects may teach workplace literacy skills--
    (1) To the extent necessary, in the native language of these adults; 
or
    (2) Exclusively in English.
    (c) Projects must be carried out in coordination with programs 
assisted under the Bilingual Education Act and with bilingual vocational 
education programs under the Carl D. Perkins Vocational Education Act.

(Authority: 20 U.S.C. 1206a(d) and 1211(a))

[54 FR 34418, Aug. 18, 1989. Redesignated at 59 FR 1444, Jan. 10, 1994]



Sec. 472.34  Under what circumstances may a project continue if a partner withdraws?

    (a) A project may continue despite the withdrawal of a partner that 
is unable to perform its role as outlined in the grant award document if 
all of the following conditions are met:
    (1) Written approval is given by the Secretary.
    (2) The partnership continues to meet the requirements in 
Sec. 472.2(b).
    (3) The partnership will be able to complete the remainder of the 
project.
    (4) The partner's withdrawal will not cause a change in the scope or 
objectives of the grant or cooperative agreement.
    (b) In determining that the condition in paragraph (a)(4) of this 
section is satisfied, the Secretary considers such factors as whether--
    (1) A similar new partner will sign the partnership agreement and 
agree to carry out the role of the withdrawing partner as described in 
the grant agreement;
    (2) One or more of the remaining partners will agree to carry out 
the role of the withdrawing partner as described in the grant agreement; 
or
    (3) One or more of the remaining partners will expand its activities 
as approved under the grant in order to compensate for the activities 
that would have been carried out under the grant agreement by the 
partner that is withdrawing without a change in the project's scope or 
objectives.

(Authority: 20 U.S.C. 1211(a))

[59 FR 1445, Jan. 10, 1994]



PART 477--STATE PROGRAM ANALYSIS ASSISTANCE AND POLICY STUDIES PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
477.1  What is the State Program Analsyis Assistance and Policy Studies 
          Program?
477.2  Who is eligible for an award?
477.3  What activities may the Secretary fund?
477.4  What regulations apply?
477.5  What definitions apply?

Subpart B [Reserved]

[[Page 147]]

            Subpart C--How Does the Secretary Make an Award?

477.20  How does the Secretary evaluate an application?
477.21  What selection criteria does the Secretary use?
477.22  What additional factors does the Secretary consider?

    Authority: 20 U.S.C. 1213b(a), unless otherwise noted.

    Source: 54 FR 34428, Aug. 18, 1989, unless otherwise noted. 
Redesignated at 57 FR 24091, June 5, 1992.



                           Subpart A--General



Sec. 477.1  What is the State Program Analysis Assistance and Policy 
Studies Program?

    The State Program Analysis Assistance and Policy Studies Program 
assists States in evaluating the status and progress of adult education 
in achieving the purposes of the Act.

(Authority: 20 U.S.C. 1213b(a))



Sec. 477.2  Who is eligible for an award?

    (a) Public or private nonprofit agencies, organizations, or 
institutions are eligible for a grant or cooperative agreement under 
this program.
    (b) Business concerns or public or private nonprofit agencies, 
organizations, or institutions are eligible for a contract under this 
program.

(Authority: 20 U.S.C. 1213b(a))



Sec. 477.3  What activities may the Secretary fund?

    The Secretary may support the following directly or through awards:
    (a) An analysis of State plans and of the findings of evaluations 
conducted in accordance with section 352 of the Act, with suggestions to 
State educational agencies for improvements in planning or program 
operation.
    (b) The provision of an information network (in conjunction with the 
National Diffusion Network) on the results of research in adult 
education, the operation of model or innovative programs (including 
efforts to continue activities and services under the program after 
Federal funding has been discontinued), successful experiences in the 
planning, administration, and conduct of adult education programs, 
advances in curriculum and instructional practices, and other 
information useful in the improvement of adult education.
    (c) Any other activities, including national policy studies, which 
the Secretary may designate, that assist States in evaluating the status 
and progress of adult education in achieving the purposes of the Act.

(Authority: 20 U.S.C. 1213b(a))



Sec. 477.4  What regulations apply?

    The following regulations apply to the State Program Analysis 
Assistance and Policy Studies Program:
    (a) The Federal Acquisition Regulation (FAR) in 48 CFR chapter 1 and 
the Department of Education Acquisition Regulation (EDAR) in 48 CFR 
chapter 34 (applicable to contracts).
    (b) The regulations in this part 477.
    (c) The regulations in 34 CFR part 425.

(Authority: 20 U.S.C. 1213b(a))



Sec. 477.5  What definitions apply?

    The definitions in 34 CFR 425.4 apply to this part.

(Authority: 20 U.S.C. 1213b(a))

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 477.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant or 
cooperative agreement on the basis of the criteria in Sec. 477.21.
    (b) The Secretary may award up to 100 points, including a reserved 
15 points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 477.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 477.21.

(Authority: 20 U.S.C. 1213b(a))

[[Page 148]]



Sec. 477.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (10 points) The Secretary reviews each 
application to determine how well the objectives of the proposed project 
will assist States in evaluating the status and progress of their adult 
education programs.
    (b) Extent of need for the project. (10 points) The Secretary 
reviews each application to determine the extent to which the proposed 
project meets specific needs, including consideration of--
    (1) The needs addressed by the project;
    (2) How the applicant identified those needs;
    (3) How those needs relate to project objectives; and
    (4) The benefits to be gained by meeting those needs.
    (c) Plan of operation. (20 points) The Secretary reviews each 
aplication to determine the quality of the plan of operation for the 
proposed project, including--
    (1) The quality of the design of the project;
    (2) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project;
    (3) How well the objectives of the project relate to the purpose of 
the program; and
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective.
    (d) Quality of key personnel. (15 points) (1) The Secretary reviews 
each application to determine the quality of key personnel the applicant 
plans to use on the proposed project, including--
    (i) The qualifications and experience of the project director, if 
one is to be used;
    (ii) The qualifications and experience of each of the other key 
personnel to be used on the project;
    (iii) The time that each person referred to in paragraphs (d)(1)(i) 
and (ii) of this section will commit to the project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
handicapping condition.
    (2) To determine personnel qualifications under paragraphs (d)(1)(i) 
and (ii) of this section, the Secretary considers--
    (i) Experience and training in fields related to the objectives of 
the project;
    (ii) Experience and training in project management; and
    (iii) Any other qualifications that pertain to the quality of the 
project.
    (e) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is adequate to support the proposed project 
activities; and
    (2) Costs are necessary and reasonable in relation to the objectives 
of the project.
    (f) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Are appropriate for the project; and
    (2) To the extent possible, are objective and produce data that are 
quantifiable.
    (g) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the resources that the 
applicant plans to devote to the project, including facilities, 
equipment, and supplies.
    (h) Dissemination plan. (10 points) The Secretary reviews each 
application to determine the quality of the dissemination plan for the 
project, including--
    (1) The extent to which the project is designed to yield outcomes 
that can be readily disseminated;
    (2) A description of the types of materials the applicant plans to 
make available and the methods for making the materials avialable; and
    (3) Provisions for publicizing the findings of the project at the 
local,

[[Page 149]]

State, and national levels, as appropriate.

(Approved by the Office of Management and Budget under control number 
1830-0013)

(Authority: 20 U.S.C. 1213b(a))

[54 FR 34428, Aug. 18, 1989; 54 FR 46065, Nov. 1, 1989]



Sec. 477.22  What additional factors does the Secretary consider?

    In addition to the criteria in Sec. 477.21, the Secretary may 
consider the following factors in making an award:
    (a) Geographic distribution. The Secretary may consider whether 
funding a particular applicant would improve the geographical 
distribution of projects funded under this program.
    (b) Variety of approaches. The Secretary may consider whether 
funding a particular applicant would contribute to the funding of a 
variety of approaches to assisting States in evaluating the status and 
progress of their adult education programs.

(Authority: 20 U.S.C. 1213b(a)).



PART 489--FUNCTIONAL LITERACY FOR STATE AND LOCAL PRISONERS PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
489.1  What is the Functional Literacy for State and Local Prisoners 
          Program?
489.2  Who is eligible for a grant?
489.3  What activities may the Secretary fund?
489.4  What regulations apply?
489.5  What definitions apply?

               Subpart B--How Does One Apply for a Grant?

489.10  How does an eligible entity apply for a grant?

            Subpart C--How Does the Secretary Make an Award?

489.20  How does the Secretary evaluate an application?
489.21  What selection criteria does the Secretary use?

         Subpart D--What Conditions Must be Met after an Award?

489.30  What annual report is required?

    Authority: 20 U.S.C. 1211-2, unless otherwise noted.

    Source: 57 FR 24105, June 5, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 489.1  What is the Functional Literacy for State and Local 
Prisoners Program?

    (a) The Secretary makes grants to eligible entities that elect to 
establish a demonstration or system-wide functional literacy program for 
adult prisoners, as described Sec. 489.3.
    (b) Grants under this part may be used for establishing, improving, 
expanding, or carrying out a program, and for developing the plans and 
submitting the reports required by this part.

(Authority: 20 U.S.C. 1211-2(a), (d)(1))



Sec. 489.2  Who is eligible for a grant?

    A State correctional agency, a local correctional agency, a State 
correctional education agency, or a local correctional education agency 
is eligible for a grant under this part.

(Authority: 20 U.S.C. 1211-2(f)(1))



Sec. 489.3  What activities may the Secretary fund?

    (a) To qualify for funding under Sec. 489.1, a functional literacy 
program must--
    (1) To the extent possible, make use of advanced technologies, such 
as interactive video- and computer-based adult literacy learning: and
    (2) Include--
    (i) A requirement that each person incarcerated in the system, 
prison, jail, or detention center who is not functionally literate, 
except a person described in paragraph (b) of this section, shall 
participate in the program until the person--
    (A) Achieves functional literacy, or in the case of an individual 
with a disability, achieves a level of functional literacy commensurate 
with his or her ability;
    (B) Is granted parole;
    (C) Completes his or her sentence; or
    (D) Is released pursuant to court order; and

[[Page 150]]

    (ii) A prohibition on granting parole to any person described in 
paragraph (a)(2)(i) of this section who refuses to participate in the 
program, unless the State parole board determines that the prohibition 
should be waived in a particular case; and
    (iii) Adequate opportunities for appropriate education services and 
the screening and testing of all inmates for functional literacy and 
disabilities affecting functional literacy, including learning 
disabilities, upon arrival in the system or at the prison, jail, or 
detention center.
    (b) The requirement of paragraph (a)(2)(i) does not apply to a 
person who--
    (1) Is serving a life sentence without possibility of parole;
    (2) Is terminally ill; or
    (3) Is under a sentence of death.

(Authority: 20 U.S.C. 1211-2(b))



Sec. 489.4  What regulations apply?

    The following regulations apply to the Functional Literacy for State 
and Local Prisoners Program:
    (a) The regulations in this part 489.
    (b) The regulations in 34 CFR 460.3.

(Authority: 20 U.S.C. 1211-2)



Sec. 489.5  What definitions apply?

    (a) The definitions in 34 CFR 460.4 apply to this part.
    (b) As used in this part--
    Functional literacy means at least an eighth grade equivalence, or a 
functional criterion score, on a nationally recognized literacy 
assessment.
    Local correctional agency means any agency of local government that 
provides corrections services to incarcerated adults.
    Local correctional education agency means any agency of local 
government, other than a local correctional agency, that provides 
educational services to incarcerated adults.
    State correctional agency means any agency of State government that 
provides corrections services to incarcerated adults.
    State correctional education agency means any agency of State 
government, other than a State correctional agency, that provides 
educational services to incarcerated adults.

(Authority: 20 U.S.C. 1211-2(f)(2))



               Subpart B--How Does One Apply for a Grant?



Sec. 489.10  How does an eligible entity apply for a grant?

    An eligible entity may receive a grant under this part if the entity 
submits an application to the Secretary at such time, in such manner, 
and containing such information as the Secretary may require, including, 
but not limited to, the following:
    (a) An assurance that the entity will provide the Secretary such 
data as the Secretary may request concerning the cost and feasibility of 
operating the functional literacy programs authorized by Sec. 489.1(a), 
including the annual reports required by Sec. 489.30.
    (b) A detailed plan outlining the methods by which the provisions of 
Secs. 489.1 and 489.3 will be met, including specific goals and 
timetables.

(Approved by the Office of Management and Budget under control number 
1830-0512)

(Authority: 20 U.S.C. 1211-2(d)(2))



            Subpart C--How Does the Secretary Make an Award?



Sec. 489.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 489.21.
    (b) The Secretary awards up to 100 points for these criteria, 
including 15 points that the Secretary assigns in accordance with 
paragraph (d) of this section.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.
    (d) For each competition under this part, the Secretary, in a notice 
published in the Federal Register, assigns 15 points among the criteria 
in Sec. 489.21.

(Authority: 20 U.S.C. 1211-2)

[[Page 151]]



Sec. 489.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (15 points) The Secretary reviews the 
application to determine the quality of the proposed project, including 
the extent to which the application includes--
    (1) A clear description of the services to be offered;
    (2) A complete description of the methodology to be used, including 
a thorough assessment of all offenders in the system and assessments 
necessary to identify offenders with disabilities affecting functional 
literacy;
    (3) Flexibility in the manner that services are offered, including 
the provision of accessible class schedules;
    (4) A strong relationship between skills taught and the literacy and 
skill requirements of the changing workplace; and
    (5) An innovative approach, such as interactive video curriculum or 
peer tutoring that will provide a model that is replicable in other 
correctional facilities of a similar type or size; and
    (6) Staff in-service education.
    (b) Educational significance. (15 points) The Secretary reviews each 
application to determine the extent to which the applicant proposes--
    (1) Project objectives that contribute to the improvement of 
functional literacy;
    (2) To use unique and innovative techniques to produce benefits that 
address functional literacy problems and needs that are of national 
significance; and
    (3) To demonstrate how well those national needs will be met by the 
project.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The quality of the design of the project;
    (2) The extent to which the project includes specific intended 
outcomes that--
    (i) Will accomplish the purposes of the program;
    (ii) Are attainable within the project period, given the project's 
budget and other resources;
    (iii) Are susceptible to evaluation;
    (iv) Are objective and measurable; and
    (v) For a multi-year project, include specific objectives to be met, 
during each budget period, that can be used to determine the progress of 
the project toward meeting its intended outcomes;
    (3) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective and intended outcome during the 
period of Federal funding; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disabling condition.
    (d) Evaluation plan. (15 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Are clearly explained and appropriate to the project;
    (2) Will determine how successful the project is in meeting its 
intended outcomes, including an assessment of the effectiveness of the 
project in improving functional literacy of prisoners. To the extent 
feasible, the assessment must include a one-year post-release review, 
during the grant period, to measure the success of the project with 
respect to those prisoners who received services and were released. The 
assessment must involve comparison of the project to other existing 
education and training programs or no treatment for individuals, as 
appropriate. The evaluation must be designed to produce findings that, 
if positive and significant, can be used in submission of an application 
to the Department's Program Effectiveness Panel. To assess program 
effectiveness, consideration may be given to implementing a random 
assignment evaluation design. (Review criteria for the Program 
Effectiveness Panel are provided in 34 CFR 786.12.);
    (3) Provide for an assessment of the efficiency of the program's 
replication

[[Page 152]]

efforts, including dissemination activities and technical assistance 
provided to other projects;
    (4) Include formative evaluation activities to help assess program 
management and improve program operations; and
    (5) To the extent possible, are objective and produce data that are 
quantifiable.
    (e) Demonstration and dissemination. (10 points) The Secretary 
reviews each application to determine the efficiency of the plan for 
demonstrating and disseminating information about project activities and 
results throughout the project period, including--
    (1) High quality in the design of the demonstration and 
dissemination plan;
    (2) Identification of target groups and provisions for publicizing 
the project at the local, State, and national levels by conducting or 
delivering presentations at conferences, workshops, and other 
professional meetings and by preparing materials for journal articles, 
newsletters, and brochures;
    (3) Provisions for demonstrating the methods and techniques used by 
the project to others interested in replicating these methods and 
techniques, such as by inviting them to observe project activities;
    (4) A description of the types of materials the applicant plans to 
make available to help others replicate project activities and the 
methods for making the materials available; and
    (5) Provisions for assisting others to adopt and successfully 
implement the project or methods and techniques used by the project.
    (f) Key personnel. (5 points)
    (1) The Secretary reviews each application to determine the quality 
of key personnel the applicant plans to use on the project, including--
    (i) The qualifications, in relation to the objectives and planned 
outcomes of the project, of the project director;
    (ii) The qualifications, in relation to the objectives and planned 
outcomes of the project, of each of the other key personnel to be used 
in the project, including any third-party evaluator;
    (iii) The time that each person referred to in paragraphs (f)(1) (i) 
and (ii) of this section will commit to the project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disabling condition.
    (2) To determine personnel qualifications under paragraphs (f)(1) 
(i) and (ii) of this section, the Secretary considers experience and 
training in project management and in fields related to the objectives 
and planned outcomes of the project.
    (g) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which the budget--
    (1) Is cost effective and adequate to support the project 
activities;
    (2) Contains costs that are reasonable and necessary in relation to 
the objectives of the project; and
    (3) Proposes using non-Federal resources available from appropriate 
employment, training, and education agencies in the State to provide 
project services and activities and to acquire project equipment and 
facilities.
    (h) Adequacy of resources and commitment. (5 points)
    (1) The Secretary reviews each application to determine the extent 
to which the applicant plans to devote adequate resources to the 
project. The Secretary considers the extent to which--
    (i) Facilities that the applicant plans to use are adequate; and
    (ii) Equipment and supplies that the applicant plans to use are 
adequate.
    (2) The Secretary reviews each application to determine the 
applicant's commitment to the project, including the extent to which--
    (i) Non-Federal resources are adequate to provide project services 
and activities, especially resources of the public and private sectors; 
and
    (ii) The applicant has the capacity to continue, expand, and build 
upon the project when Federal assistance ends.

(Approved by the Office of Management and Budget under control number 
1830-0512)

(Authority: 20 U.S.C. 1211-2)

[[Page 153]]



         Subpart D--What Conditions Must be Met after an Award?



Sec. 489.30  What annual report is required?

    (a) Within 90 days after the close of the first calendar year in 
which a literacy program authorized by Sec. 489.1 is placed in 
operation, and annually for each of the 4 years thereafter, a grantee 
shall submit a report to the Secretary with respect to its literacy 
program.
    (b) A report under paragraph (a) of this section must disclose--
    (1) The number of persons who were tested for eligibility during the 
preceding year;
    (2) The number of persons who were eligible for the literacy program 
during the preceding year;
    (3) The number of persons who participated in the literacy program 
during the preceding year;
    (4) The name and types of tests that were used to determine 
functional literacy and the names and types of tests that were used to 
determine disabilities affecting functional literacy;
    (5) The average number of hours of instruction that were provided 
per week and the average number per student during the preceding year;
    (6) Sample data on achievement of participants in the program, 
including the number of participants who achieved functional literacy;
    (7) Data on all direct and indirect costs of the program; and
    (8) Information on progress toward meeting the program's goals.

(Approved by the Office of Management and Budget under control number 
1830-0512)

(Authority: 20 U.S.C. 1211-2(c))



PART 490--LIFE SKILLS FOR STATE AND LOCAL PRISONERS PROGRAM--Table of 
Contents




                           Subpart A--General

Sec.
490.1  What is the Life Skills for State and Local Prisoners Program?
490.2  Who is eligible for a grant?
490.3  What regulations apply?
490.4  What definitions apply?

               Subpart B--How Does One Apply for a Grant?

490.10  How does an eligible entity apply for a grant?

            Subpart C--How Does the Secretary Make an Award?

490.20  How does the Secretary evaluate an application?
490.21  What selection criteria does the Secretary use?
490.22  What additional factor does the Secretary consider?

    Authority: 20 U.S.C. 1211-2, unless otherwise noted.

    Source: 57 FR 24107, June 5, 1992, unless otherwise noted.



                           Subpart A--General



Sec. 490.1  What is the Life Skills for State and Local Prisoners Program?

    The Secretary may make grants to eligible entities to assist them in 
establishing and operating programs designed to reduce recidivism 
through the development and improvement of life skills necessary for 
reintegration of adult prisoners into society.

(Authority: 20 U.S.C. 1211-2(e)(1))



Sec. 490.2  Who is eligible for a grant?

    A State correctional agency, a local correctional agency, a State 
correctional education agency, or a local correctional education agency 
is eligible for a grant under this part.

(Authority: 20 U.S.C. 1211-2(f)(1))



Sec. 490.3  What regulations apply?

    The following regulations apply to the Life Skills for State and 
Local Prisoners Program:
    (a) The regulations in this part 490.
    (b) The regulations in 34 CFR 460.3.

(Authority: 20 U.S.C. 1211-2)



Sec. 490.4  What definitions apply?

    (a) The definitions in 34 CFR 460.4 apply to this part.
    (b) As used in this part--
    Life skills includes self-development, communication skills, job and 
financial skills development, education, interpersonal and family 
relationship development, and stress and anger management.

[[Page 154]]

    Local correctional agency means any agency of local government that 
provides corrections services to incarcerated adults.
    Local correctional education agency means any agency of local 
government, other than a local correction agency, that provides 
educational services to incarcerated adults.
    State correctional agency means any agency of State government that 
provides corrections services to incarcerated adults.
    State correctional education agency means any agency of State 
government, other than a State correctional agency, that provides 
educational services to incarcerated adults.

(Authority: 20 U.S.C. 1211-2(f)(3))



               Subpart B--How Does One Apply for a Grant?



Sec. 490.10  How does an eligible entity apply for a grant?

    To receive a grant under this part, an eligible entity shall submit 
an application to the Secretary at such time, in such manner, and 
containing such information as the Secretary shall require, including, 
but not limited to, an assurance that the entity will report annually to 
the Secretary on the participation rate, cost, and effectiveness of the 
program and any other aspect of the program on which the Secretary may 
request information.

(Approved by the Office of Management and Budget under control number 
1830-0512)

(Authority: 20 U.S.C. 1211-2(e)(2))



            Subpart C--How Does the Secretary Make an Award?



Sec. 490.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the criteria in 
Sec. 490.21.
    (b) The Secretary awards up to 100 points for these criteria, 
including 15 points that the Secretary assigns in accordance with 
paragraph (d) of this section.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.
    (d) For each competition under this part, the Secretary, in a notice 
published in the Federal Register, assigns 15 points among the criteria 
in Sec. 490.21.

(Authority: 20 U.S.C. 1211-2)



Sec. 490.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (15 points) The Secretary reviews the 
application to determine the quality of the proposed project, including 
the extent to which the application includes--
    (1) A clear description of the services to be offered; and
    (2) Life skills education designed to prepare adult offenders to 
reintegrate successfully into communities, schools and the workplace.
    (b) Educational significance. (15 points) The Secretary reviews each 
application to determine the extent to which the applicant proposes--
    (1) Project objectives that contribute to the improvement of life 
skills;
    (2) To use unique and innovative techniques to produce benefits that 
address life skills problems and needs that are of national 
significance; and
    (3) To demonstrate how well those national needs will be met by the 
project.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The quality of the design of the project;
    (2) The extent to which the project includes specific intended 
outcomes that--
    (i) Will accomplish the purposes of the program;
    (ii) Are attainable within the project period, given the project's 
budget and other resources;
    (iii) Are susceptible to evaluation;
    (iv) Are objective and measurable; and
    (v) For a multi-year project, include specific objectives to be met, 
during each budget period, that can be used to determine the progress of 
the project toward meeting its intended outcomes;
    (3) The extent to which the plan of management is effective and 
ensures

[[Page 155]]

proper and efficient administration of the project;
    (4) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective and intended outcome during the 
period of Federal funding; and
    (5) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or disabling condition.
    (d) Evaluation plan. (15 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Are clearly explained and appropriate to the project;
    (2) Will determine how successful the project is in meeting its 
intended outcomes, including an assessment of the effectiveness of the 
project in improving life skills of prisoners. To the extent feasible, 
the assessment must include a one-year post-release review, during the 
grant period, to measure the success of the project with respect to 
those prisoners who received services and were released. The assessment 
must involve comparison of the project to other existing education and 
training programs or no treatment for individuals, as appropriate. The 
evaluation must be designed to produce findings that, if positive and 
significant, can be used in submission of an application to the 
Department's Program Effectiveness Panel. To assess program 
effectiveness, consideration may be given to implementing a random 
assignment evaluation design. (Review criteria for the Progam 
Effectiveness Panel are provided in 34 CFR 786.12.);
    (3) Provide for an assessment of the efficiency of the program's 
replication efforts, including dissemination activities and technical 
assistance provided to other projects;
    (4) Include formative evaluation activities to help assess program 
management and improve program operations; and
    (5) To the extent possible, are objective and produce data that are 
quantifiable.
    (e) Demonstration and dissemination. (10 points) The Secretary 
reviews each application to determine the efficiency of the plan for 
demonstrating and disseminating information about project activities and 
results throughout the project period, including--
    (1) High quality in the design of the demonstration and 
dissemination plan;
    (2) Identification of target groups and provisions for publicizing 
the project at the local, State, and national levels by conducting or 
delivering presentations at conferences, workshops, and other 
professional meetings and by preparing materials for journal articles, 
newsletters, and brochures;
    (3) Provisions for demonstrating the methods and techniques used by 
the project to others interested in replicating these methods and 
techniques, such as by inviting them to observe project activities;
    (4) A description of the types of materials the applicant plans to 
make available to help others replicate project activities and the 
methods for making the materials available; and
    (5) Provisions for assisting others to adopt and successfully 
implement the project or methods and techniques used by the project.
    (f) Key personnel. (5 points) (1) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (i) The qualifications, in relation to the objectives and planned 
outcomes of the project, of the project director;
    (ii) The qualifications, in relation to the objectives and planned 
outcomes of the project, of each of the other key personnel to be used 
in the project, including any third-party evaluator;
    (iii) The time that each person referred to in paragraphs (f)(1) (i) 
and (ii) of this section will commit to the project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
disabling condition.
    (2) To determine personnel qualifications under paragraphs (f)(1) 
(i) and (ii) of this section, the Secretary considers experience and 
training in project

[[Page 156]]

management and in fields related to the objectives and planned outcomes 
of the project.
    (g) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which the budget--
    (1) Is cost effective and adequate to support the project 
activities;
    (2) Contains costs that are reasonable and necessary in relation to 
the objectives of the project; and
    (3) Proposes using non-Federal resources available from appropriate 
employment, training, and education agencies in the State to provide 
project services and activities and to acquire project equipment and 
facilities.
    (h) Adequacy of resources and commitment. (5 points)
    (1) The Secretary reviews each application to determine the extent 
to which the applicant plans to devote adequate resources to the 
project. The Secretary considers the extent to which--
    (i) Facilities that the applicant plans to use are adequate; and
    (ii) Equipment and supplies that the applicant plans to use are 
adequate.
    (2) The Secretary reviews each application to determine the 
applicant's commitment to the project, including the extent to which--
    (i) Non-Federal resources are adequate to provide project services 
and activities, especially resources of the public and private sectors; 
and
    (ii) The applicant has the capacity to continue, expand, and build 
upon the project when Federal assistance ends.

(Approved by the Office of Management and Budget under control number 
1830-0512)

(Authority: 20 U.S.C. 1211-2)



Sec. 490.22  What additional factor does the Secretary consider?

    In addition to the points awarded under the selection criteria in 
Sec. 490.21, the Secretary awards up to 5 points to applications for 
projects that have the greatest potential for innovation, effectiveness, 
and replication in other systems, jails, and detention centers.

(Authority: 20 U.S.C. 1211-2(e)(3))



PART 491--ADULT EDUCATION FOR THE HOMELESS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
491.1  What is the Adult Education for the Homeless Program?
491.2  Who may apply for an award?
491.3  What activities may the Secretary fund?
491.4  What regulations apply?
491.5  What definitions apply?

Subpart B [Reserved]

            Subpart C--How Does the Secretary Make an Award?

491.20  How does the Secretary evaluate an application?
491.21  What selection criteria does the Secretary use?
491.22  What additional factor does the Secretary consider?

         Subpart D--What Conditions Must Be Met After an Award?

491.30  How may an SEA operate the program?

    Authority: 42 U.S.C. 11421, unless otherwise noted.

    Source: 54 FR 34430, Aug. 18, 1989, unless otherwise noted. 
Redesignated at 57 FR 24091, June 5, 1992.



                           Subpart A--General



Sec. 491.1  What is the Adult Education for the Homeless Program?

    The Adult Education for the Homeless Program provides financial 
assistance to State educational agencies (SEAs) to enable them to 
implement, either directly or through contracts or subgrants, a program 
of literacy training and basic skills remediation for adult homeless 
individuals within their State.

(Authority: 42 U.S.C. 11421(a))



Sec. 491.2  Who may apply for an award?

    State educational agencies in the 50 States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, 
American Samoa, and the Commonwealth of the Northern Mariana Islands may 
apply for an award under this program.

(Authority: 42 U.S.C. 11421(d))

[[Page 157]]



Sec. 491.3  What activities may the Secretary fund?

    The Secretary provides grants or cooperative agreements for projects 
that implement a program of literacy training and basic skills 
remediation for adult homeless individuals. Projects must--
    (a) Include a program of outreach activities; and
    (b) Coordinate with existing resources such as community-based 
organizations, VISTA recipients, the adult basic education program and 
its recipients, and nonprofit literacy-action organizations.

(Authority: 42 U.S.C. 11421(a))



Sec. 491.4  What regulations apply?

    The following regulations apply to the Adult Education for the 
Homeless Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, Nonprofit Organizations) for grants, 
including cooperative agreements, to institutions of higher education, 
hospitals, and nonprofit organizations.
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments) for grants, 
including cooperative agreements, to State and local governments, 
including Indian tribal governments.
    (6) 34 CFR part 81 (General Education Provisions Act--Enforcement).
    (7) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (b) The regulations in this part 491.

(Authority: 42 U.S.C. 11421)



Sec. 491.5  What definitions apply?

    (a) Definitions in the Act. The following terms used in this part 
are defined in sections 103 and 702(d), respectively, of the Steward B. 
McKinney Homeless Assistance Act (Pub. L. 100-77, 42 U.S.C. 11301 et 
seq.):
    Homeless or homeless individual.
    State.
    (b) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Contract
EDGAR
Grant
Grantee
Local educational
  agency
Nonprofit
Private
Project
Public
Secretary
State educational
  agency

    (c) Other definitions. The following definitions also apply to this 
part:
    Act means the Stewart B. McKinney Homeless Assistance Act (Pub. L. 
100-77, 42 U.S.C. 11301 et seq.).
    Adult means an individual who has attained 16 years of age or who is 
beyond the age of compulsory school attendance under the applicable 
State law.
    Basic skills remediation and literacy training mean adult education 
for homeless adults whose inability to speak, read, or write the English 
language constitutes a substantial impairment of their ability to get or 
retain employment commensurate with their real ability, that is designed 
to help eliminate this inability and raise the level of education of 
those individuals with a view to making them less likely to become 
dependent on others, to improving their ability to benefit from 
occupational training and otherwise increasing their opportunities for 
more productive and profitable employment, and to making them better 
able to meet their adult responsibilities.
    Eligible recipients means public or private agencies, institutions, 
or organizations, including religious or charitable organizations, 
eligible to apply for a contract from a State educational agency to 
operate projects, services, or activities.
    Outreach means activities designed to--
    (1) Identify and inform adult homeless individuals of the 
availability and

[[Page 158]]

benefits of the Adult Education for the Homeless Program; and
    (2) Assist those homeless adults, by providing active recruitment 
and reasonable and convenient access, to participate in the program.

(Authority: 42 U.S.C. 11421)

Subpart B [Reserved]



            Subpart C--How Does the Secretary Make an Award?



Sec. 491.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 491.21.
    (b) The Secretary awards up to 100 points, including a reserved 15 
points to be distributed in accordance with paragraph (d) of this 
section, based on the criteria in Sec. 491.21.
    (c) Subject to paragraph (d) of this section, the maximum possible 
score for each criterion is indicated in parentheses.
    (d) For each competition as announced through a notice published in 
the Federal Register, the Secretary may assign the reserved points among 
the criteria in Sec. 491.21.

(Authority: 42 U.S.C. 11421)



Sec. 491.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Program factors. (25 points) The Secretary reviews each 
application to determine the extent to which--
    (1) The program design is tailored to the literacy and basic skills 
needs of the specific homeless population being served (for example, 
designs to address the particular needs of single parent heads of 
households, substance abusers, or the chronically mentally ill);
    (2) Cooperative relationships with other service agencies will 
provide an integrated package of support services to address the most 
pressing needs of the target group at, or through, the project site. 
Support services must be designed to bring members of the target group 
to a state of readiness for instructional services or to enhance the 
effectiveness of instructional services. Examples of appropriate support 
services to be provided and funded through cooperative relationships 
include, but are not limited to--
    (i) Assistance with food and shelter;
    (ii) Alcohol and drug abuse counseling;
    (iii) Individual and group mental health counseling;
    (iv) Health care;
    (v) Child care;
    (vi) Case management;
    (vii) Job skills training;
    (viii) Employment training and work experience programs; and
    (ix) Job placement;
    (3) The SEA's application provides for individualized instruction, 
especially the use of individualized instructional plans or individual 
education plans that are developed jointly by the student and the 
teacher and reflect student goals;
    (4) The program's activities include outreach services, especially 
interpersonal contacts at locations where homeless persons are known to 
gather, and outreach efforts through cooperative relations with local 
agencies that provide services to the homeless; and
    (5) Instructional services will be readily accessible to students, 
especially the provision of instructional services at a shelter or 
transitional housing site.
    (b) Extent of need for the project. (15 points) The Secretary 
reviews each application to determine the extent to which the project 
meets specific needs in section 702 of the Act, including consideration 
of--
    (1)(i) An estimate of the number of homeless persons expected to be 
served.
    (ii) For the purposes of the count in paragraph (b)(1)(i) of this 
section, an eligible homeless adult is an individual who has attained 16 
years of age or who is beyond the age of compulsory attendance under the 
applicable State law; who does not have a high school diploma, a GED, or 
the basic education skills to obtain full-time meaningful employment; 
and who meets the definition of ``homeless or homeless individual'' in 
section 103 of the Act;
    (2) How the numbers in paragraph (b)(1) of this section were 
determined;
    (3) The extent to which the target population of homeless to be 
served in

[[Page 159]]

the project needs and can benefit from literacy training and basic 
skills remediation;
    (4) The need of that population for educational services, including 
their readiness for instructional services and how readiness was 
assessed; and
    (5) How the project would meet the literacy and basic skills needs 
of the specific target group to be served.
    (c) Plan of operation. (15 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, including--
    (1) The establishment of written, measurable goals and objectives 
for the project that are based on the project's overall mission;
    (2) The extent to which the program is coordinated with existing 
resources such as community-based organizations, VISTA recipients, adult 
basic education program recipients, nonprofit literacy action 
organizations, and existing organizations providing shelters to the 
homeless;
    (3) The extent to which the management plan is effective and ensures 
proper and efficient administration of the project;
    (4) How the applicant will ensure that project participants 
otherwise eligible to participate are selected without regard to race, 
color, national origin, gender, age, or handicapping condition; and
    (5) If applicable, the plan for the local application process and 
the criteria for evaluating local applications submitted by eligible 
applicants for contracts or subgrants.
    (d) Quality of key personnel. (15 points) (1) The Secretary reviews 
each application to determine the quality of key personnel the State 
plans to use on the project, including--
    (i) The qualifications of the State coordinator/project director;
    (ii) The qualifications of each of the other key personnel to be 
used by the SEA in the project;
    (iii) The time that each person referred to in paragraphs (d) (1) 
(i) and (ii) of this section will commit to the project; and
    (iv) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected for employment 
without regard to race, color, national origin, gender, age, or 
handicapping condition.
    (2) To determine personnel qualifications under paragraphs (d)(1) 
(i) and (ii) of this section, the Secretary considers--
    (i) Experience and training in fields related to the objectives of 
the project;
    (ii) Experience in providing services to homeless populations;
    (iii) Experience and training in project management; and
    (iv) Any other qualifications that pertain to the quality of the 
project.
    (e) Budget and cost effectiveness. (5 points) The Secretary reviews 
each application to determine the extent to which--
    (1) The budget is adequate to support the project;
    (2) Costs are reasonable in relation to the objectives of the 
project; and
    (3) The budget is presented in enough detail for determining 
paragraphs (e) (1) and (2) of this section.
    (f) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Objectively, and to the extent possible, quantifiably measure 
the success, both of the program and of the participants, in achieving 
established goals and objectives;
    (2) Contain provisions that allow for frequent feedback from 
evaluation data provided by participants, teachers, and community groups 
in order to improve the effectiveness of the program; and
    (3) Include a description of the types of instructional materials 
the applicant plans to make available and the methods for making the 
materials available.

(Approved by the Office of Management and Budget under control number 
1830-0506)

(Authority: 42 U.S.C. 11421)

[54 FR 34430, Aug. 8, 1989, as amended at 56 FR 13522, Apr. 2, 1991]



Sec. 491.22  What additional factor does the Secretary consider?

    In addition to the criteria in Sec. 491.21, the Secretary may 
consider whether funding a particular applicant would

[[Page 160]]

improve the geographical distribution of projects funded under this 
program.

(Authority: 42 U.S.C. 11421)



         Subpart D--What Conditions Must be Met After an Award?



Sec. 491.30  How may an SEA operate the program?

    An SEA may operate the program directly, award subgrants, or award 
contracts to eligible recipients. If an SEA awards contracts, the SEA 
shall distribute funds on the basis of the State-approved contracting 
process.

(Authority: 42 U.S.C. 11421(a)).

[[Page 161]]



CHAPTER V--OFFICE OF BILINGUAL EDUCATION AND MINORITY LANGUAGES AFFAIRS, 
                         DEPARTMENT OF EDUCATION




  --------------------------------------------------------------------
Part                                                                Page
535             Bilingual Education: Graduate Fellowship 
                    Program.................................         163

[[Page 163]]



PART 535--BILINGUAL EDUCATION: GRADUATE FELLOWSHIP PROGRAM--Table of Contents




                           Subpart A--General

Sec.
535.1  What is the Bilingual Education: Graduate Fellowship Program?
535.2  Who is eligible to participate in this program?
535.3  What financial assistance is available for fellowship recipients?
535.4  What regulations apply?
535.5  What definitions apply?

     Subpart B--How Does an IHE Apply To Participate in the Program?

535.10  How does an IHE apply to participate in the program?
535.11  What assurance must an application contain?
535.12  In what circumstances may an IHE waive the training practicum 
          requirement?

    Subpart C--How Does the Secretary Approve an IHE's Participation?

535.20  How does the Secretary evaluate an application to participate in 
          this program for master's and doctoral level fellowships?
535.21  What selection criteria does the Secretary use?
535.22  How does the Secretary evaluate an application to participate in 
          this program for post-doctoral study fellowships?
535.23  What selection criteria does the Secretary use?

        Subpart D--How Does an Individual Apply for a Fellowship?

535.30  How does an individual apply for a fellowship?

                  Subpart E--How Are Fellows Selected?

535.40  How does the Secretary select Fellows?
535.41  Who may an IHE nominate for fellowships?
535.42  What is the period of a fellowship?

           Subpart F--What Conditions Must Be Met by Fellows?

535.50  What is the service requirement for a fellowship?
535.51  What are the requirements for repayment of the fellowship?
535.52  What is the repayment schedule?
535.53  What is the rule regarding interest?
535.54  Under what circumstances is repayment deferred?
535.55  What is the length of the deferment of repayment?
535.56  Under what circumstances is repayment waived?
535.57  How shall the fellowship recipient account for the obligation?

    Authority: 20 U.S.C. 7475, unless otherwise noted.

    Source: 61 FR 31352, June 19, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 535.1  What is the Bilingual Education: Graduate Fellowship Program?

    The Bilingual Education: Graduate Fellowship Program provides 
financial assistance, through institutions of higher education (IHEs), 
to individuals who are pursuing master's, doctoral, or post-doctoral 
study related to instruction of limited English proficient (LEP) 
children and youth in areas such as teacher training, program 
administration, research and evaluation, and curriculum development and 
for the support of dissertation research related to this study.

(Authority: 20 U.S.C. 7475(a)(1))



Sec. 535.2  Who is eligible to participate in this program?

    (a) An IHE is eligible to participate in this program.
    (b) An individual who meets the eligibility requirements under 
Sec. 535.41 may apply for a fellowship through an IHE participating in 
this program.

(Authority: 20 U.S.C. 7475)



Sec. 535.3  What financial assistance is available for fellowship recipients?

    (a) The Secretary may authorize the following financial assistance 
on an annual basis to master's and doctoral program fellowship 
recipients:
    (1) Tuition and fees--the usual costs associated with the course of 
study.
    (2) Books--up to $300.
    (3) Travel--up to $250 for travel directly related to the program of 
study.
    (4) A stipend of up to $500 per month, including allowances for 
subsistence and other expenses, for a participant and his or her 
dependents, if the participant is--

[[Page 164]]

    (i) A full-time student in a program of study that was in the 
approved application; and
    (ii) Gainfully employed no more than 20 hours a week or the annual 
equivalent of 1040 hours.
    (b) The Secretary may authorize the following financial assistance 
on an annual basis to post-doctoral fellowship recipients:
    (1) A stipend of up to $40,000.
    (2) Publications, research and scholarly materials, research-related 
travel, and fees--up to $5,000.
    (c) In authorizing assistance to fellowship recipients under 
paragraphs (a) and (b) of this section, the Secretary considers the 
amount of other financial compensation that the fellowship recipients 
receive during the training period.

(Authority: 20 U.S.C. 7478)



Sec. 535.4  What regulations apply?

    The following regulations apply to this program:
    (a) 34 CFR 75.51 and 75.60 through 62.
    (b) 34 CFR part 77.
    (c) 34 CFR part 79.
    (d) 34 CFR part 85.
    (e) The regulations in this part 535.

(Authority: 20 U.S.C. 7475)



Sec. 535.5  What definitions apply?

    (a) Definitions in the Act. (1) The following terms used in this 
part are defined in section 7501 of the Act:

Bilingual education program
Children and youth
Limited English proficiency
Native Hawaiian or Native American Pacific Islander Native language 
educational organization
Office
Other programs for persons of limited-English proficiency

    (2) The following terms used in this part are defined in section 
7104 of the Act:

Indian tribe
Tribally sanctioned educational authority

    (3) The following terms used in this part are defined in section 
14101 of the Act:

Institution of higher education
Local educational agency (LEA)

    (b) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Department
EDGAR
Fiscal year
Project
Recipient
Secretary
State
State educational agency (SEA)

    (c) Other definition. The following definition also applies to this 
part:
    Act means the Elementary and Secondary Education Act of 1965, as 
amended.

(Authority: 20 U.S.C. 7475-7480)



     Subpart B--How Does an IHE Apply To Participate in the Program?



Sec. 535.10  How does an IHE apply to participate in the program?

    To apply for participation under this part, an IHE shall submit an 
application to the Secretary that--
    (a) Responds to the appropriate selection criteria in Secs. 535.21 
and 535.23; and
    (b) Requests a specific number of fellowships to be awarded in each 
proposed language or other curriculum group for the fellowship period 
specified in Sec. 535.42.

(Authority: 20 U.S.C. 7475)



Sec. 535.11  What assurance must an application contain?

    An application that proposes to train master's or doctoral level 
students with funds received under this part must provide an assurance 
that the program will include a training practicum in a local school 
program serving LEP students.

(Authority: 20 U.S.C. 7476(a)(3)(A))



Sec. 535.12  In what circumstances may an IHE waive the training practicum 
requirement?

    An IHE participating under this program may waive the requirement in 
Sec. 535.11 for a training practicum for a master's or doctoral degree 
candidate who has had at least one academic year of experience in a 
local school program serving LEP students.

(Authority: 20 U.S.C. 7476(a)(3)(B))

[[Page 165]]



    Subpart C--How Does the Secretary Approve an IHE's Participation?



Sec. 535.20  How does the Secretary evaluate an application to participate 
in this program for master's and doctoral level fellowships?

    (a) The Secretary evaluates an application to participate in this 
program for master's and doctoral level fellowships on the basis of the 
criteria in Sec. 535.21.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.
    (d) After all the applications have been evaluated under 
Sec. 535.21, the Secretary rank-orders the applications.
    (e) The Secretary then determines the maximum number of fellowships 
by language or other curriculum group that may be awarded at each IHE--
    (1) Based on the IHE's capacity to provide graduate training in the 
areas proposed for fellowship recipients; and
    (2) To the extent feasible, in proportion to the need for 
individuals with master's and doctoral degrees in the areas of training 
proposed by the IHE.

(Authority: 20 U.S.C. 7475)



Sec. 535.21  What selection criteria does the Secretary use?

    The Secretary uses the following selection criteria to evaluate an 
application for participation in this program for master's and doctoral 
level fellowships:
    (a) Institutional commitment. (25 points) The Secretary reviews each 
application to determine the quality of the institution's graduate 
program of study, including consideration of--
    (1) The extent to which the program has been adopted as a permanent 
graduate program of study;
    (2) The organizational placement of the program of study;
    (3) The staff and resources that the IHE has committed to the 
program;
    (4) The IHE's demonstrated competence and experience in programs and 
activities such as those authorized under the Act;
    (5) The IHE's demonstrated experience in assisting fellowship 
recipients to find employment in the field of bilingual education; and
    (6) If the IHE has carried out a previous project with funds under 
title VII of the Act, the applicant's record of accomplishments under 
that previous project.
    (b) Quality of the graduate academic program. (20 points) The 
Secretary reviews each application to determine the quality of the 
graduate program of study for which approval is sought, including--
    (1) The course offerings and academic requirements for the graduate 
program;
    (2) The availability of related course offerings through other 
schools or departments within the IHE;
    (3) The IHE's focus and capacity for research;
    (4) The quality of the standards used to determine satisfactory 
progress in, and completion of, the program;
    (5) The extent to which the program of study prepares Fellows to 
improve the academic achievement of LEP children and youth; and
    (6) In the case of a program designed to prepare trainers of 
educational personnel for programs of bilingual instruction, the extent 
to which the program incorporates the use of English and another 
language to develop the Fellows' competencies as trainers of bilingual 
educational personnel.
    (c) Quality of key faculty members. (20 points) The Secretary 
reviews each application to determine the qualifications of the key 
faculty to be used in the program of study, including the extent to 
which their background, education, research interests, and relevant 
experience qualify them to plan and implement a successful program of 
high academic quality related to instruction of LEP children and youth.
    (d) Field-based experience. (15 points) The Secretary reviews each 
application to determine the extent to which the program of study 
provides field-based experience through arrangements with LEAs, SEAs, or 
persons or organizations with expertise in programs for LEP children and 
youth.
    (e) Evidence of local or national need. (10 points) The Secretary 
reviews each application to determine the need for

[[Page 166]]

more individuals trained, at the graduate level, in the area of study 
proposed by the applicant.
    (f) Recruitment plan. (10 points) The Secretary reviews each 
application to determine the quality of the applicant's plan for 
recruitment and nomination of students.

(Approved by the Office of Management and Budget under control number 
1885-0001)

(Authority: 20 U.S.C. 7475 and 7547)



Sec. 535.22  How does the Secretary evaluate an application to participate 
in this program for post-doctoral study fellowships?

    (a) The Secretary evaluates an application to participate in this 
program for post-doctoral study fellowships on the basis of the criteria 
in Sec. 535.23.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.
    (d) After all the applications have been evaluated according to the 
selection criteria, the Secretary rank-orders the applications.
    (e) The Secretary designates the maximum number of fellowships that 
may be awarded at each IHE based on the factors in Sec. 535.23 (a), (c), 
and (d).

(Authority: 20 U.S.C. 7475)



Sec. 535.23  What selection criteria does the Secretary use?

    The Secretary uses the following selection criteria to evaluate an 
application for participation in this program for post-doctoral level 
fellowships:
    (a) Institutional commitment. (35 points) The Secretary reviews each 
application to determine the overall strength of the applicant's 
commitment to meeting the educational needs of LEP children and youth, 
including consideration of--
    (1) The IHE's demonstrated competence and experience in programs and 
research activities such as those authorized under subpart 2 of part A 
of title VII of the Act;
    (2) The extent to which the IHE's research environment is supportive 
of the success of post-doctoral Fellows in their research;
    (3) The IHE's demonstrated experience in assisting fellowship 
recipients to find employment in the field of bilingual education;
    (4) The IHE's procedures for the dissemination and use of research 
findings; and
    (5) If the IHE has carried out a previous project with funds under 
title VII of the Act, the applicant's record of accomplishments under 
that previous project.
    (b) Proposed areas of research. (35 points) The Secretary reviews 
each application to determine to what extent--
    (1) There is a clear description of the areas of research proposed 
to be undertaken by the post-doctoral Fellows;
    (2) The research to be undertaken by the post-doctoral Fellows is 
likely to produce new and useful information;
    (3) The areas of proposed research relate to the educational needs 
of LEP children and youth and of the educational personnel that serve 
that population;
    (4) The outcomes of the research and study are likely to benefit the 
defined target population by improving the academic achievement of LEP 
children and youth;
    (5) The data collection and data analysis plans or research plans 
and designs are reasonable and sound; and
    (6) A project period for completion of the study, consistent with 
period of availability of post-doctoral fellowships in Sec. 535.42, is 
specified.
    (c) Quality of key faculty members. (20 points) The Secretary 
reviews each application to determine the qualifications of the key 
faculty likely to assist, guide, or mentor post-doctoral Fellows, 
including the extent to which the faculty's background, education, 
research interests, and relevant experiences qualify them to support 
high-quality research and study performed by post-doctoral Fellows.
    (d) Adequacy of resources. (10 points) The Secretary reviews each 
application to determine to what extent--
    (1) The facilities planned for use are adequate;
    (2) The equipment and supplies planned for use are adequate; and

[[Page 167]]

    (3) The commitment of the applicant to provide administrative and 
other necessary support is evident.

(Approved by the Office of Management and Budget under control number 
1885-0001)

(Authority: 20 U.S.C. 7475)



        Subpart D--How Does an Individual Apply for a Fellowship?



Sec. 535.30  How does an individual apply for a fellowship?

    (a) An individual shall submit an application for a fellowship to an 
IHE that has been approved for participation under Sec. 535.20 or 
Sec. 535.22.
    (b) Each participating IHE may establish procedures for receipt of 
applications from individuals.

(Authority: 20 U.S.C. 7475)



                  Subpart E--How Are Fellows Selected?



Sec. 535.40  How does the Secretary select Fellows?

    (a)(1) A participating IHE shall submit names of nominees to the 
Secretary.
    (2) If the IHE has more than one nominee, the IHE shall rank the 
nominees in order of preference to receive a fellowship.
    (b) The Secretary selects new Fellows according to the rank order 
prepared by the IHE, subject to the maximum number of fellowships 
designated for that IHE under Secs. 535.20 and 535.22.

(Approved by the Office of Management and Budget under control number 
1885-0001)

(Authority: 20 U.S.C. 7475)



Sec. 535.41  Who may an IHE nominate for fellowships?

    (a) In nominating individuals to receive master's and doctoral level 
fellowships, an IHE shall nominate only individuals who--
    (1) Have been accepted for enrollment as full-time students in an 
approved course of study offered by the IHE;
    (2) Have an excellent academic record;
    (3) Are proficient in English and, if applicable, another language;
    (4) Have experience in providing services to, teaching in, or 
administering programs for LEP children and youth;
    (5) Are planning to enter or return to a career in service to LEP 
children and youth after completion of their studies;
    (6) Are eligible to receive assistance under 34 CFR 75.60 and 75.61; 
and
    (7)(i) Are citizens, nationals, or permanent residents of the United 
States;
    (ii) Are in the United States for other than temporary purposes and 
can provide evidence from the Immigration and Naturalization Service of 
their intent to become permanent residents; or
    (iii) Are permanent residents of the Commonwealth of Puerto Rico, 
Guam, American Samoa, the Virgin Islands, the Commonwealth of the 
Northern Mariana Islands, the Republic of the Marshall Islands, the 
Federated States of Micronesia, or the Republic of Palau.
    (b) In nominating individuals to receive post-doctoral fellowships, 
an IHE shall nominate only individuals who--
    (1) Have doctoral degrees in relevant disciplines that qualify those 
individuals to conduct independent research on educational programs and 
policies for LEP children and youth; and
    (2) Meet the criteria in paragraphs (a)(3) through (7) of this 
section.

(Authority: 20 U.S.C. 7475)



Sec. 535.42  What is the period of a fellowship?

    (a) Except as provided in paragraph (b) of this section, the 
Secretary may award a fellowship--
    (1) For a maximum of two one-year periods to an individual who 
maintains satisfactory progress in a master's or post-doctoral program 
of study; and
    (2) For a maximum of three one-year periods to an individual who 
maintains satisfactory progress in a doctoral program of study.
    (b) Subject to the availability of funds, and if an IHE provides 
adequate justification, the Secretary may extend a fellowship beyond the 
maximum period to a master's or doctoral Fellow who, for circumstances 
beyond the Fellow's control, is unable to complete the program of study 
in that period.
    (c) A fellowship recipient who seeks assistance beyond the initial 
one-year

[[Page 168]]

period must be renominated by the participating IHE.
    (d) Prior to approving nominations of new Fellows, the Secretary may 
give preference to fellowship recipients in their second or third year 
who maintain satisfactory progress in the program of study.

(Authority: 20 U.S.C. 7475)



           Subpart F--What Conditions Must Be Met by Fellows?



Sec. 535.50  What is the service requirement for a fellowship?

    (a) Upon selection for a fellowship, a Fellow shall sign an 
agreement, provided by the Secretary, to work for a period equivalent to 
the period of time that the Fellow receives assistance under the 
fellowship in an activity--
    (1) (i) Related to the program; or
    (ii) Authorized under part A of title VII of the Act; and
    (2) Approved by the Secretary.
    (b) A fellowship recipient shall begin working in an activity 
specified in paragraph (a) of this section within six months of the date 
from which--
    (1) The master's or doctoral recipient ceases to be enrolled at an 
IHE as a full-time student; or
    (2) The post-doctoral recipient completes the project period in the 
approved program of study.

(Approved by the Office of Management and Budget under control number 
1885-0001)

(Authority: 20 U.S.C. 7475(b))



Sec. 535.51  What are the requirements for repayment of the fellowship?

    (a) A fellowship recipient who does not work in an activity 
described in Sec. 535.50 shall repay the full amount of the fellowship.
    (b) The Secretary prorates the amount a fellowship recipient is 
required to repay based on the length of time the fellowship recipient 
worked in an authorized activity compared with the length of time the 
fellowship recipient received assistance.

(Authority: 20 U.S.C. 7475(b))



Sec. 535.52  What is the repayment schedule?

    (a) A fellowship recipient required to repay all or part of the 
amount of the fellowship shall begin repayments--
    (1) Within six months of the date the fellowship recipient meets the 
criteria in Sec. 535.50(b)(1) or (2); or
    (2) On a date and in a manner established by the Secretary, if the 
fellowship recipient ceases to work in an authorized activity.
    (b) A fellowship recipient must repay the required amount, including 
interest, in a lump sum or installment payments approved by the 
Secretary.
    (c) The repayment period may be extended if the Secretary grants a 
deferment under Sec. 535.54.

(Authority: 20 U.S.C. 7475(b))



Sec. 535.53  What is the rule regarding interest?

    (a) In accordance with 31 U.S.C. 3717, the Secretary charges a 
fellowship recipient interest on the unpaid balance that the fellowship 
recipient owes.
    (b) No interest is charged for the period of time--
    (1) That precedes the date on which the fellowship recipient is 
required to begin repayment; or
    (2) During which repayment has been deferred under Sec. 535.54.

(Authority: 20 U.S.C. 7475(b))



Sec. 535.54  Under what circumstances is repayment deferred?

    The Secretary may defer repayment if the fellowship recipient--
    (a) Suffers from a serious physical or mental disability that 
prevents or substantially impairs the fellowship recipient's 
employability in an activity described in Sec. 535.50;
    (b) Demonstrates to the Secretary's satisfaction that the fellowship 
recipient is conscientiously seeking but is unable to secure employment 
in an activity described in Sec. 535.50;
    (c) In the case of a master's or doctoral fellowship recipient, re-
enrolls as a full-time student at an IHE;
    (d) Is a member of the Armed Forces of the United States on active 
duty;
    (e) Is in service as a volunteer under the Peace Corps Act; or

[[Page 169]]

    (f) Demonstrates to the Secretary's satisfaction that the existence 
of extraordinary circumstances prevents the fellowship recipient from 
making a scheduled payment.

(Authority: 20 U.S.C. 7475(b))



Sec. 535.55  What is the length of the deferment of repayment?

    (a) Unless the Secretary determines otherwise, a fellowship 
recipient shall apply to renew a deferment on a yearly basis.
    (b) Deferments for military or Peace Corps service may not exceed 
three years.

(Authority: 20 U.S.C. 7475(b))



Sec. 535.56  Under what circumstances is repayment waived?

    The Secretary may waive repayment if the fellowship recipient 
demonstrates the existence of extraordinary circumstances that justify a 
waiver.

(Authority: 20 U.S.C. 7475(b)(2))



Sec. 535.57  How shall the fellowship recipient account for the obligation?

    (a) Within six months of the date a fellowship recipient meets the 
criteria in Sec. 535.50(b)(1) or (2), the fellowship recipient shall 
submit to the Secretary one of the following items:
    (1) A description of the activity in which the fellowship recipient 
is employed.
    (2) Repayment required under Secs. 535.51 and 535.52.
    (3) A request to repay the obligation in installments.
    (4) A request for a deferment or waiver as described in Secs. 535.54 
and 535.56 accompanied by a statetment of justification.
    (b) A fellowship recipient who submits a description of employment 
under paragraph (a)(1) of this section shall notify the Secretary on a 
yearly basis of the period of time during the preceding year that the 
fellowship recipient was employed in the activity.
    (c) A fellowship recipient shall inform the Secretary of any change 
in employment status.
    (d) A fellowship recipient shall inform the Secretary of any change 
of address.
    (e)(1) A fellowship recipient's failure to timely satisfy the 
requirements in paragraphs (b) through (d) of this section results in 
the fellowship recipient being in non-compliance or default status 
subject to collection action.
    (2) Interest and costs of collection may be collected in accordance 
with 31 U.S.C. 3717 and 34 CFR part 30.

(Approved by the Office of Management and Budget under control number 
1885-0001)

(Authority: 20 U.S.C. 7475(b))

[[Page 171]]



             CHAPTER VI--OFFICE OF POSTSECONDARY EDUCATION,






                         DEPARTMENT OF EDUCATION




  --------------------------------------------------------------------
Part                                                                Page
600             Institutional eligibility under the Higher 
                    Education Act of 1965, as amended.......         173
601

[Reserved]

602             The Secretary's recognition of accrediting 
                    agencies................................         197
603             Secretary's recognition procedures for State 
                    agencies................................         214
604             Federal-State relationship agreements.......         217
606             Developing Hispanic-serving institutions 
                    program.................................         218
607             Strengthening institutions program..........         230
608             Strengthening historically Black colleges 
                    and universities program................         243
609             Strengthening historically Black graduate 
                    institutions program....................         251
611             Teacher quality enhancement grants program..         255
614             Preparing tomorrow's teachers to use 
                    technology..............................         270
628             Endowment challenge grant program...........         272
636             Urban community service program.............         280
637             Minority science and engineering improvement 
                    program.................................         285
642             Training program for Federal TRIO programs..         290
643             Talent search...............................         295
644             Educational opportunity centers.............         301
645             Upward bound program........................         307
646             Student support services program............         317
647             Ronald E. McNair Postbaccalaureate 
                    Achievement Program.....................         323
648             Graduate assistance in areas of national 
                    need....................................         329
649             Patricia Roberts Harris fellowship program..         340
650             Jacob K. Javits fellowship program..........         353
654             Robert C. Byrd honors scholarship program...         359
655             International education programs--general 
                    provisions..............................         364

[[Page 172]]

656             National resource centers program for 
                    foreign language and area studies or 
                    foreign language and international 
                    studies.................................         366
657             Foreign language and area studies 
                    fellowships program.....................         374
658             Undergraduate international studies and 
                    foreign language program................         379
660             The international research and studies 
                    program.................................         383
661             Business and international education program         387
662             Fulbright-Hays doctoral dissertation 
                    research abroad fellowship program......         390
663             Fulbright-Hays faculty research abroad 
                    fellowship program......................         394
664             Fulbright-Hays group projects abroad program         398
668             Student assistance general provisions.......         403
669             Language resource centers program...........         566
673             General provisions for the Federal Perkins 
                    loan program, Federal work-study 
                    program, and Federal supplemental 
                    educational opportunity grant program...         568
674             Federal Perkins loan program................         573
675             Federal work-study programs.................         623
676             Federal supplemental educational opportunity 
                    grant program...........................         636
682             Federal family education loan (FFEL) program         640
685             William D. Ford Federal direct loan program.         827
690             Federal Pell grant program..................         877
692             Leveraging educational assistance 
                    partnership program.....................         893
693             National early intervention scholarship and 
                    partnership program.....................         899
694             Gaining Early Awareness and Readiness for 
                    Undergraduate Programs (GEAR UP)........         915

[[Page 173]]



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




                           Subpart A--General

Sec.
600.1  Scope.
600.2  Definitions.
600.3  [Reserved]
600.4  Institution of higher education.
600.5  Proprietary institution of higher education.
600.6  Postsecondary vocational institution.
600.7  Conditions of institutional ineligibility.
600.8  Treatment of a branch campus.
600.9  [Reserved]
600.10  Date, extent, duration, and consequence of eligibility.
600.11  Special rules regarding institutional accreditation or 
          preaccreditation.

           Subpart B--Procedures for Establishing Eligibility

600.20  Application procedures for establishing, reestablishing, 
          maintaining, or expanding institutional eligibility and 
          certification.
600.21  Updating application information.

                   Subpart C--Maintaining Eligibility

600.30  [Reserved]
600.31  Change in ownership resulting in a change in control for private 
          nonprofit, private for-profit and public institutions.
600.32  Eligibility of additional locations.

                     Subpart D--Loss of Eligibility

600.40  Loss of eligibility.
600.41  Termination and emergency action proceedings.

 Subpart E--Eligibility of Foreign Institutions To Apply To Participate 
          in the Federal Family Education Loan (FFEL) Programs

600.51  Purpose and scope.
600.52  Definitions.
600.53  Requesting an eligibility determination.
600.54  Criteria for determining whether a foreign institution is 
          eligible to apply to participate in the FFEL programs.
600.55  Additional criteria for determining whether a foreign graduate 
          medical school is eligible to apply to participate in the FFEL 
          programs.
600.56  Additional criteria for determining whether a foreign veterinary 
          school is eligible to apply to participate in the FFEL 
          programs.
600.57  Duration of eligibility determination.

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

    Source: 53 FR 11210, Apr. 5, 1988, unless otherwise noted.



                           Subpart A--General

    Source: 59 FR 22336, Apr. 29, 1994, unless otherwise noted.



Sec. 600.1  Scope.

    This part establishes the rules and procedures that the Secretary 
uses to determine whether an educational institution qualifies in whole 
or in part as an eligible institution of higher education under the 
Higher Education Act of 1965, as amended (HEA). An eligible institution 
of higher education may apply to participate in programs authorized by 
the HEA (HEA programs).

(Authority: 20 U.S.C. 1088, 1094, 1099b, 1099c, and 1141)



Sec. 600.2  Definitions.

    The following definitions apply to terms used in this part:
    Accredited: The status of public recognition that a nationally 
recognized accrediting agency grants to an institution or educational 
program that meets the agency's established requirements.
    Award year: The period of time from July 1 of one year through June 
30 of the following year.
    Branch Campus: A location of an institution that is geographically 
apart and independent of the main campus of the institution. The 
Secretary considers a location of an institution to be independent of 
the main campus if the location--
    (1) Is permanent in nature;
    (2) Offers courses in educational programs leading to a degree, 
certificate, or other recognized educational credential;
    (3) Has its own faculty and administrative or supervisory 
organization; and
    (4) Has its own budgetary and hiring authority.
    Clock hour: A period of time consisting of--

[[Page 174]]

    (1) A 50- to 60-minute class, lecture, or recitation in a 60-minute 
period;
    (2) A 50- to 60-minute faculty-supervised laboratory, shop training, 
or internship in a 60-minute period; or
    (3) Sixty minutes of preparation in a correspondence course.
    Correspondence course: (1) A ``home study'' course provided by an 
institution under which the institution provides instructional 
materials, including examinations on the materials, to students who are 
not physically attending classes at the institution. When students 
complete a portion of the instructional materials, the students take the 
examinations that relate to that portion of the materials, and return 
the examinations to the institution for grading.
    (2) A home study course that provides instruction in whole or in 
part through the use of video cassettes or video discs in an award year 
is a correspondence course unless the institution also delivers the 
instruction on the cassette or disc to students physically attending 
classes at the institution during the same award year.
    (3) A course at an institution that may otherwise satisfy the 
definition of a ``telecommunications course'' is a correspondence course 
if the sum of telecommunications and other correspondence courses 
offered by that institution equals or exceeds 50 percent of the total 
courses offered at that institution.
    (4) If a course is part correspondence and part residential 
training, the Secretary considers the course to be a correspondence 
course.
    Educational program: A legally authorized postsecondary program of 
organized instruction or study that leads to an academic, professional, 
or vocational degree, or certificate, or other recognized educational 
credential. However, the Secretary does not consider that an institution 
provides an educational program if the institution does not provide 
instruction itself (including a course of independent study), but merely 
gives credit for one or more of the following: instruction provided by 
other institutions or schools; examinations provided by agencies or 
organizations; or other accomplishments such as ``life experience.''
    Eligible institution: An institution that--
    (1) Qualifies as--
    (i) An institution of higher education, as defined in Sec. 600.4;
    (ii) A proprietary institution of higher education, as defined in 
Sec. 600.5; or
    (iii) A postsecondary vocational institution, as defined in 
Sec. 600.6; and
    (2) Meets all the other applicable provisions of this part.
    Federal Family Education Loan (FFEL) Programs: The loan programs 
(formerly called the Guaranteed Student Loan (GSL) programs) authorized 
by title IV-B of the HEA, including the Federal Stafford Loan, Federal 
PLUS, Federal Supplemental Loans for Students (Federal SLS), and Federal 
Consolidation Loan programs, in which lenders use their own funds to 
make loans to enable students or their parents to pay the costs of the 
students' attendance at eligible institutions. The Federal Stafford 
Loan, Federal PLUS, Federal SLS, and Federal Consolidation Loan programs 
are defined in 34 CFR part 668.
    Incarcerated student: A student who is serving a criminal sentence 
in a Federal, State, or local penitentiary, prison, jail, reformatory, 
work farm, or other similar correctional institution. A student is not 
considered incarcerated if that student is in a half-way house or home 
detention or is sentenced to serve only weekends.
    Legally authorized: The legal status granted to an institution 
through a charter, license, or other written document issued by the 
appropriate agency or official of the State in which the institution is 
physically located.
    Nationally recognized accrediting agency: An agency or association 
that the Secretary recognizes as a reliable authority to determine the 
quality of education or training offered by an institution or a program 
offered by an institution. The Secretary recognizes these agencies and 
associations under the provisions of 34 CFR part 602 and publishes a 
list of the recognized agencies in the Federal Register.
    Nonprofit institution: An institution that--
    (1) Is owned and operated by one or more nonprofit corporations or 
associations, no part of the net earnings of

[[Page 175]]

which benefits any private shareholder or individual;
    (2) Is legally authorized to operate as a nonprofit organization by 
each State in which it is physically located; and
    (3) Is determined by the U.S. Internal Revenue Service to be an 
organization to which contributions are tax-deductible in accordance 
with section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 
501(c)(3)).
    One-academic-year training program: An educational program that is 
at least one academic year as defined under 34 CFR 668.2.
    Preaccredited: A status that a nationally recognized accrediting 
agency, recognized by the Secretary to grant that status, has accorded 
an unaccredited public or private nonprofit institution that is 
progressing toward accreditation within a reasonable period of time.
    Recognized equivalent of a high school diploma: The following are 
the equivalent of a high school diploma--
    (1) A General Education Development Certificate (GED);
    (2) A State certificate received by a student after the student has 
passed a State-authorized examination that the State recognizes as the 
equivalent of a high school diploma;
    (3) An academic transcript of a student who has successfully 
completed at least a two-year program that is acceptable for full credit 
toward a bachelor's degree; or
    (4) For a person who is seeking enrollment in an educational program 
that leads to at least an associate degree or its equivalent and who has 
not completed high school but who excelled academically in high school, 
documentation that the student excelled academically in high school and 
has met the formalized, written policies of the institution for 
admitting such students.
    Recognized occupation: An occupation that is--
    (1) Listed in an ``occupational division'' of the latest edition of 
the Dictionary of Occupational Titles, published by the U.S. Department 
of Labor; or
    (2) Determined by the Secretary in consultation with the Secretary 
of Labor to be a recognized occupation.
    Regular student: A person who is enrolled or accepted for enrollment 
at an institution for the purpose of obtaining a degree, certificate, or 
other recognized educational credential offered by that institution.
    Secretary: The Secretary of the Department of Education or an 
official or employee of the Department of Education acting for the 
Secretary under a delegation of authority.
    State: A State of the Union, American Samoa, the Commonwealth of 
Puerto Rico, the District of Columbia, Guam, the Virgin Islands, the 
Commonwealth of the Northern Mariana Islands, the Republic of the 
Marshall Islands, the Federated States of Micronesia, and the Republic 
of Palau. The latter three are also known as the Freely Associated 
States.
    Telecommunications course: A course offered in an award year 
principally through the use of television, audio, or computer 
transmission, including open broadcast, closed circuit, cable, 
microwave, or satellite, audio conferencing, computer conferencing, or 
video cassettes or discs. The term does not include a course that is 
delivered using video cassettes or disc recordings unless that course is 
delivered to students physically attending classes at an institution 
providing the course during the same award year. If the course does not 
qualify as a telecommunications course it is considered to be a 
correspondence course, as provided for in paragraph (c) of the 
definition of correspondence course in this section.
    Title IV, HEA program: Any of the student financial assistance 
programs listed in 34 CFR 668.1(c).

(Authority: 20 U.S.C. 1071 et seq., 1078-2, 1088, 1099b, 1099c, and 1141 
and 26 U.S.C. 501(c).)

[59 FR 22336, Apr. 29, 1994, as amended at 63 FR 40622, July 29, 1998; 
64 FR 58615, Oct. 29, 1999]



Sec. 600.3  [Reserved]



Sec. 600.4  Institution of higher education.

    (a) An institution of higher education is a public or private 
nonprofit educational institution that--
    (1) Is in a State, or for purposes of the Federal Pell Grant, 
Federal Supplemental Educational Opportunity

[[Page 176]]

Grant, Federal Work-Study, and Federal TRIO programs may also be located 
in the Federated States of Micronesia or the Marshall Islands;
    (2) Admits as regular students only persons who--
    (i) Have a high school diploma;
    (ii) Have the recognized equivalent of a high school diploma; or
    (iii) Are beyond the age of compulsory school attendance in the 
State in which the institution is physically located;
    (3) Is legally authorized to provide an educational program beyond 
secondary education in the State in which the institution is physically 
located;
    (4) Provides an educational program--
    (i) For which it awards an associate, baccalaureate, graduate, or 
professional degree;
    (ii) That is at least a two-academic-year program acceptable for 
full credit toward a baccalaureate degree; or
    (iii) That is at least a one-academic-year training program that 
leads to a certificate, degree, or other recognized educational 
credential and prepares students for gainful employment in a recognized 
occupation; and
    (5) Is--
    (i) Accredited or preaccredited; or
    (ii) Approved by a State agency listed in the Federal Register in 
accordance with 34 CFR part 603, if the institution is a public 
postsecondary vocational educational institution that seeks to 
participate only in Federal student assistance programs.
    (b) An institution is physically located in a State if it has a 
campus or other instructional site in that State.
    (c) The Secretary does not recognize the accreditation or 
preaccreditation of an institution unless the institution agrees to 
submit any dispute involving the final denial, withdrawal, or 
termination of accreditation to initial arbitration before initiating 
any other legal action.

(Authority: 20 U.S.C. 1094, 1099b, and 1141(a))

[59 FR 22336, Apr. 29, 1994, as amended at 64 FR 58615, Oct. 29, 1999



Sec. 600.5  Proprietary institution of higher education.

    (a) A proprietary institution of higher education is an educational 
institution that--
    (1) Is not a public or private nonprofit educational institution;
    (2) Is in a State;
    (3) Admits as regular students only persons who--
    (i) Have a high school diploma;
    (ii) Have the recognized equivalent of a high school diploma; or
    (iii) Are beyond the age of compulsory school attendance in the 
State in which the institution is physically located;
    (4) Is legally authorized to provide an educational program beyond 
secondary education in the State in which the institution is physically 
located;
    (5) Provides an eligible program of training, as defined in 34 CFR 
668.8, to prepare students for gainful employment in a recognized 
occupation;
    (6) Is accredited;
    (7) Has been in existence for at least two years; and
    (8) Has no more than 90 percent of its revenues derived from title 
IV, HEA program funds, as determined under paragraph (d) of this 
section.
    (b)(1) The Secretary considers an institution to have been in 
existence for two years only if--
    (i) The institution has been legally authorized to provide, and has 
provided, a continuous educational program to prepare students for 
gainful employment in a recognized occupation during the 24 months 
preceding the date of its eligibility application; and
    (ii) The educational program that the institution provides on the 
date of its eligibility application is substantially the same in length 
and subject matter as the program that the institution provided during 
the 24 months preceding the date of its eligibility application.
    (2)(i) The Secretary considers an institution to have provided a 
continuous educational program during the 24 months preceding the date 
of its eligibility application even if the institution did not provide 
that program during normal vacation periods, or periods

[[Page 177]]

when the institution temporarily closed due to a natural disaster that 
directly affected the institution or the institution's students.
    (ii) The Secretary considers an institution to have satisfied the 
provisions of paragraph (b)(1)(ii) of this section if the institution 
substantially changed the subject matter of the educational program it 
provided during that 24-month period because of new technology or the 
requirements of other Federal agencies.
    (3) In determining whether an applicant institution satisfies the 
requirement contained in paragraph (b)(1) of this section, the 
Secretary--
    (i) Counts any period during which the applicant institution has 
been certified as a branch campus; and
    (ii) Except as provided in paragraph (b)(3)(i) of this section, does 
not count any period during which the applicant institution was a part 
of another eligible proprietary institution of higher education, 
postsecondary vocational institution, or vocational school.
    (c) An institution is physically located in a State if it has a 
campus or other instructional site in that State.
    (d)(1) An institution satisfies the requirement contained in 
paragraph (a)(8) of this section by examining its revenues under the 
following formula for its latest complete fiscal year:

Title IV, HEA program funds the institution used to satisfy its 
students' tuition, fees, and other institutional charges to students
The sum of revenues including title IV, HEA program funds generated by 
the institution from: tuition, fees, and other institutional charges for 
students enrolled in eligible programs as defined in 34 CFR 668.8; and 
activities conducted by the institution, to the extent not included in 
tuition, fees, and other institutional charges, that are necessary for 
the education or training of its students who are enrolled in those 
eligible programs.

    (2) An institution must use the cash basis of accounting when 
calculating the amount of title IV, HEA program funds in the numerator 
and the total amount of revenue generated by the institution in the 
denominator of the fraction contained in paragraph (d)(1) of this 
section.
    (3) Under the cash basis of accounting--
    (i) In calculating the amount of revenue generated by the 
institution from institutional loans, the institution must include only 
the amount of loan repayments received by the institution during the 
fiscal year; and
    (ii) In calculating the amount of revenue generated by the 
institution from institutional scholarships, the institution must 
include only the amount of funds it disbursed during the fiscal year 
from an established restricted account and only to the extent that the 
funds in that account represent designated funds from an outside source 
or income earned on those funds.
    (e) With regard to the formula contained in paragraph(d)(1) of this 
section--
    (1) The institution may not include as title IV, HEA program funds 
in the numerator nor as revenue generated by the institution in the 
denominator--
    (i) The amount of funds it received under the Federal Work-Study 
(FWS) Program, unless the institution used those funds to pay a 
student's institutional charges in which case the FWS program funds used 
to pay those charges would be included in the numerator and denominator.
    (ii) The amount of funds it received under the Leveraging 
Educational Assistance Partnership (LEAP) Program. (The LEAP Program was 
formerly called the State Student Incentive Grant or SSIG Program.);
    (iii) The amount of institutional funds it used to match title IV, 
HEA program funds;
    (iv) The amount of title IV, HEA program funds that must be refunded 
or returned under Sec. 668.22; or
    (v) The amount charged for books, supplies, and equipment unless the 
institution includes that amount as tuition, fees, or other 
institutional charges.
    (2) In determining the amount of title IV, HEA program funds 
received by the institution under the cash basis of accounting, except 
as provided in paragraph (e)(3) of this section, the institution must 
presume that any title IV, HEA program funds disbursed or delivered to 
or on behalf of a student will be used to pay the student's tuition, 
fees, or other institutional

[[Page 178]]

charges, regardless of whether the institution credits those funds to 
the student's account or pays those funds directly to the student, and 
therefore must include those funds in the numerator and denominator.
    (3) In paragraph (e)(2) of this section, the institution may not 
presume that title IV, HEA program funds were used to pay tuition, fees, 
and other institutional charges to the extent that those charges were 
satisfied by--
    (i) Grant funds provided by non-Federal public agencies, or private 
sources independent of the institution;
    (ii) Funds provided under a contractual arrangement described in 
Sec. 600.7(d), or
    (iii) Funds provided by State prepaid tuition plans.
    (4) With regard to the denominator, revenue generated by the 
institution from activities it conducts, that are necessary for its 
students' education or training, includes only revenue from those 
activities that--
    (i) Are conducted on campus or at a facility under the control of 
the institution;
    (ii) Are performed under the supervision of a member of the 
institution's faculty; and
    (iii) Are required to be performed by all students in a specific 
educational program at the institution.
    (f) An institution must notify the Secretary within 90 days 
following the end of the fiscal year used in paragraph (d)(1) of this 
section if it fails to satisfy the requirement contained in paragraph 
(a)(8) of this section.
    (g) If an institution loses its eligibility because it failed to 
satisfy the requirement contained in paragraph (a)(8) of this section, 
to regain its eligibility it must demonstrate compliance with all 
eligibility requirements for at least the fiscal year following the 
fiscal year used in paragraph (d)(1) of this section.
    (h) The Secretary does not recognize the accreditation of an 
institution unless the institution agrees to submit any dispute 
involving the final denial, withdrawal, or termination of accreditation 
to initial arbitration before initiating any other legal action.

(Approved by the Office of Management and Budget under control number 
1840-0098)

(Authority: 20 U.S.C. 1088)

[59 FR 22336, Apr. 29, 1994; 59 FR 32082, June 22, 1994, as amended at 
59 FR 47801, Sept. 19, 1994; 59 FR 61177, Nov. 29, 1994; 61 FR 29901, 
June 12, 1996; 61 FR 60569, Nov. 29, 1996; 64 FR 58615, Oct. 29, 1999]



Sec. 600.6  Postsecondary vocational institution.

    (a) A postsecondary vocational institution is a public or private 
nonprofit educational institution that--
    (1) Is in a State;
    (2) Admits as regular students only persons who--
    (i) Have a high school diploma;
    (ii) Have the recognized equivalent of a high school diploma; or
    (iii) Are beyond the age of compulsory school attendance in the 
State in which the institution is physically located;
    (3) Is legally authorized to provide an educational program beyond 
secondary education in the State in which the institution is physically 
located;
    (4) Provides an eligible program of training, as defined in 34 CFR 
668.8, to prepare students for gainful employment in a recognized 
occupation;
    (5) Is--
    (i) Accredited or preaccredited; or
    (ii) Approved by a State agency listed in the Federal Register in 
accordance with 34 CFR part 603, if the institution is a public 
postsecondary vocational educational institution that seeks to 
participate only in Federal assistance programs; and
    (6) Has been in existence for at least two years.
    (b)(1) The Secretary considers an institution to have been in 
existence for two years only if--
    (i) The institution has been legally authorized to provide, and has 
provided, a continuous education or training program to prepare students 
for gainful employment in a recognized occupation during the 24 months 
preceding the date of its eligibility application; and
    (ii) The education or training program it provides on the date of 
its eligibility application is substantially the

[[Page 179]]

same in length and subject matter as the program it provided during the 
24 months preceding the date of its eligibility application.
    (2)(i) The Secretary considers an institution to have provided a 
continuous education or training program during the 24 months preceding 
the date of its eligibility application even if the institution did not 
provide that program during normal vacation periods, or periods when the 
institution temporarily closed due to a natural disaster that affected 
the institution or the institution's students.
    (ii) The Secretary considers an institution to have satisfied the 
provisions of paragraph (b)(1)(ii) of this section if the institution 
substantially changed the subject matter of the educational program it 
provided during that 24-month period because of new technology or the 
requirements of other Federal agencies.
    (3) In determining whether an applicant institution satisfies the 
requirement contained in paragraph (b)(1) of this section, the 
Secretary--
    (i) Counts any period during which the applicant institution 
qualified as an eligible institution of higher education;
    (ii) Counts any period during which the applicant institution was 
part of another eligible institution of higher education, provided that 
the applicant institution continues to be part of an eligible 
institution of higher education;
    (iii) Counts any period during which the applicant institution has 
been certified as a branch campus; and
    (iv) Except as provided in paragraph (b)(3)(iii) of this section, 
does not count any period during which the applicant institution was a 
part of another eligible proprietary institution of higher education or 
postsecondary vocational institution.
    (c) An institution is physically located in a State or other 
instructional site if it has a campus or instructional site in that 
State.
    (d) The Secretary does not recognize the accreditation or 
preaccreditation of an institution unless the institution agrees to 
submit any dispute involving the final denial, withdrawal, or 
termination of accreditation to initial arbitration before initiating 
any other legal action.

(Authority: 20 U.S.C. 1088 and 1094(c)(3))

[59 FR 22336, Apr. 29, 1994, as amended at 64 FR 58616, Oct. 29, 1999]



Sec. 600.7  Conditions of institutional ineligibility.

    (a) General rule. For purposes of title IV of the HEA, an 
educational institution that otherwise satisfies the requirements 
contained in Secs. 600.4, 600.5, or 600.6 nevertheless does not qualify 
as an eligible institution under this part if--
    (1) For its latest complete award year--
    (i) More than 50 percent of the institution's courses were 
correspondence courses as calculated under paragraph (b) of this 
section;
    (ii) Fifty percent or more of the institution's regular enrolled 
students were enrolled in correspondence courses;
    (iii) More than twenty-five percent of the institution's regular 
enrolled students were incarcerated;
    (iv) More than fifty percent of its regular enrolled students had 
neither a high school diploma nor the recognized equivalent of a high 
school diploma, and the institution does not provide a four-year or two-
year educational program for which it awards a bachelor's degree or an 
associate degree, respectively;
    (2) The institution, or an affiliate of the institution that has the 
power, by contract or ownership interest, to direct or cause the 
direction of the management of policies of the institution--
    (A) Files for relief in bankruptcy, or
    (B) Has entered against it an order for relief in bankruptcy; or
    (3) The institution, its owner, or its chief executive officer--
    (i) Has pled guilty to, has pled nolo contendere to, or is found 
guilty of, a crime involving the acquisition, use, or expenditure of 
title IV, HEA program funds; or
    (ii) Has been judicially determined to have committed fraud 
involving title IV, HEA program funds.
    (b) Special provisions regarding correspondence courses and 
students--(1) Treatment of telecommunications courses. For purposes of 
paragraphs (a)(1) (i) and (ii) of this section, the Secretary

[[Page 180]]

considers a telecommunications course to be a correspondence course if 
the sum of telecommunications courses and other correspondence courses 
the institution provided during that award year equaled or exceeded 50 
percent of the total number of courses it provided during that year.
    (2) Calculating the number of courses. For purposes of paragraphs 
(a)(1) (i) and (ii) of this section--
    (i) A correspondence course may be a complete educational program 
offered by correspondence, or one course provided by correspondence in 
an on-campus (residential) educational program;
    (ii) A course must be considered as being offered once during an 
award year regardless of the number of times it is offered during that 
year; and
    (iii) A course that is offered both on campus and by correspondence 
must be considered two courses for the purpose of determining the total 
number of courses the institution provided during an award year.
    (3) Exceptions. (i) The provisions contained in paragraphs (a)(1) 
(i) and (ii) of this section do not apply to an institution that 
qualifies as a ``technical institute or vocational school used 
exclusively or principally for the provision of vocational education to 
individuals who have completed or left high school and who are available 
for study in preparation for entering the labor market'' under section 
521(4)(C) of the Carl D. Perkins Vocational and Applied Technology 
Education Act.
    (ii) The Secretary waives the limitation contained in paragraph 
(a)(1)(ii) of this section for an institution that offers a 2-year 
associate-degree or a 4-year bachelor's-degree program if the students 
enrolled in the institution's correspondence courses receive no more 
than 5 percent of the title IV, HEA program funds received by students 
at that institution.
    (c) Special provisions regarding incarcerated students--(1) 
Exception. The Secretary may waive the prohibition contained in 
paragraph (a)(1)(iii) of this section, upon the application of an 
institution, if the institution is a nonprofit institution that provides 
four-year or two-year educational programs for which it awards a 
bachelor's degree, an associate degree, or a postsecondary diploma.
    (2) Waiver for entire institution. If the nonprofit institution that 
applies for a waiver consists solely of four-year or two-year 
educational programs for which it awards a bachelor's degree, an 
associate degree, or a postsecondary diploma, the Secretary waives the 
prohibition contained in paragraph (a)(1)(iii) of this section for the 
entire institution.
    (3) Other waivers. If the nonprofit institution that applies for a 
waiver does not consist solely of four-year or two-year educational 
programs for which it awards a bachelor's degree, an associate degree, 
or a postsecondary diploma, the Secretary waives the prohibition 
contained in paragraph (a)(1)(iii) of this section--
    (i) For the four-year and two-year programs for which it awards a 
bachelor's degree, an associate degree or a postsecondary diploma; and
    (ii) For the other programs the institution provides, if the 
incarcerated regular students enrolled in those other programs have a 
completion rate of 50 percent or greater.
    (d) Special provision for a nonprofit institution if more than 50 
percent of its enrollment consists of students who do not have a high 
school diploma or its equivalent. (1) Subject to the provisions 
contained in paragraphs (d)(2) and (d)(3) of this section, the Secretary 
waives the limitation contained in paragraph (a)(1)(iv) of this section 
for a nonprofit institution if that institution demonstrates to the 
Secretary's satisfaction that it exceeds that limitation because it 
serves, through contracts with Federal, State, or local government 
agencies, significant numbers of students who do not have a high school 
diploma or its recognized equivalent.
    (2) Number of critical students. The Secretary grants a waiver under 
paragraph (d)(1) of this section only if no more than 40 percent of the 
institution's enrollment of regular students consists of students who--
    (i) Do not have a high school diploma or its equivalent; and
    (ii) Are not served through contracts described in paragraph (d)(3) 
of this section.

[[Page 181]]

    (3) Contracts with Federal, State, or local government agencies. For 
purposes of granting a waiver under paragraph (d)(1) of this section, 
the contracts referred to must be with Federal, State, or local 
government agencies for the purpose of providing job training to low-
income individuals who are in need of that training. An example of such 
a contract is a job training contract under the Job Training Partnership 
Act (JPTA).
    (e) Special provisions. (1) For purposes of paragraph (a)(1)of this 
section, when counting regular students, the institution shall--
    (i) Count each regular student without regard to the full-time or 
part-time nature of the student's attendance (i.e., ``head count'' 
rather than ``full-time equivalent'');
    (ii) Count a regular student once regardless of the number of times 
the student enrolls during an award year; and
    (iii) Determine the number of regular students who enrolled in the 
institution during the relevant award year by--
    (A) Calculating the number of regular students who enrolled during 
that award year; and
    (B) Excluding from the number of students in paragraph 
(e)(1)(iii)(A) of this section, the number of regular students who 
enrolled but subsequently withdrew or were expelled from the institution 
and were entitled to receive a 100 percent refund of their tuition and 
fees less any administrative fee that the institution is permitted to 
keep under its fair and equitable refund policy.
    (2) For the purpose of calculating a completion rate under paragraph 
(c)(3)(ii) of this section, the institution shall--
    (i) Determine the number of regular incarcerated students who 
enrolled in the other programs during the last completed award year;
    (ii) Exclude from the number of regular incarcerated students 
determined in paragraph (e)(2)(i) of this section, the number of those 
students who enrolled but subsequently withdrew or were expelled from 
the institution and were entitled to receive a 100 percent refund of 
their tuition and fees, less any administrative fee the institution is 
permitted to keep under the institution's fair and equitable refund 
policy;
    (iii) Exclude from the total obtained in paragraph (e)(2)(ii) of 
this section, the number of those regular incarcerated students who 
remained enrolled in the programs at the end of the applicable award 
year;
    (iv) From the total obtained in paragraph (e)(2)(iii) of this 
section, determine the number of regular incarcerated students who 
received a degree, certificate, or other recognized educational 
credential awarded for successfully completing the program during the 
applicable award year; and
    (v) Divide the total obtained in paragraph (e)(2)(iv) of this 
section by the total obtained in paragraph (e)(2)(iii) of this section 
and multiply by 100.
    (f)(1) If the Secretary grants a waiver to an institution under this 
section, the waiver extends indefinitely provided that the institution 
satisfies the waiver requirements in each award year.
    (2) If an institution fails to satisfy the waiver requirements for 
an award year, the institution becomes ineligible on June 30 of that 
award year.
    (g)(1) For purposes of paragraph (a)(1) of this section, and any 
applicable waiver or exception under this section, the institution shall 
substantiate the required calculations by having the certified public 
accountant who prepares its audited financial statement under 34 CFR 
668.15 or its title IV, HEA program compliance audit under 34 CFR 668.23 
report on the accuracy of those determinations.
    (2) The certified public accountant's report must be based on 
performing an ``attestation engagement'' in accordance with the American 
Institute of Certified Public Accountants (AICPA's) Statement on 
Standards for Attestation Engagements. The certified public accountant 
shall include that attestation report with or as part of the audit 
report referenced in paragraph (g)(1) of this section.
    (3) The certified public accountant's attestation report must 
indicate whether the institution's determinations regarding paragraph 
(a)(1) of this section and any relevant waiver or exception under 
paragraphs (b), (c), and

[[Page 182]]

(d) of this section are accurate; i.e., fairly presented in all material 
respects.
    (h) Notice to the Secretary. An institution shall notify the 
Secretary--
    (1) By July 31 following the end of an award year if it falls within 
one of the prohibitions contained in paragraph (a)(1)of this section, or 
fails to continue to satisfy a waiver or exception granted under this 
section; or
    (2) Within 10 days if it falls within one of the prohibitions 
contained in paragraphs (a)(2) or (a)(3) of this section.
    (i) Regaining eligibility. (1) If an institution loses its 
eligibility because of one of the prohibitions contained in paragraph 
(a)(1) of this section, to regain its eligibility, it must demonstrate--
    (i) Compliance with all eligibility requirements;
    (ii) That it did not fall within any of the prohibitions contained 
in paragraph (a)(1) of this section for at least one award year; and
    (iii) That it changed its administrative policies and practices to 
ensure that it will not fall within any of the prohibitions contained in 
paragraph (a)(1) of this section.
    (2) If an institution loses its eligibility because of one of the 
prohibitions contained in paragraphs (a)(2) and (a)(3) of this section, 
this loss is permanent. The institution's eligibility cannot be 
reinstated.

(Approved by the Office of Management and Budget under control number 
1840-0098)

(Authority: 20 U.S.C. 1088)

[59 FR 22336, Apr. 29, 1994; 59 FR 32082, June 22, 1994, as amended at 
59 FR 47801, Sept. 19, 1994; 60 FR 34430, June 30, 1995; 64 FR 58616, 
Oct. 29, 1999]



Sec. 600.8  Treatment of a branch campus.

    A branch campus of an eligible proprietary institution of higher 
education or a postsecondary vocational institution must be in existence 
for at least two years as a branch campus after the branch is certified 
as a branch campus before seeking to be designated as a main campus or a 
free-standing institution.

(Authority: 20 U.S.C. 1099c)

[64 FR 58616, Oct. 29, 1999, as amended at 67 FR 67070, Nov. 1, 2002]



Sec. 600.9  [Reserved]



Sec. 600.10  Date, extent, duration, and consequence of eligibility.

    (a) Date of eligibility. (1) If the Secretary determines that an 
applicant institution satisfies all the statutory and regulatory 
eligibility requirements, the Secretary considers the institution to be 
an eligible institution as of the date--
    (i) The Secretary signs the institution's program participation 
agreement described in 34 CFR part 668, subpart B, for purposes of 
participating in any title IV, HEA program; and
    (ii) The Secretary receives all the information necessary to make 
that determination for purposes other than participating in any title 
IV, HEA program.
    (2) [Reserved]
    (b) Extent of eligibility. (1) If the Secretary determines that the 
entire applicant institution, including all its locations and all its 
educational programs, satisfies the applicable requirements of this 
part, the Secretary extends eligibility to all educational programs and 
locations identified on the institution's application for eligibility.
    (2) If the Secretary determines that only certain educational 
programs or certain locations of an applicant institution satisfy the 
applicable requirements of this part, the Secretary extends eligibility 
only to those educational programs and locations that meet those 
requirements and identifies the eligible educational programs and 
locations in the eligibility notice sent to the institution under 
Sec. 600.21.
    (3) Eligibility does not extend to any location that an institution 
establishes after it receives its eligibility designation if the 
institution provides at least 50 percent of an educational program at 
that location, unless--
    (i) The Secretary approves that location under Sec. 600.20(e)(4); or

[[Page 183]]

    (ii) The location is licensed and accredited, the institution does 
not have to apply to the Secretary for approval of that location under 
Sec. 600.20(c), and the institution has reported to the Secretary that 
location under Sec. 600.21.
    (c) Subsequent additions of educational programs. (1) Except as 
provided in paragraph (c)(2) of this section, if an eligible institution 
adds an educational program after it has been designated as an eligible 
institution by the Secretary, the institution must apply to the 
Secretary to have that additional program designated as an eligible 
program of that institution.
    (2) An eligible institution that adds an educational program after 
it has been designated as an eligible institution by the Secretary does 
not have to apply to the Secretary to have that additional program 
designated as an eligible program of that institution if the additional 
program--
    (i) Leads to an associate, baccalaureate, professional, or graduate 
degree; or
    (ii)(A) Prepares students for gainful employment in the same or 
related recognized occupation as an educational program that has 
previously been designated as an eligible program at that institution by 
the Secretary; and
    (B) Is at least 8 semester hours, 12 quarter hours, or 600 clock 
hours.
    (3) If an institution incorrectly determines under paragraph (c)(2) 
of this section that an educational program satisfies the applicable 
statutory and regulatory eligibility provisions without applying to the 
Secretary for approval, the institution is liable to repay to the 
Secretary all HEA program funds received by the institution for that 
educational program, and all the title IV, HEA program funds received by 
or on behalf of students who were enrolled in that educational program.
    (d) Duration of eligibility. (1) If an institution participates in 
the title IV, HEA programs, the Secretary's designation of the 
institution as an eligible institution under the title IV, HEA programs 
expires when the institution's program participation agreement, as 
described in 34 CFR part 668, subpart B, expires.
    (2) If an institution participates in an HEA program other than a 
title IV, HEA program, the Secretary's designation of the institution as 
an eligible institution, for purposes of that non-title IV, HEA program, 
does not expire as long as the institution continues to satisfy the 
statutory and regulatory requirements governing its eligibility.
    (e) Consequence of eligibility. (1) If, as a part of its 
institutional eligibility application, an institution indicates that it 
wishes to participate in a title IV, HEA program and the Secretary 
determines that the institution satisfies the applicable statutory and 
regulatory requirements governing institutional eligibility, the 
Secretary will determine whether the institution satisfies the standards 
of administrative capability and financial responsibility contained in 
34 CFR part 668, subpart B.
    (2) If, as part of its institutional eligibility application, an 
institution indicates that it does not wish to participate in any title 
IV, HEA program and the Secretary determines that the institution 
satisfies the applicable statutory and regulatory requirements governing 
institutional eligibility, the institution is eligible to apply to 
participate in any HEA program listed by the Secretary in the 
eligibility notice it receives under Sec. 600.21. However, the 
institution is not eligible to participate in those programs, or receive 
funds under those programs, merely by virtue of its designation as an 
eligible institution under this part.

(Approved by the Office of Management and Budget under control number 
1845-0098)

(Authority: 20 U.S.C. 1088 and 1141)

[59 FR 22336, Apr. 29, 1994, as amended at 59 FR 47801, Sept. 19, 1994; 
65 FR 65671, Nov. 1, 2000]



Sec. 600.11  Special rules regarding institutional accreditation or 
preaccreditation.

    (a) Change of accrediting agencies. For purposes of 
Secs. 600.4(a)(5)(i), 600.5(a)(6), and 600.6(a)(5)(i), the Secretary 
does not recognize the accreditation or preaccreditation of an otherwise 
eligible institution if that institution is in the process of changing 
its accrediting agency, unless the institution provides to the 
Secretary--

[[Page 184]]

    (1) All materials related to its prior accreditation or 
preaccreditation; and
    (2) Materials demonstrating reasonable cause for changing its 
accrediting agency.
    (b) Multiple accreditation. The Secretary does not recognize the 
accreditation or preaccreditation of an otherwise eligible institution 
if that institution is accredited or preaccredited as an institution by 
more than one accrediting agency, unless the institution--
    (1) Provides to each such accrediting agency and the Secretary the 
reasons for that multiple accreditation or preaccreditation;
    (2) Demonstrates to the Secretary reasonable cause for that multiple 
accreditation or preaccreditation; and
    (3) Designates to the Secretary which agency's accreditation or 
preaccreditation the institution uses to establish its eligibility under 
this part.
    (c) Loss of accreditation or preaccreditation. (1) An institution 
may not be considered eligible for 24 months after it has had its 
accreditation or preaccreditation withdrawn, revoked, or otherwise 
terminated for cause, unless the accrediting agency that took that 
action rescinds that action.
    (2) An institution may not be considered eligible for 24 months 
after it has withdrawn voluntarily from its accreditation or 
preaccreditation status under a show-cause or suspension order issued by 
an accrediting agency, unless that agency rescinds its order.
    (d) Religious exception. (1) If an otherwise eligible institution 
loses its accreditation or preaccreditation, the Secretary considers the 
institution to be accredited or preaccredited for purposes of complying 
with the provisions of Secs. 600.4, 600.5, and 600.6 if the Secretary 
determines that its loss of accreditation or preaccreditation--
    (i) Is related to the religious mission or affiliation of the 
institution; and
    (ii) Is not related to its failure to satisfy the accrediting 
agency's standards.
    (2) If the Secretary considers an unaccredited institution to be 
accredited or preaccredited under the provisions of paragraph (d)(1) of 
this section, the Secretary will consider that unaccredited institution 
to be accredited or preaccredited for a period sufficient to allow the 
institution to obtain alternative accreditation or preaccreditation, 
except that period may not exceed 18 months.

(Authority: 20 U.S.C. 1099b)



           Subpart B--Procedures for Establishing Eligibility

    Source: 59 FR 22336, Apr. 29, 1994, unless otherwise noted.



Sec. 600.20  Application procedures for establishing, reestablishing, 
maintaining, or expanding institutional eligibility and certification.

    (a) Initial eligibility application. An institution that wishes to 
establish its eligibility to participate in any HEA program must submit 
an application to the Secretary for a determination that it qualifies as 
an eligible institution under this part. If the institution also wishes 
to be certified to participate in the title IV, HEA programs, it must 
indicate that intent on the application, and submit all the 
documentation indicated on the application to enable the Secretary to 
determine that it satisfies the relevant certification requirements 
contained in 34 CFR part 668, subparts B and L.
    (b) Reapplication. (1) A currently designated eligible institution 
that is not participating in the title IV, HEA programs must apply to 
the Secretary for a determination that the institution continues to meet 
the requirements in this part if the Secretary requests the institution 
to reapply. If the institution wishes to be certified to participate in 
the title IV, HEA programs, it must submit an application to the 
Secretary and must submit all the supporting documentation indicated on 
the application to enable the Secretary to determine that it satisfies 
the relevant certification requirements contained in subparts B and L of 
34 CFR part 668.
    (2) A currently designated eligible institution that participates in 
the title IV, HEA programs must apply to the Secretary for a 
determination that the institution continues to meet the requirements in 
this part and in 34 CFR part 668 if the institution wishes to--
    (i) Continue to participate in the title IV, HEA programs beyond the

[[Page 185]]

scheduled expiration of the institution's current eligibility and 
certification designation;
    (ii) Reestablish eligibility and certification as a private 
nonprofit, private for-profit, or public institution following a change 
in ownership that results in a change in control as described in 
Sec. 600.31; or
    (iii) Reestablish eligibility and certification after the 
institution changes its status as a proprietary, nonprofit, or public 
institution.
    (c) Application to expand eligibility. A currently designated 
eligible institution that wishes to expand the scope of its eligibility 
and certification and disburse title IV, HEA Program funds to students 
enrolled in that expanded scope must apply to the Secretary and wait for 
approval to--
    (1) Add a location at which the institution offers or will offer 50 
percent or more of an educational program if one of the following 
conditions applies, otherwise it must report to the Secretary under 
Sec. 600.21:
    (i) The institution participates in the title IV, HEA programs under 
a provisional certification, as provided in 34 CFR 668.13.
    (ii) The institution receives title IV, HEA program funds under the 
reimbursement or cash monitoring payment method, as provided in 34 CFR 
part 668, subpart K.
    (iii) The institution acquires the assets of another institution 
that provided educational programs at that location during the preceding 
year and participated in the title IV, HEA programs during that year.
    (iv) The institution would be subject to a loss of eligibility under 
34 CFR 668.188 if it adds that location.
    (v) The Secretary previously notified the institution that it must 
apply for approval of an additional location.
    (2) Increase its level of program offering (e.g., adding graduate 
degree programs when it previously offered only baccalaureate degree 
programs);
    (3) Add an educational program if the institution is required to 
apply to the Secretary for approval under Sec. 600.10(c);
    (4) Add a branch campus at a location that is not currently included 
in the institution's eligibility and certification designation; or
    (5) Convert an eligible location to a branch campus.
    (d) Application format. To satisfy the requirements of paragraphs 
(a), (b), and (c) of this section, an institution must apply in a format 
prescribed by the Secretary for that purpose and provide all the 
information and documentation requested by the Secretary to make a 
determination of its eligibility and certification.
    (e) Secretary's response to applications. (1) If the Secretary 
receives an application under paragraph (a) or (b)(1) of this section, 
the Secretary notifies the institution--
    (i) Whether the applicant institution qualifies in whole or in part 
as an eligible institution under the appropriate provisions in 
Secs. 600.4 through 600.7; and
    (ii) Of the locations and educational programs that qualify as the 
eligible institution if only a portion of the applicant qualifies as an 
eligible institution;
    (2) If the Secretary receives an application under paragraphs (a) or 
(b) of this section and that institution applies to participate in the 
title IV, HEA programs, the Secretary notifies the institution--
    (i) Whether the institution is certified to participate in those 
programs;
    (ii) Of the title IV, HEA programs in which it is eligible to 
participate;
    (iii) Of the title IV, HEA programs in which it is eligible to apply 
for funds;
    (iv) Of the effective date of its eligibility to participate in 
those programs; and
    (v) Of the conditions under which it may participate in those 
programs;
    (3) If the Secretary receives an application under paragraph (b)(2) 
of this section, the Secretary notifies the institution whether it 
continues to be certified, or whether it reestablished its eligibility 
and certification to participate in the title IV, HEA programs and the 
scope of such approval.
    (4) If the Secretary receives an application under paragraph (c)(1) 
of this section for an additional location, the Secretary notifies the 
institution whether the location is eligible or ineligible to 
participate in the title IV, HEA programs, and the date of eligibility 
if the location is determined eligible;

[[Page 186]]

    (5) If the Secretary receives an application under paragraph (c)(2) 
of this section for an increase in the level of program offering, or for 
an additional educational program under paragraph (c)(3) of this 
section, the Secretary notifies the institution whether the program 
qualifies as an eligible program, and if the program qualifies, the date 
of eligibility; and
    (6) If the Secretary receives an application under paragraphs (c)(4) 
or (c)(5) of this section to have a branch campus certified to 
participate in the title IV, HEA programs as a branch campus, the 
Secretary notifies the institution whether that branch campus is 
certified to participate and the date that the branch campus is eligible 
to begin participation.
    (f) Disbursement rules related to applications. (1)(i) Except as 
provided under paragraph (f)(1)(ii) of this section and 34 CFR 668.26, 
if an institution submits an application under paragraph (b)(2)(i) of 
this section because its participation period is scheduled to expire, 
after that expiration date the institution may not disburse title IV, 
HEA program funds to students attending that institution until the 
institution receives the Secretary's notification that the institution 
is again eligible to participate in those programs.
    (ii) An institution described in paragraph (f)(1)(i) of this section 
may disburse title IV, HEA program funds to its students if the 
institution submits to the Secretary a materially complete renewal 
application in accordance with the provisions of 34 CFR 668.13(b)(2), 
and has not received a final decision from the Department on that 
application.
    (2)(i) Except as provided under paragraph (f)(2)(ii) of this section 
and 34 CFR 668.26, if a private nonprofit, private for-profit, or public 
institution submits an application under paragraph (b)(2)(ii) or 
(b)(2)(iii) of this section because it has undergone or will undergo a 
change in ownership that results in a change of control or a change in 
status, the institution may not disburse title IV, HEA program funds to 
students attending that institution after the change of ownership or 
status until the institution receives the Secretary's notification that 
the institution is eligible to participate in those programs.
    (ii) An institution described in paragraph (f)(2)(i) of this section 
may disburse title IV, HEA program funds to its students if the 
Secretary issues a provisional extension of certification under 
paragraph (g) of this section.
    (3) If an institution must apply to the Secretary under paragraphs 
(c)(1) through (c)(4) of this section, the institution may not disburse 
title IV, HEA program funds to students attending the subject location, 
program, or branch until the institution receives the Secretary's 
notification that the location, program, or branch is eligible to 
participate in the title IV, HEA programs.
    (4) If an institution applies to the Secretary under paragraph 
(c)(5) of this section to convert an eligible location to a branch 
campus, the institution may continue to disburse title IV, HEA program 
funds to students attending that eligible location.
    (5) If an institution does not apply to the Secretary to obtain the 
Secretary's approval of a new location, program, increased level of 
program offering, or branch, and the location, program, or branch does 
not qualify as an eligible location, program, or branch of that 
institution under this part and 34 CFR part 668, the institution is 
liable for all title IV, HEA program funds it disburses to students 
enrolled at that location or branch or in that program.
    (g) Application for provisional extension of certification. (1) If a 
private nonprofit institution, a private for-profit institution, or a 
public institution participating in the title IV, HEA programs undergoes 
a change in ownership that results in a change of control as described 
in 34 CFR 600.31, the Secretary may continue the institution's 
participation in those programs on a provisional basis, if the 
institution under the new ownership submits a ``materially complete 
application'' that is received by the Secretary no later than 10 
business days after the day the change occurs.
    (2) For purposes of this section, a private nonprofit institution, a 
private for-profit institution, or a public institution submits a 
materially complete

[[Page 187]]

application if it submits a fully completed application form designated 
by the Secretary supported by--
    (i) A copy of the institution's State license or equivalent document 
that--as of the day before the change in ownership--authorized or will 
authorize the institution to provide a program of postsecondary 
education in the State in which it is physically located;
    (ii) A copy of the document from the institution's accrediting 
association that--as of the day before the change in ownership--granted 
or will grant the institution accreditation status, including approval 
of any non-degree programs it offers;
    (iii) Audited financial statements of the institution's two most 
recently completed fiscal years that are prepared and audited in 
accordance with the requirements of 34 CFR 668.23; and
    (iv) Audited financial statements of the institution's new owner's 
two most recently completed fiscal years that are prepared and audited 
in accordance with the requirements of 34 CFR 668.23, or equivalent 
information for that owner that is acceptable to the Secretary.
    (h) Terms of the extension. (1) If the Secretary approves the 
institution's materially complete application, the Secretary provides 
the institution with a provisional Program Participation Agreement 
(PPA). The provisional PPA extends the terms and conditions of the 
program participation agreement that were in effect for the institution 
before its change of ownership.
    (2) The provisional PPA expires on the earlier of--
    (i) The date on which the Secretary signs a new program 
participation agreement;
    (ii) The date on which the Secretary notifies the institution that 
its application is denied; or
    (iii) The last day of the month following the month in which the 
change of ownership occurred, unless the provisions of paragraph (h)(3) 
of this section apply.
    (3) If the provisional PPA will expire under the provisions of 
paragraph (h)(2)(iii) of this section, the Secretary extends the 
provisional PPA on a month-to-month basis after the expiration date 
described in paragraph (h)(2)(iii) of this section if, prior to that 
expiration date, the institution provides the Secretary with--
    (i) A ``same day'' balance sheet showing the financial position of 
the institution, as of the date of the ownership change, that is 
prepared in accordance with Generally Accepted Accounting Principles 
(GAAP) published by the Financial Accounting Standards Board and audited 
in accordance with Generally Accepted Government Auditing Standards 
(GAGAS) published by the U.S. General Accounting Office;
    (ii) If not already provided, approval of the change of ownership 
from the State in which the institution is located by the agency that 
authorizes the institution to legally provide postsecondary education in 
that State;
    (iii) If not already provided, approval of the change of ownership 
from the institution's accrediting agency; and
    (iv) A default management plan unless the institution is exempt from 
providing that plan under 34 CFR 668.14(b)(15).

(Approved by the Office of Management and Budget under control number 
1845-0098)

(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)

[65 FR 65671, Nov. 1, 2000]



Sec. 600.21  Updating application information.

    (a) Reporting requirements. Except as provided in paragraph (b) of 
this section, an eligible institution must report to the Secretary in a 
manner prescribed by the Secretary no later than 10 days after the 
change occurs, of any change in the following:
    (1) Its name, the name of a branch, or the name of a previously 
reported location.
    (2) Its address, the address of a branch, or the address of a 
previously reported location.
    (3) Its establishment of an accredited and licensed additional 
location at which it offers or will offer 50 percent or more of an 
educational program if the institution wants to disburse title IV, HEA 
program funds to students enrolled at that location, under the 
provisions in paragraph (d) of this section.
    (4) The way it measures program length (e.g., from clock hours to 
credit

[[Page 188]]

hours, or from semester hours to quarter hours).
    (5) A decrease in the level of program offering (e.g. the 
institution drops its graduate programs).
    (6) A person's ability to affect substantially the actions of the 
institution if that person did not previously have this ability. The 
Secretary considers a person to have this ability if the person--
    (i) Holds alone or together with another member or members of his or 
her family, at least a 25 percent ``ownership interest'' in the 
institution as defined in Sec. 600.31(b);
    (ii) Represents or holds, either alone or together with other 
persons, under a voting trust, power of attorney, proxy, or similar 
agreement at least a 25 percent ``ownership interest'' in the 
institution, as defined in Sec. 600.31(b); or
    (iii) Is a general partner, the chief executive officer, or chief 
financial officer of the institution.
    (7) The individual the institution designates under 34 CFR 
668.16(b)(1) as its title IV, HEA Program administrator.
    (8) The closure of a branch campus or additional location that the 
institution was required to report to the Secretary.
    (9) The governance of a public institution.
    (b) Additional reporting from institutions owned by publicly-traded 
corporations. An institution that is owned by a publicly-traded 
corporation must report to the Secretary any change in the information 
described in paragraph (a)(6) of this section when it notifies its 
accrediting agency, but no later than 10 days after the institution 
learns of the change.
    (c) Secretary's response to reporting. The Secretary notifies an 
institution if any reported changes affects the institution's 
eligibility, and the effective date of that change.
    (d) Disbursement rules related to additional locations. When an 
institution must report to the Secretary about an additional location 
under paragraph (a)(3) of this section, the institution may not disburse 
title IV, HEA funds to students at that location before it reports to 
the Secretary about that location. Unless it is an institution that must 
apply to the Secretary under Sec. 600.20(c)(1), once it reports to the 
Secretary about that location, the institution may disburse those funds 
to those students if that location is licensed and accredited.
    (e) Consequence of failure to report. An institution's failure to 
inform the Secretary of a change described in paragraph (a) of this 
section within the time period stated in that paragraph may result in 
adverse action against the institution.
    (f) Definition. A family member includes a person's--
    (1) Parent or stepparent, sibling or step-sibling, spouse, child or 
stepchild, or grandchild or step-grandchild;
    (2) Spouse's parent or stepparent, sibling or step-sibling, child or 
stepchild, or grandchild or step-grandchild;
    (3) Child's spouse; and
    (4) Sibling's spouse.

(Approved by the Office of Management and Budget under control number 
1845-0012)

(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)

[65 FR 65673, Nov. 1, 2000, as amended at 67 FR 67070, Nov. 1, 2002]



                   Subpart C--Maintaining Eligibility

    Source: 59 FR 22336, Apr. 29, 1994, unless otherwise noted.



Sec. 600.30  [Reserved]



Sec. 600.31  Change in ownership resulting in a change in control for 
private nonprofit, private for-profit and public institutions.

    (a)(1) Except as provided in paragraph (a)(2) of this section, a 
private nonprofit, private for-profit, or public institution that 
undergoes a change in ownership that results in a change in control 
ceases to qualify as an eligible institution upon the change in 
ownership and control. A change in ownership that results in a change in 
control includes any change by which a person who has or thereby 
acquires an ownership interest in the entity that owns the institution 
or the parent corporation of that entity, acquires or loses the ability 
to control the institution.

[[Page 189]]

    (2) If a private nonprofit, private for-profit, or public 
institution has undergone a change in ownership that results in a change 
in control, the Secretary may, under the provisions of Sec. 600.20(g) 
and (h), continue the institution's participation in the title IV, HEA 
programs on a provisional basis, provided that the institution submits, 
under the provisions of Sec. 600.20(g), a materially complete 
application--
    (i) No later than 10 business days after the change occurs; or
    (ii) For an institution owned by a publicly-traded corporation, no 
later than 10 business days after the institution knew, or should have 
known of the change based upon SEC filings, that the change occurred.
    (3) In order to reestablish eligibility and to resume participation 
in the title IV, HEA programs, the institution must demonstrate to the 
Secretary that after the change in ownership and control--
    (i) The institution satisfies all the applicable requirements 
contained in Secs. 600.4, 600.5, and 600.6, except that if the 
institution is a proprietary institution of higher education or 
postsecondary vocational institution, it need not have been in existence 
for two years before seeking eligibility; and
    (ii) The institution qualifies to be certified to participate under 
34 CFR part 668, subpart B.
    (b) Definitions. The following definitions apply to terms used in 
this section:
    Closely-held corporation. Closely-held corporation (including the 
term close corporation) means--
    (1) A corporation that qualifies under the law of the State of its 
incorporation as a closely-held corporation; or
    (2) If the State of incorporation has no definition of closely-held 
corporation, a corporation the stock of which--
    (i) Is held by no more than 30 persons; and
    (ii) Has not been and is not planned to be publicly offered.
    Control. Control (including the terms controlling, controlled by and 
under common control with) means the possession, direct or indirect, of 
the power to direct or cause the direction of the management and 
policies of a person, whether through the ownership of voting 
securities, by contract, or otherwise.
    Ownership or ownership interest. (1) Ownership or ownership interest 
means a legal or beneficial interest in an institution or its corporate 
parent, or a right to share in the profits derived from the operation of 
an institution or its corporate parent.
    (2) Ownership or ownership interest does not include an ownership 
interest held by--
    (i) A mutual fund that is regularly and publicly traded;
    (ii) A U.S. institutional investor, as defined in 17 CFR 240.15a-
6(b)(7);
    (iii) A profit-sharing plan of the institution or its corporate 
parent, provided that all full-time permanent employees of the 
institution or corporate parent are included in the plan; or
    (iv) An Employee Stock Ownership Plan (ESOP).
    Parent. The parent or parent corporation of a specified corporation 
is the corporation or partnership that controls the specified 
corporation directly or indirectly through one or more intermediaries.
    Person. Person includes a legal person (corporation or partnership) 
or an individual.
    Wholly-owned subsidiary. A wholly-owned subsidiary is one 
substantially all of whose outstanding voting securities are owned by 
its parent together with the parent's other wholly-owned subsidiaries.
    (c) Standards for identifying changes of ownership and control--(1) 
Closely-held corporation. A change in ownership and control occurs when-
-
    (i) A person acquires more than 50 percent of the total outstanding 
voting stock of the corporation;
    (ii) A person who holds an ownership interest in the corporation 
acquires control of more than 50 percent of the outstanding voting stock 
of the corporation; or
    (iii) A person who holds or controls 50 percent or more of the total 
outstanding stock of the corporation ceases to hold or control that 
proportion of the stock of the corporation.
    (2) Publicly traded corporations required to be registered with the 
Securities and Exchange Commission (SEC). A

[[Page 190]]

change in ownership and control occurs when--
    (i) A person acquires such ownership and control of the corporation 
so that the corporation is required to file a Form 8K with the SEC 
notifying that agency of the change in control; or
    (ii) (A) A person who is a controlling shareholder of the 
corporation ceases to be a controlling shareholder. A controlling 
shareholder is a shareholder who holds or controls through agreement 
both 25 percent or more of the total outstanding voting stock of the 
corporation and more shares of voting stock than any other shareholder. 
A controlling shareholder for this purpose does not include a 
shareholder whose sole stock ownership is held as a U.S. institutional 
investor, as defined in 17 CFR 240.15a-6(b)(7), held in mutual funds, 
held through a profit-sharing plan, or held in an Employee Stock 
Ownership Plan (ESOP).
    (B) When a change of ownership occurs as a result of paragraph 
(c)(2)(ii)(A) of this section, the institution may submit its most 
recent quarterly financial statement as filed with the SEC, along with 
copies of all other SEC filings made after the close of the fiscal year 
for which a compliance audit has been submitted to the Department of 
Education, instead of the ``same day'' balance sheet.
    (C) If a publicly-traded institution is provisionally certified due 
to a change in ownership under paragraph (c)(2)(ii) of this section, and 
that institution experiences another change of ownership under paragraph 
(c)(2)(ii) of this section, an approval of the subsequent change in 
ownership does not extend the original expiration date for the 
provisional certification provided that any current controlling 
shareholder was listed on the change of ownership application for which 
the original provisional approval was granted.
    (3) Other corporations. A change in ownership and control of a 
corporation that is neither closely-held nor required to be registered 
with the SEC occurs when--
    (i) A person who has or acquires an ownership interest acquires both 
control of at least 25 percent of the total outstanding voting stock of 
the corporation and control of the corporation;
    (ii) A person who holds both ownership or control of at least 25 
percent of the total outstanding voting stock of the corporation and 
control of the corporation, ceases to own or control that proportion of 
the stock of the corporation, or to control the corporation; or
    (iii) For a membership corporation, a person who is or becomes a 
member acquires or loses control of 25 percent of the voting interests 
of the corporation and control of the corporation.
    (4) Partnership or sole proprietorship. A change in ownership and 
control occurs when a person who has or acquires an ownership interest 
acquires or loses control as described in this section.
    (5) Parent corporation. An institution that is a wholly-owned 
subsidiary changes ownership and control when the parent corporation 
changes ownership and control as described in this section.
    (6) Nonprofit institution. A nonprofit institution changes ownership 
and control when a change takes place that is described in paragraph (d) 
of this section.
    (7) Public institution. The Secretary does not consider that a 
public institution undergoes a change in ownership that results in a 
change of control if there is a change in governance and the institution 
after the change remains a public institution, provided--
    (i) The new governing authority is in the same State as included in 
the institution's program participation agreement; and
    (ii) The new governing authority has acknowledged the public 
institution's continued responsibilities under its program participation 
agreement.
    (d) Covered transactions. For the purposes of this section, a change 
in ownership of an institution that results in a change of control may 
include, but is not limited to--
    (1) The sale of the institution;
    (2) The transfer of the controlling interest of stock of the 
institution or its parent corporation;
    (3) The merger of two or more eligible institutions;
    (4) The division of one institution into two or more institutions;

[[Page 191]]

    (5) The transfer of the liabilities of an institution to its parent 
corporation;
    (6) A transfer of assets that comprise a substantial portion of the 
educational business of the institution, except where the transfer 
consists exclusively in the granting of a security interest in those 
assets; or
    (7) A change in status as a for-profit, nonprofit, or public 
institution.
    (e) Excluded transactions. A change in ownership and control 
reported under Sec. 600.21 and otherwise subject to this section does 
not include a transfer of ownership and control of all or part of an 
owner's equity or partnership interest in an institution, the 
institution's parent corporation, or other legal entity that has signed 
the institution's Program Participation Agreement--
    (1) From an owner to a ``family member'' of that owner as defined in 
Sec. 600.21(f); or
    (2) Upon the retirement or death of the owner, to a person with an 
ownership interest in the institution who has been involved in 
management of the institution for at least two years preceding the 
transfer and who has established and retained the ownership interest for 
at least two years prior to the transfer.

(Approved by the Office of Management and Budget under control number 
1845-0012)

(Authority: 20 U.S.C. 1099c)

[59 FR 22336, Apr. 29, 1994, as amended at 59 FR 47801, Sept. 19, 1994; 
60 FR 33430, June 30, 1995; 64 FR 58616, Oct. 29, 1999; 65 FR 65673, 
Nov. 1, 2000; 67 FR 67070, Nov. 1, 2002]



Sec. 600.32  Eligibility of additional locations.

    (a) Except as provided in paragraphs (b) and (c) of this section, to 
qualify as an eligible location, an additional location of an eligible 
institution must satisfy the applicable requirements of this section and 
Secs. 600.4, 600.5, 600.6, 600.8, and 600.10.
    (b) To qualify as an eligible location, an additional location is 
not required to satisfy the two-year requirement of Secs. 600.5(a)(7) or 
600.6(a)(6), unless--
    (1) The location was a facility of another institution that has 
closed or ceased to provide educational programs for a reason other than 
a normal vacation period or a natural disaster that directly affects the 
institution or the institution's students;
    (2) The applicant institution acquired, either directly from the 
institution that closed or ceased to provide educational programs, or 
through an intermediary, the assets at the location; and
    (3) The institution from which the applicant institution acquired 
the assets of the location--
    (i) Owes a liability for a violation of an HEA program requirement; 
and
    (ii) Is not making payments in accordance with an agreement to repay 
that liability.
    (c) Notwithstanding paragraph (b) of this section, an additional 
location is not required to satisfy the two-year requirement of 
Sec. 600.5(a)(7) or Sec. 600.6(a)(6) if the applicant institution 
agrees--
    (1) To be liable for all improperly expended or unspent title IV, 
HEA program funds received by the institution that has closed or ceased 
to provide educational programs;
    (2) To be liable for all unpaid refunds owed to students who 
received title IV, HEA program funds; and
    (3) To abide by the policy of the institution that has closed or 
ceased to provide educational programs regarding refunds of 
institutional charges to students in effect before the date of the 
acquisition of the assets of the additional location for the students 
who were enrolled before that date.
    (d) For purposes of this section, an ``additional location'' is a 
location of an institution that was not designated as an eligible 
location in the eligibility notification provided to an institution 
under Sec. 600.21.

(Authority: 20 U.S.C. 1088 and 1141)



                     Subpart D--Loss of Eligibility

    Source: 59 FR 22336, Apr. 29, 1994, unless otherwise noted.



Sec. 600.40  Loss of eligibility.

    (a)(1) Except as provided in paragraphs (a) (2) and (3) of this 
section, an institution, or a location or educational program of an 
institution, loses its eligibility on the date that--
    (i) The institution, location, or educational program fails to meet 
any of

[[Page 192]]

the eligibility requirements of this part;
    (ii) The institution or location permanently closes;
    (iii) The institution or location ceases to provide educational 
programs for a reason other than a normal vacation period or a natural 
disaster that directly affects the institution, particular location, or 
the students of the institution or location; or
    (iv) For purposes of the title IV, HEA programs--
    (A) The institution's period of participation as specified under 34 
CFR 668.13 expires; or
    (B) The institution's provisional certification is revoked under 34 
CFR 668.13.
    (2) If an institution loses its eligibility because it violated the 
requirements of Sec. 600.5(a)(8), as evidenced by the determination 
under provisions contained in Sec. 600.5(d), it loses its eligibility on 
the last day of the fiscal year used in Sec. 600.5(d), except that if an 
institution's latest fiscal year was described in Sec. 600.7(h)(1), it 
loses its eligibility as of June 30, 1994.
    (3) If an institution loses its eligibility under the provisions of 
Sec. 600.7(a)(1), it loses its eligibility on the last day of the award 
year being evaluated under that provision.
    (b) If the Secretary undertakes to terminate the eligibility of an 
institution because it violated the provisions of Sec. 600.5(a)(8) or 
Sec. 600.7(a), and the institution requests a hearing, the presiding 
official must terminate the institution's eligibility if it violated 
those provisions, notwithstanding its status at the time of the hearing.
    (c)(1) If the Secretary designates an institution or any of its 
educational programs or locations as eligible on the basis of inaccurate 
information or documentation, the Secretary's designation is void from 
the date the Secretary made the designation, and the institution or 
program or location, as applicable, never qualified as eligible.
    (2) If an institution closes its main campus or stops providing any 
educational programs on its main campus, it loses its eligibility as an 
institution, and that loss of eligibility includes all its locations and 
all its programs. Its loss of eligibility is effective on the date it 
closes that campus or stops providing any educational program at that 
campus.
    (d) Except as otherwise provided in this part, if an institution 
ceases to satisfy any of the requirements for eligibility under this 
part--
    (1) It must notify the Secretary within 30 days of the date that it 
ceases to satisfy that requirement; and
    (2) It becomes ineligible to continue to participate in any HEA 
program as of the date it ceases to satisfy any of the requirements.

(Authority: 20 U.S.C. 1088, 1099a-3, and 1141)

[59 FR 22336, Apr. 29, 1994, as amended at 63 FR 40622, July 29, 1998]



Sec. 600.41  Termination and emergency action proceedings.

    (a) If the Secretary believes that a previously designated eligible 
institution as a whole, or at one or more of its locations, does not 
satisfy the statutory or regulatory requirements that define that 
institution as an eligible institution, the Secretary may--
    (1) Terminate the institution's eligibility designation in whole or 
as to a particular location--
    (i) Under the procedural provisions applicable to terminations 
contained in 34 CFR 668.81, 668.83, 668.86, 668.87, 668.88, 668.89, 
668.90 (a)(1), (a)(4), and (c) through (f), and 668.91; or
    (ii) Under a show-cause hearing, if the institution's loss of 
eligibility results from--
    (A) Its previously qualifying as an eligible vocational school;
    (B) Its previously qualifying as an eligible institution, 
notwithstanding its unaccredited status, under the transfer-of-credit 
alternative to accreditation (as that alternative existed in 20 U.S.C. 
1085, 1088, and 1141(a)(5)(B) and Sec. 600.8 until July 23, 1992);
    (C) Its loss of accreditation or preaccreditation;
    (D) Its loss of legal authority to provide postsecondary education 
in the State in which it is physically located;
    (E) Its violations of the provisions contained in Sec. 600.5(a)(8) 
or Sec. 600.7(a);
    (F) Its permanently closing; or

[[Page 193]]

    (G) Its ceasing to provide educational programs for a reason other 
than a normal vacation period or a natural disaster that directly 
affects the institution, a particular location, or the students of the 
institution or location;
    (2) Limit, under the provisions of 34 CFR 668.86, the authority of 
the institution to disburse, deliver, or cause the disbursement or 
delivery of funds under one or more title IV, HEA programs as otherwise 
provided under 34 CFR 668.26 for the benefit of students enrolled at the 
ineligible institution or location prior to the loss of eligibility of 
that institution or location; and
    (3) Initiate an emergency action under the provisions contained in 
34 CFR 668.83 with regard to the institution's participation in one or 
more title IV, HEA programs.
    (b) If the Secretary believes that an educational program offered by 
an institution that was previously designated by the Secretary as an 
eligible institution under the HEA does not satisfy relevant statutory 
or regulatory requirements that define that educational program as part 
of an eligible institution, the Secretary may in accordance with the 
procedural provisions described in paragraph (a) of this section--
    (1) Undertake to terminate that educational program's eligibility 
under one or more of the title IV, HEA programs under the procedural 
provisions applicable to terminations described in paragraph (a) of this 
section;
    (2) Limit the institution's authority to deliver, disburse, or cause 
the delivery or disbursement of funds provided under that title IV, HEA 
program to students enrolled in that educational program, as otherwise 
provided in 34 CFR 668.26; and
    (3) Initiate an emergency action under the provisions contained in 
34 CFR 668.83 with regard to the institution's participation in one or 
more title IV, HEA programs with respect to students enrolled in that 
educational program.
    (c)(1) An action to terminate and limit the eligibility of an 
institution as a whole or as to any of its locations or educational 
programs is initiated in accordance with 34 CFR 668.86(b) and becomes 
final 20 days after the Secretary notifies the institution of the 
proposed action, unless the designated department official receives by 
that date a request for a hearing or written material that demonstrates 
that the termination and limitation should not take place.
    (2) Once a termination under this section becomes final, the 
termination is effective with respect to any commitment, delivery, or 
disbursement of funds provided under an applicable title IV, HEA program 
by the institution--
    (i) Made to students enrolled in the ineligible institution, 
location, or educational program; and
    (ii) Made on or after the date of the act or omission that caused 
the loss of eligibility as to the institution, location, or educational 
program.
    (3) Once a limitation under this section becomes final, the 
limitation is effective with regard to any commitment, delivery, or 
disbursement of funds under the applicable title IV, HEA program by the 
institution--
    (i) Made after the date on which the limitation became final; and
    (ii) Made to students enrolled in the ineligible institution, 
location, or educational program.
    (d) After a termination under this section of the eligibility of an 
institution as a whole or as to a location or educational program 
becomes final, the institution may not certify applications for, make 
awards of or commitments for, deliver, or disburse funds under the 
applicable title IV, HEA program, except--
    (1) In accordance with the requirements of 34 CFR 668.26(c) with 
respect to students enrolled in the ineligible institution, location, or 
educational program; and
    (2) After satisfaction of any additional requirements, imposed 
pursuant to a limitation under paragraph (a)(2) of this section, which 
may include the following:
    (i) Completion of the actions required by 34 CFR 668.26(a) and (b).
    (ii) Demonstration that the institution has made satisfactory 
arrangements for the completion of actions required by 34 CFR 668.26(a) 
and (b).
    (iii) Securing the confirmation of a third party selected by the 
Secretary

[[Page 194]]

that the proposed disbursements or delivery of title IV, HEA program 
funds meet the requirements of the applicable program.
    (iv) Using institutional funds to make disbursements permitted under 
this paragraph and seeking reimbursement from the Secretary for those 
disbursements.
    (e) If the Secretary undertakes to terminate the eligibility of an 
institution, location, or program under paragraphs (a) and (b) of this 
section:
    (1) If the basis for the loss of eligibility is the loss of 
accreditation or preaccreditation, the sole issue is whether the 
institution, location, or program has the requisite accreditation or 
preaccreditation. The presiding official has no authority to consider 
challenges to the action of the accrediting agency.
    (2) If the basis for the loss of eligibility is the loss of legal 
authorization, the sole issue is whether the institution, location, or 
program has the requisite legal authorization. The presiding official 
has no authority to consider challenges to the action of a State agency 
in removing the legal authorization.

(Authority: 20 U.S.C. 1088, 1091, 1094, 1099a-3, and 1141)

[59 FR 22336, Apr. 29, 1994, as amended at 63 FR 40623, July 29, 1998]



 Subpart E--Eligibility of Foreign Institutions To Apply To Participate 
          in the Federal Family Education Loan (FFEL) Programs

    Source: 59 FR 22063, Apr. 28, 1994, unless otherwise noted.



Sec. 600.51  Purpose and scope.

    (a) A foreign institution is eligible to apply to participate in the 
Federal Family Education Loan (FFEL) programs if it is comparable to an 
eligible institution of higher education located in the United States 
and has been approved by the Secretary in accordance with the provisions 
of this subpart.
    (b) This subpart E contains the procedures and criteria under which 
a foreign institution may be deemed eligible to apply to participate in 
the FFEL programs.
    (c) This subpart E does not include the procedures and criteria by 
which a foreign institution that is deemed eligible to apply to 
participate in the FFEL programs actually applies for that 
participation. Those procedures and criteria are contained in the 
regulations for the FFEL programs, 34 CFR part 682, subpart F.

(Authority: 20 U.S.C. 1082, 1088)



Sec. 600.52  Definitions.

    The following definitions apply to this subpart E:
    Foreign graduate medical school: A foreign institution that 
qualifies to be listed in, and is listed as a medical school in, the 
most current edition of the World Directory of Medical Schools published 
by the World Health Organization (WHO).
    Foreign institution: An institution that is not located in a State.
    Passing score: The minimum passing score as defined by the 
Educational Commission for Foreign Medical Graduates (ECFMG).
    Secondary school: A school that provides secondary education as 
determined under the laws of the country in which the school is located.

(Authority: 20 U.S.C. 1082, 1088)



Sec. 600.53  Requesting an eligibility determination.

    (a) To be designated as eligible to apply to participate in the FFEL 
programs or to continue to be eligible beyond the scheduled expiration 
of the institution's current period of eligibility, a foreign 
institution must--
    (1) Apply on the form prescribed by the Secretary; and
    (2) Provide all the information and documentation requested by the 
Secretary to make a determination of that eligibility.
    (b) If a foreign institution fails to provide, release, or authorize 
release to the Secretary of information that is required in this subpart 
E, the institution is ineligible to apply to participate in the FFEL 
programs.

(Approved by the Office of Management and Budget under control number 
1840-0673)

(Authority: 20 U.S.C. 1082, 1088)

[[Page 195]]



Sec. 600.54  Criteria for determining whether a foreign institution is 
eligible to apply to participate in the FFEL programs.

    The Secretary considers a foreign institution to be comparable to an 
eligible institution of higher education in the United States and 
eligible to apply to participate in the FFEL programs if the foreign 
institution is a public or private nonprofit educational institution 
that--
    (a) Admits as regular students only persons who--
    (1) Have a secondary school completion credential; or
    (2) Have the recognized equivalent of a secondary school completion 
credential;
    (b) Is legally authorized by an appropriate authority to provide an 
eligible educational program beyond the secondary school level in the 
country in which the institution is located; and
    (c) Provides an eligible education program--
    (1) For which the institution is legally authorized to award a 
degree that is equivalent to an associate, baccalaureate, graduate, or 
professional degree awarded in the United States;
    (2) That is at least a two-academic-year program acceptable for full 
credit toward the equivalent of a baccalaureate degree awarded in the 
United States; or
    (3) That is equivalent to at least a one-academic-year training 
program in the United States that leads to a certificate, degree, or 
other recognized educational credential and prepares students for 
gainful employment in a recognized occupation.

(Authority: 20 U.S.C. 1082, 1088)



Sec. 600.55  Additional criteria for determining whether a foreign graduate 
medical school is eligible to apply to participate in the FFEL programs.

    (a) The Secretary considers a foreign graduate medical school to be 
eligible to apply to participate in the FFEL programs if, in addition to 
satisfying the criteria in Sec. 600.54 (except the criterion that the 
institution be public or private nonprofit), the school satisfies all of 
the following criteria:
    (1) The school provides, and in the normal course requires its 
students to complete, a program of clinical and classroom medical 
instruction of not less that 32 months in length, that is supervised 
closely by members of the school's faculty and that is provided either--
    (i) Outside the United States, in facilities adequately equipped and 
staffed to afford students comprehensive clinical and classroom medical 
instruction; or
    (ii) In the United States, through a training program for foreign 
medical students that has been approved by all medical licensing boards 
and evaluating bodies whose views are considered relevant by the 
Secretary.
    (2) The school has graduated classes during each of the two twelve-
month periods immediately preceding the date the Secretary receives the 
school's request for an eligibility determination.
    (3) The school employs for the program described in paragraph (a)(1) 
of this section only those faculty members whose academic credentials 
are the equivalent of credentials required of faculty members teaching 
the same or similar courses at medical schools in the United States.
    (4)(i) The school has been approved by an accrediting body--
    (A) That is legally authorized to evaluate the quality of graduate 
medical school educational programs and facilities in the country where 
the school is located; and
    (B) Whose standards of accreditation of graduate medical schools--
    (1) Have been evaluated by the advisory panel of medical experts 
established by the Secretary; and
    (2) Have been determined to be comparable to standards of 
accreditation applied to medical schools in the United States; or
    (ii) The school is a public or private nonprofit educational 
institution that satisfies the requirements in Sec. 600.4(a)(5)(i).
    (5)(i)(A) During the academic year preceding the year for which any 
of the school's students seeks an FFEL program loan, at least 60 percent 
of those enrolled as full-time regular students in the school and at 
least 60 percent of the school's most recent graduating

[[Page 196]]

class were persons who did not meet the citizenship and residency 
criteria contained in section 484(a)(5) of the HEA, 20 U.S.C. 
1091(a)(5); and
    (B) At least 60 percent of the school's students and graduates who 
took any step of the examinations administered by the Educational 
Commission for Foreign Medical Graduates (ECFMG) (including the ECFMG 
English test) in the year preceding the year for which any of the 
school's students seeks an FFEL program loan received passing scores on 
the exams; or
    (ii) The school's clinical training program was approved by a State 
as of January 1, 1992, and is currently approved by that State.
    (b) In performing the calculation required in paragraph (a)(5)(i)(B) 
of this section, a foreign graduate medical school shall count as a 
graduate each person who graduated from the school during the three 
years preceding the year for which the calculation is performed.

(Authority: 20 U.S.C. 1082, 1088)

[59 FR 22063, Apr. 28, 1994; 59 FR 33681, June 30, 1994, as amended at 
63 FR 40623, July 29, 1998; 64 FR 58616, Oct. 29, 1999]



Sec. 600.56  Additional criteria for determining whether a foreign veterinary 
school is eligible to apply to participate in the FFEL programs.

    (a) The Secretary considers a foreign veterinary school to be 
eligible to apply to participate in the FFEL programs if, in addition to 
satisfying the criteria in Sec. 600.54 (except the criterion that the 
institution be public or private nonprofit), the school satisfies all of 
the following criteria:
    (1) The school provides, and in the normal course requires its 
students to complete, a program of clinical and classroom veterinary 
instruction that is supervised closely by members of the school's 
faculty, and that is provided either--
    (i) Outside the United States, in facilities adequately equipped and 
staffed to afford students comprehensive clinical and classroom 
veterinary instruction; or
    (ii) In the United States, through a training program for foreign 
veterinary students that has been approved by all veterinary licensing 
boards and evaluating bodies whose views are considered relevant by the 
Secretary.
    (2) The school has graduated classes during each of the two twelve-
month periods immediately preceding the date the Secretary receives the 
school's request for an eligibility determination.
    (3) The school employs for the program described in paragraph (a)(1) 
of this section only those faculty members whose academic credentials 
are the equivalent of credentials required of faculty members teaching 
the same or similar courses at veterinary schools in the United States.
    (4) Either--
    (i) The veterinary school's clinical training program was approved 
by a State as of January 1, 1992, and is currently approved by that 
State; or
    (ii) The veterinary school's students complete their clinical 
training at an approved veterinary school located in the United States.
    (b) [Reserved]

(Authority: 20 U.S.C. 1082 and 1088)

[64 FR 58616, Oct. 29, 1999]



Sec. 600.57  Duration of eligibility determination.

    (a) The eligibility of a foreign institution under this subpart 
expires four years after the date of the Secretary's determination that 
the institution is eligible to apply for participation, except that the 
Secretary may specify a shorter period of eligibility. In the case of a 
foreign graduate medical school, continued eligibility is dependent upon 
annual submission of the data and information required under 
Sec. 600.55(a)(5)(i), subject to the terms described in Sec. 600.53(b).
    (b) A foreign institution that has been determined eligible loses 
its eligibility on the date that the institution no longer meets any of 
the criteria in this subpart E.
    (c) Notwithstanding the provisions of 34 CFR 668.26, if a foreign 
institution loses its eligibility under this subpart E, an otherwise 
eligible student, continuously enrolled at the institution before the 
loss of eligibility, may receive an FFEL program loan for attendance at 
that institution for the academic year succeeding the academic year in 
which that institution lost its

[[Page 197]]

eligibility, if the student actually received an FFEL program loan for 
attendance at the institution for a period during which the institution 
was eligible under this subpart E.

(Authority: 20 U.S.C. 1082, 1088, 1099c)

[59 FR 22063, Apr. 28, 1994. Redesignated at 64 FR 58616, Oct. 29, 1999]

                           PART 601 [RESERVED]



PART 602--THE SECRETARY'S RECOGNITION OF ACCREDITING AGENCIES--Table of 
Contents




                           Subpart A--General

Sec.
602.1  Why does the Secretary recognize accrediting agencies?
602.2  How do I know which agencies the Secretary recognizes?
602.3  What definitions apply to this part?

                 Subpart B--The Criteria for Recognition

                     Basic Eligibility Requirements

602.10  Link to Federal programs.
602.11  Geographic scope of accrediting activities.
602.12  Accrediting experience.
602.13  Acceptance of the agency by others.

             Organizational and Administrative Requirements

602.14  Purpose and organization.
602.15  Administrative and fiscal responsibilities.

                Required Standards and Their Application

602.16  Accreditation and preaccreditation standards.
602.17  Application of standards in reaching an accrediting decision.
602.18  Ensuring consistency in decision-making.
602.19  Monitoring and reevaluation of accredited institutions and 
          programs.
602.20  Enforcement of standards.
602.21  Review of standards.

               Required Operating Policies and Procedures

602.22  Substantive change.
602.23  Operating procedures all agencies must have.
602.24  Additional procedures certain institutional accreditors must 
          have.
602.25  Due process.
602.26  Notification of accrediting decisions.
602.27  Other information an agency must provide the Department.
602.28  Regard for decisions of States and other accrediting agencies.

                   Subpart C--The Recognition Process

               Application and Review by Department Staff

602.30  How does an agency apply for recognition?
602.31  How does Department staff review an agency's application?

 Review by the National Advisory Committee on Institutional Quality and 
                                Integrity

602.32  What is the role of the Advisory Committee and the senior 
          Department official in the review of an agency's application?
602.33  How may an agency appeal a recommendation of the Advisory 
          Committee?

                  Review and Decision by the Secretary

602.34  What does the Secretary consider when making a recognition 
          decision?
602.35  What information does the Secretary's recognition decision 
          include?
602.36  May an agency appeal the Secretary's final recognition decision?

    Subpart D--Limitation, Suspension, or Termination of Recognition

           Limitation, Suspension, and Termination Procedures

602.40  How may the Secretary limit, suspend, or terminate an agency's 
          recognition?
602.41  What are the notice procedures?
602.42  What are the response and hearing procedures?
602.43  How is a decision on limitation, suspension, or termination of 
          recognition reached?

                      Appeal Rights and Procedures

602.44  How may an agency appeal the subcommittee's recommendation?
602.45  May an agency appeal the Secretary's final decision to limit, 
          suspend, or terminate its recognition?

                 Subpart E--Department Responsibilities

602.50  What information does the Department share with a recognized 
          agency about its accredited institutions and programs?

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

    Source: 64 FR 56617, Oct. 20, 1999, unless otherwise noted.

[[Page 198]]



                           Subpart A--General



Sec. 602.1  Why does the Secretary recognize accrediting agencies?

    (a) The Secretary recognizes accrediting agencies to ensure that 
these agencies are, for the purposes of the Higher Education Act of 
1965, as amended (HEA), or for other Federal purposes, reliable 
authorities regarding the quality of education or training offered by 
the institutions or programs they accredit.
    (b) The Secretary lists an agency as a nationally recognized 
accrediting agency if the agency meets the criteria for recognition 
listed in subpart B of this part.

(Authority: 20 U.S.C. 1099b)



Sec. 602.2  How do I know which agencies the Secretary recognizes?

    (a) Periodically, the Secretary publishes a list of recognized 
agencies in the Federal Register, together with each agency's scope of 
recognition. You may obtain a copy of the list from the Department at 
any time. The list is also available on the Department's web site.
    (b) If the Secretary denies continued recognition to a previously 
recognized agency, or if the Secretary limits, suspends, or terminates 
the agency's recognition before the end of its recognition period, the 
Secretary publishes a notice of that action in the Federal Register. The 
Secretary also makes the reasons for the action available to the public, 
on request.

(Authority: 20 U.S.C. 1099b)



Sec. 602.3  What definitions apply to this part?

    The following definitions apply to this part:
    Accreditation means the status of public recognition that an 
accrediting agency grants to an educational institution or program that 
meets the agency's standards and requirements.
    Accrediting agency or agency means a legal entity, or that part of a 
legal entity, that conducts accrediting activities through voluntary, 
non-Federal peer review and makes decisions concerning the accreditation 
or preaccreditation status of institutions, programs, or both.
    Act means the Higher Education Act of 1965, as amended.
    Adverse accrediting action or adverse action means the denial, 
withdrawal, suspension, revocation, or termination of accreditation or 
preaccreditation, or any comparable accrediting action an agency may 
take against an institution or program.
    Advisory Committee means the National Advisory Committee on 
Institutional Quality and Integrity.
    Branch campus means a location of an institution that meets the 
definition of branch campus in 34 CFR 600.2.
    Distance education means an educational process that is 
characterized by the separation, in time or place, between instructor 
and student. The term includes courses offered principally through the 
use of--
    (1) Television, audio, or computer transmission, such as open 
broadcast, closed circuit, cable, microwave, or satellite transmission;
    (2) Audio or computer conferencing;
    (3) Video cassettes or disks; or
    (4) Correspondence.
    Final accrediting action means a final determination by an 
accrediting agency regarding the accreditation or preaccreditation 
status of an institution or program. A final accrediting action is not 
appealable within the agency.
    Institution of higher education or institution means an educational 
institution that qualifies, or may qualify, as an eligible institution 
under 34 CFR part 600.
    Institutional accrediting agency means an agency that accredits 
institutions of higher education.
    Nationally recognized accrediting agency, nationally recognized 
agency, or recognized agency means an accrediting agency that the 
Secretary recognizes under this part.
    Preaccreditation means the status of public recognition that an 
accrediting agency grants to an institution or program for a limited 
period of time that signifies the agency has determined that the 
institution or program is progressing towards accreditation and is 
likely to attain accreditation before

[[Page 199]]

the expiration of that limited period of time.
    Program means a postsecondary educational program offered by an 
institution of higher education that leads to an academic or 
professional degree, certificate, or other recognized educational 
credential.
    Programmatic accrediting agency means an agency that accredits 
specific educational programs that prepare students for entry into a 
profession, occupation, or vocation.
    Representative of the public means a person who is not--
    (1) An employee, member of the governing board, owner, or 
shareholder of, or consultant to, an institution or program that either 
is accredited or preaccredited by the agency or has applied for 
accreditation or preaccreditation;
    (2) A member of any trade association or membership organization 
related to, affiliated with, or associated with the agency; or
    (3) A spouse, parent, child, or sibling of an individual identified 
in paragraph (1) or (2) of this definition.
    Scope of recognition or scope means the range of accrediting 
activities for which the Secretary recognizes an agency. The Secretary 
may place a limitation on the scope of an agency's recognition for Title 
IV, HEA purposes. The Secretary's designation of scope defines the 
recognition granted according to--
    (1) Geographic area of accrediting activities;
    (2) Types of degrees and certificates covered;
    (3) Types of institutions and programs covered;
    (4) Types of preaccreditation status covered, if any; and
    (5) Coverage of accrediting activities related to distance 
education, if any.
    Secretary means the Secretary of the U.S. Department of Education or 
any official or employee of the Department acting for the Secretary 
under a delegation of authority.
    Senior Department official means the senior official in the U.S. 
Department of Education who reports directly to the Secretary regarding 
accrediting agency recognition.
    State means a State of the Union, American Samoa, the Commonwealth 
of Puerto Rico, the District of Columbia, Guam, the United States Virgin 
Islands, the Commonwealth of the Northern Mariana Islands, the Republic 
of the Marshall Islands, the Federated States of Micronesia, and the 
Republic of Palau. The latter three are also known as the Freely 
Associated States.
    Teach-out agreement means a written agreement between institutions 
that provides for the equitable treatment of students if one of those 
institutions stops offering an educational program before all students 
enrolled in that program have completed the program.

(Authority: 20 U.S.C. 1099b)



                 Subpart B--The Criteria for Recognition

                     Basic Eligibility Requirements



Sec. 602.10  Link to Federal programs.

    The agency must demonstrate that--
    (a) If the agency accredits institutions of higher education, its 
accreditation is a required element in enabling at least one of those 
institutions to establish eligibility to participate in HEA programs; or
    (b) If the agency accredits institutions of higher education or 
higher education programs, or both, its accreditation is a required 
element in enabling at least one of those entities to establish 
eligibility to participate in non-HEA Federal programs.

(Authority: 20 U.S.C. 1099b)



Sec. 602.11  Geographic scope of accrediting activities.

    The agency must demonstrate that its accrediting activities cover--
    (a) A State, if the agency is part of a State government;
    (b) A region of the United States that includes at least three 
States that are reasonably close to one another; or
    (c) The United States.

(Authority: 20 U.S.C. 1099b)



Sec. 602.12  Accrediting experience.

    (a) An agency seeking initial recognition must demonstrate that it 
has--
    (1) Granted accreditation or preaccreditation--

[[Page 200]]

    (i) To one or more institutions if it is requesting recognition as 
an institutional accrediting agency and to one or more programs if it is 
requesting recognition as a programmatic accrediting agency;
    (ii) That covers the range of the specific degrees, certificates, 
institutions, and programs for which it seeks recognition; and
    (iii) In the geographic area for which it seeks recognition; and
    (2) Conducted accrediting activities, including deciding whether to 
grant or deny accreditation or preaccreditation, for at least two years 
prior to seeking recognition.
    (b) A recognized agency seeking an expansion of its scope of 
recognition must demonstrate that it has granted accreditation or 
preaccreditation covering the range of the specific degrees, 
certificates, institutions, and programs for which it seeks the 
expansion of scope.

(Authority: 20 U.S.C. 1099b)



Sec. 602.13  Acceptance of the agency by others.

    The agency must demonstrate that its standards, policies, 
procedures, and decisions to grant or deny accreditation are widely 
accepted in the United States by--
    (a) Educators and educational institutions; and
    (b) Licensing bodies, practitioners, and employers in the 
professional or vocational fields for which the educational institutions 
or programs within the agency's jurisdiction prepare their students.

(Authority: 20 U.S.C. 1099b)

             Organizational and Administrative Requirements



Sec. 602.14  Purpose and organization.

    (a) The Secretary recognizes only the following four categories of 
agencies:

------------------------------------------------------------------------
 The Secretary recognizes . .
              .                                that . . .
------------------------------------------------------------------------
(1) An accrediting agency....  (i) Has a voluntary membership of
                                institutions of higher education;
                               (ii) Has as a principal purpose the
                                accrediting of institutions of higher
                                education and that accreditation is a
                                required element in enabling those
                                institutions to participate in HEA
                                programs; and
                               (iii) Satisfies the ``separate and
                                independent'' requirements in paragraph
                                (b) of this section.
(2) An accrediting agency....  (i) Has a voluntary membership; and
                               (ii) Has as its principal purpose the
                                accrediting of higher education
                                programs, or higher education programs
                                and institutions of higher education,
                                and that accreditation is a required
                                element in enabling those entities to
                                participate in non-HEA Federal programs.
(3) An accrediting agency....  for purposes of determining eligibility
                                for Title IV, HEA programs--
                               (i) Either has a voluntary membership of
                                individuals participating in a
                                profession or has as its principal
                                purpose the accrediting of programs
                                within institutions that are accredited
                                by a nationally recognized accrediting
                                agency; and
                               (ii) Either satisfies the ``separate and
                                independent'' requirements in paragraph
                                (b) of this section or obtains a waiver
                                of those requirements under paragraphs
                                (d) and (e) of this section.
(4) A State agency...........  (i) Has as a principal purpose the
                                accrediting of institutions of higher
                                education, higher education programs, or
                                both; and
                               (ii) The Secretary listed as a nationally
                                recognized accrediting agency on or
                                before October 1, 1991 and has
                                recognized continuously since that date.
------------------------------------------------------------------------

    (b) For purposes of this section, the term separate and independent 
means that--
    (1) The members of the agency's decision-making body--who decide the 
accreditation or preaccreditation status of institutions or programs, 
establish the agency's accreditation policies, or both--are not elected 
or selected by the board or chief executive officer of any related, 
associated, or affiliated trade association or membership organization;
    (2) At least one member of the agency's decision-making body is a 
representative of the public, and at least one-seventh of that body 
consists of representatives of the public;
    (3) The agency has established and implemented guide lines for each 
member of the decision-making body to

[[Page 201]]

avoid conflicts of interest in making decisions;
    (4) The agency's dues are paid separately from any dues paid to any 
related, associated, or affiliated trade association or membership 
organization; and
    (5) The agency develops and determines its own budget, with no 
review by or consultation with any other entity or organization.
    (c) The Secretary considers that any joint use of personnel, 
services, equipment, or facilities by an agency and a related, 
associated, or affiliated trade association or membership organization 
does not violate the ``separate and independent'' requirements in 
paragraph (b) of this section if--
    (1) The agency pays the fair market value for its proportionate 
share of the joint use; and
    (2) The joint use does not compromise the independence and 
confidentiality of the accreditation process.
    (d) For purposes of paragraph (a)(3) of this section, the Secretary 
may waive the ``separate and independent'' requirements in paragraph (b) 
of this section if the agency demonstrates that--
    (1) The Secretary listed the agency as a nationally recognized 
agency on or before October 1, 1991 and has recognized it continuously 
since that date;
    (2) The related, associated, or affiliated trade association or 
membership organization plays no role in making or ratifying either the 
accrediting or policy decisions of the agency;
    (3) The agency has sufficient budgetary and administrative autonomy 
to carry out its accrediting functions independently; and
    (4) The agency provides to the related, associated, or affiliated 
trade association or membership organization only information it makes 
available to the public.
    (e) An agency seeking a waiver of the ``separate and independent'' 
requirements under paragraph (d) of this section must apply for the 
waiver each time the agency seeks recognition or continued recognition.

(Authority: 20 U.S.C. 1099b)



Sec. 602.15  Administrative and fiscal responsibilities.

    The agency must have the administrative and fiscal capability to 
carry out its accreditation activities in light of its requested scope 
of recognition. The agency meets this requirement if the agency 
demonstrates that--
    (a) The agency has--
    (1) Adequate administrative staff and financial resources to carry 
out its accrediting responsibilities;
    (2) Competent and knowledgeable individuals, qualified by education 
and experience in their own right and trained by the agency on its 
standards, policies, and procedures, to conduct its on-site evaluations, 
establish its policies, and make its accrediting and preaccrediting 
decisions;
    (3) Academic and administrative personnel on its evaluation, policy, 
and decision-making bodies, if the agency accredits institutions;
    (4) Educators and practitioners on its evaluation, policy, and 
decision-making bodies, if the agency accredits programs or single-
purpose institutions that prepare students for a specific profession;
    (5) Representatives of the public on all decision-making bodies; and
    (6) Clear and effective controls against conflicts of interest, or 
the appearance of conflicts of interest, by the agency's--
    (i) Board members;
    (ii) Commissioners;
    (iii) Evaluation team members;
    (iv) Consultants;
    (v) Administrative staff; and
    (vi) Other agency representatives; and
    (b) The agency maintains complete and accurate records of--
    (1) Its last two full accreditation or preaccreditation reviews of 
each institution or program, including on-site evaluation team reports, 
the institution's or program's responses to on-site reports, periodic 
review reports, any reports of special reviews conducted by the agency 
between regular reviews, and a copy of the institution's or program's 
most recent self-study; and
    (2) All decisions regarding the accreditation and preaccreditation 
of any institution or program, including all

[[Page 202]]

correspondence that is significantly related to those decisions.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)

                Required Standards and Their Application



Sec. 602.16  Accreditation and preaccreditation standards.

    (a) The agency must demonstrate that it has standards for 
accreditation, and preaccreditation, if offered, that are sufficiently 
rigorous to ensure that the agency is a reliable authority regarding the 
quality of the education or training provided by the institutions or 
programs it accredits. The agency meets this requirement if--
    (1) The agency's accreditation standards effectively address the 
quality of the institution or program in the following areas:
    (i) Success with respect to student achievement in relation to the 
institution's mission, including, as appropriate, consideration of 
course completion, State licensing examination, and job placement rates.
    (ii) Curricula.
    (iii) Faculty.
    (iv) Facilities, equipment, and supplies.
    (v) Fiscal and administrative capacity as appropriate to the 
specified scale of operations.
    (vi) Student support services.
    (vii) Recruiting and admissions practices, academic calendars, 
catalogs, publications, grading, and advertising.
    (viii) Measures of program length and the objectives of the degrees 
or credentials offered.
    (ix) Record of student complaints received by, or available to, the 
agency.
    (x) Record of compliance with the institution's program 
responsibilities under Title IV of the Act, based on the most recent 
student loan default rate data provided by the Secretary, the results of 
financial or compliance audits, program reviews, and any other 
information that the Secretary may provide to the agency; and
    (2) The agency's preaccreditation standards, if offered, are 
appropriately related to the agency's accreditation standards and do not 
permit the institution or program to hold preaccreditation status for 
more than five years.
    (b) If the agency only accredits programs and does not serve as an 
institutional accrediting agency for any of those programs, its 
accreditation standards must address the areas in paragraph (a)(1) of 
this section in terms of the type and level of the program rather than 
in terms of the institution.
    (c) If none of the institutions an agency accredits participates in 
any Title IV, HEA program, or if the agency only accredits programs 
within institutions that are accredited by a nationally recognized 
institutional accrediting agency, the agency is not required to have the 
accreditation standards described in paragraphs (a)(1)(viii) and 
(a)(1)(x) of this section.
    (d) An agency that has established and applies the standards in 
paragraph (a) of this section may establish any additional accreditation 
standards it deems appropriate.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)



Sec. 602.17  Application of standards in reaching an accrediting decision.

    The agency must have effective mechanisms for evaluating an 
institution's or program's compliance with the agency's standards before 
reaching a decision to accredit or preaccredit the institution or 
program. The agency meets this requirement if the agency demonstrates 
that it--
    (a) Evaluates whether an institution or program--
    (1) Maintains clearly specified educational objectives that are 
consistent with its mission and appropriate in light of the degrees or 
certificates awarded;
    (2) Is successful in achieving its stated objectives; and
    (3) Maintains degree and certificate requirements that at least 
conform to commonly accepted standards;
    (b) Requires the institution or program to prepare, following 
guidance provided by the agency, an in-depth self-study that includes 
the assessment

[[Page 203]]

of educational quality and the institution's or program's continuing 
efforts to improve educational quality;
    (c) Conducts at least one on-site review of the institution or 
program during which it obtains sufficient information to determine if 
the institution or program complies with the agency's standards;
    (d) Allows the institution or program the opportunity to respond in 
writing to the report of the on-site review;
    (e) Conducts its own analysis of the self-study and supporting 
documentation furnished by the institution or program, the report of the 
on-site review, the institution's or program's response to the report, 
and any other appropriate information from other sources to determine 
whether the institution or program complies with the agency's standards; 
and
    (f) Provides the institution or program with a detailed written 
report that assesses--
    (1) The institution's or program's compliance with the agency's 
standards, including areas needing improvement; and
    (2) The institution's or program's performance with respect to 
student achievement.

(Authority: 20 U.S.C. 1099b)



Sec. 602.18  Ensuring consistency in decision-making.

    The agency must consistently apply and enforce its standards to 
ensure that the education or training offered by an institution or 
program, including any offered through distance education, is of 
sufficient quality to achieve its stated objective for the duration of 
any accreditation or preaccreditation period granted by the agency. The 
agency meets this requirement if the agency--
    (a) Has effective controls against the inconsistent application of 
the agency's standards;
    (b) Bases decisions regarding accreditation and preaccreditation on 
the agency's published standards; and
    (c) Has a reasonable basis for determining that the information the 
agency relies on for making accrediting decisions is accurate.

(Authority: 20 U.S.C. 1099b)



Sec. 602.19  Monitoring and reevaluation of accredited institutions and programs.

    (a) The agency must reevaluate, at regularly established intervals, 
the institutions or programs it has accredited or preaccredited.
    (b) The agency must monitor institutions or programs throughout 
their accreditation or preaccreditation period to ensure that they 
remain in compliance with the agency's standards. This includes 
conducting special evaluations or site visits, as necessary.

(Authority: 20 U.S.C. 1099b)



Sec. 602.20  Enforcement of standards.

    (a) If the agency's review of an institution or program under any 
standard indicates that the institution or program is not in compliance 
with that standard, the agency must--
    (1) Immediately initiate adverse action against the institution or 
program; or
    (2) Require the institution or program to take appropriate action to 
bring itself into compliance with the agency's standards within a time 
period that must not exceed--
    (i) Twelve months, if the program, or the longest program offered by 
the institution, is less than one year in length;
    (ii) Eighteen months, if the program, or the longest program offered 
by the institution, is at least one year, but less than two years, in 
length; or
    (iii) Two years, if the program, or the longest program offered by 
the institution, is at least two years in length.
    (b) If the institution or program does not bring itself into 
compliance within the specified period, the agency must take immediate 
adverse action unless the agency, for good cause, extends the period for 
achieving compliance.

(Authority: 20 U.S.C. 1099b)



Sec. 602.21  Review of standards.

    (a) The agency must maintain a systematic program of review that 
demonstrates that its standards are adequate to evaluate the quality of 
the education or training provided by the institutions and programs it 
accredits and relevant to the educational or training needs of students.

[[Page 204]]

    (b) The agency determines the specific procedures it follows in 
evaluating its standards, but the agency must ensure that its program of 
review--
    (1) Is comprehensive;
    (2) Occurs at regular, yet reasonable, intervals or on an ongoing 
basis;
    (3) Examines each of the agency's standards and the standards as a 
whole; and
    (4) Involves all of the agency's relevant constituencies in the 
review and affords them a meaningful opportunity to provide input into 
the review.
    (c) If the agency determines, at any point during its systematic 
program of review, that it needs to make changes to its standards, the 
agency must initiate action within 12 months to make the changes and 
must complete that action within a reasonable period of time. Before 
finalizing any changes to its standards, the agency must--
    (1) Provide notice to all of the agency's relevant constituencies, 
and other parties who have made their interest known to the agency, of 
the changes the agency proposes to make;
    (2) Give the constituencies and other interested parties adequate 
opportunity to comment on the proposed changes; and
    (3) Take into account any comments on the proposed changes submitted 
timely by the relevant constituencies and by other interested parties.

(Authority: 20 U.S.C. 1099b)

               Required Operating Policies and Procedures



Sec. 602.22  Substantive change.

    (a) If the agency accredits institutions, it must maintain adequate 
substantive change policies that ensure that any substantive change to 
the educational mission, program, or programs of an institution after 
the agency has accredited or preaccredited the institution does not 
adversely affect the capacity of the institution to continue to meet the 
agency's standards. The agency meets this requirement if--
    (1) The agency requires the institution to obtain the agency's 
approval of the substantive change before the agency includes the change 
in the scope of accreditation or preaccreditation it previously granted 
to the institution; and
    (2) The agency's definition of substantive change includes at least 
the following types of change:
    (i) Any change in the established mission or objectives of the 
institution.
    (ii) Any change in the legal status, form of control, or ownership 
of the institution.
    (iii) The addition of courses or programs that represent a 
significant departure, in either content or method of delivery, from 
those that were offered when the agency last evaluated the institution.
    (iv) The addition of courses or programs at a degree or credential 
level above that which is included in the institution's current 
accreditation or preaccreditation.
    (v) A change from clock hours to credit hours.
    (vi) A substantial increase in the number of clock or credit hours 
awarded for successful completion of a program.
    (vii) The establishment of an additional location geographically 
apart from the main campus at which the institution offers at least 50 
percent of an educational program.
    (b) The agency may determine the procedures it uses to grant prior 
approval of the substantive change. Except as provided in paragraph (c) 
of this section, these may, but need not, require a visit by the agency.
    (c) If the agency's accreditation of an institution enables the 
institution to seek eligibility to participate in Title IV, HEA 
programs, the agency's procedures for the approval of an additional 
location described in paragraph (a)(2)(vii) of this section must 
determine if the institution has the fiscal and administrative capacity 
to operate the additional location. In addition, the agency's procedures 
must include--
    (1) A visit, within six months, to each additional location the 
institution establishes, if the institution--
    (i) Has a total of three or fewer additional locations;
    (ii) Has not demonstrated, to the agency's satisfaction, that it has 
a proven record of effective educational oversight of additional 
locations; or

[[Page 205]]

    (iii) Has been placed on warning, probation, or show cause by the 
agency or is subject to some limitation by the agency on its 
accreditation or preaccreditation status;
    (2) An effective mechanism for conducting, at reasonable intervals, 
visits to additional locations of institutions that operate more than 
three additional locations; and
    (3) An effective mechanism, which may, at the agency's discretion, 
include visits to additional locations, for ensuring that accredited and 
preaccredited institutions that experience rapid growth in the number of 
additional locations maintain educational quality.
    (d) The purpose of the visits described in paragraph (c) of this 
section is to verify that the additional location has the personnel, 
facilities, and resources it claimed to have in its application to the 
agency for approval of the additional location.

(Authority: 20 U.S.C. 1099b)



Sec. 602.23  Operating procedures all agencies must have.

    (a) The agency must maintain and make available to the public, upon 
request, written materials describing--
    (1) Each type of accreditation and preaccreditation it grants;
    (2) The procedures that institutions or programs must follow in 
applying for accreditation or preaccreditation;
    (3) The standards and procedures it uses to determine whether to 
grant, reaffirm, reinstate, restrict, deny, revoke, terminate, or take 
any other action related to each type of accreditation and 
preaccreditation that the agency grants;
    (4) The institutions and programs that the agency currently 
accredits or preaccredits and, for each institution and program, the 
year the agency will next review or reconsider it for accreditation or 
preaccreditation; and
    (5) The names, academic and professional qualifications, and 
relevant employment and organizational affiliations of--
    (i) The members of the agency's policy and decision-making bodies; 
and
    (ii) The agency's principal administrative staff.
    (b) In providing public notice that an institution or program 
subject to its jurisdiction is being considered for accreditation or 
preaccreditation, the agency must provide an opportunity for third-party 
comment concerning the institution's or program's qualifications for 
accreditation or preaccreditation. At the agency's discretion, third-
party comment may be received either in writing or at a public hearing, 
or both.
    (c) The accrediting agency must--
    (1) Review in a timely, fair, and equitable manner any complaint it 
receives against an accredited institution or program that is related to 
the agency's standards or procedures;
    (2) Take follow-up action, as necessary, including enforcement 
action, if necessary, based on the results of its review; and
    (3) Review in a timely, fair, and equitable manner, and apply 
unbiased judgment to, any complaints against itself and take follow-up 
action, as appropriate, based on the results of its review.
    (d) If an institution or program elects to make a public disclosure 
of its accreditation or preaccreditation status, the agency must ensure 
that the institution or program discloses that status accurately, 
including the specific academic or instructional programs covered by 
that status and the name, address, and telephone number of the agency.
    (e) The accrediting agency must provide for the public correction of 
incorrect or misleading information an accredited or preaccredited 
institution or program releases about--
    (1) The accreditation or preaccreditation status of the institution 
or program;
    (2) The contents of reports of on-site reviews; and
    (3) The agency's accrediting or preaccrediting actions with respect 
to the institution or program.
    (f) The agency may establish any additional operating procedures it 
deems appropriate. At the agency's discretion, these may include 
unannounced inspections.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)

[[Page 206]]



Sec. 602.24  Additional procedures certain institutional accreditors must have.

    If the agency is an institutional accrediting agency and its 
accreditation or preaccreditation enables those institutions to obtain 
eligibility to participate in Title IV, HEA programs, the agency must 
demonstrate that it has established and uses all of the following 
procedures:
    (a) Branch campus. (1) The agency must require the institution to 
notify the agency if it plans to establish a branch campus and to submit 
a business plan for the branch campus that describes--
    (i) The educational program to be offered at the branch campus;
    (ii) The projected revenues and expenditures and cash flow at the 
branch campus; and
    (iii) The operation, management, and physical resources at the 
branch campus.
    (2) The agency may extend accreditation to the branch campus only 
after it evaluates the business plan and takes whatever other actions it 
deems necessary to determine that the branch campus has sufficient 
educational, financial, operational, management, and physical resources 
to meet the agency's standards.
    (3) The agency must undertake a site visit to the branch campus as 
soon as practicable, but no later than six months after the 
establishment of that campus.
    (b) Change in ownership. The agency must undertake a site visit to 
an institution that has undergone a change of ownership that resulted in 
a change of control as soon as practicable, but no later than six months 
after the change of ownership.
    (c) Teach-out agreements. (1) The agency must require an institution 
it accredits or preaccredits that enters into a teach-out agreement with 
another institution to submit that teach-out agreement to the agency for 
approval.
    (2) The agency may approve the teach-out agreement only if the 
agreement is between institutions that are accredited or preaccredited 
by a nationally recognized accrediting agency, is consistent with 
applicable standards and regulations, and provides for the equitable 
treatment of students by ensuring that--
    (i) The teach-out institution has the necessary experience, 
resources, and support services to provide an educational program that 
is of acceptable quality and reasonably similar in content, structure, 
and scheduling to that provided by the closed institution; and
    (ii) The teach-out institution demonstrates that it can provide 
students access to the program and services without requiring them to 
move or travel substantial distances.
    (3) If an institution the agency accredits or preaccredits closes, 
the agency must work with the Department and the appropriate State 
agency, to the extent feasible, to ensure that students are given 
reasonable opportunities to complete their education without additional 
charge.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)



Sec. 602.25  Due process.

    The agency must demonstrate that the procedures it uses throughout 
the accrediting process satisfy due process. The agency meets this 
requirement if the agency does the following:
    (a) The agency uses procedures that afford an institution or program 
a reasonable period of time to comply with the agency's requests for 
information and documents.
    (b) The agency notifies the institution or program in writing of any 
adverse accrediting action or an action to place the institution or 
program on probation or show cause. The notice describes the basis for 
the action.
    (c) The agency permits the institution or program the opportunity to 
appeal an adverse action and the right to be represented by counsel 
during that appeal. If the agency allows institutions or programs the 
right to appeal other types of actions, the agency has the discretion to 
limit the appeal to a written appeal.
    (d) The agency notifies the institution or program in writing of the 
result of its appeal and the basis for that result.

(Authority: 20 U.S.C. 1099b)

[[Page 207]]



Sec. 602.26  Notification of accrediting decisions.

    The agency must demonstrate that it has established and follows 
written procedures requiring it to provide written notice of its 
accrediting decisions to the Secretary, the appropriate State licensing 
or authorizing agency, the appropriate accrediting agencies, and the 
public. The agency meets this requirement if the agency, following its 
written procedures--
    (a) Provides written notice of the following types of decisions to 
the Secretary, the appropriate State licensing or authorizing agency, 
the appropriate accrediting agencies, and the public no later than 30 
days after it makes the decision:
    (1) A decision to award initial accreditation or preaccreditation to 
an institution or program.
    (2) A decision to renew an institution's or program's accreditation 
or preaccreditation;
    (b) Provides written notice of the following types of decisions to 
the Secretary, the appropriate State licensing or authorizing agency, 
and the appropriate accrediting agencies at the same time it notifies 
the institution or program of the decision, but no later than 30 days 
after it reaches the decision:
    (1) A final decision to place an institution or program on probation 
or an equivalent status.
    (2) A final decision to deny, withdraw, suspend, revoke, or 
terminate the accreditation or preaccreditation of an institution or 
program;
    (c) Provides written notice to the public of the decisions listed in 
paragraphs (b)(1) and (b)(2) of this section within 24 hours of its 
notice to the institution or program;
    (d) For any decision listed in paragraph (b)(2) of this section, 
makes available to the Secretary, the appropriate State licensing or 
authorizing agency, and the public upon request, no later than 60 days 
after the decision, a brief statement summarizing the reasons for the 
agency's decision and the comments, if any, that the affected 
institution or program may wish to make with regard to that decision; 
and
    (e) Notifies the Secretary, the appropriate State licensing or 
authorizing agency, the appropriate accrediting agencies, and, upon 
request, the public if an accredited or preaccredited institution or 
program--
    (1) Decides to withdraw voluntarily from accreditation or 
preaccreditation, within 30 days of receiving notification from the 
institution or program that it is withdrawing voluntarily from 
accreditation or preaccreditation; or
    (2) Lets its accreditation or preaccreditation lapse, within 30 days 
of the date on which accreditation or preaccreditation lapses.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)



Sec. 602.27  Other information an agency must provide the Department.

    The agency must submit to the Department--
    (a) A copy of any annual report it prepares;
    (b) A copy, updated annually, of its directory of accredited and 
preaccredited institutions and programs;
    (c) A summary of the agency's major accrediting activities during 
the previous year (an annual data summary), if requested by the 
Secretary to carry out the Secretary's responsibilities related to this 
part;
    (d) Any proposed change in the agency's policies, procedures, or 
accreditation or preaccreditation standards that might alter its--
    (1) Scope of recognition; or
    (2) Compliance with the criteria for recognition;
    (e) The name of any institution or program it accredits that the 
agency has reason to believe is failing to meet its Title IV, HEA 
program responsibilities or is engaged in fraud or abuse, along with the 
agency's reasons for concern about the institution or program; and
    (f) If the Secretary requests, information that may bear upon an 
accredited or preaccredited institution's compliance with its Title IV, 
HEA program responsibilities, including the eligibility of the 
institution or program to participate in Title IV, HEA programs. The 
Secretary may ask for this information to assist the Department in 
resolving problems with the institution's

[[Page 208]]

participation in the Title IV, HEA programs.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)



Sec. 602.28  Regard for decisions of States and other accrediting agencies.

    (a) If the agency is an institutional accrediting agency, it may not 
accredit or preaccredit institutions that lack legal authorization under 
applicable State law to provide a program of education beyond the 
secondary level.
    (b) Except as provided in paragraph (c) of this section, the agency 
may not grant initial or renewed accreditation or preaccreditation to an 
institution, or a program offered by an institution, if the agency 
knows, or has reasonable cause to know, that the institution is the 
subject of--
    (1) A pending or final action brought by a State agency to suspend, 
revoke, withdraw, or terminate the institution's legal authority to 
provide postsecondary education in the State;
    (2) A decision by a recognized agency to deny accreditation or 
preaccreditation;
    (3) A pending or final action brought by a recognized accrediting 
agency to suspend, revoke, withdraw, or terminate the institution's 
accreditation or preaccreditation; or
    (4) Probation or an equivalent status imposed by a recognized 
agency.
    (c) The agency may grant accreditation or preaccreditation to an 
institution or program described in paragraph (b) of this section only 
if it provides to the Secretary, within 30 days of its action, a 
thorough and reasonable explanation, consistent with its standards, why 
the action of the other body does not preclude the agency's grant of 
accreditation or preaccreditation.
    (d) If the agency learns that an institution it accredits or 
preaccredits, or an institution that offers a program it accredits or 
preaccredits, is the subject of an adverse action by another recognized 
accrediting agency or has been placed on probation or an equivalent 
status by another recognized agency, the agency must promptly review its 
accreditation or preaccreditation of the institution or program to 
determine if it should also take adverse action or place the institution 
or program on probation or show cause.
    (e) The agency must, upon request, share with other appropriate 
recognized accrediting agencies and recognized State approval agencies 
information about the accreditation or preaccreditation status of an 
institution or program and any adverse actions it has taken against an 
accredited or preaccredited institution or program.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)



                   Subpart C--The Recognition Process

               Application and Review by Department Staff



Sec. 602.30  How does an agency apply for recognition?

    (a) An accrediting agency seeking initial or continued recognition 
must submit a written application to the Secretary. The application must 
consist of--
    (1) A statement of the agency's requested scope of recognition;
    (2) Evidence that the agency complies with the criteria for 
recognition listed in subpart B of this part; and
    (3) Supporting documentation.
    (b) By submitting an application for recognition, the agency 
authorizes Department staff to observe its site visits and decision 
meetings and to gain access to agency records, personnel, and facilities 
on an announced or unannounced basis.
    (c) The Secretary does not make available to the public any 
confidential agency materials a Department employee reviews during the 
evaluation of either the agency's application for recognition or the 
agency's compliance with the criteria for recognition.

(Approved by the Office of Management and Budget under control number 
1845-0003)

(Authority: 20 U.S.C. 1099b)



Sec. 602.31  How does Department staff review an agency's application?

    (a) Upon receipt of an agency's application for either initial or 
continued recognition, Department staff--

[[Page 209]]

    (1) Establishes a schedule for the review of the agency by 
Department staff, the National Advisory Committee on Institutional 
Quality and Integrity, and the Secretary;
    (2) Publishes a notice of the agency's application in the Federal 
Register, inviting the public to comment on the agency's compliance with 
the criteria for recognition and establishing a deadline for receipt of 
public comment; and
    (3) Provides State licensing or authorizing agencies, all currently 
recognized accrediting agencies, and other appropriate organizations 
with copies of the Federal Register notice.
    (b) Department staff analyzes the agency's application to determine 
whether the agency satisfies the criteria for recognition, taking into 
account all available relevant information concerning the compliance of 
the agency with those criteria and any deficiencies in the agency's 
performance with respect to the criteria. The analysis includes--
    (1) Site visits, on an announced or unannounced basis, to the agency 
and, at the Secretary's discretion, to some of the institutions or 
programs it accredits or preaccredits;
    (2) Review of the public comments and other third-party information 
the Department staff receives by the established deadline, as well as 
any other information Department staff assembles for purposes of 
evaluating the agency under this part; and
    (3) Review of complaints or legal actions involving the agency.
    (c) Department staff's evaluation may also include a review of 
information directly related to institutions or programs accredited or 
preaccredited by the agency relative to their compliance with the 
agency's standards, the effectiveness of the standards, and the agency's 
application of those standards.
    (d) If, at any point in its evaluation of an agency seeking initial 
recognition, Department staff determines that the agency fails to 
demonstrate substantial compliance with the basic eligibility 
requirements in Secs. 602.10 through 602.13, the staff--
    (1) Returns the agency's application and provides the agency with an 
explanation of the deficiencies that caused staff to take that action; 
and
    (2) Recommends that the agency withdraw its application and reapply 
when the agency can demonstrate compliance.
    (e) Except with respect to an application that is withdrawn under 
paragraph (d) of this section, when Department staff completes its 
evaluation of the agency, the staff--
    (1) Prepares a written analysis of the agency, which includes a 
recognition recommendation;
    (2) Sends the analysis and all supporting documentation, including 
all third-party comments the Department received by the established 
deadline, to the agency no later than 45 days before the Advisory 
Committee meeting; and
    (3) Invites the agency to provide a written response to the staff 
analysis and third-party comments, specifying a deadline for the 
response that is at least two weeks before the Advisory Committee 
meeting.
    (f) If Department staff fails to provide the agency with the 
materials described in paragraph (e)(2) of this section at least 45 days 
before the Advisory Committee meeting, the agency may request that the 
Advisory Committee defer acting on the application at that meeting. If 
Department staff's failure to send the materials at least 45 days before 
the Advisory Committee meeting is due to the failure of the agency to 
submit reports or other information the Secretary requested by the 
deadline the Secretary established, the agency forfeits its right to 
request a deferral.
    (g) Department staff reviews any response to the staff analysis that 
the agency submits. If necessary, Department staff prepares an addendum 
to the staff analysis and provides the agency with a copy.
    (h) Before the Advisory Committee meeting, Department staff provides 
the Advisory Committee with the following information:
    (1) The agency's application for recognition and supporting 
documentation.
    (2) The Department staff analysis of the agency.
    (3) Any written third-party comments the Department received about

[[Page 210]]

the agency on or before the established deadline.
    (4) Any agency response to either the Department staff analysis or 
third-party comments.
    (5) Any addendum to the Department staff analysis.
    (6) Any other information Department staff relied on in developing 
its analysis.
    (i) At least 30 days before the Advisory Committee meeting, the 
Department publishes a notice of the meeting in the Federal Register 
inviting interested parties, including those who submitted third-party 
comments concerning the agency's compliance with the criteria for 
recognition, to make oral presentations before the Advisory Committee.

(Authority: 20 U.S.C. 1099b)

 Review by the National Advisory Committee on Institutional Quality and 
                                Integrity



Sec. 602.32  What is the role of the Advisory Committee and the senior 
Department official in the review of an agency's application?

    (a) The Advisory Committee considers an agency's application for 
recognition at a public meeting and invites Department staff, the 
agency, and other interested parties to make oral presentations at the 
meeting. A transcript is made of each Advisory Committee meeting.
    (b) When it concludes its review, the Advisory Committee recommends 
that the Secretary either approve or deny recognition or that the 
Secretary defer a decision on the agency's application for recognition.
    (1)(i) The Advisory Committee recommends approval of recognition if 
the agency complies with the criteria for recognition listed in subpart 
B of this part and if the agency is effective in its performance with 
respect to those criteria.
    (ii) If the Advisory Committee recommends approval, the Advisory 
Committee also recommends a recognition period and a scope of 
recognition.
    (iii) If the recommended scope or period of recognition is less than 
that requested by the agency, the Advisory Committee explains its 
reasons for recommending the lesser scope or recognition period.
    (2)(i) If the agency fails to comply with the criteria for 
recognition in subpart B of this part, or if the agency is not effective 
in its performance with respect to those criteria, the Advisory 
Committee recommends denial of recognition, unless the Advisory 
Committee concludes that a deferral under paragraph (b)(3) of this 
section is warranted.
    (ii) If the Advisory Committee recommends denial, the Advisory 
Committee specifies the reasons for its recommendation, including all 
criteria the agency fails to meet and all areas in which the agency 
fails to perform effectively.
    (3)(i) The Advisory Committee may recommend deferral of a decision 
on recognition if it concludes that the agency's deficiencies do not 
warrant immediate loss of recognition and if it concludes that the 
agency will demonstrate or achieve compliance with the criteria for 
recognition and effective performance with respect to those criteria 
before the expiration of the deferral period.
    (ii) In its deferral recommendation, the Advisory Committee states 
the bases for its conclusions, specifies any criteria for recognition 
the agency fails to meet, and identifies any areas in which the agency 
fails to perform effectively with respect to the criteria.
    (iii) The Advisory Committee also recommends a deferral period, 
which may not exceed 12 months, either as a single deferral period or in 
combination with any expiring deferral period in which similar 
deficiencies in compliance or performance were cited by the Secretary.
    (c) At the conclusion of its meeting, the Advisory Committee 
forwards its recommendations to the Secretary through the senior 
Department official.
    (d) For any Advisory Committee recommendation not appealed under 
Sec. 602.33, the senior Department official includes with the Advisory 
Committee materials forwarded to the Secretary a memorandum containing 
the senior Department official's recommendations regarding the actions 
proposed by the Advisory Committee.

(Authority: 20 U.S.C. 1099b and 1145)

[[Page 211]]



Sec. 602.33  How may an agency appeal a recommendation of the Advisory 
Committee?

    (a) Either the agency or the senior Department official may appeal 
the Advisory Committee's recommendation. If a party wishes to appeal, 
that party must--
    (1) Notify the Secretary and the other party in writing of its 
intent to appeal the recommendation no later than 10 days after the 
Advisory Committee meeting;
    (2) Submit its appeal in writing to the Secretary no later than 30 
days after the Advisory Committee meeting; and
    (3) Provide the other party with a copy of the appeal at the same 
time it submits the appeal to the Secretary.
    (b) The non-appealing party may file a written response to the 
appeal. If that party wishes to do so, it must--
    (1) Submit its response to the Secretary no later than 30 days after 
receiving its copy of the appeal; and
    (2) Provide the appealing party with a copy of its response at the 
same time it submits its response to the Secretary.
    (c) Neither the agency nor the senior Department official may 
include any new evidence in its submission; i.e., evidence it did not 
previously submit to the Advisory Committee.

(Authority: 20 U.S.C. 1099b and 1145)

                  Review and Decision by the Secretary



Sec. 602.34  What does the Secretary consider when making a recognition 
decision?

    The Secretary makes the decision regarding recognition of an agency 
based on the entire record of the agency's application, including the 
following:
    (a) The Advisory Committee's recommendation.
    (b) The senior Department official's recommendation, if any.
    (c) The agency's application and supporting documentation.
    (d) The Department staff analysis of the agency.
    (e) All written third-party comments forwarded by Department staff 
to the Advisory Committee for consideration at the meeting.
    (f) Any agency response to the Department staff analysis and third-
party comments.
    (g) Any addendum to the Department staff analysis.
    (h) All oral presentations at the Advisory Committee meeting.
    (i) Any materials submitted by the parties, within the established 
timeframes, in an appeal taken in accordance with Sec. 602.33.

(Authority: 20 U.S.C. 1099b)



Sec. 602.35  What information does the Secretary's recognition decision 
include?

    (a) The Secretary notifies the agency in writing of the Secretary's 
decision regarding the agency's application for recognition.
    (b) The Secretary either approves or denies recognition or defers a 
decision on the agency's application for recognition.
    (1)(i) The Secretary approves recognition if the agency complies 
with the criteria for recognition listed in subpart B of this part and 
if the agency is effective in its performance with respect to those 
criteria.
    (ii) If the Secretary approves recognition, the Secretary's 
recognition decision defines the scope of recognition and the 
recognition period.
    (iii) If the scope or period of recognition is less than that 
requested by the agency, the Secretary explains the reasons for 
approving a lesser scope or recognition period.
    (2)(i) If the agency fails to comply with the criteria for 
recognition in subpart B of this part, or if the agency is not effective 
in its performance with respect to those criteria, the Secretary denies 
recognition, unless the Secretary concludes that a deferral under 
paragraph (b)(3) of this section is warranted.
    (ii) If the Secretary denies recognition, the Secretary specifies 
the reasons for this decision, including all criteria the agency fails 
to meet and all areas in which the agency fails to perform effectively.
    (3)(i) The Secretary may defer a decision on recognition if the 
Secretary concludes that the agency's deficiencies do not warrant 
immediate loss

[[Page 212]]

of recognition and if the Secretary concludes that the agency will 
demonstrate or achieve compliance with the criteria for recognition and 
effective performance with respect to those criteria before the 
expiration of the deferral period.
    (ii) In the deferral decision, the Secretary states the bases for 
the Secretary's conclusions, specifies any criteria for recognition the 
agency fails to meet, and identifies any areas in which the agency fails 
to perform effectively with respect to the criteria.
    (iii) The Secretary also establishes a deferral period, which begins 
on the date of the Secretary's decision.
    (iv) The deferral period may not exceed 12 months, either as a 
single deferral period or in combination with any expiring deferral 
period in which similar deficiencies in compliance or performance were 
cited by the Secretary, except that the Secretary may grant an extension 
of an expiring deferral period at the request of the agency for good 
cause shown.
    (c) The recognition period may not exceed five years.
    (d) If the Secretary does not reach a final decision to approve or 
deny an agency's application for continued recognition before the 
expiration of its recognition period, the Secretary automatically 
extends the recognition period until the final decision is reached.

(Authority: 20 U.S.C. 1099b)



Sec. 602.36  May an agency appeal the Secretary's final recognition decision?

    An agency may appeal the Secretary's decision under this part in the 
Federal courts as a final decision in accordance with applicable Federal 
law.

(Authority: 20 U.S.C. 1099b)



    Subpart D--Limitation, Suspension, or Termination of Recognition 
           Limitation, Suspension, and Termination Procedures



Sec. 602.40  How may the Secretary limit, suspend, or terminate an 
agency's recognition?

    (a) If the Secretary determines, after notice and an opportunity for 
a hearing, that a recognized agency does not comply with the criteria 
for recognition in subpart B of this part or that the agency is not 
effective in its performance with respect to those criteria, the 
Secretary--
    (1) Limits, suspends, or terminates the agency's recognition; or
    (2) Requires the agency to take appropriate action to bring itself 
into compliance with the criteria and achieve effectiveness within a 
timeframe that may not exceed 12 months.
    (b) If, at the conclusion of the timeframe specified in paragraph 
(a)(2) of this section, the Secretary determines, after notice and an 
opportunity for a hearing, that the agency has failed to bring itself 
into compliance or has failed to achieve effectiveness, the Secretary 
limits, suspends, or terminates recognition, unless the Secretary 
extends the timeframe, on request by the agency for good cause shown.

(Authority: 20 U.S.C. 1099b).



Sec. 602.41  What are the notice procedures?

    (a) Department staff initiates an action to limit, suspend, or 
terminate an agency's recognition by notifying the agency in writing of 
the Secretary's intent to limit, suspend, or terminate recognition. The 
notice--
    (1) Describes the specific action the Secretary seeks to take 
against the agency and the reasons for that action, including the 
criteria with which the agency has failed to comply;
    (2) Specifies the effective date of the action; and
    (3) Informs the agency of its right to respond to the notice and 
request a hearing.
    (b) Department staff may send the notice described in paragraph (a) 
of this section at any time the staff concludes that the agency fails to 
comply with the criteria for recognition in subpart B of this part or is 
not effective in its performance with respect to those criteria.

(Authority: 20 U.S.C. 1099b)



Sec. 602.42  What are the response and hearing procedures?

    (a) If the agency wishes either to respond to the notice or request 
a hearing, or both, it must do so in writing no later than 30 days after 
it receives the

[[Page 213]]

notice of the Secretary's intent to limit, suspend, or terminate 
recognition.
    (1) The agency's submission must identify the issues and facts in 
dispute and the agency's position on them.
    (2) If neither a response nor a request for a hearing is filed by 
the deadline, the notice of intent becomes a final decision by the 
Secretary.
    (b)(1) After receiving the agency's response and hearing request, if 
any, the Secretary chooses a subcommittee composed of five members of 
the Advisory Committee to adjudicate the matter and notifies the agency 
of the subcommittee's membership.
    (2) The agency may challenge membership of the subcommittee on 
grounds of conflict of interest on the part of one or more members and, 
if the agency's challenge is successful, the Secretary will replace the 
member or members challenged.
    (c) After the subcommittee has been selected, Department staff sends 
the members of the subcommittee copies of the notice to limit, suspend, 
or terminate recognition, along with the agency's response, if any.
    (d)(1) If a hearing is requested, it is held in Washington, DC, at a 
date and time set by Department staff.
    (2) A transcript is made of the hearing.
    (3) Except as provided in paragraph (e) of this section, the 
subcommittee allows Department staff, the agency, and any interested 
party to make an oral or written presentation, which may include the 
introduction of written and oral evidence.
    (e) On agreement by Department staff and the agency, the 
subcommittee review may be based solely on the written materials 
submitted.

(Authority: 20 U.S.C. 1099b)



Sec. 602.43  How is a decision on limitation, suspension, or termination 
of recognition reached?

    (a) After consideration of the notice of intent to limit, suspend, 
or terminate recognition, the agency's response, if any, and all 
submissions and presentations made at the hearing, if any, the 
subcommittee issues a written opinion and sends it to the Secretary, 
with copies to the agency and the senior Department official. The 
opinion includes--
    (1) Findings of fact, based on consideration of all the evidence, 
presentations, and submissions before the subcommittee;
    (2) A recommendation as to whether a limitation, suspension, or 
termination of the agency's recognition is warranted; and
    (3) The reasons supporting the subcommittee's recommendation.
    (b) Unless the subcommittee's recommendation is appealed under 
Sec. 602.44, the Secretary issues a final decision on whether to limit, 
suspend, or terminate the agency's recognition. The Secretary bases the 
decision on consideration of the full record before the subcommittee and 
the subcommittee's opinion.

(Authority: 20 U.S.C. 1099b)

                      Appeal Rights and Procedures



Sec. 602.44  How may an agency appeal the subcommittee's recommendation?

    (a) Either the agency or the senior Department official may appeal 
the subcommittee's recommendation. If a party wishes to appeal, that 
party must--
    (1) Notify the Secretary and the other party in writing of its 
intent to appeal the recommendation no later than 10 days after receipt 
of the recommendation;
    (2) Submit its appeal to the Secretary in writing no later than 30 
days after receipt of the recommendation; and
    (3) Provide the other party with a copy of the appeal at the same 
time it submits the appeal to the Secretary.
    (b) The non-appealing party may file a written response to the 
appeal. If that party wishes to do so, it must--
    (1) Submit its response to the Secretary no later than 30 days after 
receiving its copy of the appeal; and
    (2) Provide the appealing party with a copy of its response at the 
same time it submits its response to the Secretary.
    (c) Neither the agency nor the senior Department official may 
include any new evidence in its submission, i.e.,

[[Page 214]]

evidence it did not previously submit to the subcommittee.
    (d) If the subcommittee's recommendation is appealed, the Secretary 
renders a final decision after taking into account that recommendation 
and the parties' written submissions on appeal, as well as the entire 
record before the subcommittee and the subcommittee's opinion.

(Authority: 20 U.S.C. 1099b)



Sec. 602.45  May an agency appeal the Secretary's final decision to limit, 
suspend, or terminate its recognition?

    An agency may appeal the Secretary's final decision limiting, 
suspending, or terminating its recognition to the Federal courts as a 
final decision in accordance with applicable Federal law.

(Authority: 20 U.S.C. 1099b)



                 Subpart E--Department Responsibilities



Sec. 602.50  What information does the Department share with a recognized 
agency about its accredited institutions and programs?

    (a) If the Department takes an action against an institution or 
program accredited by the agency, it notifies the agency no later than 
10 days after taking that action.
    (b) If another Federal agency or a State agency notifies the 
Department that it has taken an action against an institution or program 
accredited by the agency, the Department notifies the agency as soon as 
possible but no later than 10 days after receiving the written notice 
from the other Government agency.

(Authority: 20 U.S.C. 1099b)



PART 603--SECRETARY'S RECOGNITION PROCEDURES FOR STATE AGENCIES--Table of 
Contents




Subpart A [Reserved]

                 Subpart B--Criteria for State Agencies

Sec.
603.20  Scope.
603.21  Publication of list.
603.22  Inclusion on list.
603.23  Initial recognition, and reevaluation.
603.24  Criteria for State agencies.

    Authority: 20 U.S.C. 403(b), 1085(b), 1141(a), 1248(11); 42 U.S.C. 
293a(b), 295f-3(b), 295h-4(1)(D), 298b(f); 38 U.S.C. 1775(a), unless 
otherwise noted.

Subpart A [Reserved]



                 Subpart B--Criteria for State Agencies

    Authority: Sec. 438(b) of the Higher Education Act of 1965, Pub. L. 
89-329 as amended by Pub. L. 92-318, 86 Stat. 235, 264 (20 U.S.C. 1087-
1(b)), unless otherwise noted.

    Source: 39 FR 30042, Aug. 20, 1974, unless otherwise noted. 
Redesignated at 45 FR 77369, Nov. 21, 1980.



Sec. 603.20  Scope.

    (a) Pursuant to section 438(b) of the Higher Education Act of 1965 
as amended by Pub. L. 92-318, the Secretary is required to publish a 
list of State agencies which he determines to be reliable authorities as 
to the quality of public postsecondary vocational education in their 
respective States for the purpose of determining eligibility for Federal 
student assistance programs administered by the Department.
    (b) Approval by a State agency included on the list will provide an 
alternative means of satisfying statutory standards as to the quality of 
public postsecondary vocational education to be undertaken by students 
receiving assistance under such programs.

(Authority: 20 U.S.C. 1087-1(b))



Sec. 603.21  Publication of list.

    Periodically the Secretary will publish a list in the Federal 
Register of the State agencies which he determines to be reliable 
authorities as to the quality of public postsecondary vocational 
education in their respective States.

(Authority: 20 U.S.C. 1087-1(b))



Sec. 603.22  Inclusion on list.

    Any State agency which desires to be listed by the Secretary as 
meeting the criteria set forth in Sec. 603.24 should

[[Page 215]]

apply in writing to the Director, Division of Eligibility and Agency 
Evaluation, Office of Postsecondary Education, Department of Education, 
Washington, DC 20202.

(Authority: 20 U.S.C. 1087-1(b))

[45 FR 86300, Dec. 30, 1980]



Sec. 603.23  Initial recognition, and reevaluation.

    For initial recognition and for renewal of recognition, the State 
agency will furnish information establishing its compliance with the 
criteria set forth in Sec. 603.24. This information may be supplemented 
by personal interviews or by review of the agency's facilities, records, 
personnel qualifications, and administrative management. Each agency 
listed will be reevaluated by the Secretary at his discretion, but at 
least once every four years. No adverse decision will become final 
without affording an opportunity for a hearing.

(Authority: 20 U.S.C. 1087-1(b))



Sec. 603.24  Criteria for State agencies.

    The following are the criteria which the Secretary will utilize in 
designating a State agency as a reliable authority to assess the quality 
of public postsecondary vocational education in its respective State.
    (a) Functional aspects. The functional aspects of the State agency 
must be shown by:
    (1) Its scope of operations. The agency:
    (i) Is statewide in the scope of its operations and is legally 
authorized to approve public postsecondary vocational institutions or 
programs;
    (ii) Clearly sets forth the scope of its objectives and activities, 
both as to kinds and levels of public postsecondary vocational 
institutions or programs covered, and the kinds of operations performed;
    (iii) Delineates the process by which it differentiates among and 
approves programs of varying levels.
    (2) Its organization. The State agency:
    (i) Employs qualified personnel and uses sound procedures to carry 
out its operations in a timely and effective manner;
    (ii) Receives adequate and timely financial support, as shown by its 
appropriations, to carry out its operations;
    (iii) Selects competent and knowledgeable persons, qualified by 
experience and training, and selects such persons in accordance with 
nondiscriminatory practices, (A) to participate on visiting teams, (B) 
to engage in consultative services for the evaluation and approval 
process, and (C) to serve on decision-making bodies.
    (3) Its procedures. The State agency:
    (i) Maintains clear definitions of approval status and has developed 
written procedures for granting, reaffirming, revoking, denying, and 
reinstating approval status;
    (ii) Requires, as an integral part of the approval and reapproval 
process, institutional or program self-analysis and onsite reviews by 
visiting teams, and provides written and consultative guidance to 
institutions or programs and visiting teams.
    (A) Self-analysis shall be a qualitative assessment of the strengths 
and limitations of the instructional program, including the achievement 
of institutional or program objectives, and should involve a 
representative portion of the institution's administrative staff, 
teaching faculty, students, governing body, and other appropriate 
constituencies.
    (B) The visiting team, which includes qualified examiners other than 
agency staff, reviews instructional content, methods and resources, 
administrative management, student services, and facilities. It prepares 
written reports and recommendations for use by the State agency.
    (iii) Reevaluates at reasonable and regularly scheduled intervals 
institutions or programs which it has approved.
    (b) Responsibility and reliability. The responsibility and 
reliability of the State agency will be demonstrated by:
    (1) Its responsiveness to the public interest. The State agency:
    (i) Has an advisory body which provides for representation from 
public employment services and employers, employees, postsecondary 
vocational educators, students, and the general public, including 
minority groups. Among its functions, this structure

[[Page 216]]

provides counsel to the State agency relating to the development of 
standards, operating procedures and policy, and interprets the 
educational needs and manpower projections of the State's public 
postsecondary vocational education system;
    (ii) Demonstrates that the advisory body makes a real and meaningful 
contribution to the approval process;
    (iii) Provides advance public notice of proposed or revised 
standards or regulations through its regular channels of communications, 
supplemented, if necessary, with direct communication to inform 
interested members of the affected community. In addition, it provides 
such persons the opportunity to comment on the standards or regulations 
prior to their adoption;
    (iv) Secures sufficient qualitative information regarding the 
applicant institution or program to enable the institution or program to 
demonstrate that it has an ongoing program of evaluation of outputs 
consistent with its educational goals;
    (v) Encourages experimental and innovative programs to the extent 
that these are conceived and implemented in a manner which ensures the 
quality and integrity of the institution or program;
    (vi) Demonstrates that it approves only those institutions or 
programs which meet its published standards; that its standards, 
policies, and procedures are fairly applied; and that its evaluations 
are conducted and decisions are rendered under conditions that assure an 
impartial and objective judgment;
    (vii) Regularly reviews its standards, policies and procedures in 
order that the evaluative process shall support constructive analysis, 
emphasize factors of critical importance, and reflect the educational 
and training needs of the student;
    (viii) Performs no function that would be inconsistent with the 
formation of an independent judgment of the quality of an educational 
institution or program;
    (ix) Has written procedures for the review of complaints pertaining 
to institutional or program quality as these relate to the agency's 
standards, and demonstrates that such procedures are adequate to provide 
timely treatment of such complaints in a manner fair and equitable to 
the complainant and to the institution or program;
    (x) Annually makes available to the public (A) its policies for 
approval, (B) reports of its operations, and (C) list of institutions or 
programs which it has approved;
    (xi) Requires each approved school or program to report on changes 
instituted to determine continued compliance with standards or 
regulations;
    (xii) Confers regularly with counterpart agencies that have similar 
responsibilities in other and neighboring States about methods and 
techniques that may be used to meet those responsibilities.
    (2) Its assurances that due process is accorded to institutions or 
programs seeking approval. The State agency:
    (i) Provides for adequate discussion during the on-site visit 
between the visiting team and the faculty, administrative staff, 
students, and other appropriate persons;
    (ii) Furnishes as a result of the evaluation visit, a written report 
to the institution or program commenting on areas of strength, areas 
needing improvement, and, when appropriate, suggesting means of 
improvement and including specific areas, if any, where the institution 
or program may not be in compliance with the agency's standards;
    (iii) Provides the chief executive officer of the institution or 
program with opportunity to comment upon the written report and to file 
supplemental materials pertinent to the facts and conclusions in the 
written report of the visiting team before the agency takes action on 
the report;
    (iv) Provides the chief executive officer of the institution with a 
specific statement of reasons for any adverse action, and notice of the 
right to appeal such action before an appeal body designated for that 
purpose;
    (v) Publishes rules of procedure regarding appeals;
    (vi) Continues the approval status of the institution or program 
pending disposition of an appeal;
    (vii) Furnishes the chief executive officer of the institution or 
program with a written decision of the appeal body,

[[Page 217]]

including a statement of its reasons therefor.
    (c) Capacity to foster ethical practices. The State agency must 
demonstrate its capability and willingness to foster ethical practices 
by showing that it:
    (i) Promotes a well-defined set of ethical standards governing 
institutional or programmatic practices, including recruitment, 
advertising, transcripts, fair and equitable student tuition refunds, 
and student placement services;
    (ii) Maintains appropriate review in relation to the ethical 
practices of each approved institution or program.

(Authority: 20 U.S.C. 1087-1(b))



PART 604--FEDERAL-STATE RELATIONSHIP AGREEMENTS--Table of Contents




                           Subpart A--General

Sec.
604.1  Federal-State relationship agreements.
604.2  Regulations that apply to Federal-State relationship agreements.
604.3  Definitions that apply to Federal-State relationship agreements.

            Subpart B--Federal-State Relationship Agreements

604.10  Administrative requirements.
604.11  Planning requirements.
604.12  Changes in the agreement.
604.13  Denial of eligibility.

    Authority: Sec. 1203 of the Higher Education Act of 1965, as amended 
by Pub. L. 96-374 (20 U.S.C. 1143), unless otherwise noted.

    Source: 45 FR 83221, Dec. 18, 1980, unless otherwise noted.



                           Subpart A--General



Sec. 604.1  Federal-State relationship agreements.

    (a) A State shall enter into an agreement with the Secretary if it 
wishes to participate in the following programs authorized by the Higher 
Education Act of 1965, as amended: The Continuing Education Outreach 
program, title I-B, with the exception of sections 116 and 117 of the 
Act; the State Student Incentive Grant program, subpart 3 of title IV-A 
of the Act; and the Undergraduate Academic Facilities Grant program, 
title VII-A of the Act. The agreement must contain assurances relating 
to administration, financial management, treatment of applicants for 
subgrants and contracts, supplement, not supplant requirements, and 
planning. These assurances are listed in subpart B of this part. The 
means by which these assurances will be met must also be described.
    (b) The provisions of the agreement replace comparable provisions in 
annual plans previously required by each applicable program.

(Authority: 20 U.S.C. 1143)



Sec. 604.2  Regulations that apply to Federal-State relationship agreements.

    The following regulations apply to Federal-State relationship 
agreements:
    (a) The Education Department General Administrative Regulations 
(EDGAR) in 34 CFR part 76 (State Administered Programs) and 34 CFR part 
77 (Definitions).
    (b) The regulations in this part 604.

(Authority: 20 U.S.C. 1232(a))



Sec. 604.3  Definitions that apply to Federal-State relationship agreements.

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR part 77:

Applicant
Application
Contract
Private
Public
Secretary
State
Subgrant

    (b) Definitions that apply to this part. The following definitions 
apply to this part:
    Act means the Higher Education Act of 1965, as amended.
    Applicable programs means the Continuing Education Outreach program, 
the State Student Incentive Grant program, and the Undergraduate 
Academic Facilities Grant program.

(Authority: 20 U.S.C. 1143)



            Subpart B--Federal-State Relationship Agreements



Sec. 604.10  Administrative requirements.

    The agreement shall contain the following assurances and a 
description of the means by which they will be met:
    (a) Management practices and procedures will assure proper and 
efficient

[[Page 218]]

administration of each applicable program. The description of these 
methods shall include the identification of the State entity or entities 
designated to administer each applicable program as well as the name of 
the responsible official.
    (b) Appropriate fiscal control and fund accounting procedures will 
be provided for Federal funds received under all titles of the Act.
    (c) Federal funds under the applicable programs will not supplant 
non-Federal funds.
    (d) Equitable and appropriate criteria will be used in evaluating 
applications for subgrants or proposals for contracts under each 
applicable program.

(Authority: 20 U.S.C. 1143)



Sec. 604.11  Planning requirements.

    (a) The agreement shall contain an assurance by the State that it 
has a comprehensive planning or policy formulation process which:
    (1) Considers the relationship between State administration of each 
applicable program and administration of similar State programs or 
processes;
    (2) Encourages State policies that consider the effects of declining 
enrollments on all sectors of postsecondary education within the State;
    (3) Considers the postsecondary educational needs of unserved and 
underserved individuals within the State, including individuals beyond 
traditional college age;
    (4) Considers the resources of public and private institutions, 
organizations, and agencies within the State that are capable of 
providing postsecondary educational opportunities; and
    (5) Provides for direct, equitable, and active participation in the 
comprehensive planning or policy formulation processes by 
representatives of institutions of higher education--including community 
colleges, proprietary institutions, and independent colleges and 
universities--other providers of postsecondary education services, 
students, and the general public in the State.
    (i) Participation shall be achieved through membership on State 
planning commissions, State advisory councils, or other State entities 
established by the State to conduct federally assisted comprehensive 
planning or policy formulation.
    (ii) Participation shall be consistent with State law.
    (b) The agreement shall include a description of the planning or 
policy formulation process through which these assurances will be 
fulfilled.

(Authority: 20 U.S.C. 1143)



Sec. 604.12  Changes in the agreement.

    (a) The agreement shall remain in effect until substantial changes 
in administrative practices or planning processes would require its 
modification.
    (b) Routine organizational or personnel changes are not subject to 
prior modification of the agreement, but information concerning these 
changes shall be promptly communicated to the Secretary.

(Authority: 20 U.S.C. 1143)



Sec. 604.13  Denial of eligibility.

    (a) If the Secretary finds that there is a failure to comply 
substantially with the assurances of Sec. 604.10 then the Secretary, 
after giving a State reasonable notice and the opportunity for a 
hearing, shall notify the State that it is ineligible to participate in 
any applicable program.
    (b) To regain eligibility, a State must satisfy the Secretary that 
the failure to comply has been remedied.

(Authority: 20 U.S.C. 1143)



PART 606--DEVELOPING HISPANIC-SERVING INSTITUTIONS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
606.1  What is the Developing Hispanic-Serving Institutions Program?
606.2  What institutions are eligible to receive a grant under the 
          Developing Hispanic-Serving Institutions Program?
606.3  What is an enrollment of needy students?
606.4  What are low educational and general expenditures?
606.5  How does an institution apply to be designated an eligible 
          institution?
606.6  What regulations apply?
606.7  What definitions apply?
606.8  What is a comprehensive development plan and what must it 
          contain?

[[Page 219]]

606.9  What are the type, duration, and limitations in the awarding of 
          grants under this part?
606.10  What activities may and may not be carried out under a grant?

          Subpart B--How Does an Institution Apply for a Grant?

606.11  What must be included in individual development grant 
          applications?
606.12  What must be included in cooperative arrangement grant 
          applications?
606.13  How many applications for a development grant may an institution 
          submit?

            Subpart C--How Does the Secretary Make an Award?

606.20  How does the Secretary choose applications for funding?
606.21  What are the selection criteria for planning grants?
606.22  What are the selection criteria for development grants?
606.23  What special funding consideration does the Secretary provide?
606.24  How does the Secretary use an applicant's performance under a 
          previous development grant when awarding a development grant?
606.25  What priority does the Secretary use in awarding cooperative 
          arrangement grants?

             Subpart D--What Conditions Must a Grantee Meet?

606.30  What are allowable costs and what are the limitations on 
          allowable costs?
606.31  How does a grantee maintain its eligibility?

    Authority: 20 U.S.C. 1101 et seq., unless otherwise noted.

    Source: 64 FR 70147, Dec. 15, 1999, unless otherwise noted.



                           Subpart A--General



Sec. 606.1  What is the Developing Hispanic-Serving Institutions Program?

    The purpose of the Developing Hispanic-Serving Institutions Program 
is to provide grants to eligible institutions of higher education to--
    (a) Expand educational opportunities for, and improve the academic 
attainment of, Hispanic students; and
    (b) Expand and enhance the academic offerings, program quality, and 
institutional stability of colleges and universities that are educating 
the majority of Hispanic college students and helping large numbers of 
Hispanic students and other low-income individuals complete 
postsecondary degrees.

(Authority: 20 U.S.C. 1101)



Sec. 606.2  What institutions are eligible to receive a grant under the 
Developing Hispanic-Serving Institutions Program?

    (a) An institution of higher education is eligible to receive a 
grant under this part if--
    (1) At the time of application, it has an enrollment of 
undergraduate full-time equivalent students that is at least 25 percent 
Hispanic students;
    (2) It provides assurances that not less than 50 percent of its 
Hispanic students are low-income individuals;
    (3) It has an enrollment of needy students as described in 
Sec. 606.3(a), unless the Secretary waives this requirement under 
Sec. 606.3(b);
    (4) It has low average educational and general expenditures per 
full-time equivalent undergraduate student as described in 
Sec. 606.4(a), unless the Secretary waives this requirement under 
Sec. 606.4(c);
    (5) It is legally authorized by the State in which it is located to 
be a junior college or to provide an educational program for which it 
awards a bachelor's degree; and
    (6) It is accredited or preaccredited by a nationally recognized 
accrediting agency or association that the Secretary has determined to 
be a reliable authority as to the quality of education or training 
offered.
    (b) A branch campus of a Hispanic-Serving institution is eligible to 
receive a grant under this part if--
    (1) The institution as a whole meets the requirements of paragraphs 
(a)(3) through (a)(6) of this section; and
    (2) The branch campus satisfies the requirements of paragraphs 
(a)(1) through (a)(4) of this section.
    (c)(1) An institution that receives a grant under the Strengthening 
Institutions Program (34 CFR part 607) or the Strengthening Historically 
Black Colleges and Universities Program (34 CFR part 608) for a 
particular fiscal year is not eligible to receive a grant under this 
part for that same fiscal year, and may not relinquish its grant under

[[Page 220]]

those programs to secure a grant under this part.
    (2) A Hispanic-Serving institution under this part may not 
concurrently receive grant funds under the Strengthening Institutions 
Program, Strengthening Historically Black Colleges and Universities 
Program, or Strengthening Historically Black Graduate Institutions 
Program.

(Authority: 20 U.S.C. 1101a and 1101d)

[64 FR 70147, Dec. 15, 1999, as amended at 66 FR 1263, Jan. 8, 2001]



Sec. 606.3  What is an enrollment of needy students?

    (a) Except as provided in paragraph (b) of this section, for the 
purpose of Sec. 606.2(a)(3), an applicant institution has an enrollment 
of needy students if in the base year--
    (1) At least 50 percent of its degree students received student 
financial assistance under one or more of the following programs: 
Federal Pell Grant, Federal Supplemental Educational Opportunity Grant, 
Federal Work-Study, and Federal Perkins Loan; or
    (2) The percentage of its undergraduate degree students who were 
enrolled on at least a half-time basis and received Federal Pell Grants 
exceeded the median percentage of undergraduate degree students who were 
enrolled on at least a half-time basis and received Federal Pell Grants 
at comparable institutions that offer similar instruction.
    (b) The Secretary may waive the requirement contained in paragraph 
(a) of this section if the institution demonstrates that--
    (1) The State provides more than 30 percent of the institution's 
budget and the institution charges not more than $99.00 for tuition and 
fees for an academic year;
    (2) At least 30 percent of the students served by the institution in 
the base year were students from low-income families;
    (3) The institution substantially increases the higher education 
opportunities for low-income students who are also educationally 
disadvantaged, underrepresented in postsecondary education, or minority 
students;
    (4) The institution substantially increases the higher education 
opportunities for individuals who reside in an area that is not included 
in a ``metropolitan statistical area'' as defined by the Office of 
Management and Budget and who are unserved by other postsecondary 
institutions; or
    (5) The institution will, if granted the waiver, substantially 
increase the higher education opportunities for Hispanic Americans.
    (c) For the purpose of paragraph (b) of this section, the Secretary 
considers ``low-income'' to be an amount which does not exceed 150 
percent of the amount equal to the poverty level as established by the 
United States Bureau of the Census.
    (d) Each year, the Secretary notifies prospective applicants of the 
low-income figures through a notice published in the Federal Register.

(Authority: 20 U.S.C. 1101a and 1103a)



Sec. 606.4  What are low educational and general expenditures?

    (a)(1) Except as provided in paragraph (b) of this section, for the 
purpose of Sec. 606.2(a)(2), an applicant institution's average 
educational and general expenditures per full-time equivalent 
undergraduate student in the base year must be less than the average 
educational and general expenditures per full-time equivalent 
undergraduate student in that year of comparable institutions that offer 
similar instruction.
    (2) For the purpose of paragraph (a)(1) of this section, the 
Secretary determines the average educational and general expenditure per 
full-time equivalent undergraduate student for institutions with 
graduate students that do not differentiate between graduate and 
undergraduate educational and general expenditures by discounting the 
graduate enrollment using a factor of 2.5 times the number of graduate 
students.
    (b) Each year, the Secretary notifies prospective applicants through 
a notice in the Federal Register of the average educational and general 
expenditures per full-time equivalent undergraduate student at 
comparable institutions that offer similar instruction.
    (c) The Secretary may waive the requirement contained in paragraph 
(a)

[[Page 221]]

of this section, if the Secretary determines, based upon persuasive 
evidence provided by the institution, that--
    (1) The institution's failure to satisfy the criteria in paragraph 
(a) of this section was due to factors which, if used in determining 
compliance with those criteria, distorted that determination; and
    (2) The institution's designation as an eligible institution under 
this part is otherwise consistent with the purposes of this part.
    (d) For the purpose of paragraph (c)(1) of this section, the 
Secretary considers that the following factors may distort an 
institution's educational and general expenditures per full-time 
equivalent undergraduate student--
    (1) Low student enrollment;
    (2) Location of the institution in an unusually high cost-of-living 
area;
    (3) High energy costs;
    (4) An increase in State funding that was part of a desegregation 
plan for higher education; or
    (5) Operation of high cost professional schools such as medical or 
dental schools.

(Authority: 20 U.S.C. 1101a and 1103a)



Sec. 606.5  How does an institution apply to be designated an eligible 
institution?

    (a) An institution applies to the Secretary to be designated an 
eligible institution under this part by first submitting an application 
to the Secretary in the form, manner, and time established by the 
Secretary. The application must contain--
    (1) The information necessary for the Secretary to determine whether 
the institution satisfies the requirements of Secs. 606.2, 606.3(a), and 
606.4(a);
    (2) Any waiver request under Secs. 606.3(b) and 606.4(c); and
    (3) Information or explanations justifying any requested waiver.
    (b) An institution that wishes to receive a grant under this part 
must submit, as part of its application for that grant, an assurance 
that when it submits its application--
    (1) Its enrollment of undergraduate full-time equivalent students is 
at least 25 percent Hispanic students; and
    (2) Not less than 50 percent of its Hispanic students are low-income 
individuals.

(Authority: 20 U.S.C. 1101a and 1103)



Sec. 606.6  What regulations apply?

    The following regulations apply to the Developing Hispanic-Serving 
Institutions Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs), except 34 CFR 
75.128(a)(2) and 75.129(a) in the case of applications for cooperative 
arrangements.
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 606.

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.7  What definitions apply?

    (a) Definitions in EDGAR. The terms used in this part are defined in 
34 CFR 77.1:

EDGAR
Fiscal year
Grant
Grantee
Grant period
Nonprofit
Private
Project period
Public
Secretary
State

    (b) The following definitions also apply to this part:
    Accredited means the status of public recognition which a nationally 
recognized accrediting agency or association grants to an institution 
which meets

[[Page 222]]

certain established qualifications and educational standards.
    Activity means an action that is incorporated into an implementation 
plan designed to meet one or more objectives. An activity is a part of a 
project and has its own budget that is approved to carry out the 
objectives of that subpart.
    Base year means the second fiscal year preceding the fiscal year for 
which an institution seeks a grant under this part.
    Branch campus means a unit of a college or university that is 
geographically apart from the main campus of the college or university 
and independent of that main campus. The Secretary considers a unit of a 
college or university to be independent of the main campus if the unit--
    (1) Is permanent in nature;
    (2) Offers courses for credit and programs leading to an associate 
or bachelor's degree; and
    (3) Is autonomous to the extent that it has--
    (i) Its own faculty and administrative or supervisory organization; 
and
    (ii) Its own budgetary and hiring authority.
    Comparable institutions that offer similar instruction means 
institutions that are being compared with an applicant institution and 
that fall within one of the following four categories--
    (1) Public junior or community colleges;
    (2) Private nonprofit junior or community colleges;
    (3) Public institutions that offer an educational program for which 
they offer a bachelor's degree; or
    (4) Private nonprofit institutions that offer an educational program 
for which they offer a bachelor's degree.
    Cooperative arrangement means an arrangement to carry out allowable 
grant activities between an institution eligible to receive a grant 
under this part and another eligible or ineligible institution of higher 
education, under which the resources of the cooperating institutions are 
combined and shared to better achieve the purposes of this part and 
avoid costly duplication of effort.
    Degree student means a student who enrolls at an institution for the 
purpose of obtaining the degree, certificate, or other recognized 
educational credential offered by that institution.
    Developmental program and services means new or improved programs 
and services, beyond those regularly budgeted, specifically designed to 
improve the self sufficiency of the school.
    Educational and general expenditures means the total amount expended 
by an institution of higher education for instruction, research, public 
service, academic support (including library expenditures), student 
services, institutional support, scholarships and fellowships, operation 
and maintenance expenditures for the physical plant, and any mandatory 
transfers which the institution is required to pay by law.
    Educationally disadvantaged means a college student who requires 
special services and assistance to enable them to succeed in higher 
education. The phrase includes, but is not limited to, students who come 
from--
    (1) Economically disadvantaged families;
    (2) Limited English proficiency families;
    (3) Migrant worker families; or
    (4) Families in which one or both of their parents have dropped out 
of secondary school.
    Federal Pell Grant Program means the grant program authorized by 
title IV-A-1 of the HEA.
    Federal Perkins Loan Program, formerly called the National Direct 
Student Loan Program, means the loan program authorized by title IV-E of 
the HEA.
    Federal Supplemental Education Opportunity Grant Program means the 
grant program authorized by title IV-A-3 of the HEA.
    Federal Work-Study Program means the part-time employment program 
authorized under title IV-C of the HEA.
    Full-time equivalent students means the sum of the number of 
students enrolled full-time at an institution, plus the full-time 
equivalent of the number of students enrolled part time (determined on 
the basis of the quotient of the sum of the credit hours of all part-
time students divided by 12) at such institution.
    HEA means the Higher Education Act of 1965, as amended.

[[Page 223]]

    Hispanic student means a person of Mexican, Puerto Rican, Cuban, 
Central or South American, or other Spanish culture or origin, 
regardless of race.
    Institution of higher education means an educational institution 
defined in section 101 of the HEA.
    Junior or community college means an institution of higher 
education--
    (1) That admits as regular students persons who are beyond the age 
of compulsory school attendance in the State in which the institution is 
located and who have the ability to benefit from the training offered by 
the institution;
    (2) That does not provide an educational program for which it awards 
a bachelor's degree (or an equivalent degree); and
    (3) That--
    (i) Provides an educational program of not less than 2 years that is 
acceptable for full credit toward such a degree; or
    (ii) Offers a 2-year program in engineering, mathematics, or the 
physical or biological sciences, designed to prepare a student to work 
as a technician or at the semiprofessional level in engineering, 
scientific, or other technological fields requiring the understanding 
and application of basic engineering, scientific, or mathematical 
principles of knowledge.
    Low-income individual means an individual from a family whose 
taxable income for the preceding year did not exceed 150 percent of an 
amount equal to the poverty level determined by using criteria of 
poverty established by the Bureau of the Census.
    Minority student means a student who is an Alaska Native, American 
Indian, Asian-American, Black (African-American), Hispanic American, 
Native Hawaiian, or Pacific Islander.
    Nationally recognized accrediting agency or association means an 
accrediting agency or association that the Secretary has recognized to 
accredit or preaccredit a particular category of institution in 
accordance with the provisions contained in 34 CFR part 603. The 
Secretary periodically publishes a list of those nationally recognized 
accrediting agencies and associations in the Federal Register.
    Operational programs and services means the regular, ongoing 
budgeted programs and services at an institution.
    Preaccredited means a status that a nationally recognized 
accrediting agency or association, recognized by the Secretary to grant 
that status, has accorded an unaccredited institution that is 
progressing toward accreditation within a reasonable period of time.
    Project means all the funded activities under a grant.
    Self-sufficiency means the point at which an institution is able to 
survive without continued funding under the Developing Hispanic-Serving 
Institutions Program.
    Underrepresented means proportionate representation as measured by 
degree recipients, that is less than the proportionate representation in 
the general population--
    (1) As indicated by--
    (i) The most current edition of the Department's Digest of 
Educational Statistics;
    (ii) The National Research Council's Doctorate Recipients from 
United States Universities; or
    (iii) Other standard statistical references, as announced annually 
in the Federal Register notice inviting applications for new awards 
under this program; or
    (2) As documented by national survey data submitted to and accepted 
by the Secretary on a case-by-case basis.

(Authority: 20 U.S.C. 1101 et seq.; OMB Directive No. 15)



Sec. 606.8  What is a comprehensive development plan and what must it contain?

    (a) A comprehensive development plan is an institution's strategy 
for achieving growth and self-sufficiency by strengthening its--
    (1) Academic programs;
    (2) Institutional management; and
    (3) Fiscal stability.
    (b) The comprehensive development plan must include the following:
    (1) An analysis of the strengths, weaknesses, and significant 
problems of the institution's academic programs, institutional 
management, and fiscal stability.

[[Page 224]]

    (2) A delineation of the institution's goals for its academic 
programs, institutional management, and fiscal stability, based on the 
outcomes of the analysis described in paragraph (b)(1) of this section.
    (3) Measurable objectives related to reaching each goal and 
timeframes for achieving the objectives.
    (4) Methods and resources that will be used to institutionalize 
practices and improvements developed under the proposed project.
    (5) Its five year plan to improve its services to Hispanic and other 
low-income students.

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.9  What are the type, duration, and limitations in the awarding 
of grants under this part?

    (a)(1) Under this part, the Secretary may award planning grants and 
two types of development grants, individual development grants and 
cooperative arrangement development grants.
    (2) Planning grants may be awarded for a period not to exceed one 
year.
    (3) Either type of development grant may be awarded for a period of 
five years.
    (b)(1) An institution that received an individual development grant 
of five years may not subsequently receive another individual 
development grant for a period of two years from the date on which the 
five-year grant terminates.
    (2) A cooperative arrangement grant is not considered to be an 
individual development grant under paragraph (b)(1) of this section.

(Authority: 20 U.S.C. 1101c and 1103c)



Sec. 606.10  What activities may and may not be carried out under a grant?

    (a) Planning grants. Under a planning grant, a grantee shall 
formulate--
    (1) A comprehensive development plan described in Sec. 606.8; and
    (2) An application for a development grant.
    (b) Development grants--allowable activities. Under a development 
grant, except as provided in paragraph (c) of this section, a grantee 
shall carry out activities that implement its comprehensive development 
plan and hold promise for strengthening the institution. Activities that 
may be carried out include, but are not limited to--
    (1) Purchase, rental, or lease of scientific or laboratory equipment 
for educational purposes, including instructional and research purposes.
    (2) Construction, maintenance, renovation, and improvement in 
classrooms, libraries, laboratories, and other instructional facilities.
    (3) Support of faculty exchanges, faculty development, curriculum 
development, academic instruction, and faculty fellowships to assist in 
attaining advanced degrees in the fellow's field of instruction.
    (4) Purchase of library books, periodicals, and other educational 
materials, including telecommunications program material.
    (5) Tutoring, counseling, and student service programs designed to 
improve academic success.
    (6) Funds management, administrative management, and acquisition of 
equipment for use in strengthening funds management.
    (7) Joint use of facilities, such as laboratories and libraries.
    (8) Establishing or improving a development office to strengthen or 
improve contributions from alumni and the private sector.
    (9) Establishing or improving an endowment fund, provided the 
grantee uses no more than 20 percent of its grant funds for this purpose 
and at least matches those grant funds with non-Federal funds.
    (10) Creating or improving facilities for Internet or other distance 
learning academic instruction capabilities, including purchase or rental 
of telecommunications technology equipment or services.
    (11) Establishing or enhancing a program of teacher education 
designed to qualify students to teach in public elementary or secondary 
schools.
    (12) Establishing community outreach programs that will encourage 
elementary school and secondary school students to develop the academic 
skills and the interest to pursue postsecondary education.
    (13) Expanding the number of Hispanic and other underrepresented 
graduate and professional students that can

[[Page 225]]

be served by the institution by expanding courses and institutional 
resources.
    (14) Other activities that contribute to carrying out the purposes 
of this program.
    (c) Development grants--unallowable activities. A grantee may not 
carry out the following activities or pay the following costs under a 
development grant:
    (1) Activities that are not included in the grantee's approved 
application.
    (2) Activities that are inconsistent with any State plan for higher 
education that is applicable to the institution, including, but not 
limited to, a State plan for desegregation of higher education.
    (3) Activities or services that relate to sectarian instruction or 
religious worship.
    (4) Activities provided by a school or department of divinity. For 
the purpose of this provision, a ``school or department of divinity'' 
means an institution, or a department of an institution, whose program 
is specifically for the education of students to prepare them to become 
ministers of religion or to enter into some other religious vocation or 
to prepare them to teach theological subjects.
    (5) Developing or improving non-degree or non-credit courses other 
than basic skills development courses.
    (6) Developing or improving community-based or community services 
programs, unless the program provides academic-related experiences or 
academic credit toward a degree for degree students, or, unless it is a 
program or services to encourage elementary and secondary school 
students to develop the academic skills and the interest to pursue 
postsecondary education.
    (7) Purchase of standard office equipment, such as furniture, file 
cabinets, bookcases, typewriters, or word processors.
    (8) Payment of any portion of the salary of a president, vice 
president, or equivalent officer who has college-wide administrative 
authority and responsibility at an institution to fill a position under 
the grant such as project coordinator or activity director.
    (9) Costs of organized fund-raising, including financial campaigns, 
endowment drives, solicitation of gifts and bequests, and similar 
expenses incurred solely to raise capital or obtain contributions.
    (10) Costs of student recruitment such as advertisements, 
literature, and college fairs.
    (11) Services to high school students, unless they are services to 
encourage such students to develop the skills and the interest to pursue 
postsecondary education.
    (12) Instruction in the institution's standard courses as indicated 
in the institution's catalog.
    (13) Costs for health and fitness programs, transportation, and day 
care services.
    (14) Student activities such as entertainment, cultural, or social 
enrichment programs, publications, social clubs, or associations.
    (15) Activities that are operational in nature rather than 
developmental in nature.
    (d) Endowment funds. If a grantee uses part of its grant funds to 
establish or increase an endowment fund, it must comply with the 
provisions of Secs. 628.3, 628.6, 628.10, and 628.41 through 628.47 of 
this chapter with regard to the use of those funds, except--
    (1) The definition of the term ``endowment fund income'' in 
Sec. 628.6 of this chapter does not apply. For the purposes of this 
paragraph (d), ``endowment fund income'' means an amount equal to the 
total value of the fund, including fund appreciation and retained 
interest and dividends, minus the endowment fund corpus;
    (2) Instead of the requirement in Sec. 628.10(a) of this chapter, 
the grantee institution must match each dollar of Federal grant funds 
used to establish or increase an endowment fund with one dollar of non-
Federal funds; and
    (3) Instead of the requirements in Sec. 628.41(a)(3) through (a)(5) 
and the introductory text in Sec. 628.41(b) and Sec. 628.41(b)(2) and 
(b)(3) of this chapter, if a grantee institution decides to use any of 
its grant funds for endowment purposes, it must match those grant funds 
immediately with non-Federal funds when it places those funds into its 
endowment fund.

(Authority: 20 U.S.C. 1101 et seq.)

[64 FR 70147, Dec. 15, 1999, as amended at 65 FR 79310, Dec. 19, 2000]

[[Page 226]]



          Subpart B--How Does an Institution Apply for a Grant?



Sec. 606.11  What must be included in individual development grant 
applications?

    In addition to the information needed by the Secretary to determine 
whether the institution should be awarded a grant under the funding 
criteria contained in subpart C, an application for a development grant 
must include--
    (a) The institution's comprehensive development plan;
    (b) A description of the relationship of each activity for which 
grant funds are requested to the relevant goals and objectives of its 
plan;
    (c) A description of any activities that were funded under previous 
development grants awarded under the Developing Hispanic-Serving 
Institutions Program that expired within five years of when the 
development grant will begin and the institution's justification for not 
completing the activities under the previous grant, if applicable;
    (d) If the applicant is applying to carry out more than one 
activity--
    (1) A description of those activities that would be a sound 
investment of Federal funds if funded separately;
    (2) A description of those activities that would be a sound 
investment of Federal funds only if funded with the other activities; 
and
    (3) A ranking of the activities in preferred funding order.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.12  What must be included in cooperative arrangement grant 
applications?

    (a)(1) Institutions applying for a cooperative arrangement grant 
shall submit only one application for that grant regardless of the 
number of institutions participating in the cooperative arrangement.
    (2) The application must include the names of each participating 
institution, the role of each institution, and the rationale for each 
eligible participating institution's decision to request grant funds as 
part of a cooperative arrangement rather than as an individual grantee.
    (b) If the application is for a development grant, the application 
must contain--
    (1) Each participating institution's comprehensive development plan;
    (2) The information required under Sec. 606.11; and
    (3) An explanation from each eligible participating institution of 
why participation in a cooperative arrangement grant rather than 
performance under an individual grant will better enable it to meet the 
goals and objectives of its comprehensive development plan at a lower 
cost.
    (4) The name of the applicant for the group that is legally 
responsible for--
    (i) The use of all grant funds; and
    (ii) Ensuring that the project is carried out by the group in 
accordance with Federal requirements.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1103 and 1103e)



Sec. 606.13  How many applications for a development grant may an 
institution submit?

    In any fiscal year, an institution of higher education may--
    (a) Submit an application for an individual development grant; and
    (b) Be part of a cooperative arrangement application.

(Authority: 20 U.S.C. 1101 et seq.)



            Subpart C--How Does the Secretary Make an Award?



Sec. 606.20  How does the Secretary choose applications for funding?

    (a) The Secretary evaluates an application on the basis of the 
criteria in--
    (1) Sections 606.21 and 606.23 for a planning grant; and
    (2) Sections 606.22, 606.23, 600.24, and 606.25 for a development 
grant.
    (b)(1) The Secretary awards up to 100 points for the criteria in 
Sec. 606.21 and up to 100 points for the criteria in Sec. 606.22.
    (2) The maximum possible score for each complete criterion is in 
parentheses.
    (c)(1) The Secretary considers funding an application for a planning 
grant that scores at least 50 points under Sec. 606.21.

[[Page 227]]

    (2) The Secretary considers funding an application for a development 
grant that--
    (i) Scores at least 50 points under Sec. 606.22;
    (ii) Is submitted with a comprehensive development plan that 
satisfies all the elements required of such a plan under Sec. 606.8; and
    (iii) In the case of an application for a cooperative arrangement 
grant, demonstrates that the grant will enable each eligible participant 
to meet the goals and objectives of its comprehensive development plan 
better and at a lower cost than if each eligible participant were funded 
individually.

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.21  What are the selection criteria for planning grants?

    The Secretary uses the following criteria to evaluate an application 
to determine whether the applicant will produce a good comprehensive 
development plan and a fundable application:
    (a) Design of the planning process. (Total: 60 points) The Secretary 
reviews each application to determine the quality of the planning 
process that the applicant will use to develop a comprehensive 
development plan and an application for a development grant based on the 
extent to which--
    (1) The planning process is clearly and comprehensively described 
and based on sound planning practice (15 points);
    (2) The president or chief executive officer, administrators and 
other institutional personnel, students, and governing board members 
systematically and consistently will be involved in the planning process 
(15 points);
    (3) The applicant will use its own resources to help implement the 
project (10 points); and
    (4) The planning process is likely to achieve its intended results 
(20 points).
    (b) Key personnel. (Total: 20 points) The Secretary reviews each 
application to determine the quality of key personnel to be involved in 
the project based on the extent to which--
    (1) The past experience and training of key personnel such as the 
project coordinator and persons who have key roles in the planning 
process are suitable to the tasks to be performed (10 points); and
    (2) The time commitments of key personnel are adequate (10 points).
    (c) Project Management. (Total: 15 points) The Secretary reviews 
each application to determine the quality of the plan to manage the 
project effectively based on the extent to which--
    (1) The procedures for managing the project are likely to ensure 
effective and efficient project implementation (10 points); and
    (2) The project coordinator has sufficient authority, including 
access to the president or chief executive officer, to conduct the 
project effectively (5 points).
    (d) Budget. (Total: 5 points) The Secretary reviews each application 
to determine the extent to which the proposed project costs are 
necessary and reasonable.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.22  What are the selection criteria for development grants?

    The Secretary uses the following criteria to evaluate applications 
for development grants:
    (a) Quality of the applicant's comprehensive development plan. 
(Total: 30 points) The extent to which--
    (1) The strengths, weaknesses, and significant problems of the 
institution's academic programs, institutional management, and fiscal 
stability are clearly and comprehensively analyzed and result from a 
process that involved major constituencies of the institution. (12 
points);
    (2) The goals for the institution's academic programs, institutional 
management, and fiscal stability are realistic and based on 
comprehensive analysis. (5 points);
    (3) The objectives stated in the plan are measurable, related to 
institutional goals, and, if achieved, will contribute to the growth and 
self-sufficiency of the institution (5 points);
    (4) The plan clearly and comprehensively describes the methods and 
resources the institution will use to institutionalize practice and 
improvements developed under the proposed project, including, in 
particular, how

[[Page 228]]

operational costs for personnel, maintenance, and upgrades of equipment 
will be paid with institutional resources (8 points).
    (b) Quality of activity objectives. (Total: 10 points) The extent to 
which the objectives for each activity are--
    (1) Realistic and defined in terms of measurable results (5 points); 
and
    (2) Directly related to the problems to be solved and to the goals 
of the comprehensive development plan (5 points).
    (c) Quality of implementation strategy. (Total: 25 points) The 
extent to which--
    (1) The implementation strategy for each activity is comprehensive 
(10 points);
    (2) The rationale for the implementation strategy for each activity 
is clearly described and is supported by the results of relevant studies 
or projects (10 points); and
    (3) The timetable for each activity is realistic and likely to be 
attained (5 points).
    (d) Quality of key personnel. (Total: 10 points) The extent to 
which--
    (1) The past experience and training of key professional personnel 
are directly related to the stated activity objectives (7 points); and
    (2) The time commitment of key personnel is realistic (3 points).
    (e) Quality of project management plan. (Total: 10 points) The 
extent to which--
    (1) Procedures for managing the project are likely to ensure 
efficient and effective project implementation (5 points); and
    (2) The project coordinator and activity directors have sufficient 
authority to conduct the project effectively, including access to the 
president or chief executive officer (5 points).
    (f) Quality of evaluation plan. (Total: 10 points) The extent to 
which--
    (1) The data elements and the data collection procedures are clearly 
described and appropriate to measure the attainment of activity 
objectives and to measure the success of the project in achieving the 
goals of the comprehensive development plan (5 points); and
    (2) The data analysis procedures are clearly described and are 
likely to produce formative and summative results on attaining activity 
objectives and measuring the success of the project on achieving the 
goals of the comprehensive development plan (5 points).
    (g) Budget. (Total: 5 points) The extent to which the proposed costs 
are necessary and reasonable in relation to the project's objectives and 
scope.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.23  What special funding consideration does the Secretary provide?

    (a) If funds are available to fund only one additional planning 
grant and each of the next fundable applications has received the same 
number of points under Sec. 606.21, the Secretary awards additional 
points, up to a maximum of two points, to any of those applicants that--
    (1) Has an endowment fund of which the current market value, per 
full-time equivalent enrolled student, is less than the average current 
market value of the endowment funds, per full-time equivalent enrolled 
student, at similar type institutions; (one point) or
    (2) Has expenditures for library materials per full-time equivalent 
enrolled student which are less than the average expenditure for library 
materials per full-time equivalent enrolled student at similar type 
institutions. (one point)
    (b) If funds are available to fund only one additional development 
grant and each of the next fundable applications has received the same 
number of points under Sec. 606.22, the Secretary will award additional 
points, up to a maximum of three points, to any of those applicants 
that--
    (1) Has an endowment fund of which the current market value, per 
full-time equivalent enrolled student, is less than the average current 
market value of the endowment funds, per full-time equivalent enrolled 
student, at comparable institutions that offer similar instruction; (one 
point)
    (2) Has expenditures for library materials per full-time equivalent 
enrolled student that are less than the average expenditures for library 
materials per full-time equivalent enrolled student at comparable 
institutions that offer similar instruction (one point); or

[[Page 229]]

    (3) Propose to carry out one or more of the following activities--
    (i) Faculty development;
    (ii) Funds and administrative management;
    (iii) Development and improvement of academic programs;
    (iv) Acquisition of equipment for use in strengthening management 
and academic programs;
    (v) Joint use of facilities; and
    (vi) Student services. (one point)
    (c) As used in this section, an ``endowment fund'' does not include 
any fund established or supported under 34 CFR part 628.
    (d) Each year, the Secretary provides prospective applicants with 
the average market value of endowment funds and the average expenditure 
of library materials per full-time equivalent student.
    (e) The Secretary gives priority to each application that contains 
satisfactory evidence that the applicant has entered into or will enter 
into a collaborative arrangement with at least one local educational 
agency or community-based organization to provide that agency or 
organization with assistance (from funds other than funds provided under 
this part) in--
    (1) Reducing the dropout rates of Hispanic students;
    (2) Improving rates of academic achievement of Hispanic students; 
and
    (3) Increasing the rates at which Hispanic high school graduates 
enroll in higher education.

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.24  How does the Secretary use an applicant's performance under 
a previous development grant when awarding a development grant?

    (a)(1) In addition to evaluating an application under the selection 
criteria in Sec. 606.22, the Secretary evaluates an applicant's 
performance under any previous development grant awarded under the 
Developing Hispanic-Serving Institutions Program that expired within 
five years of the year when the development grant will begin.
    (2) The Secretary evaluates whether the applicant fulfilled, or is 
making substantial progress toward fulfilling, the goals and objectives 
of the previous grant, including, but not limited to, the applicant's 
success in institutionalizing practices developed and improvements made 
under the grant.
    (3) The Secretary bases the evaluation of the applicant's 
performance on information contained in--
    (i) Performance and evaluation reports submitted by the applicant;
    (ii) Audit reports submitted on behalf of the applicant; and
    (iii) Other information obtained by the Secretary, including reports 
prepared by the Department.
    (b) If the Secretary initially determines that the applicant did not 
fulfill the goals and objectives of a previous grant or is not making 
substantial progress towards fulfilling those goals and objectives, the 
Secretary affords the applicant the opportunity to respond to that 
initial determination.
    (c) If the Secretary determines that the applicant did not fulfill 
the goals and objectives of a previous grant or is not making 
substantial progress towards fulfilling those goals and objectives, the 
Secretary may--
    (1) Decide not to fund the applicant; or
    (2) Fund the applicant but impose special grant terms and 
conditions, such as specific reporting and monitoring requirements.

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.25  What priority does the Secretary use in awarding cooperative 
arrangement grants?

    Among applications for cooperative arrangement grants, the Secretary 
gives priority to proposed cooperative arrangements that are 
geographically and economically sound, or will benefit the institutions 
applying for the grant.

(Authority: 20 U.S.C. 1101 et seq.)



             Subpart D--What Conditions Must a Grantee Meet?



Sec. 606.30  What are allowable costs and what are the limitations on 
allowable costs?

    (a) Allowable costs. Except as provided in paragraphs (b) and (c) of 
this section, a grantee may expend grant funds for activities that are 
related to carrying out the allowable activities included in its 
approved application.

[[Page 230]]

    (b) Supplement and not supplant. Grant funds shall be used so that 
they supplement and, to the extent practical, increase the funds that 
would otherwise be available for the activities to be carried out under 
the grant and in no case supplant those funds.
    (c) Limitations on allowable costs. A grantee may not use an 
indirect cost rate to determine allowable costs under its grant.

(Authority: 20 U.S.C. 1101 et seq.)



Sec. 606.31  How does a grantee maintain its eligibility?

    (a) A grantee shall maintain its eligibility under the requirements 
in Sec. 606.2, except for Sec. 606.2(a)(3) and (4), for the duration of 
the grant period.
    (b) The Secretary reviews an institution's application for a 
continuation award to ensure that--
    (1) The institution continues to meet the eligibility requirements 
described in paragraph (a) of this section; and
    (2) The institution is making substantial progress toward achieving 
the objectives described in its grant application including, if 
applicable, the institution's success in institutionalizing practices 
and improvements developed under the grant.

(Authority: 20 U.S.C. 1101 et seq.)



PART 607--STRENGTHENING INSTITUTIONS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
607.1  What is the Strengthening Institutions Program?
607.2  What institutions are eligible to receive a grant under the 
          Strengthening Institutions Program?
607.3  What is an enrollment of needy students?
607.4  What are low educational and general expenditures?
607.5  How does an institution apply to be designated an eligible 
          institution?
607.6  What regulations apply?
607.7  What definitions apply?
607.8  What is a comprehensive development plan and what must it 
          contain?
607.9  What are the type, duration and limitations in the awarding of 
          grants under this part?
607.10  What activities may and may not be carried out under a grant?

          Subpart B--How Does an Institution Apply for a Grant?

607.11  What must be included in individual development grant 
          applications?
607.12  What must be included in cooperative arrangement grant 
          applications?
607.13  How many applications for a development grant may an institution 
          submit?

            Subpart C--How Does the Secretary Make an Award?

607.20  How does the Secretary choose applications for funding?
607.21  What are the selection criteria for planning grants?
607.22  What are the selection criteria for development grants?
607.23  What special funding consideration does the Secretary provide?
607.24  How does the Secretary use an applicant's performance under a 
          previous development grant when awarding a development grant?
607.25  What priority does the Secretary use in awarding cooperative 
          arrangement grants?

             Subpart D--What Conditions Must a Grantee Meet?

607.30  What are allowable costs and what are the limitations on 
          allowable costs?
607.31  How does a grantee maintain its eligibility?

    Authority: 20 U.S.C. 1057-1059c, 1066-1069f, unless otherwise noted.

    Source: 52 FR 30529, Aug. 14, 1987, unless otherwise noted.



                           Subpart A--General



Sec. 607.1  What is the Strengthening Institutions Program?

    The purpose of the Strengthening Institutions Program is to provide 
grants to eligible institutions of higher education to improve their 
academic programs, institutional management, and fiscal stability in 
order to increase their self-sufficiency and strengthen their capacity 
to make a substantial contribution to the higher education resources of 
the Nation.

(Authority: 20 U.S.C. 1057)

[59 FR 41921, Aug. 15, 1994]

[[Page 231]]



Sec. 607.2  What institutions are eligible to receive a grant under the 
Strengthening Institutions Program?

    (a) Except as provided in paragraphs (b) and (c) of this section, an 
institution of higher education is eligible to receive a grant under the 
Strengthening Institutions Program if--
    (1) It has an enrollment of needy students as described in 
Sec. 607.3(a), unless the Secretary waives this requirement under 
Sec. 607.3(b);
    (2) It has low average educational and general expenditures per 
full-time equivalent undergraduate student as described in 
Sec. 607.4(a), unless the Secretary waives this requirement under 
Sec. 607.4(c).
    (3) It is legally authorized by the State in which it is located to 
be a junior college or to provide an educational program for which it 
awards a bachelor's degree; and
    (4) It is accredited or preaccredited by a nationally recognized 
accrediting agency or association that the Secretary has determined to 
be a reliable authority as to the quality of education or training 
offered.
    (b) A branch campus of an institution of higher education, if the 
institution as a whole meets the requirements of paragraphs (a)(1) 
through (4) of this section, is eligible to receive a grant under the 
Strengthening Institutions Program even if, by itself, it does not 
satisfy the requirements of paragraphs (a)(3) and (a)(4) of this 
section, although the branch must meet the requirements of paragraphs 
(a)(1) and (a)(2) of this section.
    (c) For the purpose of paragraphs (e)(2) and (f)(2) of this section, 
an institution's enrollment consists of a head count of its entire 
student body.
    (d) A tribal college or university may receive a grant authorized 
under section 316 of the HEA if--
    (1) It satisfies the requirements of paragraph (a) of this section, 
other than Sec. 607.2(a)(3), and
    (2)(i) It meets the definition of the term ``tribally controlled 
college or university'' in section 2 of the Tribally Controlled College 
or University Assistance Act of 1978; or
    (ii) It is listed in the Equity in Educational Land Grant Status Act 
of 1994.
    (e) An Alaska Native-serving institution may receive a grant under 
section 317 of the HEA if--
    (1) It satisfies the requirements of paragraph (a) of this section; 
and
    (2) It has, at the time of application, an enrollment of 
undergraduate students that is at least 20 percent Alaska Native 
students.
    (f) A Native Hawaiian-serving institution may receive a grant 
authorized under section 317 of the HEA if--
    (1) It satisfies the requirements of paragraph (a) of this section; 
and
    (2) It has, at the time of application, an enrollment of 
undergraduate students that is at least 10 percent Native Hawaiian 
students.
    (g)(1) An institution that qualifies for a grant under the 
Strengthening Historically Black Colleges and Universities Program (34 
CFR part 608) or the Developing Hispanic-Serving Institutions Program 
(34 CFR part 606) and receives a grant under either of these programs 
for a particular fiscal year is not eligible to receive a grant under 
this part for the same fiscal year.
    (2) A tribal college or university that receives a grant under 
section 316 of the HEA or an Alaska Native or Native Hawaiian-serving 
institution that receives a grant under section 317 of the HEA may not 
concurrently receive other grant funds under the Strengthening 
Institutions Program, Strengthening Historically Black Colleges and 
Universities Program, or Strengthening Historically Black Graduate 
Institutions Program.

(Authority: 20 U.S.C. 1057 et seq.)

[59 FR 41922, Aug. 15, 1994, as amended at 60 FR 15447, Mar. 23, 1995; 
64 FR 70153, Dec. 15, 1999]



Sec. 607.3  What is an enrollment of needy students?

    (a) Except as provided in paragraph (b) of this section, for the 
purpose of Sec. 607.2(a)(1), an applicant institution has an enrollment 
of needy students if in the base year--
    (1) At least 50 percent of its degree students received student 
financial assistance under one or more of the following programs: Pell 
Grant, Supplemental Educational Opportunity Grant, College Work-Study, 
and Perkins Loan; or

[[Page 232]]

    (2) The percentage of its undergraduate degree students who were 
enrolled on at least a half-time basis and received Pell Grants exceeded 
the median percentage of undergraduate degree students who were enrolled 
on at least a half-time basis and received Pell Grants at comparable 
institutions that offer similar instruction.
    (b) The Secretary may waive the requirement contained in paragraph 
(a) of this section if the institution demonstrates that--
    (1) The State provides more than 30 percent of the institution's 
budget and the institution charges not more than $99.00 for tuition and 
fees for an academic year;
    (2) At least 30 percent of the students served by the institution in 
the base year were students from low-income families;
    (3) The institution substantially increases the higher education 
opportunities for low-income students who are also educationally 
disadvantaged, underrepresented in postsecondary education, or minority 
students;
    (4) The institution substantially increases the higher education 
opportunities for individuals who reside in an area that is not included 
in a ``metropolitan statistical area'' as defined by the Office of 
Management and Budget and who are unserved by other postsecondary 
institutions;
    (5) The institution is located on or within 50 miles of an Indian 
reservation, or a substantial population of Indians and the institution 
will, if granted the waiver, substantially increase higher education 
opportunities for American Indians;
    (6) It is a tribal college or university; or
    (7) The institution will, if granted the waiver, substantially 
increase the higher education opportunities for Black Americans, 
Hispanic Americans, Native Americans, Asian Americans or Pacific 
Islanders, including Native Hawaiians.
    (c) For the purpose of paragraph (b) of this section, the Secretary 
considers ``low-income'' to be an amount which does not exceed 150 
percent of the amount equal to the poverty level as established by the 
United States Bureau of the Census.
    (d) Each year, the Secretary notifies prospective applicants through 
a notice in the Federal Register of the low-income figures.

(Authority: 20 U.S.C. 1058 and 1067)

[52 FR 30529, Aug. 14, 1987, as amended at 60 FR 15447, Mar. 23, 1995; 
64 FR 70153, Dec. 15, 1999]



Sec. 607.4  What are low educational and general expenditures?

    (a)(1) Except as provided in paragraph (b) of this section, for the 
purpose of Sec. 6072(a)(2), an applicant institution's average 
educational and general expenditures per full-time equivalent 
undergraduate student in the base year must be less than the average 
educational and general expenditures per full-time equivalent 
undergraduate student of comparable institutions that offer similar 
institution in that year.
    (2) For the purpose of paragraph (a)(1) of this section, the 
Secretary determines the average educational and general expenditure per 
FTE undergraduate student for institutions with graduate students that 
do not differentiate between graduate and undergraduate E&G expenditures 
by discounting the graduate enrollment using a factor of 2.5 times the 
number of graduate students.
    (b) Each year, the Secretary notifies prospective applicants through 
a notice in the Federal Register of the average educational and general 
expenditures per full-time equivalent undergraduate student at 
comparable institutions that offer similar instruction.
    (c) The Secretary may waive the requirement contained in paragraph 
(a) of this section, if the Secretary determines, based upon persuasive 
evidence provided by the institution, that--
    (1) The institution's failure to satisfy the criteria in paragraph 
(a) of this section was due to factors which, if used in determining 
compliance with those criteria, distorted that determination; and
    (2) The institution's designation as an eligible institution under 
this part is otherwise consistent with the purposes of this part.
    (d) For the purpose of paragraph (c)(1) of this section, the 
Secretary considers that the following factors

[[Page 233]]

may distort an institution's educational and general expenditures per 
full-time equivalent undergraduate student--
    (1) Low student enrollment;
    (2) Location of the institution in an unusually high cost-of-living 
area;
    (3) High energy costs;
    (4) An increase in State funding that was part of a desegregation 
plan for higher education; or
    (5) Operation of high cost professional schools such as medical or 
dental schools.

(Authority: 20 U.S.C. 1058 and 1067)

[59 FR 41922, Aug. 15, 1994]



Sec. 607.5  How does an institution apply to be designated an eligible 
institution?

    An institution shall apply to the Secretary to be designated an 
eligible institution under the Strengthening Institutions Program by 
submitting an application to the Secretary in the form, manner and time 
established by the Secretary. The application must contain--
    (a) The information necessary for the Secretary to determine whether 
the institution satisfies the requirements of Secs. 607.2, 607.3(a) and 
607.4(a);
    (b) Any waiver request under Secs. 607.3(b) and 607.4(c); and
    (c) Information or explanations justifying any requested waiver.

(Authority: 20 U.S.C. 1058 and 1067)



Sec. 607.6  What regulations apply?

    The following regulations apply to the Strengthening Institutions 
Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs), except 34 CFR 
75.128(a)(2) and 75.129(a) in the case of applications for cooperative 
arrangements.
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 607.

(Authority: 20 U.S.C. 1057)

[59 FR 41922, Aug. 15, 1994]



Sec. 607.7  What definitions apply?

    (a) Definitions in EDGAR. The following terms that apply to the 
Institutional Aid Programs are defined in 34 CFR 77.1:

EDGAR
Fiscal year
Grant
Grantee
Grant period
Nonprofit
Private
Project period
Public
Secretary
State

    (b) The following term used in this part is defined in section 312 
of the HEA:

Endowment fund

    (c) The following terms used in this part are defined in section 316 
of the HEA:

Indian
Indian tribe
Tribal college or university

    (d) The following terms used in this part are defined in section 317 
of the HEA:

Alaska Native
Alaska Native-serving institution
Native Hawaiian
Native Hawaiian-serving institution

    (e) The following definitions also apply to this part:
    Accredited means the status of public recognition which a nationally 
recognized accrediting agency or association grants to an institution 
which meets certain established qualifications and educational 
standards.
    Activity means an action that is incorporated into an implementation 
plan designed to meet one or more objectives. An activity is a part of a 
project and has its own budget that is approved to carry out the 
objectives of that subpart.

[[Page 234]]

    Base year means the second fiscal year preceding the fiscal year for 
which an institution seeks a grant under this part.
    Branch campus means a unit of a college or university that is 
geographically apart from the main campus of the college or university 
and independent of that main campus. The Secretary considers a unit of a 
college or university to be independent of the main campus if the unit--
    (1) Is permanent in nature;
    (2) Offers courses for credit and programs leading to an associate 
or bachelor's degree; and
    (3) Is autonomous to the extent that it has--
    (i) Its own faculty and administrative or supervisory organization; 
and
    (ii) Its own budgetary and hiring authority.
    Comparable institutions that offer similar instruction means 
institutions that are being compared with an applicant institution and 
that fall within one of the following four categories--
    (1) Public junior or community colleges;
    (2) Private nonprofit junior or community colleges;
    (3) Public institutions that offer an educational program for which 
they offer a bachelor's degree; or
    (4) Private nonprofit institutions that offer an educational program 
for which they offer a bachelor's degree.
    Cooperative arrangement means an arrangement to carry out allowable 
grant activities between an institution eligible to receive a grant 
under this part and another eligible or ineligible institution of higher 
education, under which the resources of the cooperating institutions are 
combined and shared to better achieve the purposes of this part and 
avoid costly duplication of effort.
    Degree student means a student who enrolls at an institution for the 
purpose of obtaining the degree, certificate, or other recognized 
educational credential offered by that institution.
    Developmental program and services means new or improved programs 
and services, beyond those regularly budgeted, specifically designed to 
improve the self sufficiency of the school.
    Educational and general expenditures means the total amount expended 
by an institution of higher education for instruction, research, public 
service, academic support (including library expenditures), student 
services, institutional support, scholarships and fellowships, operation 
and maintenance expenditures for the physical plant, and any mandatory 
transfers which the institution is required to pay by law.
    Educationally disadvantaged means a college student who requires 
special services and assistance to enable them to succeed in higher 
education. The phrase includes, but is not limited to, students who come 
from--
    (1) Economically disadvantaged families;
    (2) Limited English proficiency families;
    (3) Migrant worker families; or
    (4) Families in which one or both of their parents have dropped out 
of secondary school.
    Federal Pell Grant Program means the grant program authorized by 
title IV-A-1 of the HEA.
    Federal Perkins Loan Program, formerly called the National Direct 
Student Loan Program, means the loan program authorized by title IV-E of 
the HEA.
    Federal Supplemental Education Opportunity Grant Program means the 
grant program authorized by title IV-A-3 of the HEA.
    Federal Work-Study Program means the part-time employment program 
authorized under title IV-C of the HEA.
    Full-time equivalent students means the sum of the number of 
students enrolled full-time at an institution, plus the full-time 
equivalent of the number of students enrolled part time (determined on 
the basis of the quotient of the sum of the credit hours of all part-
time students divided by 12) at such institution.
    HEA means the Higher Education Act of 1965, as amended.
    Hispanic student means a person of Mexican, Puerto Rican, Cuban, 
Central or South American, or other Spanish culture or origin, 
regardless of race.
    Institution of higher education means an educational institution 
defined in section 101 of the HEA.

[[Page 235]]

    Junior or community college means an institution of higher 
education--
    (1) That admits as regular students persons who are beyond the age 
of compulsory school attendance in the State in which the institution is 
located and who have the ability to benefit from the training offered by 
the institution;
    (2) That does not provide an educational program for which it awards 
a bachelor's degree (or an equivalent degree); and
    (3) That--
    (i) Provides an educational program of not less than 2 years that is 
acceptable for full credit toward such a degree, or
    (ii) Offers a 2-year program in engineering, mathematics, or the 
physical or biological sciences, designed to prepare a student to work 
as a technician or at the semiprofessional level in engineering, 
scientific, or other technological fields requiring the understanding 
and application of basic engineering, scientific, or mathematical 
principles of knowledge.
    Low-income individual means an individual from a family whose 
taxable income for the preceding year did not exceed 150 percent of an 
amount equal to the poverty level determined by using criteria of 
poverty established by the Bureau of Census.
    Minority student means a student who is Alaskan Native, American 
Indian, Asian-American, Black (African-American), Hispanic American, 
Native Hawaiian, or Pacific Islander.
    Nationally recognized accrediting agency or association means an 
accrediting agency or association that the Secretary has recognized to 
accredit or preaccredit a particular category of institution in 
accordance with the provisions contained in 34 CFR part 603. The 
Secretary periodically publishes a list of those nationally recognized 
accrediting agencies and associations in the Federal Register.
    Operational programs and services means the regular, ongoing 
budgeted programs and services at an institution.
    Preaccredited means a status that a nationally recognized 
accrediting agency or association, recognized by the Secretary to grant 
that status, has accorded an unaccredited institution that is 
progressing toward accreditation within a reasonable period of time.
    Project means all the funded activities under a grant.
    Self-sufficiency means the point at which an institution is able to 
survive without continued funding under the Strengthening Institutions 
Program.
    Underrepresented means proportionate representation as measured by 
degree recipients, that is less than the proportionate representation in 
the general population--
    (1) As indicated by--
    (i) The most current edition of the Department's Digest of 
Educational Statistics;
    (ii) The National Research Council's Doctorate Recipients from 
United States Universities; or
    (iii) Other standard statistical references, as announced annually 
in the Federal Register notice inviting applications for new awards 
under this program; or
    (2) As documented by national survey data submitted to and accepted 
by the Secretary on a case-by-case basis.

(Authority: 20 U.S.C. 1051, 1057-1059 and 1066-1069f; OMB Directive No. 
15)

[52 FR 30529, Aug. 14, 1987, as amended at 59 FR 41922, Aug. 15, 1994; 
60 FR 15447, Mar. 23, 1995; 64 FR 70153, Dec. 15, 1999]



Sec. 607.8  What is a comprehensive development plan and what must it contain?

    (a) A comprehensive development plan is an institution's strategy 
for achieving growth and self-sufficiency by strengthening its--
    (1) Academic programs;
    (2) Institutional management; and
    (3) Fiscal stability.
    (b) The comprehensive development plan must include the following:
    (1) An analysis of the strengths, weaknesses, and significant 
problems of the institution's academic programs, institutional 
management, and fiscal stability.
    (2) A delineation of the institution's goals for its academic 
programs, institutional management, and fiscal stability, based on the 
outcomes of the analysis described in paragraph (b)(1) of this section.

[[Page 236]]

    (3) Measurable objectives related to reaching each goal and 
timeframes for achieving the objectives.
    (4) Methods and resources that will be used to institutionalize 
practices and improvements developed under the proposed project.
    (5) For a grant under section 316 of the HEA to a tribal college or 
university, its five-year plan for improving its services to Indian 
students, increasing the rates at which Indian secondary school students 
enroll in higher education, and increasing overall postsecondary 
retention rates for Indian students.
    (6) For a grant under section 317 of the HEA to an Alaska Native-
serving institution or to a Native Hawaiian-serving institution, its 
five-year plan for improving its services to Alaska Native or Native 
Hawaiian students, respectively.

(Authority: 20 U.S.C. 1066)

[59 FR 41923, Aug. 15, 1994, as amended at 64 FR 70154, Dec. 15, 1999]



Sec. 607.9  What are the type, duration and limitations in the awarding 
of grants under this part?

    (a)(1) Under this part, the Secretary may award planning grants and 
two types of development grants, individual development grants and 
cooperative arrangement development grants.
    (2) Planning grants may be awarded for a period not to exceed one 
year.
    (3) Either type of development grant may be awarded for a period of 
five years.
    (b)(1) An institution that received an individual development grant 
of five years may not subsequently receive another individual 
development grant for a period of two years from the date on which the 
five-year grant period terminates.
    (2) A cooperative arrangement grant is not considered to be an 
individual development grant under paragraph (b)(1) of this section.

(Authority: 20 U.S.C. 1059)

[52 FR 30529, Aug. 14, 1987, as amended at 59 FR 41923, Aug. 15, 1994; 
64 FR 70154, Dec. 15, 1999]



Sec. 607.10  What activities may and may not be carried out under a grant?

    (a) Planning grants. Under a planning grant, a grantee shall 
formulate--
    (1) A comprehensive development plan described in Sec. 607.8; and
    (2) An application for a development grant.
    (b) Development grants--allowable activities. Under a development 
grant, except as provided in paragraph (c) of this section, a grantee 
shall carry out activities that implement its comprehensive development 
plan and hold promise for strengthening the institution. Activities that 
may be carried out include, but are not limited to--
    (1) Faculty exchanges, faculty fellowships, and faculty development 
that provide faculty with the skills and knowledge needed to--
    (i) Develop academic support services, including advising and 
mentoring students;
    (ii) Develop academic programs or methodology, including computer-
assisted instruction, that strengthen the academic quality of the 
institution; or
    (iii) Acquire terminal degrees that are required to obtain or retain 
accreditation of an academic program or department;
    (2) Funds and administrative management that will improve the 
institution's ability to--
    (i) Manage financial resources in an efficient and effective manner; 
and
    (ii) Collect, access, and use information about the institution's 
operations for improved decisionmaking;
    (3) Developing and improving academic programs that enable the 
institution to--
    (i) Develop new academic programs or new program options that show 
promise for increased student enrollment;
    (ii) Provide new technology or methodology to increase student 
success and retention or to retain accreditation; or
    (iii) Improve curriculum or methodology for existing academic 
programs to stabilize or increase student enrollment;
    (4) Acquiring equipment for use in strengthening management and 
academic programs to achieve objectives

[[Page 237]]

such as those described in paragraphs (b)(2) and (b)(3) of this section;
    (5) Establishing or increasing the joint use of facilities such as 
libraries and laboratories to--
    (i) Eliminate the distance and high cost associated with providing 
academic programs and academic support; or
    (ii) Provide clinical experience that is part of an approved 
academic program at off-campus locations;
    (6) Developing or improving student services to provide--
    (i) New or improved methods to deliver student services, including 
counseling, tutoring, and instruction in basic skills; or
    (ii) Improved strategies to train student services personnel;
    (7) Payment of any portion of the salary of a dean, with proper 
justification, to fill a position under the project such as project 
coordinator or activity director. For purposes of this paragraph, proper 
justification includes evidence that the position entitled ``Dean'' is 
not one that has college-wide administrative authority and 
responsibility;
    (8) Purchase, rental, or lease of scientific or laboratory equipment 
for educational purposes, including instructional and research purposes;
    (9) Construction, maintenance, renovation, and improvement in 
classrooms, libraries, laboratories, and other instructional facilities, 
including the integration of computer technology into institutional 
facilities to create smart buildings;
    (10) Establishing or improving a development office to strengthen or 
improve contributions from alumni and the private sector;
    (11) Establishing or improving an endowment fund, provided a grantee 
uses no more than 20 percent of its grant funds for this purpose and at 
least matches those grant funds with non-Federal funds;
    (12) Creating or improving facilities for Internet or other distance 
learning academic instruction capabilities, including purchase or rental 
of telecommunications technology equipment or services;
    (13) For grants authorized under section 316 of the HEA to tribal 
colleges or universities--
    (i) Purchase, rental, or lease of scientific or laboratory equipment 
for educational purposes, including instructional and research purposes;
    (ii) Construction, maintenance, renovation, and improvement in 
classroom, library, laboratory, and other instructional facilities, 
including purchase or rental of telecommunications technology equipment 
or services;
    (iii) Support of faculty exchanges, faculty development, and faculty 
fellowships to assist in attaining advanced degrees in their field of 
instruction;
    (iv) Curriculum development and academic instruction;
    (v) Purchase of library books, periodicals, microfilm, and other 
educational materials, including telecommunications program materials;
    (vi) Funds and administrative management, and acquisition of 
equipment for use in strengthening funds management;
    (vii) Joint use of facilities such as laboratories and libraries; 
and
    (viii) Academic tutoring and counseling programs and student support 
services designed to improve academic services;
    (ix) Academic instruction in disciplines in which Indians are 
underrepresented;
    (x) Establishing or improving a development office to strengthen or 
improve contributions from the alumni and the private sector;
    (xi) Establishing or enhancing a program of teacher education 
designed to qualify students to teach in elementary schools or secondary 
schools, with a particular emphasis on teaching Indian children and 
youth, that shall include, as part of such program, preparation for 
teacher certification;
    (xii) Establishing community outreach programs that encourage Indian 
elementary school and secondary school students to develop the academic 
skills and the interest to pursue postsecondary education; and
    (xiii) Establishing or improving an endowment fund, provided a 
grantee uses no more than 20 percent of its grant funds for this purpose 
and at least matches those grant funds with non-Federal funds; or

[[Page 238]]

    (14) For grants authorized under section 317 of the HEA to Alaska 
Native-serving institutions and Native Hawaiian-serving institutions--
    (i) Purchase, rental, or lease of scientific or laboratory equipment 
for educational purposes, including instructional and research purposes;
    (ii) Renovation and improvement in classroom, library, laboratory, 
and other instructional facilities;
    (iii) Support of faculty exchanges, faculty development, and faculty 
fellowships to assist in attaining advanced degrees in the faculty's 
field of instruction;
    (iv) Curriculum development and academic instruction;
    (v) Purchase of library books, periodicals, microfilm, and other 
educational materials;
    (vi) Funds and administrative management, and acquisition of 
equipment for use in strengthening funds management;
    (vii) Joint use of facilities such as laboratories and libraries;
    (viii) Academic tutoring and counseling programs and student support 
services.
    (c) Development grants--unallowable activities. A grantee may not 
carry out the following activities or pay the following costs under a 
development grant:
    (1) Activities that are not included in the grantee's approved 
application.
    (2) Activities that are inconsistent with any State plan for higher 
education that is applicable to the institution, including, but not 
limited to, a State plan for desegregation of higher education.
    (3) Activities or services that relate to sectarian instruction or 
religious worship.
    (4) Activities provided by a school or department of divinity. For 
the purpose of this provision, a ``school or department of divinity'' 
means an institution, or a department of an institution, whose program 
is specifically for the education of students to prepare them to become 
ministers of religion or to enter into some other religious vocation or 
to prepare them to teach theological subjects.
    (5) Developing or improving non-degree or non-credit courses other 
than basic skills development courses.
    (6) Developing or improving community-based or community services 
programs, unless the program provides academic-related experiences or 
academic credit toward a degree for degree students, or unless it is an 
outreach program that encourages Indian elementary school and secondary 
school students to develop the academic skills and the interest to 
pursue postsecondary education.
    (7) Purchase of standard office equipment, such as furniture, file 
cabinets, bookcases, typewriters, or word processors.
    (8) Payment of any portion of the salary of a president, vice 
president, or equivalent officer who has college-wide administrative 
authority and responsibility at an institution to fill a position under 
the grant such as project coordinator or activity director.
    (9) Costs of organized fund-raising, including financial campaigns, 
endowment drives, solicitation of gifts and bequests, and similar 
expenses incurred solely to raise capital or obtain contributions.
    (10) Costs of student recruitment such as advertisements, 
literature, and college fairs.
    (11) Services to high school students, unless they are part of a 
program to encourage Indian students to develop the academic skills and 
the interest to pursue postsecondary education.
    (12) Instruction in the institution's standard courses as indicated 
in the institution's catalog.
    (13) Costs for health and fitness programs, transportation, and day 
care services.
    (14) Student activities such as entertainment, cultural, or social 
enrichment programs, publications, social clubs, or associations.
    (15) Activities that are operational in nature rather than 
developmental in nature.
    (d) Endowment funds. If a grantee uses part of its grant funds to 
establish or increase an endowment fund under paragraphs (b)(11) or 
(b)(13)(xiii) of this section, it must comply with the provisions of 
Secs. 628.3, 628.6, 628.10 and 628.41

[[Page 239]]

through 628.47 of this chapter with regard to the use of those funds, 
except--
    (1) The definition of the term ``endowment fund income'' in 
Sec. 628.6 of this chapter does not apply. For the purposes of this 
paragraph (d), ``endowment fund income'' means an amount equal to the 
total value of the fund, including fund appreciation and retained 
interest and dividends, minus the endowment fund corpus.
    (2) Instead of the requirement in Sec. 628.10(a) of this chapter, 
the grantee institution must match each dollar of Federal grant funds 
used to establish or increase an endowment fund with one dollar of non-
Federal funds; and
    (3) Instead of the requirements in Sec. 628.41(a)(3) through (a)(5) 
and the introductory text in Sec. 628.41(b) and Sec. 628.41(b)(2) and 
(b)(3) of this chapter, if a grantee institution decides to use any of 
its grant funds for endowment purposes, it must match those grant funds 
immediately with non-Federal funds when it places those funds into its 
endowment fund.

(Authority: 20 U.S.C. 1057 et seq.)

[52 FR 30529, Aug. 14, 1987, as amended at 59 FR 41923, Aug. 15, 1994; 
60 FR 15447, Mar. 23, 1995; 64 FR 70154, Dec. 15, 1999; 65 FR 79310, 
Dec. 19, 2000]



          Subpart B--How Does an Institution Apply for a Grant?



Sec. 607.11  What must be included in individual development grant applications?

    In addition to the information needed by the Secretary to determine 
whether the institution should be awarded a grant under the funding 
criteria contained in subpart C, an application for a development grant 
must include--
    (a) The institution's comprehensive development plan;
    (b) A description of the relationship of each activity for which 
grant funds are requested to the relevant goals and objectives of its 
plan;
    (c) A description of any activities that were funded under previous 
development grants awarded under the Strengthening Institutions Program 
that expired within five years of when the development grant will begin 
and the institution's justification for not completing the activities 
under the previous grant, if applicable; and
    (d) If the applicant is applying to carry out more than one 
activity--
    (1) A description of those activities that would be a sound 
investment of Federal funds if funded separately;
    (2) A description of those activities that would be a sound 
investment of Federal funds only if funded with the other activities; 
and
    (3) A ranking of the activities in preferred funding order.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1057 et seq.)

[52 FR 30529, Aug. 14, 1987, as amended at 59 FR 41924, Aug. 15, 1994; 
60 FR 15447, Mar. 23, 1995; 64 FR 70155, Dec. 15, 1999]



Sec. 607.12  What must be included in cooperative arrangement grant 
applications?

    (a)(1) Institutions applying for a cooperative arrangement grant 
shall submit only one application for that grant regardless of the 
number of institutions participating in the cooperative arrangement.
    (2) The application must include the names of each participating 
institution, the role of each institution, and the rationale for each 
eligible participating institution's decision to request grant funds as 
part of a cooperative arrangement rather than as an individual grantee.
    (b) If the application is for a development grant, the application 
must contain--
    (1) Each participating institution's comprehensive development plan;
    (2) The information required under Sec. 607.11; and
    (3) An explanation from each eligible participating institution of 
why participation in a cooperative arrangement grant rather than 
performance under an individual grant will better enable it to meet the 
goals and objectives of its comprehensive development plan at a lower 
cost.
    (4) The name of the applicant for the group that is legally 
responsible for--
    (i) The use of all grant funds; and

[[Page 240]]

    (ii) Ensuring that the project is carried out by the group in 
accordance with Federal requirements.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1066 and 1069)

[52 FR 30529, Aug. 14, 1987, as amended at 59 FR 41924, Aug. 15, 1994]



Sec. 607.13  How many applications for a development grant may an institution 
submit?

    In any fiscal year, an institution of higher education that meets 
the eligibility requirements under sections 311, 316, and 317 of the HEA 
may--
    (a) Submit an application for a development grant authorized under 
sections 311, 316, and 317 of the HEA; and
    (b) Be part of a cooperative arrangement application.

(Authority: 20 U.S.C. 1057, 1069)

[59 FR 41924, Aug. 15, 1994, as amended at 64 FR 70155, Dec. 15, 1999]



            Subpart C--How Does the Secretary Make an Award?



Sec. 607.20  How does the Secretary choose applications for funding?

    (a) The Secretary evaluates an application on the basis of the 
criteria in--
    (1) Sections 607.21 and 607.23 for a planning grant; and
    (2) Sections 607.22, 607.23, 607.24, and 607.25 for a development 
grant.
    (b)(1) With regard to applicants that satisfy the requirements of 
paragraph (d) of this section, for each fiscal year, the Secretary 
awards individual development grants to applicants that are not 
individual development grantees under this part, before the Secretary 
awards an individual development grant to any applicant that is an 
individual grantee under this part.
    (2) For purposes of paragraph (b)(1) of this section, an institution 
that is a recipient of a cooperative arrangement grant is not an 
individual grantee under this part.
    (c)(1) The Secretary awards up to 100 points for the criteria in 
Sec. 607.21 and up to 100 points for the criteria in Sec. 607.22.
    (2) The maximum possible score for each complete criterion is in 
parentheses.
    (d)(1) The Secretary considers funding an application for a planning 
grant that scores at least 50 points under Sec. 607.21.
    (2) The Secretary considers funding an application for a development 
grant that--
    (i) Scores at least 50 points under Sec. 607.22;
    (ii) Is submitted with a comprehensive development plan that 
satisfies all the elements required of such a plan under Sec. 607.8; and
    (iii) In the case of an application for a cooperative arrangement 
grant, demonstrates that the grant will enable each eligible participant 
to meet the goals and objectives of its comprehensive development plan 
better and at a lower cost than if each eligible participant were funded 
individually.

(Authority: 20 U.S.C. 1057-1059, 1066-1069f)

[59 FR 41924, Aug. 15, 1994, as amended at 60 FR 15447, Mar. 23, 1995; 
64 FR 70155, Dec. 15, 1999]



Sec. 607.21  What are the selection criteria for planning grants?

    The Secretary uses the following criteria to evaluate an application 
to determine whether the applicant will produce a good comprehensive 
development plan and a fundable Strengthening Institutions Program 
application:
    (a) Design of the planning process. (Total: 60 points) The Secretary 
reviews each application to determine the quality of the planning 
process that the applicant will use to develop a comprehensive 
development plan and an application for a development grant based on the 
extent to which--
    (1) The planning process is clearly and comprehensively described 
and based on sound planning practice (15 points);
    (2) The president or chief executive officer, administrators and 
other institutional personnel, students, and governing board members 
systematically and consistently will be involved in the planning process 
(15 points);
    (3) The applicant will use its own resources to help implement the 
project (10 points); and
    (4) The planning process is likely to achieve its intended results 
(20 points).

[[Page 241]]

    (b) Key personnel. (Total: 20 points) The Secretary reviews each 
application to determine the quality of key personnel to be involved in 
the project based on the extent to which--
    (1) The past experience and training of key personnel such as the 
project coordinator and persons who have key roles in the planning 
process are suitable to the tasks to be performed (10 points); and
    (2) The time commitments of key personnel are adequate (10 points).
    (c) Project Management. (Total: 15 points) The Secretary reviews 
each application to determine the quality of the plan to manage the 
project effectively based on the extent to which--
    (1) The procedures for managing the project are likely to ensure 
effective and efficient project implementation (10 points); and
    (2) The project coordinator has sufficient authority, including 
access to the president or chief executive officer, to conduct the 
project effectively (5 points).
    (d) Budget. (Total: 5 points) The Secretary reviews each application 
to determine the extent to which the proposed project costs are 
necessary and reasonable.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1057-1059, 1066-1069)



Sec. 607.22  What are the selection criteria for development grants?

    The Secretary uses the following criteria to evaluate applications 
for development grants:
    (a) Quality of the applicant's comprehensive development plan. 
(Total: 30 points) The extent to which--
    (1) The strengths, weaknesses, and significant problems of the 
institution's academic programs, institutional management, and fiscal 
stability are clearly and comprehensively analyzed and result from a 
process that involved major constituencies of the institution. (12 
points);
    (2) The goals for the institution's academic programs, institutional 
management, and fiscal stability are realistic and based on 
comprehensive analysis. (5 points);
    (3) The objectives stated in the plan are measurable, related to 
institutional goals, and, if achieved, will contribute to the growth and 
self-sufficiency of the institution (5 points);
    (4) The plan clearly and comprehensively describes the methods and 
resources the institution will use to institutionalize practice and 
improvements developed under the proposed project, including, in 
particular, how operational costs for personnel, maintenance, and 
upgrades of equipment will be paid with institutional resources (8 
points).
    (b) Quality of activity objectives. (Total: 10 points) The extent to 
which the objectives for each activity are--
    (1) Realistic and defined in terms of measurable results (5 points); 
and
    (2) Directly related to the problems to be solved and to the goals 
of the comprehensive development plan (5 points).
    (c) Quality of implementation strategy. (Total: 25 points) The 
extent to which--
    (1) The implementation strategy for each activity is comprehensive 
(10 points);
    (2) The rationale for the implementation strategy for each activity 
is clearly described and is supported by the results of relevant studies 
or projects (10 points); and
    (3) The timetable for each activity is realistic and likely to be 
attained (5 points).
    (d) Quality of key personnel. (Total: 10 points) The extent to 
which--
    (1) The past experience and training of key professional personnel 
are directly related to the stated activity objectives (7 points); and
    (2) The time commitment of key personnel is realistic (3 points).
    (e) Quality of project management plan. (Total: 10 points) The 
extent to which--
    (1) Procedures for managing the project are likely to ensure 
efficient and effective project implementation (5 points); and
    (2) The project coordinator and activity directors have sufficient 
authority to conduct the project effectively, including access to the 
president or chief executive officer (5 points).
    (f) Quality of evaluation plan. (Total: 10 points) The extent to 
which--
    (1) The data elements and the data collection procedures are clearly 
described and appropriate to measure the

[[Page 242]]

attainment of activity objectives and to measure the success of the 
project in achieving the goals of the comprehensive development plan (5 
points); and
    (2) The data analysis procedures are clearly described and are 
likely to produce formative and summative results on attaining activity 
objectives and measuring the success of the project on achieving the 
goals of the comprehensive development plan (5 points).
    (g) Budget. (Total: 5 points) The extent to which the proposed costs 
are necessary and reasonable in relation to the project's objectives and 
scope.

(Approved by the Office of Management and Budget under control number 
1840-0114)

(Authority: 20 U.S.C. 1057-1059, 1066-1069f)

[59 FR 41924, Aug. 15, 1994]



Sec. 607.23  What special funding consideration does the Secretary provide?

    (a) If funds are available to fund only one additional planning 
grant and each of the next fundable applications has received the same 
number of points under Sec. 607.21, the Secretary awards additional 
points, up to a maximum of two points, to any of those applicants that--
    (1) Has an endowment fund of which the current market value, per 
full-time equivalent enrolled student, is less than the average current 
market value of the endowment funds, per full-time equivalent enrolled 
student, at similar type institutions; (one point) or
    (2) Has expenditures for library materials per full-time equivalent 
enrolled student which is less than the average expenditure for library 
materials per full-time equivalent enrolled student at similar type 
institutions. (one point)
    (b) If funds are available to fund only one additional development 
grant and each of the next fundable applications has received the same 
number of points under Sec. 607.22, the Secretary will award additional 
points, up to a maximum of three points, to any of those applicants 
that--
    (1) Has an endowment fund of which the current market value, per 
full-time equivalent enrolled student, is less than the average current 
market value of the endowment funds, per full-time equivalent enrolled 
student, at comparable institutions that offer similar instruction; (one 
point)
    (2) Has expenditures for library materials per full-time equivalent 
enrolled student which are less than the average expenditures for 
library materials per full-time equivalent enrolled student at 
comparable institutions that offer similar instruction (one point); or
    (3) Propose to carry out one or more of the following activities--
    (i) Faculty development;
    (ii) Funds and administrative management;
    (iii) Development and improvement of academic programs;
    (iv) Acquisition of equipment for use in strengthening management 
and academic programs;
    (v) Joint use of facilities; and
    (vi) Student services. (one point)
    (c) As used in this section, an endowment fund does not include any 
fund established or supported under 34 CFR part 628.
    (d) Each year, the Secretary provides prospective applicants with 
the average expenditure of endowment funds and library materials per 
full-time equivalent student.

(Authority: 20 U.S.C. 1057 et seq.)

[52 FR 30529, Aug. 14, 1987, as amended at 59 FR 41925, Aug. 15, 1994; 
60 FR 15447, Mar. 23, 1995; 64 FR 70155, Dec. 15, 1999]



Sec. 607.24  How does the Secretary use an applicant's performance under 
a previous development grant when awarding a development grant?

    (a)(1) In addition to evaluating an application under the selection 
criteria in Sec. 607.22, the Secretary evaluates an applicant's 
performance under any previous development grant awarded under the 
Strengthening Institutions Program that expired within five years of the 
year when the development grant will begin.
    (2) The Secretary evaluates whether the applicant fulfilled, or is 
making substantial progress toward fulfilling, the goals and objectives 
of the previous grant, including, but not limited to, the applicant's 
success in institutionalizing practices developed and improvements made 
under the grant.
    (3) The Secretary bases the evaluation of the applicant's 
performance on information contained in--

[[Page 243]]

    (i) Performance and evaluation reports submitted by the applicant;
    (ii) Audit reports submitted on behalf of the applicant; and
    (iii) Other information obtained by the Secretary, including reports 
prepared by the Department.
    (b) If the Secretary initially determines that the applicant did not 
fulfill the goals and objectives of a previous grant or is not making 
substantial progress towards fulfilling those goals and objectives, the 
Secretary affords the applicant the opportunity to respond to that 
initial determination.
    (c) If the Secretary determines that the applicant did not fulfill 
the goals and objectives of a previous grant or is not making 
substantial progress towards fulfilling those goals and objectives, the 
Secretary may--
    (1) Decide not to fund the applicant; or
    (2) Fund the applicant but impose special grant terms and 
conditions, such as specific reporting and monitoring requirements.

(Authority: 20 U.S.C. 1066)

[59 FR 41925, Aug. 15, 1994, as amended at 64 FR 70155, Dec. 15, 1999]



Sec. 607.25  What priority does the Secretary use in awarding cooperative 
arrangement grants?

    Among applications for cooperative arrangement grants, the Secretary 
gives priority to proposed cooperative arrangements that are 
geographically and economically sound, or will benefit the institutions 
applying for the grant.

(Authority: 20 U.S.C. 1057, 1069)

[59 FR 41925, Aug. 15, 1994]



             Subpart D--What Conditions Must a Grantee Meet?



Sec. 607.30  What are allowable costs and what are the limitations on 
allowable costs?

    (a) Allowable costs. Except as provided in paragraphs (b) and (c) of 
this section, a grantee may expend grant funds for activities that are 
related to carrying out the allowable activities included in its 
approved application.
    (b) Supplement and not supplant. Grant funds shall be used so that 
they supplement and, to the extent practical, increase the funds that 
would otherwise be available for the activities to be carried out under 
the grant and in no case supplant those funds.
    (c) Limitations on allowable costs. A grantee may not use an 
indirect cost rate to determine allowable costs under its grant.

(Authority: 20 U.S.C. 1057-1059 and 1066)



Sec. 607.31  How does a grantee maintain its eligibility?

    (a) A grantee shall maintain its eligibility under the requirements 
in Sec. 607.2, except for Sec. 607.2(a) (1) and (2), for the duration of 
the grant period.
    (b) The Secretary reviews an institution's application for a 
continuation award to ensure that--
    (1) The institution continues to meet the eligibility requirements 
described in paragraph (a) of this section; and
    (2) The institution is making substantial progress toward achieving 
the objectives set forth in its grant application including, if 
applicable, the institution's success in institutionalizing practices 
and improvements developed under the grant.

(Authority: 20 U.S.C. 1057-1059b, 1066-1069f)

[59 FR 41925, Aug. 15, 1994]



PART 608--STRENGTHENING HISTORICALLY BLACK COLLEGES AND UNIVERSITIES 
PROGRAM--Table of Contents




                           Subpart A--General

Sec.
608.1  What is the Strengthening Historically Black Colleges and 
          Universities (HBCU) Program?
608.2  What institutions are eligible to receive a grant under the HBCU 
          Program?
608.3  What regulations apply?
608.4  What definitions apply?

        Subpart B--What Kind of Projects Does the Secretary Fund?

608.10  What activities may be carried out under a grant?
608.11  What is the duration of a grant?

     Subpart C--How Does an Eligible Institution Apply for a Grant?

608.20  What are the application requirements for a grant under this 
          part?
608.21  What is a comprehensive development plan and what must it 
          contain?

[[Page 244]]

             Subpart D--How Does the Secretary Make a Grant?

608.30  What is the procedure for approving and disapproving grant 
          applications?
608.31  How does the Secretary determine the amount of a grant?

             Subpart E--What Conditions Must a Grantee Meet?

608.40  What are allowable costs and what are the limitations on 
          allowable costs?
608.41  What are the audit and repayment requirements?
608.42  Under what conditions does the Secretary terminate a grant?

    Authority: 20 U.S.C. 1060 through 1063a, 1063c, 1066, 1068, 1069c, 
1069d, and 1069f, unless otherwise noted.

    Source: 58 FR 38713, July 20, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 608.1  What is the Strengthening Historically Black Colleges and 
Universities (HBCU) Program?

    The Strengthening Historically Black Colleges and Universities 
Program, hereafter called the HBCU Program, provides grants to 
Historically Black Colleges and Universities (HBCUs) to assist these 
institutions in establishing and strengthening their physical plants, 
academic resources and student services so that they may continue to 
participate in fulfilling the goal of equality of educational 
opportunity.

(Authority: 20 U.S.C. 1060)



Sec. 608.2  What institutions are eligible to receive a grant under the 
HBCU Program?

    (a) To be eligible to receive a grant under this part, an 
institution must--
    (1) Satisfy section 322(2) of the Higher Education Act of 1965, as 
amended (HEA);
    (2) Be legally authorized by the State in which it is located--
    (i) To be a junior or community college; or
    (ii) To provide an educational program for which it awards a 
bachelor's degree; and
    (3) Be accredited or preaccredited by a nationally recognized 
accrediting agency or association.
    (b) The Secretary has determined that the following institutions 
satisfy section 322(2) of the HEA.

                                 Alabama

Alabama A&M University-Huntsville
Alabama State University--Montgomery
Carver State Technical College--Mobile
Concordia College--Selma
Fredd State Technical College--Tuscaloosa
J.F. Drake State Technical College--Huntsville
S.D. Bishop State Junior College--Mobile
Lawson State College--Birmingham
Miles College--Birmingham
Oakwood College--Huntsville
Selma University--Selma
Stillman College--Tuscaloosa
Talladega University--Talladega
Trenholm State Technical College--Montgomery
Tuskegee University--Tuskegee

                                Arkansas

Arkansas Baptist College--Little Rock
Philander Smith College--Little Rock
Shorter College--Little Rock
University of Arkansas at Pine Bluff--Pine Bluff

                                Delaware

Delaware State College--Dover

                          District of Columbia

Howard University
University of the District of Columbia

                                 Florida

Bethune Cookman College--Daytona Beach
Edward Waters College--Jacksonville
Florida A&M University--Tallahassee
Florida Memorial College--Miami

                                 Georgia

Albany State College--Albany
Atlanta University--Atlanta
Clark College--Atlanta
Fort Valley State College--Fort Valley
Interdenominational Theological Center--Atlanta
Morehouse College--Atlanta
Morris Brown College--Atlanta
Paine College--Augusta
Savannah State College--Savannah
Spelman College--Atlanta

                                Kentucky

Kentucky State University--Frankfurt

                                Louisiana

Dillard University--New Orleans
Grambling State University--Grambling
Southern University A&M College--Baton Rouge

[[Page 245]]

Southern University at New Orleans--New Orleans
Southern University at Shreveport--Shreveport
Xavier University of Louisiana--New Orleans

                                Maryland

Bowie State College--Bowie
Coppin State College--Baltimore
Morgan State University--Baltimore
University of Maryland-Eastern Shore--Princess Anne

                                Michigan

Lewis College of Business--Detroit

                               Mississippi

Alcorn State University--Lorman
Coahoma Junior College--Clarksdale
Jackson State University--Jackson
Mary Holmes College--West Point
Mississippi Valley State University--Itta Bena
Prentiss Normal and Industrial Institute--Prentiss
Rust College--Holly Springs
Tougaloo College--Tougaloo
Hinds Junior College (Utica Jr Coll)--Raymond

                                Missouri

Lincoln University--Jefferson City
Harris-Stowe State College--St. Louis

                             North Carolina

Barber-Scotia College--Concord
Bennett College--Greensboro
Elizabeth City State University--Elizabeth City
Fayetteville State University--Fayetteville
Johnson C. Smith University--Charlotte
Livingstone College--Salisbury
North Carolina A&T State University--Greensboro
North Carolina Central University--Durham
Saint Augustine's College--Raleigh
Shaw University--Raleigh
Winston-Salem State University--Winston Salem

                                  Ohio

Central State University--Wilberforce
Wilberforce University--Wilberforce

                                Oklahoma

Langston University--Langston

                              Pennsylvania

Cheyney State University--Cheyney
Lincoln University--Lincoln

                             South Carolina

Allen University--Columbia
Benedict College--Columbia
Claflin College--Orangeburg
Clinton Junior College--Rock Hill
Denmark Technical College--Denmark
Morris College--Sumter
South Carolina State College--Orangeburg
Voorhees College--Denmark

                                Tennessee

Fisk University--Nashville
Knoxville College--Knoxville
Lane College--Jackson
LeMoyne-Owen College--Memphis
Meharry Medical College--Nashville
Morristown College--Morristown
Tennessee State University--Nashville

                                  Texas

Huston-Tillotson College--Austin
Jarvis Christian College--Hawkins
Paul Quinn College--Waco
Prairie View A&M University--Prairie View
Saint Philip's College--San Antonio
Southwestern Christian College--Terrell
Texas College--Tyler
Texas Southern University--Houston
Wiley College--Marshall

                           U.S. Virgin Islands

College of the Virgin Islands--St. Thomas

                                Virginia

Hampton University--Hampton
Norfolk State University--Norfolk
Saint Paul's College--Lawrenceville
Virginia State University--Petersburg
Virginia Union University--Richmond

                              West Virginia

Bluefield State College--Bluefield
West Virginia State College--Institute

    (c) If an institution identified in paragraph (b) of this section 
has merged with another institution, and, as a result of the merger, 
would not otherwise qualify to receive a grant under this part, that 
institution may nevertheless qualify to receive a grant under this part 
if--
    (1) The institution would have qualified to receive a grant before 
the merger; and
    (2) The institution was eligible to receive a grant under the 
Special Needs Program in any fiscal year prior to fiscal year 1986. (The 
Special Needs Program was authorized under Title III, Part B, of the HEA 
before 1986.)
    (d) For the purpose of paragraph (a)(3) of this section, the 
Secretary publishes a list in the Federal Register of nationally 
recognized accrediting agencies and associations.

[[Page 246]]

    (e) Notwithstanding any other provision of this section, for each 
fiscal year--
    (1) The University of the District of Columbia is eligible to 
receive a grant under this part only if the amount of the grant it is 
scheduled to receive under Sec. 608.31 exceeds the amount it is 
scheduled to receive in the same fiscal year under the District of 
Columbia Self-Government and Governmental Reorganization Act; and
    (2) Howard University is eligible to receive a grant under this part 
only if the amount of the grant it is scheduled to receive under 
Sec. 608.31 exceeds the amount it is scheduled to receive in the same 
fiscal year under the Act of March 2, 1867, 20 U.S.C. 123.

(Authority: 20 U.S.C. 1061, 1063, and 1063a; House Report 99-861, 99th 
Cong., 2d Sess. p. 367, September 22, 1986; Senate Report 99-296, 99th 
Cong., 2d Sess. p. 23, May 12, 1986; Cong. Rec. of June 3, 1986, pp. 
6588-6589)



Sec. 608.3  What regulations apply?

    The following regulations apply to this part:
    (a) The Department of Education General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) The following sections of 34 CFR part 75 (Direct Grant 
Programs): Secs. 75.1-75.104, 75.125-75.129, 75.190-75.192, 75.230-
75.261, 75.500, 75.510-75.519, 75.524-75.534, 75.580-75.903, and 75.910;
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 608.

(Authority: 20 U.S.C. 1060-1063a, 1063c)



Sec. 608.4  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
EDGAR
Equipment
Fiscal year
Grant period
Private
Project period
Public
Secretary

    (b) Other definitions. The following definitions also apply to this 
part:
    Accredited means the status of public recognition which a nationally 
recognized accrediting agency or association grants to an institution 
which meets certain established qualifications and educational 
standards.
    Graduate means a student who has attended an institution for at 
least three semesters and fulfilled academic requirements for 
undergraduate studies in not more than five consecutive school years.
    Junior or community college means an institution of higher education 
that--
    (i) Admits as regular students persons who are beyond the age of 
compulsory school attendance in the State in which the institution is 
located and who have the ability to benefit from the training offered by 
the institution;
    (ii) Does not provide an educational program for which it awards a 
bachelor's degree or an equivalent degree; and
    (iii) Provides an educational program of not less than 2 years that 
is acceptable for full credit toward such a degree; or offers a 2-year 
program in engineering, mathematics, or the physical or biological 
sciences, designed to prepare a student to work as a technician or at 
the semiprofessional level in engineering, scientific, or other 
technological fields requiring the understanding and application of 
basic engineering, scientific, or mathematical principles of knowledge.
    Pell Grant means the grant program authorized by Title IV-A-1 of the 
Higher Education Act of 1965, as amended.
    Preaccredited means a status, also called candidacy status, that a 
nationally recognized accrediting agency or association, recognized by 
the Secretary to grant that status, has accorded an unaccredited 
institution that

[[Page 247]]

is making reasonable progress toward accreditation.
    School year means the period of time from July 1 of one calendar 
year through June 30 of the subsequent calendar year. (A ``school year'' 
is equivalent to an ``award year'' under the Pell Grant Program.)

(Authority: 20 U.S.C. 1060-1063)



        Subpart B--What Kind of Projects Does the Secretary Fund?



Sec. 608.10  What activities may be carried out under a grant?

    (a) Allowable activities. Except as provided in paragraph (b) of 
this section, a grantee may carry out the following activities under 
this part--
    (1) Purchase, rental, or lease of scientific or laboratory equipment 
for educational purposes, including instructional or research purposes;
    (2) Construction, maintenance, renovation, and improvement in 
classroom, library, laboratory, and other instructional facilities, 
including purchase or rental of telecommunications technology equipment 
or services;
    (3) Support of faculty exchanges, faculty development and faculty 
fellowships to assist these faculty members in attaining advanced 
degrees in their fields of instruction;
    (4) Academic instruction in disciplines in which Black Americans are 
underrepresented;
    (5) Purchase of library books, periodicals, microfilm, and other 
educational materials, including telecommunications program materials;
    (6) Tutoring, counseling, and student service programs designed to 
improve academic success;
    (7) Funds and administrative management, and acquisition of 
equipment for use in strengthening funds management;
    (8) Joint use of facilities, such as laboratories and libraries;
    (9) Establishing or improving a development office to strengthen or 
improve contributions from alumni and the private sector;
    (10) Establishing or enhancing a program of teacher education 
designed to qualify students to teach in a public elementary or 
secondary school in the State that shall include, as part of the 
program, preparation for teacher certification;
    (11) Establishing community outreach programs that will encourage 
elementary and secondary students to develop the academic skills and the 
interest to pursue postsecondary education; and
    (12) Other activities that it proposes in its application that 
contribute to carrying out the purpose of this part and are approved by 
the Secretary as part of the review and acceptance of the application.
    (b) Unallowable activities. A grantee may not carry out the 
following activities under this part--
    (1) Activities that are not included in the grantee's approved 
application;
    (2) Activities described in paragraph (a)(12) of this section that 
are not approved by the Secretary;
    (3) Activities that are inconsistent with any State plan of higher 
education that is applicable to the institution;
    (4) Activities that are inconsistent with a State plan for 
desegregation of higher education that is applicable to the institution;
    (5) Activities or services that relate to sectarian instruction or 
religious worship; and
    (6) Activities provided by a school or department of divinity. For 
the purpose of this section, a ``school or department of divinity'' 
means an institution, or a department of an institution, whose program 
is specifically for the education of students to prepare them to become 
ministers of religion or to enter upon some other religious vocation, or 
to prepare them to teach theological subjects.
    (c) No award under this part may be used for telecommunications 
technology equipment, facilities or services, if such equipment, 
facilities or services are available pursuant to section 396(k) of the 
Communications Act of 1934.
    (d) Endowment funds. If a grantee uses part of its grant funds to 
establish or increase an endowment fund, it is subject to the provisions 
of Secs. 628.3, 628.6, 628.10 and 628.41 through 628.47 of this chapter 
with regard to the use of those funds, except--

[[Page 248]]

    (1) The definition of the term ``endowment fund income'' in 
Sec. 628.6 of this chapter does not apply. For the purposes of this 
paragraph (d), ``endowment fund income'' means an amount equal to the 
total value of the fund, including fund appreciation and retained 
interest and dividends, minus the endowment fund corpus;
    (2) Instead of the requirement in Sec. 628.10(a) of this chapter, 
the grantee institution must match each dollar of Federal grant funds 
used to establish or increase an endowment fund with one dollar of non-
Federal funds; and
    (3) Instead of the requirements in Sec. 628.41(a)(3) through (a)(5) 
and the introductory text in Sec. 628.41(b) and Sec. 628.41(b)(2) and 
(b)(3) of this chapter, if a grantee institution decides to use any of 
its grant funds for endowment purposes, it must match those grant funds 
immediately with non-Federal funds when it places those funds into its 
endowment fund.

(Authority: 20 U.S.C. 1062, 1063a, and 1069c)

[58 FR 38713, July 20, 1993, as amended at 65 FR 79311, Dec. 19, 2000]



Sec. 608.11  What is the duration of a grant?

    The Secretary may award a grant under this part for a period of up 
to five academic years.

(Authority: 20 U.S.C. 1063b(b))



     Subpart C--How Does an Eligible Institution Apply for a Grant?



Sec. 608.20  What are the application requirements for a grant under this part?

    In order to receive a grant under this part, an institution must 
submit an application to the Secretary at such time and in such manner 
as the Secretary may prescribe. The application must contain--
    (a) A description of the activities to be carried out with grant 
funds;
    (b) A description of how the grant funds will be used so that they 
will supplement and, to the extent practical, increase the funds that 
would otherwise be made available for the activities to be carried out 
under the grant and in no case supplant those funds;
    (c) (1) A comprehensive development plan as described in 
Sec. 608.21; or
    (2) If an applicant has already submitted a comprehensive 
development plan as described in Sec. 608.21, a description of the 
progress the applicant has made in carrying out the goals of its plan;
    (d) An assurance that the institution will provide the Secretary 
with an annual report on the activities carried out under the grant;
    (e) An assurance that the institution will provide for, and submit 
to the Secretary, the compliance and financial audit described in 
Sec. 608.41;
    (f) An assurance that the proposed activities in the application are 
in accordance with any State plan that is applicable to the institution;
    (g) The number of graduates of the applicant institution during the 
school year immediately preceding the fiscal year for which grant funds 
are requested; and
    (h) The number of graduates of the applicant institution--
    (1) Who, within five years of graduating with baccalaureate degrees, 
attended graduate or professional schools and enrolled in degree 
programs in disciplines in which Blacks are underrepresented during the 
school year immediately preceding the fiscal year for which funds are 
requested; and
    (2) Who graduated with baccalaureate degrees during any one of the 
five school years immediately preceding the school year described in 
paragraph (h)(1) of this section.

(Approved by the Office of Management and Budget under control number 
1840-0113)

(Authority: 20 U.S.C. 1063, 1063a and 1066(b)(2))



Sec. 608.21  What is a comprehensive development plan and what must it contain?

    (a) A comprehensive development plan must describe an institution's 
strategy for achieving growth and self-sufficiency by strengthening its-
-
    (1) Financial management;
    (2) Academic programs; and
    (b) The comprehensive development plan must include the following:

[[Page 249]]

    (1) An assessment of the strengths and weaknesses of the 
institution's financial management and academic programs.
    (2) A delineation of the institution's goals for its financial 
management and academic programs, based on the outcomes of the 
assessment described in paragraph (b)(1) of this section.
    (3) A listing of measurable objectives designed to assist the 
institution to reach each goal with accompanying timeframes for 
achieving the objectives.
    (4) A description of methods, processes, and procedures that will be 
used by the college or university to institutionalize financial 
management and academic program practices and improvements developed 
under the proposed funded activities.

(Approved by the Office of Management and Budget under control number 
1840-0113)

(Authority: 20 U.S.C. 1063a)



             Subpart D--How Does the Secretary Make a Grant?



Sec. 608.30  What is the procedure for approving and disapproving grant applications?

    The Secretary--
    (a) Approves any application that satisfies the requirements of 
Sec. 608.10 and Sec. 608.20; and
    (b) Does not disapprove any application, or any modification of an 
application, without affording the applicant reasonable notice and 
opportunity for a hearing.

(Authority: 20 U.S.C. 1063a)



Sec. 608.31  How does the Secretary determine the amount of a grant?

    (a) Except as provided in paragraph (c) of this section, for each 
fiscal year, the Secretary determines the amount of a grant under this 
part by-
    (1) Multiplying fifty percent of the amount appropriated for the 
HBCU Program by the following fraction:

Number of Pell Grant recipients at the applicant institution during the 
school year immediately preceding that fiscal year.
________________________________________________________________________
Number of Pell Grant recipients at all applicant institutions during the 
school year immediately preceding that fiscal year.

    (2) Multiplying twenty-five percent of the amount appropriated for 
the HBCU Program by the following fraction:

Number of graduates of the applicant institution during the school year 
immediately preceding that fiscal year.
________________________________________________________________________
Number of graduates of all applicant institutions during the school year 
immediately preceding that fiscal year.

    (3) Multiplying twenty-five percent of the amount appropriated for 
the HBCU Program by the following fraction:

The percentage of graduates of an applicant institution who, within five 
years of graduating with baccalaureate degrees, are in attendance at 
graduate or professional schools and enrolled in degree programs in 
disciplines in which Blacks are underrepresented
________________________________________________________________________
The sum of the percentages of those graduates of all applicant 
institutions.

    (4) Adding the amounts obtained in paragraphs (a)(1), (a)(2), and 
(a)(3) of this section.
    (b)(1) For each fiscal year, the numerator in paragraph (a)(3) of 
this section is calculated by--
    (i) Determining the number of graduates of an applicant institution 
who, within five years of graduating with baccalaureate degrees, 
attended graduate or professional schools and enrolled in degree 
programs in disciplines in which Blacks are underrepresented during the 
school year immediately preceding that fiscal year; and
    (ii) Dividing the number obtained in paragraph (b)(1)(i) of this 
section by the number of graduates of an applicant institution who 
graduated with baccalaureate degrees during the five school years 
immediately preceding the school year described in paragraph (b)(1)(i) 
of this section.
    (2) For purposes of this section, the Secretary--
    (i) Considers that Blacks are underrepresented in a professional or 
academic discipline if the percentage of Blacks in that discipline is 
less than the percentage of Blacks in the general population of the 
United States; and

[[Page 250]]

    (ii) Notifies applicants of the disciplines in which Blacks are 
underrepresented through a notice in the Federal Register, after 
consulting with the Commissioner of the Bureau of Labor Statistics.
    (c) Notwithstanding the formula in paragraph (a) of this section--
    (1) For each fiscal year, each eligible institution with an approved 
application must receive at least $500,000; and
    (2) If the amount appropriated for a fiscal year for the HBCU 
Program is insufficient to provide $500,000 to each eligible institution 
with an approved application, each grant is ratably reduced. If 
additional funds become available for the HBCU Program during a fiscal 
year, each grant is increased on the same basis as it was decreased 
until the grant amount reaches $500,000.
    (d) The amount of any grant that the Secretary determines will not 
be required by a grantee for the period for which the grant was made is 
available for reallotment by the Secretary during that period to other 
eligible institutions under the formula contained in paragraph (a) of 
this section.

(Authority: 20 U.S.C. 1063)



             Subpart E--What Conditions Must a Grantee Meet?



Sec. 608.40  What are allowable costs and what are the limitations on allowable costs?

    (a) Allowable costs. Except as provided in paragraphs (b) and (c) of 
this section, a grantee may expend grant funds for activities that are 
related to carrying out the allowable activities included in its 
approved application.
    (b) Supplement and not supplant. Grant funds shall be used so that 
they supplement, and to the extent practical, increase the funds that 
would otherwise be available for the activities to be carried out under 
the grant, and in no case supplant those funds.
    (c) Limitations on allowable costs. A grantee may not--
    (1) Spend more than fifty percent of its grant award in each fiscal 
year for costs relating to constructing or maintaining a classroom, 
library, laboratory, or other instructional facility; or
    (2) Use an indirect cost rate to determine allowable costs under its 
grant.

(Authority: 20 U.S.C. 1062 and 1066)



Sec. 608.41  What are the audit and repayment requirements?

    (a) (1) A grantee shall provide for the conduct of a compliance and 
financial audit of any funds it receives under this part of a qualified, 
independent organization or person in accordance with the Standards for 
Audit of Governmental Organizations, Programs, Activities, and 
Functions, 1981 revision, established by the Comptroller General of the 
United States. This publication is available from the Superintendent of 
Documents, U.S. Government Printing Office.
    (2) The grantee shall have an audit conducted at least once every 
two years, covering the period since the previous audit, and the grantee 
shall submit the audit to the Secretary.
    (3) If a grantee is audited under Chapter 75 of Title 31 of the 
United States Code, the Secretary considers that audit to satisfy the 
requirements of paragraph (a)(1) of this section.
    (b) An institution awarded a grant under this part must submit to 
the Department of Education Inspector General three copies of the audit 
required in paragraph (a) of this section within six months after 
completion of the audit.
    (c) Any individual or firm conducting an audit described in this 
section shall give the Department of Education's Inspector General 
access to records or other documents necessary to review the results of 
the audit.
    (d) A grantee shall repay to the Treasury of the United States any 
grant funds it received that it did not expend or use to carry out the 
allowable activities included in its approved application within ten 
years following the date of the initial grant it received under this 
part.

(Authority: 20 U.S.C. 1063a and 1063c)



Sec. 608.42  Under what conditions does the Secretary terminate a grant?

    The Secretary terminates any grant under which funds were not 
expended if an institution loses--
    (a) Its accredited status; or

[[Page 251]]

    (b) Its legal authority in the State in which it is located--
    (1) To be a junior or community college; or
    (2) To provide an educational program for which it awards a 
bachelor's degree.

(Authority: 20 U.S.C. 1063a)



PART 609--STRENGTHENING HISTORICALLY BLACK GRADUATE INSTITUTIONS PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
609.1  What is the Strengthening Historically Black Graduate 
          Institutions Program?
609.2  What institutions are eligible to receive a grant under this 
          part?
609.3  What regulations apply?
609.4  What definitions apply?

        Subpart B--What Kind of Project Does the Secretary Fund?

609.10  What activities may be carried out under a grant?
609.11  What is the duration of a grant?

     Subpart C--How Does an Eligible Institution Apply for a Grant?

609.20  What are the application requirements for a grant under this 
          part?
609.21  What is a comprehensive development plan and what must it 
          contain?

             Subpart D--How Does the Secretary Make a Grant?

609.30  What is the procedure for approving and disapproving grant 
          applications?
609.31  How does the Secretary determine the amount of a grant?

             Subpart E--What Conditions Must a Grantee Meet?

609.40  What are the matching requirements?
609.41  What are allowable costs and what are the limitations on 
          allowable costs?
609.42  What are the audit and repayment requirements?
609.43  Under what conditions does the Secretary terminate a grant?

    Authority: 20 U.S.C. 1063b and 1063c, unless otherwise noted.

    Source: 59 FR 38717, July 20, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 609.1  What is the Strengthening Historically Black Graduate Institutions 
Program?

    The Strengthening Historically Black Graduate Institutions Program 
provides grants to the institutions listed in Sec. 609.2 to assist these 
institutions in establishing and strengthening their physical plants, 
development offices, endowment funds, academic resources and student 
services so that they may continue to participate in fulfilling the goal 
of equality of educational opportunity in graduate education.

(Authority: 20 U.S.C. 1060 and 1063b)



Sec. 609.2  What institutions are eligible to receive a grant under this part?

    (a) An institution or an institution's qualified graduate program 
listed in paragraph (b) of this section is eligible to receive a grant 
under this part if the Secretary determines that the institution is 
making a substantial contribution to legal, medical, dental, veterinary 
or other graduate education opportunities for Black Americans.
    (b) The institutions and programs referred to in paragraph (a) of 
this section are--
    (1) Morehouse School of Medicine;
    (2) Meharry Medical School;
    (3) Charles R. Drew Postgraduate Medical School;
    (4) Clark Atlanta University;
    (5) Tuskegee Institute School of Veterinary Medicine;
    (6) Xavier University School of Pharmacy;
    (7) Southern University School of Law;
    (8) Texas Southern University School of Law and School of Pharmacy;
    (9) Florida A&M University School of Pharmaceutical Sciences;
    (10) North Carolina Central University School of Law;
    (11) Morgan State University's qualified graduate program;
    (12) Hampton University's qualified graduate program;
    (13) Alabama A&M's qualified graduate program;
    (14) North Carolina A&T State University's qualified graduate 
program;

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    (15) University of Maryland Eastern Shore's qualified graduate 
program; and
    (16) Jackson State University's qualified graduate program.
    (c) An institution that was awarded a grant prior to October 1, 1992 
may continue to receive grant payments, regardless of the eligibility of 
the graduate institutions described in paragraphs (b)(6) through (16) of 
this section, until the institution's grant period has expired or 
September 30, 1993, whichever is later.
    (d) No institution of higher education or university system may 
receive more than one grant under this section in any fiscal year.

(Authority: 20 U.S.C. 1063b(e))



Sec. 609.3  What regulations apply?

    The following regulations apply to this part:
    (a) The Department of Education General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) The following sections of 34 CFR part 75 (Direct Grant 
Programs): Secs. 75.1-75.104, 75.125-75.129, 75.190-75.192, 75.230-
75.261, 75.500, 75.510-75.519, 75.524-75.534, 75.580-75.903, and 75.901;
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants))
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 609.

(Authority: 20 U.S.C. 1063b)



Sec. 609.4  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
EDGAR
Equipment
Fiscal year
Grant period
Private
Project period
Public
Secretary

    (b) The following definition applies to a term used in this part:
    Qualified graduate program means a graduate or professional program 
that--
    (i) Provides a program of instruction in the physical or natural 
sciences, engineering, mathematics, or other scientific disciplines in 
which African Americans are underrepresented;
    (ii) Has been accredited or approved by a nationally recognized 
accrediting agency or association. (The Secretary publishes a list in 
the Federal Register of nationally recognized accrediting agencies and 
associations.); and
    (iii) Has students enrolled in that program when the institution 
offering the program applies for a grant under this part.

(Authority: 20 U.S.C. 1063b and 1069c)



        Subpart B--What Kind of Projects Does the Secretary Fund?



Sec. 609.10  What activities may be carried out under a grant?

    (a) Allowable activities. Except as provided in paragraph (b) of 
this section, a grantee may carry out the following activities under 
this part--
    (1) Purchase, rental, or lease of scientific or laboratory equipment 
for educational purposes, including instructional or research purposes;
    (2) Construction, maintenance, renovation, and improvement in 
classroom, library, laboratory, and other instructional facilities, 
including purchase or rental of telecommunications technology equipment 
or services;
    (3) Support of faculty exchanges, faculty development and faculty 
fellowships to assist these faculty members in attaining advanced 
degrees in their fields of instruction;
    (4) Academic instruction in disciplines in which Black Americans are 
underrepresented;
    (5) Purchase of library books, periodicals, microfilm, and other 
educational materials, including telecommunications program materials;

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    (6) Tutoring, counseling, and student service programs designed to 
improve academic success;
    (7) Funds and administrative management, and acquisition of 
equipment for use in strengthening funds management;
    (8) Joint use of facilities, such as laboratories and libraries;
    (9) Establishing or improving a development office to strengthen or 
improve contributions from alumni and the private sector;
    (10) Establishing or enhancing a program of teacher education 
designed to qualify students to teach in a public elementary or 
secondary school in the State that shall include, as part of such 
program preparation for teacher certification;
    (11) Establishing community outreach programs that will encourage 
elementary and secondary students to develop the academic skills and the 
interest to pursue postsecondary education;
    (12) Other activities that it proposes in its application that 
contribute to carrying out the purpose of this part and are approved by 
the Secretary;
    (13) Establishing or improving a development office to strengthen 
and increase contributions from alumni and the private sector; and
    (14) Establishing and maintaining an institutional endowment under 
34 CFR part 628 to facilitate financial independence.
    (b) Unallowable activities. A grantee may not carry out the 
following activities under this part--
    (1) Activities that are not included in the grantee's approved 
application;
    (2) Activities described in paragraph (a)(12) of this section that 
are not approved by the Secretary;
    (3) Activities that are inconsistent with any State plan of higher 
education that is applicable to the institution;
    (4) Activities that are inconsistent with a State plan for 
desegregation of higher education that is applicable to the institution;
    (5) Activities or services that relate to sectarian instruction or 
religious worship; and
    (6) Activities provided by a school or department of divinity. For 
the purpose of this section, a ``school or department of divinity'' 
means an institution, or a department of an institution, whose program 
is specifically for the education of students to prepare them to become 
ministers of religion or to enter upon some other religious vocation, or 
to prepare them to teach theological subjects.
    (c) No award under this part may be used for telecommunications 
technology equipment, facilities or services, if such equipment, 
facilities or services are available pursuant to section 396(k) of the 
Communications Act of 1934.

(Authority: 20 U.S.C. 1062, 1063a, and 1069c)



Sec. 609.11  What is the duration of a grant?

    The Secretary may award a grant under this part for a period of up 
to five academic years.

(Authority: 20 U.S.C. 1063b(b))



     Subpart C--How Does an Eligible Institution Apply for a Grant?



Sec. 609.20  What are the application requirements for a grant under this part?

    In order to receive a grant under this part, an institution must 
submit an application to the Secretary at such time and in such manner 
as the Secretary may prescribe. The application must contain--
    (a) A description of the activities to be carried out with grant 
funds and how those activities will improve graduate educational 
opportunities for Black and low-income students and lead to greater 
financial independence for the applicant;
    (b) A description of how the applicant is making a substantial 
contribution to the legal, medical, dental, veterinary or other graduate 
education opportunities for Black Americans;
    (c) An assurance from each applicant requesting in excess of 
$500,000 that 50 percent of the costs of all the activities to be 
carried out under the grant will come from non-Federal sources;
    (d) A description of how the grant funds will be used so that they 
will supplement, and to the extent practical, increase the funds that 
would

[[Page 254]]

otherwise be made available for the activities to be carried out under 
the grant and in no case supplant those funds, for the activities 
described in Sec. 609.10(a)(1) through Sec. 609.10(a)(14);
    (e) An assurance that the proposed activities in the application are 
in accordance with any State plan that is applicable to the institution; 
and
    (f)(1) A comprehensive development plan as described in Sec. 609.21; 
or
    (2) If an applicant has already submitted a comprehensive 
development plan as described in Sec. 609.21, a description of the 
progress the applicant has made in carrying out the goals of its plan.

(Approved by the Office of Management and Budget under control number 
1840-0113)

(Authority: 20 U.S.C. 1063d and 1066(b)(2))



Sec. 609.21  What is a comprehensive development plan and what must it contain?

    (a) A comprehensive development plan must describe an institution's 
strategy for achieving growth and self-sufficiency by strengthening its-
-
    (1) Financial management;
    (2) Academic programs; and
    (b) The comprehensive development plan must include the following:
    (1) An assessment of the strengths and weaknesses of the 
institution's financial management and academic programs.
    (2) A delineation of the institution's goals for its financial 
management and academic programs, based on the outcomes of the 
assessment described in paragraph (b)(1) of this section.
    (3) A listing of measurable objectives designed to assist the 
institution to reach each goal with accompanying timeframes for 
achieving the objectives.
    (4) A description of methods, processes and procedures that will be 
used by the college or university to institutionalize financial 
management and academic program practices and improvements developed 
under the proposed funded activities.

(Approved by the Office of Management and Budget under control number 
1840-0113)

(Authority: 20 U.S.C. 1063a)



             Subpart D--How Does the Secretary Make a Grant?



Sec. 609.30  What is the procedure for approving and disapproving grant 
applications?

    The Secretary approves any application that satisfies the 
requirements of Secs. 609.10 and 609.20.

(Authority: 20 U.S.C. 1063a)



Sec. 609.31  How does the Secretary determine the amount of a grant?

    Of the amount appropriated for any fiscal year--
    (a)(1) The first $12,000,000 (or any lesser amount appropriated) 
shall be available only for the purpose of making grants to institutions 
or programs described in Sec. 609.2(b)(1) through Sec. 609.2(b)(5);
    (2) If the sum of the approved applications does not exceed the 
amount appropriated, the Secretary awards grants in the amounts 
requested and approved;
    (3) If the sum of the approved requests exceeds the sum 
appropriated, and Morehouse School of Medicine submits an approved 
request for at least $3,000,000, and the amount appropriated exceeds 
$3,000,000, the Secretary awards no less than $3,000,000 to Morehouse 
School of Medicine and reduces the grants to the institutions described 
in Sec. 609.2(b)(1) through Sec. 609.2(b)(5) as the Secretary considers 
appropriate, so that the sum of the approved grants equals the amount 
appropriated; and
    (4) If Morehouse School of Medicine submits an approved request for 
at least $3,000,000 and the amount appropriated does not exceed 
$3,000,000, Morehouse School of Medicine receives all the appropriated 
funds; and
    (b)(1) Any amount appropriated in excess of $12,000,000 shall be 
available for the purpose of making grants, in equal amounts not to 
exceed $500,000, to institutions or programs described in 
Sec. 609.2(b)(6) through Sec. 609.2(b)(16); and
    (2) If any funds remain, the Secretary makes grants to institutions 
or programs described in Sec. 609.2(b)(1) through Sec. 609.2(b)(16).

(Authority: 20 U.S.C. 1063b)

[[Page 255]]



             Subpart E--What Conditions Must a Grantee Meet?



Sec. 609.40  What are the matching requirements?

    If an institution receives a grant in excess of $500,000, it must 
spend non-Federal funds to meet the cost of at least 50 percent of the 
activities approved in its application.

(Authority: 20 U.S.C. 1063b)



Sec. 609.41  What are allowable costs and what are the limitations on 
allowable costs?

    (a) Allowable costs. Except as provided in paragraphs (b) and (c) of 
this section, a grantee may expend grant funds for activities that are 
reasonably related to carrying out the allowable activities included in 
its approved application.
    (b) Supplement and not supplant. A grantee shall use grant funds so 
that they supplement, and to the extent practical, increase the funds 
that would otherwise be available for the activities to be carried out 
under the grant, and in no case supplant those funds.
    (c) Limitations on allowable costs. A grantee may not--
    (1) Spend more than fifty percent of its grant award in each fiscal 
year for costs relating to constructing or maintaining a classroom, 
library, laboratory, or other instructional facility; and
    (2) Use an indirect cost rate to determine allowable costs under its 
grant.

(Authority: 20 U.S.C. 1062, 1063b, and 1066)



Sec. 609.42  What are the audit and repayment requirements?

    (a)(1) A grantee shall provide for the conduct of a compliance and 
financial audit of any funds it receives under this part by a qualified, 
independent organization or person in accordance with the Standards for 
Audit of Governmental Organizations, Programs, Activities, and 
Functions, 1981 revision, established by the Comptroller General of the 
United States. This publication is available from the Superintendent of 
Documents, U.S. Government Printing Office.
    (2) The grantee shall have an audit conducted at least once every 
two years, covering the period since the previous audit, and the grantee 
shall submit the audit to the Secretary.
    (3) If a grantee is audited under chapter 75 of title 31 of the 
United States Code, the Secretary considers that audit to satisfy the 
requirements of paragraph (a)(1) of this section.
    (b) An institution awarded a grant under this part must submit to 
the Department of Education Inspector General three copies of the audit 
required in paragraph (a) of this section within six months after 
completion of the audit.
    (c) Any individual or firm conducting an audit described in this 
section shall give the Department of Education's Inspector General 
access to records or other documents necessary to review the results of 
the audit.
    (d) A grantee shall repay to the Treasury of the United States any 
grant funds it received that it did not expend or use to carry out the 
allowable activities included in its approved application within ten 
years following the date of the initial grant it received under this 
part.

(Authority: 20 U.S.C. 1063a)



Sec. 609.43  Under what conditions does the Secretary terminate a grant?

    The Secretary terminates any grant under which funds were not 
expended if an institution loses--
    (a) Its accredited status; or
    (b) Its legal authority in the State in which it is located.

(Authority: 20 U.S.C. 1063a)



PART 611--TEACHER QUALITY ENHANCEMENT GRANTS PROGRAM--Table of Contents




                      Subpart A--General Provisions

Sec.
611.1  What definitions apply to the Teacher Quality Enhancement Grants 
          Program?
611.2  What management plan must be included in a Teacher Quality 
          Enhancement Grants Program application?
611.3  What procedures does the Secretary use to award a grant?

[[Page 256]]

                     Subpart B--State Grants Program

611.11  What are the program's general selection criteria?
611.12  What additional selection criteria are used for an application 
          proposing teacher recruitment activities?
611.13  What competitive preference doe the Secretary provide?

                  Subpart C--Partnership Grants Program

611.21  What are the program's selection criteria for pre-applications?
611.22  What additional selection criteria are used for pre-application 
          that proposes teacher recruitment activities?
611.23  What are the program's general selection criteria for full 
          applications?
611.24  What additional selection criteria are used for a full 
          application that proposes teacher recruitment activities?
611.25  What competitive preference does the Secretary provide?

              Subpart D--Teacher Recruitment Grants Program

611.31  What are the program's selection criteria for pre-applications?
611.32  What are the program's general selection criteria?

                         Subpart E--Scholarships

611.41  Under what circumstances may an individual receive a scholarship 
          of program funds to attend a teacher training program?
611.42  How does the Secretary calculate the period of the scholarship 
          recipient's service obligation?
611.43  What are the consequences of a scholarship recipient's failure 
          to meet the service obligation?
611.44  Under what circumstances may the Secretary defer a scholarship 
          recipient's service obligation?
611.45  Under what circumstances does the Secretary discharge a 
          scholarship recipient's obligation to repay for failure to 
          meet the service obligation?
611.46  What are a scholarship recipient's reporting responsibilities 
          upon graduation from the teacher preparation program?
611.47  What are a scholarship recipient's reporting responsibilities 
          upon the close of the LEA's academic year?
611.48  What are a scholarship recipient's reporting responsibilities 
          upon failure to graduate or withdrawal of scholarship support?
611.49  What are a grantee's responsibilities for implementing the 
          scholarship requirements before awarding a scholarship?
611.50  What are a grantee's reporting responsibilities?
611.51  How does a grantee ensure that a scholarship recipient 
          understands the terms and conditions of the scholarship before 
          the recipient leaves the teacher preparation program?
611.52  What are a grantee's programmatic responsibilities for ensuring 
          that scholarship recipients become successful teachers in 
          high-need schools?

                    Subpart F--Other Grant Conditions

611.61  What is the maximum indirect cost rate that applies to a 
          recipient's use of program funds?
611.62  What are a grantee's matching requirements?

    Authority: 20 U.S.C. 1021 et seq. and 1024(e), unless otherwise 
noted.

    Source: 65 FR 1782, Jan. 12, 2000, unless otherwise noted.



                      Subpart A--General Provisions



Sec. 611.1  What definitions apply to the Teacher Quality Enhancement 
Grants Program?

    The following definitions apply to this part:
    High-need local educational agency (LEA) means an LEA that meets one 
of the following definitions:
    (1) An LEA with at least one school--
    (i) In which 50 percent or more of the enrolled students are 
eligible for free and reduced lunch subsidies; or
    (ii) That otherwise is eligible, without receipt of a waiver, to 
operate as a schoolwide program under Title I of the Elementary and 
Secondary Education Act.
    (2) An LEA that has one school where--
    (i) More than 34 percent of academic classroom teachers overall 
(across all academic subjects) do not have a major, minor, or 
significant course work in their main assignment field; or
    (ii) More than 34 percent of the main assignment faculty in two of 
the core-subject departments do not have a major, minor, or significant 
work in their main assigned field.
    (3) An LEA that serves a school whose attrition rate among classroom 
teachers was 15 percent or more over the last three school years.
    High-need school means an elementary, middle, or secondary school 
operated by a high-need LEA in which the school's students or teaching 
staff

[[Page 257]]

meet the elements in paragraphs (1), (2), or (3) of the definition of a 
high-need LEA.
    Main assignment field means the academic field in which teachers 
have the largest percentage of their classes.
    Significant course work means four or more college-or graduate-level 
courses in the content area.

(Authority: 20 U.S.C. 1024(e))



Sec. 611.2  What management plan must be included in a Teacher Quality 
Enhancement Grants Program application?

    (a) In addition to a description of the proposed multiyear project, 
timeline, and budget information required by 34 CFR 75.112 and 75.117 
and other applicable law, an applicant for a grant under this part must 
submit with its application under paragraphs (a)(1), (a)(2)(iii), or 
(a)(3)(iii) of Sec. 611.3, as appropriate, a management plan that 
includes a proposed multiyear workplan.
    (b) At a minimum, this workplan must identify, for each year of the 
project--
    (1) The project's overall objectives;
    (2) Activities that the applicant proposes to implement to promote 
each project objective;
    (3) Benchmarks and timelines for conducting project activities and 
achieving the project's objectives;
    (4) The individual who will conduct and coordinate these activities;
    (5) Measurable outcomes that are tied to each project objective, and 
the evidence by which success in achieving these objectives will be 
measured; and
    (6) Any other information that the Secretary may require.
    (c)(1) In any application for a grant that is submitted on behalf of 
a partnership, the workplan also must identify which partner will be 
responsible for which activities.
    (2) In any application for a grant that is submitted on behalf of a 
State, the workplan must identify which entities in the State will be 
responsible for which activities.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)

[65 FR 19609, Apr. 11, 2000]



Sec. 611.3  What procedures does the Secretary use to award a grant?

    The Secretary uses the selection procedures in 34 CFR 75.200 through 
75.222 except that--
    (a) Application procedures for each program. (1) For the State 
Grants Program, the Secretary evaluates applications for new grants on 
the basis of the selection criteria and competitive preference contained 
in Secs. 611.11 through 611.13.
    (2) For the Partnership Grants Program, the Secretary--
    (i) Uses a two-stage application process to determine which 
applications to fund;
    (ii) Uses the selection criteria in Secs. 611.21 through 611.22 to 
evaluate pre-applications submitted for new grants, and to determine 
those applicants to invite to submit full program applications; and
    (iii) For those applicants invited to submit full applications, uses 
the selection criteria and competitive preference in Secs. 611.23-611.25 
to evaluate the full program applications.
    (3) For the Teacher Recruitment Grants Program, the Secretary--
    (i) Uses a two-stage application process to determine which 
applications to fund;
    (ii) Uses the selection criteria in Sec. 611.31 to evaluate pre-
applications submitted for new grants, and to determine those applicants 
to invite to submit full program applications; and
    (iii) For those applicants invited to submit full applications, uses 
the selection criteria in Sec. 611.32 to evaluate the full program 
applications.
    (b) Required budgets in pre-applications. An applicant that submits 
a pre-application for a Partnership Program or Teacher Recruitment 
Program grant under paragraphs (b)(2)(ii) and (b)(3)(ii) must also 
submit any budgetary information that the Secretary may require in the 
program application package.
    (c) Tie-breaking procedures. In the event that two or more 
applicants are ranked equally for the last available award under any 
program, the Secretary selects the applicant whose activities will focus 
(or have most impact) on LEAs and schools located in

[[Page 258]]

one (or more) of the Nation's Empowerment Zones and Enterprise 
Communities.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)

[65 FR 19609, Apr. 11, 2000]



                     Subpart B--State Grants Program

    Source: 65 FR 19610, Apr. 11, 2000, unless otherwise noted.



Sec. 611.11  What are the program's general selection criteria?

    In evaluating the quality of applications, the Secretary uses the 
following selection criteria.
    (a) Quality of project design. (1) The Secretary considers the 
quality of the project design.
    (2) In determining the quality of the project design, the Secretary 
considers the extent to which--
    (i) The project design will result in systemic change in the way 
that all new teachers are prepared, and includes partners from all 
levels of the education system;
    (ii) The Governor and other relevant executive and legislative 
branch officials, the K-16 education system or systems, and the business 
community are directly involved in and committed to supporting the 
proposed activities;
    (iii) Project goals and performance objectives are clear, measurable 
outcomes are specified, and a feasible plan is presented for meeting 
them;
    (iv) The project is likely to initiate or enhance and supplement 
systemic State reforms in one or more of the following areas: teacher 
recruitment, preparation, licensing, and certification;
    (v) The applicant will ensure that a diversity of perspectives is 
incorporated into operation of the project, including those of parents, 
teachers, employers, academic and professional groups, and other 
appropriate entities; and
    (vi) The project design is based on up-to-date knowledge from 
research and effective practice.
    (b) Significance. (1) The Secretary considers the significance of 
the project.
    (2) In determining the significance of the project, the Secretary 
considers the extent to which--
    (i) The project involves the development or demonstration of 
promising new strategies or exceptional approaches in the way new 
teachers are recruited, prepared, certified, and licensed;
    (ii) Project outcomes lead directly to improvements in teaching 
quality and student achievement as measured against rigorous academic 
standards;
    (iii) The State is committed to institutionalize the project after 
federal funding ends; and
    (iv) Project strategies, methods, and accomplishments are 
replicable, thereby permitting other States to benefit from them.
    (c) Quality of resources. (1) The Secretary considers the quality of 
the project's resources.
    (2) In determining the quality of the project resources, the 
Secretary considers the extent to which--
    (i) Support available to the project, including personnel, 
equipment, supplies, and other resources, is sufficient to ensure a 
successful project;
    (ii) Budgeted costs are reasonable and justified in relation to the 
design, outcomes, and potential significance of the project; and
    (iii) The applicant's matching share of the budgeted costs 
demonstrates a significant commitment to successful completion of the 
project and to project continuation after federal funding ends.
    (d) Quality of management plan. (1) The Secretary considers the 
quality of the project's management plan.
    (2) In determining the quality of the management plan, the Secretary 
considers the following factors:
    (i) The extent to which the management plan, including the workplan, 
is designed to achieve goals and objectives of the project, and includes 
clearly defined activities, responsibilities, timelines, milestones, and 
measurable outcomes for accomplishing project tasks.
    (ii) The adequacy of procedures to ensure feedback and continuous 
improvements in the operation of the project.

[[Page 259]]

    (iii) The qualifications, including training and experience, of key 
personnel charged with implementing the project successfully.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.12  What additional selection criteria are used for an application 
proposing teacher recruitment activities?

    In reviewing applications that propose to undertake teacher 
recruitment activities, the Secretary also considers the following 
selection criteria:
    (a) In addition to the elements contained in Sec. 611.11(a) (Quality 
of project design), the Secretary considers the extent to which the 
project addresses--
    (1) Systemic changes in the ways that new teachers are to be 
recruited, supported and prepared; and
    (2) Systemic efforts to recruit, support, and prepare prospective 
teachers from disadvantaged and other underrepresented backgrounds.
    (b) In addition to the elements contained in Sec. 611.11(b) 
(Significance), the Secretary considers the applicant's commitment to 
continue recruitment activities, scholarship assistance, and preparation 
and support of additional cohorts of new teachers after funding under 
this part ends.
    (c) In addition to the elements contained in Sec. 611.11(c) (Quality 
of resources), the Secretary considers the impact of the project on 
high-need LEAs and high-need schools based upon--
    (1) The amount of scholarship assistance the project will provide 
students from federal and non-federal funds;
    (2) The number of students who will receive scholarships; and
    (3) How those students receiving scholarships will benefit from 
high-quality teacher preparation and an effective support system during 
their first three years of teaching.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.13  What competitive preference does the Secretary provide?

    The Secretary provides a competitive preference on the basis of how 
well the State's proposed activities in any one or more of the following 
statutory priorities are likely to yield successful and sustained 
results:
    (a) Initiatives to reform State teacher licensure and certification 
requirements so that current and future teachers possess strong teaching 
skills and academic content knowledge in the subject areas in which they 
will be certified or licensed to teach.
    (b) Innovative reforms to hold higher education institutions with 
teacher preparation programs accountable for preparing teachers who are 
highly competent in the academic content areas and have strong teaching 
skills.
    (c) Innovative efforts to reduce the shortage (including the high 
turnover) of highly competent teachers in high-poverty urban and rural 
areas.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



                  Subpart C--Partnership Grants Program

    Source: 65 FR 19611, Apr. 11, 2000, unless otherwise noted.



Sec. 611.21  What are the program's selection criteria for pre-applications?

    In evaluating the quality of pre-applications, the Secretary uses 
the following selection criteria.
    (a) Project goals and objectives. (1) The Secretary considers the 
goals and objectives of the project design.
    (2) In determining the quality of the project goals and objectives, 
the Secretary considers the following factors:
    (i) The extent to which the partnership's vision will produce 
significant and sustainable improvements in teacher education.
    (ii) The needs the partnership will address.
    (iii) How the partnership and its activities would be sustained once 
federal support ends.
    (b) Partnering commitment. (1) The Secretary considers the 
partnering commitment embodied in the project.

[[Page 260]]

    (2) In determining the quality of the partnering commitment, the 
Secretary considers the following factors:
    (i) Evidence of how well the partnership would be able to accomplish 
objectives working together that its individual members could not 
accomplish working separately.
    (ii) The significance of the roles given to each principal partner 
in implementing project activities.
    (c) Quality and comprehensiveness of key project components. (1) The 
Secretary considers the quality and comprehensiveness of key project 
components in the process of preparing new teachers.
    (2) In determining the quality and comprehensiveness of key project 
components in the process of preparing new teachers, the Secretary 
considers the extent to which--
    (i) Specific activities are designed and would be implemented to 
ensure that students preparing to be teachers are adequately prepared, 
including activities designed to ensure that they have improved content 
knowledge, are able to use technology effectively to promote 
instruction, and participate in extensive, supervised clinical 
experiences;
    (ii) Specific activities are designed and would be implemented to 
ensure adequate support for those who have completed the teacher 
preparation program during their first years as teachers; and
    (iii) The project design reflects up-to-date knowledge from research 
and effective practice.
    (d) Specific project outcomes. (1) The Secretary considers the 
specific outcomes the project would produce in the preparation of new 
teachers.
    (2) In determining the specific outcomes the project would produce 
in the preparation of new teachers, the Secretary considers the 
following factors:
    (i) The extent to which important aspects of the partnership's 
existing teacher preparation system would change.
    (ii) The way in which the project would demonstrate success using 
high-quality performance measures.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.22  What additional selection criteria are used for a pre-application 
that proposes teacher recruitment activities?

    In reviewing pre-applications that propose to undertake teacher 
recruitment activities, the Secretary also considers the following 
selection criteria:
    (a) In addition to the elements contained in Sec. 611.21(a) (Project 
goals and objectives), the Secretary considers the extent to which--
    (1) The partnership's vision responds to LEA needs for a diverse and 
high quality teaching force, and will lead to reduced teacher shortages 
in these high-need LEAs; and
    (2) The partnership will sustain its work after federal funding has 
ended by recruiting, providing scholarship assistance, training and 
supporting additional cohorts of new teachers.
    (b) In addition to the elements contained in Sec. 611.21(c) (Quality 
and comprehensiveness of key project components), the Secretary 
considers the extent to which the project will--
    (1) Significantly improve recruitment of new students, including 
those from disadvantaged and other underrepresented backgrounds; and
    (2) Provide scholarship assistance and adequate training to 
preservice students, as well as induction support for those who become 
teachers after graduating from the teacher preparation program.
    (c) In addition to the elements contained in Sec. 611.21(d) 
(Specific project outcomes), the Secretary considers the extent to which 
the project addresses the number of new teachers to be produced and 
their ability to teach effectively in high-need schools.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.23  What are the program's general selection criteria for full 
applications?

    In evaluating the quality of applications, the Secretary uses the 
following selection criteria.
    (a) Quality of project design. (1) The Secretary considers the 
quality of the project design.

[[Page 261]]

    (2) In determining the quality of the project design, the Secretary 
considers the following factors:
    (i) The extent of evidence of institution-wide commitment to high 
quality teacher preparation that includes significant policy and 
practice changes supported by key leaders, and which result in permanent 
changes to ensure that preparing teachers is a central mission of the 
entire university.
    (ii) The extent to which the partnership creates and sustains 
collaborative mechanisms to integrate professional teaching skills, 
including skills in the use of technology in the classroom, with strong 
academic content from the arts and sciences.
    (iii) The extent of well-designed and extensive preservice clinical 
experiences for students, including mentoring and other forms of 
support, implemented through collaboration between the K-12 and higher 
education partners.
    (iv) Whether a well-planned, systematic induction program is 
established for new teachers to increase their chances of being 
successful in high-need schools.
    (v) The strength of linkages within the partnership between higher 
education and high-need schools or school districts so that all partners 
have important roles in project design, implementation, governance and 
evaluation.
    (vi) Whether the project design is based on up-to-date knowledge 
from research and effective practice, especially on how students learn.
    (b) Significance of project activities. (1) The Secretary considers 
the significance of project activities.
    (2) In determining the significance of the project activities, the 
Secretary considers the following factors:
    (i) How well the project involves promising new strategies or 
exceptional approaches in the way new teachers are recruited, prepared 
and inducted into the teaching profession.
    (ii) The extent to which project outcomes include preparing teachers 
to teach to their State's highest K-12 standards, and are likely to 
result in improved K-12 student achievement.
    (iii) The extent to which the partnership has specific plans to 
institutionalize the project after federal funding ends.
    (iv) The extent to which the partnership is committed to 
disseminating effective practices to others and is willing to provide 
technical assistance about ways to improve teacher education.
    (v) How well the partnership will integrate its activities with 
other education reform efforts underway in the State or communities 
where the partners are located, and will coordinate its work with local, 
State or federal teacher training, teacher recruitment, or professional 
development programs.
    (c) Quality of resources. (1) The Secretary considers the quality of 
resources of project activities.
    (2) In determining the quality of resources, the Secretary considers 
the extent to which--
    (i) Support available to the project, including personnel, 
equipment, supplies, and other resources, is sufficient to ensure a 
successful project;
    (ii) Budgeted costs are reasonable and justified in relation to the 
design, outcomes, and potential significance of the project; and
    (iii) The applicant's matching share of the budgeted costs 
demonstrates a significant commitment to successful completion of the 
project and to project continuation after federal funding ends.
    (d) Quality of management plan. (1) The Secretary considers the 
quality of the management plan.
    (2) In determining the quality of the management plan, the Secretary 
considers the following factors:
    (i) The extent to which the management plan, including the work 
plan, is designed to achieve goals and objectives of the project, and 
includes clearly defined activities, responsibilities, timelines, 
milestones, and measurable outcomes for accomplishing project tasks.
    (ii) The extent to which the project has an effective, inclusive, 
and responsive governance and decision-making structure that will permit 
all partners to participate in and benefit from project activities, and 
to use evaluation results to ensure continuous improvements in the 
operations of the project.

[[Page 262]]

    (iii) The qualifications, including training and experience, of key 
personnel charged with implementing the project successfully.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.24  What additional selection criteria are used for a full 
application that proposes teacher recruitment activities?

    In reviewing full applications that propose to undertake teacher 
recruitment activities, the Secretary also considers the following 
selection criteria:
    (a) In addition to the elements contained in Sec. 611.23(a) (Quality 
of project design), the Secretary considers the extent to which the 
project reflects--
    (1) A commitment to recruit, support and prepare additional well-
qualified new teachers for high-need schools;
    (2) Appropriate academic and student support services; and
    (3) A comprehensive strategy for addressing shortages of well-
qualified and well-trained teachers in high-need LEAs, especially 
teachers from disadvantaged and other underrepresented backgrounds.
    (b) In addition to the elements contained in Sec. 611.23(b) 
(Significance of project activities), the Secretary considers the extent 
to which the project promotes the recruitment, scholarship assistance, 
preparation, and support of additional cohorts of new teachers.
    (c) In addition to the elements contained in Sec. 611.23(c) (Quality 
of resources), the Secretary considers the impact of the project on 
high-need LEAs and high-need schools based upon--
    (1) The amount of scholarship assistance the project will provide 
students from federal and non-federal funds;
    (2) The number of students who will receive scholarships; and
    (3) How those students receiving scholarships will benefit from 
high-quality teacher preparation and an effective support system during 
their first three years of teaching.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.25  What competitive preference does the Secretary provide?

    The Secretary provides a competitive preference on the basis of how 
well the project includes a significant role for private business in the 
design and implementation of the project.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



              Subpart D--Teacher Recruitment Grants Program

    Source: 65 FR 19612, Apr. 11, 2000, unless otherwise noted.



Sec. 611.31  What are the program's selection criteria for pre-applications?

    In evaluating pre-applications, the Secretary considers the 
following criteria:
    (a) Project goals and objectives. (1) The Secretary considers the 
goals and objectives of the project design.
    (2) In determining the quality of the project goals and objectives, 
the Secretary considers how the partnership or State applicant intends 
to--
    (i) Produce significant and sustainable improvements in teacher 
recruitment, preparation, and support; and
    (ii) Reduce teacher shortages in high-need LEAs and schools, and 
improve student achievement in the schools in which teachers who 
participate in its project will teach.
    (b) Partnership commitment. (1) The Secretary considers the 
partnering commitment embodied in the project.
    (2) In determining the quality of the partnering commitment, the 
Secretary considers the following factors:
    (i) What the partnership, or the State and its cooperating entities, 
can accomplish by working together that could not be achieved by working 
separately.
    (ii) How the project proposed by the partnership or State is driven 
by the needs of LEA partners.
    (c) Quality of key project components. (1) The Secretary considers 
the quality of key project components.
    (2) In determining the quality of key project components, the 
Secretary considers the following factors:

[[Page 263]]

    (i) The extent to which the project would make significant and 
lasting systemic changes in how the applicant recruits, trains, and 
supports new teachers, and reflects knowledge gained from research and 
practice.
    (ii) The extent to which the project would be implemented in ways 
that significantly improve recruitment, scholarship assistance to 
preservice students, training, and induction support for new entrants 
into teaching.
    (d) Specific project outcomes. (1) The Secretary considers the 
specific outcomes the project would produce in the recruitment, 
preparation, and placement of new teachers.
    (2) In determining the specific outcomes the project would produce 
in the recruitment, preparation, and placement of new teachers, the 
Secretary considers the following factors:
    (i) The number of teachers to be produced and the quality of their 
preparation.
    (ii) The partnership's or State's commitment to sustaining the work 
of the project after federal funding has ended by recruiting, providing 
scholarship assistance, training, and supporting additional cohorts of 
new teachers.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.32  What are the program's general selection criteria?

    In evaluating the quality of full applications, the Secretary uses 
the following selection criteria.
    (a) Quality of the project design. (1) The Secretary considers the 
quality of the project design for ensuring that activities to recruit 
and prepare new teachers are a central mission of the project.
    (2) In considering the quality of the project design for ensuring 
that activities to recruit and prepare new teachers are a central 
mission of the project, the Secretary considers the extent to which the 
project design--
    (i) Shows evidence of institutional or (in the case of a State 
applicant) State-level commitment both to recruitment of additional new 
teachers, and to high-quality teacher preparation that includes 
significant policy and practice changes supported by key leaders and 
that result in permanent changes to current institutional practices;
    (ii) Creates and sustains collaborative mechanisms to integrate 
professional teaching skills, including skills in the use of technology 
in the classroom, with academic content provided by the school of arts 
and sciences;
    (iii) Includes well-designed academic and student support services 
as well as carefully planned and extensive preservice clinical 
experiences for students, including mentoring and other forms of 
support, that are implemented through collaboration between the K-12 and 
higher education partners;
    (iv) Includes establishment of a well-planned, systematic induction 
program for new teachers that increases their chances of being 
successful in high-need schools;
    (v) Includes strong linkages among the partner institutions of 
higher education and high-need schools and school districts (or, in the 
case of a State applicant, between the State and these entities in its 
project), so that all those who would implement the project have 
important roles in project design, implementation, governance, and 
evaluation;
    (vi) Responds to the shortages of well-qualified and well-trained 
teachers in high-need school districts, especially from disadvantaged 
and other underrepresented backgrounds; and
    (vii) Is based on up-to-date knowledge from research and effective 
practice.
    (b) Significance. (1) The Secretary considers the significance of 
the project.
    (2) In determining the significance of the project, the Secretary 
considers the extent to which--
    (i) The project involves promising new strategies or exceptional 
approaches in the way new teachers are recruited, prepared, and inducted 
into the teaching profession;
    (ii) Project outcomes include measurable improvements in teacher 
quality and in the number of well-prepared new teachers, that are likely 
to result in improved K-12 student achievement;

[[Page 264]]

    (iii) The project will be institutionalized after federal funding 
ends, including recruitment, scholarship assistance, preparation, and 
support of additional cohorts of new teachers;
    (iv) The project will disseminate effective practices to others, and 
provide technical assistance about ways to improve teacher recruitment 
and preparation; and
    (v) The project will integrate its activities with other education 
reform activities underway in the State or communities in which the 
project is based, and will coordinate its work with local, State, and 
federal teacher recruitment, training, and professional development 
programs.
    (c) Quality of resources. (1) The Secretary considers the quality of 
the project's resources.
    (2) In determining the quality of the project's resources, the 
Secretary considers the extent to which--
    (i) The amount of support available to the project, including 
personnel, equipment, supplies, student scholarship assistance, and 
other resources is sufficient to ensure a successful project.
    (ii) Budgeted costs are reasonable and justified in relation to the 
design, outcomes, and potential significance of the project.
    (iii) The applicant's matching share of budgeted costs demonstrates 
a significant commitment to successful completion of the project, and to 
project continuation after federal funding ends.
    (d) Quality of management plan. (1) The Secretary considers the 
quality of the project's management plan.
    (2) In determining the quality of the management plan, the Secretary 
considers the following factors:
    (i) The extent to which the management plan, including the workplan, 
is designed to achieve goals and objectives of the project, and includes 
clearly defined activities, responsibilities, timelines, milestones, and 
measurable outcomes for accomplishing project tasks.
    (ii) The extent to which the project has an effective, inclusive, 
and responsive governance and decisionmaking structure that will permit 
all partners to participate in and benefit from project activities, and 
to use evaluation results to continuously improve project operations.
    (iii) The qualifications, including training and experience, of key 
personnel charged with implementing the project successfully.

(Approved by the Office of Management and Budget under control number 
1840-0007)

(Authority: 20 U.S.C. 1021 et seq.)



                         Subpart E--Scholarships



Sec. 611.41  Under what circumstances may an individual receive a scholarship 
of program funds to attend a teacher training program?

    (a) General: The service obligation. An individual, whom a grantee 
finds eligible to receive a scholarship funded under this part to attend 
a teacher preparation program, may receive the scholarship only after 
executing a binding agreement with the institution of higher education 
(IHE) offering the scholarship that, after completing the program, the 
individual will either--
    (1) Teach in a high-need school of a high-need LEA for a period of 
time equivalent to the period for which the individual receives the 
scholarship; or
    (2) Repay, as set forth in Sec. 611.43, the Teacher Quality 
Enhancement Grant Program funds provided as a scholarship.
    (b) Content of the scholarship agreement. To implement the service-
obligation requirement, the scholarship agreement must include terms, 
conditions, and other information consistent with Secs. 611.42-611.49 
that the Secretary determines to be necessary.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.42  How does the Secretary calculate the period of the scholarship 
recipient's service obligation?

    (a) Calculation of period of scholarship assistance. (1) The 
Secretary calculates the period of time for which a student received 
scholarship assistance on the basis of information provided by the 
grantee under Sec. 611.50.
    (2) The period for which the recipient received scholarship 
assistance is the

[[Page 265]]

period during which an individual enrolled in the teacher preparation 
program on a full-time basis, excluding the summer period, would have 
completed the same course of study.
    (b) Calculation of period needed to teach to meet the service 
obligation. (1) The period of the scholarship recipient's service 
obligation is the period of the individual's receipt of scholarship 
assistance as provided in paragraph (a) of this section.
    (2) The Secretary calculates the period that a scholarship recipient 
must teach in a high-need school of a high-need LEA in order to fulfill 
his or her service obligation by--
    (i) Comparing the period in which the recipient received a 
scholarship as provided in paragraph (a) of this section with the 
information provided by the high-need LEA under Secs. 611.46 and 611.47 
on the period the recipient has taught in one of its high-need schools; 
and
    (ii) Adjusting the period in which the recipient has taught in a 
high-need school to reflect the individual's employment, if any, as a 
teacher on a part-time basis relative to classroom teachers the LEA 
employs on a full-time basis under the LEA's standard yearly contract 
(excluding any summer or intersession period).
    (c) The Secretary adjusts the period of a scholarship recipient's 
service obligation as provided in paragraph (b) of this section to 
reflect information the high-need LEA provides under Secs. 611.46 and 
611.47 that the scholarship recipient also has taught in a high-need 
school in a summer or intersession period.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.43  What are the consequences of a scholarship recipient's failure 
to meet the service obligation?

    (a) Obligation to repay: General. (1) A scholarship recipient who 
does not fulfill his or her service obligation must--
    (i) Repay the Department the full amount of the scholarship, 
including the principal balance, accrued interest, and any collection 
costs charged under paragraphs (c) and (d) of this section; or
    (ii) Be discharged of any repayment obligation as provided in 
Sec. 611.45.
    (2) Unless the service obligation is deferred as provided in 
Sec. 611.44 or the repayment requirement is discharged, the obligation 
to repay the amount provided in paragraph (a)(1) of this section begins 
six months after the date the recipient--
    (i) Completes the teacher training program without beginning to 
teach in a high-need school of a high-need LEA; or
    (ii) Is no longer enrolled in the teacher training program.
    (3) The Secretary determines whether a scholarship recipient has 
fulfilled the service obligation on the basis of information that the 
Department receives as provided in Secs. 611.46 and 611.47.
    (b) Obligation to Repay: Partial performance of the service 
obligation. (1) A scholarship recipient who teaches in a high-need 
school of a high-need school district for less than the period of his or 
her service obligation must repay--
    (i) The amount of the scholarship that is proportional to the unmet 
portion of the service obligation;
    (ii) Interest that accrues on this portion of the scholarship 
beginning six months after the recipient's graduation from the teacher 
preparation program; and
    (iii) Costs of collection, if any.
    (2) Unless the service obligation is deferred or the repayment 
requirement is discharged, the obligation to repay the amount provided 
in paragraph (b)(1) of this section begins six months after the date the 
recipient is no longer employed as a teacher in a high-need school of a 
high-need LEA.
    (c) Availability of payment schedule. (1) Upon request to the 
Secretary, the scholarship recipient may repay the scholarship and 
accrued interest according to a payment schedule that the Secretary 
establishes.
    (2) A payment schedule must permit the full amount of the 
scholarship and accrued interest to be repaid within ten years. The 
minimum monthly payment is $50 unless a larger monthly payment is needed 
to enable the full amount that is due to be paid within this timeframe.

[[Page 266]]

    (d) Interest. In accordance with 31 U.S.C. 3717 and 34 CFR part 30, 
the Secretary charges interest on the unpaid balance that the 
scholarship recipient owes. However, except as provided in 
Sec. 611.44(d), the Secretary does not charge interest for the period of 
time that precedes the date on which the scholarship recipient is 
required to begin repayment.
    (e) Failure to meet requirements. A scholarship recipient's failure 
to satisfy the requirements of Secs. 611.42-611.48 in a timely manner 
results in the recipient being--
    (1) In non-compliance with the terms of the scholarship;
    (2) Liable for repayment of the scholarship and accrued interest; 
and
    (3) Subject to collection action.
    (f) Action by reason of default. The Secretary may take any action 
authorized by law to collect the amount of scholarship, accrued interest 
and collection costs, if any, on which a scholarship recipient obligated 
to repay under this section has defaulted. This action includes, but is 
not limited to, filing a lawsuit against the recipient, reporting the 
default to national credit bureaus, and requesting the Internal Revenue 
Service to offset the recipient's Federal income tax refund.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))

[64 FR 42839, Aug. 6, 1999, as amended at 65 FR 19613, Apr. 11, 2000]



Sec. 611.44  Under what circumstances may the Secretary defer a scholarship 
recipient's service obligation?

    (a) Upon written request, the Secretary may defer a service 
obligation for a scholarship recipient who--
    (1) Has not begun teaching in a high-need school of a high-need LEA 
as required by Sec. 611.41(a); or
    (2) Has begun teaching in a high-need school of a high-need LEA, and 
who requests the deferment within six months of the date he or she no 
longer teaches in this school.
    (b) To obtain a deferment of the service obligation, the recipient 
must provide the Secretary satisfactory information of one or more of 
the following circumstances:
    (1) Serious physical or mental disability that prevents or 
substantially impairs the scholarship recipient's employability as a 
teacher.
    (2) The scholarship recipient's inability, despite due diligence 
(for reasons that may include the failure to pass a required teacher 
certification or licensure examination), to secure employment as a 
teacher in a high-need school of a high-need school LEA.
    (3) Membership in the armed forces of the United States on active 
duty for a period not to exceed three years.
    (4) Other extraordinary circumstances that the Secretary accepts.
    (c) Unless the Secretary determines otherwise--
    (1) A scholarship recipient must apply to renew a deferment of the 
service obligation on a yearly basis; and
    (2) The recipient has 60 days from the end of the deferment period 
to begin teaching in a high-need school of a high-need LEA or become 
liable for repayment of the scholarship, any accrued interest, and any 
costs of collection.
    (d)(1) As provided in Sec. 611.43(a)(2), during periods for which 
the Secretary defers a scholarship recipient's service obligation, the 
scholarship recipient does not have an obligation to repay the 
scholarship. However, interest continues to accrue on the amount of the 
scholarship.
    (2) If the scholarship recipient fulfills his or her service 
obligation after the end of the deferment, the Secretary waives the 
obligation to repay accrued interest.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.45  Under what circumstances does the Secretary discharge a 
scholarship recipient's obligation to repay for failure to meet the 
service obligation?

    (a) The Secretary discharges the obligation of a scholarship 
recipient to repay the scholarship, interest, and any costs for failure 
to meet the service obligation based on information acceptable to the 
Secretary of--
    (1) The recipient's death; or
    (2) The total and permanent physical or mental disability of the 
recipient

[[Page 267]]

that prevents the individual from being employable as a classroom 
teacher.
    (b) Upon receipt of acceptable documentation and approval of the 
discharge request, the Secretary returns to the scholarship recipient, 
or for a discharge based on death to the recipient's estate, those 
payments received after the date the eligibility requirements for 
discharge were met. The Secretary returns these payments whether they 
are received before or after the date the discharge was approved.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.46  What are a scholarship recipient's reporting responsibilities 
upon graduation from the teacher preparation program?

    (a) Within six months of graduating from a teacher preparation 
program, a scholarship recipient must either--
    (1) Have the LEA in which the recipient is employed as a teacher 
provide the Department information, which the Secretary may require, to 
confirm--
    (i) The home address, phone number, social security number, and 
other identifying information about the recipient;
    (ii) That he or she is teaching in a high-need school of a high-need 
LEA; and
    (iii) Whether the individual is teaching full- or part-time and, if 
part-time, the full-time equivalency of this teaching compared to the 
LEA's full-time teachers;
    (2) Provide the Department--
    (i) A notarized statement that the scholarship recipient has asked 
the LEA to provide the Department the information identified in 
paragraph (a)(1) of this section, including the name and telephone 
number of the LEA official to whom the request was made; and
    (ii) A copy of the information identified in paragraph (a)(1) of 
this section that the recipient has asked the LEA to provide to the 
Department; or
    (3) Provide the Department a current home address and telephone 
number, a work address and telephone number, the recipient's social 
security number, and one of the following:
    (i) The required repayment of the scholarship.
    (ii) A request that the Secretary permit the recipient to repay the 
scholarship and accrued interest in installments as permitted by 
Sec. 611.43(c).
    (iii) A request that the Secretary defer the service obligation as 
permitted by Sec. 611.44.
    (b) If the recipient provides the Department the information 
identified in paragraph (a)(1) of this section, the Department accepts 
the information provisionally, but the recipient retains responsibility 
for working to have the LEA submit the information.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.47  What are a scholarship recipient's reporting responsibilities 
upon the close of the LEA's academic year?

    (a) At the close of the LEA's academic year, a scholarship recipient 
whose LEA reports under Sec. 611.46(a) that he or she is teaching in a 
high-need school of a high-need LEA must--
    (1) Have the LEA provide information to the Department, as the 
Secretary may require, that confirms the recipient's actual employment 
status for the preceding period; or
    (2) Provide the Department--
    (i) A notarized statement that the scholarship recipient has asked 
the LEA to provide the Department the information identified in 
paragraph (a)(1) of this section, including the name and telephone 
number of the LEA official to whom the request was made; and
    (ii) A copy of the information identified in paragraph (a)(1) of 
this section that the recipient has asked the LEA to provide to the 
Department.
    (b) If the recipient provides the Department the notarized statement 
and accompanying information identified in paragraph (a)(2) of this 
section, the Department accepts the information provisionally, but the 
recipient retains an ongoing responsibility for working to have the LEA 
submit the information directly to the Department.
    (c) In subsequent school years, the recipient must have the LEA 
continue to provide information to the Department on the recipient's 
employment as the Secretary may require, until the Department notifies 
the recipient that

[[Page 268]]

the service obligation has been fulfilled. The alternative procedures in 
paragraph (a)(2) of this section also apply in subsequent years.
    (d)(1) The Secretary provides a scholarship recipient with credit 
toward the service obligation for teaching in a high-need school of a 
high-need LEA during a summer or intersession period (for LEAs that 
operate year-round programs).
    (2) To receive this credit, the recipient must have the LEA at the 
end of the summer or intersession period provide information to the 
Department, as the Secretary may require, that confirms that the 
recipient has taught during this period in a high-need school.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.48  What are a scholarship recipient's reporting responsibilities 
upon failure to graduate or withdrawal of scholarship support?

    (a)(1) Within six months of the date the scholarship recipient is no 
longer enrolled in the teacher training program, or within six months of 
the IHE's withdrawal of scholarship support for failure to maintain good 
academic standing, the recipient must submit to the Department--
    (i) The required repayment of the scholarship;
    (ii) A request that the Secretary establish a binding schedule under 
which the recipient is obligated to repay the scholarship, accrued 
interest, and any costs of collection; or
    (iii) A request that the Secretary defer the service obligation as 
permitted by Sec. 611.44.
    (2) Upon review of the repayment or information provided under 
paragraph (a)(1) of this section, the Department notifies the recipient 
of the status of the recipient's obligations and of any schedule under 
which the recipient must repay the scholarship.
    (b) Until the Secretary determines that the individual either has 
satisfied his or her service obligation or has repaid the full amount of 
the scholarship, accrued interest, and any costs, the recipient also 
remains responsible for providing the Department--
    (1) The information identified in this part; and
    (2) A current home address and telephone number, and a current work 
address and work telephone number.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.49  What are a grantee's responsibilities for implementing the 
scholarship requirements before awarding a scholarship?

    Before awarding scholarship assistance with funds provided under 
this part to any student attending a teacher preparation program, a 
grantee must--
    (a) Ensure that the student understands the terms and conditions 
that the Secretary has determined must be included in the scholarship 
agreement;
    (b) Have the student and the institution awarding the scholarship 
execute a scholarship agreement that contains these terms and 
conditions; and
    (c) Establish policies for--
    (1) The withdrawal of scholarship support for any student who does 
not remain in good academic standing; and
    (2) Determining when and if re-negotiation of a student's 
scholarship package over an extended period of time is appropriate.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.50  What are a grantee's reporting responsibilities?

    (a) Within 30 days of the beginning of the teacher preparation 
program's academic term or within 30 days of the execution of any 
scholarship agreement, whichever is later, the grantee must provide to 
the Department the following information:
    (1) The identity of each scholarship recipient.
    (2) The amount of the scholarship provided with program funds to 
each recipient.
    (3) The full-time equivalency, over each academic year, of each 
recipient's enrollment in the teacher training program for which he or 
she receives scholarship assistance.

[[Page 269]]

    (4) Other information as the Secretary may require.
    (b) Within 30 days of a scholarship recipient's graduation or 
withdrawal from the teacher preparation program, the grantee must 
provide to the Department the following information:
    (1) The date of the recipient's graduation or withdrawal.
    (2) The total amount of program funds the grantee awarded as a 
scholarship to the recipient.
    (3) The original of any scholarship agreement executed by the 
scholarship recipient and the grantee (or its partnering IHE if the 
grantee is not an IHE) before the recipient was awarded a scholarship 
with program funds.
    (4) A statement of whether the institution has withdrawn scholarship 
support because of the recipient's failure to maintain good academic 
standing.
    (5) Other information as the Secretary may require.

(Approved by the Office of Management and Budget under control number 
1840-0753)

(Authority: 20 U.S.C. 1024(e))



Sec. 611.51  How does a grantee ensure that a scholarship recipient 
understands the terms and conditions of the scholarship before the 
recipient leaves the 
          teacher preparation program?

    (a) An institution that provides a scholarship with funds provided 
under this part must conduct an exit conference with each scholarship 
recipient before that individual leaves the institution. During the exit 
conference the institution must give the recipient a copy of any 
scholarship agreement the recipient has executed.
    (b) The institution also must review with the recipient the terms 
and conditions of the scholarship, including--
    (1) The recipient's service obligation;
    (2) How the recipient can confirm whether a school and LEA in which 
he or she would teach will satisfy the service obligation;
    (3) Information that the recipient will need to have the LEA provide 
to the Department to enable the Secretary to confirm that the recipient 
is meeting the service obligation;
    (4) How the recipient may request a deferment of the service 
obligation, and information that the recipient should provide the 
Department in any deferment request;
    (5) The consequences of failing to meet the service obligation 
including, at a minimum, the amount of the recipient's potential 
indebtedness; the possible referral of the indebtedness to a collection 
firm, reporting it to a credit bureau, and litigation; and the 
availability of a monthly payment schedule;
    (6) The amount of scholarship assistance and interest charges that 
the recipient must repay for failing to meet the service obligation; and
    (7) The recipient's responsibility to ensure that the Department has 
a home address and telephone number, and a work address and telephone 
number until the Secretary has determined that the recipient has 
fulfilled the service obligation or the recipient's debt has been paid 
or discharged; and
    (8) The follow-up services that the institution will provide the 
student during his or her first three years of teaching in a high-need 
school of a high-need LEA.

(Authority: 20 U.S.C. 1024(e))



Sec. 611.52  What are a grantee's programmatic responsibilities for 
ensuring that scholarship recipients become successful teachers in 
high-need schools?

    In implementing its approved project, the grantee must--
    (a) Provide scholarship recipients both before and after graduation 
with appropriate support services, including academic assistance, job 
counseling, placement assistance, and teaching support that will help to 
ensure that--
    (1) Upon graduation, scholarship recipients are able to secure 
teaching positions in high-need schools of high-need LEAs; and
    (2) After beginning to teach in a high-need school of a high-need 
LEA, former scholarship recipients have appropriate follow-up services 
and assistance during their first three years of teaching;
    (b) Provide LEAs with which the grantees collaborate in teacher 
recruitment activities with information and other assistance they need 
to recruit highly-qualified teachers effectively; and

[[Page 270]]

    (c) Work with the high-need LEAs participating in its project to 
ensure that scholarship recipients are placed, to the extent possible, 
in highest-need schools of those LEAs.

(Authority: 20 U.S.C. 1024(e))



                    Subpart F--Other Grant Conditions

    Source: 65 FR 19614, Apr. 11, 2000, unless otherwise noted.



Sec. 611.61  What is the maximum indirect cost rate that applies to 
a recipient's use of program funds?

    Notwithstanding 34 CFR 75.560-75.562 and 34 CFR 80.22, the maximum 
indirect cost rate that any recipient of funds under the Teacher Quality 
Enhancement Grants Program may use to charge indirect costs to these 
funds is the lesser of--
    (a) The rate established by the negotiated indirect cost agreement; 
or
    (b) Eight percent.

(Authority: 20 U.S.C. 1021 et seq.)



Sec. 611.62  What are a grantee's matching requirements?

    (a)(1) Each State receiving a grant under the State Grants Program 
or Teacher Recruitment Grants Program must provide, from non-federal 
sources, an amount equal to 50 percent of the amount of the grant to 
carry out the activities supported by the grant.
    (2) The 50 percent match required by paragraph (a)(1) of this 
section must be made annually during the project period, with respect to 
each grant award the State receives.
    (b) Each partnership receiving a grant under the Partnership Grant 
Program or the Teacher Recruitment Grant Program must provide, from non-
federal sources, an amount equal to--
    (1) 25 percent of the grant award for the first year of the grant;
    (2) 35 percent of the grant award for the second year of the grant; 
and
    (3) 50 percent of the grant award for each succeeding year of the 
grant.
    (c) The match from non-federal sources required by paragraphs (a) 
and (b) of this section may be made in cash or in kind.

(Authority: 20 U.S.C. 1021 et seq.)



PART 614--PREPARING TOMORROW'S TEACHERS TO USE TECHNOLOGY--Table of Contents




Sec.
614.1  What is the purpose of the Preparing Tomorrow's Teachers to Use 
          Technology program?
614.2  Who is eligible for an award?
614.3  What regulations apply to this program?
614.4  Which member of the consortium must act as the lead applicant and 
          fiscal agent?
614.5  What are the matching requirements for the consortia?
614.6  What is the maximum indirect cost rate for all consortium members 
          and any cost-type contract?
614.7  What prohibitions apply to the use of grant funds under this 
          program?
614.8  What is the significance of the deadline date for applications?

    Authority: 20 U.S.C. 6832, unless otherwise noted.

    Source: 64 FR 72803, Dec. 28, 1999, unless otherwise noted.



Sec. 614.1  What is the purpose of the Preparing Tomorrow's Teachers to 
Use Technology program?

    (a) This program provides grants to help future teachers become 
proficient in the use of modern learning technologies and to support 
training for pre-service teachers.
    (b) A grantee may not use funds under this program for in-service 
training or continuing education for currently certified teachers.

(Authority: 20 U.S.C. 6832)



Sec. 614.2  Who is eligible for an award?

    (a) Except as provided in paragraph (b) of this section, an eligible 
applicant is a consortium that includes at least two or more of the 
following: institutions of higher education, schools of education, 
community colleges, State educational agencies, local educational 
agencies, private elementary or secondary schools, professional 
associations, foundations, museums, libraries, private sector 
businesses, public or private nonprofit organizations, community based 
organizations, or any other entities able to contribute to teacher 
preparation program reforms that produce technology-proficient teachers.

[[Page 271]]

    (b) At least one member of the consortium must be a nonprofit 
entity.

(Authority: 20 U.S.C. 6832)



Sec. 614.3  What regulations apply to this program?

    The following regulations apply to Preparing Tomorrow's Teachers to 
Use Technology:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants and Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit 
Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs), except for Sec. 75.102.
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 81 (General Education Provisions Act--Enforcement).
    (7) 34 CFR part 82 (New Restrictions on Lobbying).
    (8) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (9) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (10) 34 CFR part 97 (Protection of Human Subjects).
    (11) 34 CFR part 98 (Student Rights in Research, Experimental 
Programs and Testing).
    (12) 34 CFR part 99 (Family Educational Rights and Privacy).
    (b) The regulations in this part 614.

(Authority: 20 U.S.C. 6832)



Sec. 614.4  Which member of the consortium must act as the lead applicant 
and fiscal agent?

    (a) For purposes of 34 CFR 75.127, the lead applicant for the 
consortium must be a nonprofit member of the consortium.
    (b) The lead applicant must serve as the fiscal agent.

(Authority: 20 U.S.C. 6832)



Sec. 614.5  What are the matching requirements for the consortia?

    A consortium must provide at least 50 percent of the total project 
cost per budget period of the project using non-Federal funds.

(Authority: 20 U.S.C. 6832)



Sec. 614.6  What is the maximum indirect cost rate for all consortium 
members and any cost-type contract?

    (a) The maximum indirect cost rate for all consortium partners and 
any cost-type contract made under these grants is eight percent of a 
modified total direct cost base or the partner's negotiated indirect 
cost rate, whichever rate is lower.
    (b) For purposes of this section, a modified total direct cost base 
is total direct costs less stipends, tuition, and related fees, and 
capital expenditures of $5,000 or more.
    (c) Indirect costs in excess of the maximum may not be--
    (1) Charged as direct costs by the grantee;
    (2) Used by the grantee to satisfy matching or cost sharing 
requirements; or
    (3) Charged by the grantee to another Federal award.

(Authority: 20 U.S.C. 6832)



Sec. 614.7  What prohibitions apply to the use of grant funds under 
this program?

    Grant funds may not be used--
    (a) To recruit prospective teachers;
    (b) To support the cost of a prospective teacher's education through 
any form of financial aid assistance including scholarships, 
internships, or student stipends; or
    (c) For in-service training or continuing education for currently 
certified teachers.

(Authority: 20 U.S.C. 6832)



Sec. 614.8  What is the significance of the deadline date for applications?

    Notwithstanding Sec. 75.102 of this chapter, an application for a 
grant under this program must be received by the deadline date that will 
be announced in

[[Page 272]]

a separate notice in the Federal Register.

(Authority: 20 U.S.C. 6832)



PART 628--ENDOWMENT CHALLENGE GRANT PROGRAM--Table of Contents




                           Subpart A--General

Sec.
628.1  What are the purposes of the Endowment Challenge Grant Program?
628.2  Which institutions are eligible to apply for an endowment 
          challenge grant?
628.3  Under what conditions may an eligible institution designate a 
          foundation as the recipient of an endowment challenge grant?
628.4  What time limitations are placed on grantees applying for another 
          grant?
628.5  What regulations apply to the Endowment Challenge Grant Program?
628.6  What definitions apply to the Endowment Challenge Grant Program?

    Subpart B--What Type of Grant Does the Secretary Award Under the 
                   Endowment Challenge Grant Program?

628.10  What are the characteristics of an endowment challenge grant?

   Subpart C--How Does an Eligible Institution Apply for an Endowment 
                            Challenge Grant?

628.20  What shall an applicant include in an application for an 
          endowment challenge grant?

  Subpart D--How Does the Secretary Award an Endowment Challenge Grant?

628.30  How does the Secretary evaluate an application for an endowment 
          challenge grant?
628.31  What selection criteria does the Secretary use in evaluating an 
          application for an endowment challenge grant?
628.32  What funding priorities does the Secretary use in evaluating an 
          application for an endowment challenge grant?

   Subpart E--What Conditions Must a Grantee Meet Under the Endowment 
                        Challenge Grant Program?

628.40  What are the restrictions on the amount of an endowment 
          challenge grant?
628.41  What are the obligations of an institution that the Secretary 
          selects to receive an endowment challenge grant?
628.42  What may a grantee not use to match an endowment challenge 
          grant?
628.43  What investment standards shall a grantee follow?
628.44  When and for what purpose may a grantee use the endowment fund 
          corpus?
628.45  How much endowment fund income may a grantee use and for what 
          purposes?
628.46  How shall a grantee calculate the amount of endowment fund 
          income that it may withdraw and spend?
628.47  What shall a grantee record and report?
628.48  What happens if a grantee fails to administer the endowment 
          challenge grant in accordance with applicable regulations?

    Authority: 20 U.S.C. 1065, unless otherwise noted.

    Source: 49 FR 28521, July 21, 1984, unless otherwise noted.



                           Subpart A--General



Sec. 628.1  What are the purposes of the Endowment Challenge Grant Program?

    The Endowment Challenge Grant Program provides endowment challenge 
grants, which must be matched, to eligible institutions to--
    (a) Establish or increase endowment challenge funds;
    (b) Provide additional incentives to promote fund-raising 
activities; and
    (c) Foster increased independence and self-sufficiency at those 
institutions.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 58 
FR 11163, Feb. 23, 1993]



Sec. 628.2  Which institutions are eligible to apply for an endowment 
challenge grant?

    An institution is eligible to apply for an endowment challenge grant 
if--
    (a) It qualifies as an eligible institution for the Strengthening 
Institutions Program under 34 CFR 607.2;
    (b) It qualifies as an eligible institution for the Strengthening 
Historically Black Colleges and Universities Program under 34 CFR 608.2;
    (c) It would have qualified as an eligible institution for the 
Strengthening Institutions Program if 34 CFR 607.2(a)(3) referred to a 
postgraduate degree rather than a bachelor's degree;

[[Page 273]]

    (d) It would have qualified as an eligible institution for the 
Strengthening Historically Black Colleges and Universities Program if 34 
CFR 608.2(a)(4)(i) referred to a postgraduate degree rather than a 
bachelor's degree; or
    (e) It qualifies as an institution that makes a substantial 
contribution to graduate or postgraduate medical educational 
opportunities for minorities and the economically disadvantaged.

(Authority: 20 U.S.C. 1065)

[52 FR 36374, Sept. 28, 1987, as amended at 58 FR 11163, Feb. 23, 1993]



Sec. 628.3  Under what conditions may an eligible institution designate a 
foundation as the recipient of an endowment challenge grant?

    An eligible institution may designate a foundation, which was 
established for the purpose of raising money for that institution, as 
the recipient of an endowment challenge grant if--
    (a) The institution assures the Secretary in its application that 
the foundation is legally authorized to receive the endowment fund 
corpus and to administer the endowment fund in accordance with the 
regulations in this part;
    (b) The foundation agrees to administer the endowment fund in 
accordance with the regulations in this part; and
    (c) The institution agrees to be liable for any violation by the 
foundation of any applicable regulation, including any violation 
resulting in monetary liability.

(Authority: 20 U.S.C. 1065)



Sec. 628.4  What time limitations are placed on grantees applying for 
another grant?

    (a) Except as provided in paragraphs (b) and (c) of this section, an 
institution that has received a grant under this part may apply for 
another grant under this part only after 10 fiscal years have elapsed 
following the fiscal year appropriation from which the institution's 
grant was awarded (base fiscal year).
    (b) An institution that has received a grant under this part may 
apply for another grant under this part after five fiscal years have 
elapsed following the base fiscal year if the appropriation for this 
part exceeds $20 million in any of those five fiscal years.
    (c) If an institution has received a grant under this part and the 
appropriation for this part exceeds $20 million in any of the sixth 
through tenth fiscal years following the base fiscal year, the 
institution may apply for another grant under this part in the fiscal 
year in which the appropriation exceeds $20 million, or any subsequent 
fiscal year.

(Authority: 20 U.S.C. 1065)

[58 FR 11163, Feb. 23, 1993]



Sec. 628.5  What regulations apply to the Endowment Challenge Grant Program?

    (a) The following regulations apply to the Endowment Challenge Grant 
Program:
    (1) The regulations in this part 628.
    (2)-(3) [Reserved]
    (b)(1) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (i) The regulations in 34 CFR 74.61(h), or 34 CFR 80.26 and the 
appendix to 34 CFR part 80, as applicable.
    (ii) The regulations in 34 CFR 74.80, 74.84, and 74.85.
    (iii) The regulations in 34 CFR 75.100 through 75.102, and 75.217.
    (iv) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (2) Except as specifically indicated in paragraph (b)(1) of this 
section, the Education Department General Administrative Regulations do 
not apply.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 52 
FR 36375, Sept. 28, 1987; 58 FR 11163, Feb. 23, 1993]



Sec. 628.6  What definitions apply to the Endowment Challenge Grant Program?

    The following definitions apply to the regulations in this part:
    Endowment fund means a fund which excludes real estate and which is 
established by State law, by an institution, or by a foundation that is 
exempt from

[[Page 274]]

taxation and is maintained for the purpose of generating income for the 
support of the institution. The principal or corpus of the fund may not 
be spent. ``Endowment fund'' includes ``quasi-endowment fund''.
    Endowment fund corpus means an amount equal to the endowment 
challenge grant or grants awarded under this part plus matching funds 
provided by the institution.
    Endowment fund income means an amount equal to the total value of 
the endowment fund established under the grant minus the endowment fund 
corpus.
    Quasi-endowment fund means a fund which the governing board of an 
institution or foundation establishes to function as an endowment in 
that the principal is to be retained and invested. However, the entire 
principal and income may be spent at any time at the discretion of the 
governing board.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 52 
FR 36375, Sept. 28, 1987; 58 FR 11163, Feb. 23, 1993]



    Subpart B--What Type of Grant Does the Secretary Award Under the 
                   Endowment Challenge Grant Program?



Sec. 628.10  What are the characteristics of an endowment challenge grant?

    Each endowment challenge grant awarded by the Secretary under this 
part--
    (a) Must be matched by the institution receiving the grant with one 
dollar of non-Federal funds for every two dollars of Federal grant 
funds;
    (b) Must be invested by the institution; and
    (c) Must have a duration of 20 years.

(Authority: 20 U.S.C. 1065)

[58 FR 11163, Feb. 23, 1993]



   Subpart C--How Does an Eligible Institution Apply for an Endowment 
                            Challenge Grant?



Sec. 628.20  What shall an applicant include in an application for an 
endowment challenge grant?

    An applicant shall include in its application the amount of the 
endowment challenge grant it is requesting, a description of its short-
term plan and long-term plan for raising and using endowment challenge 
grant funds, and information sufficient for the Secretary to--
    (a) Evaluate the application under the selection criteria set forth 
in Sec. 628.31 and the priorities set forth in Sec. 628.32; and
    (b) Determine whether the applicant will administer the endowment 
challenge grant in accordance with the regulations in this part.

(Approved by the Office of Management and Budget under control number 
1840-0531)

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 58 
FR 11163, Feb. 23, 1993; 59 FR 46175, Sept. 7, 1994]



  Subpart D--How Does the Secretary Award an Endowment Challenge Grant?



Sec. 628.30  How does the Secretary evaluate an application for an 
endowment challenge grant?

    (a) In evaluating an application for an endowment challenge grant, 
the Secretary--
    (1) Judges the application using the selection criteria in 
Sec. 628.31 and the priorities in Sec. 628.32;
    (2) Gives, for each criterion and priority, a score up to the 
maximum possible points in parentheses following the description of that 
criterion or priority; and
    (3) Gives up to 130 total points, 90 points maximum for the criteria 
in Sec. 628.31, and 40 points maximum for the priorities in Sec. 628.32.
    (b) In selecting recipients for grants, the Secretary follows the 
procedures in

[[Page 275]]

34 CFR 75.217(d) and (e) of the Education Department General 
Administrative Regulations.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987]



Sec. 628.31  What selection criteria does the Secretary use in evaluating 
an application for an endowment challenge grant?

    In evaluating an application for an endowment challenge grant, the 
Secretary uses the following three criteria:
    (a) The Secretary measures the applicant's past efforts to build or 
maintain its existing endowment and quasi-endowment funds by the dollar 
and relative increase in market value to the applicant's existing 
endowment and quasi-endowment funds over the applicant's four fiscal 
years preceding the year of application using the formulas set forth in 
paragraphs (a)(1) through (a)(5) of this section.
    (1) In measuring an applicant's dollar increase in its endowment and 
quasi-endowment funds, the Secretary--
    (i) Subtracts from an amount equal to the market value of the 
applicant's endowment and quasi-endowment funds at the end of the four-
year period described in paragraph (a) of this section an amount equal 
to the market value of the applicant's endowment and quasi-endowment 
funds at the beginning of that four-year period; and
    (ii) Divides the result obtained in paragraph (a)(1)(i) of this 
section by the applicant's full-time equivalent enrollment at the end of 
the four-year period.
    (2) The Secretary awards points on a sliding scale giving 10 points 
to applicants with the highest dollar increase as calculated in 
paragraph (a)(1) of this section and no points to applicants with the 
lowest dollar increase.
    (3) In measuring an applicant's relative increase in market value of 
its endowment and quasi-endowment funds, the Secretary--
    (i) Divides an amount equal to the market value of the applicant's 
endowment and quasi-endowment funds at the beginning of the four-year 
period described in paragraph (a) of this section by the applicant's 
full-time equivalent enrollment at the end of the four-year period.
    (ii) Adds $50 to the amount obtained in paragraph (a)(3)(i) of this 
section.
    (iii) Divides the result obtained in paragraph (a)(1)(ii) of this 
section by the amount obtained in paragraph (a)(3)(ii) of this section.
    (4)(i) If the amount of endowment per full-time equivalent student 
under paragraph (a)(3)(i) of this section is $50 or more, the Secretary 
awards points on a sliding scale giving 15 points to applicants with a 
relative increase of 100 percent or more and no points to applicants 
that have had a relative decrease of more than 20 percent.
    (ii) If the amount of endowment per full-time equivalent student 
under paragraph (a)(3)(i) of this section is less than $50, the 
Secretary awards points on a sliding scale giving 15 points to 
applicants with a relative increase of 100 percent or more and no points 
to applicants that have had no relative increase.
    (5) In measuring the applicant's past effort, the Secretary--
    (i) Excludes real estate from being considered as part of the 
applicant's existing endowment or quasi-endowment fund; and
    (ii) Includes an endowment or quasi-endowment fund operated by a 
foundation if the foundation is tax-exempt and was established for the 
purpose of raising money for the institution.
    (b) The Secretary considers the degree of proposed nongovernmental 
matching funds. (Total: 15 points maximum for the highest proposed 
percentage)
    (1) The Secretary measures the degree to which an applicant proposes 
to match the grant with funds from sources other than a State or local 
government--giving up to 15 points to applicants proposing to obtain the 
largest percentage of matching funds from those nongovermental sources.
    (2) If an applicant is applying for an endowment challenge grant for 
the first time, the Secretary multiplies the maximum number of points 
(i.e., 15 points) on this criterion times the following fraction:

[[Page 276]]

[GRAPHIC] [TIFF OMITTED] TC15NO91.021

    (3) If an applicant has previously received an endowment challenge 
grant, the Secretary uses the following formula in awarding points under 
this criterion:
[GRAPHIC] [TIFF OMITTED] TC15NO91.022

    (c) The Secretary considers the need for an endowment challenge 
grant as measured by the applicant's lack of resources.
    (1) The Secretary gives up to 50 points to applicants with the least 
resources as measured, at the end of the applicant's fiscal year 
preceding the year it applies for an endowment challenge grant, by 
revenue per full-time equivalent student it receives from the sum of the 
following--
    (i) Federal, State and local government appropriations;
    (ii) Unrestricted Federal, State and local government grants and 
contracts;
    (iii) Eighty percent of tuition and fees; and
    (iv) Unrestricted and restricted ``endowment income''.
    (2) In measuring the applicant's resources, the Secretary--
    (i) Defines the factors in paragraphs (c)(1)(i) through (iv) as they 
are defined in the Education Department Higher Education General 
Information Survey of Financial Statistics.
    (ii) Excludes real estate from being considered as part of the 
applicant's existing endowment or quasi-endowment fund.

(Approved by the Office of Management and Budget under control number 
1840-0531)

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 12, 1984, as amended at 49 FR 37325, Sept. 21, 1984]



Sec. 628.32  What funding priorities does the Secretary use in evaluating an 
application for an endowment challenge grant?

    In evaluating an endowment challenge grant application, the 
Secretary uses the following two priorities:
    (a) Recipient or former recipient of a grant under the Strengthening 
Institutions, Special Needs, Hispanic-Serving Institutions, 
Strengthening Historically Black Colleges and Universities, or 
Strengthening Historically Black Graduate Institutions Program. (Total: 
20 points) The Secretary gives 20 points to each applicant who on 
October 1 of the fiscal year in which the applicant is applying for an 
endowment challenge grant is a current recipient of a planning or 
development grant, or was a recipient of a planning or development grant 
within the five preceding fiscal years, under the Strengthening 
Institutions, Special Needs, Hispanic-Serving Institutions, 
Strengthening Historically Black Colleges and Universities, or 
Strengthening Historically Black Graduate Institutions Program.
    (b) Need for an endowment challenge grant as measured by the lack of 
endowment funds. (Total: 20 points)
    (1) The Secretary gives up to 20 total points to an applicant with 
the greatest need for an endowment challenge grant under this part, as 
measured by the applicant's lack of endowment funds.

[[Page 277]]

    (2) The Secretary gives up to 20 points to the applicant with the 
lowest market value, at the end of the applicant's fiscal year preceding 
the year it applies for an endowment challenge grant, of its existing 
endowment and quasi-endowment fund in relation to the number of full-
time equivalent students enrolled at the institution in the fall of the 
year preceding the year it applies for an endowment challenge grant.
    (3) In measuring the applicant's need for an endowment challenge 
grant, the Secretary excludes real estate from being considered as part 
of the applicant's existing endowment or quasi-endowment fund.

(Approved by the Office of Management and Budget under control number 
1840-0531)

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 58 
FR 11163, Feb. 23, 1993; 59 FR 46175, Sept. 7, 1994]



   Subpart E--What Conditions Must a Grantee Meet Under the Endowment 
                        Challenge Grant Program?



Sec. 628.40  What are the restrictions on the amount of an endowment 
challenge grant?

    (a) To receive an endowment challenge grant, an institution must 
raise at least $25,000 in matching funds and qualify for at least a 
$50,000 grant under paragraph (c) of this section.
    (b) If an institution obtains at least $25,000 in matching funds and 
raises all the nongovernmental funds it proposed to raise in its 
application, the institution may receive a grant equal to twice the 
amount of matching funds it raises up to--
    (1) $500,000 in any fiscal year in which the amount appropriated for 
the Endowment Challenge Grant Program is less than $15,000,000;
    (2) $1,000,000 in any fiscal year in which the amount appropriated 
for the Endowment Challenge Grant Program equals or exceeds $15,000,000 
but is less than $25,000,000; or
    (3) $1,500,000 in any fiscal year in which the amount appropriated 
for the Endowment Challenge Grant Program equals or exceeds $25,000,000.
    (c) If an institution does not raise all the nongovernmental funds 
it proposes to raise in its application, the Secretary reduces the 
institution's grant by multiplying the grant amount requested by the 
following fraction:
[GRAPHIC] [TIFF OMITTED] TC15NO91.023


(Authority: 20 U.S.C. 1065)

[57 FR 11163, Feb. 23, 1993]



Sec. 628.41  What are the obligations of an institution that the Secretary 
selects to receive an endowment challenge grant?

    (a) An institution that the Secretary selects to receive an 
endowment challenge grant shall--
    (1) Enter into an agreement with the Secretary to administer the 
endowment challenge grant;
    (2) Establish an endowment fund independent of any other endowment 
fund established by or for that institution;
    (3) Deposit its matching funds in the endowment fund established 
under this part;
    (4) Upon receipt, immediately deposit the grant funds into the 
endowment fund established under this part; and
    (5) Within fifteen working days after receiving the grant funds, 
invest the endowment fund corpus.
    (b) Before the Secretary disburses grant funds and not later than a 
date established by the Secretary through a notice in the Federal 
Register (which date may not be later than the earlier of the last day 
of availability of appropriations or eighteen months after an 
institution has been notified that it has been selected to receive a 
grant), an institution shall--
    (1) Match, with cash or low-risk securities, the endowment challenge 
grant funds to be received under this part;
    (2) Certify to the Secretary--
    (i) The source, kind and amount of the eligible matching funds;
    (ii) That the matching funds are eligible under paragraph (b)(1) of 
this section and Sec. 628.42; and
    (3) Have a certified public accountant or other licensed public 
accountant,

[[Page 278]]

who is not an employee of the institution, certify that the data 
contained in the application is accurate.
    (c)(1) For the purpose of paragraph (b)(1) of this section, ``cash'' 
may include cash on hand, certificates of deposit and money market 
funds; and
    (2) A negotiable security, to be considered as part of the 
institution's match--
    (i) Must be low-risk as required in Sec. 628.43; and
    (ii) Must be assessed at its market value as of the end of the 
trading day on the date the institution deposits the security into the 
endowment fund established under this part.

(Approved by the Office of Management and Budget under control number 
1840-0564)

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 49 FR 37325, Sept. 21, 1984; 
52 FR 11258, Apr. 8, 1987; 53 FR 49146, Dec. 6, 1988]



Sec. 628.42  What may a grantee not use to match an endowment challenge grant?

    To match an endowment challenge grant, a grantee may not use--
    (a) A pledge of funds or securities;
    (b) Deferred gifts such as a charitable remainder annuity trust or 
unitrust;
    (c) Any Federal funds;
    (d) Any borrowed funds; or
    (e) The corpus or income of an endowment fund or quasi-endowment 
fund existing at the closing date established by the Secretary for 
submission of eligibility requests under the Endowment Challenge Grant 
Program. This includes the corpus or income of an endowment or quasi-
endowment fund established by a foundation if the foundation is tax-
exempt and was established for the purpose of raising money for the 
institution.

(Authority: 20 U.S.C. 1065)



Sec. 628.43  What investment standards shall a grantee follow?

    (a) A grantee shall invest, for the duration of the grant period, 
the endowment fund established under this part in savings accounts or in 
low-risk securities in which a regulated insurance company may invest 
under the law of the State in which the institution is located.
    (b) When investing the endowment fund, the grantee shall exercise 
the judgment and care, under the circumstances, that a person of 
prudence, discretion and intelligence would exercise in the management 
of his or her own financial affairs.
    (c) An institution may invest its endowment fund in savings accounts 
permitted under paragraph (a) of this section such as--
    (1) A federally insured bank savings account;
    (2) A comparable interest bearing account offered by a bank; or
    (3) A money market fund.
    (d) An institution may invest its endowment fund in low-risk 
securities permitted under paragraph (a) of this section such as--
    (1) Certificates of deposit;
    (2) Mutual funds;
    (3) Stocks; or
    (4) Bonds.
    (e) An institution may not invest its endowment fund in real estate.

(Authority: 20 U.S.C. 1065)



Sec. 628.44  When and for what purposes may a grantee use the endowment 
fund corpus?

    (a)(1) During the grant period, a grantee may not withdraw or spend 
any part of the endowment fund corpus.
    (2) If, during the grant period, a grantee withdraws or spends all 
or part of the endowment fund corpus, it must repay to the Secretary an 
amount equal of 50 percent of the amount withdrawn or spent plus the 
income earned on that amount.
    (b) At the end of the grant period, the institution may use the 
endowment fund corpus for any educational purpose.

(Authority: 20 U.S.C. 1065)



Sec. 628.45  How much endowment fund income may a grantee use and for 
what purposes?

    (a) During the endowment challenge grant period, a grantee--
    (1) May withdraw and spend up to 50 percent of the total aggregate 
endowment fund income earned prior to the date of expenditure;
    (2) May spend the endowment fund income for--

[[Page 279]]

    (i) Costs necessary to operate the institution, including general 
operating and maintenance costs;
    (ii) Costs to administer and manage the endowment fund; and
    (iii) Costs associated with buying and selling securities, such as 
stockbroker commissions and fees to ``load'' mutual funds;
    (3) May not use endowment fund income for--
    (i) A school or department of divinity or any religious worship or 
sectarian activity;
    (ii) An activity that is inconsistent with a State plan for 
desegregation applicable to the grantee; or
    (iii) An activity that is inconsistent with a State plan applicable 
to the grantee; and
    (4) May not withdraw or spend the remaining 50 percent of the 
endowment fund income.
    (b) Notwithstanding paragraph (a)(1) of this section, the Secretary 
may permit a grantee that requests to spend more than 50 percent of the 
total aggregate endowment fund income to do so if the grantee 
demonstrates that the expenditure is necessary because of--
    (1) A financial emergency such as a pending insolvency or temporary 
liquidity problem;
    (2) A situation threatening the existence of the institution such as 
destruction due to a natural disaster or arson; or
    (3) Another unusual occurrence or demanding circumstance, such as a 
judgment against the institution for which the institution would be 
liable.
    (c) If, during the grant period, a grantee spends more endowment 
fund income or uses it for purposes other than permitted under 
paragraphs (a) or (b) of this section, it shall repay to the Secretary 
an amount equal to 50 percent of the amount improperly spent.
    (d) At the end of the grant period, the institution may use all of 
the endowment fund income for any educational purpose.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 58 
FR 11163, Feb. 23, 1993]



Sec. 628.46  How shall a grantee calculate the amount of endowment fund 
income that it may withdraw and spend?

    A grantee shall calculate the amount of endowment fund income that 
it may withdraw and spend at a particular time as follows:
    (a) On each date that the grantee plans a withdrawal of income, it 
must--
    (1) Determine the value of endowment fund income by subtracting the 
endowment fund corpus from the current total value of the endowment fund 
on that date; and
    (2) Calculate the amount of endowment fund income previously 
withdrawn from the endowment fund.
    (b) If the value of endowment fund income in the endowment fund 
exceeds the aggregate amount of previously withdrawn endowment fund 
income, the grantee may withdraw and spend up to 50 percent of that 
excess fund income.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987]



Sec. 628.47  What shall a grantee record and report?

    A grantee shall--
    (a) Keep records of--
    (1) The source, kind and amount of matching funds;
    (2) The type and amount of investments of the endowment fund;
    (3) The amount of endowment fund income; and
    (4) The amount and purpose of expenditures of endowment fund income;
    (b) Retain each year's records for a minimum of five years after the 
grant period ends;
    (c) Allow the Secretary access to information that the Secretary 
judges necessary to audit or examine the records required in paragraph 
(a) of this section;
    (d) Carry out the audit required in 34 CFR 74.61(h) or 80.26 and the 
appendix to 34 CFR part 80, as applicable;
    (e) Provide to the Secretary a copy of the external or internal 
audit to be performed under 34 CFR 74.61(h) or 80.26 and the appendix to 
34 CFR part 80, as applicable; and

[[Page 280]]

    (f) Submit reports on a timely basis that are requested by the 
Secretary.

(Approved by the Office of Management and Budget under control number 
1840-0564)

(Authority: 20 U.S.C. 1065 and 1232f)

[49 FR 28521, July 12, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 53 
FR 49146, Dec. 6, 1988; 58 FR 11164, Feb. 23, 1993]



Sec. 628.48  What happens if a grantee fails to administer the endowment 
challenge grant in accordance with applicable regulations?

    (a) The Secretary may, after giving the grantee notice and an 
opportunity for a hearing, terminate an endowment challenge grant if the 
grantee--
    (1) Withdraws or spends any part of the endowment fund corpus in 
violation of Sec. 628.44(a)(1);
    (2) Spends any portion of the endowment fund income not permitted to 
be spent in Sec. 628.45;
    (3) Fails to invest the endowment fund in accordance with the 
investment standards set forth in Sec. 628.43; or
    (4) Fails to meet the requirements in Sec. 628.41.
    (b) If the Secretary terminates a grant under paragraph (a) of this 
section, the grantee must return to the Secretary an amount equal to the 
sum of the original endowment challenge grant or grants plus the income 
earned on that sum.

(Authority: 20 U.S.C. 1065)

[49 FR 28521, July 21, 1984, as amended at 52 FR 11258, Apr. 8, 1987; 52 
FR 36375, Sept. 28, 1987]



PART 636--URBAN COMMUNITY SERVICE PROGRAM--Table of Contents




                           Subpart A--General

Sec.
636.1  What is the Urban Community Service Program?
636.2  Who is eligible for a grant?
636.3  What activities may the Secretary support?
636.4  What is the duration of an Urban Community Service Program grant?
636.5  What are the matching contribution and planning consortium 
          requirements?
636.6  What regulations apply?
636.7  What definitions apply?

               Subpart B--How Does One Apply for an Award?

636.10  What must an application include?
636.11  How does an applicant request a waiver of the planning 
          consortium requirement?

            Subpart C--How Does the Secretary Make an Award?

636.20  How does the Secretary evaluate an application?
636.21  What selection criteria does the Secretary use to evaluate an 
          application?
636.22  What additional factors does the Secretary consider?
636.23  What priorities does the Secretary establish?

Subpart D--How Does the Secretary Designate Urban Grant Institutions and 
             Establish an Urban Grant Institutions Network?

636.30  How does the Secretary designate urban grant institutions?
636.31  How does the Secretary establish a network of urban grant 
          institutions?

    Authority: 20 U.S.C. 1136-1136h, unless otherwise noted.

    Source: 58 FR 42663, Aug. 11, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 636.1  What is the Urban Community Service Program?

    The Urban Community Service Program provides grants to urban 
academic institutions to work with private and civic organizations to 
devise and implement solutions to pressing and severe problems in their 
urban communities.

(Authority: 20 U.S.C. 1136, 1136a)



Sec. 636.2  Who is eligible for a grant?

    The following institutions are eligible for grants under the Urban 
Community Service Program:
    (a) A nonprofit municipal university, established by the governing 
body of the city in which it is located and operating as of July 23, 
1992.
    (b) An institution of higher education or a consortium of 
institutions with at least one member that satisfies all of the 
following requirements:
    (1) Is located in an urban area.

[[Page 281]]

    (2) Draws a substantial portion of its undergraduate students from 
the urban area in which it is located or from contiguous areas.
    (3) Carries out programs to make postsecondary educational 
opportunities more accessible to residents of the urban area or 
contiguous areas.
    (4) Has the present capacity to provide resources responsive to the 
needs and priorities of the urban area and contiguous areas.
    (5) Offers a range of professional, technical, or graduate programs 
sufficient to sustain the capacity of the institution to provide these 
resources.
    (6) Has demonstrated and sustained a sense of responsibility to the 
urban area and contiguous areas and the people in those areas.

(Authority: 20 U.S.C. 1136g)



Sec. 636.3  What activities may the Secretary support?

    (a) The Secretary awards grants under this program for the following 
activities:
    (1) Planning.
    (2) Applied research.
    (3) Training.
    (4) Resource exchanges or technology transfers.
    (5) Delivery of services.
    (6) Other activities to design and implement programs to assist 
urban communities to meet and address their pressing and severe 
problems.
    (b) Examples of pressing and severe urban problems that applications 
may address include concerns such as the following:
    (1) Work force preparation.
    (2) Urban poverty and the alleviation of poverty.
    (3) Health care, including delivery and access.
    (4) Underperforming school systems and students.
    (5) Problems faced by the elderly and individuals with disabilities 
in urban settings.
    (6) Problems faced by families and children.
    (7) Campus and community crime prevention, including enhanced 
security and safety awareness measures as well as coordinated programs 
addressing the root causes of crime.
    (8) Urban housing.
    (9) Urban infrastructure.
    (10) Economic development.
    (11) Urban environmental concerns.
    (12) Other problem areas that participants of the planning 
consortium agree are of high priority in the urban area in which their 
institutions are located.
    (13) Problems faced by individuals with disabilities regarding 
accessibility to institutions of higher education and other public and 
private community facilities.
    (14) Lessening of existing attitudinal barriers that prevent full 
inclusion of individuals with disabilities within their community.

(Authority: 20 U.S.C. 1136c)



Sec. 636.4  What is the duration of an Urban Community Service Program grant?

    The duration of an Urban Community Service Program grant is a 
maximum of five annual budget periods.

(Authority: 20 U.S.C. 1136d)



Sec. 636.5  What are the matching contribution and planning consortium 
requirements?

    (a) The applicant and the local governments associated with its 
application shall contribute to the conduct of the project supported by 
the grant an amount, in cash or in-kind, from non-Federal funds equal to 
at least one-fourth of the amount of the grant.
    (b) The applicant shall develop and include in its application a 
plan agreed to by the members of a planning consortium.

(Authority: 20 U.S.C. 1136b, 1136e)



Sec. 636.6  What regulations apply?

    The following regulations apply to the Urban Community Service 
Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).

[[Page 282]]

    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 82 (New Restrictions on Lobbying).
    (7) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (8) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 636.

(Authority: 20 U.S.C. 1136, 1136a)



Sec. 636.7  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget period
Department
EDGAR
Grant
Project
Project period
Secretary

    (b) Other definitions. The following definitions also apply to this 
part:
    Contiguous areas means counties or independent cities sharing a part 
of a border with the metropolitan area within which an urban academic 
institution is located.
    Consortium of institutions of higher education means two or more 
institutions of higher education that have entered into a cooperative 
arrangement for the purpose of carrying out common objectives.
    Consortium of institutions of higher education means two or more 
institutions of higher education that have entered into a cooperative 
arrangement for the purpose of carrying out common objectives.
    HEA means the Higher Education Act of 1965, as amended.
    Individuals with disabilities means individuals who--
    (i) Have physical or mental impairments that substantially limits 
one or more of the major life activities;
    (ii) Have a record of physical or mental impairments; or
    (iii) Are regarded as having physical or mental impairments.
    Institution of higher education means an institution of higher 
education as defined in section 1201(a) of the HEA.
    Local government means a city, town, township, county, or other unit 
of general government organized under State laws and given delegated 
taxing or expenditure authority for providing governmental services to 
local communities.
    Metropolitan area means a metropolitan area or a consolidated 
metropolitan area, as designated by the United States Office of 
Management and Budget.
    Nonprofit municipal university means an institution of higher 
education that--
    (i) Is chartered or otherwise established as a not-for-profit 
institution by the governing body of the city in which it is located; 
and
    (ii) Is accredited by an agency or association recognized by the 
Secretary.
    Planning consortium means the applicant institution and one or more 
of the following:
    (i) A community college.
    (ii) An urban school system.
    (iii) A local government.
    (iv) A business or other employer.
    (v) A nonprofit institution.
    Substantial portion of its undergraduate students means 40 percent 
or more of the enrolled undergraduate student population.
    Urban area means--
    (i) A metropolitan area having a population of not less than 
350,000;
    (ii) Two contiguous metropolitan areas having a combined total 
population of not less than 350,000;
    (iii) In any State that does not have a metropolitan area having a 
population of not less than 350,000, the one urban area designated by 
the entity of the State having an agreement under the HEA to make a 
designation; or
    (iv) If a State entity does not have an agreement under the HEA to 
make a designation, the one urban area designated by the Secretary.
    Urban infrastructure means the underlying mechanical or 
technological networks for providing goods and services, such as 
transportation systems (including mass transit), water and sewage

[[Page 283]]

systems, and communication systems (including telecommunications).

(Authority: 20 U.S.C. 1136a-1136g)



               Subpart B--How Does One Apply for an Award?



Sec. 636.10  What must an application include?

    An application must include the following:
    (a) A description of the activities for which the grant is sought.
    (b) The plan agreed to by each of the members of the planning 
consortium.
    (c) An assurance that the applicant and the local governments 
associated with the application will contribute to the conduct of the 
project supported by the grant an amount, in cash or in-kind, from non-
Federal funds equal to at least one-fourth of the amount of the grant.

(Authority: 20 U.S.C. 1136b)



Sec. 636.11  How does an applicant request a waiver of the planning consortium 
requirement?

    (a) An applicant may request that the Secretary waive the 
requirement for a planning consortium by submitting as part of the 
application a request that includes the following:
    (1) The reasons why the applicant seeks the waiver.
    (2) Detailed information evidencing the applicant's integrated and 
coordinated plan to work with private and civic organizations to meet 
the pressing and severe problems of the urban community.
    (b) The Secretary may grant the request for a waiver if the 
Secretary finds that--
    (1) The applicant has shown an integrated and coordinated plan to 
meet the purposes of the Urban Community Service Program; and
    (2) A planning consortium would not substantially improve the 
applicant's proposed project.

(Authority: 20 U.S.C. 1136b)



            Subpart C--How Does the Secretary Make an Award?



Sec. 636.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
selection criteria in Sec. 636.21.
    (b) The Secretary awards up to 100 points for these selection 
criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.

(Authority: 20 U.S.C. 1136b)



Sec. 636.21  What selection criteria does the Secretary use to evaluate an 
application?

    The Secretary uses the following criteria to evaluate an application 
under this part:
    (a) Determination of need for the project. (10 points). The 
Secretary reviews each application to assess the effectiveness of the 
procedures used by the applicant in determining need for the project, 
including consideration of--
    (1) The process used to ensure that the pressing and severe problems 
that are identified are in fact high priority problems for the urban 
area;
    (2) The priority relationship of the problems addressed by the 
project to other pressing and severe problems identified for the urban 
area;
    (3) The extent to which the problems addressed by the project 
represent pressing and severe problems in urban areas nationally;
    (4) The process by which project participants review and comment on 
proposed project goals, objectives, and strategies; and
    (5) The specific benefits to be gained by meeting the identified 
problems.
    (b) Quality of the applicant's organization for operation. (20 
points). The Secretary reviews each application to determine the quality 
of the organization for operation, including consideration of how the 
application describes the following:
    (1) The cooperative arrangement between the applicant and any of the 
following that are appropriate for the conduct of the proposed project:
    (i) Agencies of local government.

[[Page 284]]

    (ii) Public and private elementary and secondary schools.
    (iii) Business organizations.
    (iv) Labor organizations.
    (v) Community service and advocacy organizations.
    (vi) Community colleges.
    (2)(i) Any previous working relationships between the applicant and 
the entities listed in paragraph (b)(1) of this section; and
    (ii) The outcomes of those relationships.
    (3) The agreement among project participants to commit their own 
resources in carrying out proposed project goals, objectives, and 
strategies.
    (c) Quality of project objectives. (10 points). The Secretary 
reviews each application to determine the extent to which the objectives 
for each project component activity meet the purposes of the program, 
are realistic, and are defined in terms of measurable results.
    (d) Quality of implementation strategy. (20 points). The Secretary 
reviews each application to determine the extent to which--
    (1) The implementation strategy for each key project component 
activity is--
    (i) Comprehensive;
    (ii) Based on a sound rationale; and
    (iii) Is a cost-effective approach for accomplishing project goals 
and objectives; and
    (2) The described timetable for each project component and for the 
overall project is realistic.
    (e) Quality of evaluation plan. (15 points). The Secretary reviews 
each application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Relate to the objectives of the project;
    (2) Describe both process and product evaluation measures for each 
project component activity and outcome;
    (3) Describe data collection procedures, instruments, and schedules 
for effective data collection;
    (4) Describe how the data will be analyzed and reported so that 
adjustments and improvements can be made on a regular basis while the 
project is in operation;
    (5) Describe a time-line chart that relates key evaluation processes 
and benchmarks to other project component processes and benchmarks; and
    (6) Establish the potential for effectively disseminating project 
information that can be generalized, replicated, and applied throughout 
the Nation.
    (f) Quality of key personnel. (10 points). The Secretary reviews 
each application to determine the qualifications of key personnel, 
including information that--
    (1) The past work experience and training of key professional 
personnel are directly related to the stated activity purposes and 
objectives; and
    (2) The time commitment of key personnel is realistic.
    (g) Budget. (5 points). The Secretary reviews each application to 
determine whether the project has an adequate budget and is cost 
effective, including information that shows that--
    (1) The budget for the project is adequate to support the project 
activities; and
    (2) The costs are necessary and reasonable in relation to the 
project objectives and scope.
    (h) Institutional commitment. (10 points). The Secretary reviews 
each application to determine the extent to which the application 
demonstrates a financial commitment on the part of the applicant and the 
local governments associated with its application, including the nature 
and amount of the matching contribution, and other institutional 
commitments from the applicant and other entities associated with the 
project, that are likely to assure the continuation of project 
activities for a significant time beyond the grant project period.

(Authority: 20 U.S.C. 1136b, 1136e)



Sec. 636.22  What additional factors does the Secretary consider?

    (a) The Secretary awards grants in a manner that achieves an 
equitable geographic distribution of grants.

[[Page 285]]

    (b) No institution, individually or as a participant in a consortium 
of institutions, may receive an Urban Community Service Program grant 
for more than five years.

(Authority: 20 U.S.C. 1136e)



Sec. 636.23  What priorities does the Secretary establish?

    In awarding grants, the Secretary gives an absolute preference to 
applicants that propose to conduct joint projects supported by other 
local, State, and Federal programs.

(Authority: 20 U.S.C. 1136b)



Subpart D--How Does the Secretary Designate Urban Grant Institutions and 
             Establish an Urban Grant Institutions Network?



Sec. 636.30  How does the Secretary designate urban grant institutions?

    (a) The Secretary identifies and designates the eligible 
institutions described in Sec. 636.2 as urban grant institutions.
    (b) The Secretary publishes a list of urban grant institutions in a 
notice published in the Federal Register.

(Authority: 20 U.S.C. 1136f)



Sec. 636.31  How does the Secretary establish a network of urban grant 
institutions?

    (a) The Secretary establishes a network of urban grant institutions 
consisting of the urban grant institutions designated in Sec. 636.30.
    (b) The Secretary invites institutions in the network of urban grant 
institutions to disseminate results and other information on individual 
projects that can be generalized, replicated, and applied throughout the 
Nation.

(Authority: 20 U.S.C. 1136f)



PART 637--MINORITY SCIENCE AND ENGINEERING IMPROVEMENT PROGRAM--Table of Contents




                           Subpart A--General

Sec.
637.1  What is the Minority Science and Engineering Improvement Program 
          (MSEIP)?
637.2  Who is eligible to receive a grant?
637.3  What regulations apply to the Minority Science and Engineering 
          Improvement Program?
637.4  What definitions apply to the Minority Science and Engineering 
          Improvement Program?

 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?

637.11  What kinds of projects are supported by this program?
637.12  What are institutional projects?
637.13  What are design projects?
637.14  What are special projects?
637.15  What are cooperative projects?

               Subpart C--How Does One Apply for a Grant?

637.21  Application procedures.

             Subpart D--How Does the Secretary Make a Grant?

637.31  How does the Secretary evaluate an application?
637.32  What selection criteria does the Secretary use?

          Subpart E--What Conditions Must Be Met by a Grantee?

637.41  What are the cost restrictions on design project grants?

    Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, 1068b, unless 
otherwise noted.

    Source: 46 FR 51204, Oct. 16, 1981, unless otherwise noted.



                           Subpart A--General



Sec. 637.1  What is the Minority Science and Engineering Improvement Program 
(MSEIP)?

    The Minority Science and Engineering Improvement Program (MSEIP) is 
designed to effect long-range improvement in science and engineering 
education at predominantly minority institutions, and to increase the 
flow of underrepresented ethnic minorities,

[[Page 286]]

particularly minority women, into scientific and technological careers.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b, unless 
otherwise noted)

[65 FR 7674, Feb. 15, 2000]



Sec. 637.2  Who is eligible to receive a grant?

    The following are eligible to receive a grant under this part:
    (a) Public and private nonprofit institutions of higher education 
that--
    (1) Award baccalaureate degrees; and
    (2) Qualify as minority institutions as defined in Sec. 637.4.
    (b) Public or private nonprofit institutions of higher education 
that--
    (1) Award associate degrees;
    (2) Qualify as minority institutions as defined in Sec. 637.4;
    (3) Have a curriculum that includes science or engineering subjects; 
and
    (4) Enter into a partnership with public or private nonprofit 
institutions of higher education that award baccalaureate degrees in 
science and engineering.
    (c) Nonprofit science-oriented organizations, professional 
scientific societies, and institutions of higher education that award 
baccalaureate degrees that--
    (1) Provide a needed service to a group of minority institutions; or
    (2) Provide in-service training to project directors, scientists, 
and engineers from minority institutions; or
    (d) A consortia of organizations, that provide needed services to 
one or more minority institutions. The consortia membership may include-
-
    (1) Institutions of higher education which have a curriculum in 
science or engineering;
    (2) Institutions of higher education that have a graduate or 
professional program in science or engineering;
    (3) Research laboratories of, or under the contract with, the 
Department of Energy;
    (4) Private organizations that have science or engineering 
facilities; or
    (5) Quasi-governmental entities that have a significant scientific 
or engineering mission.

(Authority: 20 U.S.C. 1067g)

[65 FR 7674, Feb. 15, 2000]



Sec. 637.3  What regulations apply to the Minority Science and Engineering 
Improvement Program?

    The following regulations apply to the Minority Science and 
Engineering Improvement Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 637.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b, unless 
otherwise noted)

[46 FR 51204, Oct. 16, 1981, as amended at 52 FR 43544, Nov. 12, 1987; 
57 FR 54302, Nov. 18, 1992; 65 FR 7675, Feb. 15, 2000]



Sec. 637.4  What definitions apply to the Minority Science and Engineering 
Improvement Program?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR part 77.

Applicant
Application
Department
EDGAR
Grants
Grantee
Nonprofit
Private
Project
Project period
Secretary

    (b) Definitions that apply to this part:
    Accredited means currently certified by a nationally recognized 
accrediting agency or making satisfactory progress toward achieving 
accreditation.
    Act means the Higher Education Act of 1965, as amended.
    Minority means American Indian, Alaskan Native, black (not of 
Hispanic origin), Hispanic (including persons of

[[Page 287]]

Mexican, Puerto Rican, Cuban, and Central or South American origin), 
Pacific Islander or other ethnic group underrepresented in science and 
engineering.
    Minority institution means an accredited college or university whose 
enrollment of a single minority group or a combination of minority 
groups as defined in this section exceeds fifty percent of the total 
enrollment. The Secretary verifies this information from the data on 
enrollments (Higher Education General Information Surveys HEGIS XIII) 
furnished by the institution to the Office for Civil Rights, Department 
of Education.
    Science means, for the purposes of this program, the biological, 
engineering, mathematical, physical, behavorial and social sciences, and 
the history and philosophy of science; also included are 
interdisciplinary fields which are comprised of overlapping areas among 
two or more sciences.
    Underrepresented in science and engineering means a minority group 
whose number of scientists and engineers per 10,000 population of that 
group is substantially below the comparable figure for scientists and 
engineers who are white and not of Hispanic origin.


(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, 1068b)

(Authority: 20 U.S.C. 1135b-1135b-3 and 1135d-5)

[46 FR 51204, Oct. 16, 1981, as amended at 52 FR 43544, Nov. 12, 1987; 
65 FR 7675, Feb. 15, 2000]



 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?



Sec. 637.11  What kinds of projects are supported by this program?

    The Secretary awards grants under this program for all or some of 
the following categories of projects:
    (a) Institutional projects for implementing a comprehensive science 
improvement plan as described in Sec. 637.12.
    (b) Design projects for developing a long-range science improvement 
plan as described in Sec. 637.13.
    (c) Special projects to support activities as described in 
Sec. 637.14.
    (d) Cooperative projects to share facilities and personnel and 
disseminate information as described in Sec. 637.15.


(Authority: 20 U.S.C. 1135b-2)

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)



Sec. 637.12  What are institutional projects?

    (a) Institutional project grants support the implementation of a 
comprehensive science improvement plan, which may include any 
combination of activities for improving the preparation of minority 
students, particularly minority women, for careers in science.
    (b) Activities that the Secretary may assist under an institutional 
project include, but are not limited to, the following:
    (1) Faculty development programs; or
    (2) Development of curriculum materials.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)

[46 FR 51204, Oct. 16, 1981, as amended at 52 FR 43545, Nov. 12, 1987; 
57 FR 54302, Nov. 18, 1992]



Sec. 637.13  What are design projects?

    (a) Design project grants assist minority institutions that do not 
have their own appropriate resources or personnel to plan and develop 
long-range science improvement programs.
    (b) Activities that the Secretary may assist under a design project 
include, but are not limited to, the following:
    (1) Development of planning, management, and evaluation systems; and
    (2) Improvement of institutional research or development offices.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)

[46 FR 51204, Oct. 16, 1981, as amended at 52 FR 43545, Nov. 12, 1987]



Sec. 637.14  What are special projects?

    There are two types of special projects grants--
    (a) Special project grants for which minority institutions are 
eligible which support activities that--
    (1) Improve quality training in science and engineering at minority 
institutions; or

[[Page 288]]

    (2) Enhance the minority institutions' general scientific research 
capabilities.
    (b) Special project grants for which all applicants are eligible 
which support activities that--
    (1) Provide a needed service to a group of eligible minority 
institutions; or
    (2) Provide in-service training for project directors, scientists, 
and engineers from eligible minority institutions.
    (c) Activities that the Secretary may assist under a special project 
include, but are not limited to, the following:
    (1) Advanced science seminars;
    (2) Science faculty workshops and conferences;
    (3) Faculty training to develop specific science research or 
education skills;
    (4) Research in science education;
    (5) Programs for visiting scientists;
    (6) Preparation of films or audio-visual materials in science;
    (7) Development of learning experiences in science beyond those 
normally available to minority undergraduate students, particularly 
minority women;
    (8) Development of pre-college enrichment activities in science; and
    (9) Any other activities designed to address specific barriers to 
the entry of minorities, particularly minority women, into science.
    (d) Minority institutions are eligible to apply for special projects 
of the type listed in paragraph (a) of this section. All applicants 
eligible for assistance under this program may apply for special 
projects of the type listed in paragraphs (b) and (c) of this section.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)

[46 FR 51204, Oct. 16, 1981, as amended at 52 FR 43545, Nov. 12, 1987; 
57 FR 54302, Nov. 18, 1992]



Sec. 637.15  What are cooperative projects?

    (a) Cooperative project grants assist groups of nonprofit accredited 
colleges and universities to work together to conduct a science 
improvement project.
    (b) Activities that the Secretary may fund under cooperative 
projects include, but are not limited to, the following:
    (1) Assisting institutions in sharing facilities and personnel;
    (2) Disseminating information about established programs in science 
and engineering;
    (3) Supporting cooperative efforts to strengthen the institutions' 
science and engineering programs; and
    (4) Carrying out a combination of any of the activities in 
paragraphs (c)(1)-(3) of this section.
    (c) Eligible applicants for cooperative projects are groups of 
nonprofit accredited colleges and universities whose primary fiscal 
agent is an eligible minority institution as defined in Sec. 637.4(b).

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)



               Subpart C--How Does One Apply for a Grant?



Sec. 637.21  Application procedures.

    One applies for a grant under the procedures of EDGAR Secs. 75.100 
through 75.129.



             Subpart D--How Does the Secretary Make a Grant?



Sec. 637.31  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 637.32.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score of each criterion is indicated in 
parentheses.
    (d) The Secretary gives priority to applicants which have not 
previously received funding from the program and to previous grantees 
with a proven record of success, as well as to applications that 
contribute to achieving balance among funded projects with respect to:
    (1) Geographic region;
    (2) Academic discipline; and
    (3) Project type.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)

[46 FR 51204, Oct. 16, 1981, as amended at 52 FR 43545, Nov. 12, 1987]

[[Page 289]]



Sec. 637.32  What selection criteria does the Secretary use?

    The Secretary evaluates applications using the following criteria:
    (a) Plan of operation. (10 points) (1) The Secretary reviews each 
application for information that shows the quality of the plan of 
operation for the project.
    (2) The Secretary looks for information that shows--
    (i) Higher quality in the design of the project;
    (ii) An effective plan of management that insures proper and 
efficient administration of the project;
    (iii) A clear description of how the objectives of the project 
relate to the purpose of the program;
    (iv) The way the applicant plans to use its resources and personnel 
to achieve each objective; and
    (v) Methods of coordination. (See EDGAR 34 CFR 75.581)
    (b) Quality of key personnel. (10 points) (1) The Secretary reviews 
each application for information that shows the quality of the key 
personnel the applicant plans to use on the project.
    (2) The Secretary looks for information that shows--
    (i) The qualifications of the project director (if one is to be 
used);
    (ii) The qualifications of each of the other key personnel to be 
used in the project;
    (iii) The time that each person referred to in paragraphs (b)(2) (i) 
and (ii) of this section plans to commit to the project.
    (iv) The extent to which the applicant, as part of its 
nondiscriminatory emloyment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented, such as members of a racial or ethnic 
minority groups, women, handicapped persons, and the elderly.
    (3) To determine the qualifications of a person, the Secretary 
considers evidence of past experience and training, in fields related to 
the objectives of the project, as well as other information that the 
applicant provides.
    (c) Budget and cost effectiveness. (5 points) (1) The Secretary 
reviews each application for information that shows that the project has 
an adequate budget and is cost effective.
    (2) The Secretary looks for information that shows--
    (i) The budget for the project is adequate to support the project 
activities; and
    (ii) Costs are reasonable in relation to the objective of the 
project.
    (d) Evaluation plan. (10 points) (1) The Secretary reviews each 
application for information that shows the quality of the evaluation 
plan for the project. (See EDGAR 34 CFR 75.590--Evaluation by the 
grantee; where applicable)
    (2) The Secretary looks for information that shows methods of 
evaluation that are appropriate for the project and, to the extent 
possible, are objective and produce data that are quantifiable.
    (e) Adequacy of resources. (5 points) (1) The Secretary reviews each 
application for information that shows that the applicant plans to 
devote adequate resources to the project.
    (2) The Secretary looks for information that shows--
    (i) The facilities that the applicant plans to use are adequate; and
    (ii) The equipment and supplies that the applicant plans to use are 
adequate.


(Authority: 20 U.S.C. 1135b-1, 1135d-3)

    (f) Identification of need for the project. (10 points) (1) The 
Secretary reviews each application for information that shows the 
identification of need for the project.
    (2) The Secretary looks for information that shows--
    (i) An adequate needs assessment;
    (ii) An identification of specific needs in science; and
    (iii) An involvement of appropriate individual, especially science 
faculty, in identifying the institutional needs.
    (g) Potential institutional impact of the project. (15 points) (1) 
The Secretary reviews each application to determine the extent to which 
the proposed project gives evidence of potential for enhancing the 
institution's capacity for improving and maintaining quality science 
education for its minority students, particularly minority women.
    (2) The Secretary looks for information that shows--
    (i) For an institutional or cooperative project, the extent to which 
both

[[Page 290]]

the established science education program(s) and the proposed project 
will expand or strengthen the established program(s) in relation to the 
identified needs; or
    (ii) For a design project, the extent to which realistic long-range 
science education improvement plans will be developed with the technical 
assistance provided under the project; or
    (iii) For a special project, the extent to which it addresses needs 
that have not been adequately addressed by an existing institutional 
science program or takes a particularly new and exemplary approach that 
has not been taken by any existing institutional science program.
    (h) Institutional commitment to the project. (15 points) (1) The 
Secretary reviews each application for information that shows that the 
applicant plans to continue the project activities when funding ceases.
    (2) The Secretary looks for information that shows--
    (i) Adequate institutional commitment to absorb any after-the-grant 
burden initiated by the project;
    (ii) Adequate plans for continuation of project activities when 
funding ceases;
    (iii) Clear evidence of past institutional commitment to the 
provision of quality science programs for its minority students; and
    (iv) A local review statement signed by the chief executive officer 
of the institution endorsing the project and indicating how the project 
will accelerate the attainment of the institutional goals in science.
    (i) Expected outcomes. (10 points) (1) The Secretary reviews each 
application to determine the extent to which minority students, 
particularly minority women, will benefit from the project.
    (2) The Secretary looks for information that shows--
    (i) Expected outcomes likely to result in the accomplishment of the 
program goal;
    (ii) Educational value for science students; and
    (iii) Possibility of long-term benefits to minority students, 
faculty, or the institution.
    (j) Scientific and educational value of the proposed project. (10 
points) (1) The Secretary reviews each application for information that 
shows its potential for contributions to science education.
    (2) The Secretary looks for information that shows--
    (i) The relationship of the proposed project to the present state of 
science education;
    (ii) The use or development of effective techniques and approaches 
in science education; and
    (iii) Potential use of some aspects of the project at other 
institutions.

(Approved by the Office of Management and Budget under control number 
1840-0109)

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)

[46 FR 51204, Oct. 16, 1981, as amended at 53 FR 49146, Dec. 6, 1988; 57 
FR 54302, Nov. 18, 1992]



          Subpart E--What Conditions Must be Met by a Grantee?



Sec. 637.41  What are the cost restrictions on design project grants?

    For design project grants funds may not be used to pay more than 
fifty percent of the academic year salaries of faculty members involved 
in the project.

(Authority: 20 U.S.C. 1067-1067c, 1067g-1067k, 1068, and 1068b)



PART 642--TRAINING PROGRAM FOR FEDERAL TRIO PROGRAMS--Table of Contents




                           Subpart A--General

Sec.
642.1  Training Program for Federal TRIO Programs.
642.2  Eligible applicants.
642.3  Eligible participants.
642.4  Regulations that apply to the Training Program.
642.5  Definitions that apply to the Training Program.

 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?

642.10  Activities the Secretary Assists Under the Training Program.

Subpart C [Reserved]

[[Page 291]]

             Subpart D--How Does the Secretary Make a Grant?

642.30  How the Secretary evaluates an application for a new award.
642.31  Selection criteria the Secretary uses.
642.32  Prior experience.
642.33  Geographic distribution.
642.34  Priorities for funding.

          Subpart E--What Conditions Must Be Met by a Grantee?

642.40  Allowable costs.
642.41  Nonallowable costs.

    Authority: 20 U.S.C. 1070a-11 and 1070a-17, unless otherwise noted.

    Source: 47 FR 17788, Apr. 23, 1982, unless otherwise noted.



                           Subpart A--General



Sec. 642.1  Training Program for Federal TRIO Programs.

    The Training Program for Federal TRIO Programs--referred to in these 
regulations as the Training Program--provides Federal financial 
assistance to train the staff and leadership personnel employed in, or 
preparing for employment in, Federal TRIO Program projects.

(Authority: 20 U.S.C. 1070a-17)

[58 FR 51519, Oct. 1, 1993]



Sec. 642.2  Eligible applicants.

    The following are eligible to apply for a grant to carry out a 
Training Program project:
    (a) Institutions of higher education.
    (b) Public and private nonprofit agencies and organizations.

(Authority: 20 U.S.C. 1070a-17)

[47 FR 17788, Apr. 23, 1982, as amended at 58 FR 51519, Oct. 1, 1993]



Sec. 642.3  Eligible participants.

    The following are eligible for training under this program:
    (a) Leadership personnel and full and part-time staff members of 
projects under the Federal TRIO Programs.
    (b) Individuals preparing for employment as staff or leadership 
personnel in projects under the Federal TRIO Programs.

(Authority: 20 U.S.C. 1070a-17)

[47 FR 17788, Apr. 23, 1982, as amended at 58 FR 51519, Oct. 1, 1993]



Sec. 642.4  Regulations that apply to the Training Program.

    The following regulations apply to the Training Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 642.

(Authority: 20 U.S.C. 1070a-11 and 1070-17)

[47 FR 17788, Apr. 23, 1982, as amended at 58 FR 51519, Oct. 1, 1993]



Sec. 642.5  Definitions that apply to the Training Program.

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR part 77:

Applicant
Application
Award
Budget
EDGAR
Equipment
Facilities
Fiscal year
Grant
Grantee
Nonprofit
Private
Project
Project period
Public
Secretary
State
Supplies

    (b) Definitions that apply to this part. The following definitions 
apply to this part:
    Act means the Higher Education Act of 1965, as amended.

[[Page 292]]

    Federal TRIO Programs means the Upward Bound, Talent Search, Student 
Support Services, Educational Opportunity Centers, and Ronald E. McNair 
Postbaccalaureate Achievement Programs.


(Authority: 20 U.S.C. 1001 et seq., 1070a-11, 1070-17, 1088, 1141, and 
1144a)

    Institution of higher education means an educational institution as 
defined in section 481, 1201(a), or 1204 of the Act.
    Leadership personnel means project directors, coordinators, and 
other individuals involved with the supervision and direction of 
projects under the Federal TRIO Programs.

[47 FR 17788, Apr. 23, 1982, as amended at 54 FR 7737, Feb. 22, 1989; 57 
FR 9005, Mar. 13, 1992; 58 FR 51519, Oct. 1, 1993]



 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?



Sec. 642.10  Activities the Secretary assists under the Training Program.

    (a) A Training Program project trains the staff and leadership 
personnel of Federal TRIO Program projects to enable them to more 
effectively operate those projects.
    (b) A Training Program project may include conferences, internships, 
seminars, workshops, and the publication of manuals designed to improve 
the operations of Federal TRIO Program projects.
    (c) Each year, one or more Training Program projects must provide 
training for new project directors.
    (d) Each year, one or more Training Program projects must offer 
training covering the following topics:
    (1) The legislative and regulatory requirements for operating 
Federal TRIO Programs.
    (2) Assisting students to obtain adequate student financial 
assistance from programs authorized under Title IV of the Act, as well 
as from other sources.
    (3) The design and operation of model Federal TRIO Program projects.

(Authority: 20 U.S.C. 1070a-17)

[58 FR 51519, Oct. 1, 1993]

Subpart C [Reserved]



             Subpart D--How Does the Secretary Make a Grant?



Sec. 642.30  How the Secretary evaluates an application for a new award.

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 642.31.
    (1) The Secretary awards up to 100 points for these criteria.
    (2) The maximum possible score for each complete criterion is 
indicated in the parentheses next to the heading of that criterion.
    (b) In addition, for applicants that have conducted a Training 
Program project within the three fiscal years prior to the fiscal year 
for which the applicant is applying, the Secretary considers the 
experience of the applicant on the basis of Sec. 642.32.

(Authority: 20 U.S.C. 1070d, 1070d-1d)



Sec. 642.31  Selection criteria the Secretary uses.

    The Secretary uses the criteria in paragraphs (a) through (f) of 
this section to evaluate applications:
    (a) Plan of operation. (20 points) (1) The Secretary reviews each 
application for information that shows the quality of the plan of 
operation for the project.
    (2) The Secretary looks for information that shows--
    (i) High quality in the design of the project;
    (ii) An effective plan of managment that insures proper and 
efficient administration of the project;
    (iii) A clear description of how the objectives of the project 
relate to the purpose of the program;
    (iv) The way the applicant plans to use its resources and personnel 
to achieve each objective; and
    (v) A clear description of how the applicant will provide equal 
access and treatment for eligible project participants who are members 
of groups that have been traditionally underrepresented, such as--
    (A) Members of racial or ethnic minority groups;
    (B) Women;
    (C) Handicapped persons; and
    (D) The elderly.
    (b) Quality of key personnel. (20 points) (1) The Secretary reviews 
each application for information that shows

[[Page 293]]

the qualifications of the key personnel the applicant plans to use on 
the project.
    (2) The Secretary looks for information that shows--
    (i) The qualifications of the project director;
    (ii) The qualifications of each of the other key personnel to be 
used in the project;
    (iii) The time that each person referred to in paragraphs (b)(2)(i) 
and (ii) of this section plans to commit to the project; and
    (iv) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented, such as--
    (A) Members of racial or ethnic minority groups;
    (B) Women;
    (C) Handicapped persons; and
    (D) The elderly.
    (3) To determine the qualifications of a person, the Secretary 
considers evidence of past experience and training, in fields related to 
the objectives of the project, as well as other information that the 
applicant provides.
    (c) Budget and cost effectiveness. (10 points) (1) The Secretary 
reviews each application for information that shows that the project has 
an adequate budget and is cost effective.
    (2) The Secretary looks for information that shows--
    (i) The budget for the project is adequate to support the project 
activities; and
    (ii) Costs are reasonable in relation to the objectives of the 
project.
    (d) Evaluation plan. (10 points) (1) The Secretary reviews each 
application for information that shows the quality of the evaluation 
plan for the project.
    (2) The Secretary looks for information that shows methods of 
evaluation that are appropriate for the project and, to the extent 
possible, are objective and produce data that are quantifiable.
    (e) Adequacy of resources. (15 points)
    (1) The Secretary reviews each application for information that 
shows that the applicant plans to devote adequate resources to the 
project.
    (2) The Secretary looks for information that shows--
    (i) The facilities that the applicant plans to use are adequate; and
    (ii) The equipment and supplies that the applicant plans to use are 
adequate.
    (f) Need. (25 points) (1) The Secretary reviews each application for 
information that shows a need for a Training Program project.
    (2) The Secretary looks for information that shows--
    (i) The extent to which the proposed training addresses a specific 
need not addressed by other training projects available to Federal TRIO 
Programs personnel;
    (ii) The extent to which the proposed training addresses a 
significant training need in the region(s) to be served; and
    (iii) The extent to which the proposed training addresses needs that 
are consistent with the topics required by statute and other topics 
chosen as priorities by the Secretary as authorized under Sec. 642.34.

(Authority: 20 U.S.C. 1070a-11 and 1070a-17)

[47 FR 17788, Apr. 23, 1982, as amended at 58 FR 51519, Oct. 1, 1993]

    Effective Date Note: At 58 FR 51519, Oct. 1, 1993 in Sec. 642.31, 
paragraph (f)(2)(i) was amended by removing ``Special Programs'' and 
adding ``Federal TRIO Programs'' in their place, and (f)(2)(iii) was 
revised. This section contains information collection and recordkeeping 
requirements and will not become effective until approval has been given 
by the Office of Management and Budget.



Sec. 642.32  Prior experience.

    (a)(1) The Secretary gives priority to each applicant that has 
conducted a Training Program project under title IV-A-4 of the Higher 
Education Act within the three fiscal years prior to the fiscal year for 
which the applicant is applying.
    (2) To determine the number of priority points to be awarded each 
eligible applicant, the Secretary considers the applicant's prior 
experience of service delivery in accordance with paragraphs (b) and (c) 
of this section.
    (b)(1) The Secretary may add from one to eight points to the point 
score obtained on the basis of the selection

[[Page 294]]

criteria in Sec. 642.31, based on the applicant's success in meeting the 
administrative requirements and programmatic objectives of paragraph (c) 
of this section.
    (2) The maximum possible score for each criterion is indicated in 
the parentheses preceding the criterion.
    (c) The Secretary--based on information contained in one or more of 
the following: Performance reports, audit reports, training site visit 
reports, evaluations by participants, project evaluation reports, the 
previously funded application, the negotiated program plan(s), and the 
application under consideration--looks for information that shows--
    (1) (2 points) The extent to which the project has served the number 
and kinds of training participants it was funded to serve;
    (2) (2 points) The extent to which participants benefited from 
training in areas such as--
    (i) Increased qualifications and skills in meeting the needs of 
disadvantaged students; and
    (ii) Increased knowledge and understanding of the Federal TRIO 
Programs;
    (3) (2 points) The extent to which the applicant has achieved other 
goals and objectives as stated in the previously funded application or 
negotiated program plan; and
    (4) (2 points) The extent to which the applicant has met the 
administrative requirements--including recordkeeping, reporting, and 
financial accountability--under the terms of the previously funded 
award.

(Authority: 20 U.S.C. 1070a-11)

[47 FR 24973, June 8, 1982, as amended at 58 FR 51520, Oct. 1, 1993]



Sec. 642.33  Geographic distribution.

    The Secretary, to the greatest extent possible, awards grants for 
Training Program projects that will be carried out in all of the regions 
of the Nation in order to assure accessibility to prospective training 
participants.

(Authority: 20 U.S.C. 1070a-17)



Sec. 642.34  Priorities for funding.

    (a) The Secretary, after consultation with regional and State 
professional associations of persons having special knowledge with 
respect to the training needs of Special Programs personnel, may select 
one or more of the following subjects as training priorities:
    (1) Basic skills instruction in reading, mathematics, written and 
oral communication, and study skills.
    (2) Counseling.
    (3) Assessment of student needs.
    (4) Academic tests and testing.
    (5) College and university admissions policies and procedures.
    (6) Student financial aid.
    (7) Cultural enrichment programs.
    (8) Career planning.
    (9) Tutorial programs.
    (10) Retention and graduation strategies.
    (11) Support services for persons of limited proficiency in English.
    (12) Support services for physically handicapped persons.
    (13) Strategies for preparing students for doctoral studies.
    (14) Project evaluation.
    (15) Budget management.
    (16) Personnel management.
    (17) Reporting student and project performance.
    (18) Coordinating project activities with other available resources 
and activities.
    (19) General project management for new directors.
    (20) Legislative and regulatory requirements for the operation of 
programs.
    (21) The design and operation of model programs for projects funded 
under the Federal TRIO Programs.
    (b) The Secretary annually funds training on the subjects listed in 
paragraphs (a)(6), (19), (20), and (21) of this section.
    (c) The Secretary may consider an application for a Training Program 
project that does not address one of the established priorities if the 
applicant addresses another significant training need in the local area 
being served by the Federal TRIO Programs.

(Authority: 20 U.S.C. 1070a-11 and 1070a-17)

[54 FR 7737, Feb. 22, 1989, as amended at 58 FR 51520, Oct. 1, 1993]

[[Page 295]]



          Subpart E--What Conditions Must Be Met by a Grantee?



Sec. 642.40  Allowable costs.

    Allowable project costs may include the following costs reasonably 
related to carrying out a Training Program project:
    (a) Rental of space, if space is not available at a sponsoring 
institution and if the space is not owned by a sponsoring institution.
    (b) Printing.
    (c) Postage.
    (d) Purchase or rental of equipment if approved in writing by the 
Secretary.
    (e) Consumable supplies.
    (f) Transportation costs for participants and training staff.
    (g) Lodging and subsistence costs for participants and training 
staff.
    (h) Transportation costs, lodging and subsistence costs and fees for 
consultants, if any.
    (i) Honorariums for speakers who are not members of the staff or 
consultants to the project.
    (j) Other costs that are specifically approved in advance and in 
writing by the Secretary.

(Authority: 20 U.S.C. 1070a-11 and 1070a-17)



Sec. 642.41  Nonallowable costs.

    Costs that may not be charged against a grant under this program 
include the following:
    (a) Research not directly related to the evaluation or improvement 
of the project.
    (b) Construction, renovation, or remodeling of any facilities.
    (c) Stipends, tuition fees, and other direct financial assistance to 
trainees other than those participating in internships.

(Authority: 20 U.S.C. 1070a-11 and 1070a-17)



PART 643--TALENT SEARCH--Table of Contents




                           Subpart A--General

Sec.
643.1  What is the Talent Search program?
643.2  Who is eligible for a grant?
643.3  Who is eligible to participate in a project?
643.4  What services may a project provide?
643.5  How long is a project period?
643.6  What regulations apply?
643.7  What definitions apply?

                          Subpart B--Assurances

643.10  What assurances must an applicant submit?

             Subpart C--How Does the Secretary Make a Grant?

643.20  How does the Secretary decide which new grants to make?
643.21  What selection criteria does the Secretary use?
643.22  How does the Secretary evaluate prior experience?
643.23  How does the Secretary set the amount of a grant?

          Subpart D--What Conditions Must Be Met by a Grantee?

643.30  What are allowable costs?
643.31  What are unallowable costs?
643.32  What other requirements must a grantee meet?

    Authority: 20 U.S.C. 1070a-11 and 1070a-12, unless otherwise noted.

    Source: 58 FR 59145, Nov. 5, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 643.1  What is the Talent Search program?

    The Talent Search program provides grants for projects designed to--
    (a) Identify qualified youths with potential for education at the 
postsecondary level and encourage them to complete secondary school and 
undertake a program of postsecondary education;
    (b) Publicize the availability of student financial assistance for 
persons who seek to pursue postsecondary education; and
    (c) Encourage persons who have not completed education programs at 
the secondary or postsecondary level, but who have the ability to do so, 
to reenter these programs.

(Authority: 20 U.S.C. 1070a-12)



Sec. 643.2  Who is eligible for a grant?

    The following are eligible for a grant to carry out a Talent Search 
project:
    (a) An institution of higher education.
    (b) A public or private agency or organization.

[[Page 296]]

    (c) A combination of the types of institutions, agencies, and 
organizations described in paragraphs (a) and (b) of this section.
    (d) A secondary school, under exceptional circumstances such as if 
no institution, agency, or organization described in paragraphs (a) and 
(b) of this section is capable of carrying out a Talent Search project 
in the target area to be served by the proposed project.

(Authority: 20 U.S.C. 1070a-11)



Sec. 643.3  Who is eligible to participate in a project?

    (a) An individual is eligible to participate in a Talent Search 
project if the individual meets all the following requirements:
    (1)(i) Is a citizen or national of the United States;
    (ii) Is a permanent resident of the United States;
    (iii) Is in the United States for other than a temporary purpose and 
provides evidence from the Immigration and Naturalization Service of his 
or her intent to become a permanent resident;
    (iv) Is a permanent resident of Guam, the Northern Mariana Islands, 
or the Trust Territory of the Pacific Islands (Palau); or
    (v) Is a resident of the Freely Associated States--the Federated 
States of Micronesia or the Republic of the Marshall Islands.
    (2)(i) Has completed five years of elementary education or is at 
least 11 years of age but not more than 27 years of age.
    (ii) However, an individual who is more than 27 years of age may 
participate in a Talent Search project if the individual cannot be 
appropriately served by an Educational Opportunity Center project under 
34 CFR part 644 and if the individual's participation would not dilute 
the Talent Search project's services to individuals described in 
paragraph (a)(2)(i) of this section.
    (3)(i) Is enrolled in or has dropped out of any grade from six 
through 12, or has graduated from secondary school, has potential for a 
program of postsecondary education, and needs one or more of the 
services provided by the project in order to undertake such a program; 
or
    (ii) Has undertaken, but is not presently enrolled in, a program of 
postsecondary education, has the ability to complete such a program, and 
needs one or more of the services provided by the project to reenter 
such a program.
    (b) A veteran as defined in Sec. 643.6(b), regardless of age, is 
eligible to participate in a Talent Search project if he or she 
satisfies the eligibility requirements in paragraph (a) of this section 
other than the age requirement in paragraph (a)(2).

(Authority: 20 U.S.C. 1070a-11 and 1070a-12)



Sec. 643.4  What services may a project provide?

    A Talent Search project may provide the following services:
    (a) Academic advice and assistance in secondary school and college 
course selection.
    (b) Assistance in completing college admission and financial aid 
applications.
    (c) Assistance in preparing for college entrance examinations.
    (d) Guidance on secondary school reentry or entry to other programs 
leading to a secondary school diploma or its equivalent.
    (e) Personal and career counseling.
    (f) Tutorial services.
    (g) Exposure to college campuses as well as cultural events, 
academic programs, and other sites or activities not usually available 
to disadvantaged youth.
    (h) Workshops and counseling for parents of students served.
    (i) Mentoring programs involving elementary or secondary school 
teachers, faculty members at institutions of higher education, students, 
or any combination of these persons.
    (j) Activities described in paragraphs (a) through (i) of this 
section that are specifically designed for students of limited English 
proficiency.
    (k) Other activities designed to meet the purposes of the Talent 
Search program stated in Sec. 643.1, including activities to meet the 
specific educational needs of individuals in grades six through eight.

(Authority: 20 U.S.C. 1070a-12)

[[Page 297]]



Sec. 643.5  How long is a project period?

    (a) Except as provided in paragraph (b) of this section, a project 
period under the Talent Search program is four years.
    (b) The Secretary approves a project period of five years for 
applications that score in the highest ten percent of all applications 
approved for new grants under the criteria in Sec. 643.21.

(Authority: 20 U.S.C. 1070a-11)



Sec. 643.6  What regulations apply?

    The following regulations apply to the Talent Search program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs), except for Sec. 75.511.
    (3) 34 CFR part 77 (Definitions That Apply to Department 
Regulations), except for the definition of ``secondary school'' in 
Sec. 77.1.
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 643.

(Authority: 20 U.S.C. 1070a-11 and 1070a-12)



Sec. 643.7  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Budget
Budget period
EDGAR
Equipment
Facilities
Fiscal year
Grant
Grantee
Private
Project
Project period
Public
Secretary
Supplies

    (b) Other definitions. The following definitions also apply to this 
part:
    HEA means the Higher Education Act of 1965, as amended.
    Institution of higher education means an educational institution as 
defined in sections 1201(a) and 481 of the HEA.
    Low-income individual means an individual whose family's taxable 
income did not exceed 150 percent of the poverty level amount in the 
calendar year preceding the year in which the individual initially 
participated in the project. The poverty level amount is determined by 
using criteria of poverty established by the Bureau of the Census of the 
U.S. Department of Commerce.
    Participant means an individual who--
    (1) Is determined to be eligible to participate in the project under 
Sec. 643.3; and
    (2) Receives project services designed for his or her age or grade 
level.
    Postsecondary education means education beyond the secondary school 
level.
    Potential first-generation college student means--
    (1) An individual neither of whose natural or adoptive parents 
received a baccalaureate degree;
    (2) An individual who, prior to the age of 18, regularly resided 
with and received support from only one parent and whose supporting 
parent did not receive a baccalaureate degree; or
    (3) An individual who, prior to the age of 18, did not regularly 
reside with or receive support from a natural or an adoptive parent.
    Secondary school means a school that provides secondary education as 
determined under State law, except that it does not include education 
beyond grade 12.
    Target area means a geographic area served by a Talent Search 
project.
    Target school means a school designated by the applicant as a focus 
of project services.
    Veteran means a person who served on active duty as a member of the 
Armed Forces of the United States--
    (1) For a period of more than 180 days, any part of which occurred 
after January 31, 1955, and who was discharged or released from active 
duty under conditions other than dishonorable; or

[[Page 298]]

    (2) After January 31, 1955, and who was discharged or released from 
active duty because of a service-connected disability.

(Authority: 20 U.S.C. 1070a-11, 1070a-12 and 1141)



                          Subpart B--Assurances



Sec. 643.10  What assurances must an applicant submit?

    An applicant shall submit, as part of its application, assurances 
that--
    (a) At least two-thirds of the individuals it serves under its 
proposed Talent Search project will be low-income individuals who are 
potential first-generation college students;
    (b) Individuals who are receiving services from another Talent 
Search project or an Educational Opportunity Center project under 34 CFR 
part 644 will not receive services under the proposed project;
    (c) The project will be located in a setting or settings accessible 
to the individuals proposed to be served by the project; and
    (d) If the applicant is an institution of higher education, it will 
not use the project as a part of its recruitment program.

(Authority: 20 U.S.C. 1070a-12)



             Subpart C--How Does the Secretary Make a Grant?



Sec. 643.20  How does the Secretary decide which new grants to make?

    (a) The Secretary evaluates an application for a new grant as 
follows:
    (1)(i) The Secretary evaluates the application on the basis of the 
selection criteria in Sec. 643.21.
    (ii) The maximum score for all the criteria in Sec. 643.21 is 100 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (2)(i) For an application for a new grant to continue to serve 
substantially the same populations or campuses that the applicant is 
serving under an expiring project, the Secretary evaluates the 
applicant's prior experience in delivering services under the expiring 
project on the basis of the criteria in Sec. 643.22.
    (ii) The maximum score for all the criteria in Sec. 643.22 is 15 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (3) The Secretary awards additional points equal to 10 percent of 
the application's score under paragraphs (a)(1) and (2) of this section 
to an application for a project in Guam, the Virgin Islands, American 
Samoa, the Trust Territory of the Pacific Islands (Palau), or the 
Northern Mariana Islands if the applicant meets the requirements of 
subparts A, B, and D of this part.
    (b) The Secretary makes new grants in rank order on the basis of the 
applications' total scores under paragraphs (a)(1) through (3) of this 
section.
    (c) If the total scores of two or more applications are the same and 
there are insufficient funds for these applications after the approval 
of higher-ranked applications, the Secretary uses the remaining funds to 
serve geographic areas and eligible populations that have been 
underserved by the Talent Search program.
    (d) The Secretary may decline to make a grant to an applicant that 
carried out a project that involved the fraudulent use of funds under 
section 402A(c)(2)(B) of the HEA.

(Authority: 20 U.S.C. 1070a-11, 1070a-12, and 1144a(a))



Sec. 643.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an application 
for a new grant:
    (a) Need for the project (24 points). The Secretary evaluates the 
need for a Talent Search project in the proposed target area on the 
basis of the extent to which the application contains clear evidence of 
the following:
    (1) A high number or percentage, or both, of low-income families 
residing in the target area;
    (2) A high number or percentage, or both, of individuals residing in 
the target area with education completion levels below the baccalaureate 
level;
    (3) A high student dropout rate in the proposed target schools in 
the preceding three years;
    (4) A low rate of enrollment in programs of postsecondary education 
by

[[Page 299]]

graduates of the target schools in the preceding three years;
    (5) A high ratio of students to school counselors in the target 
schools; and
    (6) Other indicators of need for a Talent Search project, including 
the presence of unaddressed academic or socio-economic problems of 
students in the target schools or the target area.
    (b) Objectives (8 points). The Secretary evaluates the quality of 
the applicant's proposed project objectives on the basis of the extent 
to which they--
    (1) Include both process and outcome objectives relating to each of 
the purposes of the Talent Search program stated in Sec. 643.1;
    (2) Address the needs of the target area;
    (3) Are clearly described, specific, and measurable; and
    (4) Are ambitious but attainable within each budget period and the 
project period given the project budget and other resources.
    (c) Plan of operation (30 points). The Secretary evaluates the 
quality of the applicant's plan of operation on the basis of the 
following:
    (1) (4 points) The plan to inform the residents, schools, and 
community organizations in the target area of the goals, objectives, and 
services of the project and the eligibility requirements for 
participation in the project;
    (2) (4 points) The plan to identify and select eligible participants 
and ensure their participation without regard to race, color, national 
origin, gender, or disability;
    (3) (2 points) The plan to assess each participant's need for 
services provided by the project;
    (4) (12 points) The plan to provide services that meet participants' 
needs and achieve the objectives of the project; and
    (5) (8 points) The plan, including the project's organizational 
structure and the time committed to the project by the project director 
and other personnel, to ensure the proper and efficient administration 
of the project.
    (d) Applicant and community support (16 points). The Secretary 
evaluates the applicant and community support for the proposed project 
on the basis of the extent to which the applicant has made provision for 
resources to supplement the grant and enhance the project's services, 
including--
    (1) (8 points) Facilities, equipment, supplies, personnel, and other 
resources committed by the applicant; and
    (2) (8 points) Resources secured through written commitments from 
schools, community organizations, and others.
    (e) Quality of personnel (9 points). (1) The Secretary evaluates the 
quality of the personnel the applicant plans to use in the project on 
the basis of the following:
    (i) The qualifications required of the project director.
    (ii) The qualifications required of each of the other personnel to 
be used in the project.
    (iii) The plan to employ personnel who have succeeded in overcoming 
the disadvantages of circumstances like those of the population of the 
target area.
    (2) In evaluating the qualifications of a person, the Secretary 
considers his or her experience and training in fields related to the 
objectives of the project.
    (f) Budget (5 points). The Secretary evaluates the extent to which 
the project budget is reasonable, cost-effective, and adequate to 
support the project.
    (g) Evaluation plan (8 points). The Secretary evaluates the quality 
of the evaluation plan for the project on the basis of the extent to 
which the applicant's methods of evaluation--
    (1) Are appropriate to the project's objectives;
    (2) Provide for the applicant to determine, using specific and 
quantifiable measures, the success of the project in--
    (i) Making progress toward achieving its objectives (a formative 
evaluation); and
    (ii) Achieving its objectives at the end of the project period (a 
summative evaluation); and
    (3) Provide for the disclosure of unanticipated project outcomes, 
using quantifiable measures if appropriate.

(Approved by the Office of Management and Budget under control number 
1840-0549)

(Authority: 20 U.S.C. 1070a-12)

[[Page 300]]



Sec. 643.22  How does the Secretary evaluate prior experience?

    (a) In the case of an application described in Sec. 643.20(a)(2)(i), 
the Secretary reviews information relating to an applicant's performance 
under its expiring Talent Search project. This information includes 
performance reports, audit reports, site visit reports, and project 
evaluation reports.
    (b) The Secretary evaluates the applicant's prior experience in 
delivering services on the basis of the following criteria:
    (1) (3 points) (i) Whether the applicant provided services to the 
number of participants required to be served under the approved 
application; and
    (ii) Whether two-thirds of all participants served were low-income 
individuals and potential first-generation college students.
    (2) (6 points) The extent to which the applicant met or exceeded its 
objectives regarding the retention, reentry, and graduation levels of 
secondary school participants.
    (3) (6 points) The extent to which the applicant met or exceeded its 
objectives regarding the admission or reentry of participants to 
programs of postsecondary education.

(Approved by the Office of Management and Budget under control number 
1840-0549)

(Authority: 20 U.S.C. 1070a-12)



Sec. 643.23  How does the Secretary set the amount of a grant?

    (a) The Secretary sets the amount of a grant on the basis of--
    (1) 34 CFR 75.232 and 75.233, for new grants; and
    (2) 34 CFR 75.253, for the second and subsequent years of a project 
period.
    (b) If the circumstances described in section 402A(b)(3) of the HEA 
exist, the Secretary uses the available funds to set the amount of the 
grant beginning in fiscal year 1994 at the lesser of--
    (1) $180,000; or
    (2) The amount requested by the applicant.

(Approved by the Office of Management and Budget under control number 
1840-0549)

(Authority: 20 U.S.C. 1070a-11)



          Subpart D--What Conditions Must Be Met by a Grantee?



Sec. 643.30  What are allowable costs?

    The cost principles that apply to the Talent Search program are in 
34 CFR part 74, subpart Q. Allowable costs include the following if they 
are reasonably related to the objectives of the project:
    (a) Transportation, meals, and, if necessary, lodging for 
participants and staff for--
    (1) Visits to postsecondary educational institutions to obtain 
information relating to the admission of participants to those 
institutions;
    (2) Participation in ``College Day'' activities; and
    (3) Field trips to observe and meet with persons who are employed in 
various career fields in the target area and who can act as role models 
for participants.
    (b) Purchase of testing materials.
    (c) Fees required for college admissions applications or entrance 
examinations if--
    (1) A waiver of the fee is unavailable; and
    (2) The fee is paid by the grantee to a third party on behalf of a 
participant.
    (d) In-service training of project staff.
    (e) Rental of space if--
    (1) Space is not available at the site of the grantee; and
    (2) The rented space is not owned by the grantee.
    (f) Purchase of computer hardware, computer software, or other 
equipment for student development, project administration, and 
recordkeeping, if the applicant demonstrates to the Secretary's 
satisfaction that the equipment is required to meet the objectives of 
the project more economically or efficiently.

(Authority: 20 U.S.C. 1070a-11 and 1070a-12)



Sec. 643.31  What are unallowable costs?

    Costs that are unallowable under the Talent Search program include, 
but are not limited to, the following:
    (a) Tuition, stipends, and other forms of direct financial support 
for participants.
    (b) Application fees for financial aid.

[[Page 301]]

    (c) Research not directly related to the evaluation or improvement 
of the project.
    (d) Construction, renovation, and remodeling of any facilities.

(Authority: 20 U.S.C. 1070a-11 and 1070a-12)



Sec. 643.32  What other requirements must a grantee meet?

    (a) Eligibility of participants. (1) A grantee shall determine the 
eligibility of each participant in the project at the time that the 
individual is selected to participate.
    (2) A grantee shall determine the status of a low-income individual 
on the basis of the documentation described in section 402A(e) of the 
HEA.
    (b) Number of participants. A grantee shall serve a minimum of 600 
participants in each budget period. However, the Secretary may reduce 
the minimum number of these participants if the amount of the grant for 
the budget period is less than $180,000.
    (c) Recordkeeping. For each participant, a grantee shall maintain a 
record of--
    (1) The basis for the grantee's determination that the participant 
is eligible to participate in the project under Sec. 643.3;
    (2) The grantee's needs assessment for the participant;
    (3) The services that are provided to the participant; and
    (4) The specific educational progress made by the participant as a 
result of the services.
    (d) Project director. (1) A grantee shall employ a full-time project 
director unless paragraph (d)(3) of this section applies.
    (2) The grantee shall give the project director sufficient authority 
to administer the project effectively.
    (3) The Secretary waives the requirement in paragraph (d)(1) of this 
section if the applicant demonstrates that the requirement will hinder 
coordination--
    (i) Among the Federal TRIO Programs (sections 402A through 402F of 
the HEA); or
    (ii) Between the programs funded under sections 402A through 410 of 
the HEA and similar programs funded through other sources.

(Approved by the Office of Management and Budget under control number 
1840-0549)

(Authority: 20 U.S.C. 1070a-11 and 1070a-12)



PART 644--EDUCATIONAL OPPORTUNITY CENTERS--Table of Contents




                           Subpart A--General

Sec.
644.1  What is the Educational Opportunity Centers program?
644.2  Who is eligible for a grant?
644.3  Who is eligible to participate in a project?
644.4  What services may a project provide?
644.5  How long is a project period?
644.6  What regulations apply?
644.7  What definitions apply?

                          Subpart B--Assurances

644.10  What assurances must an applicant submit?

             Subpart C--How Does the Secretary Make a Grant?

644.20  How does the Secretary decide which new grants to make?
644.21  What selection criteria does the Secretary use?
644.22  How does the Secretary evaluate prior experience?
644.23  How does the Secretary set the amount of a grant?

          Subpart D--What Conditions Must Be Met by a Grantee?

644.30  What are allowable costs?
644.31  What are unallowable costs?
644.32  What other requirements must a grantee meet?

    Authority: 20 U.S.C. 1070a-11 and 1070a-16, unless otherwise noted.

    Source: 59 FR 2658, Jan. 18, 1994, unless otherwise noted.



                           Subpart A--General



Sec. 644.1  What is the Educational Opportunity Centers program?

    The Educational Opportunity Centers program provides grants for 
projects designed to provide--
    (a) Information regarding financial and academic assistance 
available for individuals who desire to pursue a program of 
postsecondary education; and

[[Page 302]]

    (b) Assistance to individuals in applying for admission to 
institutions that offer programs of postsecondary education, including 
assistance in preparing necessary applications for use by admissions and 
financial aid officers.

(Authority: 20 U.S.C. 1070a-16)



Sec. 644.2  Who is eligible for a grant?

    The following are eligible for a grant to carry out an Educational 
Opportunity Centers project:
    (a) An institution of higher education.
    (b) A public or private agency or organization.
    (c) A combination of the types of institutions, agencies, and 
organizations described in paragraphs (a) and (b) of this section.
    (d) A secondary school, under exceptional circumstances such as if 
no institution, agency, or organization described in paragraphs (a) and 
(b) of this section is capable of carrying out an Educational 
Opportunity Centers project in the target area to be served by the 
proposed project.

(Authority: 20 U.S.C. 1070a-11)



Sec. 644.3  Who is eligible to participate in a project?

    (a) An individual is eligible to participate in an Educational 
Opportunity Centers project if the individual meets all of the following 
requirements:
    (1)(i) Is a citizen or national of the United States;
    (ii) Is a permanent resident of the United States;
    (iii) Is in the United States for other than a temporary purpose and 
provides evidence from the Immigration and Naturalization Service of his 
or her intent to become a permanent resident;
    (iv) Is a permanent resident of Guam, the Northern Mariana Islands, 
or the Trust Territory of the Pacific Islands (Palau); or
    (v) Is a resident of the Freely Associated States--the Federated 
States of Micronesia or the Republic of the Marshall Islands.
    (2)(i) Is at least 19 years of age; or
    (ii) Is less than 19 years of age, and the individual cannot be 
appropriately served by a Talent Search project under 34 CFR part 643, 
and the individual's participation would not dilute the Educational 
Opportunity Centers project's services to individuals described in 
paragraph (a)(2)(i) of this section.
    (3) Expresses a desire to enroll, or is enrolled, in a program of 
postsecondary education, and requests information or assistance in 
applying for admission to, or financial aid for, such a program.
    (b) A veteran as defined in Sec. 644.7(b), regardless of age, is 
eligible to participate in an Educational Opportunity Centers project if 
he or she satisfies the eligibility requirements in paragraph (a) of 
this section other than the age requirement in paragraph (a)(2) of this 
section.

(Authority: 20 U.S.C. 1070a-11 and 1070a-16)



Sec. 644.4  What services may a project provide?

    An Educational Opportunity Centers project may provide the following 
services:
    (a) Public information campaigns designed to inform the community 
about opportunities for postsecondary education and training.
    (b) Academic advice and assistance in course selection.
    (c) Assistance in completing college admission and financial aid 
applications.
    (d) Assistance in preparing for college entrance examinations.
    (e) Guidance on secondary school reentry or entry to a General 
Educational Development (GED) program or other alternative education 
program for secondary school dropouts.
    (f) Personal counseling.
    (g) Tutorial services.
    (h) Career workshops and counseling.
    (i) Mentoring programs involving elementary or secondary school 
teachers, faculty members at institutions of higher education, students, 
or any combination of these persons.
    (j) Activities described in paragraphs (a) through (i) of this 
section that are specifically designed for students of limited English 
proficiency.

[[Page 303]]

    (k) Other activities designed to meet the purposes of the 
Educational Opportunity Centers program stated in Sec. 644.1.

(Authority: 20 U.S.C. 1070a-16)



Sec. 644.5  How long is a project period?

    (a) Except as provided in paragraph (b) of this section, a project 
period under the Educational Opportunity Centers program is four years.
    (b) The Secretary approves a project period of five years for 
applications that score in the highest ten percent of all applications 
approved for new grants under the criteria in Sec. 644.21.

(Authority: 20 U.S.C. 1070a-11)



Sec. 644.6  What regulations apply?

    The following regulations apply to the Educational Opportunity 
Centers program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs), except for Sec. 75.511.
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations), except for the definition of ``secondary school'' in 
Sec. 77.1.
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 644.

(Authority: 20 U.S.C. 1070a-11 and 1070a-16)



Sec. 644.7  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Budget
Budget period
EDGAR
Equipment
Facilities
Fiscal year
Grant
Grantee
Private
Project
Project period
Public
Secretary
Supplies

    (b) Other definitions. The following definitions also apply to this 
part:
    HEA means the Higher Education Act of 1965, as amended.
    Institution of higher education means an educational institution as 
defined in sections 1201(a) and 481 of the HEA.
    Low-income individual means an individual whose family's taxable 
income did not exceed 150 percent of the poverty level amount in the 
calendar year preceding the year in which the individual initially 
participated in the project. The poverty level amount is determined by 
using criteria of poverty established by the Bureau of the Census of the 
U.S. Department of Commerce.
    Participant means an individual who--
    (i) Is determined to be eligible to participate in the project under 
Sec. 644.3; and
    (ii) Receives project services.
    Postsecondary education means education beyond the secondary school 
level.
    Potential first-generation college student means--
    (i) An individual neither of whose parents received a baccalaureate 
degree; or
    (ii) An individual who regularly resided with and received support 
from only one parent and whose supporting parent did not receive a 
baccalaureate degree.
    Secondary school means a school that provides secondary education as 
determined under State law, except that it does not include education 
beyond grade 12.
    Target area means a geographic area served by an Educational 
Opportunity Centers project.
    Veteran means a person who served on active duty as a member of the 
Armed Forces of the United States--
    (i) For a period of more than 180 days, any part of which occurred 
after January 31, 1955, and who was discharged or released from active 
duty under conditions other than dishonorable; or

[[Page 304]]

    (ii) After January 31, 1955, and who was discharged or released from 
active duty because of a service-connected disability.

(Authority: 20 U.S.C. 1070a-11, 1070a-16, and 1141)



                          Subpart B--Assurances



Sec. 644.10  What assurances must an applicant submit?

    An applicant shall submit, as part of its application, assurances 
that--
    (a) At least two-thirds of the individuals it serves under its 
proposed Educational Opportunity Centers project will be low-income 
individuals who are potential first-generation college students;
    (b) Individuals who are receiving services from another Educational 
Opportunity Centers project or a Talent Search project under 34 CFR part 
643 will not receive services under the proposed project;
    (c) The project will be located in a setting or settings accessible 
to the individuals proposed to be served by the project; and
    (d) If the applicant is an institution of higher education, it will 
not use the project as a part of its recruitment program.

(Authority: 20 U.S.C. 1070a-16)



             Subpart C--How Does the Secretary Make a Grant?



Sec. 644.20  How does the Secretary decide which new grants to make?

    (a) The Secretary evaluates an application for a new grant as 
follows:
    (1)(i) The Secretary evaluates the application on the basis of the 
selection criteria in Sec. 644.21.
    (ii) The maximum score for all the criteria in Sec. 644.21 is 100 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (2)(i) For an application for a new grant to continue to serve 
substantially the same populations or campuses that the applicant is 
serving under an expiring project, the Secretary evaluates the 
applicant's prior experience in delivering services under the expiring 
project on the basis of the criteria in Sec. 644.22.
    (ii) The maximum score for all the criteria in Sec. 644.22 is 15 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (3) The Secretary awards additional points equal to 10 percent of 
the application's score under paragraphs (a) (1) and (2) of this section 
to an application for a project in Guam, the Virgin Islands, American 
Samoa, the Trust Territory of the Pacific Islands (Palau), or the 
Northern Mariana Islands if the applicant meets the requirements of 
subparts A, B, and D of this part.
    (b) The Secretary makes new grants in rank order on the basis of the 
applications' total scores under paragraphs (a) (1) through (3) of this 
section.
    (c) If the total scores of two or more applications are the same and 
there are insufficient funds for these applications after the approval 
of higher-ranked applications, the Secretary uses the remaining funds to 
serve geographic areas and eligible populations that have been 
underserved by the Educational Opportunity Centers program.
    (d) The Secretary may decline to make a grant to an applicant that 
carried out a project that involved the fraudulent use of funds under 
section 402A(c)(2)(B) of the HEA.

(Authority: 20 U.S.C. 1070a-11, 1070a-16, and 1144a(a))



Sec. 644.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an application 
for a new grant:
    (a) Need for the project (24 points). The Secretary evaluates the 
need for an Educational Opportunity Centers project in the proposed 
target area on the basis of the extent to which the application contains 
clear evidence of--
    (1) A high number or percentage, or both, of low-income families 
residing in the target area;
    (2) A high number or percentage, or both, of individuals residing in 
the target area with education completion levels below the baccalaureate 
level;
    (3) A high need on the part of residents of the target area for 
further education and training from programs

[[Page 305]]

of postsecondary education in order to meet changing employment trends; 
and
    (4) Other indicators of need for an Educational Opportunity Centers 
project, including the presence of unaddressed educational or 
socioeconomic problems of adult residents in the target area.
    (b) Objectives (8 points). The Secretary evaluates the quality of 
the applicant's proposed project objectives on the basis of the extent 
to which they--
    (1) Include both process and outcome objectives relating to each of 
the purposes of the Educational Opportunity Centers program stated in 
Sec. 644.1;
    (2) Address the needs of the target area;
    (3) Are clearly described, specific, and measurable; and
    (4) Are ambitious but attainable within each budget period and the 
project period given the project budget and other resources.
    (c) Plan of operation (30 points). The Secretary evaluates the 
quality of the applicant's plan of operation on the basis of the 
following:
    (1) (4 points) The plan to inform the residents, schools, and 
community organizations in the target area of the goals, objectives, and 
services of the project and the eligibility requirements for 
participation in the project;
    (2) (4 points) The plan to identify and select eligible participants 
and ensure their participation without regard to race, color, national 
origin, gender, or disability;
    (3) (2 points) The plan to assess each participant's need for 
services provided by the project;
    (4) (12 points) The plan to provide services that meet participants' 
needs and achieve the objectives of the project; and
    (5) (8 points) The management plan to ensure the proper and 
efficient administration of the project including, but not limited to, 
the project's organizational structure, the time committed to the 
project by the project director and other personnel, and, where 
appropriate, its coordination with other projects for disadvantaged 
students.
    (d) Applicant and community support (16 points). The Secretary 
evaluates the applicant and community support for the proposed project 
on the basis of the extent to which the applicant has made provision for 
resources to supplement the grant and enhance the project's services, 
including--
    (1) (8 points) Facilities, equipment, supplies, personnel, and other 
resources committed by the applicant; and
    (2) (8 points) Resources secured through written commitments from 
schools, community organizations, and others.
    (e) Quality of personnel (9 points). (1) The Secretary evaluates the 
quality of the personnel the applicant plans to use in the project on 
the basis of the following:
    (i) The qualifications required of the project director.
    (ii) The qualifications required of each of the other personnel to 
be used in the project.
    (iii) The plan to employ personnel who have succeeded in overcoming 
the disadvantages or circumstances like those of the population of the 
target area.
    (2) In evaluating the qualifications of a person, the Secretary 
considers his or her experience and training in fields related to the 
objectives of the project.
    (f) Budget (5 points). The Secretary evaluates the extent to which 
the project budget is reasonable, cost-effective, and adequate to 
support the project.
    (g) Evaluation plan (8 points). The Secretary evaluates the quality 
of the evaluation plan for the project on the basis of the extent to 
which the applicant's methods of evaluation--
    (1) Are appropriate to the project's objectives;
    (2) Provide for the applicant to determine, using specific and 
quantifiable measures, the success of the project in--
    (i) Making progress toward achieving its objectives (a formative 
evaluation); and
    (ii) Achieving its objectives at the end of the project period (a 
summative evaluation); and
    (3) Provide for the disclosure of unanticipated project outcomes, 
using quantifiable measures if appropriate.

(Approved by the Office of Management and Budget under control number 
1840-0065)

(Authority: 20 U.S.C. 1070a-16)

[[Page 306]]



Sec. 644.22  How does the Secretary evaluate prior experience?

    (a) In the case of an application described in Sec. 644.20(a)(2)(i), 
the Secretary reviews information relating to an applicant's performance 
under its expiring Educational Opportunity Centers project. This 
information includes performance reports, audit reports, site visit 
reports, and project evaluation reports.
    (b) The Secretary evaluates the applicant's prior experience in 
delivering services on the basis of the following criteria:
    (1) (3 points) (i) Whether the applicant provided services to the 
required number of participants who resided in the target area; and
    (ii) Whether two-thirds of all participants served were low-income 
individuals and potential first-generation college students.
    (2) (6 points) The extent to which the applicant met or exceeded its 
objectives regarding the provision of assistance to individuals in 
applying for admission to, or financial aid for, programs of 
postsecondary education.
    (3) (6 points) The extent to which the applicant met or exceeded its 
objectives regarding the admission or reentry of participants to 
programs of postsecondary education.

(Approved by the Office of Management and Budget under control number 
1840-0065)

(Authority: 20 U.S.C. 1070a-16)



Sec. 644.23  How does the Secretary set the amount of a grant?

    (a) The Secretary sets the amount of a grant on the basis of--
    (1) 34 CFR 75.232 and 75.233, for new grants; and
    (2) 34 CFR 75.253, for the second and subsequent years of a project 
period.
    (b) If the circumstances described in section 402A(b)(3) of the HEA 
exist, the Secretary uses the available funds to set the amount of the 
grant beginning in fiscal year 1994 at the lesser of--
    (1) $180,000; or
    (2) The amount requested by the applicant.

(Authority: 20 U.S.C. 1070a-11)



          Subpart D--What Conditions Must Be Met by a Grantee?



Sec. 644.30  What are allowable costs?

    The cost principles that apply to the Educational Opportunity 
Centers program are in 34 CFR part 74, subpart Q. Allowable costs 
include the following if they are reasonably related to the objectives 
of the project:
    (a) Transportation, meals, and, with specific prior approval of the 
Secretary, lodging for participants and staff for--
    (1) Visits to postsecondary educational institutions to obtain 
information relating to the admission of participants to those 
institutions;
    (2) Participation in ``College Day'' activities; and
    (3) Field trips to observe and meet with people who are employed in 
various career fields in the target area and who can serve as role 
models for participants.
    (b) Purchase of testing materials.
    (c) Fees required for college admissions of entrance examinations 
if--
    (1) A waiver is unavailable; and
    (2) The fee is paid by the grantee to a third party on behalf of a 
participant.
    (d) In-service training of project staff.
    (e) Rental of space if--
    (1) Space is not available at the site of the grantee; and
    (2) The rented space is not owned by the grantee.
    (f) Purchase of computer hardware, computer software, or other 
equipment for student development, project administration, and 
recordkeeping, if the applicant demonstrates to the Secretary's 
satisfaction that the equipment is required to meet the objectives of 
the project more economically or efficiently.

(Authority: 20 U.S.C. 1070a-11 and 1070a-16)



Sec. 644.31  What are unallowable costs?

    Costs that are unallowable under the Educational Opportunity Centers 
program include, but are not limited to, the following:
    (a) Tuition, fees, stipends, and other forms of direct financial 
support for participants.

[[Page 307]]

    (b) Research not directly related to the evaluation or improvement 
of the project.
    (c) Construction, renovation, and remodeling of any facilities.

(Authority: 20 U.S.C. 1070a-11 and 1070a-16)



Sec. 644.32  What other requirements must a grantee meet?

    (a) Eligibility of participants. (1) A grantee shall determine the 
eligibility of each participant in the project at the time that the 
individual is selected to participate.
    (2) A grantee shall determine the status of a low-income individual 
on the basis of the documentation described in section 402A(e) of the 
HEA.
    (b) Number of participants. In each budget period, a grantee shall 
serve a minimum of 1,000 participants who reside in the target area. 
However, the Secretary may reduce the minimum number of these 
participants if the amount of the grant for the budget period is less 
than $180,000.
    (c) Recordkeeping. For each participant, a grantee shall maintain a 
record of--
    (1) The basis for the grantee's determination that the participant 
is eligible to participate in the project under Sec. 644.3;
    (2) The services that are provided to the participant; and
    (3) The specific educational benefits received by the participant.
    (d) Project director. (1) A grantee shall employ a full-time project 
director unless paragraph (d)(3) of this section applies.
    (2) The grantee shall give the project director sufficient authority 
to administer the project effectively.
    (3) The Secretary waives the requirement in paragraph (d) (1) of 
this section if the applicant demonstrates that the requirement will 
hinder coordination--
    (i) Among the Federal TRIO Programs (sections 402A through 402F of 
the HEA); or
    (ii) Between the programs funded under sections 402A through 410 of 
the HEA and similar programs funded through other sources.

(Approved by the Office of Management and Budget under control number 
1840-0065)

(Authority: 20 U.S.C. 1070a-11 and 1070a-16).



PART 645--UPWARD BOUND PROGRAM--Table of Contents




                           Subpart A--General

Sec.
645.1  What is the Upward Bound Program?
645.2  Who is eligible for a grant?
645.3  Who is eligible to participate in an Upward Bound project?
645.4  What are the grantee requirements with respect to low income and 
          first-generation participants?
645.5  What regulations apply?
645.6  What definitions apply to the Upward Bound Program?

Subpart B--What Kinds of Projects and Services Does the Secretary Assist 
                           Under This Program?

645.10  What kinds of projects are supported under the Upward Bound 
          Program?
645.11  What services do all Upward Bound projects provide?
645.12  How are regular Upward Bound projects organized?
645.13  What additional services do Upward Bound Math and Science 
          Centers provide and how are they organized?
645.14  What additional services do Veterans Upward Bound projects 
          provide?

               Subpart C--How Does One Apply for An Award?

645.20  How many applications for an Upward Bound award may an eligible 
          applicant submit?
645.21  What assurances must an applicant include in an application?

             Subpart D--How Does the Secretary Make a Grant?

645.30  How does the Secretary decide which grants to make?
645.31  What selection criteria does the Secretary use?
645.32  How does the Secretary evaluate prior experience?
645.33  How does the Secretary set the amount of a grant?
645.34  How long is a project period?

[[Page 308]]

          Subpart E--What Conditions Must Be Met by a Grantee?

645.40  What are allowable costs?
645.41  What are unallowable costs?
645.42  What are Upward Bound stipends?
645.43  What other requirements must a grantee meet?

    Authority: 20 U.S.C. 1070a-11 and 1070a-13, unless otherwise noted.

    Source: 60 FR 4748, Jan. 24, 1995, unless otherwise noted.



                           Subpart A--General



Sec. 645.1  What is the Upward Bound Program?

    (a) The Upward Bound Program provides Federal grants to projects 
designed to generate in program participants the skills and motivation 
necessary to complete a program of secondary education and to enter and 
succeed in a program of postsecondary education.
    (b) The Upward Bound Program provides Federal grants for the 
following three types of projects:
    (1) Regular Upward Bound projects.
    (2) Upward Bound Math and Science Centers.
    (3) Veterans Upward Bound projects.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.2  Who is eligible for a grant?

    The following entities are eligible to apply for a grant to carry 
out an Upward Bound project:
    (a) Institutions of higher education.
    (b) Public or private agencies or organizations.
    (c) Secondary schools, in exceptional cases, if there are no other 
applicants capable of providing this program in the target area or areas 
to be served by the proposed project.
    (d) A combination of the types of institutions, agencies, and 
organizations described in paragraphs (a) and (b) of this section.

(Authority: 20 U.S.C 1070a-11 and 1070a-13)



Sec. 645.3  Who is eligible to participate in an Upward Bound project?

    An individual is eligible to participate in a Regular, Veterans, or 
a Math and Science Upward Bound project if the individual meets all of 
the following requirements:
    (a)(1) Is a citizen or national of the United States.
    (2) Is a permanent resident of the United States.
    (3) Is in the United States for other than a temporary purpose and 
provides evidence from the Immigration and Naturalization Service of his 
or her intent to become a permanent resident.
    (4) Is a permanent resident of Guam, the Northern Mariana Islands, 
or the Trust Territory of the Pacific Islands.
    (5) Is a resident of the Freely Associated States--the Federated 
States of Micronesia, the Republic of the Marshall Islands, or the 
Republic of Palau.
    (b) Is--
    (1) A potential first-generation college student; or
    (2) A low-income individual.
    (c) Has a need for academic support, as determined by the grantee, 
in order to pursue successfully a program of education beyond high 
school.
    (d) At the time of initial selection, has completed the eighth grade 
but has not entered the twelfth grade and is at least 13 years old but 
not older than 19, although the Secretary may waive the age requirement 
if the applicant demonstrates that the limitation would defeat the 
purposes of the Upward Bound program. However, a veteran as defined in 
Sec. 645.6, regardless of age, is eligible to participate in an Upward 
Bound project if he or she satisfies the eligibility requirements in 
paragraphs (a), (b), and (c) of this section.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.4  What are the grantee requirements with respect to low income 
and first-generation participants?

    (a) At least two-thirds of the eligible participants a grantee 
serves must at the time of initial selection qualify as both low-income 
individuals and potential first-generation college students. The 
remaining participants must at the time of initial selection qualify as 
either low-income individuals or potential first generation college 
students.
    (b) For purposes of documenting a participant's low-income status 
the following applies:
    (1) In the case of a student who is not an independent student, an 
institution shall document that the student is a

[[Page 309]]

low-income individual by obtaining and maintaining--
    (i) A signed statement from the student's parent or legal guardian 
regarding family income;
    (ii) Verification of family income from another governmental source;
    (iii) A signed financial aid application; or
    (iv) A signed United States or Puerto Rican income tax return.
    (2) In the case of a student who is an independent student, an 
institution shall document that the student is a low-income individual 
by obtaining and maintaining--
    (i) A signed statement from the student regarding family income;
    (ii) Verification of family income from another governmental source;
    (iii) A signed financial aid application; or
    (iv) A signed United States or Puerto Rican income tax return.
    (c) For purposes of documenting potential first generation college 
student status, documentation consists of a signed statement from a 
dependent participant's parent, or a signed statement from an 
independent participant.
    (d) A grantee does not have to revalidate a participant's 
eligibility after the participant's initial selection.

(Approved by the Office of Management and Budget under control number 
1840-0550)

(Authority: 20 U.S.C. 1070a-11)



Sec. 645.5  What regulations apply?

    The following regulations apply to the Upward Bound Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations);
    (2) 34 CFR part 75 (Direct Grant Programs), except for Sec. 75.511;
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations), except for the definition of ``secondary school'' in 34 
CFR 77.1;
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities);
    (5) 34 CFR part 82 (New Restrictions on Lobbying);
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants));
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 645.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.6  What definitions apply to the Upward Bound Program?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
Budget period
EDGAR
Equipment
Facilities
Grant
Grantee
Project
Project period
Secretary
State
Supplies

    (b) Other Definitions. The following definitions also apply to this 
part:
    Family taxable income means--
    (1) With regard to a dependent student, the taxable income of the 
individual's parents;
    (2) With regard to a dependent student who is an orphan or ward of 
the court, no taxable income;
    (3) With regard to an independent student, the taxable income of the 
student and his or her spouse.
    HEA means the Higher Education Act of 1965, as amended.
    Independent student means a student who--
    (1) Is an orphan or ward of the court;
    (2) Is a veteran of the Armed Forces of the United States (as 
defined in this section);
    (3) Is a married individual; or
    (4) Has legal dependents other than a spouse.
    Institution of higher education means an educational institution as 
defined in sections 1201(a) and 481 of the HEA.
    Limited English proficiency with reference to an individual, means 
an individual whose native language is other than English and who has 
sufficient difficulty speaking, reading, writing, or understanding the 
English language to deny that individual the opportunity to learn 
successfully in classrooms in which English is the language of 
instruction.

[[Page 310]]

    Low-income individual means an individual whose family taxable 
income did not exceed 150 percent of the poverty level amount in the 
calendar year preceding the year in which the individual initially 
participates in the project. The poverty level amount is determined by 
using criteria of poverty established by the Bureau of the Census of the 
U.S. Department of Commerce.
    Organization/Agency means an entity that is legally authorized to 
operate programs such as Upward Bound in the State where it is located.
    Participant means an individual who--
    (1) Is determined to be eligible to participate in the project under 
Sec. 645.3;
    (2) Resides in the target area, or is enrolled in a target school at 
the time of acceptance into the project; and
    (3) Has been determined by the project director to be committed to 
the project, as evidenced by being allowed to continue in the project 
for at least--
    (i) Ten days in a summer component if the individual first enrolled 
in an Upward Bound project's summer component; or
    (ii) Sixty days if the individual first enrolled in an Upward Bound 
project's academic year component.
    Potential first-generation college student means--
    (1) An individual neither of whose natural or adoptive parents 
received a baccalaureate degree; or
    (2) A student who, prior to the age of 18, regularly resided with 
and received support from only one natural or adoptive parent and whose 
supporting parent did not receive a baccalaureate degree.
    Secondary school means a school that provides secondary education as 
determined under State law.
    Target area means a discrete local or regional geographical area 
designated by the applicant as the area to be served by an Upward Bound 
project.
    Target school means a school designated by the applicant as a focus 
of project services.
    Veteran means a person who served on active duty as a member of the 
Armed Forces of the United States--
    (1) For a period of more than 180 days, any part of which occurred 
after January 31, 1955, and who was discharged or released from active 
duty under conditions other than dishonorable; or
    (2) After January 31, 1955, and who was discharged or released from 
active duty because of a service-connected disability.

(Authority: 20 U.S.C. 1001 et seq., 1070a-11, 1070a-13, 1088, 1141, 
1141a, and 3283(a)).



Subpart B--What Kinds of Projects and Services Does the Secretary Assist 
                           Under This Program?



Sec. 645.10  What kinds of projects are supported under the Upward Bound Program?

    The Secretary provides grants to the following three types of Upward 
Bound projects:
    (a) Regular Upward Bound projects designed to prepare high school 
students for programs of postsecondary education.
    (b) Upward Bound Math and Science Centers designed to prepare high 
school students for postsecondary education programs that lead to 
careers in the fields of math and science.
    (c) Veterans Upward Bound projects designed to assist veterans to 
prepare for a program of postsecondary education.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.11  What services do all Upward Bound projects provide?

    (a) An Upward Bound project that has received funds under this part 
for at least two years shall include as part of its core curriculum, 
instruction in--
    (1) Mathematics through pre-calculus;
    (2) Laboratory science;
    (3) Foreign language;
    (4) Composition; and
    (5) Literature.
    (b) All Upward Bound projects may provide such services as--
    (1) Instruction in subjects other than those listed in 
Sec. 645.11(a) that are necessary for success in education beyond high 
school;
    (2) Personal counseling;
    (3) Academic advice and assistance in secondary school course 
selection;
    (4) Tutorial services;

[[Page 311]]

    (5) Exposure to cultural events, academic programs, and other 
educational activities not usually available to disadvantaged youths;
    (6) Activities designed to acquaint youths participating in the 
project with the range of career options available to them;
    (7) Instruction designed to prepare youths participating in the 
project for careers in which persons from disadvantaged backgrounds are 
particularly underrepresented;
    (8) Mentoring programs involving elementary or secondary school 
teachers, faculty members at institutions of higher education, students, 
or any combination of these persons and other professional individuals; 
and
    (9) Programs and activities such as those described in paragraphs 
(b)(1) through (b)(8) of this section that are specifically designed for 
individuals with limited proficiency in English.

(Authority: 20 U.S.C. 1070a-13)



Sec. 645.12  How are regular Upward Bound projects organized?

    (a) Regular Upward Bound projects--
    (1) Must provide participants with a summer instructional component 
that is designed to simulate a college-going experience for 
participants, and an academic year component; and
    (2) May provide a summer bridge component to those Upward Bound 
participants who have graduated from secondary school and intend to 
enroll in an institution of higher education in the following fall term. 
A summer bridge component provides participants with services and 
activities, including college courses, that aid in the transition from 
secondary education to postsecondary education.
    (b) A summer instructional component shall--
    (1) Be six weeks in length unless the grantee can demonstrate to the 
Secretary that a shorter period will not hinder the effectiveness of the 
project nor prevent the project from achieving its goals and objectives, 
and the Secretary approves that shorter period; and
    (2) Provide participants with one or more of the services described 
in Sec. 645.11 at least five days per week.
    (c)(1) Except as provided in paragraph (c)(2) of this section, an 
academic year component shall provide program participants with one or 
more of the services described in Sec. 645.11 on a weekly basis 
throughout the academic year and, to the extent possible, shall not 
prevent participants from fully participating in academic and 
nonacademic activities at the participants' secondary school.
    (2) If an Upward Bound project's location or the project's staff are 
not readily accessible to participants because of distance or lack of 
transportation, the grantee may, with the Secretary's permission, 
provide project services to participants every two weeks during the 
academic year.

(Authority: 20 U.S.C. 1070a-13)



Sec. 645.13  What additional services do Upward Bound Math and Science 
Centers provide and how are they organized?

    (a) In addition to the services that must be provided under 
Sec. 645.11(a) and may be provided under Sec. 645.11(b), an Upward Bound 
Math and Science Center must provide--
    (1) Intensive instruction in mathematics and science, including 
hands-on experience in laboratories, in computer facilities, and at 
field-sites;
    (2) Activities that will provide participants with opportunities to 
learn from mathematicians and scientists who are engaged in research and 
teaching at the applicant institution, or who are engaged in research or 
applied science at hospitals, governmental laboratories, or other public 
and private agencies;
    (3) Activities that will involve participants with graduate and 
undergraduate science and mathematics majors who may serve as tutors and 
counselors for participants; and
    (4) A summer instructional component that is designed to simulate a 
college-going experience that is at least six weeks in length and 
includes daily coursework and other activities as described in this 
section as well as in Sec. 645.11.
    (b) Math Science Upward Bound Centers may also include--
    (1) A summer bridge component consisting of math and science related

[[Page 312]]

coursework for those participants who have completed high school and 
intend on enrolling in an institution of higher education in the 
following fall term; and
    (2) An academic year component designed by the applicant to enhance 
achievement of project objectives in the most cost-effective way taking 
into account the distances involved in reaching participants in the 
project's target area.

(Approved by the Office of Management and Budget under control number 
1840-0550)

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.14  What additional services do Veterans Upward Bound projects provide?

    In addition to the services that must be provided under 
Sec. 645.11(a) and may be provided under Sec. 645.11(b), a Veterans 
Upward Bound project must--
    (a) Provide intensive basic skills development in those academic 
subjects required for successful completion of a high school equivalency 
program and for admission to postsecondary education programs;
    (b) Provide short-term remedial or refresher courses for veterans 
who are high school graduates but who have delayed pursuing 
postsecondary education. If the grantee is an institution of higher 
education, these courses shall not duplicate courses otherwise available 
to veterans at the institution; and
    (c) Assist veterans in securing support services from other locally 
available resources such as the Veterans Administration, State veterans 
agencies, veterans associations, and other State and local agencies that 
serve veterans.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



               Subpart C--How Does One Apply for An Award?



Sec. 645.20  How many applications for an Upward Bound award may an eligible 
applicant submit?

    (a) The Secretary accepts more than one application from an eligible 
entity so long as an additional application describes a project that 
serves a different participant population.
    (b) Each application for funding under the Upward Bound Program 
shall state whether the application proposes a Regular Upward Bound 
project, an Upward Bound Math and Science Center, or a Veterans Upward 
Bound project.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.21  What assurances must an applicant include in an application?

    An applicant must assure the Secretary that--
    (a) Not less than two-thirds of the project's participants will be 
low-income individuals who are potential first generation college 
students; and
    (b) That the remaining participants be either low-income individuals 
or potential first generation college students.

(Authority 20 U.S.C. 1070a-13)



             Subpart D--How Does the Secretary Make a Grant?



Sec. 645.30  How does the Secretary decide which grants to make?

    (a) The Secretary evaluates an application for a grant as follows:
    (1)(i) The Secretary evaluates the application on the basis of the 
selection criteria in Sec. 645.31.
    (ii) The maximum score for all the criteria in Sec. 645.31 is 100 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (2)(i) If an applicant for a new grant proposes to continue to serve 
substantially the same target population or schools that the applicant 
is serving under an expiring project, the Secretary evaluates the 
applicant's prior experience in delivering services under the expiring 
Upward Bound project on the basis of the criteria in Sec. 645.32.
    (ii) The maximum score for all the criteria in Sec. 645.32 is 15 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (b) The Secretary makes grants in rank order on the basis of the 
application's total scores under paragraphs (a)(1) and (a)(2) of this 
section.
    (c) If the total scores of two or more applications are the same and 
there are insufficient funds for these applications after the approval 
of higher-

[[Page 313]]

ranked applications, the Secretary uses whatever remaining funds are 
available to serve geographic areas that have been underserved by the 
Upward Bound Program.
    (d) The Secretary may decline to make a grant to an applicant that 
carried out a project that involved the fraudulent use of funds under 
section 402A(c)(2)(B) of the HEA.

(Authority: 20 U.S.C. 1070a-11, 1070a-13)



Sec. 645.31  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an application 
for a grant:
    (a) Need for the project (24 points). In determining need for an 
Upward Bound project, the Secretary reviews each type of project 
(Regular, Math and Science, or Veterans) using different need criteria. 
The criteria for each type of project contain the same maximum score of 
24 points and read as follows:
    (1) The Secretary evaluates the need for a Regular Upward Bound 
project in the proposed target area on the basis of information 
contained in the application which clearly demonstrates that--
    (i) The income level of families in the target area is low;
    (ii) The education attainment level of adults in the target area is 
low;
    (iii) Target high school dropout rates are high;
    (iv) College-going rates in target high schools are low;
    (v) Student/counselor ratios in the target high schools are high; 
and
    (vi) Unaddressed academic, social and economic conditions in the 
target area pose serious problems for low-income, potentially first-
generation college students.
    (2) The Secretary evaluates the need for an Upward Bound Math and 
Science Center in the proposed target area on the basis of--
    (i) The extent to which student performance on standardized 
achievement and assessment tests in mathematics and science in the 
target area is lower than State or national norms.
    (ii) The extent to which potential participants attend schools in 
the target area that lack the resources and coursework that would help 
prepare persons for entry into postsecondary programs in mathematics, 
science, or engineering;
    (iii) The extent to which such indicators as attendance data, 
dropout rates, college-going rates and student/counselor ratios in the 
target area indicate the importance of having additional educational 
opportunities available to low-income, first-generation students; and
    (iv) The extent to which there are eligible students in the target 
area who have demonstrated interest and capacity to pursue academic 
programs and careers in mathematics and science, and who could benefit 
from an Upward Bound Math and Science program.
    (3) The Secretary evaluates the need for a Veterans Upward Bound 
project in the proposed target area on the basis of clear evidence that 
shows--
    (i) The proposed target area lacks the services for eligible 
veterans that the applicant proposes to provide;
    (ii) A large number of veterans who reside in the target area are 
low income and potential first generation college students;
    (iii) A large number of veterans who reside in the target area who 
have not completed high school or, have completed high school but have 
not enrolled in a program of postsecondary education; and
    (iv) Other indicators of need for a Veterans Upward Bound project, 
including the presence of unaddressed academic or socio-economic 
problems of veterans in the area.
    (b) Objectives (9 points). The Secretary evaluates the quality of 
the applicant's proposed project objectives on the basis of the extent 
to which they--
    (1) Include both process and outcome objectives relating to the 
purpose of the applicable Upward Bound programs for which they are 
applying;
    (2) Address the needs of the target area or target population; and
    (3) Are measurable, ambitious, and attainable over the life of the 
project.
    (c) Plan of operation (30 points). The Secretary determines the 
quality of the applicant's plan of operation by assessing the quality 
of--
    (1) The plan to inform the faculty and staff at the applicant 
institution

[[Page 314]]

or agency and the interested individuals and organizations throughout 
the target area of the goals and objectives of the project;
    (2) The plan for identifying, recruiting, and selecting participants 
to be served by the project;
    (3) The plan for assessing individual participant needs and for 
monitoring the academic progress of participants while they are in 
Upward Bound;
    (4) The plan for locating the project within the applicant's 
organizational structure;
    (5) The curriculum, services and activities that are planned for 
participants in both the academic year and summer components;
    (6) The planned timelines for accomplishing critical elements of the 
project;
    (7) The plan to ensure effective and efficient administration of the 
project, including, but not limited to, financial management, student 
records management, and personnel management;
    (8) The applicant's plan to use its resources and personnel to 
achieve project objectives and to coordinate the Upward Bound project 
with other projects for disadvantaged students;
    (9) The plan to work cooperatively with parents and key 
administrative, teaching, and counseling personnel at the target schools 
to achieve project objectives; and
    (10) A follow-up plan for tracking graduates of Upward Bound as they 
enter and continue in postsecondary education.
    (d) Applicant and community support (16 points). The Secretary 
evaluates the applicant and community support for the proposed project 
on the basis of the extent to which--
    (1) The applicant is committed to supplementing the project with 
resources that enhance the project such as: space, furniture and 
equipment, supplies, and the time and effort of personnel other than 
those employed in the project.
    (2) The applicant has secured written commitments of support from 
schools, community organizations, and businesses, including the 
commitment of resources that will enhance the project as described in 
paragraph (d)(1) of this section.
    (e) Quality of personnel (8 points). To determine the quality of 
personnel the applicant plans to use, the Secretary looks for 
information that shows--
    (1) The qualifications required of the project director, including 
formal training or work experience in fields related to the objectives 
of the project and experience in designing, managing, or implementing 
similar projects;
    (2) The qualifications required of each of the other personnel to be 
used in the project, including formal training or work experience in 
fields related to the objectives of the project;
    (3) The quality of the applicant's plan for employing personnel who 
have succeeded in overcoming barriers similar to those confronting the 
project's target population.
    (f) Budget and cost effectiveness (5 points). The Secretary reviews 
each application to determine the extent to which--
    (1) The budget for the project is adequate to support planned 
project services and activities; and
    (2) Costs are reasonable in relation to the objectives and scope of 
the project.
    (g) Evaluation plan (8 points). The Secretary evaluates the quality 
of the evaluation plan for the project on the basis of the extent to 
which the applicant's methods of evaluation--
    (1) Are appropriate to the project and include both quantitative and 
qualitative evaluation measures; and
    (2) Examine in specific and measurable ways the success of the 
project in making progress toward achieving its process and outcomes 
objectives.

(Approved by the Office of Management and Budget under control number 
1840-0550)

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.32  How does the Secretary evaluate prior experience?

    (a) In the case of an application described in Sec. 645.30(a)(2), 
the Secretary reviews information relating to an applicant's performance 
under its expiring Upward Bound grant. This information includes 
information derived from annual performance reports, audit reports, site 
visit reports, project evaluation reports, and any other verifiable 
information submitted by the applicant.

[[Page 315]]

    (b) The Secretary evaluates the applicant's prior experience in 
delivering services on the basis of the following criteria:
    (1) (3 points) Whether the applicant serves the number of 
participants agreed to under the approved application;
    (2) (3 points) The extent to which project participants have 
demonstrated improvement in academic skills and competencies as measured 
by standardized achievement tests and grade point averages;
    (3) (3 points) The extent to which project participants continue to 
participate in the Upward Bound Program until they complete their 
secondary education program;
    (4) The extent to which participants who complete the project, or 
were scheduled to complete the project, undertake programs of 
postsecondary education; and
    (5) (3 points) The extent to which participants who complete the 
project, or were scheduled to complete the project, succeed in education 
beyond high school, including the extent to which they graduate from 
postsecondary education programs.

(Approved by the Office of Management and Budget under control number 
1840-0550)

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.33  How does the Secretary set the amount of a grant?

    (a) The Secretary sets the amount of a grant on the basis of--
    (1) 34 CFR 75.232 and 75.233, for new grants; and
    (2) 34 CFR 75.253, for the second and subsequent years of a project 
period.
    (b) If the circumstances described in section 402A(b)(3) of the HEA 
exist, the Secretary uses the available funds to set the amount of the 
grant at the lesser of--
    (1) $190,000; or
    (2) The amount requested by the applicant.

(Authority: 20 U.S.C. 1070a-11)



Sec. 645.34  How long is a project period?

    (a) Except as provided in paragraph (b) of this section, a project 
period under the Upward Bound Program is four years.
    (b) The Secretary approves a project period of five years for 
applicants that score in the highest ten percent of all applicants 
approved for new grants under the criteria in Sec. 645.31.

(Authority: 20 U.S.C. 1070a-11)



          Subpart E--What Conditions Must Be Met by a Grantee?



Sec. 645.40  What are allowable costs?

    The cost principles that apply to the Upward Bound Program are in 34 
CFR part 74, subpart Q. Allowable costs include the following if they 
are reasonably related to the objectives of the project:
    (a) In-service training of project staff.
    (b) Rental of space if space is not available at the host 
institution and the space rented is not owned by the host institution.
    (c) For participants in an Upward Bound residential summer 
component, room and board--computed on a weekly basis--not to exceed the 
weekly rate the host institution charges regularly enrolled students at 
the institution.
    (d) Room and board for those persons responsible for dormitory 
supervision of participants during a residential summer component.
    (e) Educational pamphlets and similar materials for distribution at 
workshops for the parents of participants.
    (f) Student activity fees for Upward Bound participants.
    (g) Admissions fees, transportation, Upward Bound T-shirts, and 
other costs necessary to participate in field trips, attend educational 
activities, visit museums, and attend other events that have as their 
purpose the intellectual, social, and cultural development of 
participants.
    (h) Costs for one project-sponsored banquet or ceremony.
    (i) Tuition costs for postsecondary credit courses at the host 
institution for participants in the summer bridge component.
    (j)(1) Accident insurance to cover any injuries to a project 
participant while participating in a project activity; and
    (2) Medical insurance and health service fees for the project 
participants

[[Page 316]]

while participating full-time in the summer component.
    (k) Courses in English language instruction for project participants 
with limited proficiency in English and for whom English language 
proficiency is necessary to succeed in postsecondary education.
    (l) Transportation costs of participants for regularly scheduled 
project activities.
    (m) Transportation, meals, and overnight accommodations for staff 
members when they are required to accompany participants in project 
activities such as field trips.
    (n) Purchase of computer hardware, computer software, or other 
equipment for student development, project administration and 
recordkeeping, if the applicant demonstrates to the Secretary's 
satisfaction that the equipment is required to meet the objectives of 
the project more economically or efficiently.
    (o) Fees required for college admissions applications or entrance 
examinations if--
    (1) A waiver of the fee is unavailable;
    (2) The fee is paid by the grantee to a third party on behalf of a 
participant.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.41  What are unallowable costs?

    Costs that may not be charged against a grant under this program 
include the following:
    (a) Research not directly related to the evaluation or improvement 
of the project.
    (b) Meals for staff except as provided in Sec. 645.40 (d) and (m) 
and in paragraph (c) of this section.
    (c) Room and board for administrative and instructional staff 
personnel who do not have responsibility for dormitory supervision of 
project participants during a residential summer component unless these 
costs are approved by the Secretary.
    (d) Room and board for participants in Veterans Upward Bound 
projects.
    (e) Construction, renovation or remodeling of any facilities.
    (f) Tuition, stipends, or any other form of student financial aid 
for project staff beyond that provided to employees of the grantee as 
part of its regular fringe benefit package.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.42  What are Upward Bound stipends?

    (a) An Upward Bound project may provide stipends for all 
participants who participate on a full-time basis.
    (b) In order to receive the stipend, the participant must show 
evidence of satisfactory participation in activities of the project 
including--
    (1) Regular attendance; and
    (2) Performance in accordance with standards established by the 
grantee and described in the application.
    (c) The grantee may prorate the amount of the stipend according to 
the number of scheduled sessions in which the student participated.
    (d) The following rules govern the amounts of stipends a grantee is 
permitted to provide:
    (1) For Regular Upward Bound projects and Upward Bound Math and 
Science Centers--
    (i) For the academic year component, the stipend may not exceed $40 
per month; and
    (ii) For the summer component, the stipend may not exceed $60 per 
month.
    (2) For Veterans Upward Bound projects, the stipend may not exceed 
$40 per month.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13)



Sec. 645.43  What other requirements must a grantee meet?

    (a) Number of participants. (1) In each budget period, Regular 
Upward Bound projects shall serve between 50 and 150 participants and 
Upward Bound Math and Science projects shall serve between 50 and 75 
participants.
    (2) Veterans Upward Bound projects shall serve a minimum of 120 
veterans in each budget period.
    (3) The Secretary may waive the requirements of paragraphs (a)(1) 
and (a)(2) of this section if the applicant can demonstrate that the 
project will be more cost effective and consistent with the objectives 
of the program if a greater or lesser number of participants will be 
served.

[[Page 317]]

    (b) Project director. (1) A grantee shall employ a full-time project 
director unless paragraph (b)(3) of this section applies.
    (2) The grantee shall give the project director sufficient authority 
to administer the project effectively.
    (3) The Secretary waives the requirement in paragraph (b)(1) of this 
section if the applicant demonstrates that the requirement will hinder 
coordination--
    (i) Among the Federal TRIO Programs; or
    (ii) Between the programs funded under sections 402A through 410 of 
the HEA and similar programs funded through other sources.
    (c) Recordkeeping. For each participant, a grantee shall maintain a 
record of--
    (1) The basis for the grantee's determination that the participant 
is eligible to participate in the project under Sec. 645.3;
    (2) The basis for the grantee's determination that the participant 
has a need for academic support in order to pursue successfully a 
program of education beyond secondary school;
    (3) The services that are provided to the participant;
    (4) The educational progress of the participant during high school 
and, to the degree possible, during the participant's pursuit of a 
postsecondary education program.

(Authority: 20 U.S.C. 1070a-11 and 1070a-13).



PART 646--STUDENT SUPPORT SERVICES PROGRAM--Table of Contents




                           Subpart A--General

Sec.
646.1  What is the Student Support Services Program?
646.2  Who is eligible to receive a grant?
646.3  Who is eligible to participate in a Student Support Services 
          project?
646.4  What activities and services may a project provide?
646.5  How long is a project period?
646.6  What regulations apply?
646.7  What definitions apply?

               Subpart B--How Does One Apply for an Award?

646.10  How many applications for a Student Support Services award may 
          an eligible applicant submit?
646.11  What assurances must an applicant include in an application?

             Subpart C--How Does the Secretary Make a Grant?

646.20  How does the Secretary decide which new grants to make?
646.21  What selection criteria does the Secretary use to evaluate an 
          application?
646.22  How does the Secretary evaluate prior experience?
646.23  How does the Secretary set the amount of a grant?

          Subpart D--What Conditions Must Be Met by a Grantee?

646.30  What are allowable costs?
646.31  What are unallowable costs?
646.32  What other requirements must a grantee meet?

    Authority: 20 U.S.C. 1070a-11 and 1070a-14, unless otherwise noted.

    Source: 61 FR 38537, July 24, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 646.1  What is the Student Support Services Program?

    The Student Support Services Program provides grants for projects 
designed to--
    (a) Increase the retention and graduation rates of eligible 
students;
    (b) Increase the transfer rate of eligible students from two-year to 
four-year institutions; and
    (c) Foster an institutional climate supportive of the success of 
low-income and first generation college students and individuals with 
disabilities through services such as those described in Sec. 646.4.

(Authority: 20 U.S.C. 1070a-11 and 1070a-14)



Sec. 646.2  Who is eligible to receive a grant?

    An institution of higher education or a combination of institutions 
of higher education is eligible to receive a grant to carry out a 
Student Support Services project.

(Authority: 20 U.S.C. 1070a-14)



Sec. 646.3  Who is eligible to participate in a Student Support Services project?

    A student is eligible to participate in a Student Support Services 
project if

[[Page 318]]

the student meets all of the following requirements:
    (a) Is a citizen or national of the United States or meets the 
residency requirements for Federal student financial assistance.
    (b) Is enrolled at the grantee institution or accepted for 
enrollment in the next academic term at that institution.
    (c) Has a need for academic support, as determined by the grantee, 
in order to pursue successfully a postsecondary educational program.
    (d) Is--
    (1) A low-income individual;
    (2) A first generation college student; or
    (3) An individual with disabilities.

(Authority: 20 U.S.C. 1070a-14)



Sec. 646.4  What activities and services may a project provide?

    A Student Support Services project may provide services such as:
    (a) Instruction in reading, writing, study skills, mathematics, and 
other subjects necessary for success beyond secondary school.
    (b) Personal counseling.
    (c) Academic advice and assistance in course selection.
    (d) Tutorial services and counseling and peer counseling.
    (e) Exposure to cultural events and academic programs not usually 
available to disadvantaged students.
    (f) Activities designed to acquaint students participating in the 
project with the range of career options available.
    (g) Activities designed to secure admission and financial assistance 
for enrollment in graduate and professional programs.
    (h) Activities designed to assist students currently enrolled in 
two-year institutions in securing admission and financial assistance for 
enrollment in a four-year program of postsecondary education.
    (i) Mentoring programs involving faculty or upper class students, or 
any combination of faculty members and upper class students.
    (j) Programs and activities as described in paragraphs (a) through 
(i) of this section that are specifically designed for students of 
limited English proficiency.
    (k) Other activities designed to meet the purposes of the Student 
Support Services Program stated in Sec. 646.1.

(Authority: 20 U.S.C. 1070a-14)



Sec. 646.5  How long is a project period?

    (a) Except as provided in paragraph (b) of this section, a project 
period under the Student Support Services Program is four years.
    (b) The Secretary approves a project period of five years for 
applicants that score in the highest ten percent of all applicants 
approved for new grants under the criteria in Sec. 646.21.

(Authority: 20 U.S.C. 1070a-11)



Sec. 646.6  What regulations apply?

    The following regulations apply to the Student Support Services 
Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) in 34 CFR parts 74, 75, 77, 79, 82, 85 and 86.
    (b) The regulations in this part 646.

(Authority: 20 U.S.C. 1070a-11 and 1070a-14)



Sec. 646.7  What definitions apply?

    (a) Definitions in the Act. The following terms used in this part 
are defined in sections 402(A)(g), 481, or 1201(a) of the Higher 
Education Act (HEA) of 1965, as amended:

First generation college student
Institution of higher education
Low-income individual

    (b) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
Budget Period
Department
EDGAR
Equipment
Facilities
Fiscal year
Grant
Grant Period
Grantee
Project
Project period
Public
Secretary
Supplies

    (c) Other definitions. The following definitions also apply to this 
part:
    Academic need with reference to a student means a student whom the 
grantee determines needs one or more of the services stated under 
Sec. 646.4 to succeed

[[Page 319]]

in a postsecondary educational program.
    Combination of institutions of higher education means two or more 
institutions of higher education that have entered into a cooperative 
agreement for the purpose of carrying out a common objective, or an 
entity designated or created by a group of institutions of higher 
education for the purpose of carrying out a common objective on their 
behalf.
    Different Campus means an institutional site that is geographically 
apart from and independent of the main campus of the institution. The 
Secretary considers a location of an institution to be independent of 
the main campus if the location--
    (1) Is permanent in nature;
    (2) Offers courses in educational programs leading to a degree, 
certificate, or other recognized educational credential;
    (3) Has its own faculty and administrative or supervisory 
organization; and
    (4) Has its own budgetary and hiring authority.
    Different population of participants means a group of--
    (1) Low-income, first-generation college students; or
    (2) Disabled students.
    Individual with disabilities means a person who has a diagnosed 
physical or mental impairment that substantially limits that person's 
ability to participate in the educational experiences and opportunities 
offered by the grantee institution.
    Limited English proficiency with reference to an individual, means a 
person whose native language is other than English and who has 
sufficient difficulty speaking, reading, writing, or understanding the 
English language to deny that individual the opportunity to learn 
successfully in classrooms in which English is the language of 
instruction.
    Participant means an individual who--
    (1) Is determined to be eligible to participate in the project under 
Sec. 646.3; and
    (2) Receives project services that the grantee has determined to be 
sufficient to increase the individual's chances for success in a 
postsecondary educational program.
    Sufficient financial assistance means the amount of financial aid 
offered a Student Support Services student, inclusive of Federal, State, 
local, private, and institutional aid which, together with parent or 
student contributions, is equal to the cost of attendance as determined 
by a financial aid officer at the institution.

(Authority: 20 U.S.C. 1070a-11 and 1070a-14)



               Subpart B--How Does One Apply for an Award?



Sec. 646.10  How many applications for a Student Support Services award may an eligible applicant submit?

    The Secretary accepts more than one application from an eligible 
applicant so long as each additional application describes a project 
that serves a different campus, or a different population of 
participants who cannot readily be served by a single project.

(Authority: 20 U.S.C. 1070a-11 and 1070a-14)



Sec. 646.11  What assurances must an applicant include in an application?

    An applicant shall assure in its application that--
    (a) At least two-thirds of the students it will serve in its Student 
Support Services project will be--
    (1) Low-income individuals who are first generation college 
students; or
    (2) Individuals with disabilities;
    (b) The remaining students it will serve will be low-income 
individuals, first generation college students, or individuals with 
disabilities;
    (c) Not less than one-third of the individuals with disabilities 
will be low-- income individuals; and
    (d) Each student participating in the project will be offered 
sufficient financial assistance to meet that student's full financial 
need.

(Approved by the Office of Management and Budget under control number 
1840-0017)

(Authority: 20 U.S.C. 1070a-14)

[[Page 320]]



             Subpart C--How Does the Secretary Make a Grant?



Sec. 646.20  How does the Secretary decide which new grants to make?

    (a) The Secretary evaluates an application for a new grant as 
follows:
    (1)(i) The Secretary evaluates the application on the basis of the 
selection criteria in Sec. 646.21.
    (ii) The maximum score for all the criteria in Sec. 646.21 is 100 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (2)(i) If an application for a new grant proposes to continue to 
serve substantially the same population or campus that the applicant is 
serving under an expiring grant, the Secretary evaluates the applicant's 
prior experience in delivering services under the expiring grant on the 
basis of the criteria in Sec. 646.22.
    (ii) The maximum score for all the criteria in Sec. 646.22 is 15 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (b) The Secretary makes new grants in rank order on the basis of the 
applications' total scores under paragraphs (a)(1) and (a)(2) of this 
section.
    (c) If the total scores of two or more applications are the same and 
there is insufficient money available to fully fund them both after 
funding the higher-ranked applications, the Secretary chooses among the 
tied applications so as to serve geographic areas that have been 
underserved by the Student Support Services Program.
    (d) The Secretary does not make grants to applicants that carried 
out a Federal TRIO program project that involved the fraudulent use of 
funds.

(Authority: 20 U.S.C. 1070a-11 and 1070a-14)



Sec. 646.21  What selection criteria does the Secretary use to evaluate an application?

    The Secretary uses the following criteria to evaluate an application 
for a new grant:
    (a) Need for the project (24 points). The Secretary evaluates the 
need for a Student Support Services project proposed at the applicant 
institution on the basis of the extent to which the application contains 
clear evidence of--
    (1) (8 points) A high number or percentage, or both, of students 
enrolled or accepted for enrollment at the applicant institution who 
meet the eligibility requirements of Sec. 646.3;
    (2) (8 points) The academic and other problems that eligible 
students encounter at the applicant institution; and
    (3) (8 points) The differences between eligible Student Support 
Services students compared to an appropriate group, based on the 
following indicators:
    (i) Retention and graduation rates.
    (ii) Grade point averages.
    (iii) Graduate and professional school enrollment rates (four-year 
colleges only).
    (iv) Transfer rates from two-year to four-year institutions (two-
year colleges only).
    (b) Objectives (8 points). The Secretary evaluates the quality of 
the applicant's proposed project objectives on the basis of the extent 
to which they--
    (1) (2 points) Include performance, process and outcome objectives 
relating to each of the purposes of the Student Support Services Program 
stated in Sec. 646.1;
    (2) (2 points) Address the identified needs of the proposed 
participants;
    (3) (2 points) Are clearly described, specific, and measurable; and
    (4) (2 points) Are ambitious but attainable within each budget 
period and the project period given the project budget and other 
resources.
    (c) Plan of operation (30 points). The Secretary evaluates the 
quality of the applicant's plan of operation on the basis of the 
following:
    (1) (3 points) The plan to inform the institutional community 
(students, faculty, and staff) of the goals, objectives, and services of 
the project and the eligibility requirements for participation in the 
project.
    (2) (3 points) The plan to identify, select, and retain project 
participants with academic need.
    (3) (4 points) The plan for assessing each individual participant's 
need for specific services and monitoring his or her academic progress 
at the institution to ensure satisfactory academic progress.

[[Page 321]]

    (4) (10 points) The plan to provide services that address the goals 
and objectives of the project.
    (5) (10 points) The applicant's plan to ensure proper and efficient 
administration of the project, including the organizational placement of 
the project; the time commitment of key project staff; the specific 
plans for financial management, student records management, and 
personnel management; and, where appropriate, its plan for coordination 
with other programs for disadvantaged students.
    (d) Institutional commitment (16 points). The Secretary evaluates 
the institutional commitment to the proposed project on the basis of the 
extent to which the applicant has--
    (1) (6 points) Committed facilities, equipment, supplies, personnel, 
and other resources to supplement the grant and enhance project 
services;
    (2) (6 points) Established administrative and academic policies that 
enhance participants' retention at the institution and improve their 
chances of graduating from the institution;
    (3) (2 points) Demonstrated a commitment to minimize the dependence 
on student loans in developing financial aid packages for project 
participants by committing institutional resources to the extent 
possible; and
    (4) (2 points) Assured the full cooperation and support of the 
Admissions, Student Aid, Registrar and data collection and analysis 
components of the institution.
    (e) Quality of personnel (9 points). To determine the quality of 
personnel the applicant plans to use, the Secretary looks for 
information that shows--
    (1) (3 points) The qualifications required of the project director, 
including formal education and training in fields related to the 
objectives of the project, and experience in designing, managing, or 
implementing Student Support Services or similar projects;
    (2) (3 points) The qualifications required of other personnel to be 
used in the project, including formal education, training, and work 
experience in fields related to the objectives of the project; and
    (3) (3 points) The quality of the applicant's plan for employing 
personnel who have succeeded in overcoming barriers similar to those 
confronting the project's target population.
    (f) Budget (5 points). The Secretary evaluates the extent to which 
the project budget is reasonable, cost-effective, and adequate to 
support the project.
    (g) Evaluation plan (8 points). The Secretary evaluates the quality 
of the evaluation plan for the project on the basis of the extent to 
which--
    (1) The applicant's methods for evaluation--
    (i) (2 points) Are appropriate to the project and include both 
quantitative and qualitative evaluation measures; and
    (ii) (2 points) Examine in specific and measurable ways, using 
appropriate baseline data, the success of the project in improving 
academic achievement, retention and graduation of project participants; 
and
    (2) (4 points) The applicant intends to use the results of an 
evaluation to make programmatic changes based upon the results of 
project evaluation.

(Approved by the Office of Management and Budget under control number 
1840-0017)

(Authority: 20 U.S.C. 1070a-14)



Sec. 646.22  How does the Secretary evaluate prior experience?

    (a) In the case of an application described in Sec. 646.20(a)(2)(i), 
the Secretary reviews information relating to an applicant's performance 
under its expiring Student Support Services project. This information 
may come from performance reports, site visit reports, project 
evaluation reports, and any other verifiable information submitted by 
the applicant.
    (b) The Secretary evaluates the applicant's prior experience in 
achieving the goals of the Student Support Services Program on the basis 
of the following criteria:
    (1) (4 points) The extent to which project participants persisted 
toward completion of the academic programs in which they were enrolled.
    (2) (4 points) The extent to which project participants met academic 
performance levels required to stay in good academic standing at the 
grantee institution.

[[Page 322]]

    (3) (4 points) (i) For four-year institutions, the extent to which 
project participants graduated; and
    (ii) For two-year institutions, the extent to which project 
participants either graduated or transferred to four-year institutions.
    (4) (3 points) The extent to which the applicant has met the 
administrative requirements--including recordkeeping, reporting, and 
financial accountability--under the terms of the previously funded 
award.

(Approved by the Office of Management and Budget under control number 
1840-0017)

(Authority: 20 U.S.C. 1070a-11 and 1070a-14)



Sec. 646.23  How does the Secretary set the amount of a grant?

    (a) The Secretary sets the amount of a grant on the basis of--
    (1) 34 CFR 75.232 and 75.233, for new grants; and
    (2) 34 CFR 75.253, for the second and subsequent years of a project 
period.
    (b) If the circumstances described in section 402A(b)(3) of the HEA 
exist, the Secretary uses the available funds to set the amount of the 
grant at the lesser of--
    (1) $170,000; or
    (2) The amount requested by the applicant.

(Authority: 20 U.S.C. 1070a-11)



          Subpart D--What Conditions Must Be Met by a Grantee?



Sec. 646.30  What are allowable costs?

    The cost principles that apply to the Student Support Services 
Program are in 34 CFR part 74, subpart Q. Allowable costs include the 
following if they are reasonably related to the objectives of the 
project:
    (a) Cost of remedial and special classes if--
    (1) These classes are not otherwise available at the grantee 
institution;
    (2) Are limited to eligible project participants; and
    (3) Project participants are not charged tuition for classes paid 
for by the project.
    (b) Courses in English language instruction for students of limited 
English proficiency if these classes are limited to eligible project 
participants and not otherwise available at the grantee institution.
    (c) In-service training of project staff.
    (d) Activities of an academic or cultural nature, such as field 
trips, special lectures, and symposiums, that have as their purpose the 
improvement of the participants' academic progress and personal 
development.
    (e) Transportation of participants and staff to and from approved 
educational and cultural activities sponsored by the project.
    (f) Purchase of computer hardware, computer software, or other 
equipment to be used for student development, student records and 
project administration if the applicant demonstrates to the Secretary's 
satisfaction that the equipment is required to meet the objectives of 
the project more economically or efficiently.
    (g) Professional development travel for staff if directly related to 
the project's overall purpose and activities, except that these costs 
may not exceed four percent of total project salaries. The Secretary may 
adjust this percentage if the applicant demonstrates to the Secretary's 
satisfaction that a higher percentage is necessary and reasonable.
    (h) Project evaluation that is directly related to assessing the 
project's impact on student achievement and improving the delivery of 
services.

(Authority: 20 U.S.C. 1070a-14)



Sec. 646.31  What are unallowable costs?

    Costs that may not be charged against a grant under the Student 
Support Services Program include, but are not limited to, the following:
    (a) Costs involved in recruiting students for enrollment at the 
institution.
    (b) Tuition, fees, stipends, and other forms of direct financial 
support for staff or participants.
    (c) Research not directly related to the evaluation or improvement 
of the project.
    (d) Construction, renovation, or remodeling of any facilities.

(Authority: 20 U.S.C. 1070a-14)

[[Page 323]]



Sec. 646.32  What other requirements must a grantee meet?

    (a) Eligibility of participants. (1) A grantee shall determine the 
eligibility of each participant in the project when the individual is 
selected to participate. The grantee does not have to revalidate a 
participant's eligibility after the participant's initial selection.
    (2) A grantee shall determine the low-income status of an individual 
on the basis of the documentation described in section 402A(e) of the 
Higher Education Act.
    (3) A grantee may not serve any individual who is receiving the same 
services from another Federal TRIO program.
    (b) Recordkeeping. A grantee shall maintain participant records that 
show--
    (1) The basis for the grantee's determination that each participant 
is eligible to participate in the project under Sec. 646.3;
    (2) The grantee's basis for determining the academic need for each 
participant;
    (3) The services that are provided to each participant; and
    (4) The performance and progress of each participant by cohort for 
the duration of the participant's attendance at the grantee institution.
    (c) Project director. (1) A grantee shall employ a full-time project 
director unless paragraph (c)(3) of this section applies.
    (2) The grantee shall give the project director sufficient authority 
to administer the project effectively.
    (3) The Secretary waives the requirement in paragraph (c)(1) of this 
section if the applicant demonstrates that the requirement will hinder 
coordination--
    (i) Among the Federal TRIO programs; or
    (ii) Between the programs funded under sections 404A through 410 of 
the Higher Education Act and similar programs funded through other 
sources.
    (d) Project coordination. (1) The Secretary encourages grantees to 
coordinate project services with other programs for disadvantaged 
students operated by the grantee institution provided the Student 
Support Services grant funds are not used to support activities 
reasonably available to the general student population.
    (2) To the extent practical, the grantee may share staff with 
programs serving similar populations provided the grantee maintains 
appropriate records of staff time and effort and does not commingle 
grant funds.
    (3) Costs for special classes and events that would benefit Student 
Support Services students and participants in other programs for 
disadvantaged students must be proportionately divided among the 
benefiting projects.

(Approved by the Office of Management and Budget under control number 
1840-0017)

(Authority: 20 U.S.C. 1070a-11 and 1070a)



PART 647--RONALD E. MCNAIR POSTBACCALAUREATE ACHIEVEMENT PROGRAM--Table of Contents




                           Subpart A--General

Sec.
647.1  What is the Ronald E. McNair Postbaccalaureate Achievement 
          Program?
647.2  Who is eligible for a grant?
647.3  Who is eligible to participate in a McNair project?
647.4  What activities and services may a project provide?
647.5  How long is a project period?
647.6  What regulations apply?
647.7  What definitions apply?

                          Subpart B--Assurances

647.10   What assurances must an applicant submit?

             Subpart C--How Does the Secretary Make a Grant?

647.20  How does the Secretary decide which new grants to make?
647.21  What selection criteria does the Secretary use?
647.22  How does the Secretary evaluate prior experience?
647.23  How does the Secretary set the amount of a grant?

          Subpart D--What Conditions Must Be Met by a Grantee?

647.30  What are allowable costs?
647.31  What are unallowable costs?
647.32  What other requirements must a grantee meet?

    Authority: 20 U.S.C. 1070a-11 and 1070a-15, unless otherwise noted.

[[Page 324]]


    Source: 59 FR 43989, Aug. 25, 1994, unless otherwise noted.



                           Subpart A--General



Sec. 647.1  What is the Ronald E. McNair Postbaccalaureate Achievement Program?

    The Ronald E. McNair Postbaccalaureate Achievement Program--referred 
to in these regulations as the McNair program--awards grants to 
institutions of higher education for projects designed to provide 
disadvantaged college students with effective preparation for doctoral 
study.

(Authority: 20 U.S.C. 1070a-15)



Sec. 647.2  Who is eligible for a grant?

    Institutions of higher education and combinations of those 
institutions are eligible for grants to carry out McNair projects.

(Authority: 20 U.S.C. 1070a-11, 1070a-15, 1088, and 1141(a) and 1144a)



Sec. 647.3  Who is eligible to participate in a McNair project?

    A student is eligible to participate in a McNair project if the 
student meets all the following requirements:
    (a)(1) Is a citizen or national of the United States; or
    (2) Is a permanent resident of the United States; or
    (3) Is in the United States for other than a temporary purpose and 
provides evidence from the Immigration and Naturalization Service of his 
or her intent to become a permanent resident; or
    (4) Is a permanent resident of Guam, the Northern Mariana Islands, 
or the Trust Territory of the Pacific Islands; or
    (5) Is a resident of one of the Freely Associated States.
    (b) Is currently enrolled in a degree program at an institution of 
higher education that participates in the student financial assistance 
programs authorized under Title IV of the HEA.
    (c) Is--
    (1) A low-income individual who is a first-generation college 
student;
    (2) A member of a group that is underrepresented in graduate 
education; or
    (3) A member of a group that is not listed in Sec. 647.7 if the 
group is underrepresented in certain academic disciplines as documented 
by standard statistical references or other national survey data 
submitted to and accepted by the Secretary on a case-by-case basis.
    (d) Has not enrolled in doctoral level study at an institution of 
higher education.

(Authority: 20 U.S.C. 1070a-15)



Sec. 647.4  What activities and services may a project provide?

    A McNair project may provide the following services and activities:
    (a) Opportunities for research or other scholarly activities at the 
grantee institution or at graduate centers that are designed to provide 
participants with effective preparation for doctoral study.
    (b) Summer internships.
    (c) Seminars and other educational activities designed to prepare 
participants for doctoral study.
    (d) Tutoring.
    (e) Academic counseling.
    (f) Assistance to participants in securing admission to and 
financial assistance for enrollment in graduate programs.
    (g) Mentoring programs involving faculty members or students at 
institutions of higher education, or any combination of faculty members 
and students.
    (h) Exposure to cultural events and academic programs not usually 
available to project participants.

(Authority: 20 U.S.C. 1070a-15)



Sec. 647.5  How long is a project period?

    (a) Except as provided in paragraph (b) of this section, a project 
period under the McNair program is four years.
    (b) The Secretary approves a project period of five years for 
applications that score in the highest ten percent of all applications 
approved for new grants under the criteria in Sec. 647.21.

(Authority: 20 U.S.C. 1070a-11)



Sec. 647.6  What regulations apply?

    The following regulations apply to the McNair program:

[[Page 325]]

    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 ((Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 647.

(Authority: 20 U.S.C. 1070a-11 and 1070a-15)



Sec. 647.7  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Budget
Budget Period
EDGAR
Equipment
Facilities
Fiscal Year
Grant
Grantee
Project
Project Period
Public
Secretary
Supplies

    (b) Other definitions. The following definitions also apply to this 
part:
    First-generation college student means--
    (1) A student neither of whose natural or adoptive parents received 
a baccalaureate degree; or
    (2) A student who, prior to the age of 18, regularly resided with 
and received support from only one parent, and whose supporting parent 
did not receive a baccalaureate degree.
    (3) An individual who, prior to the age of 18, did not regularly 
reside with or receive support from a natural or an adoptive parent.
    Graduate center means an educational institution as defined in 
sections 481, 1201(a), and 1204 of the HEA; and that--
    (1) Provides instruction in one or more programs leading to a 
doctoral degree;
    (2) Maintains specialized library collections;
    (3) Employs scholars engaged in research that relates to the subject 
areas of the center; and
    (4) Provides outreach and consultative services on a national, 
regional or local basis.
    Graduate education means studies beyond the bachelor's degree 
leading to a postbaccalaureate degree.
    HEA means the Higher Education Act of 1965, as amended.
    Groups underrepresented in graduate education. The following ethnic 
and racial groups are currently underrepresented in graduate education: 
Black (non-Hispanic), Hispanic, and American Indian/Alaskan Native.
    Institution of higher education means an educational institution as 
defined in sections 481, 1201(a) and 1204 of the HEA.
    Low-income individual means an individual whose family's taxable 
income did not exceed 150 percent of the poverty level in the calendar 
year preceding the year in which the individual participates in the 
project. Poverty level income is determined by using criteria of poverty 
established by the Bureau of the Census of the U.S. Department of 
Commerce.
    Summer internship means an educational experience in which 
participants, under the guidance and direction of experienced faculty 
researchers, are provided an opportunity to engage in research or other 
scholarly activities.
    Target population means the universe from which McNair participants 
will be selected. The universe may be expressed in terms of geography, 
type of institution, academic discipline, type of disadvantage, type of 
underrepresentation, or any other qualifying descriptor that would 
enable an applicant to more precisely identify the kinds of eligible 
project participants they wish to serve.

(Authority: 20 U.S.C. 1070a-11, 1070a-15, and 1141)

[[Page 326]]



                          Subpart B--Assurances



Sec. 647.10  What assurances must an applicant submit?

    An applicant must submit as part of its application, assurances 
that--
    (a) Each participant enrolled in the project will be enrolled in a 
degree program at an institution of higher education that participates 
in one or more of the student financial assistance programs authorized 
under Title IV of the HEA;
    (b) Each participant given a summer research internship will have 
completed his or her sophomore year of study; and
    (c)(1) At least two thirds of the students to be served will be low-
income individuals who are first-generation college students; and
    (2) The remaining students to be served will be members of groups 
underrepresented in graduate education.

(Authority: 20 U.S.C. 1070a-15)



             Subpart C--How Does the Secretary Make a Grant?



Sec. 647.20  How does the Secretary decide which new grants to make?

    (a) The Secretary evaluates an application for a new grant as 
follows:
    (1)(i) The Secretary evaluates an application on the basis of the 
selection criteria in Sec. 647.21.
    (ii) The maximum score for all the criteria in Sec. 647.21 is 100 
points. The maximum score for each criterion is indicated in parentheses 
with the criterion.
    (2)(i) For an application from an applicant who has carried out a 
McNair project in the fiscal year immediately preceding the fiscal year 
for which the applicant is applying, the Secretary evaluates the 
applicant's prior experience on the basis of the criteria in 
Sec. 647.22.
    (ii) The maximum score for all the criteria in Sec. 647.22 is 
fifteen (15) points. The maximum score for each criterion is indicated 
in parentheses with the criterion.
    (iii) If an applicant described in paragraph (a)(2)(i) of this 
section applies for more than one new grant in the same fiscal year, the 
Secretary applies the criteria in Sec. 647.22 to a project that seeks to 
continue support for an existing McNair project on that campus.
    (b) The Secretary makes new grants in rank order on the basis of the 
total scores received by applications under paragraphs (a)(1) through 
(a)(3) of this section.
    (c)(1) If the total scores of two or more applications are the same 
and there are insufficient funds for these applications after the 
approval of higher-ranked applications, the Secretary uses the remaining 
funds to achieve an equitable geographic distribution of all new 
projects.
    (2) In making an equitable geographic distribution of new projects, 
the Secretary considers only the locations of new projects.
    (d) The Secretary may decline to make a grant to an applicant that 
carried out a Federal TRIO Program project that involved the fraudulent 
use of funds.

(Authority: 20 U.S.C. 1070a-11 and 1070a-15)



Sec. 647.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an application 
for a new grant:
    (a) Need (16 Points). The Secretary reviews each application to 
determine the extent to which the applicant can clearly and definitively 
demonstrate the need for a McNair project to serve the target 
population. In particular, the Secretary looks for information that 
clearly defines the target population; describes the academic, financial 
and other problems that prevent potentially eligible project 
participants in the target population from completing baccalaureate 
programs and continuing to postbaccalaureate programs; and demonstrates 
that the project's target population is underrepresented in graduate 
education, doctorate degrees conferred and careers where a doctorate is 
a prerequisite.
    (b) Objectives (9 points). The Secretary evaluates the quality of 
the applicant's proposed project objectives on the basis of the extent 
to which they--
    (1) Include both process and outcome objectives relating to the 
purpose of the McNair program stated in Sec. 647.1;

[[Page 327]]

    (2) Address the needs of the target population; and
    (3) Are measurable, ambitious, and attainable over the life of the 
project.
    (c) Plan of Operation (44 points). The Secretary reviews each 
application to determine the quality of the applicant's plans of 
operation, including--
    (1) (4 points) The plan for identifying, recruiting and selecting 
participants to be served by the project, including students enrolled in 
the Student Support Services program;
    (2) (4 points) The plan for assessing individual participant needs 
and for monitoring the academic growth of participants during the period 
in which the student is a McNair participant;
    (3) (5 points) The plan for providing high quality research and 
scholarly activities in which participants will be involved;
    (4) (5 points) The plan for involving faculty members in the design 
of research activities in which students will be involved;
    (5) (5 points) The plan for providing internships, seminars, and 
other educational activities designed to prepare undergraduate students 
for doctoral study;
    (6) (5 points) The plan for providing individual or group services 
designed to enhance a student's successful entry into postbaccalaureate 
education;
    (7) (3 points) The plan to inform the institutional community of the 
goals and objectives of the project;
    (8) (8 points) The plan to ensure proper and efficient 
administration of the project, including, but not limited to matters 
such as financial management, student records management, personnel 
management, the organizational structure, and the plan for coordinating 
the McNair project with other programs for disadvantaged students; and
    (9) (5 points) The follow-up plan that will be used to track the 
academic and career accomplishments of participants after they are no 
longer participating in the McNair project.
    (d) Quality of key personnel (9 points). The Secretary evaluates the 
quality of key personnel the applicant plans to use on the project on 
the basis of the following:
    (1)(i) The job qualifications of the project director.
    (ii) The job qualifications of each of the project's other key 
personnel.
    (iii) The quality of the project's plan for employing highly 
qualified persons, including the procedures to be used to employ members 
of groups underrepresented in higher education, including Blacks, 
Hispanics, American Indians, Alaska Natives, Asian Americans and Pacific 
Islanders (including Native Hawaiians).
    (2) In evaluating the qualifications of a person, the Secretary 
considers his or her experience and training in fields related to the 
objectives of the project.
    (e) Adequacy of the resources and budget (15 points). The Secretary 
evaluates the extent to which--
    (1) The applicant's proposed allocation of resources in the budget 
is clearly related to the objectives of the project;
    (2) Project costs and resources, including facilities, equipment, 
and supplies, are reasonable in relation to the objectives and scope of 
the project; and
    (3) The applicant's proposed commitment of institutional resources 
to the McNair participants, as for example, the commitment of time from 
institutional research faculty and the waiver of tuition and fees for 
McNair participants engaged in summer research projects.
    (f) Evaluation plan (7 points). The Secretary evaluates the quality 
of the evaluation plan for the project on the basis of the extent to 
which the applicant's methods of evaluation--
    (1) Are appropriate to the project's objectives;
    (2) Provide for the applicant to determine, in specific and 
measurable ways, the success of the project in--
    (i) Making progress toward achieving its objectives (a formative 
evaluation); and
    (ii) Achieving its objectives at the end of the project period (a 
summative evaluation); and
    (3) Provide for a description of other project outcomes, including 
the use of quantifiable measures, if appropriate.

(Authority: 20 U.S.C. 1070a-15)

[[Page 328]]



Sec. 647.22  How does the Secretary evaluate prior experience?

    (a) The Secretary reviews information relating to an applicant's 
performance as a grantee under its expiring McNair project. In addition 
to the application under review, this information may be derived from 
performance reports, audit reports, site visit reports, and project 
evaluation reports received by the Secretary during the project period 
about to be completed.
    (b) The Secretary evaluates the applicant's performance as a grantee 
on the basis of the following criteria:
    (1) (3 points) Whether the applicant consistently served the number 
and types of participants the project was funded to serve.
    (2) (4 points) Whether the applicant was successful in providing the 
participants with research and scholarly activities and whether those 
activities had an impact on project participants.
    (3) (8 points) The extent to which the applicant met or exceeded its 
funded objectives with regard to project participants as demonstrated by 
the number of participants who--
    (i) Attained a baccalaureate degree;
    (ii) Enrolled in a postbaccalaureate program; and
    (iii) Attained a doctoral level degree.

(Authority: 20 U.S.C. 1070a-11 and 1070a-15)



Sec. 647.23  How does the Secretary set the amount of a grant?

    (a) The Secretary sets the amount of a grant on the basis of--
    (1) 34 CFR 75.232 and 75.233 for new grants; and
    (2) 34 CFR 75.253 for the second and subsequent years of a project 
period.
    (b) If the circumstances described in section 402A(b)(3) of the HEA 
exist, the Secretary uses the available funds to set the amount of the 
grant beginning in fiscal year 1995 at the lesser of--
    (1) $190,000; or
    (2) The amount requested by the applicant.

(Authority: 20 U.S.C. 1070a-11)



          Subpart D--What Conditions Must Be Met by a Grantee?



Sec. 647.30  What are allowable costs?

    Allowable project costs, not specifically covered by 34 CFR part 74, 
may include the following costs reasonably related to carrying out a 
McNair project:
    (a) Activities of an academic or scholarly nature, such as trips to 
institutions of higher education offering doctoral programs, and special 
lectures, symposia, and professional conferences, which have as their 
purpose the encouragement and preparation of project participants for 
doctoral studies.
    (b) Stipends of up to $2,400 per year for students engaged in 
research internships, provided that the student has completed the 
sophomore year of study at an eligible institution before the internship 
begins.
    (c) Necessary tuition, room and board, and transportation for 
students engaged in research internships during the summer.
    (d) Purchase of computer hardware, computer software, or other 
equipment for student development, project administration, and 
recordkeeping, if the applicant demonstrates to the Secretary's 
satisfaction that the equipment is required to meet the objectives of 
the project more economically or efficiently.



Sec. 647.31  What are unallowable costs?

    Costs that may not be charged against a grant under this program 
include the following:
    (a) Payment of tuition, stipends, test preparation and fees or any 
other form of student financial support to staff or participants not 
expressly allowed under Sec. 647.30.
    (b) Construction, renovation, and remodeling of any facilities.

(Authority: 20 U.S.C. 1070a-5)



Sec. 647.32  What other requirements must a grantee meet?

    (a) Eligibility of participants. (1) A grantee shall determine the 
eligibility

[[Page 329]]

of each student before the student is selected to participate. A grantee 
does not have to redetermine a student's eligibility once the student 
has been determined eligible in accordance with the provisions of 
Sec. 647.3; and
    (2) A grantee shall determine the status of a low-income individual 
on the basis of the documentation described in section 402A(e) of the 
HEA.
    (b) Recordkeeping. For each student, a grantee shall maintain a 
record of--
    (1) The basis for the grantee's determination that the student is 
eligible to participate in the project under Sec. 647.3;
    (2) The individual needs assessment;
    (3) The services provided to the participant; and
    (4) The specific educational progress made by the student during and 
after participation in the project.
    (c) Other reporting requirements. A grantee shall submit to the 
Secretary reports and other information as requested in order to 
demonstrate program effectiveness.
    (d) Project director. A grantee shall designate a project director 
who has--
    (1) Authority to conduct the project effectively; and
    (2) Appropriate professional qualifications, experience and 
administrative skills to effectively fulfill the objectives of the 
project.

(Authority: 20 U.S.C. 1070a-15)



PART 648--GRADUATE ASSISTANCE IN AREAS OF NATIONAL NEED--Table of Contents




                           Subpart A--General

Sec.
648.1  What is the Graduate Assistance in Areas of National Need 
          program?
648.2  Who is eligible for a grant?
648.3  What activities may the Secretary fund?
648.4  What is included in the grant?
648.5  What is the amount of a grant?
648.6  What is the duration of a grant?
648.7  What is the institutional matching contribution?
648.8  What regulations apply?
648.9  What definitions apply?

   Subpart B--How Does an Institution of Higher Education Apply for a 
                                 Grant?

648.20  How does an institution of higher education apply for a grant?

            Subpart C--How Does the Secretary Make an Award?

648.30  How does the Secretary evaluate an application?
648.31  What selection criteria does the Secretary use?
648.32  What additional factors does the Secretary consider?
648.33  What priorities and absolute preferences does the Secretary 
          establish?

                  Subpart D--How Are Fellows Selected?

648.40  How does an academic department select fellows?
648.41  How does an individual apply for a fellowship?

           Subpart E--How Does the Secretary Distribute Funds?

648.50  What are the Secretary's payment procedures?
648.51  What is the amount of a stipend?
648.52  What is the amount of the institutional payment?

     Subpart F--What Are the Administrative Responsibilities of the 
                              Institution?

648.60  When does an academic department make a commitment to a fellow 
          to provide stipend support?
648.61  How must the academic department supervise the training of 
          fellows?
648.62  How can the institutional payment be used?
648.63  How can the institutional matching contribution be used?
648.64  What are unallowable costs?
648.65  How does an institution of higher education disburse and return 
          funds?
648.66  What records and reports are required from the institution?

   Subpart G--What Conditions Must Be Met by a Fellow After an Award?

648.70  What conditions must be met by a fellow?

Appendix to part 648--Academic Areas

    Authority: 20 U.S.C. 1135-1135ee, unless otherwise noted.

    Source: 58 FR 65842, Dec. 16, 1993, unless otherwise noted.

[[Page 330]]



                           Subpart A--General



Sec. 648.1  What is the Graduate Assistance in Areas of National Need program?

    The Graduate Assistance in Areas of National Need program provides 
fellowships through academic departments of institutions of higher 
education to assist graduate students of superior ability who 
demonstrate financial need.

(Authority: 20 U.S.C. 1135, 1135a)

[58 FR 65842, Dec. 16, 1993, as amended at 64 FR 13487, Mar. 18, 1999]



Sec. 648.2  Who is eligible for a grant?

    (a) The Secretary awards grants to the following:
    (1) Any academic department of an institution of higher education 
that provides a course of study that--
    (i) Leads to a graduate degree in an area of national need; and
    (ii) Has been in existence for at least four years at the time of an 
application for a grant under this part.
    (2) An academic department of an institution of higher education 
that--
    (i) Satisfies the requirements of paragraph (a)(1) of this section; 
and
    (ii) Submits a joint application with one or more eligible 
nondegree-granting institutions that have formal arrangements for the 
support of doctoral dissertation research with one or more degree-
granting institutions.
    (b) A formal arrangement under paragraph (a)(2)(ii) of this section 
is a written agreement between a degree-granting institution and an 
eligible nondegree-granting institution whereby the degree-granting 
institution accepts students from the eligible nondegree-granting 
institution as doctoral degree candidates with the intention of awarding 
these students doctorates in an area of national need.
    (c) The Secretary does not award a grant under this part for study 
at a school or department of divinity.

(Authority: 20 U.S.C. 1135, 1135a)



Sec. 648.3  What activities may the Secretary fund?

    (a) The Secretary awards grants to institutions of higher education 
to fund fellowships in one or more areas of national need.
    (b)(1) For the purposes of this part, the Secretary designates areas 
of national need from the academic areas listed in the appendix to this 
part or from the resulting inter-disciplines.
    (2) The Secretary announces these areas of national need in a notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1135, 1135a)



Sec. 648.4  What is included in the grant?

    Each grant awarded by the Secretary consists of the following:
    (a) The stipends paid by the Secretary through the institution of 
higher education to fellows. The stipend provides an allowance to a 
fellow for the fellow's (and his or her dependents') subsistence and 
other expenses.
    (b) The institutional payments paid by the Secretary to the 
institution of higher education to be applied against each fellow's 
tuition, fees, and the costs listed in Sec. 648.62(b).

(Authority: 20 U.S.C. 1135c, 1135d)



Sec. 648.5  What is the amount of a grant?

    (a) The amount of a grant to an academic department may not be less 
than $100,000 and may not be more than $750,000 in a fiscal year.
    (b) In any fiscal year, no academic department may receive more than 
$750,000 as an aggregate total of new and continuing grants.

(Authority: 20 U.S.C. 1135)



Sec. 648.6  What is the duration of a grant?

    The duration of a grant awarded under this part is a maximum of 
three annual budget periods during a three-year (36-month) project 
period.

(Authority: 20 U.S.C. 1135)



Sec. 648.7  What is the institutional matching contribution?

    An institution shall provide, from non-Federal funds, an 
institutional matching contribution equal to at least 25 percent of the 
amount of the grant received under this part, for the uses indicated in 
Sec. 648.63.

(Authority: 20 U.S.C. 1135b, 1135c)

[[Page 331]]



Sec. 648.8  What regulations apply?

    The following regulations apply to this program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part.

(Authority: 20 U.S.C. 1135)



Sec. 648.9  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
Budget period
Department
EDGAR
Equipment
Grant
Nonprofit
Project period
Secretary
Supplies

    (b) Other definitions. The following definitions also apply to this 
part:
    Academic department means any department, program, unit, orany other 
administrative subdivision of an institution of higher education that--
    (i) Directly administers or supervises post-baccalaureate 
instruction in a specific discipline; and
    (ii) Has the authority to award academic course credit acceptable to 
meet degree requirements at an institution of higher education.
    Academic field means an area of study in an academic department 
within an institution of higher education other than a school or 
department of divinity.
    Academic year means the 12-month period commencing with the fall 
instructional term of the institution.
    Application period means the period in which the Secretary solicits 
applications for this program.
    Discipline means a branch of instruction or learning.
    Eligible non-degree granting institution means any institution that-
-
    (i) Conducts post-baccalaureate academic programs of study but does 
not award doctoral degrees in an area of national need;
    (ii) Is described in section 501(c)(3) of the Internal Revenue Code 
of 1986 and is exempt from tax under section 501(a) of the Code;
    (iii) Is organized and operated substantially to conduct scientific 
and cultural research and graduate training programs;
    (iv) Is not a private foundation;
    (v) Has academic personnel for instruction and counseling who meet 
the standards of the institution of higher education in which the 
students are enrolled; and
    (vi) Has necessary research resources not otherwise readily 
available in the institutions in which students are enrolled.
    Fees mean non-refundable charges paid by a graduate student for 
services, materials, and supplies that are not included within the 
tuition charged by the institution in which the student is enrolled.
    Fellow means a recipient of a fellowship under this part.
    Fellowship means an award made by an institution of higher education 
to an individual for graduate study under this part at the institution 
of higher education.
    Financial need means the fellow's financial need as determined under 
title IV, part F, of the HEA for the period of the fellow's enrollment 
in the approved academic field of study for which the fellowship was 
awarded.
    General operational overhead means non-instructional expenses 
incurred by an academic department in the normal administration and 
conduct of its academic program, including the costs of supervision, 
recruitment, capital outlay, debt service, indirect costs, or any

[[Page 332]]

other costs not included in the determination of tuition and non-
refundable fee charges.
    Graduate student means an individual enrolled in a program of post-
baccalaureate study at an institution of higher education.
    Graduate study means any program of postbaccalaureate study at an 
institution of higher education.
    HEA means the Higher Education Act of 1965, as amended.
    Highest possible degree available means a doctorate in an academic 
field or a master's degree, professional degree, or other post-
baccalaureate degree if a doctorate is not available in that academic 
field.
    Institution of higher education (Institution) means an institution 
of higher education, other than a school or department of divinity, as 
defined in section 1201(a) of the HEA.
    Inter-discipline means a course of study that involves academic 
fields in two or more disciplines.
    Minority means Alaskan Native, American Indian, Asian-American, 
Black (African-American), Hispanic American, Native Hawaiian, or Pacific 
Islander.
    Multi-disciplinary application means an application that requests 
fellowships for more than a single academic department in areas of 
national need designated as priorities by the Secretary under this part.
    Project means the activities necessary to assist, whether from grant 
funds or institutional resources, fellows in the successful completion 
of their designated educational programs.
    Satisfactory progress means that a fellow meets or exceeds the 
institution's criteria and standards established for a graduate 
student's continued status as an applicant for the graduate degree in 
the academic field for which the fellowship was awarded.
    School or department of divinity means an institution, or an 
academic department of an institution, whose program is specifically for 
the education of students to prepare them to become ministers of 
religion or to enter into some other religious vocation or to prepare 
them to teach theological subjects.
    Students from traditionally underrepresented backgrounds mean women 
and minorities who traditionally are underrepresented in areas of 
national need as designated by the Secretary.
    Supervised training means training provided to fellows under the 
guidance and direction of faculty in the academic department.
    Tuition means the charge for instruction by the institution of 
higher education in which the fellow is enrolled.
    Underrepresented in areas of national need means proportionate 
representation as measured by degree recipients, that is less than the 
proportionate representation in the general population, as indicated by-
-
    (i) The most current edition of the Department's Digest of 
Educational Statistics;
    (ii) The National Research Council's Doctorate Recipients from 
United States Universities;
    (iii) Other standard statistical references, as announced annually 
in the Federal Register notice inviting applications for new awards 
under this program; or
    (iv) As documented by national survey data submitted to and accepted 
by the Secretary on a case-by-case basis.

(Authority: 20 U.S.C. 1135-1135d)



   Subpart B--How Does an Institution of Higher Education Apply for a 
                                 Grant?



Sec. 648.20  How does an institution of higher education apply for a grant?

    (a) To apply for a grant under this part, an institution of higher 
education shall submit an application that responds to the appropriate 
selection criteria in Sec. 648.31.
    (b) In addition, an application for a grant must--
    (1) Describe the current academic program for which the grant is 
sought;
    (2) Request a specific number of fellowships to be awarded on a 
full-time basis for the academic year covered under the grant in each 
academic field included in the application;
    (3) Set forth policies and procedures to ensure that in making 
fellowship awards under this part the institution will seek talented 
students from traditionally underrepresented backgrounds;

[[Page 333]]

    (4) Set forth policies and procedures to assure that in making 
fellowship awards under this part the institution will make awards to 
individuals who satisfy the requirements of Sec. 648.40;
    (5) Set forth policies and procedures to ensure that Federal funds 
made available under this part for any fiscal year will be used to 
supplement and, to the extent practical, increase the funds that 
otherwise would be made available for the purposes of this part and, in 
no case, to supplant those funds;
    (6) Provide assurances that the institution will provide the 
institutional matching contribution described in Sec. 648.7;
    (7) Provide assurances that, in the event that funds made available 
to the academic department under this part are insufficient to provide 
the assistance due a student under the commitment entered into between 
the academic department and the student, the academic department will, 
from any funds available to it, fulfill the commitment to the student;
    (8) Provide that the institution will comply with the requirements 
in subpart F; and
    (9) Provide assurances that the academic department will provide at 
least one year of supervised training in instruction to students 
receiving fellowships under this program.
    (c) In any application period, an academic department may not submit 
more than one application for new awards.

(Approved by the Office of Management and Budget under control number 
1840-0604)

(Authority: 20 U.S.C. 1135b)

[58 FR 65842, Dec. 16, 1993, as amended at 64 FR 13487, Mar. 18, 1999]



            Subpart C--How Does the Secretary Make an Award?



Sec. 648.30  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application on the basis of the 
criteria in Sec. 648.31.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.

(Authority: 20 U.S.C. 1135, 1135b)



Sec. 648.31  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Meeting the purposes of the program. (7 points) The Secretary 
reviews each application to determine how well the project will meet the 
purposes of the program, including the extent to which--
    (1) The applicant's general and specific objectives for the project 
are realistic and measurable;
    (2) The applicant's objectives for the project seek to sustain and 
enhance the capacity for teaching and research at the institution and at 
State, regional, or national levels;
    (3) The applicant's objectives seek to institute policies and 
procedures to ensure the enrollment of talented graduate students from 
traditionally underrepresented backgrounds; and
    (4) The applicant's objectives seek to institute policies and 
procedures to ensure that it will award fellowships to individuals who 
satisfy the requirements of Sec. 648.40.
    (b) Extent of need for the project. (5 points) The Secretary 
considers the extent to which a grant under the program is needed by the 
academic department by considering--
    (1) How the applicant identified the problems that form the specific 
needs of the project;
    (2) The specific problems to be resolved by successful realization 
of the goals and objectives of the project; and
    (3) How increasing the number of fellowships will meet the specific 
and general objectives of the project.
    (c) Quality of the graduate academic program. (25 points) The 
Secretary reviews each application to determine the quality of the 
current graduate academic program for which project funding is sought, 
including--
    (1) The course offerings and academic requirements for the graduate 
program;
    (2) The qualifications of the faculty, including education, research 
interest,

[[Page 334]]

publications, teaching ability, and accessibility to graduate students;
    (3) The focus and capacity for research; and
    (4) Any other evidence the applicant deems appropriate to 
demonstrate the quality of its academic program.
    (d) Quality of the supervised teaching experience. (5 points) The 
Secretary reviews each application to determine the quality of the 
teaching experience the applicant plans to provide fellows under this 
program, including the extent to which the project--
    (1) Provides each fellow with the required supervised training in 
instruction;
    (2) Provides adequate instruction on effective teaching techniques;
    (3) Provides extensive supervision of each fellow's teaching 
performance; and
    (4) Provides adequate and appropriate evaluation of the fellow's 
teaching performance.
    (e) Recruitment plan. (10 points) The Secretary reviews each 
application to determine the quality of the applicant's recruitment 
plan, including--
    (1) How the applicant plans to identify, recruit, and retain 
students from traditionally underrepresented backgrounds in the academic 
program for which fellowships are sought;
    (2) How the applicant plans to identify eligible students for 
fellowships;
    (3) The past success of the academic department in enrolling 
talented graduate students from traditionally underrepresented 
backgrounds; and
    (4) The past success of the academic department in enrolling 
talented graduate students for its academic program.
    (f) Project administration. (7 points) The Secretary reviews the 
quality of the proposed project administration, including--
    (1) How the applicant will select fellows, including how the 
applicant will ensure that project participants who are otherwise 
eligible to participate are selected without regard to race, color, 
national origin, religion, gender, age, or disabling condition;
    (2) How the applicant proposes to monitor whether a fellow is making 
satisfactory progress toward the degree for which the fellowship has 
been awarded;
    (3) How the applicant proposes to identify and meet the academic 
needs of fellows;
    (4) How the applicant proposes to maintain enrollment of graduate 
students from traditionally underrepresented backgrounds; and
    (5) The extent to which the policies and procedures the applicant 
proposes to institute for administering the project are likely to ensure 
efficient and effective project implementation, including assistance to 
and oversight of the project director.
    (g) Institutional commitment. (16 points) The Secretary reviews each 
application for evidence that--
    (1) The applicant will provide, from any funds available to it, 
sufficient funds to support the financial needs of the fellows if the 
funds made available under the program are insufficient;
    (2) The institution's social and academic environment is supportive 
of the academic success of students from traditionally underrepresented 
backgrounds on the applicant's campus;
    (3) Students receiving fellowships under this program will receive 
stipend support for the time necessary to complete their courses of 
study, but in no case longer than 5 years; and
    (4) The applicant demonstrates a financial commitment, including the 
nature and amount of the institutional matching contribution, and other 
institutional commitments that are likely to ensure the continuation of 
project activities for a significant period of time following the period 
in which the project receives Federal financial assistance.
    (h) Quality of key personnel. (5 points) The Secretary reviews each 
application to determine the quality of key personnel the applicant 
plans to use on the project, including--
    (1) The qualifications of the project director;
    (2) The qualifications of other key personnel to be used in the 
project;
    (3) The time commitment of key personnel, including the project 
director, to the project; and
    (4) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are

[[Page 335]]

selected without regard to race, color, national origin, religion, 
gender, age, or disabling condition, except pursuant to a lawful 
affirmative action plan.
    (i) Budget. (5 points) The Secretary reviews each application to 
determine the extent to which--
    (1) The applicant shows a clear understanding of the acceptable uses 
of program funds; and
    (2) The costs of the project are reasonable in relation to the 
objectives of the project.
    (j) Evaluation plan. (10 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's methods of 
evaluation--
    (1) Relate to the specific goals and measurable objectives of the 
project;
    (2) Assess the effect of the project on the students receiving 
fellowships under this program, including the effect on persons of 
different racial and ethnic backgrounds, genders, and ages, and on 
persons with disabilities who are served by the project;
    (3) List both process and product evaluation questions for each 
project activity and outcome, including those of the management plan;
    (4) Describe both the process and product evaluation measures for 
each project activity and outcome;
    (5) Describe the data collection procedures, instruments, and 
schedules for effective data collection;
    (6) Describe how the applicant will analyze and report the data so 
that it can make adjustments and improvements on a regular basis; and
    (7) Include a time-line chart that relates key evaluation processes 
and benchmarks to other project component processes and benchmarks.
    (k) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the resources that the 
applicant makes available to graduate students receiving fellowships 
under this program, including facilities, equipment, and supplies.

(Approved by the Office of Management and Budget under control number 
1840-0604)

(Authority: 20 U.S.C. 1135-1135c)



Sec. 648.32  What additional factors does the Secretary consider?

    (a) Continuation awards. (1) Before funding new applications, the 
Secretary gives preference to grantees requesting their second or third 
year of funding.
    (2) If appropriations for this program are insufficient to fund all 
continuation grantees for the second and third years at the approved 
funding level, the Secretary prorates the available funds, if any, among 
the continuation grantees and, if necessary, awards continuation grants 
of less than $100,000.
    (b) Equitable distribution. In awarding grants, the Secretary will, 
consistent with an allocation of awards based on the quality of 
competing applications, ensure the following:
    (1) An equitable geographic distribution of grants to eligible 
applicant institutions of higher education.
    (2) An equitable distribution of grants to eligible applicant public 
and eligible applicant private institutions of higher education.

(Authority: 20 U.S.C. 1135-1135c)



Sec. 648.33  What priorities and absolute preferences does the Secretary establish?

    (a) For each application period, the Secretary establishes as an 
area of national need and gives absolute preference to one or more of 
the general disciplines and sub-disciplines listed as priorities in the 
appendix to this part or the resulting interdisciplines.
    (b) The Secretary announces the absolute preferences in a notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1135, 1135a)



                  Subpart D--How Are Fellows Selected?



Sec. 648.40  How does an academic department select fellows?

    (a) In selecting individuals to receive fellowships, an academic 
department shall consider only individuals who--
    (1) Are currently enrolled as graduate students, have been accepted 
at the grantee institution, or are enrolled or accepted as graduate 
students at an eligible nondegree-granting institution;
    (2) Are of superior ability;

[[Page 336]]

    (3) Have an excellent academic record;
    (4) Have financial need;
    (5) Are planning to pursue the highest possible degree available in 
their course of study;
    (6) Are planning a career in teaching or research;
    (7)Are not ineligible to receive assistance under 34 CFR 75.60; and
    (8)(i) Are United States citizens or nationals;
    (ii) Are permanent residents of the United States;
    (iii) Provide evidence from the Immigration and Naturalization 
Service that they are in the United States for other than a temporary 
purpose with the intention of becoming permanent residents; or
    (iv) Are citizens of any one of the Freely Associated States.
    (b) An individual who satisfies the eligibility criteria in 
paragraph (a) of this section, but who attends an institution that does 
not offer the highest possible degree available in the individual's 
course of study, is eligible for a fellowship if the individual plans to 
attend subsequently an institution that offers this degree.

(Authority: 20 U.S.C. 1135, 1135b)

[58 FR 65842, Dec. 16, 1993, as amended at 64 FR 13487, Mar. 18, 1999]



Sec. 648.41  How does an individual apply for a fellowship?

    An individual shall apply directly to an academic department of an 
institution of higher education that has received a grant.

(Authority: 20 U.S.C. 1135, 1135c)



           Subpart E--How Does the Secretary Distribute Funds?



Sec. 648.50  What are the Secretary's payment procedures?

    (a) The Secretary awards to the institution of higher education a 
stipend and an institutional payment for each individual awarded a 
fellowship under this part.
    (b) If an academic department of an institution of higher education 
is unable to use all of the amounts available to it under this part, the 
Secretary reallots the amounts not used to academic departments of other 
institutions of higher education for use in the academic year following 
the date of the reallotment.

(Authority: 20 U.S.C. 1135a, 1135c, 1135d)



Sec. 648.51  What is the amount of a stipend?

    (a) For a fellowship initially awarded for an academic year prior to 
the academic year 1993-94, the institution shall pay the fellow a 
stipend in an amount that equals the fellow's financial need or $10,000, 
whichever is less.
    (b) For a fellowship initially awarded for the academic year 1993-
94, or any succeeding academic year, the institution shall pay the 
fellow a stipend at a level of support equal to that provided by the 
National Science Foundation graduate fellowships, except that this 
amount must be adjusted as necessary so as not to exceed the fellow's 
demonstrated level of financial need as determined under part F of title 
IV of the HEA. The Secretary announces the amount of the stipend in a 
notice published in the Federal Register.

(Authority: 20 U.S.C. 1135c)

[58 FR 65842, Dec. 16, 1993, as amended at 64 FR 13487, Mar. 18, 1999]



Sec. 648.52  What is the amount of the institutional payment?

    (a) For academic year 1998-1999, the amount of the institutional 
payment received by an institution of higher education for each student 
awarded a fellowship at the institution is $10,222. Thereafter, the 
Secretary adjusts the amount of the institutional payment annually in 
accordance with inflation as determined by the United States Department 
of Labor's Consumer Price Index for the previous calendar year. The 
Secretary announces the amount of the institutional payment in a notice 
published in the Federal Register.
    (b) The institutional allowance paid under paragraph (a) of this 
section is reduced by the amount the institution charges and collects 
from a fellowship recipient for tuition and other expenses

[[Page 337]]

as part of the recipient's instructional program.

(Authority: 20 U.S.C. 1135d)

[58 FR 65842, Dec. 16, 1993, as amended at 64 FR 13487, Mar. 18, 1999]



     Subpart F--What Are the Administrative Responsibilities of the 
                              Institution?



Sec. 648.60  When does an academic department make a commitment to a fellow 
to provide stipend support?

    (a) An academic department makes a commitment to a fellow at any 
point in his or her graduate study for the length of time necessary for 
the fellow to complete the course of graduate study, but in no case 
longer than five years.
    (b) An academic department shall not make a commitment under 
paragraph (a) of this section to provide stipend support unless the 
academic department has determined that adequate funds are available to 
fulfill the commitment either from funds received or anticipated under 
this part or from institutional funds.

(Authority: 20 U.S.C. 1135c)



Sec. 648.61  How must the academic department supervise the training of fellows?

    The institution shall provide to fellows at least one academic year 
of supervised training in instruction at the graduate or undergraduate 
level at the schedule of at least one-half-time teaching assistant.

(Authority: 20 U.S.C. 1135b)



Sec. 648.62  How can the institutional payment be used?

    (a) The institutional payment must be first applied against a 
fellow's tuition and fees.
    (b) After payment of a fellow's tuition and fees, the institutional 
payment may be applied against educational expenses of the fellow that 
are not covered by tuition and fees and are related to the academic 
program in which the fellow is enrolled. These expenses include the 
following:
    (1) Costs for rental or purchase of any books, materials, or 
supplies required of students in the same course of study.
    (2) Costs of computer hardware, project specific software, and other 
equipment prorated by the length of the student's fellowship over the 
reasonable life of the equipment.
    (3) Membership fees of professional associations.
    (4) Travel and per diem to professional association meetings and 
registration fees.
    (5) International travel, per diem, and registration fees to 
participate in educational activities.
    (6) Expenses incurred in research.
    (7) Costs of reproducing and binding of educational products.
    (c) The institutional payment must supplement and, to the extent 
practical, increase the funds that would otherwise be made available for 
the purpose of the program and, in no case, to supplant institutional 
funds currently available for fellowships.

(Authority: 20 U.S.C. 1135b, 1135d)



Sec. 648.63  How can the institutional matching contribution be used?

    (a) The institutional matching contribution may be used to--
    (1) Provide additional fellowships to graduate students who are not 
already receiving fellowships under this part and who satisfy the 
requirements of Sec. 648.40;
    (2) Pay for tuition, fees, and the costs listed in Sec. 648.62(b);
    (3) Pay for costs of providing a fellow's instruction that are not 
included in the tuition or fees paid to the institution in which the 
fellow is enrolled; and
    (4) Supplement the stipend received by a fellow under Sec. 648.51 in 
an amount not to exceed a fellow's financial need.
    (b) An institution may not use its institutional matching 
contribution to fund fellowships that were funded by the institution 
prior to the award of the grant.

(Authority: 20 U.S.C. 1135, 1135b, 1135c)



Sec. 648.64  What are unallowable costs?

    Neither grant funds nor the institutional matching funds may be used 
to

[[Page 338]]

pay for general operational overhead costs of the academic department.

(Authority: 20 U.S.C. 1135, 1135d)



Sec. 648.65  How does the institution of higher education disburse and 
return funds?

    (a) An institution that receives a grant shall disburse a stipend to 
a fellow in accordance with its regular payment schedule, but shall not 
make less than one payment per academic term.
    (b) If a fellow withdraws from an institution before completion of 
an academic term, the institution may award the fellowship to another 
individual who satisfies the requirements in Sec. 648.40.
    (c) If a fellowship is vacated or discontinued for any period of 
time, the institution shall return a prorated portion of the 
institutional payment and unexpended stipend funds to the Secretary, 
unless the Secretary authorizes the use of those funds for a subsequent 
project period. The institution shall return the prorated portion of the 
institutional payment and unexpended stipend funds at a time and in a 
manner determined by the Secretary.
    (d) If a fellow withdraws from an institution before the completion 
of the academic term for which he or she received a stipend installment, 
the fellow shall return a prorated portion of the stipend installment to 
the institution at a time and in a manner determined by the Secretary.

(Authority: 20 U.S.C. 1135c, 1135d)



Sec. 648.66  What records and reports are required from the institution?

    (a) An institution of higher education that receives a grant shall 
provide to the Secretary, prior to the receipt of grant funds for 
disbursement to a fellow, a certification that the fellow is enrolled 
in, is making satisfactory progress in, and is devoting essentially full 
time to study in the academic field for which the grant was made.
    (b) An institution of higher education that receives a grant shall 
keep records necessary to establish--
    (1) That each student receiving a fellowship satisfies the 
eligibility requirements in Sec. 648.40;
    (2) The time and amount of all disbursements and return of stipend 
payments;
    (3) The appropriate use of the institutional payment; and
    (4) That assurances, policies, and procedures provided in its 
application have been satisfied.

(Approved by the Office of Management and Budget under control number 
1840-0604)

(Authority: 20 U.S.C. 1135-1135d)



   Subpart G--What Conditions Must Be Met by a Fellow After an Award?



Sec. 648.70  What conditions must be met by a fellow?

    To continue to be eligible for a fellowship, a fellow must--
    (a) Maintain satisfactory progress in the program for which the 
fellowship was awarded;
    (b) Devote essentially full time to study or research in the 
academic field in which the fellowship was awarded; and
    (c) Not engage in gainful employment, except on a part-time basis in 
teaching, research, or similar activities determined by the academic 
department to be in support of the fellow's progress toward a degree.

(Authority: 20 U.S.C. 1135c)

                  Appendix to Part 648--Academic Areas

    The Secretary may give an absolute preference to any of the academic 
areas listed as disciplines or subdisciplines below, or the resulting 
inter-disciplines. The list was derived from the Classification of 
Instructional Programs (CIP) developed by the Office of Educational 
Research and Improvement of the U.S. Department of Education and 
includes the instructional programs that may constitute courses of 
studies toward graduate degrees. The code number to the left of each 
discipline and subdiscipline is the Department's identification code for 
that particular type of instructional program.

05.  Area, Ethnic, and Cultural Studies
    05.01  Area Studies
    05.02  Ethnic and Cultural Studies
11.  Computer and Information Sciences
    11.01  Computer and Information Sciences, General
    11.02  Computer Programming
    11.04  Information Sciences and Systems

[[Page 339]]

    11.05  Computer Systems Analysis
    11.07  Computer Science
13.  Education
    13.01  Education, General
    13.02  Bilingual/Bicultural Education
    13.03  Curriculum and Instruction
    13.04  Education Administration and Supervision
    13.05  Educational/Instructional Media Design
    13.06  Educational Evaluation, Research, and Statistics
    13.07  International and Comparative Education
    13.08  Educational Psychology
    13.09  Social and Philosophical Foundations of Education
    13.10  Special Education
    13.11  Student Counseling and Personnel Services
    13.12  General Teacher Education
    13.13  Teacher Education, Specific Academic, and Vocational Programs
    13.14  Teaching English as a Second Language/Foreign Language
14.  Engineering
    14.01  Engineering, General
    14.02  Aerospace, Aeronautical, and Astronautical Engineering
    14.03  Agricultural Engineering
    14.04  Architectural Engineering
    14.05  Bioengineering and Biomedical Engineering
    14.06  Ceramic Sciences and Engineering
    14.07  Chemical Engineering
    14.08  Civil Engineering
    14.09  Computer Engineering
    14.10  Electrical, Electronic, and Communications Engineering
    14.11  Engineering Mechanics
    14.12  Engineering Physics
    14.13  Engineering Science
    14.14  Environmental/Environmental Health Engineering
    14.15  Geological Engineering
    14.16  Geophysical Engineering
    14.17  Industrial/Manufacturing Engineering
    14.18  Materials Engineering
    14.19  Mechanical Engineering
    14.20  Metallurgical Engineering
    14.21  Mining and Mineral Engineering
    14.22  Naval Architecture and Marine Engineering
    14.23  Nuclear Engineering
    14.24  Ocean Engineering
    14.25  Petroleum Engineering
    14.27  Systems Engineering
    14.28  Textile Sciences and Engineering
    14.29  Engineering Design
    14.30  Engineering/Industrial Management
    14.31  Materials Science
    14.32  Polymer/Plastics Engineering
16.  Foreign Languages
    16.01  Foreign Languages and Literatures
    16.03  East and Southeast Asian Languages and Literatures
    16.04  East European Languages and Literatures
    16.05  Germanic Languages and Literatures
    16.06  Greek Languages and Literatures
    16.07  South Asian Languages and Literatures
    16.09  Romance Languages and Literatures
    16.11  Middle Eastern Languages and Literatures
    16.12  Classical and Ancient Near Eastern Languages and Literatures
22.  Law and Legal Studies
    22.01  Law and Legal Studies
    25.  Library Science
    25.01  Library Science/Librarianship
    25.03  Library Assistant
26.  Biological Sciences/Life Sciences
    26.01  Biology, General
    26.02  Biochemistry and Biophysics
    26.03  Botany
    26.04  Cell and Molecular Biology
    26.05  Microbiology/Bacteriology
    26.06  Miscellaneous Biological Specializations
    26.07  Zoology
27.  Mathematics
    27.01  Mathematics
    27.03  Applied Mathematics
    27.05  Mathematic Statistics
40.  Physical Sciences
    40.01  Physical Sciences, General
    40.02  Astronomy
    40.03  Astrophysics
    40.04  Atmospheric Sciences and Meteorology
    40.05  Chemistry
    40.06  Geological and Related Sciences
    40.07  Miscellaneous Physical Sciences
    40.08  Physics
42.  Psychology
    42.01  Psychology
    42.02  Clinical Psychology
    42.03  Cognitive Psychology and Psycholinguistics
    42.04  Community Psychology
    42.06  Counseling Psychology
    42.07  Developmental and Child Psychology
    42.08  Experimental Psychology
    42.09  Industrial and Organizational Psychology
    42.11  Physiological Psychology/Psychobiology
    42.16  Social Psychology
    42.17  School Psychology
50.  Visual and Performing Arts
    50.01  Visual and Performing Arts
    50.02  Crafts, Folk Art, and Artisanry
    50.03  Dance
    50.04  Design and Applied Arts
    50.05  Dramatic/Theater Arts and Stagecraft
    50.06  Film/Video and Photographic Arts
    50.07  Fine Arts and Art Studies
    50.09  Music
51.  Health Professions and Related Sciences

[[Page 340]]

    51.01  Chiropractic (D.C., D.C.M.)
    51.02  Communication Disorders Sciences and Services
    51.03  Community Health Services
    51.04  Dentistry (D.D.S., D.M.D.)
    51.05  Dental Clinical Sciences/Graduate Dentistry (M.S., Ph.D.)
    51.06  Dental Services
    51.07  Health and Medical Administrative Services
    51.08  Health and Medical Assistants
    51.09  Health and Medical Diagnostic and Treatment Services
    51.10  Health and Medical Laboratory Technologies/Technicians
    51.11  Health and Medical Preparatory Programs
    51.12  Medicine (M.D.)
    51.13  Medical Basic Science
    51.14  Medical Clinical Services (M.S., Ph.D)
    51.15  Mental Health Services
    51.16  Nursing
    51.17  Optometry (O.D.)
    51.18  Ophthalmic/Optometric Services
    51.19  Osteopathic Medicine (D.O.)
    51.20  Pharmacy
    51.21  Podiatry (D.P.M., D.P., Pod.D.)
    51.22  Public Health
    51.23  Rehabilitation/Therapeutic Services
    51.24  Veterinary Medicine (D.V.M.)
    51.25  Veterinary Clinical Services
    51.27  Miscellaneous Health Professions



PART 649--PATRICIA ROBERTS HARRIS FELLOWSHIP PROGRAM--Table of Contents




                           Subpart A--General

Sec.
649.1  What is the Patricia Roberts Harris Fellowship Program?
649.2  Who is eligible for a grant?
649.3  What activities may the Secretary fund?
649.4  What funding reservations does the Secretary make for grants?
649.5  What regulations apply?
649.6  What definitions apply?

   Subpart B--How Does an Institution of Higher Education Apply for a 
                                 Grant?

649.10  How does an institution of higher education apply for a grant?

 Subpart C--How Does the Secretary Make a Grant for Master's Level and 
                     Professional Study Fellowships?

649.20  How does the Secretary evaluate an application?
649.21  What selection criteria does the Secretary use?
649.22  How does the Secretary establish priorities?

   Subpart D--How Does the Secretary Make a Grant for Doctoral Study 
                              Fellowships?

649.30  How does the Secretary evaluate an application?
649.31  What selection criteria does the Secretary use?
649.32  How does the Secretary establish priorities?

                  Subpart E--How Are Fellows Selected?

649.40  How does an institution of higher education select fellows?
649.41  How does an individual apply for a fellowship?

   Subpart F--What Are the Conditions and Components of a Fellowship?

649.50  What are the conditions and components of a fellowship for 
          master's level or professional degree study?
649.51  What are the conditions and components of a fellowship for 
          doctoral study?
649.52  What fellowship conditions apply?

     Subpart G--What Are the Administrative Responsibilities of the 
                              Institution?

649.60  What is the amount of a stipend?
649.61  How does the Secretary make an institutional payment?
649.62  What are the Secretary's payment procedures?
649.63  How does the institution disburse and return funds?
649.64  What records and reports are required from the institution?

Appendix to part 649--Academic Areas

    Authority: 20 U.S.C. 1134, 1134d-1134g, unless otherwise noted.

    Source: 58 FR 42860, Aug. 12, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 649.1  What is the Patricia Roberts Harris Fellowship Program?

    (a) The Patricia Roberts Harris Fellowship Program provides, through 
institutions of higher education, grants to assist in making available 
the benefits of master's level, professional, and doctoral education 
programs to women and individuals from minority groups who are 
underrepresented.
    (b) Each individual recipient of a fellowship under this program is 
to be known as a Patricia Roberts Harris Graduate Fellow.

(Authority: 20 U.S.C. 1134d)

[[Page 341]]



Sec. 649.2  Who is eligible for a grant?

    Institutions of higher education, offering a program of post-
baccalaureate study leading to a master's level, professional, or 
doctoral degree, other than schools or departments of divinity, are 
eligible to receive grants under this program.

(Authority: 20 U.S.C. 1134, 1134e)



Sec. 649.3  What activities may the Secretary fund?

    (a) The Secretary makes grants to institutions of higher education 
to enable the institutions to provide fellowships in master's level, 
professional, and doctoral education programs.
    (b)(1) In awarding fellowships for master's level and professional 
study, the institution must give priority to one or more of the 
following groups--
    (i) Women who are pursuing master's level or professional study in 
academic fields in which they are underrepresented;
    (ii) Individuals from minority groups who are pursuing master's 
level or professional study in academic fields in which they are 
underrepresented;
    (iii) Women who are pursuing master's level study leading to careers 
that serve the public interest; or
    (iv) Individuals from minority groups who are pursuing master's 
level study leading to careers that serve the public interest.
    (2) In awarding fellowships for doctoral study, the institution must 
give priority to one or more of the following groups--
    (i) Women undertaking doctoral study; or
    (ii) Individuals from traditionally underrepresented groups 
undertaking doctoral study.

(Authority: 20 U.S.C. 1134e)



Sec. 649.4  What funding reservations does the Secretary make for grants?

    The Secretary reserves--
    (a) Fifty percent of the funds appropriated for this program to make 
grants for projects that provide fellowships for master's level or 
professional study; and
    (b) Fifty percent of the funds appropriated for this program to make 
grants for projects that provide fellowships for doctoral study.

(Authority: 20 U.S.C. 1134e)



Sec. 649.5  What regulations apply?

    The following regulations apply to the Patricia Roberts Harris 
Fellowship Program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 649.

(Authority 20 U.S.C. 1134, 1134d-g)



Sec. 649.6  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
EDGAR
Grant
Nonprofit
Secretary

    (b) Other definitions. The following definitions also apply to this 
part:
    Academic field means an area of study in a professional school, 
academic department, or similar organizational unit within an 
institution of higher education.
    Academic year means the 12-month period beginning with the fall 
instructional term of the institution.
    Careers that serve the public interest means careers in government 
or in nonprofit community service organizations at the local, State, 
national, or international level.

[[Page 342]]

    Department means any department, program, unit or any other 
administrative subdivision of an institution of higher education that--
    (i) Directly administers or supervises postbaccalaureate instruction 
in a specific discipline; and
    (ii) Has the authority to award academic course credit acceptable to 
meet degree requirements at an institution of higher education.
    Doctoral study means a postbaccalaureate program of study leading to 
a degree in any academic field of graduate study that requires a 
dissertation.
    Fellow means a recipient of a fellowship under this part.
    Fellowship means an award made by an institution of higher education 
to an individual for master's level, professional, or doctoral study 
under this part.
    Financial need means the fellow's financial need, as determined 
under part F of title IV of the HEA, for the period of the fellow's 
enrollment.
    HEA means the Higher Education Act of 1965, as amended.
    Institution means an institution of higher education.
    Institution of higher education means an institution of higher 
education, other than a school or department of divinity, as defined in 
section 1201(a) of the HEA.
    Institutional payment means the amount paid by the Secretary to the 
institution of higher education in which the fellow is enrolled to be 
applied against the tuition and fees required of the fellow by the 
institution in support of the fellow's instructional program.
    Inter-discipline means a course of study that involves academic 
fields in two or more disciplines.
    Master's level study means a postbaccalaureate program of study 
leading to a master's degree in any academic field of graduate study.
    Minority means Alaskan Native, American Indian, Asian-American, 
Black (African-American), Hispanic American, Native Hawaiian, Pacific 
Islander, or other ethnic group underrepresented in master's level, 
professional, or doctoral study as indicated in standard statistical 
references, or as documented on a case-by-case basis by national survey 
data submitted to and accepted by the Secretary.
    Professional study means--
    (i) A postbaccalaureate program of study leading to a degree 
required for admission to practice a profession; or
    (ii) Any post-master's or doctoral degree that does not require a 
dissertation.
    Project means the activities necessary to assist, whether from grant 
funds or institutional resources, the fellows in the successful 
completion of their designated educational programs.
    Satisfactory progress means that the fellow meets or exceeds the 
institution's criteria and standards established for all graduate 
students' continued status as applicants for the graduate degree and in 
the academic field for which the fellowship was awarded.
    School or department of divinity means an institution, or a 
department of an institution, whose program is specifically for the 
education of students to prepare them to become ministers of religion or 
to enter into some other religious vocation, or to prepare them to teach 
theological subjects.
    Stipend means the amount paid by the institution to an individual 
awarded a fellowship, including an allowance for subsistence and other 
expenses for the individual and his or her dependents.
    Traditionally underrepresented groups means minorities and other 
groups that historically have been underrepresented in doctoral study.
    Underrepresented means proportionate representation as measured by 
degree recipients, that is less than the proportionate representation in 
the general population--
    (i) As indicated by--
    (A) The most current edition of the Department's Digest of 
Educational Statistics;
    (B) The National Research Council's Doctorate Recipients from United 
States Universities; or
    (C) Other standard statistical references, as announced annually in 
the Federal Register notice inviting applications for new awards under 
this program; or

[[Page 343]]

    (ii) As documented by national survey data submitted to and accepted 
by the Secretary on a case-by-case basis.
    U.S. National means--
    (i) A citizen of the United States; or
    (ii) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.

(Authority: 20 U.S.C. 1134, 1134d-g)



   Subpart B--How Does an Institution of Higher Education Apply for a 
                                 Grant?



Sec. 649.10  How does an institution of higher education apply for a grant?

    (a) To apply for a grant under this part, an institution of higher 
education must submit an application that responds to the appropriate 
selection criteria in Secs. 649.21 and 649.31.
    (b) An institution of higher education's application must describe 
how the institution will select eligible individuals to receive 
fellowships. This description must include procedures that ensure that--
    (1) The selected individuals will have the capability to achieve the 
academic goals of the fellowship; and
    (2) The institution will give priority to members of one or more of 
the groups to which priority must be given under Sec. 649.3(b)(1).
    (c) An institution of higher education may apply for a grant under 
this part for the following types of fellowships:
    (1) Master's Level and Professional Study Fellowships.
    (2) Doctoral Study Fellowships.
    (d) An institution of higher education may submit no more than one 
application for new awards for Master's Level and Professional Study 
Fellowships and no more than one application for new awards for Doctoral 
Study Fellowships in a given application period.

(Approved by the Office of Management and Budget under control number 
1840-0509)

(Authority: 20 U.S.C. 1134e)



 Subpart C--How Does the Secretary Make a Grant for Master's Level and 
                     Professional Study Fellowships?



Sec. 649.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for master's level and 
professional study fellowships on the basis of the criteria in 
Sec. 649.21.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.

(Authority: 20 U.S.C. 1134e)



Sec. 649.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:
    (a) Institution-wide criteria--(1) Institutional commitment. (15 
points) The Secretary reviews each application to determine the overall 
strength of the applicant's commitment to meet the needs of the students 
who are members of the group or groups to which the institution proposes 
to give priority in accordance with Sec. 649.3(b)(1), including 
consideration of--
    (i) Evidence that the institution's social and academic environment 
is supportive of the academic success of students who are members of the 
priority group or groups;
    (ii) The availability of other sources of financial aid and support 
for students who are members of the priority group or groups; and
    (iii) The employment of women or individuals from minority groups or 
both, depending on the group or groups to which the institution proposes 
to give priority, among the administrators and faculty in the 
institution.
    (2) Recruitment plan. (10 points)
    (i) The Secretary reviews each application for information that 
describes the applicant's recruitment plan.
    (ii) The Secretary looks for information that shows--
    (A) The applicant's active and aggressive efforts, previous and 
current, to identify and attract students who are members of the group 
or groups to

[[Page 344]]

which the applicant proposes to give priority.
    (B) The applicant's previous and current efforts in successfully 
preparing students from the group or groups to which the applicant 
proposes to give priority for careers in which members of those groups 
are underrepresented; and
    (C) The applicant's success in providing students with access to 
careers in which women and minority groups are underrepresented.
    (3) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the general institutional 
resources that the applicant plans to devote to the project, including 
facilities, equipment, and supplies.
    (4) Grant management. (5 points) The Secretary reviews each 
application to determine the applicant's ability to provide overall 
administration of the grant award, including providing assistance to and 
oversight of the project director.
    (5) Evaluation plan. (5 points) The Secretary reviews each 
application to determine the quality of the evaluation plan for the 
project, including the extent to which the applicant's evaluation 
methods--
    (i) Relate to the specific goals and measurable objectives of the 
project;
    (ii) Include both process and product evaluation measures that are 
objective and designed to produce data that are quantifiable; and
    (iii) Describe how the applicant will analyze and report the data so 
that it can make adjustments and improvements on a regular basis.
    (b) Academic field criteria--(1) Meeting the purpose of the 
authorizing statute. (8 points) The Secretary reviews each application 
to determine how well each academic field within the project will meet 
the purpose of the authorizing statute, including the extent to which--
    (i) The applicant describes the general and specific objectives of 
the project with respect to each academic field that are realistic and 
measurable; and
    (ii) The objectives of the project with respect to each academic 
field further the purposes of the authorizing statute by assisting in 
making available the benefits of master's level and professional 
education programs to one or more of the groups listed in 
Sec. 649.3(b)(1) of this part.
    (2) Extent of need for the project within each academic field. (10 
points) The Secretary reviews each application to determine the extent 
to which the project, within each academic field, will meet the specific 
graduate preparation and career-access needs of the group or groups to 
which the applicant proposes to give priority, including consideration 
of--
    (i) The needs of the applicant within each academic field that are 
addressed by the project;
    (ii) How the applicant identified those needs;
    (iii) How those needs will be met by the project within each 
academic field; and
    (iv) The benefits to be gained by meeting those needs.
    (3) Plan of operation. (10 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, with respect to each academic field, including--
    (i) The quality of the design of the project with respect to each 
academic field;
    (ii) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project within each 
academic field;
    (iii) How well the objectives of the project within each academic 
field relate to the purpose of the program;
    (iv) How well the project activities of each academic field within 
the project are described and the potential of those activities to 
achieve project objectives in a cost-effective manner;
    (v) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective; and
    (vi) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, religion, gender, age, or disabling condition, 
except as necessary to implement the priority or priorities established 
in accordance with the requirements of Sec. 649.3(b)(1).

[[Page 345]]

    (4) Quality of the academic program. (15 points) The Secretary 
reviews each application to determine the quality of the current 
academic program for each academic field within the project, including--
    (i) The course offerings and academic requirements for the academic 
program; and
    (ii) The focus on, and capability for, research or teaching.
    (5) Quality of key personnel. (12 points)
    (i) The Secretary reviews each application to determine the quality 
of key personnel the applicant plans to use on the project, including--
    (A) The qualifications of the project director (2 points);
    (B) The qualifications of the key faculty to be used for the project 
in each academic field (6 points);
    (C) The time that each person referred to in paragraphs (b)(5)(i) 
(A) and (B) of this section will commit to the project (2 points); and
    (D) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected without regard to 
race, color, national origin, religion, gender, age, or disabling 
condition, except pursuant to a lawful affirmative action plan (2 
points).
    (ii) To determine personnel qualifications under paragraphs 
(b)(5)(i) (A) and (B) of this section, the Secretary considers--
    (A) Experience and training in areas related to the objectives of 
the project or the relevant academic field within the project; and
    (B) Any other qualifications that pertain to the quality of the 
project.
    (6) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the resources the applicant 
plans to devote to the project, with respect to each academic field, 
including facilities, equipment, and supplies.

(Approved by the Office of Management and Budget under control number 
1840-0509)

(Authority: 20 U.S.C. 1134e)



Sec. 649.22  How does the Secretary establish priorities?

    (a)(1) The Secretary gives an absolute preference to applicants 
proposing to provide fellowships in the award of which priority is given 
to women or individuals from minority groups, or both, who are pursuing 
master's level or professional study and are underrepresented in the 
academic field for which the grant award is made.
    (2) The Secretary announces the absolute preference annually in the 
Federal Register notice inviting applications for new awards under this 
program.
    (b)(1) The Secretary gives a competitive preference of one point to 
applicants proposing to provide fellowships in the award of which 
priority is given to women or individuals from minority groups, or both, 
who are pursuing master's level study leading to careers that serve the 
public interest.
    (2) This point is in addition to any points the applicant earns 
under the selection criteria for the program.
    (c)(1) The Secretary gives an absolute preference to applicants 
proposing to provide fellowships in academic career fields of high 
national priority as established by the Secretary from among one or more 
of the academic areas listed in the appendix to this part or the 
resulting subdisciplinary or interdisciplinary academic areas.
    (2) The Secretary announces the absolute preference annually in the 
Federal Register notice inviting applications for new awards under this 
program.

(Authority: 20 U.S.C. 1134d, 1134e)



   Subpart D--How Does the Secretary Make a Grant for Doctoral Study 
                              Fellowships?



Sec. 649.30  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for doctoral study 
fellowships on the basis of the criteria in Sec. 649.31.
    (b) The Secretary awards up to 100 points for these criteria.
    (c) The maximum possible score for each criterion is indicated in 
parentheses.

(Authority: 20 U.S.C. 1134e)



Sec. 649.31  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate an 
application:

[[Page 346]]

    (a) Institution-wide criteria--(1) Institutional commitment. (15 
points) The Secretary reviews each application to determine the overall 
strength of the applicant's commitment to meet the needs of the students 
who are members of the group or groups to which the institution proposes 
to give priority in accordance with the requirements of 
Sec. 649.3(b)(2), including consideration of--
    (i) Evidence that the institution's social and academic environment 
is supportive of the academic success of students who are members of the 
priority group or groups;
    (ii) The availability of other sources of financial aid and support 
for students who are members of the priority group or groups; and
    (iii) The employment of women or individuals who are from minority 
groups or both, depending on the group or groups to which the 
institution proposes to give priority, among the administrators and 
faculty in the institution.
    (2) Recruitment plan. (10 points)
    (i) The Secretary reviews each application for information that 
describes the applicant's recruitment plan.
    (ii) The Secretary looks for information that shows--
    (A) The applicant's active and aggressive efforts, previous and 
current, to identify and attract qualified students who are members of 
the group or groups to which the applicant proposes to give priority;
    (B) The applicant's previous and current efforts in successfully 
preparing students who are members of the group or groups to which the 
applicant proposes to give priority for careers in which members of the 
group or groups are underrepresented; and
    (C) The applicant's success in providing students with access to 
careers in which women and minority groups are underrepresented.
    (3) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the general institutional 
resources that the applicant plans to devote to the project, including 
facilities, equipment, and supplies.
    (4) Grant management. (5 points) The Secretary reviews each 
application to determine the applicant's ability to provide overall 
administration of the grant, including providing assistance to and 
oversight of the project director.
    (5) Evaluation plan. (5 points) The Secretary reviews each 
application to determine the quality of the project's evaluation plan, 
including the extent to which the applicant's evaluation methods--
    (i) Relate to the specific goals and measurable objectives of the 
project;
    (ii) Include both process and product evaluation measures that are 
objective and designed to produce data that are quantifiable; and
    (iii) Describe how the applicant will analyze and report the data so 
that it can make adjustments and improvements on a regular basis.
    (b) Academic field criteria--(1) Meeting the purpose of the 
authorizing statute. (8 points) The Secretary reviews each application 
to determine how well the project will meet the purpose of the 
authorizing statute, with respect to each academic field, including the 
extent to which--
    (i) The applicant describes the general and specific objectives of 
the project with respect to each academic field that are realistic and 
measurable; and
    (ii) The objectives of the project, with respect to each academic 
field, further the purposes of the authorizing statute by assisting in 
making available the benefits of doctoral education programs to member 
of the group or groups to which the applicant proposes to give priority.
    (2) Extent of need for the project within each academic field. (5 
points) The Secretary reviews each application to determine the extent 
to which the project, within each academic field, will meet the specific 
graduate preparation and career-access needs of the group or groups to 
which the applicant proposes to give priority, including consideration 
of--
    (i) The needs of the applicant addressed by the project within each 
academic field;
    (ii) How the applicant identified those needs;

[[Page 347]]

    (iii) How those needs will be met by the project within each 
academic field; and
    (iv) The benefits to be gained by meeting those needs.
    (3) Plan of operation. (5 points) The Secretary reviews each 
application to determine the quality of the plan of operation for the 
project, with respect to each academic field, including--
    (i) The quality of the design of the project, with respect to each 
academic field;
    (ii) The extent to which the plan of management is effective and 
ensures proper and efficient administration of the project within each 
academic field;
    (iii) How well the objectives of the project within each academic 
field relate to the purpose of the program;
    (iv) How well the project activities within each academic field are 
described and the potential of those activities to achieve project 
objectives in a cost-effective manner;
    (v) The quality of the applicant's plan to use its resources and 
personnel to achieve each objective; and
    (vi) How the applicant will ensure that project participants who are 
otherwise eligible to participate are selected without regard to race, 
color, national origin, religion, gender, age, or disabling condition, 
except as necessary to implement the priority or priorities established 
in accordance with the requirements of Sec. 649.3(b)(2).
    (4) Quality of the academic program. (15 points) The Secretary 
reviews each application to determine the quality of the current 
academic program for each academic field within the project, including--
    (i) The course offerings and academic requirements for the academic 
program; and
    (ii) The focus on, and capacity for, research or teaching.
    (5) Quality of key personnel. (12 points)
    (i) The Secretary reviews each application to determine the quality 
of key personnel the applicant plans to use on the project, including--
    (A) The qualifications of the project director (2 points);
    (B) The qualifications of each of the key faculty to be used on the 
project in each academic field (6 points);
    (C) The time that each person referred to in paragraphs (b)(5)(i) 
(A) and (B) of this section will commit to the project (2 points); and
    (D) How the applicant, as part of its nondiscriminatory employment 
practices, will ensure that its personnel are selected without regard to 
race, color, national origin, religion, gender, age, or disabling 
condition, except pursuant to a lawful affirmative action plan (2 
points).
    (ii) To determine personnel qualifications under paragraphs 
(b)(5)(i) (A) and (B) of this section, the Secretary considers--
    (A) Experience and training in areas related to the objectives of 
the project or the relevant academic field within the project; and
    (B) Any other qualifications that pertain to the quality of the 
project.
    (6) Institutional support. (10 points)
    (i) The Secretary reviews each application to determine the adequacy 
of the applicant's plans to provide two years of support for each 
fellow, immediately following the second year of fellowship support, 
including at least one year of supervised teaching.
    (ii) In reviewing the applicant's plan of support for the fellows, 
the Secretary considers--
    (A) The applicant's financial support for each fellow; and
    (B) The applicant's plan for the supervision of each fellow's 
teaching assignment.
    (7) Adequacy of resources. (5 points) The Secretary reviews each 
application to determine the adequacy of the resources that the 
applicant plans to devote to the project, with respect to each academic 
field, including facilities, equipment, and supplies.

(Approved by the Office of Management and Budget under control number 
1840-0509)

(Authority: 20 U.S.C. 1134e, 1134f)



Sec. 649.32  How does the Secretary establish priorities?

    (a) The Secretary gives an absolute preference to applicants 
proposing to provide fellowships in the award of which priority is given 
to members of one or more of the groups identified in Sec. 649.3(b)(2).
    (b) The Secretary gives an absolute preference to applicants 
proposing to

[[Page 348]]

provide fellowships in academic career fields of high national priority 
as established by the Secretary from among one or more of the academic 
areas listed in the appendix to this part or the resulting 
subdisciplinary or inter-disciplinary academic areas.
    (c) The Secretary announces the absolute preferences annually in the 
Federal Register notice inviting applications for new awards under this 
program.

(Authority: 20 U.S.C. 1134d, 1134e)



                  Subpart E--How Are Fellows Selected?



Sec. 649.40  How does an institution of higher education select fellows?

    (a) In selecting individuals to receive master's level and 
professional study fellowships, the institution of higher education 
shall--
    (1) Give priority to members of one or more of the groups identified 
for priority in Sec. 649.3(b)(1); and
    (2) Select only individuals who--
    (i) Have been accepted for or are enrolled in a program of study 
leading to a master's level or professional degree in the academic field 
for which the institution received a grant;
    (ii) Plan to pursue an academic or professional career in the 
academic field of study for which the institution received the grant;
    (iii)(A) Are nationals of the United States;
    (B) Are in the United States for other than a temporary purpose and 
intend to become permanent residents; or
    (C) Are permanent residents of the Trust Territory of the Pacific 
Islands; and
    (iv) Are not ineligible to receive assistance under 34 CFR 75.60, as 
added on July 8, 1992 (57 FR 30328, 30337).
    (b) In selecting individuals to receive doctoral study fellowships, 
the institution of higher education shall--
    (1) Give priority to members of one or more of the groups identified 
for priority in Sec. 649.3(b)(2); and
    (2) For doctoral study fellowships other than doctoral study leading 
to an academic career, select only individuals who--
    (i) Have been accepted for or are enrolled in a program of study 
leading to a doctoral degree in the academic field for which the 
institution received a grant;
    (ii) Plan to pursue a professional career in the academic field of 
study for which the institution received the grant;
    (iii)(A) Are nationals of the United States;
    (B) Are in the United States for other than a temporary purpose and 
intend to become permanent residents; or
    (C) Are permanent residents of the Trust Territory of the Pacific 
Islands; and
    (iv) Are not ineligible to receive assistance under 34 CFR 75.60, as 
added on July 8, 1992 (57 FR 30328, 30337); and
    (3) For fellowships for doctoral study leading to an academic 
career, select only individuals who--
    (i) Have been accepted for or are enrolled in a program of study 
leading to a doctoral degree in the academic field for which the 
institution received a grant;
    (ii) Plan to pursue an academic career in the academic field of 
study for which the institution received the grant;
    (iii) Are citizens of the United States; and
    (iv) Are not ineligible to receive assistance under 34 CFR 75.60, as 
added on July 8, 1992 (57 FR 30328, 30337).

(Authority: 20 U.S.C. 1134, 1134e, 1134f)



Sec. 649.41  How does an individual apply for a fellowship?

    An individual must apply directly to an institution of higher 
education that has received a grant.

(Authority: 20 U.S.C. 1134e)



   Subpart F--What Are the Conditions and Components of a Fellowship?



Sec. 649.50  What are the conditions and components of a fellowship for 
master's level or professional degree study?

    (a) An award for a fellowship for a master's level or professional 
degree program of study is for the normal period of time for completing 
the program or a total of three years, whichever is less.

[[Page 349]]

    (b) A fellow may apply to the Secretary for an additional period of 
fellowship support of up to 12 months. The fellow's application must 
include--
    (1) The specific facts detailing the reasons why the additional 
period of support is necessary;
    (2) A certification by the institution that it is aware of the 
fellow's application and that the fellow has attained satisfactory 
progress in the fellow's academic studies; and
    (3) A recommendation from the institution that the additional period 
of fellowship support of up to 12 months is necessary.
    (c) The institution shall request approval for the additional 
support in its third-year noncompeting continuation application, as 
required under 34 CFR 75.253 for multiyear project periods.

(Approved by the Office of Management and Budget under control number 
1840-0509)

(Authority: 20 U.S.C. 1134f)



Sec. 649.51  What are the conditions and components of a fellowship for 
doctoral study?

    (a) An award for a fellowship for doctoral study is for a total of 
three years, consisting of not more than two years of fellowship support 
for study or research, and not more than one year of support for 
dissertation work, provided that the fellow has attained satisfactory 
progress prior to the dissertation stage.
    (b) Following the two years of fellowship support for study or 
research, the institution of higher education shall provide--
    (1) Financial support in the amount of the fellow's financial need, 
as defined in Sec. 649.6(b), or in an amount equal to the stipend 
awarded in the last year of fellowship support, whichever is less, for 
two years;
    (2) A waiver of tuition and fees or an allowance on behalf of the 
fellow as full payment of tuition and fees required of the fellow by the 
institution as part of the fellow's instructional program for two years; 
and
    (3)(i) Teaching requirements for the fellow that equal those 
required of other graduate teaching assistants at that institution; and
    (ii) Supervision of the fellow's teaching for one year.
    (c) Following two years of institutional support, the institution 
must include in its application for the third year of fellowship support 
for the fellow's dissertation work a certification that--
    (1) The institution has provided two years of institutional support;
    (2) The fellow satisfactorily completed one year of supervised 
teaching; and
    (3) The fellow satisfactorily completed all pre-dissertation 
requirements.

(Approved by the Office of Management and Budget under control number 
1840-0509)

(Authority: 20 U.S.C. 1134f)



Sec. 649.52  What fellowship conditions apply?

    To continue to receive payments under a fellowship, a fellow must--
    (a) Maintain satisfactory progress;
    (b) Devote essentially full time to study or research (including 
acting as a teaching or research assistant, as required as a condition 
for award of the degree) in the academic field for which the fellowship 
was awarded; and
    (c) Not engage in gainful employment during the period of the 
fellowship, except on a part-time basis in teaching, research, or 
similar types of activities approved by the Secretary.

(Authority: 20 U.S.C. 1134f)



     Subpart G--What Are the Administrative Responsibilities of the 
                              Institution?



Sec. 649.60  What is the amount of a stipend?

    (a) The institution shall calculate the amount of a fellow's 
financial need annually, in accordance with Part F of Title IV of the 
HEA.
    (b) For a fellowship initially awarded for an academic year prior to 
the academic year 1993-1994, the institution shall pay the fellow a 
stipend in the amount of the fellow's financial need or $10,000, 
whichever is less.
    (c) For a fellowship initially awarded for the academic year 1993-
1994 or any succeeding academic year, the institution shall pay the 
fellow a stipend at a level of support equal to that provided by the 
National Science Foundation

[[Page 350]]

graduate fellowships, except that this amount must be adjusted as 
necessary so as not to exceed the fellow's demonstrated level of 
financial need.

(Authority: 20 U.S.C. 1134f)



Sec. 649.61  How does the Secretary make an institutional payment?

    (a) With respect to awards made for the academic year 1993-1994, the 
Secretary makes a payment of $9,000 to the institution of higher 
education for each individual awarded a fellowship at the institution. 
The Secretary adjusts the institutional payment annually thereafter in 
accordance with inflation as determined by the U.S. Department of 
Labor's Consumer Price Index for the previous calendar year.
    (b) An institution shall treat the institutional payment made by the 
Secretary on behalf of a fellow as full payment of tuition and fees 
required of the fellow by the institution as part of the fellow's 
instructional program.

(Authority: 20 U.S.C. 1134e)



Sec. 649.62  What are the Secretary's payment procedures?

    (a) The Secretary pays to the institution of higher education the 
fellowship stipend and institutional payment for each individual 
enrolled in that institution that is awarded a fellowship under this 
program.
    (b) If an institution of higher education is unable to use all of 
the amounts available under this program, the Secretary--on such dates 
each fiscal year as the Secretary determines--reallots the amounts not 
used to other institutions of higher education that can use the grants 
authorized under this program in the academic year following the 
reallotment.
    (c) The Secretary does not award a fellowship under this part for 
study at a school or department of divinity.

(Authority: 20 U.S.C. 1134, 1134e)



Sec. 649.63  How does the institution disburse and return funds?

    (a) If a fellow withdraws from an institution before completion of 
an academic term, the institution shall refund to the Secretary a pro-
rated portion of the institutional payment that it received for that 
fellow. The institution shall return the funds to the Secretary at a 
time and in a manner as the Secretary requires.
    (b) An institution shall disburse a stipend to a fellow in 
accordance with its regular payment schedule for graduate assistants, 
but shall not make less than one payment per academic term. If the 
fellowship is vacated or discontinued, the institution shall return 
unexpended funds to the Secretary at a time and in a manner as the 
Secretary requires.
    (c) A fellow who withdraws from an institution before completion of 
an academic term for which he or she received a stipend installment 
shall return a pro-rated portion of the stipend installment to the 
institution at a time and in a manner as the Secretary requires.
    (d) If a fellow first enrolls at an institution in the spring term, 
the institution shall disburse a pro-rated stipend to the fellow and use 
a pro-rated portion of the institutional payment for that fellow and 
shall carry over for disbursement the following academic year the 
remaining portion of the stipend and the institutional payment for that 
fellow.

(Authority: 20 U.S.C. 1134e, 1134f)



Sec. 649.64  What records and reports are required from the institution?

    (a) An institution of higher education that receives a grant shall 
provide to the Secretary, prior to receipt of funds for disbursement to 
a fellow after the fellow's first academic term, a certification that 
the fellow is enrolled in, is making satisfactory progress in, and is 
devoting essentially full time to study in the academic field for which 
the grant was made.
    (b) An institution of higher education that receives a grant shall 
keep records as are necessary to establish the time and amount of all 
stipend disbursements.

(Approved by the Office of Management and Budget under control number 
1840-0509)

(Authority: 20 U.S.C. 1134e, 1134f)

[[Page 351]]

                  Appendix to Part 649--Academic Areas

    The Secretary may give an absolute preference to applicants 
proposing to provide fellowships in academic areas listed below, or the 
resulting subdisciplinary or inter-disciplinary academic areas.
    The list was derived from the Classification of Instructional 
Programs (CIP) developed by the Office of Educational Research and 
Improvement of the U.S. Department of Education. The code number to the 
left of each discipline and subdiscipline is the Department's 
identification code for that particular type of instructional program.

01. Agricultural Business and Production
    01.01  Agricultural Business and Management
    01.02  Agricultural Mechanization
    01.03  Agricultural Production Workers and Managers
    01.04  Agricultural and Food Products Processing
    01.05  Agricultural Supplies and Related Services
    01.06  Horticultural Services Operations and Management
    01.07  International Agriculture
02. Agricultural Sciences
    02.01  Agriculture/Agricultural Sciences
    02.02  Animal Sciences
    02.03  Food Sciences and Technology
    02.04  Plant Sciences
    02.05  Soil Sciences
03. Conservation and Renewable Natural Resources
    03.01  Natural Resources Conservation
    03.02  Natural Resources Management and Protective Services
    03.03  Fishing and Fisheries Sciences and Management
    03.04  Forest Production and Processing
    03.05  Forestry and Related Sciences
    03.06  Wildlife and Wildlands Management
04. Architecture and Related Programs
    04.02  Architecture
    04.03  City/Urban, Community, and Regional Planning
    04.04  Architectural Environmental Design
    04.05  Interior Architecture
    04.06  Landscape Architecture
    04.07  Architectural Urban Design and Planning
05. Area, Ethnic, and Cultural Studies
    05.01  Area Studies
    05.02  Ethnic and Cultural Studies
08. Marketing Operations/Marketing and Distribution
    08.01  Apparel and Accessories Marketing Operations
    08.02  Business and Personal Services Marketing Operations
    08.03  Entrepreneurship
    08.04  Financial Services Marketing Operation
    08.05  Floristry Marketing Operations
    08.06  Food Products Retailing and Wholesaling Operations
    08.07  General Retailing and Wholesaling Operations and Skills
    08.08  Home and Office Products Marketing Operations
    08.09  Hospitality and Recreation Marketing Operations
    08.10  Insurance Marketing Operations
    08.11  Tourism and Travel Services Marketing Operations
    08.12  Vehicle and Petroleum Products Marketing Operations
    08.13  Health Products and Services Marketing Operations
09. Communications
    09.01  Communications, General
    09.04  Journalism and Mass Communications
    09.05  Public Relations and Organizational Communications
    09.07  Radio and Television Broadcasting
11. Computer and Information Sciences
    11.01  Computer and Information Sciences, General
    11.02  Computer Programming
    11.04  Information Sciences and Systems
    11.05  Computer Systems Analysis
    11.07  Computer Science
13. Education
    13.01  Education, General
    13.02  Bilingual/Bicultural Education
    13.03  Curriculum and Instruction
    13.04  Education Administration and Supervision
    13.05  Educational/Instructional Media Design
    13.06  Educational Evaluation, Research, and Statistics
    13.07  International and Comparative Education
    13.08  Educational Psychology
    13.09  Social and Philosophical Foundations of Education
    13.10  Special Education
    13.11  Student Counseling and Personnel Services
    13.12  General Teacher Education
    13.13  Teacher Education, Specific Academic, and Vocational Programs
    13.14  Teaching English as a Second Language/Foreign Language
    13.15  Teacher Assistant/Aide
14. Engineering
    14.01  Engineering, General
    14.02  Aerospace, Aeronautical, and Astronautical Engineering
    14.03  Agricultural Engineering
    14.04  Architectural Engineering
    14.05  Bioengineering and Biomedical Engineering
    14.06  Ceramic Sciences and Engineering
    14.07  Chemical Engineering
    14.08  Civil Engineering
    14.09  Computer Engineering
    14.10  Electrical, Electronic, and Communications Engineering

[[Page 352]]

    14.11  Engineering Mechanics
    14.12  Engineering Physics
    14.13  Engineering Science
    14.14  Environmental/Environmental Health Engineering
    14.15  Geological Engineering
    14.16  Geophysical Engineering
    14.17  Industrial/Manufacturing Engineering
    14.18  Materials Engineering
    14.19  Mechanical Engineering
    14.20  Metallurgical Engineering
    14.21  Mining and Mineral Engineering
    14.22  Naval Architecture and Marine Engineering
    14.23  Nuclear Engineering
    14.24  Ocean Engineering
    14.25  Petroleum Engineering
    14.27  Systems Engineering
    14.28  Textile Sciences and Engineering
    14.29  Engineering Design
    14.30  Engineering/Industrial Management
    14.31  Materials Science
    14.32  Polymer/Plastics Engineering
16. Foreign Languages
    16.01  Foreign Languages and Literatures
    16.03  East and Southeast Asian Languages and Literatures
    16.04  East European Languages and Literatures
    16.05  Germanic Languages and Literatures
    16.06  Greek Languages and Literatures
    16.07  South Asian Languages and Literatures
    16.09  Romance Languages and Literatures
    16.11  Middle Eastern Languages and Literatures
    16.12  Classical and Ancient Near Eastern Languages and Literatures
19. Home Economics
    19.01  Home Economics, General
    19.02  Home Economics Business Services
    19.03  Family and Community Studies
    19.04  Family/Consumer Resource Management
    19.05  Foods and Nutrition Studies
    19.06  Housing Studies
    19.07  Individual and Family Development Studies
    19.09  Clothing/Apparel and Textile Studies
20. Vocational Home Economics
    20.02  Child Care and Guidance Workers and Managers
    20.03  Clothing, Apparel, and Textile Workers and Managers
    20.04  Institutional Food Workers and Administrators
    20.05  Home Furnishings and Equipment Installers and Consultants
    20.06  Custodial, Housekeeping, and Home Services Workers and 
Managers
22. Law and Legal Studies
    22.01  Law and Legal Studies
23. English Language and Literature/Letters
    23.01  English Language and Literature, General
    23.03  Comparative Literature
    23.04  English Composition
    23.05  English Creative Writing
    23.07  American Literature (United States)
    23.08  English Literature (British and Commonwealth)
    23.10  Speech and Rhetorical Studies
    23.11  English Technical and Business Writing
24. Liberal Arts and Sciences, General Studies and Humanities
    24.01  Liberal Arts and Sciences, General Studies and Humanities
25. Library Science
    25.01  Library Science/Librarianship
    25.03  Library Assistant
26. Biological Sciences/Life Sciences
    26.01  Biology, General
    26.02  Biochemistry and Biophysics
    26.03  Botany
    26.04  Cell and Molecular Biology
    26.05  Microbiology/Bacteriology
    26.06  Miscellaneous Biological Specializations
    26.07  Zoology
27. Mathematics
    27.01  Mathematics
    27.03  Applied Mathematics
    27.05  Mathematic Statistics
31. Parks, Recreation, Leisure and Fitness Studies
    31.01  Parks, Recreation, and Leisure Studies
    31.03  Parks, Recreation, and Leisure Facilities Management
    31.05  Health and Physical Education/Fitness
38. Philosophy and Religion
    38.01  Philosophy
    38.02  Religion/Religious Studies
39. Theological Studies
    39.01  Biblical and Other Theological Languages and Literatures
    39.02  Bible/Biblical Studies
    39.03  Missions/Missionary Studies and Misology
    39.04  Religious Education
    39.05  Religious/Sacred Music
40. Physical Sciences
    40.01  Physical Sciences, General
    40.02  Astronomy
    40.03  Astrophysics
    40.04  Atmospheric Sciences and Meteorology
    40.05  Chemistry
    40.06  Geological and Related Sciences
    40.07  Miscellaneous Physical Sciences
    40.08  Physics
42. Psychology
    42.01  Psychology
    42.02  Clinical Psychology
    42.03  Cognitive Psychology and Psycholinguistics
    42.04  Community Psychology
    42.06  Counseling Psychology
    42.07  Developmental and Child Psychology

[[Page 353]]

    42.08  Experimental Psychology
    42.09  Industrial and Organizational Psychology
    42.11  Physiological Psychology/Psychobiology
    42.16  Social Psychology
    42.17  School Psychology
43. Protective Services
    43.01  Criminal Justice and Corrections
    43.02  Fire Protection
44. Public Administration and Services
    44.02  Community Organizations, Resources, and Services
    44.04  Public Administration
    44.05  Public Policy Analysis
    44.07  Social Work
45. Social Sciences and History
    45.01  Social Sciences, General
    45.02  Anthropology
    45.03  Archeology
    45.04  Criminology
    45.05  Demography/Population Studies
    45.06  Economics
    45.07  Geography
    45.08  History
    45.09  International Relations and Affairs
    45.10  Political Science and Government
    45.11  Sociology
    45.12  Urban Affairs/Studies
50. Visual and Performing Arts
    50.01  Visual and Performing Arts
    50.02  Crafts, Folk Art, and Artisanry
    50.03  Dance
    50.04  Design and Applied Arts
    50.05  Dramatic/Theater Arts and Stagecraft
    50.06  Film/Video and Photographic Arts
    50.07  Fine Arts and Art Studies
    50.09  Music
51. Health Professions and Related Sciences
    51.01  Chiropractic (D.C., D.C.M.)
    51.02  Communication Disorders Sciences and Services
    51.03  Community Health Services
    51.04  Dentistry (D.D.S., D.M.D.)
    51.05  Dental Clinical Sciences/Graduate Dentistry (M.S., Ph.D.)
    51.06  Dental Services
    51.07  Health and Medical Administrative Services
    51.08  Health and Medical Assistants
    51.09  Health and Medical Diagnostic and Treatment Services
    51.10  Health and Medical Laboratory Technologies/Technicians
    51.11  Health and Medical Preparatory Programs
    51.12  Medicine (M.D.)
    51.13  Medical Basic Science
    51.14  Medical Clinical Services (M.S., Ph.D)
    51.15  Mental Health Services
    51.16  Nursing
    51.17  Optometry (O.D.)
    51.18  Ophthalmic/Optometric Services
    51.19  Osteopathic Medicine (D.O.)
    51.20  Pharmacy
    51.21  Podiatry (D.P.M., D.P., Pod.D.)
    51.22  Public Health
    51.23  Rehabilitation/Therapeutic Services
    51.24  Veterinary Medicine (D.V.M.)
    51.25  Veterinary Clinical Services
    51.26  Miscellaneous Health Aides
    51.27  Miscellaneous Health Professions
52. Business Management and Administrative Services
    52.01  Business
    52.02  Business Administration and Management
    52.03  Accounting
    52.04  Administrative and Secretarial Services
    52.05  Business Communications
    52.06  Business/Managerial Economics
    52.07  Enterprise Management and Operations
    52.08  Financial Management and Services
    52.09  Hospitality Services Management
    52.10  Human Resources Management
    52.11  International Business
    52.12  Business Information and Data Processing Services
    52.13  Business Quantitative Methods and Management Science
    52.14  Marketing Management and Research
    52.15  Real Estate
    52.16  Taxation



PART 650--JACOB K. JAVITS FELLOWSHIP PROGRAM--Table of Contents




                           Subpart A--General

Sec.
650.1  What is the Jacob K. Javits Fellowship Program?
650.2  Who is eligible to receive a fellowship?
650.3  What regulations apply to the Jacob K. Javits Fellowship Program?
650.4  What definitions apply to the Jacob K. Javits Fellowship Program?
650.5  What does a fellowship award include?

        Subpart B--How Does an Individual Apply for a Fellowship?

650.10  How does an individual apply for a fellowship?

                  Subpart C--How Are Fellows Selected?

650.20  What are the selection procedures?

           Subpart D--What Conditions Must Be Met by Fellows?

650.30  Where may fellows study?
650.31  How does an individual accept a fellowship?
650.32  How does the Secretary withdraw an offer of a fellowship?
650.33  What is the duration of a fellowship?

[[Page 354]]

650.34  What conditions must be met by fellows?
650.35  May fellowship tenure be interrupted?
650.36  May fellows make changes in institution or field of study?
650.37  What records and reports are required from fellows?

     Subpart E--What Are the Administrative Responsibilities of the 
                              Institution?

650.40  What institutional agreements are needed?
650.41  How are institutional payments to be administered?
650.42  How are stipends to be administered?
650.43  How are disbursement and return of funds made?
650.44  What records and reports are required from institutions?

    Authority: 20 U.S.C. 1134-1134d, unless otherwise noted.

    Source: 58 FR 58084, Oct. 28, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 650.1  What is the Jacob K. Javits Fellowship Program?

    (a) Under the Jacob K. Javits Fellowship Program the Secretary 
awards fellowships to students of superior ability selected on the basis 
of demonstrated achievement, financial need, and exceptional promise, 
for study at the doctoral level in selected fields of the arts, 
humanities, and social sciences.
    (b) Students awarded fellowships under this program are called Jacob 
K. Javits Fellows.

(Authority: 20 U.S.C. 1134)

[58 FR 58084, Oct. 28, 1993, as amended at 64 FR 3199, Jan. 20, 1999]



Sec. 650.2  Who is eligible to receive a fellowship?

    An individual is eligible to receive a fellowship if the individual-
-
    (a) Is enrolled at an institution of higher education in the program 
of study leading to a doctoral degree, and is not studying for a 
religious vocation, in the academic field for which the fellowship is 
awarded;
    (b) Meets the eligibility requirements established by the Fellowship 
Board;
    (c) Is not ineligible to receive assistance under 34 CFR 75.60, as 
added on July 8, 1992 (57 FR 30328, 30337); and
    (d)(1) Is pursuing a doctoral degree that will not lead to an 
academic career and is--
    (i) A citizen or national of the United States;
    (ii) A permanent resident of the United States;
    (iii) In the United States for other than a temporary purpose and 
intends to become a permanent resident; or
    (iv) A citizen of any one of the Freely Associated States; or
    (2) Is pursuing a doctoral degree that will lead to an academic 
career and is a citizen of the United States.

(Authority: 20 U.S.C. 1134-1134d)

[58 FR 58084, Oct. 28, 1993, as amended at 64 FR 3199, Jan. 20, 1999]



Sec. 650.3  What regulations apply to the Jacob K. Javits Fellowship Program?

    The following regulations apply to this program:
    (a) The regulations in this part
650.
    (b) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs), except for the 
following:
    (i) Subpart C (How to Apply for a Grant);
    (ii) Subpart D (How Grants Are Made); and
    (iii) Sections 75.580 through 75.592 of subpart E.
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations), except for the terms ``grantee'' and ``recipient.''
    (4) 34 CFR part 82 (New Restrictions on Lobbying).
    (5) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (6) 34 CFR part 86 (Drug-Free Schools and Campuses).

(Authority: 20 U.S.C. 1134)

[[Page 355]]



Sec. 650.4  What definitions apply to the Jacob K. Javits Fellowship Program?

    The following definitions apply to terms used in this part:
    Academic year means the 12-month period beginning with the fall 
instructional term of the institution of higher education.
    Act means the Higher Education Act of 1965, as amended.
    Department means any program, unit or any other administrative 
subdivision of an institution of higher education that--
    (1) Directly administers or supervises post-baccalaureate 
instruction in a specific discipline; and
    (2) Has the authority to award academic course credit acceptable to 
meet degree requirements at an institution of higher education.
    Fellow means a recipient of a Jacob K. Javits fellowship under this 
part.
    Fellowship means an award made to a person for graduate study under 
this part.
    Fellowship Board means the Jacob K. Javits Fellowship Program 
Fellowship Board, composed of individual representatives of both public 
and private institutions of higher education who are appointed by the 
Secretary to establish general policies for the program and oversee its 
operation.
    Financial need means the fellow's financial need as determined under 
part F of title IV of the HEA, for the period of the fellow's enrollment 
in the approved academic field of study for which the fellowship was 
awarded.
    Grantee means an institution of higher education that administers a 
fellowship award under this part.
    HEA means the Higher Education Act of 1965, as amended.
    Institution means an institution of higher education.
    Institution of higher education means an institution of higher 
education as defined in section 1201(a) of the HEA.
    Institutional payment means the amount paid by the Secretary to the 
institution of higher education in which the fellow is enrolled to be 
applied against the tuition and fees required of the fellow by the 
institution as part of the fellow's instructional program.
    Knows or has reason to know means that a person with respect to a 
statement--
    (1) Has actual knowledge that the statement is false or fictitious;
    (2) Acts in deliberate ignorance of the truth or falsity of the 
statement; or
    (3) Acts in reckless disregard of the truth or falsity of the 
statement.
    Recipient means an institution of higher education that administers 
a fellowship award under this part.
    Satisfactory progress means that the fellow meets or exceeds the 
institution's criteria and standards established for all doctoral 
students' continued status as applicants for the doctoral degree in the 
academic field of study for which the fellowship was awarded.
    Secretary means Secretary of the Department of Education or an 
official or employee of the Department acting for the Secretary under a 
delegation of authority.
    Stipend means the amount paid to an individual awarded a fellowship, 
including an allowance for subsistence and other expenses for the 
individual and his or her dependents.

(Authority: 20 U.S.C. 1134-1134d)

[58 FR 58084, Oct. 28, 1993, as amended at 64 FR 3199, Jan. 20, 1999]



Sec. 650.5  What does a fellowship award include?

    The Secretary awards fellowships consisting of the following:
    (a) A stipend paid to the fellow, based upon an annual determination 
of the fellow's financial need, as described in Sec. 650.42.
    (b) An annual payment made to the institution in which the fellow is 
enrolled as described in Sec. 650.41.

(Authority: 20 U.S.C. 1134b)

[[Page 356]]



        Subpart B--How Does an Individual Apply for a Fellowship?



Sec. 650.10  How does an individual apply for a fellowship?

    An individual shall apply to the Secretary for a fellowship award in 
response to an application notice published by the Secretary in the 
Federal Register.

(Authority: 20 U.S.C. 1134)



                  Subpart C--How Are Fellows Selected?



Sec. 650.20  What are the selection procedures?

    (a) The Fellowship Board establishes criteria for the selection of 
fellows.
    (b) Each year the Fellowship Board selects specific fields of study, 
and the number of fellows in each field (within the humanities, arts and 
social sciences), for which fellowships will be awarded.
    (c) The Fellowship Board, or in the event the Secretary contracts 
with a non-governmental entity to administer the program, that non-
governmental entity, appoints panels of distinguished individuals in 
each field to evaluate applications.
    (d) The Secretary may make awards of the fellowships each year in 
two or more stages, taking into account at each stage the amount of 
funds remaining after the level of funding for awards previously made 
has been established or adjusted.

(Authority: 20 U.S.C. 1134a)

[58 FR 58084, Oct. 28, 1993, as amended at 64 FR 3199, Jan. 20, 1999]



           Subpart D--What Conditions Must be Met By Fellows?



Sec. 650.30  Where may fellows study?

    A fellow may use the fellowship only for enrollment in a doctoral 
program at an institution of higher education accredited by an 
accrediting agency or association recognized by the Secretary, which 
accepts the fellow for graduate study, and which has agreed to comply 
with the provisions of this part applicable to institutions.

(Authority: 20 U.S.C. 1134-1134d)

[58 FR 58084, Oct. 28, 1993, as amended at 64 FR 3199, Jan. 20, 1999]



Sec. 650.31  How does an individual accept a fellowship?

    (a) An individual notified by the Secretary of selection as a fellow 
shall inform the Secretary of the individual's acceptance in the manner 
and time prescribed by the Secretary in the notification.
    (b) If an individual fails to comply with the provisions of 
paragraph (a) of this section, the Secretary treats the individual's 
failure to comply as a refusal of the fellowship.

(Authority: 20 U.S.C. 1134)



Sec. 650.32  How does the Secretary withdraw an offer of a fellowship?

    (a) The Secretary withdraws an offer of a fellowship to an 
individual only if the Secretary determines that the individual 
submitted fraudulent information on the application.
    (b) The Secretary considers the application to contain fraudulent 
information if the application contains a statement that--
    (1) The applicant knows or has reason to know--
    (i) Asserts a material fact that is false or fictitious; or
    (ii) Is false or fictitious because it omits a material fact that 
the person making the statement has a duty to include in the statement; 
and
    (2) Contains or is accompanied by an express certification or 
affirmation of the truthfulness and accuracy of the contents of the 
statement.

(Authority: 20 U.S.C. 1134b)



Sec. 650.33  What is the duration of a fellowship?

    (a) An individual may receive a fellowship for a doctoral degree 
program of study for a total of 48 months or the time required for 
receiving the doctoral degree, whichever is less.
    (b)(1) An individual may receive a fellowship for no more than 24 
months for dissertation work, without the prior approval of the 
Secretary.

[[Page 357]]

    (2) A fellow may apply to the Secretary for an additional period of 
fellowship support for dissertation work. The fellow's application must 
include--
    (i) The specific facts detailing the reasons why the additional 
period of dissertation work support is necessary;
    (ii) A certification by the institution that it is aware of the 
fellow's application and that the fellow has attained satisfactory 
progress in the fellow's academic studies; and
    (iii) A recommendation from the institution that the additional 
period of fellowship support for dissertation work is necessary.
    (c) A fellow who maintains satisfactory progress in the program of 
study for which the fellowship was awarded may have the fellowship 
renewed annually for the total length of time described in paragraph (a) 
of this section.

(Authority: 20 U.S.C. 1134, 1134c)



Sec. 650.34  What conditions must be met by fellows?

    In order to continue to receive payments under a fellowship, a 
fellow shall--
    (a) Maintain satisfactory progress in the program for which the 
fellowship was awarded as determined by the institution of higher 
education;
    (b) Devote essentially full time to study or research in the field 
in which the fellowship was awarded, as determined by the institution of 
higher education;
    (c) Not engage in gainful employment during the period of the 
fellowship except on a part-time basis, for the institution of higher 
education at which the fellowship was awarded, in teaching, research, or 
similar activities approved by the Secretary; and
    (d) Begin study under the fellowship in the academic year specified 
in the fellowship award.

(Authority: 20 U.S.C. 1134-1134d)



Sec. 650.35  May fellowship tenure be interrupted?

    (a) An institution of higher education may allow a fellow to 
interrupt study for a period not to exceed 12 months, but only if the 
interruption of study is--
    (1) For the purpose of work, travel, or independent study, if the 
independent study is away from the institution and supportive of the 
fellow's academic program; and
    (2) Approved by the institution of higher education.
    (b) A fellow may continue to receive payments during the period of 
interruption only if the fellow's interruption of study is for the 
purpose of travel or independent study that is supportive of the 
fellow's academic program.
    (c) A fellow may not receive payments during the period of 
interruption if the fellow's interruption of study is for the purpose of 
travel that is not supportive of the fellow's academic program, or work, 
whether supportive of the fellow's academic program or not.
    (d) The Secretary makes a pro rata institutional payment to the 
institution of higher education in which the fellow is enrolled during 
the period the fellow receives payments as described in paragraph (b) of 
this section.

(Authority: 20 U.S.C. 1134)



Sec. 650.36  May fellows make changes in institution or field of study?

    After an award is made, a fellow may not make any change in the 
field of study or institution attended without the prior approval of the 
Secretary.

(Authority: 20 U.S.C. 1134c)



Sec. 650.37  What records and reports are required from fellows?

    Each individual who is awarded a fellowship shall keep such records 
and submit such reports as are required by the Secretary.

(Authority: 20 U.S.C. 1134c)



     Subpart E--What Are the Administrative Responsibilities of the 
                              Institution?



Sec. 650.40  What institutional agreements are needed?

    Students enrolled in an otherwise eligible institution of higher 
education may receive fellowships only if the institution enters into an 
agreement

[[Page 358]]

with the Secretary to comply with the provisions of this part.

(Authority: 20 U.S.C. 1134-1134d)



Sec. 650.41  How are institutional payments to be administered?

    (a) With respect to the awards made for the academic year 1998-1999, 
the Secretary makes a payment of $10,222 to the institution of higher 
education for each individual awarded a fellowship for pursuing a course 
of study at the institution. The Secretary adjusts the amount of the 
institutional payment annually thereafter in accordance with inflation 
as determined by the U.S. Department of Labor's Consumer Price Index for 
the previous calendar year.
    (b) If the institution of higher education charges and collects 
amounts from a fellow for tuition or other expenses required by the 
institution as part of the fellow's instructional program, the Secretary 
deducts that amount from the institutional payment.
    (c) If the fellow is enrolled for less than a full academic year, 
the Secretary pays the institution a pro rata share of the allowance.

(Authority: 20 U.S.C. 1134b)

[58 FR 58084, Oct. 28, 1993, as amended at 64 FR 3199, Jan. 20, 1999]



Sec. 650.42  How are stipends to be administered?

    (a) The institution annually shall calculate the amount of a 
fellow's financial need in the same manner as that in which the 
institution calculates its students' financial need under part F of 
title IV of the HEA.
    (b) For a fellowship initially awarded for an academic year prior to 
the academic year 1993-1994, the institution shall pay the fellow a 
stipend in the amount of the fellow's financial need or $10,000, 
whichever is less.
    (c) For a fellowship initially awarded for the academic year 1993-
1994 or any succeeding academic year, the institution shall pay the 
fellow a stipend at a level of support equal to that provided by the 
National Science Foundation graduate fellowships, except that the amount 
must be adjusted as necessary so as not to exceed the fellow's 
demonstrated level of financial need.

(Authority: 20 U.S.C. 1134b)



Sec. 650.43  How are disbursement and return of funds made?

    (a) An institution shall disburse a stipend to a fellow no less 
frequently than once per academic term. If the fellowship is vacated or 
discontinued, the institution shall return any unexpended funds to the 
Secretary at such time and in such manner as the Secretary may require.
    (b) If a fellow withdraws from an institution before completion of 
an academic term, the institution shall refund to the Secretary a 
prorated portion of the institutional payment that it received with 
respect to that fellow. The institution shall return those funds to the 
Secretary at such time and in such manner as the Secretary may require.
    (c) A fellow who withdraws from an institution before completion of 
an academic term for which the fellow received a stipend installment 
shall return a prorated portion of the stipend installment to the 
institution at such time and in such manner as the Secretary may 
require.

(Authority: 20 U.S.C. 1134b)



Sec. 650.44  What records and reports are required from institutions?

    (a) An institution shall provide to the Secretary, prior to 
receiving funds for disbursement to a fellow, a certification from an 
appropriate official at the institution stating whether that fellow is 
making satisfactory progress in, and is devoting essentially full time 
to the program for which the fellowship was awarded.
    (b) An institution shall keep such records as are necessary to 
establish the timing and amount of all disbursements of stipends.

(Approved by the Office of Management and Budget under control number 
1840-0562)

(Authority: 20 U.S.C. 1134c)

[[Page 359]]



PART 654--ROBERT C. BYRD HONORS SCHOLARSHIP PROGRAM--Table of Contents




                           Subpart A--General

Sec.
654.1  What is the Robert C. Byrd Honors Scholarship Program?
654.2  Who is eligible for an award?
654.3  What kind of activity may be assisted?
654.4  What regulations apply?
654.5  What definitions apply?

             Subpart B--How Does a State Apply for a Grant?

654.10  What must a State do to apply for a grant?
654.11  What is the content of a participation agreement?

       Subpart C--How Does the Secretary Make a Grant to a State?

654.20  How does the Secretary approve a participation agreement?
654.21   How does the Secretary determine the amount of the grant to 
          each participating State?

    Subpart D--How Does a Student Apply to an SEA for a Scholarship?

654.30  How does a student apply to an SEA for a scholarship?

  Subpart E--How Does an SEA Select an Eligible Student To Be Scholar?

654.40  Who is an eligible student?
654.41  What are the selection criteria and procedures?

       Subpart F--How Does a Scholar Receive Scholarship Payments?

654.50  How does an SEA disburse scholarship funds?
654.51  What are the continuing eligibility criteria?
654.52  What are the consequences of a scholar's failure to meet the 
          eligibility criteria?

         Subpart G--What Post-Award Conditions Must an SEA Meet?

654.60  What requirements must an SEA meet in the administration of this 
          program?

    Authority: 20 U.S.C. 1070d-31 to 1070d-41, unless otherwise noted.

    Source: 58 FR 42669, Aug. 11, 1993, unless otherwise noted.



                           Subpart A--General



Sec. 654.1  What is the Robert C. Byrd Honors Scholarship Program?

    Under the Robert C. Byrd Honors Scholarship Program, the Secretary 
makes grants to the States to provide scholarships for study at 
institutions of higher education to outstanding high school graduates 
who show promise of continued excellence, in an effort to recognize and 
promote student excellence and achievement.

(Authority: 20 U.S.C. 1070d-31, 1070d-33)



Sec. 654.2  Who is eligible for an award?

    (a) States are eligible for grants under this program.
    (b) Students who meet the eligibility criteria in Secs. 654.40 and 
654.51 are eligible for scholarships under this program.

(Authority: 20 U.S.C. 1070d-33, 1070d-36)



Sec. 654.3  What kind of activity may be assisted?

    A State may use its funds under this program, including funds 
collected from scholars under Sec. 654.60(a)(3), only to make 
scholarship payments to scholars.

(Authority: 20 U.S.C. 1070d-35, 1070d-38)



Sec. 654.4  What regulations apply?

    The following regulations apply to this program:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR 75.60-75.62 (regarding the ineligibility of certain 
individuals to receive assistance under part 75 (Direct Grant 
Programs)).
    (2) 34 CFR part 76 (State-Administered Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 82 (New Restrictions on Lobbying).

[[Page 360]]

    (7) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (8) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 654.

(Authority: 20 U.S.C. 1070d-31 et seq.)



Sec. 654.5  What definitions apply?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

EDGAR
Fiscal year
Private
Public
Secretary
State
State educational agency

    (b) Other definitions. The following definitions also apply to this 
part:
    Award year means the period of time from July 1 of one year through 
June 30 of the following year.
    Cost of attendance has the meaning given that term in section 472 of 
the HEA.
    Full-time student means a student enrolled at an institution of 
higher education who is carrying a full-time academic workload, as 
determined by that institution under standards applicable to all 
students enrolled in that student's program.
    HEA means the Higher Education Act of 1965, as amended.
    High school graduate means an individual who has--
    (i) A high school diploma;
    (ii) A General Education Development (GED) Certificate; or
    (iii) Any other evidence recognized by the State as the equivalent 
of a high school diploma.
    Institution of higher education means any public or private 
nonprofit institution of higher education, proprietary institution of 
higher education, or postsecondary vocational institution, as defined in 
section 481 of the HEA.
    Participating State means a State that has submitted a participation 
agreement that has been approved by the Secretary.
    Scholar means an individual who is selected as a Byrd Scholar.
    Scholarship means an award made to a scholar under this part.
    Secondary school year means the period of time during which a 
secondary school is in session, as determined by State law.
    Year of study means the period of time during which a full-time 
student at an institution of higher education is expected to complete 
the equivalent of one year of course work, as defined by the 
institution.

(Authority: 20 U.S.C. 1070d-31 et seq., 20 U.S.C. 1088)



             Subpart B--How Does a State Apply for a Grant?



Sec. 654.10  What must a State do to apply for a grant?

    (a) To apply for a grant under this program, a State must submit a 
participation agreement to the Secretary for review and approval by the 
deadline announced annually by the Secretary in the Federal Register.
    (b) On the Secretary's approval of its initial participation 
agreement for fiscal year 1993 or thereafter, a State need not submit a 
new participation agreement to be considered for funding under this 
program in subsequent years, except that any changes in the State's 
criteria and procedures must be incorporated in a revised participation 
agreement which must be submitted to the Secretary for review and 
approval.

(Approved by the Office of Management and Budget under control number 
1840-0612)

(Authority: 20 U.S.C. 1070d-35)



Sec. 654.11  What is the content of a participation agreement?

    A State's participation agreement must include the following:
    (a) A description of the criteria and procedures that the State, 
through its State educational agency (SEA), plans to use to administer 
this program in accordance with the requirements of this part, including 
the criteria and procedures it plans to use to--
    (1) Publicize the availability of Byrd scholarships to students in 
the State, with particular emphasis on procedures designed to ensure 
that students from low- and moderate-income families

[[Page 361]]

know about their opportunity for participation in the program;
    (2) Select eligible students;
    (3) Notify scholars of their selections and scholarship awards;
    (4) Monitor the continuing eligibility of scholars;
    (5) Disburse scholarship funds in accordance with the requirements 
of Sec. 654.50; and
    (6) Collect scholarship funds improperly disbursed.
    (b) Assurances that the SEA will--
    (1) Comply with the criteria and procedures in its approved 
participation agreement;
    (2) Submit for the prior written approval of the Secretary any 
changes in the criteria and procedures in the approved participation 
agreement; and
    (3) Expend the payments it receives under this program only as 
provided in Sec. 654.3.

(Approved by the Office of Management and Budget under control number 
1840-0612)

(Authority: 20 U.S.C. 1070d-35 to 1070d-38)



       Subpart C--How Does the Secretary Make a Grant to a State?



Sec. 654.20  How does the Secretary approve a participation agreement?

    The Secretary approves a participation agreement if it contains all 
of the information and assurances required in Sec. 654.11 and is in 
compliance with the requirements of this part.

(Authority: 20 U.S.C. 1070d-31 et seq.)



Sec. 654.21  How does the Secretary determine the amount of the grant to 
each participating State?

    (a) From the funds appropriated for this program, the Secretary 
allots to each participating State a grant equal to $1,500 multiplied by 
the number of scholarships the Secretary determines to be available to 
that State on the basis of the formula described in paragraph (b) of 
this section.
    (b) The number of scholarships that the Secretary allots to each 
participating State for any fiscal year bears the same ratio to the 
number of scholarships allotted to all participating States as each 
State's population ages 5 through 17 which is derived from the most 
recently available data from the U.S. Bureau of the Census bears to the 
population ages 5 through 17 in all participating States, except that--
    (1) Not fewer than 10 scholarships are allotted to any participating 
State; and
    (2) The District of Columbia, the Commonwealth of Puerto Rico, the 
U.S. Virgin Islands, American Samoa, the Commonwealth of Northern 
Mariana Islands, Guam, and the Trust Territory of the Pacific Islands 
(Palau) each are allotted 10 scholarships.

(Authority: 20 U.S.C. 1070d-34, 1070d-37)



    Subpart D--How Does a Student Apply to an SEA for a Scholarship?



Sec. 654.30  How does a student apply to an SEA for a scholarship?

    To apply for a scholarship under this program, a student must follow 
the application procedures established by the SEA in the student's State 
of legal residence.

(Authority: 20 U.S.C. 1070d-37)



 Subpart E--How Does an SEA Select an Eligible Student To Be a Scholar?



Sec. 654.40  Who is an eligible student?

    A student is eligible to be selected as a scholar if he or she--
    (a) Is a legal resident of the State to which he or she is applying 
for a scholarship;
    (b)(1) Is a U.S. citizen or national;
    (2) Provides evidence from the U.S. Immigration and Naturalization 
Service that he or she--
    (i) Is a permanent resident of the United States; or
    (ii) Is in the United States for other than a temporary purpose with 
the intention of becoming a citizen or permanent resident; or
    (3) Is a permanent resident of the Trust Territory of the Pacific 
Islands (Palau);
    (c) Becomes a high school graduate in the same secondary school year 
in which he or she submits the scholarship application;

[[Page 362]]

    (d) Has applied or been accepted for enrollment as a full-time 
student at an institution of higher education;
    (e) Is not ineligible to receive assistance as a result of default 
on a Federal student loan or other obligation, as provided under 34 CFR 
75.60; and
    (f) Files a Statement of Selective Service Registration Status, in 
accordance with the provisions of 34 CFR 668.33 of the Student 
Assistance General Provisions regulations, with the institution he or 
she plans to attend or is attending.

(Authority: 20 U.S.C. 1070d-36, 50 U.S.C. App. 462, 20 U.S.C. 1091)



Sec. 654.41  What are the selection criteria and procedures?

    (a) The SEA shall establish criteria and procedures for the 
selection of scholars, in accordance with the requirements of this part, 
after consultation with school administrators, school boards, teachers, 
counselors, and parents.
    (b) The SEA shall establish the selection criteria and procedures to 
ensure that it selects scholars--
    (1) Who are eligible students under the criteria provided in 
Sec. 654.40;
    (2) Who have demonstrated outstanding academic achievement and show 
promise of continued achievement;
    (3) In a manner that ensures an equitable geographic distribution of 
awards within the State; and
    (4) Without regard to--
    (i) Whether the secondary school each scholar attends is within or 
outside the scholar's State of legal residence;
    (ii) Whether the institution of higher education each scholar plans 
to attend is public or private or is within or outside the scholar's 
State of legal residence;
    (iii) Race, color, national origin, sex, religion, disability, or 
economic background; and
    (iv) The scholar's educational expenses or financial need.

(Approved by the Office of Management and Budget under control number 
1840-0612)

(Authority: 20 U.S.C. 1070d-33, 1070d-35 to 1070d-37)



       Subpart F--How Does a Scholar Receive Scholarship Payments?



Sec. 654.50  How does an SEA disburse scholarship funds?

    (a) Except as provided in paragraph (b) of this section, the SEA 
shall disburse $1,500 for each year of study for a maximum of four years 
of study to each scholar who--
    (1) Is selected in accordance with the criteria established under 
Sec. 654.41; and
    (2) Meets the requirements for continuing eligibility under 
Sec. 654.51.
    (b)(1) The SEA shall ensure that the total amount of financial aid 
awarded to a scholar for a year of study does not exceed the total cost 
of attendance.
    (2) The SEA shall ensure that loans are reduced prior to reducing a 
scholarship awarded under this program.
    (c) The SEA shall ensure that the selection process is completed, 
and the awards made, prior to the end of each secondary school academic 
year.

(Authority: 20 U.S.C. 1070d-38)



Sec. 654.51  What are the continuing eligibility criteria?

    (a) A scholar continues to be eligible for scholarship funds as long 
as the scholar continues to--
    (1) Meet the eligibility requirements in Sec. 654.40(b), (e), and 
(f);
    (2) Be enrolled as a full-time student at an institution of higher 
education except as provided in paragraph (b) of this section; and
    (3) Maintain satisfactory progress as determined by the institution 
of higher education the scholar is attending, in accordance with the 
criteria established in 34 CFR 668.14(e) of the Student Assistance 
General Provisions regulations.
    (b) In order to be eligible for scholarship funds, a scholar must be 
enrolled full time for the first year of study. If after the first year 
of study, the SEA determines that unusual circumstances justify waiver 
of the full-time attendance requirement, the scholar may enroll part 
time and continue to receive a scholarship payment. The SEA shall 
prorate the payment according to the scholar's enrollment status for the 
academic period during which he or she continues to be enrolled on a 
part-time basis but remains otherwise eligible for

[[Page 363]]

the award. For example, if a scholar for whom the full-time enrollment 
requirement is waived by the SEA is enrolled as a half-time student for 
one semester, he or she is eligible to receive one-quarter of his or her 
scholarship during that semester.

(Authority: 20 U.S.C. 1070d-33, 1070d-36)



Sec. 654.52  What are the consequences of a scholar's failure to meet 
the eligibility criteria?

    (a)(1) An SEA may permit a scholar to postpone or interrupt his or 
her enrollment at an institution of higher education without forfeiting 
his or her scholarship for up to 12 months, beginning on the date the 
scholar otherwise would have enrolled in the institution after the SEA 
awarded his or her scholarship or the date the scholar interrupts 
enrollment.
    (2) A scholar who postpones or interrupts his or her enrollment at 
an institution of higher education in accordance with standards 
established by the SEA is not eligible to receive scholarship funds 
during the period of postponement or interruption, but is eligible to 
receive scholarship payments on enrollment or re-enrollment at an 
institution of higher education.
    (3) A scholar's periods of postponement or interruption, taken in 
accordance with standards established by the SEA and not in excess of 12 
months, are not considered periods of suspension for the purposes of 
calculating the 12 months provided for suspension prior to termination 
under paragraph (b)(2) of this section.
    (b)(1) Except as provided in paragraph (a) of this section, if an 
SEA finds that a scholar fails to meet the requirements of Sec. 654.51 
within an award year, it shall suspend the scholar's eligibility to 
receive scholarship funds until the scholar is able to demonstrate to 
the satisfaction of the SEA that he or she meets these requirements.
    (2) Except as provided in paragraph (b)(3) of this section, a 
scholar's eligibility for a scholarship is terminated when the total of 
his or her suspension periods exceeds 12 months.
    (3) In exceptional circumstances, the SEA may extend the 12-month 
suspension period without terminating a scholar's eligibility under 
paragraph (b)(2) of this section, in accordance with standards 
established by the SEA.
    (c) A scholar who receives an award for a period for which the SEA 
subsequently determines the scholar was ineligible under the 
requirements in Sec. 654.40 or 654.51 shall repay to the SEA the total 
amount of the scholarship funds received for the period during which he 
or she was ineligible.

(Authority: 20 U.S.C. 1070d-35, 1070d-36 to 1070d-38)



         Subpart G--What Post-Award Conditions Must an SEA Meet?



Sec. 654.60  What requirements must an SEA meet in the administration of 
this program?

    (a) To receive and continue to receive payments under this part, an 
SEA shall--
    (1) Comply with the criteria, procedures, and assurances in its 
approved participation agreement;
    (2) Disburse the scholarship funds in accordance with Sec. 654.50 to 
the scholar, the institution of higher education in which the scholar 
enrolls, or copayable to the scholar and the institution of higher 
education in which the scholar enrolls;
    (3) Collect any scholarship funds improperly disbursed under 
Sec. 654.50;
    (4) Make reports to the Secretary that the Secretary deems necessary 
to carry out the Secretary's functions under this part; and
    (5) Except as provided in paragraph (b) of this section, expend all 
funds received from the Secretary for scholarships during the award 
period specified by the Secretary for those funds.
    (b) After awarding all scholarship funds during an award year, as 
required by paragraph (a)(5) of this section, an SEA may retain any 
funds that are subsequently returned or collected for scholarship awards 
in the following award period.

(Approved by the Office of Management and Budget under control number 
1840-0612)

(Authority: 20 U.S.C. 1070d-33, 1070d-35)

[[Page 364]]



PART 655--INTERNATIONAL EDUCATION PROGRAMS--GENERAL PROVISIONS--Table of 
Contents




                           Subpart A--General

Sec.
655.1  Which programs do these regulations govern?
655.3  What regulations apply to the International Education Programs?
655.4  What definitions apply to the International Education Programs?

      Subpart B--What Kinds of Projects Does the Secretary Assist?

655.10  What kinds of projects does the Secretary assist?

Subpart C [Reserved]

             Subpart D--How Does the Secretary Make a Grant?

655.30  How does the Secretary evaluate an application?
655.31  What general selection criteria does the Secretary use?
655.32  What additional factors does the Secretary consider in making 
          grant awards?

    Authority: 20 U.S.C 1121-1130b, unless otherwise noted.

    Source: 47 FR 14116, Apr. 1, 1982, unless otherwise noted.



                           Subpart A--General



Sec. 655.1  Which programs do these regulations govern?

    The regulations in this part govern the administration of the 
following programs in international education:
    (a) The National Resource Centers Program for Foreign Language and 
Area Studies or Foreign Language and International Studies (section 602 
of the Higher Education Act of 1965, as amended);
    (b) The Language Resource Centers Program (section 603);
    (c) The Undergraduate International Studies and Foreign Language 
Program (section 604);
    (d) The International Research and Studies Program (section 605); 
and
    (e) The Business and International Education Program (section 613).

(Authority: 20 U.S.C. 1121-1130b)

[47 FR 14116, Apr. 1, 1982, as amended at 58 FR 32575, June 10, 1993; 64 
FR 7739, Feb. 16, 1999]



Sec. 655.3  What regulations apply to the International Education Programs?

    The following regulations apply to the International Education 
Programs:
    (a) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR part 74 (Administration of Grants to Institutions of 
Higher Education, Hospitals, and Nonprofit Organizations).
    (2) 34 CFR part 75 (Direct Grant Programs).
    (3) 34 CFR part 77 (Definitions that Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities), except that part 79 does not apply 
to 34 CFR parts 660, 669, and 671.
    (5) 34 CFR part 82 (New Restrictions on Lobbying).
    (6) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (7) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (b) The regulations in this part 655; and
    (c) As appropriate, the regulations in--
    (1) 34 CFR part 656 (National Resource Centers Program for Foreign 
Language and Area Studies or Foreign Language and International 
Studies);
    (2) 34 CFR part 657 (Foreign Language and Area Studies Fellowships 
Program);
    (3) 34 CFR part 658 (Undergraduate International Studies and Foreign 
Language Program);
    (4) 34 CFR part 660 (International Research and Studies Program);
    (5) 34 CFR part 661 (Business and International Education Program); 
and

[[Page 365]]

    (6) 34 CFR part 669 (Language Resource Centers Program).

(Authority: 20 U.S.C. 1121-1127; 1221e-3)

[47 FR 14116, Apr. 1, 1982, as amended at 58 FR 32575, June 10, 1993; 64 
FR 7739, Feb. 16, 1999]



Sec. 655.4  What definitions apply to the International Education Programs?

    (a) Definitions in EDGAR. The following terms used in this part and 
34 CFR parts 656, 657, 658, 660, 661, and 669 are defined in 34 CFR part 
77:

Acquisition
Applicant
Application
Award
Budget
Contract
EDGAR
Equipment
Facilities
Fiscal year
Grant
Grantee
Grant period
Local educational agency
Nonprofit
Project
Project period
Private
Public
Secretary
State educational agency
Supplies


(Authority: 20 U.S.C. 1121-1127)

    (b) Definitions that apply to these programs: The following 
definition applies to International Education Programs:
    Combination of institutions of higher education means a group of 
institutions of higher education that have entered into a cooperative 
arrangement for the purpose of carrying out a common objective, or a 
public or private nonprofit agency, organization, or institution 
designated or created by a group of institutions of higher education for 
the purpose of carrying out a common objective on their behalf.
    Critical languages means each of the languages contained in the list 
of critical languages designated by the Secretary pursuant to section 
212(d) of the Education for Economic Security Act, except that, in the 
implementation of this definition, the Secretary may set priorities 
according to the purposes of title VI of the Higher Education Act of 
1965, as amended.
    Institution of higher education means, in addition to an institution 
that meets the definition of section 101(a) of the Higher Education Act 
of 1965, as amended, an institution that meets the requirements of 
section 101(a) except that (1) it is not located in the United States, 
and (2) it applies for assistance under title VI of the Higher Education 
Act of 1965, as amended, in consortia with institutions that meet the 
definitions in section 101(a).

(Authority: 20 U.S.C. 1121-1127, and 1141)

[47 FR 14116, Apr. 1, 1982, as amended at 58 FR 32575, June 10, 1993; 64 
FR 7739, Feb. 16, 1999]



      Subpart B--What Kinds of Projects Does the Secretary Assist?



Sec. 655.10  What kinds of projects does the Secretary assist?

    Subpart B of 34 CFR parts 656, 657, 658, 660, 661, and 669 describes 
the kinds of projects that the Secretary assists under the International 
Education Programs.

(Authority: 20 U.S.C. 1021-1027)

[47 FR 14116, Apr. 1, 1982, as amended at 58 FR 32575, June 10, 1993, 64 
FR 7739, Feb. 16, 1999]

Subpart C [Reserved]



             Subpart D--How Does the Secretary Make a Grant?



Sec. 655.30  How does the Secretary evaluate an application?

    The Secretary evaluates an applications for International Education 
Programs on the basis of--
    (a) The general criteria in Sec. 655.31; and
    (b) The specific criteria in, as applicable, subpart D of 34 CFR 
parts 658, 660, 661, and 669.

(Authority: 20 U.S.C. 1121-1127)

[64 FR 7739, Feb. 16, 1999]



Sec. 655.31  What general selection criteria does the Secretary use?

    (a) Plan of operation. (1) The Secretary reviews each application 
for information that shows the quality of the plan of operation for the 
project.
    (2) The Secretary looks for information that shows--
    (i) High quality in the design of the project;
    (ii) An effective plan of management that ensures proper and 
efficient administration of the project;

[[Page 366]]

    (iii) A clear description of how the objectives of the project 
relate to the purpose of the program;
    (iv) The way the applicant plans to use its resources and personnel 
to achieve each objective; and
    (v) A clear description of how the applicant will provide equal 
access and treatment for eligible project participants who are members 
of groups that have been traditionally underrepresented, such as--
    (A) Members of racial or ethnic minority groups;
    (B) Women; and
    (C) Handicapped persons.
    (b) Quality of key personnel. (1) The Secretary reviews each 
application for information that shows the quality of the key personnel 
the applicant plans to use on the project.
    (2) The Secretary looks for information that shows--
    (i) The qualifications of the project director (if one is to be 
used);
    (ii) The qualifications of each of the other key personnel to be 
used in the project. In the case of faculty, the qualifications of the 
faculty and the degree to which that faculty is directly involved in the 
actual teaching and supervision of students; and
    (iii) The time that each person referred to in paragraphs (b)(2) (i) 
and (ii) of this section plans to commit to the project; and
    (iv) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented, such as members of racial or ethnic 
minority groups, women, handicapped persons, and the elderly.
    (3) To determine the qualifications of a person, the Secretary 
considers evidence of past experience and training, in fields related to 
the objectives of the project, as well as other information that the 
applicant provides.
    (c) Budget and cost effectiveness. (1) The Secretary reviews each 
application for information that shows that the project has an adequate 
budget and is cost effective.
    (2) The Secretary looks for information that shows--
    (i) The budget for the project is adequate to support the project 
activities; and
    (ii) Costs are reasonable in relation to the objectives of the 
project.
    (d) Evaluation plan. (1) The Secretary reviews each application for 
information that shows the quality of the evaluation plan for the 
project.
    (2) The Secretary looks for information that shows methods of 
evaluation that are appropriate for the project and, to the extent 
possible, are objective and produce data that are quantifiable.
    (e) Adequacy of resources. (1) The Secretary reviews each 
application for information that shows that the applicant plans to 
devote adequate resources to the project.
    (2) The Secretary looks for information that shows--
    (i) Other than library, facilities that the applicant plans to use 
are adequate (language laboratory, museums, etc.); and
    (ii) The equipment and supplies that the applicant plans to use are 
adequate.

(Authority: 20 U.S.C. 1121-1127)



Sec. 655.32  What additional factors does the Secretary consider in making 
grant awards?

    Except for 34 CFR parts 656, 657, and 661, to the extent practicable 
and consistent with the criterion of excellence, the Secretary seeks to 
achieve an equitable distribution of funds throughout the Nation.

(Authority: 20 U.S.C. 1126(b)).

[58 FR 32575, June 10, 1993]



PART 656--NATIONAL RESOURCE CENTERS PROGRAM FOR FOREIGN LANGUAGE AND AREA 
STUDIES OR FOREIGN LANGUAGE AND INTERNATIONAL STUDIES--Table of Contents




                           Subpart A--General

Sec.
656.1  What is the National Resource Centers Program?
656.2  Who is eligible to receive a grant?
656.3  What activities define a comprehensive or undergraduate National 
          Resource Center?
656.4  What types of Centers receive grants?

[[Page 367]]

656.5  What activities may be carried out?
656.6  What regulations apply?
656.7  What definitions apply?

               Subpart B--How Does One Apply for a Grant?

656.10  What combined application may an institution submit?

             Subpart C--How Does the Secretary Make a Grant?

656.20  How does the Secretary evaluate an application?
656.21  What selection criteria does the Secretary use to evaluate an 
          application for a comprehensive Center?
656.22  What selection criteria does the Secretary use to evaluate an 
          application for an undergraduate Center?
656.23  What priorities may the Secretary establish?

          Subpart D--What Conditions Must Be Met by a Grantee?

656.30  What are allowable costs and limitations on allowable costs?

    Authority: 20 U.S.C. 1122, unless otherwise noted.

    Source: 61 FR 50193, Sept. 24, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 656.1  What is the National Resource Centers Program?

    Under the National Resource Centers Program for Foreign Language and 
Areas Studies or Foreign Language and International Studies (National 
Resource Centers Program), the Secretary awards grants to institutions 
of higher education and combinations of institutions to establish, 
strengthen, and operate comprehensive and undergraduate Centers that 
will be national resources for--
    (a) Teaching of any modern foreign language;
    (b) Instruction in fields needed to provide full understanding of 
areas, regions, or countries in which the modern foreign language is 
commonly used;
    (c) Research and training in international studies and the 
international and foreign language aspects of professional and other 
fields of study; and
    (d) Instruction and research on issues in world affairs that concern 
one or more countries.

(Authority: 20 U.S.C. 1122)

[61 FR 50193, Sept. 24, 1996, as amended at 64 FR 7739, Feb. 16, 1999]



Sec. 656.2  Who is eligible to receive a grant?

    An institution of higher education or a combination of institutions 
of higher education is eligible to receive a grant under this part.

(Authority: 20 U.S.C. 1122)



Sec. 656.3  What activities define a comprehensive or undergraduate National 
Resource Center?

    A comprehensive or undergraduate National Resource Center--
    (a) Teaches at least one modern foreign language;
    (b) Provides--
    (1) Instruction in fields necessary to provide a full understanding 
of the areas, regions, or countries in which the modern foreign language 
taught is commonly used;
    (2) Resources for research and training in international studies, 
and the international and foreign language aspects of professional and 
other fields of study; or
    (3) Instruction and research on issues in world affairs that concern 
one or more countries;
    (c) Provides outreach and consultative services on a national, 
regional, and local basis;
    (d) Maintains linkages with overseas institutions of higher 
education and other organizations that may contribute to the teaching 
and research of the Center;
    (e) Maintains important library collections;
    (f) Employs faculty engaged in training and research that relates to 
the subject area of the Center;
    (g) Conducts projects in cooperation with other centers addressing 
themes of world, regional, cross-regional, international, or global 
importance; and
    (h) Conducts summer institutes in the United States or abroad 
designed

[[Page 368]]

to provide language and area training in the Center's field or topic.

(Authority: 20 U.S.C. 1122)

[64 FR 7739, Feb. 16, 1999]



Sec. 656.4  What types of Centers receive grants?

    The Secretary awards grants to Centers that--
    (a) Focus on--
    (1) A single country or on a world area (such as East Asia, Africa, 
or the Middle East) and offer instruction in the principal language or 
languages of that country or area and those disciplinary fields 
necessary to provide a full understanding of the country or area; or
    (2) International studies or the international aspects of 
contemporary issues or topics (such as international business or energy) 
while providing instruction in modern foreign languages; and
    (b) Provide training at the--
    (1) Graduate, professional, and undergraduate levels, as a 
comprehensive Center; or
    (2) Undergraduate level only, as an undergraduate Center.

(Authority: 20 U.S.C. 1122)



Sec. 656.5  What activities may be carried out?

    (a) A Center may carry out any of the activities described in 
Sec. 656.3 under a grant received under this part.
    (b) The Secretary may make an additional grant to a Center for any 
one or a combination of the following purposes:
    (1) Linkage or outreach between foreign language, area studies, and 
other international fields and professional schools and colleges.
    (2) Linkage or outreach with 2- and 4-year colleges and 
universities.
    (3) Linkage or outreach with departments or agencies of Federal and 
State governments.
    (4) Linkage or outreach with the news media, business, professional, 
or trade associations.
    (5) Summer institutes in foreign area, foreign language, and other 
international fields designed to carry out the activities in paragraphs 
(b)(1) through (4) of this section.

(Authority: 20 U.S.C. 1122)

[61 FR 50193, Sept. 24, 1996, as amended at 64 FR 7739, Feb. 16, 1999]



Sec. 656.6  What regulations apply?

    The following regulations apply to this program:
    (a) The regulations in 34 CFR part 655.
    (b) The regulations in this part 656.

(Authority: 20 U.S.C. 1122)



Sec. 656.7  What definitions apply?

    The following definitions apply to this part:
    (a) The definitions in 34 CFR part 655.
    (b) Area studies means a program of comprehensive study of the 
aspects of a world area's society or societies, including study of 
history, culture, economy, politics, international relations, and 
languages.
    (c) Center means an administrative unit of an institution of higher 
education that has direct access to highly qualified faculty and library 
resources, and coordinates a concentrated effort of educational 
resources, including language training and various academic disciplines, 
in the area and subject matters described in Sec. 656.3.
    (d) Comprehensive Center means a Center that--
    (1) Contributes significantly to the national interest in advanced 
research and scholarship;
    (2) Offers intensive language instruction;
    (3) Maintains important library collections related to the area of 
its specialization;
    (4) Makes training available to a graduate, professional, and 
undergraduate clientele; and
    (5) Engages in curriculum development and community outreach.
    (e) For purposes of this section, intensive language instruction 
means instruction of at least five contact hours per week during the 
academic year or the equivalent of a full academic year of language 
instruction during the summer.
    (f) Undergraduate Center means an administrative unit of an 
institution of higher education that--

[[Page 369]]

    (1) Contributes significantly to the national interest through the 
education of students who matriculate into advanced language and area 
studies programs or professional school programs;
    (2) Incorporates substantial international and foreign language 
content into baccalaureate degree program;
    (3) Makes training available predominantly to undergraduate 
students; and
    (4) Engages in research, curriculum development, and community 
outreach.

(Authority: 20 U.S.C. 1122)



               Subpart B--How Does One Apply for a Grant?



Sec. 656.10  What combined application may an institution submit?

    An institution that wishes to apply for a grant under this part and 
for an allocation of fellowships under 34 CFR part 657 may submit one 
application for both.

(Authority: 20 U.S.C. 1122)



             Subpart C--How Does the Secretary Make a Grant?



Sec. 656.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a comprehensive 
Center under the criteria contained in Sec. 656.21, and for an 
undergraduate Center under the criteria contained in Sec. 656.22.
    (b) In general, the Secretary awards up to 155 possible points for 
these criteria. However, if the criterion in Sec. 656.21(j) or 
Sec. 656.22(j) is used, the Secretary awards up to 165 possible points. 
The maximum possible points for each criterion are shown in parentheses.

(Authority: 20 U.S.C. 1122)



Sec. 656.21  What selection criteria does the Secretary use to evaluate an 
application for a comprehensive Center?

    The Secretary uses the following criteria in evaluating an 
application for a comprehensive Center:
    (a) Program planning and budget. (20 points) The Secretary reviews 
each application to determine--
    (1) The extent to which the activities for which the applicant seeks 
funding are of high quality and directly related to the purpose of the 
National Resource Centers Program (5 points);
    (2) The extent to which the applicant provides a development plan or 
timeline demonstrating how the proposed activities will contribute to a 
strengthened program and whether the applicant uses its resources and 
personnel effectively to achieve the proposed objectives (5 points);
    (3) The extent to which the costs of the proposed activities are 
reasonable in relation to the objectives of the program (5 points); and
    (4) The long-term impact of the proposed activities on the 
institution's undergraduate, graduate, and professional training 
programs (5 points).
    (b) Quality of staff resources. (20 points) The Secretary reviews 
each application to determine--
    (1) The extent to which teaching faculty and other staff are 
qualified for the current and proposed Center activities and training 
programs, are provided professional development opportunities (including 
overseas experience), and participate in teaching, supervising, and 
advising students (10 points);
    (2) The adequacy of Center staffing and oversight arrangements, 
including outreach and administration and the extent to which faculty 
from a variety of departments, professional schools, and the library are 
involved (5 points); and
    (3) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented, such as members of racial or ethnic 
minority groups, women, persons with disabilities, and the elderly (5 
points).
    (c) Impact and evaluation. (20 points) The Secretary reviews each 
application to determine--
    (1) The extent to which the Center's activities and training 
programs have a significant impact on the university, community, region, 
and the Nation as shown through indices such as enrollments, graduate 
placement data, participation rates for events, and usage

[[Page 370]]

of Center resources; and the extent to which the applicant supplies a 
clear description of how the applicant will provide equal access and 
treatment of eligible project participants who are members of groups 
that have been traditionally underrepresented, such as members of racial 
or ethnic minority groups, women, persons with disabilities, and the 
elderly (10 points); and
    (2) The extent to which the applicant provides an evaluation plan 
that is comprehensive and objective and that will produce quantifiable, 
outcome-measure-oriented data; and the extent to which recent 
evaluations have been used to improve the applicant's program (10 
points).
    (d) Commitment to the subject area on which the Center focuses. (10 
points) The Secretary reviews each application to determine the extent 
to which the institution provides financial and other support to the 
operation of the Center, teaching staff for the Center's subject area, 
library resources, linkages with institutions abroad, outreach 
activities, and qualified students in fields related to the Center.
    (e) Strength of library. (15 points) The Secretary reviews each 
application to determine--
    (1) The strength of the institution's library holdings (both print 
and non-print, English and foreign language) in the subject area and at 
the educational levels (graduate, professional, undergraduate) on which 
the Center focuses; and the extent to which the institution provides 
financial support for the acquisition of library materials and for 
library staff in the subject area of the Center (10 points); and
    (2) The extent to which research materials at other institutions are 
available to students through cooperative arrangements with other 
libraries or on-line databases and the extent to which teachers, 
students, and faculty from other institutions are able to access the 
library's holdings (5 points).
    (f) Quality of the Center's non-language instructional program. (20 
points) The Secretary reviews each application to determine--
    (1) The quality and extent of the Center's course offerings in a 
variety of disciplines, including the extent to which courses in the 
Center's subject matter are available in the institution's professional 
schools (5 points);
    (2) The extent to which the Center offers depth of specialized 
course coverage in one or more disciplines of the Center's subject area 
(5 points);
    (3) The extent to which the institution employs a sufficient number 
of teaching faculty to enable the Center to carry out its purposes and 
the extent to which instructional assistants are provided with pedagogy 
training (5 points); and
    (4) The extent to which interdisciplinary courses are offered for 
undergraduate and graduate students (5 points).
    (g) Quality of the Center's language instructional program. (20 
points) The Secretary reviews each application to determine--
    (1) The extent to which the Center provides instruction in the 
languages of the Center's subject area and the extent to which students 
enroll in the study of the languages of the subject area through 
programs or instruction offered by the Center or other providers (5 
points);
    (2) The extent to which the Center provides three or more levels of 
language training and the extent to which courses in disciplines other 
than language, linguistics, and literature are offered in appropriate 
foreign languages (5 points);
    (3) Whether sufficient numbers of language faculty are available to 
teach the languages and levels of instruction described in the 
application and the extent to which language teaching staff (including 
faculty and instructional assistants) have been exposed to current 
language pedagogy training appropriate for performance-based teaching (5 
points); and
    (4) The quality of the language program as measured by the 
performance-based instruction being used or developed, the adequacy of 
resources for language teaching and practice, and language proficiency 
requirements (5 points).
    (h) Quality of curriculum design. (15 points) The Secretary reviews 
each application to determine--
    (1) The extent to which the Center's curriculum has incorporated 
undergraduate instruction in the applicant's

[[Page 371]]

area or topic of specialization into baccalaureate degree programs (for 
example, major, minor, or certificate programs) and the extent to which 
these programs and their requirements (including language requirements) 
are appropriate for a Center in this subject area and will result in an 
undergraduate training program of high quality (5 points);
    (2) The extent to which the Center's curriculum provides training 
options for graduate students from a variety of disciplines and 
professional fields and the extent to which these programs and their 
requirements (including language requirements) are appropriate for a 
Center in this subject area and result in graduate training programs of 
high quality (5 points); and
    (3) The extent to which the Center provides academic and career 
advising services for students; the extent to which the Center has 
established formal arrangements for students to conduct research or 
study abroad and the extent to which these arrangements are used; and 
the extent to which the institution facilitates student access to other 
institutions' study abroad and summer language programs (5 points).
    (i) Outreach activities. (15 points) The Secretary reviews each 
application to determine the extent to which the Center demonstrates a 
significant and measurable regional and national impact of, and faculty 
and professional school involvement in, domestic outreach activities 
that involve--
    (1) Elementary and secondary schools (5 points);
    (2) Postsecondary institutions (5 points); and
    (3) Business, media, and the general public (5 points).
    (j) Degree to which priorities are served. (10 points) If, under the 
provisions of Sec. 656.23, the Secretary establishes competitive 
priorities for Centers, the Secretary considers the degree to which 
those priorities are being served.

(Approved by the Office of Management and Budget under control number 
1840-0068)

(Authority: 20 U.S.C. 1122)



Sec. 656.22  What selection criteria does the Secretary use to evaluate an 
application for an undergraduate Center?

    The Secretary uses the following criteria in evaluating an 
application for an undergraduate Center:
    (a) Program planning and budget. (20 points) The Secretary reviews 
each application to determine--
    (1) The extent to which the activities for which the applicant seeks 
funding are of high quality and directly related to the purpose of the 
National Resource Centers Program (5 points);
    (2) The extent to which the applicant provides a development plan or 
timeline demonstrating how the proposed activities will contribute to a 
strengthened program and whether the applicant uses its resources and 
personnel effectively to achieve the proposed objectives (5 points);
    (3) The extent to which the costs of the proposed activities are 
reasonable in relation to the objectives of the program (5 points); and
    (4) The long-term impact of the proposed activities on the 
institution's undergraduate training program (5 points).
    (b) Quality of staff resources. (20 points) The Secretary reviews 
each application to determine--
    (1) The extent to which teaching faculty and other staff are 
qualified for the current and proposed Center activities and training 
programs, are provided professional development opportunities (including 
overseas experience), and participate in teaching, supervising, and 
advising students (10 points);
    (2) The adequacy of Center staffing and oversight arrangements, 
including outreach and administration and the extent to which faculty 
from a variety of departments, professional schools, and the library are 
involved (5 points); and
    (3) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented,

[[Page 372]]

such as members of racial or ethnic minority groups, women, persons with 
disabilities, and the elderly (5 points).
    (c) Impact and evaluation. (20 points) The Secretary reviews each 
application to determine--
    (1) The extent to which the Center's activities and training 
programs have a significant impact on the university, community, region, 
and the Nation as shown through indices such as enrollments, graduate 
placement data, participation rates for events, and usage of Center 
resources; the extent to which students matriculate into advanced 
language and area or international studies programs or related 
professional programs; and the extent to which the applicant supplies a 
clear description of how the applicant will provide equal access and 
treatment of eligible project participants who are members of groups 
that have been traditionally underrepresented, such as members of racial 
or ethnic minority groups, women, persons with disabilities, and the 
elderly (10 points); and
    (2) The extent to which the applicant provides an evaluation plan 
that is comprehensive and objective and that will produce quantifiable, 
outcome-measure-oriented data; and the extent to which recent 
evaluations have been used to improve the applicant's program (10 
points).
    (d) Commitment to the subject area on which the Center focuses. (10 
points) The Secretary reviews each application to determine the extent 
to which the institution provides financial and other support to the 
operation of the Center, teaching staff for the Center's subject area, 
library resources, linkages with institutions abroad, outreach 
activities, and qualified students in fields related to the Center.
    (e) Strength of library. (15 points) The Secretary reviews each 
application to determine--
    (1) The strength of the institution's library holdings (both print 
and non-print, English and foreign language) in the subject area and at 
the educational levels (graduate, professional, undergraduate) on which 
the Center focuses; and the extent to which the institution provides 
financial support for the acquisition of library materials and for 
library staff in the subject area of the Center (10 points); and
    (2) The extent to which research materials at other institutions are 
available to students through cooperative arrangements with other 
libraries or on-line databases and the extent to which teachers, 
students, and faculty from other institutions are able to access the 
library's holdings (5 points).
    (f) Quality of the Center's non-language instructional program. (20 
points) The Secretary reviews each application to determine--
    (1) The quality and extent of the Center's course offerings in a 
variety of disciplines (5 points);
    (2) The extent to which the Center offers depth of specialized 
course coverage in one or more disciplines of the Center's subject area 
(5 points);
    (3) The extent to which the institution employs a sufficient number 
of teaching faculty to enable the Center to carry out its purposes and 
the extent to which instructional assistants are provided with pedagogy 
training (5 points); and
    (4) The extent to which interdisciplinary courses are offered for 
undergraduate students (5 points).
    (g) Quality of the Center's language instructional program. (20 
points) The Secretary reviews each application to determine--
    (1) The extent to which the Center provides instruction in the 
languages of the Center's subject area and the extent to which students 
enroll in the study of the languages of the subject area through 
programs offered by the Center or other providers (5 points);
    (2) The extent to which the Center provides three or more levels of 
language training and the extent to which courses in disciplines other 
than language, linguistics, and literature are offered in appropriate 
foreign languages (5 points);
    (3) Whether sufficient numbers of language faculty are available to 
teach the languages and levels of instruction described in the 
application and the extent to which language teaching staff (including 
faculty and instructional assistants) have been exposed to current 
language pedagogy training appropriate for performance-based teaching (5 
points); and

[[Page 373]]

    (4) The quality of the language program as measured by the 
performance-based instruction being used or developed, the adequacy of 
resources for language teaching and practice, and language proficiency 
requirements (5 points).
    (h) Quality of curriculum design. (15 points) The Secretary reviews 
each application to determine--
    (1) The extent to which the Center's curriculum has incorporated 
undergraduate instruction in the applicant's area or topic of 
specialization into baccalaureate degree programs (for example, major, 
minor, or certificate programs) and the extent to which these programs 
and their requirements (including language requirements) are appropriate 
for a Center in this subject area and will result in an undergraduate 
training program of high quality (10 points); and
    (2) The extent to which the Center provides academic and career 
advising services for students; the extent to which the Center has 
established formal arrangements for students to conduct research or 
study abroad and the extent to which these arrangements are used; and 
the extent to which the institution facilitates student access to other 
institutions' study abroad and summer language programs (5 points).
    (i) Outreach activities. (15 points) The Secretary reviews each 
application to determine the extent to which the Center demonstrates a 
significant and measurable regional and national impact of, and faculty 
and professional school involvement in, domestic outreach activities 
that involve--
    (1) Elementary and secondary schools (5 points);
    (2) Postsecondary institutions (5 points); and
    (3) Business, media and the general public (5 points).
    (j) Degree to which priorities are served. (10 points) If, under the 
provisions of Sec. 656.23, the Secretary establishes competitive 
priorities for Centers, the Secretary considers the degree to which 
those priorities are being served.

(Approved by the Office of Management and Budget under control number 
1840-0068)

(Authority: 20 U.S.C. 1122)



Sec. 656.23  What priorities may the Secretary establish?

    (a) The Secretary may select one or more of the following funding 
priorities:
    (1) Specific countries or world areas, such as, for example, East 
Asia, Africa, or the Middle East.
    (2) Specific focus of a Center, such as, for example, a single world 
area; international studies; a particular issue or topic, e.g., 
business, development issues, or energy; or any combination.
    (3) Level or intensiveness of language instruction, such as 
intermediate or advanced language instruction, or instruction at an 
intensity of 10 contact hours or more per week.
    (4) Types of activities to be carried out, for example, cooperative 
summer intensive language programs, course development, or teacher 
training activities.
    (b) The Secretary may select one or more of the activities listed in 
Sec. 656.5 as a funding priority.
    (c) The Secretary announces any priorities in the application notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1122)



          Subpart D--What Conditions Must Be Met By a Grantee?



Sec. 656.30  What are allowable costs and limitations on allowable costs?

    (a) Allowable costs. Except as provided under paragraph (b) of this 
section, a grant awarded under this part may be used to pay all or part 
of the cost of establishing, strengthening, or operating a comprehensive 
or undergraduate Center including, but not limited to, the cost of--
    (1) Faculty and staff salaries and travel;
    (2) Library acquisitions;
    (3) Teaching and research materials;
    (4) Curriculum planning and development;
    (5) Bringing visiting scholars and faculty to the Center to teach, 
conduct research, or participate in conferences or workshops;
    (6) Training and improvement of staff;
    (7) Projects conducted in cooperation with other centers addressing 
themes

[[Page 374]]

of world, regional, cross-regional, international, or global importance; 
and
    (8) Summer institutes in the United States or abroad designed to 
provide language and area training in the Center's field or topic.
    (b) Limitations on allowable costs. The following are limitations on 
allowable costs:
    (1) Equipment costs exceeding 10 percent of the grant are not 
allowable.
    (2) Funds for undergraduate travel are allowable only in conjunction 
with a formal program of supervised study in the subject area on which 
the Center focuses.
    (3) Grant funds may not be used to supplant funds normally used by 
applicants for purposes of this part.

(Authority: 20 U.S.C. 1122)

[61 FR 50193, Sept. 24, 1996, as amended at 64 FR 7739, Feb. 16, 1999]



PART 657--FOREIGN LANGUAGE AND AREA STUDIES FELLOWSHIPS PROGRAM--Table of 
Contents




                           Subpart A--General

Sec.
657.1  What is the Foreign Language and Area Studies Fellowship Program?
657.2  Who is eligible to receive an allocation of fellowships?
657.3  Who is eligible to receive a fellowship?
657.4  What regulations apply?
657.5  What definitions apply?

 Subpart B--How Does an Institution or a Student Submit an Application?

657.10  What combined application may an institution submit?
657.11  How does a student apply for a fellowship?

     Subpart C--How Does the Secretary Select an Institution for an 
                       Allocation of Fellowships?

657.20  How does the Secretary evaluate an institutional application for 
          an allocation of fellowships?
657.21  What criteria does the Secretary use in selecting institutions 
          for an allocation of fellowships?
657.22  What priorities may the Secretary establish?

    Subpart D--What Conditions Must Be Met By a Grantee and a Fellow?

657.30  What is the duration of and what are the limitations on 
          fellowships awarded to individuals by institutions?
657.31  What is the amount of a fellowship?
657.32  What is the payment procedure for fellowships?
657.33  What are the limitations on the use of funds for overseas 
          fellowships?
657.34  Under what circumstances must an institution terminate a 
          fellowship?

    Authority: 20 U.S.C. 1122, unless otherwise noted.

    Source: 61 FR 50202, Sept. 24, 1996, unless otherwise noted.



                           Subpart A--General



Sec. 657.1  What is the Foreign Language and Area Studies Fellowships Program?

    Under the Foreign Language and Area Studies Fellowships Program, the 
Secretary awards fellowships, through institutions of higher education, 
to students who are--
    (a) Enrolled for graduate training in a Center or program approved 
by the Secretary under this part; and
    (b) Undergoing performance-based modern foreign language training or 
training in a program for which performance-based modern foreign 
language instruction is being developed, in combination with area 
studies, international studies, or the international aspects of 
professional studies.

(Authority: 20 U.S.C. 1122)



Sec. 657.2  Who is eligible to receive an allocation of fellowships?

    (a) The Secretary awards an allocation of fellowships to an 
institution of higher education or to a combination of institutions of 
higher education that--
    (1) Operates a Center or program approved by the Secretary under 
this part;
    (2) Teaches modern foreign languages under a program described in 
paragraph (b) of this section; and
    (3) In combination with the teaching described in paragraph (a)(2) 
of this section--
    (i) Provides instruction in the disciplines needed for a full 
understanding of the area, regions, or countries in

[[Page 375]]

which the foreign languages are commonly used; or
    (ii) Conducts training and research in international studies, the 
international aspects of professional and other fields of study, or 
issues in world affairs that concern one or more countries.
    (b) In teaching those modern foreign languages for which an 
allocation of fellowships is made available, the institution must be 
either using a program of performance-based training or developing a 
performance-based training program.
    (c) The Secretary uses the criteria in Sec. 657.21 both to approve 
Centers and programs for the purpose of receiving an allocation of 
fellowships and to evaluate applications for an allocation of 
fellowships.
    (d) An institution does not need to receive a grant under the 
National Resource Center Program (34 CFR part 656) to receive an 
allocation of fellowships under this part.

(Authority: 20 U.S.C. 1122)



Sec. 657.3  Who is eligible to receive a fellowship?

    A student is eligible to receive a fellowship if the student--
    (a)(1) Is a citizen or national of the United States; or
    (2) Is a permanent resident of the United States;
    (b) Is accepted for enrollment or is enrolled--
    (1) In an institution receiving an allocation of fellowships; and
    (2) In a program that combines modern foreign language training 
with--
    (i) Area or international studies; or
    (ii) Research and training in the international aspects of 
professional and other fields of study;
    (c) Shows potential for high academic achievement based on such 
indices as grade point average, class ranking, or similar measures that 
the institution may determine; and
    (d) Is enrolled in a program of modern foreign language training in 
a language for which the institution has developed or is developing 
performance-based instruction.

(Authority: 20 U.S.C. 1122)



Sec. 657.4  What regulations apply?

    The following regulations apply to this program:
    (a) The regulations in 34 CFR part 655.
    (b) The regulations in this part 657.

(Authority: 20 U.S.C. 1122)



Sec. 657.5  What definitions apply?

    The following definitions apply to this part:
    (a) The definitions in 34 CFR 655.4.
    (b) Center means an administrative unit of an institution of higher 
education that has direct access to highly qualified faculty and library 
resources, and coordinates a concentrated effort of educational 
activities, including training in modern foreign languages and various 
academic disciplines, in its subject area.
    (c) Fellow means a person who receives a fellowship under this part.
    (d) Fellowship means the payment a fellow receives under this part.
    (e) Program means a concentration of educational resources and 
activities in modern foreign language training and related studies.

(Authority: 20 U.S.C. 1122)



 Subpart B--How Does an Institution or a Student Submit an Application?



Sec. 657.10  What combined application may an institution submit?

    An institution that wishes to apply for an allocation of fellowships 
and for a grant to operate a Center under 34 CFR part 656 may submit a 
combined application for both grants to the Secretary.

(Authority: 20 U.S.C. 1122)



Sec. 657.11  How does a student apply for a fellowship?

    (a) A student shall apply for a fellowship directly to an 
institution of higher education that has received an allocation of 
fellowships.
    (b) The applicant shall provide sufficient information to enable the 
institution to determine whether he or she is eligible to receive a 
fellowship and

[[Page 376]]

whether he or she should be selected to receive a fellowship.

(Authority: 20 U.S.C. 1122)



     Subpart C--How Does the Secretary Select an Institution for an 
                       Allocation of Fellowships?



Sec. 657.20  How does the Secretary evaluate an institutional application 
for an allocation of fellowships?

    (a) The Secretary evaluates an application for an allocation of 
fellowships on the basis of the quality of the applicant's Center or 
program. The applicant's Center or program is evaluated and approved 
under the criteria in Sec. 657.21.
    (b) In general, the Secretary awards up to 140 possible points for 
these criteria. However, if priority criteria are used, the Secretary 
awards up to 150 possible points. The maximum possible points for each 
criterion are shown in parentheses.

(Authority: 20 U.S.C. 1122)



Sec. 657.21  What criteria does the Secretary use in selecting institutions 
for an allocation of fellowships?

    (a) Foreign language and area studies fellowships awardee selection 
procedures. (15 points) The Secretary reviews each application to 
determine whether the selection plan is of high quality, showing how 
awards will be advertised, how students apply, what selection criteria 
are used, who selects the fellows, when each step will take place, and 
how the process will result in awards being made to correspond to any 
announced priorities.
    (b) Quality of staff resources. (15 points) The Secretary reviews 
each application to determine--
    (1) The extent to which teaching faculty and other staff are 
qualified for the current and proposed activities and training programs, 
are provided professional development opportunities (including overseas 
experience), and participate in teaching, supervising, and advising 
students (5 points);
    (2) The adequacy of applicant staffing and oversight arrangements 
and the extent to which faculty from a variety of departments, 
professional schools, and the library are involved (5 points); and
    (3) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, encourages applications for 
employment from persons who are members of groups that have been 
traditionally underrepresented, such as members of racial or ethnic 
minority groups, women, persons with disabilities, and the elderly (5 
points).
    (c) Impact and evaluation. (20 points) The Secretary reviews each 
application to determine--
    (1) The extent to which the applicant's activities and training 
programs have contributed to an improved supply of specialists on the 
program's subject as shown through indices such as graduate enrollments 
and placement data; and the extent to which the applicant supplies a 
clear description of how the applicant will provide equal access and 
treatment of eligible project participants who are members of groups 
that have been traditionally underrepresented, such as members of racial 
or ethnic minority groups, women, persons with disabilities, and the 
elderly (15 points); and
    (2) The extent to which the applicant provides an evaluation plan 
that is comprehensive and objective and that will produce quantifiable, 
outcome-measure-oriented data; and the extent to which recent 
evaluations have been used to improve the applicant's program (5 
points).
    (d) Commitment to the subject area on which the applicant or program 
focuses. (10 points) The Secretary reviews each application to 
determine--
    (1) The extent to which the institution provides financial and other 
support to the operation of the applicant, teaching staff for the 
applicant's subject area, library resources, and linkages with 
institutions abroad (5 points); and
    (2) The extent to which the institution provides financial support 
to graduate students in fields related to the applicant's teaching 
program (5 points).
    (e) Strength of library. (15 points) The Secretary reviews each 
application to determine--
    (1) The strength of the institution's library holdings (both print 
and non-

[[Page 377]]

print, English and foreign language) for graduate students; and the 
extent to which the institution provides financial support for the 
acquisition of library materials and for library staff in the subject 
area of the applicant (10 points); and
    (2) The extent to which research materials at other institutions are 
available to students through cooperative arrangements with other 
libraries or on-line databases (5 points).
    (f) Quality of the applicant's non-language instructional program. 
(25 points) The Secretary reviews each application to determine--
    (1) The quality and extent of the applicant's course offerings in a 
variety of disciplines, including the extent to which courses in the 
applicant's subject matter are available in the institution's 
professional schools (10 points);
    (2) The extent to which the applicant offers depth of specialized 
course coverage in one or more disciplines on the applicant's subject 
area (5 points);
    (3) The extent to which the institution employs a sufficient number 
of teaching faculty to enable the applicant to carry out its purposes 
and the extent to which instructional assistants are provided with 
pedagogy training (5 points); and
    (4) The extent to which interdisciplinary courses are offered for 
graduate students (5 points).
    (g) Quality of the applicant's language instructional program. (20 
points) The Secretary reviews each application to determine--
    (1) The extent to which the applicant provides instruction in the 
languages of the applicant's subject area and the extent to which 
students enroll in the study of the languages of the subject area 
through programs or instruction offered by the applicant or other 
providers (5 points);
    (2) The extent to which the applicant provides three or more levels 
of language training and the extent to which courses in disciplines 
other than language, linguistics, and literature are offered in 
appropriate foreign languages (5 points);
    (3) Whether sufficient numbers of language faculty are available to 
teach the languages and levels of instruction described in the 
application and the extent to which language teaching staff (including 
faculty and instructional assistants) have been exposed to current 
language pedagogy training appropriate for performance-based teaching (5 
points); and
    (4) The quality of the language program as measured by the 
performance-based instruction being used or developed, the adequacy of 
resources for language teaching and practice, and language proficiency 
requirements (5 points).
    (h) Quality of curriculum design. (20 points) The Secretary reviews 
each application to determine--
    (1) The extent to which the applicant's curriculum provides training 
options for graduate students from a variety of disciplines and 
professional fields and the extent to which these programs and their 
requirements (including language requirements) are appropriate for an 
applicant in this subject area and result in graduate training programs 
of high quality (10 points);
    (2) The extent to which the applicant provides academic and career 
advising services for students (5 points); and
    (3) The extent to which the applicant has established formal 
arrangements for students to conduct research or study abroad and the 
extent to which these arrangements are used; and the extent to which the 
institution facilitates student access to other institutions' study 
abroad and summer language programs (5 points).
    (i) Priorities. (10 points) If one or more competitive priorities 
have been established under Sec. 657.22, the Secretary reviews each 
application for information that shows the extent to which the Center or 
program meets these priorities.

(Approved by the Office of Management and Budget under control number 
1840-0068)

(Authority: 20 U.S.C. 1122)



Sec. 657.22  What priorities may the Secretary establish?

    (a) The Secretary may establish one or more of the following 
priorities for the allocation of fellowships:
    (1) Specific world areas, or countries, such as East Asia or Mexico.
    (2) Languages, such as Chinese.

[[Page 378]]

    (3) Levels of language offerings.
    (4) Academic disciplines, such as linguistics or sociology.
    (5) Professional studies, such as business, law, or education;
    (6) Particular subjects, such as population growth and planning, or 
international trade and business.
    (7) A combination of any of these categories.
    (b) The Secretary announces any priorities in the application notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1122)



    Subpart D--What Conditions Must Be Met by a Grantee and a Fellow?



Sec. 657.30  What is the duration of and what are the limitations on fellowships 
awarded to individuals by institutions?

    (a) Duration. An institution may award a fellowship to a student 
for--
    (1) One academic year; or
    (2) One summer session if the summer session provides the fellow 
with the equivalent of one academic year of modern foreign language 
study.
    (b) Vacancies. If a fellow vacates a fellowship before the end of an 
award period, the institution to which the fellowship is allocated may 
reaward the balance of the fellowship to another student if--
    (1) The student meets the eligibility requirements in Sec. 657.3; 
and
    (2) The remaining fellowship period comprises at least one full 
academic quarter, semester, trimester, or summer session as described in 
paragraph (a)(2) of this section.

(Authority: 20 U.S.C. 1122)



Sec. 657.31  What is the amount of a fellowship?

    (a)(1) An institution shall award a stipend to fellowship 
recipients.
    (2) Each fellowship includes an institutional payment and a 
subsistence allowance to be determined by the Secretary.
    (3) If the institutional payment determined by the Secretary is 
greater than the tuition and fees charged by the institution, the 
institutional payment portion of the fellowship is limited to actual 
tuition and fees. The difference between actual tuition and fees and the 
Secretary's institutional payment shall be used to fund additional 
fellowships to the extent that funds are available for a full 
subsistence allowance.
    (4) If permitted by the Secretary, the fellowship may include an 
allowance for travel and an allowance for dependents.
    (b) The Secretary announces in an application notice published in 
the Federal Register--
    (1) The amounts of the subsistence allowance and the institutional 
payment for an academic year and the subsistence allowance and the 
institutional payment for a summer session;
    (2) Whether travel and dependents' allowances will be permitted; and
    (3) The amount of travel and dependents' allowances.

(Authority: 20 U.S.C. 1122)



Sec. 657.32  What is the payment procedure for fellowships?

    (a) An institution shall pay a fellow his or her subsistence and any 
other allowance in installments during the term of the fellowship.
    (b) An institution shall make a payment only to a fellow who is in 
good standing and is making satisfactory progress.
    (c) The institution shall make appropriate adjustments of any 
overpayment or underpayment to a fellow.
    (d) Funds not used by one recipient for reasons of withdrawal are to 
be used for alternate recipients to the extent that funds are available 
for a full subsistence allowance.

(Authority: 20 U.S.C. 1122)



Sec. 657.33  What are the limitations on the use of funds for overseas 
fellowships?

    (a) Before awarding a fellowship for use outside the United States, 
an institution shall obtain the approval of the Secretary.
    (b) The Secretary may approve the use of a fellowship outside the 
United States if the student is--
    (1) Enrolled in an overseas foreign language program approved by the 
institution at which the student is enrolled in the United States for 
study at

[[Page 379]]

an intermediate or advanced level or at the beginning level if 
appropriate equivalent instruction is not available in the United 
States; or
    (2) Engaged during the academic year in research that cannot be done 
effectively in the United States and is affiliated with an institution 
of higher education or other appropriate organization in the host 
country.

(Authority: 20 U.S.C. 1122)



Sec. 657.34  Under what circumstances must an institution terminate a fellowship?

    An institution shall terminate a fellowship if--
    (a) The fellow is not making satisfactory progress, is no longer 
enrolled, or is no longer in good standing at the institution; or
    (b) The fellow fails to follow the course of study, including modern 
foreign language study, for which he or she applied, unless a revised 
course of study is otherwise approvable under this part.

(Authority: 20 U.S.C. 1122)



PART 658--UNDERGRADUATE INTERNATIONAL STUDIES AND FOREIGN LANGUAGE PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
658.1  What is the Undergraduate International Studies and Foreign 
          Language Program?
658.2  Who is eligible to apply for assistance under this program?
658.3  What regulations apply?
658.4  What definitions apply to the Undergraduate International Studies 
          and Foreign Language Program?

 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?

658.10  For what kinds of projects does the Secretary assist 
          institutions of higher education?
658.11  What projects and activities may a grantee conduct under this 
          program?
658.12  For what kinds of projects does the Secretary assist 
          associations and organizations?

Subpart C [Reserved]

             Subpart D--How Does the Secretary Make a Grant?

658.30  How does the Secretary evaluate an application?
658.31  What selection criteria does the Secretary use?
658.32  What additional criteria does the Secretary apply to 
          institutional applications?
658.33  What additional criterion does the Secretary apply to 
          applications from organizations and associations?
658.34  What additional factors does the Secretary consider in selecting 
          grant recipients?
658.35  What priority does the Secretary give?

          Subpart E--What Conditions Must Be Met by a Grantee?

658.40  What are the limitations on allowable costs?
658.41  What are the cost-sharing requirements?

    Authority: 20 U.S.C. 1124, unless otherwise noted.

    Source: 47 FR 14122, Apr. 1, 1982, unless otherwise noted.



                           Subpart A--General



Sec. 658.1  What is the Undergraduate International Studies and Foreign 
Language Program?

    The Undergraduate International Studies and Foreign Language Program 
is designed to provide assistance to institutions of higher education, 
combinations of those institutions, or partnerships between nonprofit 
educational organizations and institutions of higher education, to 
assist those institutions, combinations, or partnerships in planning, 
developing, and carrying out programs to improve undergraduate 
instruction in international studies and foreign languages.

(Authority: 20 U.S.C. 1124)

[64 FR 7739, Feb. 16, 1999]



Sec. 658.2  Who is eligible to apply for assistance under this program?

    The following are eligible to apply for assistance under this part:
    (a) Institutions of higher education.
    (b) Combinations of institutions of higher education.

[[Page 380]]

    (c) Partnerships between nonprofit educational organizations and 
institutions of higher education.
    (d) Public and private nonprofit agencies and organizations, 
including professional and scholarly associations.

(Authority: 20 U.S.C. 1124)

[47 FR 14122, Apr. 1, 1982, as amended at 64 FR 7739, Feb. 16, 1999]



Sec. 658.3  What regulations apply?

    The following regulations apply to this program:
    (a) The regulations in 34 CFR part 655.
    (b) The regulations in this part 658.

(Authority: 20 U.S.C. 1121-1127)

[58 FR 32576, June 10, 1993]



Sec. 658.4  What definitions apply to the Undergraduate International 
Studies and Foreign Language Program?

    The definitions in 34 CFR 655.4 apply to this program.

(Authority: 20 U.S.C. 1121-1127)



 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?



Sec. 658.10  For what kinds of projects does the Secretary assist institutions 
of higher education?

    (a) The Secretary may provide assistance to an institution of higher 
education, a combination of institutions of higher education, or a 
partnership between a nonprofit educational organization and an 
institution of higher education to plan, develop, and carry out a 
program to improve undergraduate instruction in international studies 
and foreign languages. Those grants must be awarded to institutions, 
combinations, or partnerships seeking to create new programs or to 
strengthen existing programs in foreign languages, area studies, and 
other international fields.
    (b) The Secretary gives consideration to an applicant that proposes 
a program that--
    (1) Initiates new or revised courses in international or area 
studies;
    (2) Makes instruction in foreign languages available to students in 
the program; and
    (3) Takes place primarily in the United States.
    (c) The program shall focus on--
    (1) International or global studies;
    (2) One or more world areas and their languages; or
    (3) Issues or topics, such as international environmental studies or 
international health.

(Authority: 20 U.S.C. 1124(a))

[47 FR 14122, Apr. 1, 1982, as amended at 52 FR 28422, July 29, 1987; 58 
FR 32576, June 10, 1993; 64 FR 7740, Feb. 16, 1999]



Sec. 658.11  What projects and activities may a grantee conduct under this program?

    The Secretary awards grants under this part to assist in carrying 
out projects and activities that are an integral part of a program to 
improve undergraduate instruction in international studies and foreign 
languages. These include projects such as--
    (a) Planning for the development and expansion of undergraduate 
programs in international studies and foreign languages;
    (b) Teaching, research, curriculum development, faculty training in 
the United States or abroad, and other related activities, including--
    (1) Expanding library and teaching resources;
    (2) Conducting faculty workshops, conferences, and special lectures;
    (3) Developing and testing new curricular materials, including self-
instructional materials in foreign languages, or specialized language 
materials dealing with a particular subject (such as health or the 
environment);
    (4) Initiating new and revised courses in international studies or 
area studies and foreign languages; and
    (5) Conducting preservice and inservice teacher training;
    (c) Expanding the opportunities for learning foreign languages, 
including less commonly taught languages;
    (d) Providing opportunities for which foreign faculty and scholars 
may visit institutions as visiting faculty;
    (e) Placing U.S. faculty members in internships with international 
associations or with governmental or nongovernmental organizations in 
the U.S. or abroad to improve their understanding of international 
affairs;

[[Page 381]]

    (f) Developing international education programs designed to develop 
or enhance linkages between 2-and 4-year institutions of higher 
education, or baccalaureate and post-baccalaureate programs or 
institutions;
    (g) Developing undergraduate educational programs--
    (1) In locations abroad where those opportunities are not otherwise 
available or that serve students for whom those opportunities are not 
otherwise available; and
    (2) That provide courses that are closely related to on-campus 
foreign language and international curricula;
    (h) Integrating new and continuing education abroad opportunities 
for undergraduate students into curricula of specific degree programs;
    (i) Developing model programs to enrich or enhance the effectiveness 
of educational programs abroad, including pre-departure and post-return 
programs, and integrating educational programs abroad into the 
curriculum of the home institution;
    (j) Developing programs designed to integrate professional and 
technical education with foreign languages, area studies, and other 
international fields;
    (k) Establishing linkages overseas with institutions of higher 
education and organizations that contribute to the educational programs 
assisted under this part;
    (l) Developing partnerships between--
    (1) Institutions of higher education; and
    (2) The private sector, government, or elementary and secondary 
education institutions in order to enhance international knowledge and 
skills; and
    (m) Using innovative technology to increase access to international 
education programs.

(Authority: 20 U.S.C. 1124)

[64 FR 7740, Feb. 16, 1999]



Sec. 658.12  For what kinds of projects does the Secretary assist associations 
and organizations?

    The Secretary may award grants under this part to public and private 
nonprofit agencies and organizations including scholarly associations, 
that propose projects that will make an especially significant 
contribution to strengthening and improving undergraduate instruction in 
international studies and foreign languages at institutions of higher 
education.

(Authority: 20 U.S.C. 1124(b))

Subpart C [Reserved]



             Subpart D--How Does the Secretary Make a Grant?



Sec. 658.30  How does the Secretary evaluate an application?

    (a)(1) The Secretary evaluates an application from an institution of 
higher education or a combination of such institutions on the basis of 
the criteria in Secs. 658.31 and 658.32. The Secretary awards up to 85 
possible points for these criteria.
    (2) Under Secs. 658.31 and 658.32 the Secretary evaluates 
applications for funding on a percentage score based upon the number of 
points an application receives and the maximum number of points 
possible.
    (b)(1) The Secretary evaluates an application from an agency or 
organization or professional or scholarly association on the basis of 
the criteria in Secs. 658.31 and 658.33. The Secretary awards up to 75 
possible points for these criteria.
    (2) Under Secs. 658.31 and 658.33 the Secretary evaluates 
applications for funding on a percentage score based upon the number of 
points an application receives and the maximum number of points 
possible.
    (c) The maximum possible points for each criterion are indicated in 
parentheses.

(Authority: 20 U.S.C. 1124)



Sec. 658.31  What selection criteria does the Secretary use?

    The Secretary uses the following criteria in evaluating an 
application for a project under this part.
    (a) Plan of operation. (10) (See 34 CFR 655. 31(a))
    (b) Quality of key personnel. (10) (See 34 CFR 655.31(b))
    (c) Budget and cost effectiveness. (10) (See 34 CFR 655.31(c))
    (d) Evaluation plan. (5) (See 34 CFR 655.31(d))

[[Page 382]]

    (e) Adequacy of resources. (10) (See 34 CFR 655.31(e))

(Authority: 20 U.S.C. 1124)



Sec. 658.32  What additional criteria does the Secretary apply to 
institutional applications?

    In addition to the criteria referred to in Sec. 658.31, the 
Secretary applies the following criteria to applications submitted by an 
institution of higher education or a combination of such institutions:
    (a) Commitment to international studies. (15)
    (1) The Secretary reviews each application for information that 
shows the applicant's commitment to the international studies program.
    (2) The Secretary looks for information that shows--
    (i) The institution's current strength as measured by the number of 
international studies courses offered;
    (ii) The extent to which planning for the implementation of the 
proposed program has involved the applicant's faculty, as well as 
administrators;
    (iii) The institutional commitment to the establishment, operation, 
and continuation of the program as demonstrated by optimal use of 
available personnel and other resources; and
    (iv) The institutional commitment to the program as demonstrated by 
the use of institutional funds in support of the program's objectives.
    (b) Elements of the proposed international studies program. (15)
    (1) The Secretary reviews each application for information that 
shows the nature of the applicant's proposed international studies 
program.
    (2) The Secretary looks for information that shows--
    (i) The extent to which the proposed activities will contribute to 
the implementation of a program in international studies and foreign 
languages at the applicant institution;
    (ii) The interdisciplinary aspects of the program;
    (iii) The number of new and revised courses with an international 
perspective that will be added to the institution's programs; and
    (iv) The applicant's plans to improve or expand language 
instruction.
    (c) Need for and prospective results of the proposed program. (10)
    (1) The Secretary reviews each application for information that 
shows the need for and the prospective results of the applicant's 
proposed program.
    (2) The Secretary looks for information that shows--
    (i) The extent to which the proposed activities are needed at the 
applicant institution;
    (ii) The extent to which the proposed use of Federal funds will 
result in the implementation of a program in international studies and 
foreign languages at the applicant institution;
    (iii) The likelihood that the activities initiated with Federal 
funds will be continued after Federal assistance is terminated; and
    (iv) The adequacy of the provisions for sharing the materials and 
results of the program with other institutions of higher education.

(Authority: 20 U.S.C. 1124)

[47 FR 14122, Apr. 1, 1982, as amended at 52 FR 28422, July 29, 1987]



Sec. 658.33  What additional criterion does the Secretary apply to 
applications from organizations and associations?

    In addition to the criteria referred to in Sec. 658.31, the 
Secretary applies the following criterion to applications from 
organizations and associations:
    (a) Need for and potential impact of the proposed project in 
improving international studies and the study of modern foreign language 
at the undergraduate level. (30)
    (b) The Secretary reviews each application for information that 
shows the need for and the potential impact of the applicant's proposed 
projects in improving international studies and the study of modern 
foreign language at the undergraduate level.
    (1) The Secretary looks for information that shows--
    (i) The extent to which the applicant's proposed apportionment of 
Federal funds among the various budget categories for the proposed 
project will contribute to achieving results;
    (ii) The international nature and contemporary relevance of the 
proposed project;

[[Page 383]]

    (iii) The extent to which the proposed project will make an 
especially significant contribution to the improvement of the teaching 
of international studies or modern foreign languages at the 
undergraduate level; and
    (iv) The adequacy of the applicant's provisions for sharing the 
materials and results of the proposed project with the higher education 
community.
    (2) [Reserved]

(Authority: 20 U.S.C. 1124(b))



Sec. 658.34  What additional factors does the Secretary consider in selecting 
grant recipients?

    In addition to applying the selection criteria in, as appropriate 
Secs. 658.31, 658.32, and 658.33, the Secretary, to the extent 
practicable and consistent with the criterion of excellence, seeks to 
encourage diversity by ensuring that a variety of types of projects and 
institutions receive funding.

(Authority: 20 U.S.C. 1124 and 1126)

[58 FR 32576, June 10, 1993]



Sec. 658.35  What priority does the Secretary give?

    (a) The Secretary gives priority to applications from institutions 
of higher education or combinations of these institutions that require 
entering students to have successfully completed at least two years of 
secondary school foreign language instruction or that require each 
graduating student to earn two years of postsecondary credit in a 
foreign language (or have demonstrated equivalent competence in the 
foreign language) or, in the case of a 2-year degree granting 
institution, offer two years of postsecondary credit in a foreign 
language.
    (b) The Secretary announces the number of points to be awarded under 
this priority in the application notice published in the Federal 
Register.

(Authority: 20 U.S.C. 1124)

[58 FR 32576, June 10, 1993]



          Subpart E--What Conditions Must Be Met by a Grantee?



Sec. 658.40  What are the limitations on allowable costs?

    Equipment costs may not exceed five percent of the grant amount.

(Authority: 20 U.S.C. 1124)



Sec. 658.41  What are the cost-sharing requirements?

    (a) The grantee's share may be derived from cash contributions from 
private sector corporations or foundations in the amount of one-third of 
the total cost of the project.
    (b) The grantee's share may be derived from cash or in-kind 
contributions from institutional and noninstitutional funds, including 
State and private sector corporation or foundation contributions, equal 
to one-half of the total cost of the project.
    (c) In-kind contributions means property or services that benefit a 
grant-supported project or program and that are contributed by non-
Federal third parties without charge to the grantee.
    (d) The Secretary may waive or reduce the required non-Federal share 
for institutions that--
    (1) Are eligible to receive assistance under part A or B of title 
III or under title V of the Higher Education Act of 1965, as amended; 
and
    (2) Have submitted a grant application under this part.

(Authority: 20 U.S.C. 1124 and 3474; OMB Circular A-110)

[58 FR 32577, June 10, 1993, as amended at 64 FR 7740, Feb. 16, 1999]



PART 660--THE INTERNATIONAL RESEARCH AND STUDIES PROGRAM--Table of Contents




                           Subpart A--General

Sec.
660.1  What is the International Research and Studies Program?
660.2  Who is eligible to apply for grants under this program?
660.3  What regulations apply?

[[Page 384]]

660.4  What definitions apply to the International Research and Studies 
          Program?

 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?

660.10  What activities does the Secretary assist?

Subpart C [Reserved]

             Subpart D--How Does the Secretary Make a Grant?

660.30  How does the Secretary evaluate an application?
660.31  What selection criteria does the Secretary use for all 
          applications for a grant?
660.32  What additional selection criteria does the Secretary use for an 
          application for a research project, a survey, or a study?
660.33  What additional selection criteria does the Secretary use for an 
          application to develop specialized instructional materials?
660.34  What priorities may the Secretary establish?

          Subpart E--What Conditions Must Be Met by a Grantee?

660.40  What are the limitations on allowable costs?

    Authority: 20 U.S.C. 1125, unless otherwise noted.

    Source: 47 FR 14124, Apr. 1, 1982, unless otherwise noted.



                           Subpart A--General



Sec. 660.1  What is the International Research and Studies Program?

    The Secretary may, directly or through grants or contracts, conduct 
research and studies which contribute to the purposes of the 
International Education Program authorized by part A of title VI of the 
Higher Education Act of 1965, as amended (HEA). The research and studies 
may include, but are not limited to--
    (a) Studies and surveys to determine needs for increased or improved 
instruction in modern foreign languages, area studies, or other 
international fields, including the demand for foreign language, area, 
and other international specialists in government, education, and the 
private sector;
    (b) Research on more effective methods of providing instruction and 
achieving competency in foreign languages, area studies, or other 
international fields;
    (c) Research on applying performance tests and standards across all 
areas of foreign language instruction and classroom use;
    (d) Developing and publishing specialized materials for use in 
foreign language, area studies, and other international fields or for 
training foreign language, area, and other international specialists;
    (e) Studies and surveys to assess the use of graduates of programs 
supported under title VI of the HEA by governmental, educational, and 
private-sector organizations and other studies assessing the outcomes 
and effectiveness of supported programs;
    (f) Comparative studies of the effectiveness of strategies to 
provide international capabilities at institutions of higher education;
    (g) Evaluations of the extent to which programs assisted under title 
VI of the HEA that address national needs would not otherwise be 
offered;
    (h) Studies and surveys of the use of technologies in foreign 
language, area studies, and international studies programs; and
    (i) Studies and evaluations of effective practices in the 
dissemination of international information, materials, research, 
teaching strategies, and testing techniques throughout the educational 
community, including elementary and secondary schools.

(Authority: 20 U.S.C. 1125)

[47 FR 14124, Apr. 1, 1982, as amended at 58 FR 32577, June 10, 1993; 64 
FR 7740, Feb. 16, 1999]



Sec. 660.2  Who is eligible to apply for grants under this program?

    Public and private agencies, organizations, and institutions, and 
individuals are eligible to apply for grants under this part.

(Authority: 20 U.S.C. 1125)



Sec. 660.3  What regulations apply?

    The following regulations apply to this program:
    (a) The regulations in 34 CFR part 655.

[[Page 385]]

    (b) The regulations in this part 660.

(Authority: 20 U.S.C. 1121-1125)

[58 FR 32577, June 10, 1993]



Sec. 660.4  What definitions apply to the International Research and Studies 
Program?

    The definitions in 34 CFR 655.4 apply to this program.

(Authority: U.S.C. 1121-1127)



 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?



Sec. 660.10  What activities does the Secretary assist?

    An applicant may apply for funds to carry out any of the following 
types of activities:
    (a) Studies and surveys to determine the need for increased or 
improved instruction in--
    (1) Modern foreign languages; and
    (2) Area studies and other international fields needed to provide 
full understanding of the places in which those languages are commonly 
used.
    (b) Research and studies--
    (1) On more effective methods of instruction and achieving 
competency in modern foreign languages, area studies, or other 
international fields;
    (2) To evaluate competency in those foreign languages, area studies, 
or other international fields; or
    (3) On the application of performance tests and standards across all 
areas of foreign language instruction and classroom use.
    (c) The development and publication of specialized materials--
    (1) For use by students and teachers of modern foreign languages, 
area studies, and other international fields; and
    (2) For use in--
    (i) Providing such instruction and evaluation; or
    (ii) Training individuals to provide such instruction and 
evaluation.
    (d) Research, surveys, studies, or the development of instructional 
materials that serve to enhance international understanding.
    (e) Other research or material development projects that further the 
purposes of the International Education Program authorized by part A of 
title VI of the HEA.
    (f) Studies and surveys to assess the use of graduates of programs 
supported under title VI of the HEA by governmental, educational, and 
private-sector organizations, and other studies assessing the outcomes 
and effectiveness of supported programs.
    (g) Comparative studies of the effectiveness of strategies to 
provide international capabilities at institutions of higher education.
    (h) Evaluations of the extent to which programs assisted under title 
VI of the HEA that address national needs would not otherwise be 
offered.
    (i) Studies and surveys of the uses of technology in foreign 
language, area studies, and international studies programs.
    (j) Studies and evaluations of effective practices in the 
dissemination of international information, materials, research, 
teaching strategies, and testing techniques through the education 
community, including elementary and secondary schools.

(Authority: 20 U.S.C. 1125)

[47 FR 14124, Apr. 1, 1982, as amended at 52 FR 28424, July 29, 1987; 58 
FR 32577, June 10, 1993; 64 FR 7740, Feb. 16, 1999]

Subpart C [Reserved]



             Subpart D--How Does the Secretary Make a Grant?



Sec. 660.30  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a research project, a 
study, or a survey on the basis of the criteria in Secs. 660.31 and 
660.32.
    (b) The Secretary evaluates an application for the development of 
specialized instructional materials on the basis of the criteria in 
Secs. 660.31 and 660.33
    (c) The Secretary awards up to 100 possible points for these 
criteria. The maximum possible points for each criterion are shown in 
parentheses.

(Authority: 20 U.S.C. 1125)

[[Page 386]]



Sec. 660.31  What selection criteria does the Secretary use for all applications 
for a grant?

    The Secretary uses the following criteria in evaluating applications 
for research or studies projects:
    (a) Plan of operation. (10 points) (See 34 CFR 655.31(a))
    (b) Quality of key personnel. (10 points) (See 34 CFR 655.31(b))
    (c) Budget and cost effectiveness. (10 points) (See 34 CFR 
655.31(c))
    (d) Evaluation plan. (5 points) (See 34 CFR 655.31(d))
    (e) Adequacy of resources. (5 points) (See 34 CFR 655.31(e))

(Authority: 20 U.S.C. 1125)

[47 FR 14124, Apr. 1, 1982, as amended at 58 FR 32577, June 10, 1993]



Sec. 660.32  What additional selection criteria does the Secretary use for 
an application for a research project, a survey, or a study?

    In addition to the criteria referred to in Sec. 660.31, the 
Secretary applies the following criteria to an application for a 
research project, study, or survey:
    (a) Need for the project. (10 points) The Secretary reviews each 
application for information that shows--
    (1) A need for the proposed project in the field of study on which 
the project focuses; and
    (2) That the proposed project will provide information about the 
present and future needs of the United States for study in foreign 
language and other international fields.
    (b) Usefulness of expected results. (10 points) The Secretary 
reviews each application for information that shows the extent to which 
the results of the proposed project are likely to be used by other 
research projects or programs with similar objectives.
    (c) Development of new knowledge. (10 points) The Secretary reviews 
each application for information that shows that the extent to which the 
proposed project is likely to develop new knowledge that will contribute 
to the purposes of the International Education Program authorized by 
part A of title VI of the HEA.
    (d) Formulation of problems and knowledge of related research. (10 
points) The Secretary reviews each application for information that 
shows that problems, questions, or hypotheses to be dealt with by the 
applicant--
    (1) Are well formulated; and
    (2) Reflect adequate knowledge of related research.
    (e) Specificity of statement of procedures. (10 points) The 
Secretary reviews each application for the specificity and completeness 
of the statement of procedures to be followed, including a discussion of 
such components as sampling techniques, controls, data to be gathered, 
and statistical and other analyses to be undertaken.
    (f) Adequacy of methodology and scope of project. (10 points) The 
Secretary reviews each application for information that shows--
    (1) The adequacy of the proposed teaching, testing, and research 
methodology; and
    (2) The size, scope, and duration of the proposed project.

(Authority: 20 U.S.C. 1125)

[47 FR 14124, Apr. 1, 1982, as amended at 58 FR 32577, June 10, 1993]



Sec. 660.33  What additional selection criteria does the Secretary use for 
an application to develop specialized instructional materials?

    In addition to the criteria referred to in Sec. 660.31, the 
Secretary applies the following criteria to an application for 
assistance to develop specialized instructional materials.
    (a) Need for the project. (10 points) The Secretary reviews each 
application for information that shows that--
    (1) The proposed materials are needed in the educational field of 
study on which the project focuses; and
    (2) The language or languages, the area, region, or country, or the 
issues or studies for which the materials are to be developed, are of 
sufficient priority and significance to the national interest to warrant 
financial support by the Federal Government.
    (b) Potential for the use of materials in other programs. (10 
points) The Secretary reviews each application for information that 
shows the extent to which the proposed materials may be used elsewhere 
in the United States.
    (c) Account of related materials. (10 points) The Secretary reviews 
each application for information that shows that--

[[Page 387]]

    (1) All existing related or similar materials have been accounted 
for and the critical commentary on their adequacy is appropriate and 
accurate; and
    (2) The proposed materials will not duplicate any existing adequate 
materials.
    (d) Likelihood of achieving results. (10 points) The Secretary 
reviews each application for information that shows that the outlined 
methods and procedures for preparing the materials are practicable and 
can be expected to produce the anticipated results.
    (e) Expected contribution to other programs. (10 points) The 
Secretary reviews each application for information that shows the extent 
to which the proposed work may contribute significantly to 
strengthening, expanding, or improving programs of foreign language 
studies, area studies, or international studies in the United States.
    (f) Description of final form of materials. (5 points) The Secretary 
reviews each application for information that shows a high degree of 
specificity in the description of the contents and final form of the 
proposed materials.
    (g) Provisions for pretesting and revision. (5 points) The Secretary 
reviews each application for information that shows that adequate 
provision has been made for--
    (1) Pretesting the proposed materials; and
    (2) If necessary, revising the proposed materials before 
publication.

(Authority: 20 U.S.C. 1125)

[47 FR 14124, Apr. 1, 1982, as amended at 58 FR 32577, June 10, 1993]



Sec. 660.34  What priorities may the Secretary establish?

    (a) The Secretary may each year select for funding from among the 
following priorities:
    (1) Categories of eligible projects described in Sec. 660.10.
    (2) Specific languages or regions for study or materials 
development; for example, the Near or Middle East, South Asia, Southeast 
Asia, Eastern Europe, Inner Asia, the Far East, Africa or Latin America, 
or the languages of those regions.
    (3) Topics of research and studies; for example, language 
acquisition processes, methodology of foreign language instruction, 
foreign language performance testing, or assessments of resources and 
needs.
    (4) Levels of education; for example, elementary, secondary, 
postsecondary or university-level education, or teacher education.
    (b) The Secretary announces any priorities in the application notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1126)

[47 FR 14124, Apr. 1, 1982, as amended at 58 FR 32577, June 10, 1993]



          Subpart E--What Conditions Must Be Met by a Grantee?



Sec. 660.40  What are the limitations on allowable costs?

    Funds awarded under this part may not be used for the training of 
students and teachers.

(Authority: 20 U.S.C. 1125)



PART 661--BUSINESS AND INTERNATIONAL EDUCATION PROGRAM--Table of Contents




                           Subpart A--General

Sec.
661.1  What is the Business and International Education Program?
661.2  Who is eligible to apply for a grant under the Business and 
          International Education Program?
661.3  What regulations apply?
661.4  What definitions apply to the Business and International 
          Education Program?

Subpart B--What Kinds of Activities Does the Secretary Assist Under this 
                                Program?

661.10  What activities does the Secretary assist under this program?

               Subpart C--How Does One Apply for a Grant?

661.20  What must an application include?

             Subpart D--How Does the Secretary Make a Grant?

661.30  How does the Secretary evaluate an application?
661.31  What selection criteria does the Secretary use?
661.32  What priorities may the Secretary establish?

[[Page 388]]

          Subpart E--What Conditions Must be Met by a Grantee?

661.40  What are the matching requirements?

    Authority: 20 U.S.C. 1130-1130b, unless otherwise noted.

    Source: 49 FR 24362, June 12, 1984, unless otherwise noted.



                           Subpart A--General



Sec. 661.1  What is the Business and International Education Program?

    The Business and International Education Program is designed to 
promote linkages between institutions of higher education and American 
businesses engaged in international economic activities. The purpose of 
each project assisted under this part is both to enhance the 
international academic programs of institutions of higher education, and 
to provide appropriate services to the business community that will 
enable it to expand its capacity to sell its goods and services outside 
the United States.

(Authority: 20 U.S.C. 1130)



Sec. 661.2  Who is eligible to apply for a grant under the Business and 
International Education Program?

    Under this program the Secretary considers applications from 
institutions of higher education that have entered into agreements with 
business enterprises, trade organizations or associations engaged in 
international economic activity--or a combination or consortium of these 
enterprises, organizations or associations--for the purposes of pursuing 
the activities authorized under this program.

(Authority: 20 U.S.C. 1130a)



Sec. 661.3  What regulations apply?

    The following regulations apply to this program:
    (a) The regulations in 34 CFR part 655.
    (b) The regulations in this part 661.

(Authority: 20 U.S.C. 1130-1130b)

[58 FR 32577, June 10, 1993]



Sec. 661.4  What definitions apply to the Business and International Education 
Program?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR part 77:

Applicant
Application
Award
Budget
Contract
EDGAR
Equipment
Facilities
Fiscal Year
Grant
Grantee
Nonprofit
Profit
Private
Public
Secretary
Supplies

    (b) Definitions in 34 CFR part 655. The following terms used in this 
part are defined in 34 CFR part 655.4(b):

    Combinations of institutions
    Institution of higher education

(Authority: 20 U.S.C. 1130-1130a)



Subpart B--What Kinds of Activities Does the Secretary Assist Under This 
                                Program?



Sec. 661.10  What activities does the Secretary assist under this program?

    The activities that the Secretary may assist institutions of higher 
education to conduct under this program, include but are not limited to-
-
    (a) Innovation and improvement of international education curricula 
to serve the needs of the business community, including the development 
of new programs for nontraditional, mid-career, or part-time students;
    (b) Development of programs to inform the public of increasing 
international economic interdependence and the role of American business 
within the international economic system;
    (c) Internationalization of curricula at junior and community 
colleges, and at undergraduate and graduate schools of business;
    (d) Development of area studies programs and interdisciplinary 
international programs;
    (e) Establishment of export education programs through cooperative 
arrangements with regional and world trade centers and councils, and 
with bilateral and multilateral trade associations;

[[Page 389]]

    (f) Research for and development of teaching materials relating to 
international education, including language materials, and facilities 
appropriate to business-oriented students;
    (g) Establishment of student and faculty fellowships and internships 
for training and education in international business activities;
    (h) Development of opportunities for business and other professional 
school junior faculty to acquire or strengthen international skills and 
perspectives;
    (i) Development of research programs on issues of common interest to 
institutions of higher education and private sector organizations and 
associations engaged in or promoting international economic activity;
    (j) The establishment of internships overseas to enable foreign 
language students to develop their foreign language skills and their 
knowledge of foreign cultures and societies;
    (k) Establishing linkages overseas with institutions of higher 
education and organizations that contribute to the educational 
objectives of this program; and
    (l) Summer institutes in international business, foreign area, and 
other international studies designed to carry out the purposes of this 
program.

(Authority: 20 U.S.C. 1130-1130b)

[49 FR 24362, June 12, 1984, as amended at 52 FR 28426, July 29, 1987; 
58 FR 32577, June 10, 1993]



                Subpart C--How Does One Apply for a Grant



Sec. 661.20  What must an application include?

    An institution that applies for a grant under this program shall 
include the following in its application:
    (a)(1) A copy of the agreement between the applicant and the other 
party or parties described in Sec. 661.2 for the purpose of carrying out 
the activities for which the applicant seeks assistance.
    (2) The agreement must be signed by all parties and it must describe 
the manner in which the business enterprise, trade association, or 
organization will assist in carrying out the activities proposed in the 
application.
    (b) An assurance that the applicant will use the funds to supplement 
and not to supplant activities conducted by the applicant.

(Authority: 20 U.S.C. 1130a)



             Subpart D--How Does the Secretary Make a Grant?



Sec. 661.30  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a grant under this 
program on the basis of the criteria in Sec. 661.31.
    (b) The Secretary awards up to 100 possible points for these 
criteria. The maximum possible points for each criterion are shown in 
parentheses.

(Authority: 20 U.S.C. 1130a)



Sec. 661.31  What selection criteria does the Secretary use?

    The Secretary uses the following criteria to evaluate applications 
for a grant under this program.
    (a) Plan of operation. (Maximum 30 points) (See 34 CFR 655.31(a).)
    (b) Qualifications of the key personnel. (Maximum 10 points) (See 34 
CFR 655.31(b).)
    (c) Budget and cost effectiveness. (Maximum 15 points) (See 34 CFR 
655.31(c).)
    (d) Evaluation plan. (Maximum 15 points) (See 34 CFR 655.31(d).)
    (e) Adequacy of resources (Maximum 10 points) (See 34 CFR 
655.31(e).)
    (f) Need for the project. (Maximum 20 points)

The Secretary reviews each application for information that shows the 
need for the project, and the extent to which the proposed project will 
promote linkages between institutions of higher education and the 
business community involved in international economic activities.

(Authority: 20 U.S.C. 1130a)



Sec. 661.32  What priorities may the Secretary establish?

    (a) The Secretary may each year establish priorities for funding 
from the activities described in Sec. 661.10.
    (b) The Secretary announces any priorities in the application notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1130a)

[[Page 390]]



          Subpart E--What Conditions Must be Met by a Grantee?



Sec. 661.40  What are the matching requirements?

    A grantee shall pay a minimum of 50 percent of the cost of the 
project for each fiscal year.

(Authority: 20 U.S.C. 1130a)



PART 662--FULBRIGHT-HAYS DOCTORAL DISSERTATION RESEARCH ABROAD FELLOWSHIP 
PROGRAM--Table of Contents




                           Subpart A--General

Sec.
662.1  What is the Fulbright-Hays Doctoral Dissertation Research Abroad 
          Fellowship Program?
662.2  Who is eligible to receive an institutional grant under this 
          program?
662.3  Who is eligible to receive a fellowship under this program?
662.4  What is the amount of a fellowship?
662.5  What is the duration of a fellowship?
662.6  What regulations apply to this program?
662.7  What definitions apply to this program?

                         Subpart B--Applications

662.10  How does an individual apply for a fellowship?
662.11  What is the role of the institution in the application process?

                     Subpart C--Selection of Fellows

662.20  How is a Fulbright-Hays Doctoral Dissertation Research Abroad 
          Fellow selected?
662.21  What criteria does the Secretary use to evaluate an application 
          for a fellowship?
662.22  How does the J. William Fulbright Foreign Scholarship Board 
          select fellows?

           Subpart D--Post-award Requirements for Institutions

662.30  What are an institution's responsibilities after the award of a 
          grant?

             Subpart E--Post-award Requirements for Fellows

662.41  What are a fellow's responsibilities after the award of a 
          fellowship?
662.42  How may a fellowship be revoked?

    Authority: Section 102(b)(6) of the Mutual Educational and Cultural 
Exchange Act of 1961 (Fulbright-Hays Act), 22 U.S.C. 2452(b)(6), unless 
otherwise noted.

    Source: 63 FR 46361, unless otherwise noted.



                           Subpart A--General



Sec. 662.1  What is the Fulbright-Hays Doctoral Dissertation Research 
Abroad Fellowship Program?

    (a) The Fulbright-Hays Doctoral Dissertation Research Abroad 
Fellowship Program is designed to contribute to the development and 
improvement of the study of modern foreign languages and area studies in 
the United States by providing opportunities for scholars to conduct 
research abroad.
    (b) Under the program, the Secretary awards fellowships, through 
institutions of higher education, to doctoral candidates who propose to 
conduct dissertation research abroad in modern foreign languages and 
area studies.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 662.2  Who is eligible to receive an institutional grant under this 
program?

    An institution of higher education is eligible to receive an 
institutional grant.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



Sec. 662.3  Who is eligible to receive a fellowship under this program?

    An individual is eligible to receive a fellowship if the individual-
-
    (a)(1) Is a citizen or national of the United States; or
    (2) Is a permanent resident of the United States;
    (b)(1) Is a graduate student in good standing at an institution of 
higher education; and
    (2) When the fellowship period begins, is admitted to candidacy in a 
doctoral degree program in modern foreign languages and area studies at 
that institution;
    (c) Is planning a teaching career in the United States upon 
completion of his or her doctoral program; and
    (d) Possesses sufficient foreign language skills to carry out the 
dissertation research project.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))

[[Page 391]]



Sec. 662.4  What is the amount of a fellowship?

    (a) The Secretary pays--
    (1) Travel expenses to and from the residence of the fellow and the 
country or countries of research;
    (2) A maintenance stipend for the fellow and his or her dependents 
related to cost of living in the host country or countries;
    (3) An allowance for research-related expenses overseas, such as 
books, copying, tuition and affiliation fees, local travel, and other 
incidental expenses; and
    (4) Health and accident insurance premiums.
    (b) In addition, the Secretary may pay--
    (1) Emergency medical expenses not covered by health and accident 
insurance; and
    (2) The costs of preparing and transporting the remains of a fellow 
or dependent who dies during the term of the fellowship to his or her 
former home.
    (c) The Secretary announces the amount of benefits expected to be 
available in an application notice published in the Federal Register.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e) (1) and (2))



Sec. 662.5  What is the duration of a fellowship?

    (a) A fellowship is for a period of not fewer than six nor more than 
twelve months.
    (b) A fellowship may not be renewed.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 662.6  What regulations apply to this program?

    The following regulations apply to this program:
    (a) The regulations in this part 662; and
    (b) The Education Department General Administrative Regulations 
(EDGAR) (34 CFR parts 74, 75, 77, 81, 82, 85, and 86).

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 662.7  What definitions apply to this program?

    (a) Definitions of the following terms as used in this part are 
contained in 34 CFR part 77:

Applicant
Application
Award
EDGAR
Fiscal year
Grant
Secretary

    (b) The definition of institution of higher education as used in 
this part is contained in 34 CFR 600.4.
    (c) The following definitions of other terms used in this part apply 
to this program:
    Area studies means a program of comprehensive study of the aspects 
of a society or societies, including the study of their geography, 
history, culture, economy, politics, international relations, and 
languages.
    Binational commission means an educational and cultural commission 
established, through an agreement between the United States and either a 
foreign government or an international organization, to carry out 
functions in connection with the program covered by this part.
    Dependent means any of the following individuals who accompany the 
recipient of a fellowship under this program to his or her training site 
for the entire fellowship period if the individual receives more than 50 
percent of his or her support from the recipient during the fellowship 
period:
    (1) The recipient's spouse.
    (2) The recipient's or spouse's children who are unmarried and under 
age 21.
    J. William Fulbright Foreign Scholarship Board means the 
presidentially-appointed board that is responsible for supervision of 
the program covered by this part.

(Authority: 22 U.S.C. 2452(b)(6), 2456)



                         Subpart B--Applications



Sec. 662.10  How does an individual apply for a fellowship?

    (a) An individual applies for a fellowship by submitting an 
application to the Secretary through the institution

[[Page 392]]

of higher education in which the individual is enrolled.
    (b) The applicant shall provide sufficient information concerning 
his or her personal and academic background and proposed research 
project to enable the Secretary to determine whether the applicant--
    (1) Is eligible to receive a fellowship under Sec. 662.3; and
    (2) Should be selected to receive a fellowship under subparts C and 
D of this part.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 662.11  What is the role of the institution in the application process?

    An institution of higher education that participates in this program 
is responsible for--
    (a) Making fellowship application materials available to its 
students;
    (b) Accepting and screening applications in accordance with its own 
technical and academic criteria; and
    (c) Forwarding screened applications to the Secretary and requesting 
an institutional grant.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



                     Subpart C--Selection of Fellows



Sec. 662.20  How is a Fulbright-Hays Doctoral Dissertation Research Abroad 
Fellow selected?

    (a) The Secretary considers applications for fellowships under this 
program that have been screened and submitted by eligible institutions. 
The Secretary evaluates these applications on the basis of the criteria 
in Sec. 662.21.
    (b) The Secretary does not consider applications to carry out 
research in a country in which the United States has no diplomatic 
representation.
    (c) In evaluating applications, the Secretary obtains the advice of 
panels of United States academic specialists in modern foreign languages 
and area studies.
    (d) The Secretary gives preference to applicants who have served in 
the armed services of the United States if their applications are 
equivalent to those of other applicants on the basis of the criteria in 
Sec. 662.21.
    (e) The Secretary considers information on budget, political 
sensitivity, and feasibility from binational commissions or United 
States diplomatic missions, or both, in the proposed country or 
countries of research.
    (f) The Secretary presents recommendations for recipients of 
fellowships to the J. William Fulbright Foreign Scholarship Board, which 
reviews the recommendations and approves recipients.

(Authority: 22 U.S.C. 2452(b)(6), 2456)



Sec. 662.21  What criteria does the Secretary use to evaluate an application 
for a fellowship?

    (a) General. (1) The Secretary uses the criteria in this section to 
evaluate an application for a fellowship.
    (2) The maximum score for all of the criteria is 100 points. 
However, if priority criteria described in paragraph (c) of this section 
are used, the maximum score is 110 points.
    (3) The maximum score for each criterion is shown in parentheses 
with the criterion.
    (b) Quality of proposed project. (60 points) The Secretary reviews 
each application to determine the quality of the research project 
proposed by the applicant. The Secretary considers--
    (1) The statement of the major hypotheses to be tested or questions 
to be examined, and the description and justification of the research 
methods to be used;
    (2) The relationship of the research to the literature on the topic 
and to major theoretical issues in the field, and the project's 
originality and importance in terms of the concerns of the discipline;
    (3) The preliminary research already completed in the United States 
and overseas or plans for such research prior to going overseas, and the 
kinds, quality and availability of data for the research in the host 
country or countries;
    (4) The justification for overseas field research and preparations 
to establish appropriate and sufficient research contacts and 
affiliations abroad;
    (5) The applicant's plans to share the results of the research in 
progress and a copy of the dissertation with scholars and officials of 
the host country or countries; and

[[Page 393]]

    (6) The guidance and supervision of the dissertation advisor or 
committee at all stages of the project, including guidance in developing 
the project, understanding research conditions abroad, and acquainting 
the applicant with research in the field.
    (c) Qualifications of the applicant. (40 points) The Secretary 
reviews each application to determine the qualifications of the 
applicant. The Secretary considers--
    (1) The overall strength of the applicant's graduate academic 
record; (10)
    (2) The extent to which the applicant's academic record demonstrates 
a strength in area studies relevant to the proposed project; (10)
    (3) The applicant's proficiency in one or more of the languages 
(other than English and the applicant's native language) of the country 
or countries of research, and the specific measures to be taken to 
overcome any anticipated language barriers; (15) and
    (4) The applicant's ability to conduct research in a foreign 
cultural context, as evidenced by the applicant's references or previous 
overseas experience, or both. (5)
    (d) Priorities. (10 points) (1) The Secretary determines the extent 
to which the application responds to any priority that the Secretary 
establishes for the selection of fellows in any fiscal year. The 
Secretary announces any priorities in an application notice published in 
the Federal Register.
    (2) Priorities may relate to certain world areas, countries, 
academic disciplines, languages, topics, or combinations of any of these 
categories. For example, the Secretary may establish a priority for--
    (i) A specific geographic area or country, such as the Caribbean or 
Poland;
    (ii) An academic discipline, such as economics or political science;
    (iii) A language, such as Tajik or Indonesian; or
    (iv) A topic, such as public health issues or the environment.

(Approved by the Office of Management and Budget under control number 
1840-0005)

(Authority: 22 U.S.C. 2452(b)(6), 2456(a)(2))



Sec. 662.22  How does the J. William Fulbright Foreign Scholarship Board 
select fellows?

    (a) The J. William Fulbright Foreign Scholarship Board selects 
fellows on the basis of the Secretary's recommendations and the 
information described in Sec. 662.20(e) from binational commissions or 
United States diplomatic missions.
    (b) No applicant for a fellowship may be awarded more than one 
graduate fellowship under the Fulbright-Hays Act from appropriations for 
a given fiscal year.

(Authority: 22 U.S.C. 2452(b)(6), 2456(a)(1))



           Subpart D--Post-award Requirements for Institutions



Sec. 662.30  What are an institution's responsibilities after the award 
of a grant?

    (a) An institution to which the Secretary awards a grant under this 
part is responsible for administering the grant in accordance with the 
regulations described in Sec. 662.6.
    (b) The institution is responsible for processing individual 
applications for fellowships in accordance with procedures described in 
Sec. 662.11.
    (c) The institution is responsible for disbursing funds in 
accordance with procedures described in Sec. 662.4.
    (d) The Secretary awards the institution an administrative allowance 
of $100 for each fellowship listed in the grant award document.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



             Subpart E--Post-award Requirements for Fellows



Sec. 662.41  What are a fellow's responsibilities after the award of a 
fellowship?

    As a condition of retaining a fellowship, a fellow shall--
    (a) Maintain satisfactory progress in the conduct of his or her 
research;
    (b) Devote full time to research on the approved topic;
    (c) Not engage in unauthorized income-producing activities during 
the period of the fellowship; and

[[Page 394]]

    (d) Remain a student in good standing with the grantee institution 
during the period of the fellowship.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 662.42  How may a fellowship be revoked?

    (a) The fellowship may be revoked only by the J. William Fulbright 
Foreign Scholarship Board upon the recommendation of the Secretary.
    (b) The Secretary may recommend a revocation of a fellowship on the 
basis of--
    (1) The fellow's failure to meet any of the conditions in 
Sec. 662.41; or
    (2) Any violation of the standards of conduct adopted by the J. 
William Fulbright Foreign Scholarship Board.

(Authority: 22 U.S.C. 2452(b)(6), 2456, and Policy Statements of the J. 
William Fulbright Foreign Scholarship Board, 1990)



PART 663--FULBRIGHT-HAYS FACULTY RESEARCH ABROAD FELLOWSHIP PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
663.1  What is the Fulbright-Hays Faculty Research Abroad Fellowship 
          Program?
663.2  Who is eligible to receive an institutional grant under this 
          program?
663.3  Who is eligible to receive a fellowship under this program?
663.4  What is the amount of a fellowship?
663.5  What is the duration of a fellowship?
663.6  What regulations apply to this program?
663.7  What definitions apply to this program?

                         Subpart B--Applications

663.10  How does an individual apply for a fellowship?
663.11  What is the role of the institution in the application process?

                     Subpart C--Selection of Fellows

663.20  How is a Fulbright-Hays Faculty Research Abroad Fellow selected?
663.21  What criteria does the Secretary use to evaluate an application 
          for a fellowship?
663.22  How does the J. William Fulbright Foreign Scholarship Board 
          select fellows?

           Subpart D--Post-award Requirements for Institutions

663.30  What are an institution's responsibilities after the award of a 
          grant?

             Subpart E--Post-award Requirements for Fellows

663.41  What are a fellow's responsibilities after the award of a 
          fellowship?
663.42  How may a fellowship be revoked?

    Authority: Sec. 102(b)(6) of the Mutual Educational and Cultural 
Exchange Act of 1961 (Fulbright-Hays Act), 22 U.S.C. 2452(b)(6), unless 
otherwise noted.

    Source: 63 FR 46363, Aug. 31, 1998, unless otherwise noted.



                           Subpart A--General



Sec. 663.1  What is the Fulbright-Hays Faculty Research Abroad Fellowship 
Program?

    (a) The Fulbright-Hays Faculty Research Abroad Program is designed 
to contribute to the development and improvement of modern foreign 
language and area studies in the United States by providing 
opportunities for scholars to conduct research abroad.
    (b) Under the program, the Secretary awards fellowships, through 
institutions of higher education, to faculty members who propose to 
conduct research abroad in modern foreign languages and area studies to 
improve their skill in languages and knowledge of the culture of the 
people of these countries.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 663.2  Who is eligible to receive an institutional grant under this 
program?

    An institution of higher education is eligible to receive an 
institutional grant.


(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



Sec. 663.3  Who is eligible to receive a fellowship under this program?

    An individual is eligible to receive a fellowship if the individual-
-
    (a)(1) Is a citizen or national of the United States; or
    (2) Is a permanent resident of the United States;

[[Page 395]]

    (b) Is employed by an institution of higher education;
    (c) Has been engaged in teaching relevant to his or her foreign 
language or area studies specialization for the two years immediately 
preceding the date of the award;
    (d) Proposes research relevant to his or her modern foreign language 
or area specialization which is not dissertation research for a doctoral 
degree; and
    (e) Possesses sufficient foreign language skills to carry out the 
research project.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



Sec. 663.4  What is the amount of a fellowship?

    (a) The Secretary pays--
    (1) Travel expenses to and from the residence of the fellow and the 
country or countries of research;
    (2) A maintenance stipend for the fellow related to his or her 
academic year salary; and
    (3) An allowance for research-related expenses overseas, such as 
books, copying, tuition and affiliation fees, local travel, and other 
incidental expenses.
    (b) The Secretary may pay--
    (1) Emergency medical expenses not covered by the faculty member's 
health and accident insurance; and
    (2) The costs of preparing and transporting the remains of a fellow 
or dependent who dies during the term of the fellowship to his or her 
former home.
    (c) The Secretary announces the amount of benefits expected to be 
available in an application notice published in the Federal Register.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e) (1) and (2))



Sec. 663.5  What is the duration of a fellowship?

    (a) A fellowship is for a period of not fewer than three nor more 
than twelve months.
    (b) A fellowship may not be renewed.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 663.6  What regulations apply to this program?

    The following regulations apply to this program:
    (a) The regulations in this part 663; and
    (b) The Education Department General Administrative Regulations 
(EDGAR) (34 CFR parts 74, 75, 77, 81, 82, 85, and 86).

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 663.7  What definitions apply to this program?

    (a) Definitions of the following terms as used in this part are 
contained in 34 CFR part 77:

Applicant
Application
Award
EDGAR
Fiscal year
Grant
Secretary

    (b) The definition of institution of higher education as used in 
this part is contained in 34 CFR 600.4.
    (c) The following definitions of other terms used in this part apply 
to this program:
    Area studies means a program of comprehensive study of the aspects 
of a society or societies, including the study of their geography, 
history, culture, economy, politics, international relations, and 
languages.
    Binational commission means an educational and cultural commission 
established, through an agreement between the United States and either a 
foreign government or an international organization, to carry out 
functions in connection with the program covered by this part.
    Dependent means any of the following individuals who accompany the 
recipient of a fellowship under this program to his or her training site 
for the entire fellowship period if the individual receives more than 50 
percent of his or her support from the recipient during the fellowship 
period:
    (1) The recipient's spouse.
    (2) The recipient's or spouse's children who are unmarried and under 
age 21.
    J. William Fulbright Foreign Scholarship Board means the 
presidentially-appointed board that is responsible for supervision of 
the program covered by this part.

(Authority: 22 U.S.C. 2452(b)(6), 2456)

[[Page 396]]



                         Subpart B--Applications



Sec. 663.10  How does an individual apply for a fellowship?

    (a) An individual applies for a fellowship by submitting an 
application to the Secretary through the institution of higher education 
at which the individual is employed.
    (b) The applicant shall provide sufficient information concerning 
his or her personal and academic background and proposed research 
project to enable the Secretary to determine whether the applicant--
    (1) Is eligible to receive a fellowship under Sec. 663.3; and
    (2) Should be selected to receive a fellowship under subparts C and 
D of this part.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 663.11  What is the role of the institution in the application process?

    An institution of higher education that participates in this program 
is responsible for--
    (a) Making fellowship application materials available to its 
faculty;
    (b) Accepting and screening applications in accordance with its own 
technical and academic criteria; and
    (c) Forwarding screened applications to the Secretary through a 
request for an institutional grant.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



                     Subpart C--Selection of Fellows



Sec. 663.20  How is a Fulbright-Hays Faculty Research Abroad Fellow selected?

    (a) The Secretary considers applications for fellowships under this 
program that have been screened and submitted by eligible institutions. 
The Secretary evaluates these applications on the basis of the criteria 
in Sec. 663.21.
    (b) The Secretary does not consider applications to carry out 
research in a country in which the United States has no diplomatic 
representation.
    (c) In evaluating applications, the Secretary obtains the advice of 
panels of United States academic specialists in modern foreign languages 
and area studies.
    (d) The Secretary gives preference to applicants who have served in 
the armed services of the United States if their applications are 
equivalent to those of other applicants on the basis of the criteria in 
Sec. 663.21.
    (e) The Secretary considers information on budget, political 
sensitivity, and feasibility from binational commissions or United 
States diplomatic missions, or both, in the proposed country or 
countries of research.
    (f) The Secretary presents recommendations for recipients of 
fellowships to the J. William Fulbright Foreign Scholarship Board, which 
reviews the recommendations and approves recipients.

(Authority: 22 U.S.C. 2452(b)(6), 2456)



Sec. 663.21  What criteria does the Secretary use to evaluate an application 
for a fellowship?

    (a) General. (1) The Secretary uses the criteria in this section to 
evaluate an application for a fellowship.
    (2) The maximum score for all of the criteria is 100 points. 
However, if priority criteria described in paragraph (c) of this section 
are used, the maximum score is 110 points.
    (3) The maximum score for each criterion is shown in parentheses 
with the criterion.
    (b) Quality of proposed project. (60 points) The Secretary reviews 
each application to determine the quality of the research project 
proposed by the applicant. The Secretary considers--
    (1) The statement of the major hypotheses to be tested or questions 
to be examined, and the description and justification of the research 
methods to be used;
    (2) The relationship of the research to the literature on the topic 
and to major theoretical issues in the field, and the project's 
importance in terms of the concerns of the discipline;
    (3) The preliminary research already completed or plans for research 
prior to going overseas, and the kinds, quality and availability of data 
for the research in the host country or countries;
    (4) The justification for overseas field research, and preparations 
to establish appropriate and sufficient research contacts and 
affiliations abroad;

[[Page 397]]

    (5) The applicant's plans to share the results of the research in 
progress with scholars and officials of the host country or countries 
and the American scholarly community; and
    (6) The objectives of the project regarding the sponsoring 
institution's plans for developing or strengthening, or both, curricula 
in modern foreign languages and area studies.
    (c) Qualifications of the applicant. (40 points) The Secretary 
reviews each application to determine the qualifications of the 
applicant. The Secretary considers--
    (1) The overall strength of applicant's academic record (teaching, 
research, contributions, professional association activities); (10)
    (2) The applicant's excellence as a teacher or researcher, or both, 
in his or her area or areas of specialization; (10)
    (3) The applicant's proficiency in one or more of the languages 
(other than English and the applicant's native language), of the country 
or countries of research, and the specific measures to be taken to 
overcome any anticipated language barriers; (15) and
    (4) The applicant's ability to conduct research in a foreign 
cultural context, as evidenced by the applicant's previous overseas 
experience, or documentation provided by the sponsoring institution, or 
both. (5)
    (d) Priorities. (10 points) (1) The Secretary determines the extent 
to which the application responds to any priority that the Secretary 
establishes for the selection of fellows in any fiscal year. The 
Secretary announces any priorities in an application notice published in 
the Federal Register.
    (2) Priorities may relate to certain world areas, countries, 
academic disciplines, languages, topics, or combinations of any of these 
categories. For example, the Secretary may establish a priority for--
    (i) A specific geographic area or country, such as East Asia or 
Latvia;
    (ii) An academic discipline, such as history or political science;
    (iii) A language, such as Hausa or Telegu; or
    (iv) A topic, such as religious fundamentalism or migration.

(Approved by the Office of Management and Budget under control number 
1840-0005)

(Authority: 22 U.S.C. 2452(b)(6), 2456(a)(2))



Sec. 663.22  How does the J. William Fulbright Foreign Scholarship Board 
select fellows?

    The J. William Fulbright Foreign Scholarship Board selects fellows 
on the basis of the Secretary's recommendations and the information 
described in Sec. 663.20(e) from binational commissions or United States 
diplomatic missions.

(Authority: 22 U.S.C. 2452(b)(6), 2456(a)(1))



           Subpart D--Post-award Requirements for Institutions



Sec. 663.30  What are an institution's responsibilities after the award of 
a grant?

    (a) An institution to which the Secretary awards a grant under this 
part is responsible for administering the grant in accordance with the 
regulations described in Sec. 663.6.
    (b) The institution is responsible for processing individual 
applications for fellowships in accordance with procedures described in 
Sec. 663.11.
    (c) The institution is responsible for disbursing funds in 
accordance with procedures described in Sec. 663.4.
    (d) The Secretary awards the institution an administrative allowance 
of $100 for each fellowship listed in the grant award document.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))



             Subpart E--Post-award Requirements for Fellows



Sec. 663.41  What are a fellow's responsibilities after the award of a 
fellowship?

    As a condition of retaining a fellowship, a fellow shall--
    (a) Maintain satisfactory progress in the conduct of his or her 
research;
    (b) Devote full time to research on the approved topic;
    (c) Not engage in unauthorized income-producing activities during 
the period of the fellowship; and

[[Page 398]]

    (d) Remain employed by the grantee institution during the period of 
the fellowship.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 663.42  How may a fellowship be revoked?

    (a) The fellowship may be revoked only by the J. William Fulbright 
Foreign Scholarship Board upon the recommendation of the Secretary.
    (b) The Secretary may recommend a revocation of a fellowship on the 
basis of--
    (1) The fellow's failure to meet any of the conditions in 
Sec. 663.41; or
    (2) Any violation of the standards of conduct adopted by the J. 
William Fulbright Foreign Scholarship Board.

(Authority: 22 U.S.C. 2452(b)(6), 2456, and Policy Statements of the J. 
William Fulbright Foreign Scholarship Board, 1990)



PART 664--FULBRIGHT-HAYS GROUP PROJECTS ABROAD PROGRAM--Table of Contents




                           Subpart A--General

Sec.
664.1  What is the Fulbright-Hays Group Projects Abroad Program?
664.2  Who is eligible to apply for assistance under the Fulbright-Hays 
          Group Projects Abroad Program?
664.3  Who is eligible to participate in projects funded under the 
          Fulbright-Hays Group Projects Abroad Program?
664.4  What regulations apply to the Fulbright-Hays Group Projects 
          Abroad Program?
664.5  What definitions apply to the Fulbright-Hays Group Projects 
          Abroad Program?

 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?

664.10  What kinds of projects does the Secretary assist?
664.11  What is a short-term seminar project?
664.12  What is a curriculum development project?
664.13  What is a group research or study project?
664.14  What is an advanced overseas intensive language training 
          project?

             Subpart C--How Does the Secretary Make a Grant?

664.30  How does the Secretary evaluate an application?
664.31  What selection criteria does the Secretary use?
664.32  What priorities may the Secretary establish?
664.33  What costs does the Secretary pay?

          Subpart D--What Conditions Must Be Met by a Grantee?

664.40  Can participation in a Fulbright-Hays Group Projects Abroad be 
          terminated?

    Authority: 22 U.S.C. 2452(b)(6), unless otherwise noted.

    Source: 63 FR 46366, Aug. 31, 1998, unless otherwise noted.



                           Subpart A--General



Sec. 664.1  What is the Fulbright-Hays Group Projects Abroad Program?

    (a) The Fulbright-Hays Group Projects Abroad Program is designed to 
contribute to the development and improvement of the study of modern 
foreign languages and area studies in the United States by providing 
opportunities for teachers, students, and faculty to study in foreign 
countries.
    (b) Under the program, the Secretary awards grants to eligible 
institutions, departments, and organizations to conduct overseas group 
projects in research, training, and curriculum development.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 664.2  Who is eligible to apply for assistance under the Fulbright-Hays 
Group Projects Abroad Program?

    The following are eligible to apply for assistance under this part:
    (a) Institutions of higher education;
    (b) State departments of education;
    (c) Private non-profit educational organizations; and
    (d) Consortia of institutions, departments, and organizations 
described in paragraphs (a), (b), or (c) of this section.

(Authority: 22 U.S.C. 2452(b)(6))

[[Page 399]]



Sec. 664.3  Who is eligible to participate in projects funded under the 
Fulbright-Hays Group Projects Abroad Program?

    An individual is eligible to participate in a Fulbright-Hays Group 
Projects Abroad, if the individual-- (a)(1) Is a citizen or national of 
the United States; or
    (2) Is a permanent resident of the United States; and
    (b)(1) Is a faculty member who teaches modern foreign languages or 
area studies in an institution of higher education;
    (2) Is a teacher in an elementary or secondary school;
    (3) Is an experienced education administrator responsible for 
planning, conducting, or supervising programs in modern foreign 
languages or area studies at the elementary, secondary, or postsecondary 
level; or
    (4) Is a graduate student, or a junior or senior in an institution 
of higher education, who plans a teaching career in modern foreign 
languages or area studies.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 664.4  What regulations apply to the Fulbright-Hays Group Projects 
Abroad Program?

    The following regulations apply to this program:
    (a) The regulations in this part 664; and
    (b) The Education Department General Administrative Regulations 
(EDGAR) (34 CFR parts 74, 75, 77, 80, 81, 82, 85, and 86).

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1), 2456(a)(2))



Sec. 664.5  What definitions apply to the Fulbright-Hays Group Projects 
Abroad Program?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR part 77:
Applicant
Application
Award
EDGAR
Equipment
Facilities
Grant
Grantee
Nonprofit
Project
Private
Public
Secretary
State
State educational agency
Supplies


(Authority: 22 U.S.C. 2452(b)(6))

    (b) Definitions that apply to this program: The following 
definitions apply to the Fulbright-Hays Group Projects Abroad Program:
    Area studies means a program of comprehensive study of the aspects 
of a society or societies, including the study of their geography, 
history, culture, economy, politics, international relations, and 
languages.
    Binational commission means an educational and cultural commission 
established, through an agreement between the United States and either a 
foreign government or an international organization, to carry out 
functions in connection with the program covered by this part.
    Institution of higher education means an educational institution in 
any State that--
    (1) Admits as regular students only persons having a certificate of 
graduation from a school providing secondary education, or the 
recognized equivalent of such a certificate;
    (2) Is legally authorized within such State to provide a program of 
education beyond secondary education;
    (3) Provides an educational program for which it awards a bachelor's 
degree or provides not less than a two-year program which is acceptable 
for full credit toward such a degree;
    (4) Is a public or other nonprofit institution; and
    (5) Is accredited by a nationally recognized accrediting agency or 
association.
    J. William Fulbright Foreign Scholarship Board means the 
presidentially appointed board that is responsible for supervision of 
the program covered by this part.

(Authority: 22 U.S.C. 2452(b)(6), 2456)

[[Page 400]]



 Subpart B--What Kinds of Projects Does the Secretary Assist Under This 
                                Program?



Sec. 664.10  What kinds of projects does the Secretary assist?

    The Secretary assists projects designed to develop or improve 
programs in modern foreign language or area studies at the elementary, 
secondary, or postsecondary level by supporting overseas projects in 
research, training, and curriculum development by groups of individuals 
engaged in a common endeavor. Projects may include, as described in 
Secs. 664.11 through 664.14, short-term seminars, curriculum development 
teams, group research or study, and advanced intensive language 
programs.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 664.11  What is a short-term seminar project?

    A short-term seminar project is--
    (a) Designed to help integrate international studies into an 
institution's or school system's general curriculum; and
    (b) Normally four to six weeks in length and focuses on a particular 
aspect of area study, such as, for example, the culture of the area or a 
portion of the culture.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 664.12  What is a curriculum development project?

    (a) A curriculum development project--
    (1) Is designed to permit faculty and administrators in institutions 
of higher education and elementary and secondary schools, and 
administrators in State departments of education the opportunity to 
spend generally from four to eight weeks in a foreign country acquiring 
resource materials for curriculum development in modern foreign language 
and area studies; and
    (2) Must provide for the systematic use and dissemination in the 
United States of the acquired materials.
    (b) For the purpose of this section, resource materials include 
artifacts, books, documents, educational films, museum reproductions, 
recordings, and other instructional material.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 664.13  What is a group research or study project?

    (a)(1) A group research or study project is designed to permit a 
group of faculty of an institution of higher education and graduate and 
undergraduate students to undertake research or study in a foreign 
country.
    (2) The period of research or study in a foreign country is 
generally from three to twelve months.
    (b) As a prerequisite to participating in a research or training 
project, participants--
    (1) Must possess the requisite language proficiency to conduct the 
research or study, and disciplinary competence in their area of 
research; and
    (2) In a project of a semester or longer, shall have completed, at a 
minimum, one semester of intensive language training and one course in 
area studies relevant to the projects.

(Authority: 22 U.S.C. 2452(b)(6))



Sec. 664.14  What is an advanced overseas intensive language training project?

    (a)(1) An advanced overseas intensive language project is designed 
to take advantage of the opportunities present in the foreign country 
that are not present in the United States when providing intensive 
advanced foreign language training.
    (2) Project activities may be carried out during a full year, an 
academic year, a semester, a trimester, a quarter, or a summer.
    (3) Generally, language training must be given at the advanced 
level, i.e., at the level equivalent to that provided to students who 
have successfully completed two academic years of language training.
    (4) The language to be studied must be indigenous to the host 
country and maximum use must be made of local institutions and 
personnel.
    (b) Generally, participants in projects under this program must have 
successfully completed at least two

[[Page 401]]

academic years of training in the language to be studied.

(Authority: 22 U.S.C. 2452(b)(6))



             Subpart C--How Does the Secretary Make a Grant?



Sec. 664.30  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for a Group Project 
Abroad under the criteria in Sec. 664.31.
    (b) In general, the Secretary awards up to 95 possible points for 
these criteria. However, if priority criteria are used, the Secretary 
awards up to 110 possible points. The maximum possible points for each 
criterion are shown in parentheses.
    (c) All selections by the Secretary are subject to review and final 
approval by the J. William Fulbright Foreign Scholarship Board.
    (d) The Secretary does not recommend a project to the J. William 
Fulbright Foreign Scholarship Board if the applicant proposes to carry 
it out in a country in which the United States does not have diplomatic 
representation.

(Authority: 22 U.S.C. 2452(b)(6), 2456)



Sec. 664.31  What selection criteria does the Secretary use?

    The Secretary uses the criteria in this section to evaluate 
applications for the purpose of recommending to the J. William Fulbright 
Foreign Scholarship Board projects for funding under this part. The 
criteria are weighted and may total 105 points:
    (a) Plan of operation. (Maximum 25 points).
    (1) The Secretary reviews each application for information to 
determine the quality of the plan of operation for the project.
    (2) The Secretary looks for information that shows--
    (i) High quality in the design of the project;
    (ii) An effective plan of management that insures proper and 
efficient administration of the project;
    (iii) A clear description of how the objectives of the project 
relate to the purpose of the program;
    (iv) The way the applicant plans to use its resources and personnel 
to achieve each objective; and
    (v) A clear description of how the applicant will ensure that 
project participants who are otherwise eligible to participate are 
selected without regard to race, color, national origin, gender, age, or 
handicapping condition.
    (b) Quality of key personnel. (Maximum 15 points).
    (1) The Secretary reviews each application for information to 
determine the quality of key personnel the applicant plans to use on the 
project.
    (2) The Secretary looks for information that shows--
    (i) The qualifications of the project director;
    (ii) The qualifications of each of the other key personnel to be 
used in the project;
    (iii) The time that each person referred to in paragraphs (b)(2) (i) 
and (ii) of this section will commit to the project; and
    (iv) The extent to which the applicant, as part of its 
nondiscriminatory employment practices, will ensure that its personnel 
are selected for employment without regard to race, color, national 
origin, gender, age, or handicapping condition.
    (3) To determine the qualifications of a person, the Secretary 
considers evidence of past experience and training in fields related to 
the objectives of the project as well as other information that the 
applicant provides.
    (c) Budget and cost effectiveness. (Maximum 10 points).
    (1) The Secretary reviews each application for information that 
shows that the project has an adequate budget and is cost effective.
    (2) The Secretary looks for information that shows--
    (i) The budget for the project is adequate to support the project 
activities; and
    (ii) Costs are reasonable in relation to the objectives of the 
project.
    (d) Evaluation plan. (Maximum 10 points).
    (1) The Secretary reviews each application for information that 
shows the quality of the evaluation plan for the project.

[[Page 402]]

    (2) The Secretary looks for information that shows that the methods 
of evaluation are appropriate for the project and, to the extent 
possible, are objective and produce data that are quantifiable.
    (e) Adequacy of resources. (Maximum 5 points).
    (1) The Secretary reviews each application for information that 
shows that the applicant plans to devote adequate resources to the 
project.
    (2) The Secretary looks for information that shows that the 
facilities, equipment, and supplies that the applicant plans to use are 
adequate.
    (f) Specific program criteria. (Maximum 30 points).
    (1) In addition to the general selection criteria contained in this 
section, the Secretary reviews each application for information that 
shows that the project meets the specific program criteria.
    (2) The Secretary looks for information that shows--
    (i) The potential impact of the project on the development of the 
study of modern foreign languages and area studies in American 
education. (Maximum 15 points).
    (ii) The project's relevance to the applicant's educational goals 
and its relationship to its program development in modern foreign 
languages and area studies. (Maximum 5 points).
    (iii) The extent to which direct experience abroad is necessary to 
achieve the project's objectives and the effectiveness with which 
relevant host country resources will be utilized. (Maximum 10 points).
    (g) Priorities. (Maximum 15 points) The Secretary looks for 
information that shows the extent to which the project addresses program 
priorities in the field of modern foreign languages and area studies for 
that year.

(Approved by the Office of Management and Budget under control number 
1840-0068)

(Authority: 22 U.S.C. 2452(b)(6), 2456(a)(2))



Sec. 664.32  What priorities may the Secretary establish?

    (a) The Secretary may establish for each funding competition one or 
more of the following priorities:
    (1) Categories of projects described in Sec. 664.10.
    (2) Specific languages, topics, countries or geographic regions of 
the world; for example, Chinese and Arabic, Curriculum Development in 
Multicultural Education and Transitions from Planned Economies to Market 
Economies, Brazil and Nigeria, Middle East and South Asia.
    (3) Levels of education; for example, elementary and secondary, 
postsecondary, or postgraduate.
    (b) The Secretary announces any priorities in the application notice 
published in the Federal Register.

(Authority: 22 U.S.C. 2452(b)(6), 2456(a)(2))



Sec. 664.33  What costs does the Secretary pay?

    (a) The Secretary pays only part of the cost of a project funded 
under this part. Other than travel costs, the Secretary does not pay any 
of the costs for project-related expenses within the United States.
    (b) The Secretary pays the cost of the following--
    (1) A maintenance stipend related to the cost of living in the host 
country or countries;
    (2) Round-trip international travel;
    (3) A local travel allowance for necessary project-related 
transportation within the country of study, exclusive of the purchase of 
transportation equipment;
    (4) Purchase of project-related artifacts, books, and other teaching 
materials in the country of study;
    (5) Rent for instructional facilities in the country of study;
    (6) Clerical and professional services performed by resident 
instructional personnel in the country of study; and
    (7) Other expenses in the country of study, if necessary for the 
project's success and approved in advance by the Secretary.
    (c) The Secretary may pay--
    (1) Emergency medical expenses not covered by a participant's health 
and accident insurance; and
    (2) The costs of preparing and transporting the remains of a 
participant who dies during the term of a project to his or her former 
home.

(Authority: 22 U.S.C. 2452(b)(6), 2454(e)(1))

[[Page 403]]



          Subpart D--What Conditions Must Be Met by a Grantee?



Sec. 664.40  Can participation in a Fulbright-Hays Group Projects Abroad 
be terminated?

    (a) Participation may be terminated only by the J. William Fulbright 
Foreign Scholarship Board upon the recommendation of the Secretary.
    (b) The Secretary may recommend a termination of participation on 
the basis of failure by the grantee to ensure that participants adhere 
to the standards of conduct adopted by the J. William Fulbright Foreign 
Scholarship Board.

(Authority: 22 U.S.C. 2452(b)(6), 2456, and Policy Statements of the J. 
William Fulbright Foreign Scholarship Board, 1990)



PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS--Table of Contents




                           Subpart A--General

Sec.
668.1  Scope.
668.2  General definitions.
668.3  Academic year.
668.4  Payment period.
668.5  Written arrangements to provide educational programs.
668.6-668.7  [Reserved]
668.8  Eligible program.
668.9  Relationship between clock hours and semester, trimester, or 
          quarter hours in calculating Title IV, HEA program assistance.

    Subpart B--Standards for Participation in Title IV, HEA Programs

668.11  Scope.
668.12  [Reserved]
668.13  Certification procedures.
668.14  Program participation agreement.
668.15  Factors of financial responsibility.
668.16  Standards of administrative capability.
668.17-668.18  [Reserved]
668.19  Financial aid history.
668.20  Limitations on remedial coursework that is eligible for Title 
          IV, HEA program assistance.
668.21  Treatment of Federal Perkins Loan, FSEOG, and Federal Pell Grant 
          program funds if the recipient withdraws, drops out, or is 
          expelled before his or her first day of class.
668.22  Treatment of title IV funds when a student withdraws.
668.23  Compliance audits and audited financial statements.
668.24  Record retention and examinations.
668.25  Contracts between an institution and a third-party servicer.
668.26  End of an institution's participation in the Title IV, HEA 
          programs.
668.27  Waiver of annual audit submission requirement.

Appendix A to Subpart B of Part 668--Standards for Audit of Governmental 
          Organizations, Programs, Activities, and Functions (GAO)
Appendix B to Subpart B of Part 668--Appendix I, Standards for Audit of 
          Governmental Organizations, Programs, Activities, and 
          Functions (GAO)

                     Subpart C--Student Eligibility

668.31  Scope.
668.32  Student eligibility - general.
668.33  Citizenship and residency requirements.
668.34  Satisfactory progress.
668.35  Student debts under the HEA and to the U.S.
668.36  Social security number.
668.37  Selective Service registration.
668.38  Enrollment in telecommunications and correspondence courses.
668.39  Study abroad programs.

   Subpart D--Institutional and Financial Assistance Information for 
                                Students

668.40  Conviction for possession or sale of illegal drugs.
668.41  Reporting and disclosure of information.
668.42  Financial assistance information.
668.43  Institutional information.
668.44  Availability of employees for information dissemination 
          purposes.
668.45  Information on completion or graduation rates.
668.46  Institutional security policies and crime statistics.
668.47  Report on athletic program participation rates and financial 
          support data.
668.48  Report on completion or graduation rates for student-athletes.

Appendix A to Subpart D of Part 668--Crime Definitions in Accordance 
          With the Federal Bureau of Investigation's Uniform Crime 
          Reporting Program

     Subpart E--Verification of Student Aid Application Information

668.51  General.
668.52  Definitions.
668.53  Policies and procedures.
668.54  Selection of applications for verification.
668.55  Updating information.
668.56  Items to be verified.

[[Page 404]]

668.57  Acceptable documentation.
668.58  Interim disbursements.
668.59  Consequences of a change in application information.
668.60  Deadlines for submitting documentation and the consequences of 
          failing to provide documentation.
668.61  Recovery of funds.

                      Subpart F--Misrepresentation

668.71  Scope of special definitions.
668.72  Nature of educational program.
668.73  Nature of financial charges.
668.74  Employability of graduates.
668.75  Procedures.

   Subpart G--Fine, Limitation, Suspension and Termination Proceedings

668.81  Scope and special definitions.
668.82  Standard of conduct.
668.83  Emergency action.
668.84  Fine proceedings.
668.85  Suspension proceedings.
668.86  Limitation or termination proceedings.
668.87  Pre-hearing conference.
668.88  Hearing.
668.89  Authority and responsibilities of the hearing official.
668.90  Initial and final decisions--Appeals.
668.91  Filing of requests for hearings and appeals; confirmation of 
          mailing and receipt dates.
668.92  Fines.
668.93  Limitation.
668.94  Termination.
668.95  Reimbursements, refunds, and offsets.
668.96  Reinstatement after termination.
668.97  Removal of limitation.
668.98  Interlocutory appeals to the Secretary from rulings of a hearing 
          official.

Subpart H--Appeal Procedures for Audit Determinations and Program Review 
                             Determinations

668.111  Scope and purpose.
668.112  Definitions.
668.113  Request for review.
668.114  Notification of hearing.
668.115  Prehearing conference.
668.116  Hearing.
668.117  Authority and responsibilities of the hearing official.
668.118  Decision of the hearing official.
668.119  Appeal to the Secretary.
668.120  Decision of the Secretary.
668.121  Final decision of the Department.
668.122  Determination of filing, receipt, and submission dates.
668.123  Collection.
668.124  Interlocutory appeals to the Secretary from rulings of a 
          hearing official.

               Subpart I--Immigration-Status Confirmation

668.130  General.
668.131  Definitions.
668.132  Institutional determinations of eligibility based on primary 
          confirmation.
668.133  Conditions under which an institution shall require 
          documentation and request secondary confirmation.
668.134  Institutional policies and procedures for requesting 
          documentation and receiving secondary confirmation.
668.135  Institutional procedures for completing secondary confirmation.
668.136  Institutional determinations of eligibility based on INS 
          responses to secondary confirmation requests.
668.137  Deadlines for submitting documentation and the consequences of 
          failure to submit documentation.
668.138  Liability.
668.139  Recovery of payments and loan disbursements to ineligible 
          students.

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

668.141  Scope.
668.142  Special definitions.
668.143  Approval of State tests or assessments.
668.144  Application for test approval.
668.145  Test approval procedures.
668.146  Criteria for approving tests.
668.147  Passing score.
668.148  Additional criteria for the approval of certain tests.
668.149  Special provisions for the approval of assessment procedures 
          for special populations for whom no tests are reasonably 
          available.
668.150  Agreement between the Secretary and a test publisher.
668.151  Administration of tests.
668.152  Administration of tests by assessment centers.
668.153  Administration of tests for students whose native language is 
          not English or for persons with disabilities.
668.154  Institutional accountability.
668.155  Transitional rule for the 1996-97 award year.
668.156  Approved State process.

                       Subpart K--Cash Management

668.161  Scope and purpose.
668.162  Requesting funds.
668.163  Maintaining and accounting for funds.
668.164  Disbursing funds.
668.165  Notices and authorizations.
668.166  Excess cash.
668.167  FFEL Program funds.

[[Page 405]]

                   Subpart L--Financial Responsibility

668.171  General.
668.172  Financial ratios.
668.173  Refund reserve standards.
668.174  Past performance.
668.175  Alternative standards and requirements.

Appendix A to to Subpart L of Part 668--Ratio Methodology for 
          Proprietary Institutions
Appendix B to Subpart L of Part 668--Ratio Methodology for Private Non-
          Profit Institutions

                     Subpart M--Cohort Default Rates

668.181  Purpose of this subpart.
668.182  Definitions of terms used in this subpart.
668.183  Calculating and applying cohort default rates.
668.184  Determining cohort default rates for institutions that have 
          undergone a change in status.
668.185  Draft cohort default rates and your ability to challenge before 
          official cohort default rates are issued.
668.186  Notice of your official cohort default rate.
668.187  Consequences of cohort default rates on your ability to 
          participate in Title IV, HEA programs.
668.188  Preventing evasion of the consequences of cohort default rates.
668.189  General requirements for adjusting official cohort default 
          rates and for appealing their consequences.
668.190  Uncorrected data adjustments.
668.191  New data adjustments.
668.192  Erroneous data appeals.
668.193  Loan servicing appeals.
668.194  Economically disadvantaged appeals.
668.195  Participation rate index appeals.
668.196  Average rates appeals.
668.197  Thirty-or-fewer borrowers appeals.
668.198  Relief from the consequences of cohort default rates for 
          special institutions.

Appendix A to Subpart M of Part 668--Summaries of Eligibility and 
          Submission Requirements for Challenges, Adjustments, and 
          Appeals
Appendix B to Subpart M of Part 668--Sample Default Management Plan for 
          Special Institutions to Use When Complying With Sec. 668.198

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



                           Subpart A--General



Sec. 668.1  Scope.

    (a) This part establishes general rules that apply to an institution 
that participates in any student financial assistance program authorized 
by Title IV of the Higher Education Act of 1965, as amended (Title IV, 
HEA program). To the extent that an institution contracts with a third-
party servicer to administer any aspect of the institution's 
participation in any Title IV, HEA program, the applicable rules in this 
part also apply to that servicer. An institution's use of a third-party 
servicer does not alter the institution's responsibility for compliance 
with the rules in this part.
    (b) As used in this part, an ``institution'' includes--
    (1) An institution of higher education as defined in 34 CFR 600.4;
    (2) A proprietary institution of higher education as defined in 34 
CFR 600.5; and
    (3) A postsecondary vocational institution as defined in 34 CFR 
600.6.
    (c) The Title IV, HEA programs include--
    (1) The Federal Pell Grant Program (20 U.S.C. 1070a et seq.; 34 CFR 
part 690);
    (2) The National Early Intervention Scholarship and Partnership 
(NEISP) Program (20 U.S.C. 1070a-21 et seq.; 34 CFR part 693);
    (3) The Federal Supplemental Educational Opportunity Grant (FSEOG) 
Program (20 U.S.C. 1070b et seq.; 34 CFR parts 673 and 676);
    (4) The Leveraging Educational Assistance Partnership (LEAP) Program 
(20 U.S.C. 1070c et seq.; 34 CFR part 692);
    (5) The Federal Stafford Loan Program (20 U.S.C. 1071 et seq.; 34 
CFR part 682);
    (6) The Federal PLUS Program (20 U.S.C. 1078-2; 34 CFR part 682);
    (7) The Federal Consolidation Loan Program (20 U.S.C. 1078-3; 34 CFR 
part 682);
    (8) The Federal Work-Study (FWS) Program (42 U.S.C. 2751 et seq.; 34 
CFR parts 673 and 675);
    (9) The William D. Ford Federal Direct Loan (Direct Loan) Program 
(20 U.S.C. 1087a et seq.; 34 CFR part 685); and

[[Page 406]]

    (10) The Federal Perkins Loan Program (20 U.S.C. 1087aa et seq.; 34 
CFR parts 673 and 674).

(Authority: 20 U.S.C. 1070 et seq.)

[52 FR 45724, Dec. 1, 1987, as amended at 56 FR 36696, July 31, 1991; 59 
FR 22418, Apr. 29, 1994; 61 FR 60396, Nov. 27, 1996; 63 FR 40623, July 
29, 1998; 65 FR 38729, June 22, 2000]



Sec. 668.2  General definitions.

    (a) The following definitions are contained in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Award year
Branch campus
Clock hour
Correspondence course
Educational program
Eligible institution
Federal Family Education Loan (FFEL) programs
Incarcerated student
Institution of higher education
Legally authorized
Nationally recognized accrediting agency
Nonprofit institution
One-year training program
Postsecondary vocational institution
Preaccredited
Proprietary institution of higher education
Recognized equivalent of a high school diploma
Recognized occupation
Regular student
Secretary
State
Telecommunications course

    (b) The following definitions apply to all Title IV, HEA programs:
    Campus-based programs: (1) The Federal Perkins Loan Program (34 CFR 
parts 673 and 674);
    (2) The Federal Work-Study (FWS) Program (34 CFR parts 673 and 675); 
and
    (3) The Federal Supplemental Educational Opportunity Grant (FSEOG) 
Program (34 CFR parts 673 and 676).
    Defense loan: A loan made before July 1, 1972, under Title II of the 
National Defense Education Act of 1958.


(Authority: 20 U.S.C. 421-429)

    Dependent student: Any student who does not qualify as an 
independent student (see Independent student).
    Designated department official: An official of the Department of 
Education to whom the Secretary has delegated responsibilities indicated 
in this part.
    Direct Loan Program loan: A loan made under the William D. Ford 
Federal Direct Loan Program.


(Authority: 20 U.S.C. 1087a et seq.)

    Direct PLUS Loan: A loan made under the Federal Direct PLUS Program.


(Authority: 20 U.S.C. 1078-2 and 1087a et seq.)

    Direct Subsidized Loan: A loan made under the Federal Direct 
Stafford/Ford Loan Program.


(Authority: 20 U.S.C. 1071 and 1087a et seq.)

    Direct Unsubsidized Loan: A loan made under the Federal Direct 
Unsubsidized Stafford/Ford Loan Program.


(Authority: 20 U.S.C. 1087a et seq.)

    Enrolled: The status of a student who--
    (1) Has completed the registration requirements (except for the 
payment of tuition and fees) at the institution that he or she is 
attending; or
    (2) Has been admitted into an educational program offered 
predominantly by correspondence and has submitted one lesson, completed 
by him or her after acceptance for enrollment and without the help of a 
representative of the institution.
    Federal Consolidation Loan program: The loan program authorized by 
Title IV-B, section 428C, of the HEA that encourages the making of loans 
to borrowers for the purpose of consolidating their repayment 
obligations, with respect to loans received by those borrowers, under 
the Federal Insured Student Loan (FISL) Program as defined in 34 CFR 
part 682, the Federal Stafford Loan, Federal PLUS (as in effect before 
October 17, 1986), Federal Consolidation Loan, Federal SLS, ALAS (as in 
effect before October 17, 1986), Federal Direct Student Loan, and 
Federal Perkins Loan programs, and under the Health Professions Student 
Loan (HPSL) Program authorized by subpart II of part C of Title VII of 
the Public Health Service Act, for parent Federal PLUS borrowers whose 
loans were made after

[[Page 407]]

October 17, 1986, and for Higher Education Assistance Loans (HEAL) 
authorized by subpart I of part A of Title VII of the Public Health 
Services Act.


(Authority: 20 U.S.C. 1078-3)

    Federal Direct PLUS Program: A loan program authorized by Title IV, 
Part D of the HEA that is one of the components of the Direct Loan 
Program. The Federal Direct PLUS Program provides loans to parents of 
dependent students attending schools that participate in the Direct Loan 
Program. The borrower is responsible for the interest that accrues 
during any period.


(Authority: 20 U.S.C. 10782 and 1087a et seq.)

    Federal Direct Stafford/Ford Loan Program: A loan program authorized 
by Title IV, Part D of the HEA that is one of the components of the 
Direct Loan Program. The Federal Direct Stafford/Ford Loan Program 
provides loans to undergraduate, graduate, and professional students 
attending schools that participate in the Direct Loan Program. The 
Secretary subsidizes the interest while the borrower is in an in-school, 
grace, or deferment period.


(Authority: 20 U.S.C. 1071 and 1087a et seq.)

    Federal Direct Unsubsidized Stafford/Ford Loan Program: A loan 
program authorized by Title IV, Part D of the HEA that is one of the 
components of the Direct Loan Program. The Federal Direct Unsubsidized 
Stafford/Ford Loan Program provides loans to undergraduate, graduate, 
and professional students attending schools that participate in the 
Direct Loan Program. The borrower is responsible for the interest that 
accrues during any period.


(Authority: 20 U.S.C. 1087a et seq.)

    Federal Pell Grant Program: The grant program authorized by Title 
IV-A-1 of the HEA.


(Authority: 20 U.S.C. 1070a)

    Federal Perkins loan: A loan made under Title IV-E of the HEA to 
cover the cost of attendance for a period of enrollment beginning on or 
after July 1, 1987, to an individual who on July 1, 1987, had no 
outstanding balance of principal or interest owing on any loan 
previously made under Title IV-E of the HEA.


(Authority: 20 U.S.C. 1087aa et seq.)

    Federal Perkins Loan program: The student loan program authorized by 
Title IV-E of the HEA after October 16, 1986. Unless otherwise noted, as 
used in this part, the Federal Perkins Loan Program includes the 
National Direct Student Loan Program and the National Defense Student 
Loan Program.


(Authority: 20 U.S.C. 1087aa-1087ii)

    Federal PLUS loan: A loan made under the Federal PLUS Program.


(Authority: 20 U.S.C. 1078-2)

    Federal PLUS program: The loan program authorized by Title IV-B, 
section 428B, of the HEA, that encourages the making of loans to parents 
of dependent undergraduate students. Before October 17, 1986, the PLUS 
Program also provided for making loans to graduate, professional, and 
independent undergraduate students. Before July 1, 1993, the PLUS 
Program also provided for making loans to parents of dependent graduate 
students.


(Authority: 20 U.S.C. 1078-2)

    Federal SLS loan: A loan made under the Federal SLS Program.


(Authority: 20 U.S.C. 1078-1)

    Federal Stafford loan: A loan made under the Federal Stafford Loan 
Program.


(Authority: 20 U.S.C. 1071 et seq.)

    Federal Stafford Loan program: The loan program authorized by Title 
IV-B (exclusive of sections 428A, 428B, and 428C) that encourages the 
making of subsidized Federal Stafford and unsubsidized Federal Stafford 
loans as defined in 34 CFR part 682 to undergraduate, graduate, and 
professional students.


(Authority: 20 U.S.C. 1071 et seq.)

    Federal Supplemental Educational Opportunity Grant (FSEOG) program: 
The

[[Page 408]]

grant program authorized by Title IV-A-2 of the HEA.


(Authority: 20 U.S.C. 1070b et seq.)

    Federal Supplemental Loans for Students (Federal SLS) program: The 
loan program (formerly called the ALAS Program) authorized by Title IV-
B, section 428A, of the HEA that encourages the making of loans to 
graduate, professional, independent undergraduate, and certain dependent 
undergraduate students.


(Authority: 20 U.S.C. 1078-1)

    Federal Work Study (FWS) program: The part-time employment program 
for students authorized by Title IV-C of the HEA.


(Authority: 42 U.S.C. 2751-2756b)

    FFELP loan: A loan made under the FFEL programs.


(Authority: 20 U.S.C. 1071 et seq.)

    Full-time student: An enrolled student who is carrying a full-time 
academic workload (other than by correspondence) as determined by the 
institution under a standard applicable to all students enrolled in a 
particular educational program. The student's workload may include any 
combination of courses, work, research, or special studies that the 
institution considers sufficient to classify the student as a full-time 
student. However, for an undergraduate student, an institution's minimum 
standard must equal or exceed one of the following minimum requirements:
    (1) Twelve semester hours or 12 quarter hours per academic term in 
an educational program using a semester, trimester, or quarter system.
    (2) Twenty-four semester hours or 36 quarter hours per academic year 
for an educational program using credit hours but not using a semester, 
trimester, or quarter system, or the prorated equivalent for a program 
of less than one academic year.
    (3) Twenty-four clock hours per week for an educational program 
using clock hours.
    (4) In an educational program using both credit and clock hours, any 
combination of credit and clock hours where the sum of the following 
fractions is equal to or greater than one:
    (i) For a program using a semester, trimester, or quarter system--
    [GRAPHIC] [TIFF OMITTED] TC15NO91.024
    
    (ii) For a program not using a semester, trimester, or quarter 
system--
[GRAPHIC] [TIFF OMITTED] TC15NO91.025

    (5) A series of courses or seminars that equals 12 semester hours or 
12 quarter hours in a maximum of 18 weeks.
    (6) The work portion of a cooperative education program in which the 
amount of work performed is equivalent to the academic workload of a 
full-time student.
    HEA: The Higher Education Act of 1965, as amended.


(Authority: 20 U.S.C. 1070 et seq.)

    Independent student: A student who qualifies as an independent 
student under section 480(d) of the HEA.


(Authority: 20 U.S.C. 1087vv)


[[Page 409]]


    Initiating official: The designated department official authorized 
to begin an emergency action under 34 CFR 668.83.
    Leveraging Educational Assistance Partnership (LEAP) Program: The 
grant program authorized by Title IV-A-4 of the HEA.
    National Defense Student Loan program: The student loan program 
authorized by Title II of the National Defense Education Act of 1958.


(Authority: 20 U.S.C. 421-429)

    National Direct Student Loan (NDSL) program: The student loan 
program authorized by Title IV-E of the HEA between July 1, 1972, and 
October 16, 1986.


(Authority: 20 U.S.C. 1087aa-1087ii)

    National Early Intervention Scholarship and Partnership (NEISP) 
program: The scholarship program authorized by Chapter 2 of subpart 1 of 
Title IV-A of the HEA.


(Authority: 20 U.S.C. 1070a-21 et seq.)

    One-third of an academic year: A period that is at least one-third 
of an academic year as determined by an institution. At a minimum, one-
third of an academic year must be a period that begins on the first day 
of classes and ends on the last day of classes or examinations and is a 
minimum of 10 weeks of instructional time during which, for an 
undergraduate educational program, a full-time student is expected to 
complete at least 8 semester or trimester hours or 12 quarter hours in 
an educational program whose length is measured in credit hours or 300 
clock hours in an educational program whose length is measured in clock 
hours. For an institution whose academic year has been reduced under 
Sec. 668.3, one-third of an academic year is the pro-rated equivalent, 
as measured in weeks and credit or clock hours, of at least one-third of 
the institution's academic year.


(Authority: 20 U.S.C. 1088)

    Output document: The Student Aid Report (SAR), Electronic Student 
Aid Report (ESAR), or other document or automated data generated by the 
Department of Education's central processing system or Multiple Data 
Entry processing system as the result of the processing of data provided 
in a Free Application for Federal Student Aid (FAFSA).
    Parent: A student's biological or adoptive mother or father. A 
parent also includes a student's legal guardian who has been appointed 
by a court and who is specifically required by the court to use his or 
her own resources to support the student.
    Participating institution: An eligible institution that meets the 
standards for participation in Title IV, HEA programs in subpart B and 
has a current program participation agreement with the Secretary.

    Show-cause official: The designated department official authorized 
to conduct a show-cause proceeding for an emergency action under 34 CFR 
668.83.


(Authority: 20 U.S.C. 1070c et seq.)

    Third-party servicer: (1) An individual or a State, or a private, 
profit or nonprofit organization that enters into a contract with an 
eligible institution to administer, through either manual or automated 
processing, any aspect of the institution's participation in any Title 
IV, HEA program. The Secretary considers administration of participation 
in a Title IV, HEA program to--
    (i) Include performing any function required by any statutory 
provision of or applicable to Title IV of the HEA, any regulatory 
provision prescribed under that statutory authority, or any applicable 
special arrangement, agreement, or limitation entered into under the 
authority of statutes applicable to Title IV of the HEA, such as, but 
not restricted to--
    (A) Processing student financial aid applications;
    (B) Performing need analysis;
    (C) Determining student eligibility and related activities;
    (D) Certifying loan applications;
    (E) Processing output documents for payment to students;
    (F) Receiving, disbursing, or delivering Title IV, HEA program 
funds, excluding lock-box processing of loan payments and normal bank 
electronic fund transfers;

[[Page 410]]

    (G) Conducting activities required by the provisions governing 
student consumer information services in subpart D of this part;
    (H) Preparing and certifying requests for advance or reimbursement 
funding;
    (I) Loan servicing and collection;
    (J) Preparing and submitting notices and applications required under 
34 CFR part 600 and subpart B of this part; and
    (K) Preparing a Fiscal Operations Report and Application to 
Participate (FISAP);
    (ii) Exclude the following functions--
    (A) Publishing ability-to-benefit tests;
    (B) Performing functions as a Multiple Data Entry Processor (MDE);
    (C) Financial and compliance auditing;
    (D) Mailing of documents prepared by the institution;
    (E) Warehousing of records; and
    (F) Providing computer services or software; and
    (iii) Notwithstanding the exclusions referred to in paragraph 
(1)(ii) of this definition, include any activity comprised of any 
function described in paragraph (1)(i) of this definition.
    (2) For purposes of this definition, an employee of an institution 
is not a third-party servicer. The Secretary considers an individual to 
be an employee if the individual--
    (i) Works on a full-time, part-time, or temporary basis;
    (ii) Performs all duties on site at the institution under the 
supervision of the institution;
    (iii) Is paid directly by the institution;
    (iv) Is not employed by or associated with a third-party servicer; 
and
    (v) Is not a third-party servicer for any other institution.


(Authority: 20 U.S.C. 1088)

    Two-thirds of an academic year: A period that is at least two-thirds 
of an academic year as determined by an institution. At a minimum, two-
thirds of an academic year must be a period that begins on the first day 
of classes and ends on the last day of classes or examinations and is a 
minimum of 20 weeks of instructional time during which, for an 
undergraduate educational program, a full-time student is expected to 
complete at least 16 semester or trimester hours or 24 quarter hours in 
an educational program whose length is measured in credit hours or 600 
clock hours in an educational program whose length is measured in clock 
hours. For an institution whose academic year has been reduced under 
Sec. 668.3, two-thirds of an academic year is the pro-rated equivalent, 
as measured in weeks and credit or clock hours, of at least two-thirds 
of the institution's academic year.


(Authority: 20 U.S.C. 1088)

    U.S. citizen or national: (1) A citizen of the United States; or
    (2) A person defined in the Immigration and Nationality Act, 8 
U.S.C. 1101(a)(22), who, though not a citizen of the United States, owes 
permanent allegiance to the United States.


(Authority: 8 U.S.C. 1101)

    Valid institutional student information report (valid ISIR): A valid 
institutional student information report as defined in 34 CFR 690.2 for 
purposes of the Federal Pell Grant Program.
    Valid student aid report (valid SAR): A valid student aid report 
(valid SAR) as defined in 34 CFR 690.2 for purposes of the Federal Pell 
Grant Program.


(Authority: 20 U.S.C. 1070 et seq., unless otherwise noted)
    William D. Ford Federal Direct Loan (Direct Loan) Program: The loan 
program authorized by Title IV, Part D of the HEA.


(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 22418, Apr. 29, 1994, as amended at 59 FR 61178, Nov. 29, 1994; 
60 FR 61809, Dec. 1, 1995; 61 FR 60396, Nov. 27, 1996; 63 FR 40623, July 
29, 1998; 64 FR 38729, June 22, 2000; 65 FR 65674, Nov. 1, 2000; 67 FR 
67071, Nov. 1, 2002]



Sec. 668.3  Academic year.

    (a) General. Except as provided in paragraph (c) of this section, an 
academic year is a period that begins on the first day of classes and 
ends on the last day of classes or examinations during which--
    (1) An institution provides a minimum of 30 weeks of instructional 
time; and

[[Page 411]]

    (2) For an undergraduate educational program, a full-time student is 
expected to complete at least--
    (i) Twenty-four semester or trimester credit hours or 36 quarter 
credit hours for a program measured in credit hours; or
    (ii) 900 clock hours for a program measured in clock hours.
    (b) Definitions. For purposes of paragraph (a) of this section--
    (1) A week is a consecutive seven-day period;
    (2) A week of instructional time is any week in which at least one 
day of regularly scheduled instruction or examinations occurs or, after 
the last scheduled day of classes for a term or payment period, at least 
one day of study for final examinations occurs; and
    (3) Instructional time does not include any vacation periods, 
homework, or periods of orientation or counseling.
    (c) Reduction in the length of an academic year. (1) Upon the 
written request of an institution, the Secretary may approve, for good 
cause, an academic year of 26 through 29 weeks of instructional time for 
educational programs offered by the institution if the institution 
offers a two-year program leading to an associate degree or a four-year 
program leading to a baccalaureate degree.
    (2) An institution's written request must--
    (i) Identify each educational program for which the institution 
requests a reduction, and the requested number of weeks of instructional 
time for that program;
    (ii) Demonstrate good cause for the requested reductions; and
    (iii) Include any other information that the Secretary may require 
to determine whether to grant the request.
    (3)(i) The Secretary approves the request of an eligible institution 
for a reduction in the length of its academic year if the institution 
has demonstrated good cause for granting the request and the 
institution's accrediting agency and State licensing agency have 
approved the request.
    (ii) If the Secretary approves the request, the approval terminates 
when the institution's program participation agreement expires. The 
institution may request an extension of that approval as part of the 
recertification process.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1088)

[67 FR 67071, Nov. 1, 2002]



Sec. 668.4  Payment period.

    (a) Payment periods for an eligible program that measures progress 
in credit hours and has academic terms. For a student enrolled in an 
eligible program that measures progress in credit hours and has academic 
terms, the payment period is the academic term.
    (b) Payment periods for an eligible program that measures progress 
in credit hours and does not have academic terms. (1) For a student 
enrolled in an eligible program that is one academic year or less in 
length--
    (i) The first payment period is the period of time in which the 
student completes half the number of credit hours in the program and 
half the number of weeks in the program; and
    (ii) The second payment period is the period of time in which the 
student completes the program.
    (2) For a student enrolled in an eligible program that is more than 
one academic year in length--
    (i) For the first academic year and any subsequent full academic 
year--
    (A) The first payment period is the period of time in which the 
student completes half the number of credit hours in the academic year 
and half the number of weeks in the academic year; and
    (B) The second payment period is the period of time in which the 
student completes the academic year.
    (ii) For any remaining portion of an eligible program that is more 
than one-half an academic year but less than a full academic year in 
length--
    (A) The first payment period is the period of time in which the 
student completes half the number of credit hours in the remaining 
portion of the program and half the number of weeks remaining in the 
program; and
    (B) The second payment period is the period of time in which the 
student completes the remainder of the program.

[[Page 412]]

    (iii) For any remaining portion of an eligible program that is not 
more than half an academic year, the payment period is the remainder of 
the program.
    (3) For purposes of paragraphs (b)(1) and (b)(2) of this section, if 
an institution is unable to determine when a student has completed half 
of the credit hours in a program, academic year, or remainder of a 
program; the student is considered to begin the second payment period of 
the program, academic year, or remainder of a program at the later of--
    (i) The date, as determined by the institution, on which the student 
has completed half of the academic coursework in the program, academic 
year, or remainder of the program; or
    (ii) The calendar midpoint between the first and last scheduled days 
of class of the program, academic year, or remainder of the program.
    (c) Payment periods for an eligible program that measures progress 
in clock hours. (1) For a student enrolled in an eligible program that 
is one academic year or less in length--
    (i) The first payment period is the period of time in which the 
student completes half the number of clock hours in the program; and
    (ii) The second payment period is the period of time in which the 
student completes the program.
    (2) For a student enrolled in an eligible program that is more than 
one academic year in length--
    (i) For the first academic year and any subsequent full academic 
year--
    (A) The first payment period is the period of time in which the 
student completes half the number of clock hours in the academic year; 
and
    (B) The second payment period is the period of time in which the 
student completes the academic year.
    (ii) For any remaining portion of an eligible program that is more 
than one-half an academic year but less than a full academic year in 
length--
    (A) The first payment period is the period of time in which the 
student completes half the number of clock hours in the remaining 
portion of the program; and
    (B) The second payment period is the period of time in which the 
student completes the remainder of the program.
    (iii) For any remaining portion of an eligible program that is not 
more than one half of an academic year, the payment period is the 
remainder of the program.
    (d) Number of payment periods. Notwithstanding paragraphs (b) and 
(c) of this section, an institution may choose to have more than two 
payment periods. If an institution so chooses, the regulations in 
paragraphs (b) and (c) of this section are modified to reflect the 
increased number of payment periods. For example, if an institution 
chooses to have three payment periods in an academic year in a program 
that measures progress in credit hours but does not have academic terms, 
each payment period must correspond to one-third of the academic year 
measured in both credit hours and weeks of instruction.
    (e) Re-entry within 180 days. If a student withdraws from a program 
described in paragraph (b) or (c) of this section during a payment 
period and then reenters the same program within 180 days, the student 
remains in that same payment period when he or she returns and, subject 
to conditions established by the Secretary or by the FFEL lender or 
guaranty agency, is eligible to receive any title IV, HEA program funds 
for which he or she was eligible prior to withdrawal, including funds 
that were returned by the institution or student under the provisions of 
Sec. 668.22.
    (f) Re-entry after 180 days or transfer. (1) Subject to the 
conditions of paragraph (f)(2) of this section, an institution 
calculates new payment periods for the remainder of a student's program 
based on paragraphs (b) through (d) of this section, for a student who 
withdraws from a program described in paragraph (b) or (c) of this 
section, and--
    (i) Reenters that program after 180 days,
    (ii) Transfers into another program at the same institution within 
any time period, or
    (iii) Transfers into a program at another institution within any 
time period.

[[Page 413]]

    (2) For a student described in paragraph (f)(1) of this section--
    (i) For the purpose of calculating payment periods only, the length 
of the program is the number of credit hours and the number of weeks, or 
the number of clock hours, that the student has remaining in the program 
he or she enters or reenters; and
    (ii) If the remaining hours, and weeks if applicable, constitute 
one-half of an academic year or less, the remaining hours constitute one 
payment period.

(Authority: 20 U.S.C. 1070 et seq.)

[67 FR 67071, Nov. 1, 2002]



Sec. 668.5  Written arrangements to provide educational programs.

    (a) Written arrangements between eligible institutions. If an 
eligible institution enters into a written arrangement with another 
eligible institution, or with a consortium of eligible institutions, 
under which the other eligible institution or consortium provides all or 
part of the educational program of students enrolled in the former 
institution, the Secretary considers that educational program to be an 
eligible program if it otherwise satisfies the requirements of 
Sec. 668.8.
    (b) Written arrangements for study-abroad. Under a study abroad 
program, if an eligible institution enters into a written arrangement 
with a foreign institution, or an organization acting on behalf of a 
foreign institution, under which the foreign institution provides part 
of the educational program of students enrolled in the eligible 
institution, the Secretary considers that educational program to be an 
eligible program if it otherwise satisfies the requirements of 
paragraphs (c)(1) through (c)(3) of this section.
    (c) Written arrangements between an eligible institution and an 
ineligible institution or organization. If an eligible institution 
enters into a written arrangement with an institution or organization 
that is not an eligible institution under which the ineligible 
institution or organization provides part of the educational program of 
students enrolled in the eligible institution, the Secretary considers 
that educational program to be an eligible program if--
    (1) The ineligible institution or organization has not had its 
eligibility to participate in the title IV, HEA programs terminated by 
the Secretary, or has not voluntarily withdrawn from participation in 
those programs under a termination, show-cause, suspension, or similar 
type proceeding initiated by the institution's State licensing agency, 
accrediting agency, guarantor, or by the Secretary;
    (2) The educational program otherwise satisfies the requirements of 
Sec. 668.8; and
    (3)(i) The ineligible institution or organization provides not more 
than 25 percent of the educational program; or
    (ii)(A) The ineligible institution or organization provides more 
than 25 percent but not more than 50 percent of the educational program;
    (B) The eligible institution and the ineligible institution or 
organization are not owned or controlled by the same individual, 
partnership, or corporation; and
    (C) The eligible institution's accrediting agency, or if the 
institution is a public postsecondary vocational educational 
institution, the State agency listed in the Federal Register in 
accordance with 34 CFR part 603, has specifically determined that the 
institution's arrangement meets the agency's standards for the 
contracting out of educational services.
    (d) Administration of title IV, HEA programs. (1) If an institution 
enters into a written arrangement as described in paragraph (a), (b), or 
(c) of this section, except as provided in paragraph (d)(2) of this 
section, the institution at which the student is enrolled as a regular 
student must determine the student's eligibility for title IV, HEA 
program funds, and must calculate and disburse those funds to that 
student.
    (2) In the case of a written arrangement between eligible 
institutions, the institutions may agree in writing to have any eligible 
institution in the written arrangement make those calculations and 
disbursements, and the Secretary does not consider that institution to 
be a third-party servicer for that arrangement.
    (3) The institution that calculates and disburses a student's title 
IV, HEA

[[Page 414]]

program assistance under paragraph (d)(1) or (d)(2) of this section 
must--
    (i) Take into account all the hours in which the student enrolls at 
each institution that apply to the student's degree or certificate when 
determining the student's enrollment status and cost of attendance; and 
(ii) Maintain all records regarding the student's eligibility for and 
receipt of title IV, HEA program funds.

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

[65 FR 65674, Nov. 1, 2000]



Secs. 668.6-668.7  [Reserved]



Sec. 668.8  Eligible program.

    (a) General. An eligible program is an educational program that--
    (1) Is provided by a participating institution; and
    (2) Satisfies the other relevant requirements contained in this 
section.
    (b) Definitions. For purposes of this section--
    (1) The Secretary considers the ``equivalent of an associate 
degree'' to be--
    (i) An associate degree; or
    (ii) The successful completion of at least a two-year program that 
is acceptable for full credit toward a bachelor's degree and qualifies a 
student for admission into the third year of a bachelor's degree 
program;
    (2) A week is a consecutive seven-day period; and
    (3)(i) The Secretary considers that an institution provides one week 
of instructional time in an academic program during any week the 
institution provides at least one day of regularly scheduled instruction 
or examinations, or, after the last scheduled day of classes for a term 
or a payment period, at least one day of study for final examinations.
    (ii) Instructional time does not include any vacation periods, 
homework, or periods of orientation or counseling.
    (c) Institution of higher education. An eligible program provided by 
an institution of higher education must--
    (1) Lead to an associate, bachelor's, professional, or graduate 
degree;
    (2) Be at least a two-academic-year program that is acceptable for 
full credit toward a bachelor's degree; or
    (3) Be at least a one-academic-year training program that leads to a 
certificate, degree, or other recognized educational credential and that 
prepares a student for gainful employment in a recognized occupation.
    (d) Proprietary institution of higher education and postsecondary 
vocational institution. An eligible program provided by a proprietary 
institution of higher education or postsecondary vocational institution-
-
    (1)(i) Must require a minimum of 15 weeks of instruction, beginning 
on the first day of classes and ending on the last day of classes or 
examinations;
    (ii) Must be at least 600 clock hours, 16 semester or trimester 
hours, or 24 quarter hours;
    (iii) Must provide undergraduate training that prepares a student 
for gainful employment in a recognized occupation; and
    (iv) May admit as regular students persons who have not completed 
the equivalent of an associate degree;
    (2) Must--
    (i) Require a minimum of 10 weeks of instruction, beginning on the 
first day of classes and ending on the last day of classes or 
examinations;
    (ii) Be at least 300 clock hours, 8 semester or trimester hours, or 
12 quarter hours;
    (iii) Provide training that prepares a student for gainful 
employment in a recognized occupation; and
    (iv)(A) Be a graduate or professional program; or
    (B) Admit as regular students only persons who have completed the 
equivalent of an associate degree; or
    (3) For purposes of the FFEL and Direct Loan programs only, must--
    (i) Require a minimum of 10 weeks of instruction, beginning on the 
first day of classes and ending on the last day of classes or 
examinations;
    (ii) Be at least 300 clock hours but less than 600 clock hours;
    (iii) Provide undergraduate training that prepares a student for 
gainful employment in a recognized occupation;
    (iv) Admit as regular students some persons who have not completed 
the equivalent of an associate degree; and
    (v) Satisfy the requirements of paragraph (e) of this section.

[[Page 415]]

    (e) Qualitative factors. (1) An educational program that satisfies 
the requirements of paragraphs (d)(3)(i) through (iv) of this section 
qualifies as an eligible program only if--
    (i) The program has a substantiated completion rate of at least 70 
percent, as calculated under paragraph (f) of this section;
    (ii) The program has a substantiated placement rate of at least 70 
percent, as calculated under paragraph (g) of this section;
    (iii) The number of clock hours provided in the program does not 
exceed by more than 50 percent the minimum number of clock hours 
required for training in the recognized occupation for which the program 
prepares students, as established by the State in which the program is 
offered, if the State has established such a requirement, or as 
established by any Federal agency; and
    (iv) The program has been in existence for at least one year. The 
Secretary considers an educational program to have been in existence for 
at least one year only if an institution has been legally authorized to 
provide, and has continuously provided, the program during the 12 months 
(except for normal vacation periods and, at the discretion of the 
Secretary, periods when the institution closes due to a natural disaster 
that directly affects the institution or the institution's students) 
preceding the date on which the institution applied for eligibility for 
that program.
    (2) An institution shall substantiate the calculation of its 
completion and placement rates by having the certified public accountant 
who prepares its audit report required under Sec. 668.23 report on the 
institution's calculation based on performing an attestation engagement 
in accordance with the Statements on Standards for Attestation 
Engagements of the American Institute of Certified Public Accountants 
(AICPA).
    (f) Calculation of completion rate. An institution shall calculate 
its completion rate for an educational program for any award year as 
follows:
    (1) Determine the number of regular students who were enrolled in 
the program during the award year.
    (2) Subtract from the number of students determined under paragraph 
(f)(1) of this section, the number of regular students who, during that 
award year, withdrew from, dropped out of, or were expelled from the 
program and were entitled to and actually received, in a timely manner a 
refund of 100 percent of their tuition and fees.
    (3) Subtract from the total obtained under paragraph (f)(2) of this 
section the number of students who were enrolled in the program at the 
end of that award year.
    (4) Determine the number of regular students who, during that award 
year, received within 150 percent of the published length of the 
educational program the degree, certificate, or other recognized 
educational credential awarded for successfully completing the program.
    (5) Divide the number determined under paragraph (f)(4) of this 
section by the total obtained under paragraph (f)(3) of this section.
    (g) Calculation of placement rate. (1) An institution shall 
calculate its placement rate for an educational program for any award 
year as follows:
    (i) Determine the number of students who, during the award year, 
received the degree, certificate, or other recognized educational 
credential awarded for successfully completing the program.
    (ii) Of the total obtained under paragraph (g)(1)(i) of this 
section, determine the number of students who, within 180 days of the 
day they received their degree, certificate, or other recognized 
educational credential, obtained gainful employment in the recognized 
occupation for which they were trained or in a related comparable 
recognized occupation and, on the date of this calculation, are 
employed, or have been employed, for at least 13 weeks following receipt 
of the credential from the institution.
    (iii) Divide the number of students determined under paragraph 
(g)(1)(ii) of this section by the total obtained under paragraph 
(g)(1)(i) of this section.
    (2) An institution shall document that each student described in 
paragraph (g)(1)(ii) of this section obtained gainful employment in the 
recognized

[[Page 416]]

occupation for which he or she was trained or in a related comparable 
recognized occupation. Examples of satisfactory documentation of a 
student's gainful employment include, but are not limited to--
    (i) A written statement from the student's employer;
    (ii) Signed copies of State or Federal income tax forms; and
    (iii) Written evidence of payments of Social Security taxes.
    (h) Eligibility for Federal Pell Grant and FSEOG programs. In 
addition to satisfying other relevant provisions of this section--
    (1) An educational program qualifies as an eligible program for 
purposes of the Federal Pell Grant Program only if the educational 
program is an undergraduate program or a postbaccalaureate teacher 
certificate or licensing program as described in 34 CFR 690.6(c); and
    (2) An educational program qualifies as an eligible program for 
purposes of the FSEOG Program only if the educational program is an 
undergraduate program.
    (i) Flight training. In addition to satisfying other relevant 
provisions of this section, for a program of flight training to be an 
eligible program, it must have a current valid certification from the 
Federal Aviation Administration.
    (j) English as a second language (ESL). (1) In addition to 
satisfying the relevant provisions of this section, an educational 
program that consists solely of instruction in ESL qualifies as an 
eligible program if--
    (i) The institution admits to the program only students who the 
institution determines need the ESL instruction to use already existing 
knowledge, training, or skills; and
    (ii) The program leads to a degree, certificate, or other recognized 
educational credential.
    (2) An institution shall document its determination that ESL 
instruction is necessary to enable each student enrolled in its ESL 
program to use already existing knowledge, training, or skills with 
regard to the students that it admits to its ESL program under paragraph 
(j)(1)(i) of this section.
    (3) An ESL program that qualifies as an eligible program under this 
paragraph is eligible for purposes of the Federal Pell Grant Program 
only.
    (k) Undergraduate educational program in credit hours. If an 
institution offers an undergraduate educational program in credit hours, 
the institution must use the formula contained in paragraph (l) of this 
section to determine whether that program satisfies the requirements 
contained in paragraph (c)(3) or (d) of this section, and the number of 
credit hours in that educational program for purposes of the Title IV, 
HEA programs, unless--
    (1) The program is at least two academic years in length and 
provides an associate degree, a bachelor's degree, a professional 
degree, or an equivalent degree as determined by the Secretary; or
    (2) Each course within the program is acceptable for full credit 
toward that institution's associate degree, bachelor's degree, 
professional degree, or equivalent degree as determined by the 
Secretary, provided that the institution's degree requires at least two 
academic years of study.
    (l) Formula. For purposes of determining whether a program described 
in paragraph (k) of this section satisfies the requirements contained in 
paragraph (c)(3) or (d) of this section, and the number of credit hours 
in that educational program with regard to the Title IV, HEA programs--
    (1) A semester hour must include at least 30 clock hours of 
instruction;
    (2) A trimester hour must include at least 30 clock hours of 
instruction; and
    (3) A quarter hour must include at least 20 hours of instruction.

(Approved by the Office of Management and Budget under control number 
1845-0537)

(Authority: 20 U.S.C. 1070a, 1070b, 1070c-1070c-2, 1085, 1087aa-1087hh, 
1088, 1091, and 1141; 42

[59 FR 22421, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 59 
FR 61179, Nov. 29, 1994; 60 FR 42408, Aug. 15, 1995; 63 FR 40623, July 
29, 1998; 64 FR 58291, Oct. 28, 1999; 64 FR 59037, Nov. 1, 1999; 65 FR 
65675, Nov. 1, 2000; 67 FR 67072, Nov. 1, 2002; 68 FR 19152, Apr. 18, 
2003]

[[Page 417]]



Sec. 668.9  Relationship between clock hours and semester, trimester, or 
quarter hours in calculating Title IV, HEA program assistance.

    (a) In determining the amount of Title IV, HEA program assistance 
that a student who is enrolled in a program described in Sec. 668.8(k) 
is eligible to receive, the institution shall apply the formula 
contained in Sec. 668.8(l) to determine the number of semester, 
trimester, or quarter hours in that program, if the institution measures 
academic progress in that program in semester, trimester, or quarter 
hours.
    (b) Notwithstanding paragraph (a) of this section, a public or 
private nonprofit hospital-based school of nursing that awards a diploma 
at the completion of the school's program of education is not required 
to apply the formula contained in Sec. 668.8(l) to determine the number 
of semester, trimester, or quarter hours in that program for purposes of 
calculating Title IV, HEA program assistance.

(Authority: 20 U.S.C. 1082, 1085, 1088, 1091, 1141)

[59 FR 61179, Nov. 29, 1994]



    Subpart B--Standards for Participation in Title IV, HEA Programs

    Source: 52 FR 45727, Dec. 1, 1987, unless otherwise noted.



Sec. 668.11  Scope.

    (a) This subpart establishes standards that an institution must meet 
in order to participate in any Title IV, HEA program.
    (b) Noncompliance with these standards by an institution already 
participating in any Title IV, HEA program or with applicable standards 
in this subpart by a third-party servicer that contracts with the 
institution may subject the institution or servicer, or both, to 
proceedings under subpart G of this part. These proceedings may lead to 
any of the following actions:
    (1) An emergency action.
    (2) The imposition of a fine.
    (3) The limitation, suspension, or termination of the participation 
of the institution in a Title IV, HEA program.
    (4) The limitation, suspension, or termination of the eligibility of 
the servicer to contract with any institution to administer any aspect 
of the institution's participation in a Title IV, HEA program.

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

[59 FR 22423, Apr. 29, 1994]



Sec. 668.12  [Reserved]



Sec. 668.13  Certification procedures.

    (a) Requirements for certification. (1) The Secretary certifies an 
institution to participate in the title IV, HEA programs if the 
institution qualifies as an eligible institution under 34 CFR part 600, 
meets the standards of this subpart and 34 CFR part 668, subpart L, and 
satisfies the requirements of paragraph (a)(2) of this section.
    (2) Except as provided in paragraph (a)(3) of this section, if an 
institution wishes to participate for the first time in the title IV, 
HEA programs or has undergone a change in ownership that results in a 
change in control as described in 34 CFR 600.31, the institution must 
require the following individuals to complete title IV, HEA program 
training provided or approved by the Secretary no later than 12 months 
after the institution executes its program participation agreement under 
Sec. 668.14:
    (i) The individual the institution designates under 
Sec. 668.16(b)(1) as its title IV, HEA program administrator.
    (ii) The institution's chief administrator or a high level 
institutional official the chief administrator designates.
    (3)(i) An institution may request the Secretary to waive the 
training requirement for any individual described in paragraph (a)(2) of 
this section.
    (ii) When the Secretary receives a waiver request under paragraph 
(a)(3)(i) of this section, the Secretary may grant or deny the waiver, 
require another institutional official to take the training, or require 
alternative training.
    (b) Period of participation. (1) If the Secretary certifies that an 
institution meets the standards of this subpart, the Secretary also 
specifies the period for which the institution may participate in a 
Title IV, HEA program. An

[[Page 418]]

institution's period of participation expires six years after the date 
that the Secretary certifies that the institution meets the standards of 
this subpart, except that the Secretary may specify a shorter period.
    (2) Provided that an institution has submitted an application for a 
renewal of certification that is materially complete at least 90 days 
prior to the expiration of its current period of participation, the 
institution's existing certification will be extended on a month to 
month basis following the expiration of the institution's period of 
participation until the end of the month in which the Secretary issues a 
decision on the application for recertification.
    (c) Provisional certification. (1) The Secretary may provisionally 
certify an institution if--
    (i) The institution seeks initial participation in a Title IV, HEA 
program;
    (ii) The institution is an eligible institution that has undergone a 
change in ownership that results in a change in control according to the 
provisions of 34 CFR part 600;
    (iii) The institution is a participating institution--
    (A) That is applying for a certification that the institution meets 
the standards of this subpart;
    (B) That the Secretary determines has jeopardized its ability to 
perform its financial responsibilities by not meeting the factors of 
financial responsibility under Sec. 668.15 or the standards of 
administrative capability under Sec. 668.16; and
    (C) Whose participation has been limited or suspended under subpart 
G of this part, or voluntarily enters into provisional certification;
    (iv) The institution seeks a renewal of participation in a Title IV, 
HEA program after the expiration of a prior period of participation in 
that program; or
    (v) The institution is a participating institution that was 
accredited or preaccredited by a nationally recognized accrediting 
agency on the day before the Secretary withdrew the Secretary's 
recognition of that agency according to the provisions contained in 34 
CFR part 603.
    (2) If the Secretary provisionally certifies an institution, the 
Secretary also specifies the period for which the institution may 
participate in a Title IV, HEA program. Except as provided in paragraphs 
(c) (3) and (4) of this section, a provisionally certified institution's 
period of participation expires--
    (i) Not later than the end of the first complete award year 
following the date on which the Secretary provisionally certified the 
institution under paragraph (c)(1)(i) of this section;
    (ii) Not later than the end of the third complete award year 
following the date on which the Secretary provisionally certified the 
institution under paragraphs (c)(1)(ii), (iii), (iv) or (e)(2) of this 
section; and
    (iii) If the Secretary provisionally certified the institution under 
paragraph (c)(1)(v) of this section, not later than 18 months after the 
date that the Secretary withdrew recognition from the institutions 
nationally recognized accrediting agency.
    (3) Notwithstanding the maximum periods of participation provided 
for in paragraph (c)(2) of this section, if the Secretary provisionally 
certifies an institution, the Secretary may specify a shorter period of 
participation for that institution.
    (4) For the purposes of this section, ``provisional certification'' 
means that the Secretary certifies that an institution has demonstrated 
to the Secretary's satisfaction that the institution--
    (i) Is capable of meeting the standards of this subpart within a 
specified period; and
    (ii) Is able to meet the institution's responsibilities under its 
program participation agreement, including compliance with any 
additional conditions specified in the institution's program 
participation agreement that the Secretary requires the institution to 
meet in order for the institution to participate under provisional 
certification.
    (d) Revocation of provisional certification. (1) If, before the 
expiration of a provisionally certified institution's period of 
participation in a Title IV, HEA program, the Secretary determines that 
the institution is unable to meet its responsibilities under its program 
participation agreement, the Secretary

[[Page 419]]

may revoke the institution's provisional certification for participation 
in that program.
    (2)(i) If the Secretary revokes the provisional certification of an 
institution under paragraph (d)(1) of this section, the Secretary sends 
the institution a notice by certified mail, return receipt requested. 
The Secretary also may transmit the notice by other, more expeditious 
means, if practical.
    (ii) The revocation takes effect on the date that the Secretary 
mails the notice to the institution.
    (iii) The notice states the basis for the revocation, the 
consequences of the revocation to the institution, and that the 
institution may request the Secretary to reconsider the revocation. The 
consequences of a revocation are described in Sec. 668.26.
    (3)(i) An institution may request reconsideration of a revocation 
under this section by submitting to the Secretary, within 20 days of the 
institution's receipt of the Secretary's notice, written evidence that 
the revocation is unwarranted. The institution must file the request 
with the Secretary by hand-delivery, mail, or facsimile transmission.
    (ii) The filing date of the request is the date on which the request 
is--
    (A) Hand-delivered;
    (B) Mailed; or
    (C) Sent by facsimile transmission.
    (iii) Documents filed by facsimile transmission must be transmitted 
to the Secretary in accordance with instructions provided by the 
Secretary in the notice of revocation. An institution filing by 
facsimile transmission is responsible for confirming that a complete and 
legible copy of the document was received by the Secretary.
    (iv) The Secretary discourages the use of facsimile transmission for 
documents longer than five pages.
    (4)(i) The designated department official making the decision 
concerning an institution's request for reconsideration of a revocation 
is different from, and not subject to supervision by, the official who 
initiated the revocation of the institution's provisional certification. 
The deciding official promptly considers an institution's request for 
reconsideration of a revocation and notifies the institution, by 
certified mail, return receipt requested, of the final decision. The 
Secretary also may transmit the notice by other, more expeditious means, 
if practical.
    (ii) If the Secretary determines that the revocation is warranted, 
the Secretary's notice informs the institution that the institution may 
apply for reinstatement of participation only after the later of the 
expiration of--
    (A) Eighteen months after the effective date of the revocation; or
    (B) A debarment or suspension of the institution under Executive 
Order (E.O.) 12549 (3 CFR, 1986 comp., p. 189) or the Federal 
Acquisition Regulations, 48 CFR part 9, subpart 9.4.
    (iii) If the Secretary determines that the revocation of the 
institution's provisional certification is unwarranted, the Secretary's 
notice informs the institution that the institution's provisional 
certification is reinstated, effective on the date that the Secretary's 
original revocation notice was mailed, for a specified period of time.
    (5)(i) The mailing date of a notice of revocation or a request for 
reconsideration of a revocation is the date evidenced on the original 
receipt of mailing from the U.S. Postal Service.
    (ii) The date on which a request for reconsideration of a revocation 
is submitted is--
    (A) If the request was sent by a delivery service other than the 
U.S. Postal Service, the date evidenced on the original receipt by that 
service; and
    (B) If the request was sent by facsimile transmission, the date that 
the document is recorded as received by facsimile equipment that 
receives the transmission.

(Approved by the Office of Management and Budget under control number 
1845-0537)

(Authority: 20 U.S.C. 1099c and E.O. 12549 (3 CFR, 1989 Comp., p. 189) 
and E.O. 12689 (3 CFR, 1989 Comp., p. 235))

[59 FR 22424, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 60 
FR 34431, June 30, 1995; 62 FR 62876, Nov. 25, 1997; 63 FR 40623, July 
29, 1998; 64 FR 58617, Oct. 29, 1999; 65 FR 65675, Nov. 1, 2000]



Sec. 668.14  Program participation agreement.

    (a)(1) An institution may participate in any Title IV, HEA program, 
other than the LEAP and NEISP programs,

[[Page 420]]

only if the institution enters into a written program participation 
agreement with the Secretary, on a form approved by the Secretary. A 
program participation agreement conditions the initial and continued 
participation of an eligible institution in any Title IV, HEA program 
upon compliance with the provisions of this part, the individual program 
regulations, and any additional conditions specified in the program 
participation agreement that the Secretary requires the institution to 
meet.
    (2) An institution's program participation agreement applies to each 
branch campus and other location of the institution that meets the 
applicable requirements of this part unless otherwise specified by the 
Secretary.
    (b) By entering into a program participation agreement, an 
institution agrees that--
    (1) It will comply with all statutory provisions of or applicable to 
Title IV of the HEA, all applicable regulatory provisions prescribed 
under that statutory authority, and all applicable special arrangements, 
agreements, and limitations entered into under the authority of statutes 
applicable to Title IV of the HEA, including the requirement that the 
institution will use funds it receives under any Title IV, HEA program 
and any interest or other earnings thereon, solely for the purposes 
specified in and in accordance with that program;
    (2) As a fiduciary responsible for administering Federal funds, if 
the institution is permitted to request funds under a Title IV, HEA 
program advance payment method, the institution will time its requests 
for funds under the program to meet the institution's immediate Title 
IV, HEA program needs;
    (3) It will not request from or charge any student a fee for 
processing or handling any application, form, or data required to 
determine a student's eligibility for, and amount of, Title IV, HEA 
program assistance;
    (4) It will establish and maintain such administrative and fiscal 
procedures and records as may be necessary to ensure proper and 
efficient administration of funds received from the Secretary or from 
students under the Title IV, HEA programs, together with assurances that 
the institution will provide, upon request and in a timely manner, 
information relating to the administrative capability and financial 
responsibility of the institution to--
    (i) The Secretary;
    (ii) A guaranty agency, as defined in 34 CFR part 682, that 
guarantees loans made under the Federal Stafford Loan and Federal PLUS 
programs for attendance at the institution or any of the institution's 
branch campuses or other locations;
    (iii) The nationally recognized accrediting agency that accredits or 
preaccredits the institution or any of the institution's branch 
campuses, other locations, or educational programs;
    (iv) The State agency that legally authorizes the institution and 
any branch campus or other location of the institution to provide 
postsecondary education; and
    (v) In the case of a public postsecondary vocational educational 
institution that is approved by a State agency recognized for the 
approval of public postsecondary vocational education, that State 
agency;
    (5) It will comply with the provisions of Sec. 668.15 relating to 
factors of financial responsibility;
    (6) It will comply with the provisions of Sec. 668.16 relating to 
standards of administrative capability;
    (7) It will submit reports to the Secretary and, in the case of an 
institution participating in the Federal Stafford Loan, Federal PLUS, or 
the Federal Perkins Loan Program, to holders of loans made to the 
institution's students under that program at such times and containing 
such information as the Secretary may reasonably require to carry out 
the purpose of the Title IV, HEA programs;
    (8) It will not provide any statement to any student or 
certification to any lender in the case of an FFEL Program loan, or 
origination record to the Secretary in the case of a Direct Loan Program 
loan that qualifies the student or parent for a loan or loans in excess 
of the amount that the student or parent is eligible to borrow in 
accordance with sections 425(a), 428(a)(2), 428(b)(1)(A)

[[Page 421]]

and (B), 428B, 428H, and 455(a) of the HEA;
    (9) It will comply with the requirements of subpart D of this part 
concerning institutional and financial assistance information for 
students and prospective students;
    (10) In the case of an institution that advertises job placement 
rates as a means of attracting students to enroll in the institution, it 
will make available to prospective students, at or before the time that 
those students apply for enrollment--
    (i) The most recent available data concerning employment statistics, 
graduation statistics, and any other information necessary to 
substantiate the truthfulness of the advertisements; and
    (ii) Relevant State licensing requirements of the State in which the 
institution is located for any job for which an educational program 
offered by the institution is designed to prepare those prospective 
students;
    (11) In the case of an institution participating in the FFEL 
program, the institution will inform all eligible borrowers, as defined 
in 34 CFR part 682, enrolled in the institution about the availability 
and eligibility of those borrowers for State grant assistance from the 
State in which the institution is located, and will inform borrowers 
from another State of the source of further information concerning State 
grant assistance from that State;
    (12) It will provide the certifications described in paragraph (c) 
of this section;
    (13) In the case of an institution whose students receive financial 
assistance pursuant to section 484(d) of the HEA, the institution will 
make available to those students a program proven successful in 
assisting students in obtaining the recognized equivalent of a high 
school diploma;
    (14) It will not deny any form of Federal financial aid to any 
eligible student solely on the grounds that the student is participating 
in a program of study abroad approved for credit by the institution;
    (15)(i) Except as provided under paragraph (b)(15)(ii) of this 
section, the institution will use a default management plan approved by 
the Secretary with regard to its administration of the FFEL or Direct 
Loan programs, or both for at least the first two years of its 
participation in those programs, if the institution--
    (A) Is participating in the FFEL or Direct Loan programs for the 
first time; or
    (B) Is an institution that has undergone a change of ownership that 
results in a change in control and is participating in the FFEL or 
Direct Loan programs.
    (ii) The institution does not have to use an approved default 
management plan if--
    (A) The institution, including its main campus and any branch 
campus, does not have a cohort default rate in excess of 10 percent; and
    (B) The owner of the institution does not own and has not owned any 
other institution that had a cohort default rate in excess of 10 percent 
while that owner owned the institution.
    (16) [Reserved]
    (17) The Secretary, guaranty agencies and lenders as defined in 34 
CFR part 682, nationally recognized accrediting agencies, the Secretary 
of Veterans Affairs, State agencies recognized under 34 CFR part 603 for 
the approval of public postsecondary vocational education, and State 
agencies that legally authorize institutions and branch campuses or 
other locations of institutions to provide postsecondary education, have 
the authority to share with each other any information pertaining to the 
institution's eligibility for or participation in the Title IV, HEA 
programs or any information on fraud and abuse;
    (18) It will not knowingly--
    (i) Employ in a capacity that involves the administration of the 
Title IV, HEA programs or the receipt of funds under those programs, an 
individual who has been convicted of, or has pled nolo contendere or 
guilty to, a crime involving the acquisition, use, or expenditure of 
Federal, State, or local government funds, or has been administratively 
or judicially determined to have committed fraud or any other material 
violation of law involving Federal, State, or local government funds;

[[Page 422]]

    (ii) Contract with an institution or third-party servicer that has 
been terminated under section 432 of the HEA for a reason involving the 
acquisition, use, or expenditure of Federal, State, or local government 
funds, or that has been administratively or judicially determined to 
have committed fraud or any other material violation of law involving 
Federal, State, or local government funds; or
    (iii) Contract with or employ any individual, agency, or 
organization that has been, or whose officers or employees have been--
    (A) Convicted of, or pled nolo contendere or guilty to, a crime 
involving the acquisition, use, or expenditure of Federal, State, or 
local government funds; or
    (B) Administratively or judicially determined to have committed 
fraud or any other material violation of law involving Federal, State, 
or local government funds;
    (19) It will complete, in a timely manner and to the satisfaction of 
the Secretary, surveys conducted as a part of the Integrated 
Postsecondary Education Data System (IPEDS) or any other Federal 
collection effort, as designated by the Secretary, regarding data on 
postsecondary institutions;
    (20) In the case of an institution that is co-educational and has an 
intercollegiate athletic program, it will comply with the provisions of 
Sec. 668.48;
    (21) It will not impose any penalty, including, but not limited to, 
the assessment of late fees, the denial of access to classes, libraries, 
or other institutional facilities, or the requirement that the student 
borrow additional funds for which interest or other charges are 
assessed, on any student because of the student's inability to meet his 
or her financial obligations to the institution as a result of the 
delayed disbursement of the proceeds of a Title IV, HEA program loan due 
to compliance with statutory and regulatory requirements of or 
applicable to the Title IV, HEA programs, or delays attributable to the 
institution;
    (22)(i) It will not provide any commission, bonus, or other 
incentive payment based directly or indirectly upon success in securing 
enrollments or financial aid to any person or entity engaged in any 
student recruiting or admission activities or in making decisions 
regarding the awarding of title IV, HEA program funds, except that this 
limitation does not apply to the recruitment of foreign students 
residing in foreign countries who are not eligible to receive title IV, 
HEA program funds.
    (ii) Activities and arrangements that an institution may carry out 
without violating the provisions of paragraph (b)(22)(i) of this section 
include, but are not limited to:
    (A) The payment of fixed compensation, such as a fixed annual salary 
or a fixed hourly wage, as long as that compensation is not adjusted up 
or down more than twice during any twelve month period, and any 
adjustment is not based solely on the number of students recruited, 
admitted, enrolled, or awarded financial aid. For this purpose, an 
increase in fixed compensation resulting from a cost of living increase 
that is paid to all or substantially all full-time employees is not 
considered an adjustment.
    (B) Compensation to recruiters based upon their recruitment of 
students who enroll only in programs that are not eligible for title IV, 
HEA program funds.
    (C) Compensation to recruiters who arrange contracts between the 
institution and an employer under which the employer's employees enroll 
in the institution, and the employer pays, directly or by reimbursement, 
50 percent or more of the tuition and fees charged to its employees; 
provided that the compensation is not based upon the number of employees 
who enroll in the institution, or the revenue they generate, and the 
recruiters have no contact with the employees.
    (D) Compensation paid as part of a profit-sharing or bonus plan, as 
long as those payments are substantially the same amount or the same 
percentage of salary or wages, and made to all or substantially all of 
the institution's full-time professional and administrative staff. Such 
payments can be limited to all, or substantially all of the full-time 
employees at one or more organizational level at the institution, except 
that an organizational level

[[Page 423]]

may not consist predominantly of recruiters, admissions staff, or 
financial aid staff.
    (E) Compensation that is based upon students successfully completing 
their educational programs, or one academic year of their educational 
programs, whichever is shorter. For this purpose, successful completion 
of an academic year means that the student has earned at least 24 
semester or trimester credit hours or 36 quarter credit hours, or has 
successfully completed at least 900 clock hours of instruction at the 
institution.
    (F) Compensation paid to employees who perform clerical ``pre-
enrollment'' activities, such as answering telephone calls, referring 
inquiries, or distributing institutional materials.
    (G) Compensation to managerial or supervisory employees who do not 
directly manage or supervise employees who are directly involved in 
recruiting or admissions activities, or the awarding of title IV, HEA 
program funds.
    (H) The awarding of token gifts to the institution's students or 
alumni, provided that the gifts are not in the form of money, no more 
than one gift is provided annually to an individual, and the cost of the 
gift is not more than $100.
    (I) Profit distributions proportionately based upon an individual's 
ownership interest in the institution.
    (J) Compensation paid for Internet-based recruitment and admission 
activities that provide information about the institution to prospective 
students, refer prospective students to the institution, or permit 
prospective students to apply for admission on-line.
    (K) Payments to third parties, including tuition sharing 
arrangements, that deliver various services to the institution, provided 
that none of the services involve recruiting or admission activities, or 
the awarding of title IV, HEA program funds.
    (L) Payments to third parties, including tuition sharing 
arrangements, that deliver various services to the institution, even if 
one of the services involves recruiting or admission activities or the 
awarding of title IV, HEA program funds, provided that the individuals 
performing the recruitment or admission activities, or the awarding of 
title IV, HEA program funds, are not compensated in a manner that would 
be impermissible under paragraph (b)(22) of this section.
    (23) It will meet the requirements established pursuant to part H of 
Title IV of the HEA by the Secretary and nationally recognized 
accrediting agencies;
    (24) It will comply with the requirements of Sec. 668.22;
    (25) It is liable for all--
    (i) Improperly spent or unspent funds received under the Title IV, 
HEA programs, including any funds administered by a third-party 
servicer; and
    (ii) Returns of title IV, HEA program funds that the institution or 
its servicer may be required to make; and
    (26) If the stated objectives of an educational program of the 
institution are to prepare a student for gainful employment in a 
recognized occupation, the institution will--
    (i) Demonstrate a reasonable relationship between the length of the 
program and entry level requirements for the recognized occupation for 
which the program prepares the student. The Secretary considers the 
relationship to be reasonable if the number of clock hours provided in 
the program does not exceed by more than 50 percent the minimum number 
of clock hours required for training in the recognized occupation for 
which the program prepares the student, as established by the State in 
which the program is offered, if the State has established such a 
requirement, or as established by any Federal agency; and
    (ii) Establish the need for the training for the student to obtain 
employment in the recognized occupation for which the program prepares 
the student.
    (c) In order to participate in any Title IV, HEA program (other than 
the LEAP and NEISP programs), the institution must certify that it--
    (1) Has in operation a drug abuse prevention program that the 
institution has determined to be accessible to any officer, employee, or 
student at the institution; and
    (2)(i) Has established a campus security policy in accordance with 
section 485(f) of the HEA; and

[[Page 424]]

    (ii) Has complied with the disclosure requirements of Sec. 668.47 as 
required by section 485(f) of the HEA.
    (d)(1) The institution, if located in a State to which section 4(b) 
of the National Voter Registration Act (42 U.S.C. 1973gg-2(b)) does not 
apply, will make a good faith effort to distribute a mail voter 
registration form, requested and received from the State, to each 
student enrolled in a degree or certificate program and physically in 
attendance at the institution, and to make those forms widely available 
to students at the institution.
    (2) The institution must request the forms from the State 120 days 
prior to the deadline for registering to vote within the State. If an 
institution has not received a sufficient quantity of forms to fulfill 
this section from the State within 60 days prior to the deadline for 
registering to vote in the State, the institution is not liable for not 
meeting the requirements of this section during that election year.
    (3) This paragraph applies to elections as defined in section 301(1) 
of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(1)), and 
includes the election for Governor or other chief executive within such 
State.
    (e)(1) A program participation agreement becomes effective on the 
date that the Secretary signs the agreement.
    (2) A new program participation agreement supersedes any prior 
program participation agreement between the Secretary and the 
institution.
    (f)(1) Except as provided in paragraphs (h) and (i) of this section, 
the Secretary terminates a program participation agreement through the 
proceedings in subpart G of this part.
    (2) An institution may terminate a program participation agreement.
    (3) If the Secretary or the institution terminates a program 
participation agreement under paragraph (g) of this section, the 
Secretary establishes the termination date.
    (g) An institution's program participation agreement automatically 
expires on the date that--
    (1) The institution changes ownership that results in a change in 
control as determined by the Secretary under 34 CFR part 600; or
    (2) The institution's participation ends under the provisions of 
Sec. 668.26(a) (1), (2), (4), or (7).
    (h) An institution's program participation agreement no longer 
applies to or covers a location of the institution as of the date on 
which that location ceases to be a part of the participating 
institution.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099a-3, 1099c, and 
1141)

[59 FR 22425, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 63 
FR 40623, July 29, 1998; 64 FR 58617, Oct. 29, 1999; 64 FR 59038, Nov. 
1, 1999; 65 FR 38729, June 22, 2000; 65 FR 65637, Nov. 1, 2000; 67 FR 
67072, Nov. 1, 2002]



Sec. 668.15  Factors of financial responsibility.

    (a) General. To begin and to continue to participate in any Title 
IV, HEA program, an institution must demonstrate to the Secretary that 
the institution is financially responsible under the requirements 
established in this section.
    (b) General standards of financial responsibility. In general, the 
Secretary considers an institution to be financially responsible only if 
it--
    (1) Is providing the services described in its official publications 
and statements;
    (2) Is providing the administrative resources necessary to comply 
with the requirements of this subpart;
    (3) Is meeting all of its financial obligations, including but not 
limited to--
    (i) Refunds that it is required to make; and
    (ii) Repayments to the Secretary for liabilities and debts incurred 
in programs administered by the Secretary;
    (4) Is current in its debt payments. The institution is not 
considered current in its debt payments if--
    (i) The institution is in violation of any existing loan agreement 
at its fiscal year end, as disclosed in a note to its audited financial 
statement; or
    (ii) the institution fails to make a payment in accordance with 
existing debt obligations for more than 120 days, and at least one 
creditor has filed suit to recover those funds;
    (5) Except as provided in paragraph (d) of this section, in 
accordance with

[[Page 425]]

procedures established by the Secretary, submits to the Secretary an 
irrevocable letter of credit, acceptable and payable to the Secretary 
equal to 25 percent of the total dollar amount of Title IV, HEA program 
refunds paid by the institution in the previous fiscal year;
    (6) Has not had, as part of the audit report for the institution's 
most recently completed fiscal year--
    (i) A statement by the accountant expressing substantial doubt about 
the institution's ability to continue as a going concern; or
    (ii) A disclaimed or adverse opinion by the accountant;
    (7) For a for-profit institution--
    (i)(A) Demonstrates at the end of its latest fiscal year, an acid 
test ratio of at least 1:1. For purposes of this section, the acid test 
ratio shall be calculated by adding cash and cash equivalents to current 
accounts receivable and dividing the sum by total current liabilities. 
The calculation of the acid test ratio shall exclude all unsecured or 
uncollateralized related party receivables;
    (B) Has not had operating losses in either or both of its two latest 
fiscal years that in sum result in a decrease in tangible net worth in 
excess of 10 percent of the institution's tangible net worth at the 
beginning of the first year of the two-year period. The Secretary may 
calculate an operating loss for an institution by excluding from net 
income: extraordinary gains or losses; income or losses from 
discontinued operations; prior period adjustment; and, the cumulative 
effect of changes in accounting principle. For purposes of this section, 
the calculation of tangible net worth shall exclude all assets defined 
as intangible in accordance with generally accepted accounting 
principles; and
    (C) Had, for its latest fiscal year, a positive tangible net worth. 
In applying this standard, a positive tangible net worth occurs when the 
institution's tangible assets exceed its liabilities. The calculation of 
tangible net worth shall exclude all assets classified as intangible in 
accordance with the generally accepted accounting principles; or
    (ii) Demonstrates to the satisfaction of the Secretary that it has 
currently issued and outstanding debt obligations that are (without 
insurance, guarantee, or credit enhancement) listed at or above the 
second highest rating level of credit quality given by a nationally 
recognized statistical rating organization;
    (8) For a nonprofit institution--
    (i)(A) Prepares a classified statement of financial position in 
accordance with generally accepted accounting principles or provides the 
required information in notes to the audited financial statements;
    (B) Demonstrates at the end of its latest fiscal year, an acid test 
ratio of at least 1:1. For purposes of this section, the acid test ratio 
shall be calculated by adding cash and cash equivalents to current 
accounts receivable and dividing the sum by total current liabilities. 
The calculation of the acid test ratio shall exclude all unsecured or 
uncollateralized related party receivables.
    (C)(1) Has, at the end of its latest fiscal year, a positive 
unrestricted current fund balance or positive unrestricted net assets. 
In calculating the unrestricted current fund balance or the unrestricted 
net assets for an institution, the Secretary may include funds that are 
temporarily restricted in use by the institution's governing body that 
can be transferred to the current unrestricted fund or added to net 
unrestricted assets at the discretion of the governing body; or
    (2) Has not had, an excess of current fund expenditures over current 
fund revenues over both of its 2 latest fiscal years that results in a 
decrease exceeding 10 percent in either the unrestricted current fund 
balance or the unrestricted net assets at the beginning of the first 
year of the 2-year period. The Secretary may exclude from net changes in 
fund balances for the operating loss calculation: Extraordinary gains or 
losses; income or losses from discontinued operations; prior period 
adjustment; and the cumulative effect of changes in accounting 
principle. In calculating the institution's unrestricted current fund 
balance or

[[Page 426]]

the unrestricted net assets, the Secretary may include funds that are 
temporarily restricted in use by the institution's governing body that 
can be transferred to the current unrestricted fund or added to net 
unrestricted assets at the discretion of the governing body; or
    (ii) Demonstrates to the satisfaction of the Secretary that it has 
currently issued and outstanding debt obligations which are (without 
insurance, guarantee, or credit enhancement) listed at or above the 
second highest rating level of credit quality given by a nationally 
recognized statistical rating organization.
    (9) For a public institution--
    (i) Has its liabilities backed by the full faith and credit of a 
State, or by an equivalent governmental entity;
    (ii) Has a positive current unrestricted fund balance if reporting 
under the Single Audit Act;
    (iii) Has a positive unrestricted current fund in the State's Higher 
Education Fund, as presented in the general purpose financial 
statements;
    (iv) Submits to the Secretary, a statement from the State Auditor 
General that the institution has, during the past year, met all of its 
financial obligations, and that the institution continues to have 
sufficient resources to meet all of its financial obligations; or
    (v) Demonstrates to the satisfaction of the Secretary that it has 
currently issued and outstanding debt obligations which are (without 
insurance, guarantee, or credit enhancement) listed at or above the 
second highest rating level of credit quality given by a nationally 
recognized statistical rating organization.
    (c) Past performance of an institution or persons affiliated with an 
institution. An institution is not financially responsible if--
    (1) A person who exercises substantial control over the institution 
or any member or members of the person's family alone or together--
    (i)(A) Exercises or exercised substantial control over another 
institution or a third-party servicer that owes a liability for a 
violation of a Title IV, HEA program requirement; or
    (B) Owes a liability for a violation of a Title IV, HEA program 
requirement; and
    (ii) That person, family member, institution, or servicer does not 
demonstrate that the liability is being repaid in accordance with an 
agreement with the Secretary; or
    (2) The institution has--
    (i) Been limited, suspended, terminated, or entered into a 
settlement agreement to resolve a limitation, suspension, or termination 
action initiated by the Secretary or a guaranty agency (as defined in 34 
CFR part 682) within the preceding five years;
    (ii) Had--
    (A) An audit finding, during its two most recent audits of its 
conduct of the Title IV, HEA programs, that resulted in the 
institution's being required to repay an amount greater than five 
percent of the funds that the institution received under the Title IV, 
HEA programs for any award year covered by the audit; or
    (B) A program review finding, during its two most recent program 
reviews, of its conduct of the Title IV, HEA programs that resulted in 
the institution's being required to repay an amount greater than five 
percent of the funds that the institution received under the Title IV, 
HEA programs for any award year covered by the program review;
    (iii) Been cited during the preceding five years for failure to 
submit acceptable audit reports required under this part or individual 
Title IV, HEA program regulations in a timely fashion; or
    (iv) Failed to resolve satisfactorily any compliance problems 
identified in program review or audit reports based upon a final 
decision of the Secretary issued pursuant to subpart G or subpart H of 
this part.
    (d) Exceptions to the general standards of financial responsibility. 
(1)(i) An institution is not required to meet the standard in paragraph 
(b)(5) of this section if the Secretary determines that the institution-
-
    (A)(1) Is located in, and is legally authorized to operate within, a 
State that has a tuition recovery fund that is acceptable to the 
Secretary and ensures that the institution is able to pay all required 
refunds; and

[[Page 427]]

    (2) Contributes to that tuition recovery fund.
    (B) Has its liabilities backed by the full faith and credit of the 
State, or by an equivalent governmental entity; or
    (C) As determined under paragraph (g) of this section, demonstrates, 
to the satisfaction of the Secretary, that for each of the institution's 
two most recently completed fiscal years, it has made timely refunds to 
students in accordance with Sec. 668.22(j)(4), and that it has met or 
exceeded all of the financial responsibility standards in this section 
that were in effect for the corresponding periods during the two-year 
period.
    (ii) In evaluating an application to approve a State tuition 
recovery fund to exempt its participating schools from the Federal cash 
reserve requirements, the Secretary will consider the extent to which 
the State tuition recovery fund:
    (A) Provides refunds to both in-state and out-of-state students;
    (B) Allocates all refunds in accordance with the order delineated in 
Sec. 668.22(h); and
    (C) Provides a reliable mechanism for the State to replenish the 
fund should any claims arise that deplete the funds assets.
    (2) The Secretary considers an institution to be financially 
responsible, even if the institution is not otherwise financially 
responsible under paragraphs (b)(1) through (4) and (b)(6) through (9) 
of this section, if the institution--
    (i) Submits to the Secretary an irrevocable letter of credit that is 
acceptable and payable to the Secretary equal to not less than one-half 
of the Title IV, HEA program funds received by the institution during 
the last complete award year for which figures are available; or
    (ii) Establishes to the satisfaction of the Secretary, with the 
support of a financial statement submitted in accordance with paragraph 
(e) of this section, that the institution has sufficient resources to 
ensure against its precipitous closure, including the ability to meet 
all of its financial obligations (including refunds of institutional 
charges and repayments to the Secretary for liabilities and debts 
incurred in programs administered by the Secretary). The Secretary 
considers the institution to have sufficient resources to ensure against 
precipitous closure only if--
    (A) The institution formerly demonstrated financial responsibility 
under the standards of financial responsibility in its preceding audited 
financial statement (or, if no prior audited financial statement was 
requested by the Secretary, demonstrates in conjunction with its current 
audit that it would have satisfied this requirement), and that its most 
recent audited financial statement indicates that--
    (1) All taxes owed by the institution are current;
    (2) The institution's net income, or a change in total net assets, 
before extraordinary items and discontinued operations, has not 
decreased by more than 10 percent from the prior fiscal year, unless the 
institution demonstrates that the decreased net income shown on the 
current financial statement is a result of downsizing pursuant to a 
management-approved business plan;
    (3) Loans and other advances to related parties have not increased 
from the prior fiscal year unless such increases were secured and 
collateralized, and do not exceed 10 percent of the prior fiscal year's 
working capital of the institution;
    (4) The equity of a for-profit institution, or the total net assets 
of a non-profit institution, have not decreased by more than 10 percent 
of the prior year's total equity;
    (5) Compensation for owners or other related parties (including 
bonuses, fringe benefits, employee stock option allowances, 401k 
contributions, deferred compensation allowances) has not increased from 
the prior year at a rate higher than for all other employees;
    (6) The institution has not materially leveraged its assets or 
income by becoming a guarantor on any new loan or obligation on behalf 
of any related party;
    (7) All obligations owed to the institution by related parties are 
current, and that the institution has demanded and is receiving payment 
of all funds

[[Page 428]]

owed from related parties that are payable upon demand. For purposes of 
this section, a person does not become a related party by attending an 
institution as a student;
    (B) There have been no material findings in the institution's latest 
compliance audit of its administration of the Title IV HEA programs; and
    (C) There are no pending administrative or legal actions being taken 
against the institution by the Secretary, any other Federal agency, the 
institution's nationally recognized accrediting agency, or any State 
entity.
    (3) An institution is not required to meet the acid test ratio in 
paragraph (b)(7)(i)(A) or (b)(8)(i)(B) of this section if the 
institution is an institution that provides a 2-year or 4-year 
educational program for which the institution awards an associate or 
baccalaureate degree that demonstrates to the satisfaction of the 
Secretary that--
    (i) There is no reasonable doubt as to its continued solvency and 
ability to deliver quality educational services;
    (ii) It is current in its payment of all current liabilities, 
including student refunds, repayments to the Secretary, payroll, and 
payment of trade creditors and withholding taxes; and
    (iii) It has substantial equity in institution-occupied facilities, 
the acquisition of which was the direct cause of its failure to meet the 
acid test ratio requirement.
    (4) The Secretary may determine an institution to be financially 
responsible even if the institution is not otherwise financially 
responsible under paragraph (c)(1) of this section if--
    (i) The institution notifies the Secretary, in accordance with 34 
CFR 600.30, that the person referenced in paragraph (c)(1) of this 
section exercises substantial control over the institution; and
    (ii)(A) The person repaid to the Secretary a portion of the 
applicable liability, and the portion repaid equals or exceeds the 
greater of--
    (1) The total percentage of the ownership interest held in the 
institution or third-party servicer that owes the liability by that 
person or any member or members of that person's family, either alone or 
in combination with one another;
    (2) The total percentage of the ownership interest held in the 
institution or servicer that owes the liability that the person or any 
member or members of the person's family, either alone or in combination 
with one another, represents or represented under a voting trust, power 
of attorney, proxy, or similar agreement; or
    (3) Twenty-five percent, if the person or any member of the person's 
family is or was a member of the board of directors, chief executive 
officer, or other executive officer of the institution or servicer that 
owes the liability, or of an entity holding at least a 25 percent 
ownership interest in the institution that owes the liability;
    (B) The applicable liability described in paragraph (c)(1) of this 
section is currently being repaid in accordance with a written agreement 
with the Secretary; or
    (C) The institution demonstrates why--
    (1) The person who exercises substantial control over the 
institution should nevertheless be considered to lack that control; or
    (2) The person who exercises substantial control over the 
institution and each member of that person's family nevertheless does 
not or did not exercise substantial control over the institution or 
servicer that owes the liability.
    (e) [Reserved]
    (f) Definitions and terms. For the purposes of this section--
    (1)(i) An ``ownership interest'' is a share of the legal or 
beneficial ownership or control of, or a right to share in the proceeds 
of the operation of, an institution, institution's parent corporation, a 
third-party servicer, or a third-party servicer's parent corporation.
    (ii) The term ``ownership interest'' includes, but is not limited 
to--
    (A) An interest as tenant in common, joint tenant, or tenant by the 
entireties;
    (B) A partnership; and
    (C) An interest in a trust.
    (iii) The term ``ownership interest'' does not include any share of 
the ownership or control of, or any right to share in the proceeds of 
the operation of--

[[Page 429]]

    (A) A mutual fund that is regularly and publicly traded;
    (B) An institutional investor; or
    (C) A profit-sharing plan, provided that all employees are covered 
by the plan;
    (2) The Secretary generally considers a person to exercise 
substantial control over an institution or third-party servicer, if the 
person--
    (i) Directly or indirectly holds at least a 25 percent ownership 
interest in the institution or servicer;
    (ii) Holds, together with other members of his or her family, at 
least a 25 percent ownership interest in the institution or servicer;
    (iii) Represents, either alone or together with other persons, under 
a voting trust, power of attorney, proxy, or similar agreement one or 
more persons who hold, either individually or in combination with the 
other persons represented or the person representing them, at least a 25 
percent ownership in the institution or servicer; or
    (iv) Is a member of the board of directors, the chief executive 
officer, or other executive officer of--
    (A) The institution or servicer; or
    (B) An entity that holds at least a 25 percent ownership interest in 
the institution or servicer; and
    (3) The Secretary considers a member of a person's family to be a 
parent, sibling, spouse, child, spouse's parent or sibling, or sibling's 
or child's spouse.
    (g) Two-year performance requirement. (1) The Secretary considers an 
institution to have satisfied the requirements in paragraph (d)(1)(C) of 
this section if the independent certified public accountant, or 
government auditor who conducted the institution's compliance audits for 
the institution's two most recently completed fiscal years, or the 
Secretary or a State or guaranty agency that conducted a review of the 
institution covering those fiscal years--
    (i)(A) For either of those fiscal years, did not find in the sample 
of student records audited or reviewed that the institution made late 
refunds to 5 percent or more of the students in that sample. For 
purposes of determining the percentage of late refunds under this 
paragraph, the auditor or reviewer must include in the sample only those 
title IV, HEA program recipients who received or should have received a 
refund under Sec. 668.22; or
    (B) The Secretary considers the institution to have satisfied the 
conditions in paragraph (g)(1)(i)(A) of this section if the auditor or 
reviewer finds in the sample of student records audited or reviewed that 
the institution made only one late refund to a student in that sample; 
and
    (ii) For either of those fiscal years, did not note a material 
weakness or a reportable condition in the institution's report on 
internal controls that is related to refunds.
    (2) If the Secretary or a State or guaranty agency finds during a 
review conducted of the institution that the institution no longer 
qualifies for an exemption under paragraph (d)(1)(C) of this section, 
the institution must--
    (i) Submit to the Secretary the irrevocable letter of credit 
required in paragraph (b)(5) of this section no later than 30 days after 
the Secretary or State or guaranty agency notifies the institution of 
that finding; and
    (ii) Notify the Secretary of the guaranty agency or State that 
conducted the review.
    (3) If the auditor who conducted the institution's compliance audit 
finds that the institution no longer qualifies for an exemption under 
paragraph (d)(1)(C) of this section, the institution must submit to the 
Secretary the irrevocable letter of credit required in paragraph (b)(5) 
of this section no later than 30 days after the date the institution's 
compliance audit must be submitted to the Secretary.
    (h) Foreign institutions. The Secretary makes a determination of 
financial responsibility for a foreign institution on the basis of 
financial statements submitted under the following requirements--
    (1) If the institution received less than $500,000 U.S. in title IV, 
HEA program funds during its most recently completed fiscal year, the 
institution must submit its audited financial statement for that year. 
For purposes of this paragraph, the audited financial statements may be 
prepared under the auditing standards and accounting principles used in 
the institution's home country; or

[[Page 430]]

    (2) If the institution received $500,000 U.S. or more in title IV, 
HEA program funds during its most recently completed fiscal year, the 
institution must submit its audited financial statement in accordance 
with the requirements of Sec. 668.23, and satisfy the general standards 
of financial responsibility contained in this section, or qualify under 
an alternate standard of financial responsibility contained in this 
section.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094 and 1099c and Section 4 of Pub. L. 95-452, 92 
Stat. 1101-1109)

[59 FR 22428, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 59 
FR 61179, Nov. 29, 1994; 60 FR 34431, June 30, 1995; 60 FR 42408, Aug. 
15, 1995; 61 FR 29901, June 12, 1996; 61 FR 60569, Nov. 29, 1996; 62 FR 
27128, May 16, 1997]



Sec. 668.16  Standards of administrative capability.

    To begin and to continue to participate in any Title IV, HEA 
program, an institution shall demonstrate to the Secretary that the 
institution is capable of adequately administering that program under 
each of the standards established in this section. The Secretary 
considers an institution to have that administrative capability if the 
institution--
    (a) Administers the Title IV, HEA programs in accordance with all 
statutory provisions of or applicable to Title IV of the HEA, all 
applicable regulatory provisions prescribed under that statutory 
authority, and all applicable special arrangements, agreements, and 
limitations entered into under the authority of statutes applicable to 
Title IV of the HEA;
    (b)(1) Designates a capable individual to be responsible for 
administering all the Title IV, HEA programs in which it participates 
and for coordinating those programs with the institution's other Federal 
and non-Federal programs of student financial assistance. The Secretary 
considers an individual to be ``capable'' under this paragraph if the 
individual is certified by the State in which the institution is 
located, if the State requires certification of financial aid 
administrators. The Secretary may consider other factors in determining 
whether an individual is capable, including, but not limited to, the 
individual's successful completion of Title IV, HEA program training 
provided or approved by the Secretary, and previous experience and 
documented success in administering the Title IV, HEA programs properly;
    (2) Uses an adequate number of qualified persons to administer the 
Title IV, HEA programs in which the institution participates. The 
Secretary considers the following factors to determine whether an 
institution uses an adequate number of qualified persons--
    (i) The number and types of programs in which the institution 
participates;
    (ii) The number of applications evaluated;
    (iii) The number of students who receive any student financial 
assistance at the institution and the amount of funds administered;
    (iv) The financial aid delivery system used by the institution;
    (v) The degree of office automation used by the institution in the 
administration of the Title IV, HEA programs;
    (vi) The number and distribution of financial aid staff; and
    (vii) The use of third-party servicers to aid in the administration 
of the Title IV, HEA programs;
    (3) Communicates to the individual designated to be responsible for 
administering Title IV, HEA programs, all the information received by 
any institutional office that bears on a student's eligibility for Title 
IV, HEA program assistance; and
    (4) Has written procedures for or written information indicating the 
responsibilities of the various offices with respect to the approval, 
disbursement, and delivery of Title IV, HEA program assistance and the 
preparation and submission of reports to the Secretary;
    (c)(1) Administers Title IV, HEA programs with adequate checks and 
balances in its system of internal controls; and
    (2) Divides the functions of authorizing payments and disbursing or 
delivering funds so that no office has responsibility for both functions 
with respect to any particular student aided under the programs. For 
example, the functions of authorizing payments and disbursing or 
delivering funds must be

[[Page 431]]

divided so that for any particular student aided under the programs, the 
two functions are carried out by at least two organizationally 
independent individuals who are not members of the same family, as 
defined in Sec. 668.15, or who do not together exercise substantial 
control, as defined in Sec. 668.15, over the institution;
    (d) Establishes and maintains records required under this part and 
the individual Title IV, HEA program regulations;
    (e) For purposes of determining student eligibility for assistance 
under a Title IV, HEA program, establishes, publishes, and applies 
reasonable standards for measuring whether an otherwise eligible student 
is maintaining satisfactory progress in his or her educational program. 
The Secretary considers an institution's standards to be reasonable if 
the standards--
    (1) Are the same as or stricter than the institution's standards for 
a student enrolled in the same educational program who is not receiving 
assistance under a Title IV, HEA program;
    (2) Include the following elements:
    (i) A qualitative component which consists of grades (provided that 
the standards meet or exceed the requirements of Sec. 668.34), work 
projects completed, or comparable factors that are measurable against a 
norm.
    (ii) A quantitative component that consists of a maximum timeframe 
in which a student must complete his or her educational program. The 
timeframe must--
    (A) For an undergraduate program, be no longer than 150 percent of 
the published length of the educational program measured in academic 
years, terms, credit hours attempted, clock hours completed, etc. as 
appropriate;
    (B) Be divided into increments, not to exceed the lesser of one 
academic year or one-half the published length of the educational 
program;
    (C) Include a schedule established by the institution designating 
the minimum percentage or amount of work that a student must 
successfully complete at the end of each increment to complete his or 
her educational program within the maximum timeframe; and
    (D) Include specific policies defining the effect of course 
incompletes, withdrawals, repetitions, and noncredit remedial courses on 
satisfactory progress;
    (3) Provide for consistent application of standards to all students 
within categories of students, e.g., full-time, part-time, 
undergraduate, and graduate students, and educational programs 
established by the institution;
    (4) Provide for a determination at the end of each increment by the 
institution as to whether the student has met the qualitative and 
quantitative components of the standards (as provided for in paragraphs 
(e)(2)(i) and (ii) of this section);
    (5) Provide specific procedures under which a student may appeal a 
determination that the student is not making satisfactory progress; and
    (6) Provide specific procedures for a student to re-establish that 
he or she is maintaining satisfactory progress.
    (f) Develops and applies an adequate system to identify and resolve 
discrepancies in the information that the institution receives from 
different sources with respect to a student's application for financial 
aid under Title IV, HEA programs. In determining whether the 
institution's system is adequate, the Secretary considers whether the 
institution obtains and reviews--
    (1) All student aid applications, need analysis documents, 
Statements of Educational Purpose, Statements of Registration Status, 
and eligibility notification documents presented by or on behalf of each 
applicant;
    (2) Any documents, including any copies of State and Federal income 
tax returns, that are normally collected by the institution to verify 
information received from the student or other sources; and
    (3) Any other information normally available to the institution 
regarding a student's citizenship, previous educational experience, 
documentation of the student's social security number, or other factors 
relating to the student's eligibility for funds under the Title IV, HEA 
programs;
    (g) Refers to the Office of Inspector General of the Department of 
Education for investigation--

[[Page 432]]

    (1) After conducting the review of an application provided for under 
paragraph (f) of this section, any credible information indicating that 
an applicant for Title IV, HEA program assistance may have engaged in 
fraud or other criminal misconduct in connection with his or her 
application. The type of information that an institution must refer is 
that which is relevant to the eligibility of the applicant for Title IV, 
HEA program assistance, or the amount of the assistance. Examples of 
this type of information are--
    (i) False claims of independent student status;
    (ii) False claims of citizenship;
    (iii) Use of false identities;
    (iv) Forgery of signatures or certifications; and
    (v) False statements of income; and
    (2) Any credible information indicating that any employee, third-
party servicer, or other agent of the institution that acts in a 
capacity that involves the administration of the Title IV, HEA programs, 
or the receipt of funds under those programs, may have engaged in fraud, 
misrepresentation, conversion or breach of fiduciary responsibility, or 
other illegal conduct involving the Title IV, HEA programs. The type of 
information that an institution must refer is that which is relevant to 
the eligibility and funding of the institution and its students through 
the Title IV, HEA programs;
    (h) Provides adequate financial aid counseling to eligible students 
who apply for Title IV, HEA program assistance. In determining whether 
an institution provides adequate counseling, the Secretary considers 
whether its counseling includes information regarding--
    (1) The source and amount of each type of aid offered;
    (2) The method by which aid is determined and disbursed, delivered, 
or applied to a student's account; and
    (3) The rights and responsibilities of the student with respect to 
enrollment at the institution and receipt of financial aid. This 
information includes the institution's refund policy, the requirements 
for the treatment of title IV, HEA program funds when a student 
withdraws under Sec. 668.22, its standards of satisfactory progress, and 
other conditions that may alter the student's aid package;
    (i) Has provided all program and fiscal reports and financial 
statements required for compliance with the provisions of this part and 
the individual program regulations in a timely manner;
    (j) Shows no evidence of significant problems that affect, as 
determined by the Secretary, the institution's ability to administer a 
Title IV, HEA program and that are identified in--
    (1) Reviews of the institution conducted by the Secretary, the 
Department of Education's Office of Inspector General, nationally 
recognized accrediting agencies, guaranty agencies as defined in 34 CFR 
part 682, the State agency or official by whose authority the 
institution is legally authorized to provide postsecondary education, or 
any other law enforcement agency; or
    (2) Any findings made in any criminal, civil, or administrative 
proceeding;
    (k) Is not, and does not have any principal or affiliate of the 
institution (as those terms are defined in 34 CFR part 85) that is--
    (1) Debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 
1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR), 48 CFR 
part 9, subpart 9.4; or
    (2) Engaging in any activity that is a cause under 34 CFR 85.305 or 
85.405 for debarment or suspension under E.O. 12549 (3 CFR, 1986 Comp., 
p. 189) or the FAR, 48 CFR part 9, subpart 9.4;
    (l) For an institution that seeks initial participation in a Title 
IV, HEA program, does not have more than 33 percent of its undergraduate 
regular students withdraw from the institution during the institution's 
latest completed award year. The institution must count all regular 
students who are enrolled during the latest completed award year, except 
those students who, during that period--
    (1) Withdrew from, dropped out of, or were expelled from the 
institution;
    (2) Were entitled to and actually received in a timely manner, a 
refund of 100 percent of their tuition and fees;
    (m)(1) Has a cohort default rate--
    (i) Calculated under subpart M of this part, that is less than 25 
percent for

[[Page 433]]

each of the three most recent fiscal years for which the Secretary has 
determined the institution's rate; and
    (ii) As defined in 34 CFR 674.5, on loans made under the Federal 
Perkins Loan Program to students for attendance at that institution that 
does not exceed 15 percent;
    (2)(i) However, if the Secretary determines that an institution's 
administrative capability is impaired solely because the institution 
fails to comply with paragraph (m)(1) of this section, the Secretary 
allows the institution to continue to participate in the Title IV, HEA 
programs but may provisionally certify the institution in accordance 
with Sec. 668.13(c); and
    (ii) The institution may appeal the loss of full participation in a 
Title IV, HEA program under paragraph (m)(1) of this section by 
submitting an erroneous data appeal in writing to the Secretary in 
accordance with and on the grounds specified in subpart M of this part;
    (n) Does not otherwise appear to lack the ability to administer the 
Title IV, HEA programs competently; and
    (o) Participates in the electronic processes that the Secretary--
    (1) Provides at no substantial charge to the institution; and
    (2) Identifies through a notice published in the Federal Register.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1082, 1985, 1094, and 1099c)

[59 FR 22431, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 59 
FR 61180, Nov. 29, 1994; 60 FR 34431, June 30, 1995; 60 FR 42408, Aug. 
15, 1995; 61 FR 60603, Nov. 29, 1996; 62 FR 27128, May 16, 1997; 63 FR 
40624, July 29, 1998; 64 FR 59038, Nov. 1, 1999; 65 FR 65637, Nov. 1, 
2000]



Secs. 668.17-668.18  [Reserved]



Sec. 668.19  Financial aid history.

    (a) Before an institution may disburse title IV, HEA program funds 
to a student who previously attended another eligible institution, the 
institution must use information it obtains from the Secretary, through 
the National Student Loan Data System (NSLDS) or its successor system, 
to determine--
    (1) Whether the student is in default on any title IV, HEA program 
loan;
    (2) Whether the student owes an overpayment on any title IV, HEA 
program grant or Federal Perkins Loan;
    (3) For the award year for which a Federal Pell Grant is requested, 
the student's scheduled Federal Pell Grant and the amount of Federal 
Pell Grant funds disbursed to the student;
    (4) The outstanding principal balance of loans made to the student 
under each of the title IV, HEA loan programs; and
    (5) For the academic year for which title IV, HEA aid is requested, 
the amount of, and period of enrollment for, loans made to the student 
under each of the title IV, HEA loan programs.
    (b)(1) If a student transfers from one institution to another 
institution during the same award year, the institution to which the 
student transfers must request from the Secretary, through NSLDS, 
updated information about that student so it can make the determinations 
required under paragraph (a) of this section; and
    (2) The institution may not make a disbursement to that student for 
seven days following its request, unless it receives the information 
from NSLDS in response to its request or obtains that information 
directly by accessing NSLDS, and the information it receives allows it 
to make that disbursement.

(Approved by the Office of Management and Budget under control number 
1845-0537)

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

[65 FR 65675, Nov. 1, 2000]



Sec. 668.20  Limitations on remedial coursework that is eligible for Title IV, HEA program assistance.

    (a) A noncredit or reduced credit remedial course is a course of 
study designed to increase the ability of a student to pursue a course 
of study leading to a certificate or degree.
    (1) A noncredit remedial course is one for which no credit is given 
toward a certificate or degree; and
    (2) A reduced credit remedial course is one for which reduced credit 
is given toward a certificate or degree.

[[Page 434]]

    (b) Except as provided in paragraphs (c) and (d) of this section, in 
determining a student's enrollment status and cost of attendance, an 
institution shall include any noncredit or reduced credit remedial 
course in which the student is enrolled. The institution shall attribute 
the number of credit or clock hours to a noncredit or reduced credit 
remedial course by--
    (1) Calculating the number of classroom and homework hours required 
for that course;
    (2) Comparing those hours with the hours required for nonremedial 
courses in a similar subject; and
    (3) Giving the remedial course the same number of credit or clock 
hours it gives the nonremedial course with the most comparable classroom 
and homework requirements.
    (c) In determining a student's enrollment status under the Title IV, 
HEA programs or a student's cost of attendance under the campus-based, 
FFEL, and Direct Loan programs, an institution may not take into account 
any noncredit or reduced credit remedial course if--
    (1) That course is part of a program of instruction leading to a 
high school diploma or the recognized equivalent of a high school 
diploma, even if the course is necessary to enable the student to 
complete a degree or certificate program;
    (2) The educational level of instruction provided in the noncredit 
or reduced credit remedial course is below the level needed to pursue 
successfully the degree or certificate program offered by that 
institution after one year in that remedial course; or
    (3) Except for a course in English as a second language, the 
educational level of instruction provided in that course is below the 
secondary level. For purposes of this section, the Secretary considers a 
course to be below the secondary level if any of the following entities 
determine that course to be below the secondary level:
    (i) The State agency that legally authorized the institution to 
provide postsecondary education.
    (ii) In the case of an accredited or preaccredited institution, the 
nationally recognized accrediting agency or association that accredits 
or preaccredits the institution.
    (iii) In the case of a public postsecondary vocational institution 
that is approved by a State agency recognized for the approval of public 
postsecondary vocational education, the State agency recognized for the 
approval of public postsecondary vocational education that approves the 
institution.
    (iv) The institution.
    (d) Except as set forth in paragraph (f) of this section, an 
institution may not take into account more than one academic year's 
worth of noncredit or reduced credit remedial coursework in determining-
-
    (1) A student's enrollment status under the title IV, HEA programs; 
and
    (2) A student's cost of attendance under the campus-based, FFEL, and 
Direct Loan programs.
    (e) One academic year's worth of noncredit or reduced credit 
remedial coursework is equivalent to--
    (1) Thirty semester or 45 quarter hours; or
    (2) Nine hundred clock hours.
    (f) Courses in English as a second language do not count against the 
one-year academic limitation contained in paragraph (d) of this section.

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

[52 FR 45724, Dec. 1, 1987, as amended at 56 FR 36698, July 31, 1991; 58 
FR 32202-32203, June 8, 1993; 63 FR 40624, July 29, 1998]



Sec. 668.21  Treatment of Federal Perkins Loan, FSEOG, and Federal Pell 
Grant program funds if the recipient withdraws, drops out, or is expelled 
before his or 
          her first day of class.

    (a)(1) If a student officially withdraws, drops out, or is expelled 
before his or her first day of class of a payment period, all funds paid 
to the student for that payment period for institutional or 
noninstitutional costs under the Federal Pell Grant, FSEOG, and Federal 
Perkins Loan programs are an overpayment.
    (2) The institution shall return that overpayment to the respective 
title IV, HEA programs in the amount that the student received from each 
program.
    (b) For purposes of this section, the Secretary considers that a 
student drops out before his or her first day of

[[Page 435]]

class of a payment period if the institution is unable to document the 
student's attendance at any class during the payment period.

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

[52 FR 45727, Dec. 1, 1987, as amended at 63 FR 40624, July 29, 1998]



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

    (a) General. (1) When a recipient of title IV grant or loan 
assistance withdraws from an institution during a payment period or 
period of enrollment in which the recipient began attendance, the 
institution must determine the amount of title IV grant or loan 
assistance (not including Federal Work-Study or the non-Federal share of 
FSEOG awards if an institution meets its FSEOG matching share by the 
individual recipient method or the aggregate method) that the student 
earned as of the student's withdrawal date in accordance with paragraph 
(e) of this section.
    (2) If the total amount of title IV grant or loan assistance, or 
both, that the student earned as calculated under paragraph (e)(1) of 
this section is less than the amount of title IV grant or loan 
assistance that was disbursed to the student or on behalf of the student 
in the case of a PLUS loan, as of the date of the institution's 
determination that the student withdrew--
    (i) The difference between these amounts must be returned to the 
title IV programs in accordance with paragraphs (g) and (h) of this 
section in the order specified in paragraph (i) of this section; and
    (ii) No additional disbursements may be made to the student for the 
payment period or period of enrollment.
    (3) If the total amount of title IV grant or loan assistance, or 
both, that the student earned as calculated under paragraph (e)(1) of 
this section is greater than the total amount of title IV grant or loan 
assistance, or both, that was disbursed to the student or on behalf of 
the student in the case of a PLUS loan, as of the date of the 
institution's determination that the student withdrew, the difference 
between these amounts must be treated as a post-withdrawal disbursement 
in accordance with paragraph (a)(4) of this section and Sec. 668.164(g).
    (4)(i)(A) If outstanding charges exist on the student's account, the 
institution may credit the student's account in accordance with 
Sec. 668.164(d)(1), (d)(2), and (d)(3) with all or a portion of the 
post-withdrawal disbursement described in paragraph (a)(3) of this 
section, up to the amount of the outstanding charges.
    (B) If Direct Loan, FFEL, or Federal Perkins Loan Program funds are 
used to credit the student's account, the institution must notify the 
student, or parent in the case of a PLUS loan, and provide an 
opportunity for the borrower to cancel all or a portion of the loan, in 
accordance with Sec. 668.165(a)(2), (a)(3), (a)(4), and (a)(5).
    (ii)(A) The institution must offer any amount of a post-withdrawal 
disbursement that is not credited to the student's account in accordance 
with paragraph (a)(4)(i) of this section to the student, or the parent 
in the case of a PLUS loan, within 30 days of the date of the 
institution's determination that the student withdrew, as defined in 
paragraph (l)(3) of this section, by providing a written notification to 
the student, or parent in the case of PLUS loan funds. The written 
notification must--
    (1) Identify the type and amount of the title IV funds that make up 
the post-withdrawal disbursement that is not credited to the student's 
account in accordance with paragraph (a)(4)(i) of this section;
    (2) Explain that the student or parent may accept or decline some or 
all of the post-withdrawal disbursement that is not credited to the 
student's account in accordance with paragraph (a)(4)(i) of this 
section; and
    (3) Advise the student or parent that no post-withdrawal 
disbursement will be made to the student or parent if the student or 
parent does not respond within 14 days of the date that the institution 
sent the notification, unless the institution chooses to make a post-
withdrawal disbursement in accordance with paragraph (a)(4)(ii)(D) of 
this section.
    (B) If the student or parent submits a timely response that 
instructs the institution to make all or a portion of

[[Page 436]]

the post-withdrawal disbursement, the institution must disburse the 
funds in the manner specified by the student or parent within 120 days 
of the date of the institution's determination that the student 
withdrew, as defined in paragraph (l)(3) of this section.
    (C) If the student or parent does not respond to the institution's 
notice, no portion of the post-withdrawal disbursement that is not 
credited to the student's account in accordance with paragraph (a)(4)(i) 
of this section may be disbursed.
    (D) If a student or parent submits a late response to the 
institution's notice, the institution may make the post-withdrawal 
disbursement as instructed by the student or parent or decline to do so.
    (E) If a student or parent submits a late response to the 
institution and the institution does not choose to make the post-
withdrawal disbursement in accordance with paragraph (a)(4)(ii)(D) of 
this section, the institution must inform the student or parent 
electronically or in writing concerning the outcome of the post-
withdrawal disbursement request.
    (iii) A post-withdrawal disbursement must be made from available 
grant funds before available loan funds.
    (b) Withdrawal date for a student who withdraws from an institution 
that is required to take attendance. (1) For purposes of this section, 
for a student who ceases attendance at an institution that is required 
to take attendance, including a student who does not return from an 
approved leave of absence, as defined in paragraph (d) of this section, 
or a student who takes a leave of absence that does not meet the 
requirements of paragraph (d) of this section, the student's withdrawal 
date is the last date of academic attendance as determined by the 
institution from its attendance records.
    (2) An institution must document a student's withdrawal date 
determined in accordance with paragraph (b)(1) of this section and 
maintain the documentation as of the date of the institution's 
determination that the student withdrew, as defined in paragraph (l)(3) 
of this section.
    (3)(i) An institution is required to take attendance if an outside 
entity (such as the institution's accrediting agency or a State agency) 
has a requirement, as determined by the entity, that the institution 
take attendance.
    (ii) If an outside entity requires an institution to take attendance 
for only some students, the institution must use its attendance records 
to determine a withdrawal date in accordance with paragraph (b)(1) of 
this section for those students.
    (c) Withdrawal date for a student who withdraws from an institution 
that is not required to take attendance. (1) For purposes of this 
section, for a student who ceases attendance at an institution that is 
not required to take attendance, the student's withdrawal date is--
    (i) The date, as determined by the institution, that the student 
began the withdrawal process prescribed by the institution;
    (ii) The date, as determined by the institution, that the student 
otherwise provided official notification to the institution, in writing 
or orally, of his or her intent to withdraw;
    (iii) If the student ceases attendance without providing official 
notification to the institution of his or her withdrawal in accordance 
with paragraph (c)(1)(i) or (c)(1)(ii) of this section, the mid-point of 
the payment period (or period of enrollment, if applicable);
    (iv) If the institution determines that a student did not begin the 
institution's withdrawal process or otherwise provide official 
notification (including notice from an individual acting on the 
student's behalf) to the institution of his or her intent to withdraw 
because of illness, accident, grievous personal loss, or other such 
circumstances beyond the student's control, the date that the 
institution determines is related to that circumstance;
    (v) If a student does not return from an approved leave of absence 
as defined in paragraph (d) of this section, the date that the 
institution determines the student began the leave of absence; or
    (vi) If a student takes a leave of absence that does not meet the 
requirements of paragraph (d) of this section, the date that the student 
began the leave of absence.

[[Page 437]]

    (2)(i)(A) An institution may allow a student to rescind his or her 
official notification to withdraw under paragraph (c)(1)(i) or (ii) of 
this section by filing a written statement that he or she is continuing 
to participate in academically-related activities and intends to 
complete the payment period or period of enrollment.
    (B) If the student subsequently ceases to attend the institution 
prior to the end of the payment period or period of enrollment, the 
student's rescission is negated and the withdrawal date is the student's 
original date under paragraph (c)(1)(i) or (ii) of this section, unless 
a later date is determined under paragraph (c)(3) of this section.
    (ii) If a student both begins the withdrawal process prescribed by 
the institution and otherwise provides official notification of his or 
her intent to withdraw in accordance with paragraphs (c)(1)(i) and 
(c)(1)(ii) of this section respectively, the student's withdrawal date 
is the earlier date unless a later date is determined under paragraph 
(c)(3) of this section.
    (3)(i) Notwithstanding paragraphs (c)(1) and (2) of this section, an 
institution that is not required to take attendance may use as the 
student's withdrawal date a student's last date of attendance at an 
academically-related activity provided that the institution documents 
that the activity is academically related and documents the student's 
attendance at the activity.
    (ii) An ``academically-related activity'' includes, but is not 
limited to, an exam, a tutorial, computer-assisted instruction, academic 
counseling, academic advisement, turning in a class assignment or 
attending a study group that is assigned by the institution.
    (4) An institution must document a student's withdrawal date 
determined in accordance with paragraphs (c)(1), (2), and (3) of this 
section and maintain the documentation as of the date of the 
institution's determination that the student withdrew, as defined in 
paragraph (l)(3) of this section.
    (5)(i) ``Official notification to the institution'' is a notice of 
intent to withdraw that a student provides to an office designated by 
the institution.
    (ii) An institution must designate one or more offices at the 
institution that a student may readily contact to provide official 
notification of withdrawal.
    (d) Approved leave of absence. (1) For purposes of this section 
(and, for a title IV, HEA program loan borrower, for purposes of 
terminating the student's in-school status), an institution does not 
have to treat a leave of absence as a withdrawal if it is an approved 
leave of absence. A leave of absence is an approved leave of absence if-
-
    (i) The institution has a formal policy regarding leaves of absence;
    (ii) The student followed the institution's policy in requesting the 
leave of absence;
    (iii) The institution determines that there is a reasonable 
expectation that the student will return to the school;
    (iv) The institution approved the student's request in accordance 
with the institution's policy;
    (v) The leave of absence does not involve additional charges by the 
institution;
    (vi) The number of days in the approved leave of absence, when added 
to the number of days in all other approved leaves of absence, does not 
exceed 180 days in any 12-month period;
    (vii) Except for a clock hour or nonterm credit hour program, upon 
the student's return from the leave of absence, the student is permitted 
to complete the coursework he or she began prior to the leave of 
absence; and
    (viii) If the student is a title IV, HEA program loan recipient, the 
institution explains to the student, prior to granting the leave of 
absence, the effects that the student's failure to return from a leave 
of absence may have on the student's loan repayment terms, including the 
exhaustion of some or all of the student's grace period.
    (2) If a student does not resume attendance at the institution at or 
before the end of a leave of absence that meets the requirements of this 
section, the institution must treat the student as a withdrawal in 
accordance with the requirements of this section.
    (3) For purposes of this paragraph--
    (i) The number of days in a leave of absence is counted beginning 
with the

[[Page 438]]

first day of the student's initial leave of absence in a 12-month 
period.
    (ii) A ``12-month period'' begins on the first day of the student's 
initial leave of absence.
    (iii) An institution's leave of absence policy is a ``formal 
policy'' if the policy--
    (A) Is in writing and publicized to students; and
    (B) Requires students to provide a written, signed, and dated 
request, that includes the reason for the request, for a leave of 
absence prior to the leave of absence. However, if unforeseen 
circumstances prevent a student from providing a prior written request, 
the institution may grant the student's request for a leave of absence, 
if the institution documents its decision and collects the written 
request at a later date.
    (e) Calculation of the amount of title IV assistance earned by the 
student. (1) General. The amount of title IV grant or loan assistance 
that is earned by the student is calculated by--
    (i) Determining the percentage of title IV grant or loan assistance 
that has been earned by the student, as described in paragraph (e)(2) of 
this section; and
    (ii) Applying this percentage to the total amount of title IV grant 
or loan assistance that was disbursed (and that could have been 
disbursed, as defined in paragraph (l)(1) of this section) to the 
student, or on the student's behalf, for the payment period or period of 
enrollment as of the student's withdrawal date.
    (2) Percentage earned. The percentage of title IV grant or loan 
assistance that has been earned by the student is--
    (i) Equal to the percentage of the payment period or period of 
enrollment that the student completed (as determined in accordance with 
paragraph (f) of this section) as of the student's withdrawal date, if 
this date occurs on or before completion of 60 percent of the--
    (A) Payment period or period of enrollment for a program that is 
measured in credit hours; or
    (B) Clock hours scheduled to be completed for the payment period or 
period of enrollment for a program that is measured in clock hours; or
    (ii) 100 percent, if the student's withdrawal date occurs after 
completion of 60 percent of the--
    (A) Payment period or period of enrollment for a program that is 
measured in credit hours; or
    (B) Clock hours scheduled to be completed for the payment period or 
period of enrollment for a program measured in clock hours.
    (3) Percentage unearned. The percentage of title IV grant or loan 
assistance that has not been earned by the student is calculated by 
determining the complement of the percentage of title IV grant or loan 
assistance earned by the student as described in paragraph (e)(2) of 
this section.
    (4) Total amount of unearned title IV assistance to be returned. The 
unearned amount of title IV assistance to be returned is calculated by 
subtracting the amount of title IV assistance earned by the student as 
calculated under paragraph (e)(1) of this section from the amount of 
title IV aid that was disbursed to the student as of the date of the 
institution's determination that the student withdrew.
    (5) Use of payment period or period of enrollment. (i) The treatment 
of title IV grant or loan funds if a student withdraws must be 
determined on a payment period basis for a student who attended a 
standard term-based (semester, trimester, or quarter) educational 
program.
    (ii)(A) The treatment of title IV grant or loan funds if a student 
withdraws may be determined on either a payment period basis or a period 
of enrollment basis for a student who attended a non-term based 
educational program or a nonstandard term-based educational program.
    (B) An institution must consistently use either a payment period or 
period of enrollment for all purposes of this section for each of the 
following categories of students who withdraw from the same non-term 
based or nonstandard term-based educational program:
    (1) Students who have attended an educational program at the 
institution from the beginning of the payment period or period of 
enrollment.

[[Page 439]]

    (2) Students who re-enter the institution during a payment period or 
period of enrollment.
    (3) Students who transfer into the institution during a payment 
period or period of enrollment.
    (f) Percentage of payment period or period of enrollment completed. 
(1) For purposes of paragraph (e)(2)(i) of this section, the percentage 
of the payment period or period of enrollment completed is determined--
    (i) In the case of a program that is measured in credit hours, by 
dividing the total number of calendar days in the payment period or 
period of enrollment into the number of calendar days completed in that 
period as of the student's withdrawal date; and
    (ii) In the case of a program that is measured in clock hours, by 
dividing the total number of clock hours in the payment period or period 
of enrollment into the number of clock hours--
    (A) Completed by the student in that period as of the student's 
withdrawal date; or
    (B) Scheduled to be completed as of the student's withdrawal date, 
if the clock hours completed in the period are not less than 70 percent 
of the hours that were scheduled to be completed by the student as of 
the student's withdrawal date.
    (2)(i) The total number of calendar days in a payment period or 
period of enrollment includes all days within the period, except that 
scheduled breaks of at least five consecutive days are excluded from the 
total number of calendar days in a payment period or period of 
enrollment and the number of calendar days completed in that period.
    (ii) The total number of calendar days in a payment period or period 
of enrollment does not include days in which the student was on an 
approved leave of absence.
    (g) Return of unearned aid, responsibility of the institution. (1) 
The institution must return, in the order specified in paragraph (i) of 
this section, the lesser of--
    (i) The total amount of unearned title IV assistance to be returned 
as calculated under paragraph (e)(4) of this section; or
    (ii) An amount equal to the total institutional charges incurred by 
the student for the payment period or period of enrollment multiplied by 
the percentage of title IV grant or loan assistance that has not been 
earned by the student, as described in paragraph (e)(3) of this section.
    (2) For purposes of this section, ``institutional charges'' are 
tuition, fees, room and board (if the student contracts with the 
institution for the room and board) and other educationally-related 
expenses assessed by the institution.
    (3) If, for a non-term program an institution chooses to calculate 
the treatment of title IV assistance on a payment period basis, but the 
institution charges for a period that is longer than the payment period, 
``total institutional charges incurred by the student for the payment 
period'' is the greater of--
    (i) The prorated amount of institutional charges for the longer 
period; or
    (ii) The amount of title IV assistance retained for institutional 
charges as of the student's withdrawal date.
    (h) Return of unearned aid, responsibility of the student. (1) After 
the institution has allocated the unearned funds for which it is 
responsible in accordance with paragraph (g) of this section, the 
student must return assistance for which the student is responsible in 
the order specified in paragraph (i) of this section.
    (2) The amount of assistance that the student is responsible for 
returning is calculated by subtracting the amount of unearned aid that 
the institution is required to return under paragraph (g) of this 
section from the total amount of unearned title IV assistance to be 
returned under paragraph (e)(4) of this section.
    (3) The student (or parent in the case of funds due to a PLUS Loan) 
must return or repay, as appropriate, the amount determined under 
paragraph (h)(1) of this section to--
    (i) Any title IV loan program in accordance with the terms of the 
loan; and
    (ii) Any title IV grant program as an overpayment of the grant; 
however, a student is not required to return 50 percent of the grant 
assistance that is the responsibility of the student to repay under this 
section.

[[Page 440]]

    (4)(i) A student who owes an overpayment under this section remains 
eligible for title IV, HEA program funds through and beyond the earlier 
of 45 days from the date the institution sends a notification to the 
student of the overpayment, or 45 days from the date the institution was 
required to notify the student of the overpayment if, during those 45 
days the student--
    (A) Repays the overpayment in full to the institution;
    (B) Enters into a repayment agreement with the institution in 
accordance with repayment arrangements satisfactory to the institution; 
or
    (C) Signs a repayment agreement with the Secretary, which will 
include terms that permit a student to repay the overpayment while 
maintaining his or her eligibility for title IV, HEA program funds.
    (ii) Within 30 days of the date of the institution's determination 
that the student withdrew, an institution must send a notice to any 
student who owes a title IV, HEA grant overpayment as a result of the 
student's withdrawal from the institution in order to recover the 
overpayment in accordance with paragraph (h)(4)(i) of this section.
    (iii) If an institution chooses to enter into a repayment agreement 
in accordance with paragraph (h)(4)(i)(B) of this section with a student 
who owes an overpayment of title IV, HEA grant funds, it must--
    (A) Provide the student with terms that permit the student to repay 
the overpayment while maintaining his or her eligibility for title IV, 
HEA program funds; and
    (B) Require repayment of the full amount of the overpayment within 
two years of the date of the institution's determination that the 
student withdrew.
    (iv) An institution must refer to the Secretary, in accordance with 
procedures required by the Secretary, an overpayment of title IV, HEA 
grant funds owed by a student as a result of the student's withdrawal 
from the institution if--
    (A) The student does not repay the overpayment in full to the 
institution, or enter a repayment agreement with the institution or the 
Secretary in accordance with paragraph (h)(4)(i) of this section within 
the earlier of 45 days from the date the institution sends a 
notification to the student of the overpayment, or 45 days from the date 
the institution was required to notify the student of the overpayment;
    (B) At any time the student fails to meet the terms of the repayment 
agreement with the institution entered into in accordance with paragraph 
(h)(4)(i)(B) of this section; or
    (C) The student chooses to enter into a repayment agreement with the 
Secretary.
    (v) A student who owes an overpayment is ineligible for title IV, 
HEA program funds--
    (A) If the student does not meet the requirements in paragraph 
(h)(4)(i) of this section, on the day following the 45-day period in 
that paragraph; or
    (B) As of the date the student fails to meet the terms of the 
repayment agreement with the institution or the Secretary entered into 
in accordance with paragraph (h)(4)(i) of this section.
    (vi) A student who is ineligible under paragaraph (h)(4)(v) of this 
section regains eligibility if the student and the Secretary enter into 
a repayment agreement.
    (i) Order of return of title IV funds. (1) Loans. Unearned funds 
returned by the institution or the student, as appropriate, in 
accordance with paragraph (g) or (h) of this section respectively, must 
be credited to outstanding balances on title IV loans made to the 
student or on behalf of the student for the payment period or period of 
enrollment for which a return of funds is required. Those funds must be 
credited to outstanding balances for the payment period or period of 
enrollment for which a return of funds is required in the following 
order:
    (i) Unsubsidized Federal Stafford loans.
    (ii) Subsidized Federal Stafford loans.
    (iii) Unsubsidized Federal Direct Stafford loans.
    (iv) Subsidized Federal Direct Stafford loans.
    (v) Federal Perkins loans.
    (vi) Federal PLUS loans received on behalf of the student.
    (vii) Federal Direct PLUS received on behalf of the student.

[[Page 441]]

    (2) Remaining funds. If unearned funds remain to be returned after 
repayment of all outstanding loan amounts, the remaining excess must be 
credited to any amount awarded for the payment period or period of 
enrollment for which a return of funds is required in the following 
order:
    (i) Federal Pell Grants.
    (ii) Federal SEOG Program aid.
    (iii) Other grant or loan assistance authorized by title IV of the 
HEA.
    (j) Timeframe for the return of title IV funds. (1) An institution 
must return the amount of title IV funds for which it is responsible 
under paragraph (g) of this section as soon as possible but no later 
than 30 days after the date of the institution's determination that the 
student withdrew as defined in paragraph (l)(3) of this section. The 
timeframe for returning funds is further described in Sec. 668.173(b).
    (2) An institution must determine the withdrawal date for a student 
who withdraws without providing notification to the institution no later 
than 30 days after the end of the earlier of the--
    (i) Payment period or period of enrollment, as appropriate, in 
accordance with paragraph (e)(5) of this section;
    (ii) Academic year in which the student withdrew; or
    (iii) Educational program from which the student withdrew.
    (k) Consumer information. An institution must provide students with 
information about the requirements of this section in accordance with 
Sec. 668.43.
    (l) Definitions. For purposes of this section--
    (1) Title IV grant or loan funds that ``could have been disbursed'' 
are determined in accordance with the late disbursement provisions in 
Sec. 668.164(g).
    (2) A ``period of enrollment'' is the academic period established by 
the institution for which institutional charges are generally assessed 
(i.e. length of the student's program or academic year).
    (3) The ``date of the institution's determination that the student 
withdrew'' is--
    (i) For a student who provides notification to the institution of 
his or her withdrawal, the student's withdrawal date as determined under 
paragraph (c) of this section or the date of notification of withdrawal, 
whichever is later;
    (ii) For a student who did not provide notification of his of her 
withdrawal to the institution, the date that the institution becomes 
aware that the student ceased attendance;
    (iii) For a student who does not return from an approved leave of 
absence, the earlier of the date of the end of the leave of absence or 
the date the student notifies the institution that he or she will not be 
returning to the institution; or
    (iv) For a student whose rescission is negated under paragraph 
(c)(2)(i)(B) of this section, the date the institution becomes aware 
that the student did not, or will not, complete the payment period or 
period of enrollment.
    (v) For a student who takes a leave of absence that is not approved 
in accordance with paragraph (d) of this section, the date that the 
student begins the leave of absence.
    (4) A ``recipient of title IV grant or loan assistance'' is a 
student for whom the requirements of Sec. 668.164(g)(2) have been met.

(Approved by the Office of Management and Budget under control number 
1845-0022)

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

[64 FR 59038, Nov. 1, 1999, as amended at 67 FR 67073, Nov. 1, 2002]



Sec. 668.23  Compliance audits and audited financial statements.

    (a) General. (1) Independent auditor. For purposes of this section, 
the term ``independent auditor'' refers to an independent certified 
public accountant or a government auditor. To conduct an audit under 
this section, a government auditor must meet the Government Auditing 
Standards qualification and independence standards, including standards 
related to organizational independence.
    (2) Institutions. An institution that participates in any title IV, 
HEA program must at least annually have an independent auditor conduct a 
compliance audit of its administration of that program and an audit of 
the institution's general purpose financial statements.
    (3) Third-party servicers. Except as provided under this part or 34 
CFR part

[[Page 442]]

682, with regard to complying with the provisions under this section a 
third-party servicer must follow the procedures contained in the audit 
guides developed by and available from the Department of Education's 
Office of Inspector General. A third-party servicer is defined under 
Sec. 668.2 and 34 CFR 682.200.
    (4) Submission deadline. Except as provided by the Single Audit Act, 
Chapter 75 of title 31, United States Code, an institution must submit 
annually to the Secretary its compliance audit and its audited financial 
statements no later than six months after the last day of the 
institution's fiscal year.
    (5) Audit submission requirements. In general, the Secretary 
considers the compliance audit and audited financial statement 
submission requirements of this section to be satisfied by an audit 
conducted in accordance with the Office of Management and Budget 
Circular A-133, ``Audits of Institutions of Higher Education and Other 
Nonprofit Organizations''; Office of Management and Budget Circular A-
128, ``Audits of State and Local Governments'', or the audit guides 
developed by and available from the Department of Education's Inspector 
General, whichever is applicable to the entity, and provided that the 
Federal student aid functions performed by that entity are covered in 
the submission. (Both OMB circulars are available by calling OMB's 
Publication Office at (202) 395-7332, or they can be obtained in 
electronic form on the OMB Home Page (http://www.whitehouse.gov).
    (b) Compliance audits for institutions. (1) An institution's 
compliance audit must cover, on a fiscal year basis, all title IV, HEA 
program transactions, and must cover all of those transactions that have 
occurred since the period covered by the institution's last compliance 
audit.
    (2) The compliance audit required under this section must be 
conducted in accordance with--
    (i) The general standards and the standards for compliance audits 
contained in the U.S. General Accounting Office's (GAO's) Government 
Auditing Standards. (This publication is available from the 
Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402); and
    (ii) Procedures for audits contained in audit guides developed by, 
and available from, the Department of Education's Office of Inspector 
General.
    (3) The Secretary may require an institution to provide a copy of 
its compliance audit report to guaranty agencies or eligible lenders 
under the FFEL programs, State agencies, the Secretary of Veterans 
Affairs, or nationally recognized accrediting agencies.
    (c) Compliance audits for third-party servicers. (1) A third-party 
servicer that administers title IV, HEA programs for institutions does 
not have to have a compliance audit performed if--
    (i) The servicer contracts with only one institution; and
    (ii) The audit of that institution's administration of the title IV, 
HEA programs involves every aspect of the servicer's administration of 
that program for that institution.
    (2) A third-party servicer that contracts with more than one 
participating institution may submit a compliance audit report that 
covers the servicer's administration of the title IV, HEA programs for 
all institutions with which the servicer contracts.
    (3) A third-party servicer must submit annually to the Secretary its 
compliance audit no later than six months after the last day of the 
servicer's fiscal year.
    (4) The Secretary may require a third-party servicer to provide a 
copy of its compliance audit report to guaranty agencies or eligible 
lenders under the FFEL programs, State agencies, the Secretary of 
Veterans Affairs, or nationally recognized accrediting agencies.
    (d) Audited financial statements. (1) General. To enable the 
Secretary to make a determination of financial responsibility, an 
institution must, to the extent requested by the Secretary, submit to 
the Secretary a set of financial statements for its latest complete 
fiscal year, as well as any other documentation the Secretary deems 
necessary to make that determination. Financial statements submitted to 
the Secretary must be prepared on an accrual basis in accordance with 
generally accepted accounting principles,

[[Page 443]]

and audited by an independent auditor in accordance with generally 
accepted government auditing standards, and other guidance contained in 
the Office of Management and Budget Circular A-133, ``Audits of 
Institutions of Higher Education and Other Nonprofit Organizations''; 
Office of Management and Budget Circular A-128, ``Audits of State and 
Local Governments''; or in audit guides developed by, and available 
from, the Department of Education's Office of Inspector General , 
whichever is applicable. As part of these financial statements, the 
institution must include a detailed description of related entities 
based on the definition of a related entity as set forth in the 
Statement of Financial Accounting Standards (SFAS) 57. The disclosure 
requirements under this provision extend beyond those of SFAS 57 to 
include all related parties and a level of detail that would enable to 
Secretary to readily identify the related party. Such information may 
include, but is not limited to, the name, location and a description of 
the related entity including the nature and amount of any transactions 
between the related party and the institution, financial or otherwise, 
regardless of when they occurred.
    (2) Submission of additional financial statements. To the extent 
requested by the Secretary in determining whether an institution is 
financially responsible, the Secretary may also require the submission 
of audited consolidated financial statements, audited full consolidating 
financial statements, audited combined financial statements or the 
audited financial statements of one or more related parties that have 
the ability, either individually or collectively, to significantly 
influence or control the institution, as determined by the Secretary.
    (3) Audited financial statements for foreign institutions. A foreign 
institution must submit--
    (i) Audited financial statements prepared in accordance with the 
generally accepted accounting principles of the institution's home 
country, if the institution received less than $500,000 U.S. in title 
IV, HEA program funds during its most recently completed fiscal year; or
    (ii) Audited financial statements translated to meet the 
requirements of paragraph (d) of this section, if the institution 
received $500,000 U.S. or more in title IV, HEA program funds during its 
most recently completed fiscal year.
    (4) Disclosure of title IV HEA program revenue. A proprietary 
institution must disclose in a footnote to its financial statement audit 
the percentage of its revenues derived from the title IV, HEA program 
funds that the institution received during the fiscal year covered by 
that audit. The revenue percentage must be calculated in accordance with 
Sec. 600.5(d).
    (5) Audited financial statements for third-party servicers. A third-
party servicer that enters into a contract with a lender or guaranty 
agency to administer any aspect of the lender's or guaranty agency's 
programs, as provided under 34 CFR part 682, must submit annually an 
audited financial statement. This financial statement must be prepared 
on an accrual basis in accordance with generally accepted accounting 
principles, and audited by an independent auditor in accordance with 
generally accepted government auditing standards and other guidance 
contained in audit guides issued by the Department of Education's Office 
of Inspector General.
    (e) Access to records. (1) An institution or a third-party servicer 
that has a compliance or financial statement audit conducted under this 
section must--
    (i) Give the Secretary and the Inspector General access to records 
or other documents necessary to review that audit, including the right 
to obtain copies of those records or documents; and
    (ii) Require an individual or firm conducting the audit to give the 
Secretary and the Inspector General access to records, audit work 
papers, or other documents necessary to review that audit, including the 
right to obtain copies of those records, work papers, or documents.
    (2) An institution must give the Secretary and the Inspector General 
access to records or other documents necessary to review a third-party 
servicer's compliance or financial

[[Page 444]]

statement audit, including the right to obtain copies of those records 
or documents.
    (f) Determination of liabilities. (1) Based on the audit finding and 
the institution's or third-party servicer's response, the Secretary 
determines the amount of liability, if any, owed by the institution or 
servicer and instructs the institution or servicer as to the manner of 
repayment.
    (2) If the Secretary determines that a third-party servicer owes a 
liability for its administration of an institution's title IV, HEA 
programs, the servicer must notify each institution under whose contract 
the servicer owes a liability of that determination. The servicer must 
also notify every institution that contracts with the servicer for the 
same service that the Secretary determined that a liability was owed.
    (g) Repayments. (1) An institution or third-party servicer that must 
repay funds under the procedures in this section shall repay those funds 
at the direction of the Secretary within 45 days of the date of the 
Secretary's notification, unless--
    (i) The institution or servicer files an appeal under the procedures 
established in subpart H of this part; or
    (ii) The Secretary permits a longer repayment period.
    (2) Notwithstanding paragraphs (f) and (g)(1) of this section--
    (i) If an institution or third-party servicer has posted surety or 
has provided a third-party guarantee and the Secretary questions 
expenditures or compliance with applicable requirements and identifies 
liabilities, then the Secretary may determine that deferring recourse to 
the surety or guarantee is not appropriate because--
    (A) The need to provide relief to students or borrowers affected by 
the act or omission giving rise to the liability outweighs the 
importance of deferring collection action until completion of available 
appeal proceedings; or
    (B) The terms of the surety or guarantee do not provide complete 
assurance that recourse to that protection will be fully available 
through the completion of available appeal proceedings; or
    (ii) The Secretary may use administrative offset pursuant to 34 CFR 
part 30 to collect the funds owed under the procedures of this section.
    (3) If, under the proceedings in subpart H, liabilities asserted in 
the Secretary's notification, under paragraph (e)(1) of this section, to 
the institution or third-party servicer are upheld, the institution or 
third-party servicer must repay those funds at the direction of the 
Secretary within 30 days of the final decision under subpart H of this 
part unless--
    (i) The Secretary permits a longer repayment period; or
    (ii) The Secretary determines that earlier collection action is 
appropriate pursuant to paragraph (g)(2) of this section.
    (4) An institution is held responsible for any liability owed by the 
institution's third-party servicer for a violation incurred in servicing 
any aspect of that institution's participation in the title IV, HEA 
programs and remains responsible for that amount until that amount is 
repaid in full.

(Approved by the Office of Management and Budget under control number 
1840-0697)

(Authority: 20 U.S.C. 1088, 1094, 1099c, 1141, and section 4 of Pub. L. 
95-452, 92 Stat. 1101-1109)

[61 FR 60569, Nov. 29, 1996, as amended at 62 FR 27128, May 16, 1997; 62 
FR 62876, Nov. 25, 1997]



Sec. 668.24  Record retention and examinations.

    (a) Program records. An institution shall establish and maintain, on 
a current basis, any application for title IV, HEA program funds and 
program records that document--
    (1) Its eligibility to participate in the title IV, HEA programs;
    (2) The eligibility of its educational programs for title IV, HEA 
program funds;
    (3) Its administration of the title IV, HEA programs in accordance 
with all applicable requirements;
    (4) Its financial responsibility, as specified in this part;
    (5) Information included in any application for title IV, HEA 
program funds; and
    (6) Its disbursement and delivery of title IV, HEA program funds.

[[Page 445]]

    (b) Fiscal records. (1) An institution shall account for the receipt 
and expenditure of title IV, HEA program funds in accordance with 
generally accepted accounting principles.
    (2) An institution shall establish and maintain on a current basis--
    (i) Financial records that reflect each HEA, title IV program 
transaction; and
    (ii) General ledger control accounts and related subsidiary accounts 
that identify each title IV, HEA program transaction and separate those 
transactions from all other institutional financial activity.
    (c) Required records. (1) The records that an institution must 
maintain in order to comply with the provisions of this section include 
but are not limited to--
    (i) The Student Aid Report (SAR) or Institutional Student 
Information Record (ISIR) used to determine eligibility for title IV, 
HEA program funds;
    (ii) Application data submitted to the Secretary, lender, or 
guaranty agency by the institution on behalf of the student or parent;
    (iii) Documentation of each student's or parent borrower's 
eligibility for title IV, HEA program funds;
    (iv) Documentation relating to each student's or parent borrower's 
receipt of title IV, HEA program funds, including but not limited to 
documentation of--
    (A) The amount of the grant, loan, or FWS award; its payment period; 
its loan period, if appropriate; and the calculations used to determine 
the amount of the grant, loan, or FWS award;
    (B) The date and amount of each disbursement or delivery of grant or 
loan funds, and the date and amount of each payment of FWS wages;
    (C) The amount, date, and basis of the institution's calculation of 
any refunds or overpayments due to or on behalf of the student, or the 
treatment of title IV, HEA program funds when a student withdraws; and
    (D) The payment of any overpayment or the return of any title IV, 
HEA program funds to the title IV, HEA program fund, a lender, or the 
Secretary, as appropriate;
    (v) Documentation of and information collected at any initial or 
exit loan counseling required by applicable program regulations;
    (vi) Reports and forms used by the institution in its participation 
in a title IV, HEA program, and any records needed to verify data that 
appear in those reports and forms; and
    (vii) Documentation supporting the institution's calculations of its 
completion or graduation rates under Secs. 668.46 and 668.49.
    (2) In addition to the records required under this part--
    (i) Participants in the Federal Perkins Loan Program shall follow 
procedures established in 34 CFR 674.19 for documentation of repayment 
history for that program;
    (ii) Participants in the FWS Program shall follow procedures 
established in 34 CFR 675.19 for documentation of work, earnings, and 
payroll transactions for that program; and
    (iii) Participants in the FFEL Program shall follow procedures 
established in 34 CFR 682.610 for documentation of additional loan 
record requirements for that program.
    (d) General. (1) An institution shall maintain required records in a 
systematically organized manner.
    (2) An institution shall make its records readily available for 
review by the Secretary or the Secretary's authorized representative at 
an institutional location designated by the Secretary or the Secretary's 
authorized representative.
    (3) An institution may keep required records in hard copy or in 
microform, computer file, optical disk, CD-ROM, or other media formats, 
provided that--
    (i) Except for the records described in paragraph (d)(3)(ii) of this 
section, all record information must be retrievable in a coherent hard 
copy format or in other media formats acceptable to the Secretary;
    (ii) An institution shall maintain the Student Aid Report (SAR) or 
Institutional Student Information Record (ISIR) used to determine 
eligibility for title IV, HEA program funds in the format in which it 
was received by the institution, except that the SAR may be maintained 
in an imaged media format;

[[Page 446]]

    (iii) Any imaged media format used to maintain required records must 
be capable of reproducing an accurate, legible, and complete copy of the 
original document, and, when printed, this copy must be approximately 
the same size as the original document;
    (iv) Any document that contains a signature, seal, certification, or 
any other image or mark required to validate the authenticity of its 
information must be maintained in its original hard copy or in an imaged 
media format; and
    (v) Participants in the Federal Perkins Loan Program shall follow 
procedures established in 34 CFR 674.19 for maintaining the original 
promissory notes and repayment schedules for that program.
    (4) If an institution closes, stops providing educational programs, 
is terminated or suspended from the title IV, HEA programs, or undergoes 
a change of ownership that results in a change of control as described 
in 34 CFR 600.31, it shall provide for--
    (i) The retention of required records; and
    (ii) Access to those records, for inspection and copying, by the 
Secretary or the Secretary's authorized representative, and, for a 
school participating in the FFEL Program, the appropriate guaranty 
agency.
    (e) Record retention. Unless otherwise directed by the Secretary--
    (1) An institution shall keep records relating to its administration 
of the Federal Perkins Loan, FWS, FSEOG, or Federal Pell Grant Program 
for three years after the end of the award year for which the aid was 
awarded and disbursed under those programs, provided that an institution 
shall keep--
    (i) The Fiscal Operations Report and Application to Participate in 
the Federal Perkins Loan, FSEOG, and FWS Programs (FISAP), and any 
records necessary to support the data contained in the FISAP, including 
``income grid information,'' for three years after the end of the award 
year in which the FISAP is submitted; and
    (ii) Repayment records for a Federal Perkins loan, including records 
relating to cancellation and deferment requests, in accordance with the 
provisions of 34 CFR 674.19;
    (2)(i) An institution shall keep records relating to a student or 
parent borrower's eligibility and participation in the FFEL or Direct 
Loan Program for three years after the end of the award year in which 
the student last attended the institution; and
    (ii) An institution shall keep all other records relating to its 
participation in the FFEL or Direct Loan Program, including records of 
any other reports or forms, for three years after the end of the award 
year in which the records are submitted; and
    (3) An institution shall keep all records involved in any loan, 
claim, or expenditure questioned by a title IV, HEA program audit, 
program review, investigation, or other review until the later of--
    (i) The resolution of that questioned loan, claim, or expenditure; 
or
    (ii) The end of the retention period applicable to the record.
    (f) Examination of records. (1) An institution that participates in 
any title IV, HEA program and the institution's third-party servicer, if 
any, shall cooperate with an independent auditor, the Secretary, the 
Department of Education's Inspector General, the Comptroller General of 
the United States, or their authorized representatives, a guaranty 
agency in whose program the institution participates, and the 
institution's accrediting agency, in the conduct of audits, 
investigations, program reviews, or other reviews authorized by law.
    (2) The institution and servicer must cooperate by--
    (i) Providing timely access, for examination and copying, to 
requested records, including but not limited to computerized records and 
records reflecting transactions with any financial institution with 
which the institution or servicer deposits or has deposited any title 
IV, HEA program funds, and to any pertinent books, documents, papers, or 
computer programs; and
    (ii) Providing reasonable access to personnel associated with the 
institution's or servicer's administration of the title IV, HEA programs 
for the purpose of obtaining relevant information.
    (3) The Secretary considers that an institution or servicer has 
failed to

[[Page 447]]

provide reasonable access to personnel under paragraph (f)(2)(ii) of 
this section if the institution or servicer--
    (i) Refuses to allow those personnel to supply all relevant 
information;
    (ii) Permits interviews with those personnel only if the 
institution's or servicer's management is present; or
    (iii) Permits interviews with those personnel only if the interviews 
are tape recorded by the institution or servicer.
    (4) Upon request of the Secretary, or a lender or guaranty agency in 
the case of a borrower under the FFEL Program, an institution or 
servicer promptly shall provide the requester with any information the 
institution or servicer has respecting the last known address, full 
name, telephone number, enrollment information, employer, and employer 
address of a recipient of title IV funds who attends or attended the 
institution.

(Approved by the Office of Management and Budget under control number 
1840-0697)

(Authority: 20 U.S.C. 1070a, 1070b, 1078, 1078-1, 1078-2, 1078-3, 1082, 
1087, 1087a et seq., 1087cc, 1087hh, 1088, 1094, 1099c, 1141, 1232f; 42 
U.S.C. 2753; and section 4 of Pub. L. 95-452, 92 Stat. 1101-1109)

[61 FR 60491, Nov. 27, 1996, as amended at 62 FR 27128, May 16, 1997; 64 
FR 59042, Nov. 1, 1999]



Sec. 668.25  Contracts between an institution and a third-party servicer.

    (a) An institution may enter into a written contract with a third-
party servicer for the administration of any aspect of the institution's 
participation in any Title IV, HEA program only to the extent that the 
servicer's eligibility to contract with the institution has not been 
limited, suspended, or terminated under the proceedings of subpart G of 
this part.
    (b) Subject to the provisions of paragraph (d) of this section, a 
third-party servicer is eligible to enter into a written contract with 
an institution for the administration of any aspect of the institution's 
participation in any Title IV, HEA program only to the extent that the 
servicer's eligibility to contract with the institution has not been 
limited, suspended, or terminated under the proceedings of subpart G of 
this part.
    (c) In a contract with an institution, a third-party servicer shall 
agree to--
    (1) Comply with all statutory provisions of or applicable to Title 
IV of the HEA, all regulatory provisions prescribed under that statutory 
authority, and all special arrangements, agreements, limitations, 
suspensions, and terminations entered into under the authority of 
statutes applicable to Title IV of the HEA, including the requirement to 
use any funds that the servicer administers under any Title IV, HEA 
program and any interest or other earnings thereon solely for the 
purposes specified in and in accordance with that program;
    (2) Refer to the Office of Inspector General of the Department of 
Education for investigation any information indicating there is 
reasonable cause to believe that the institution might have engaged in 
fraud or other criminal misconduct in connection with the institution's 
administration of any Title IV, HEA program or an applicant for Title 
IV, HEA program assistance might have engaged in fraud or other criminal 
misconduct in connection with his or her application. Examples of the 
type of information that must be referred are--
    (i) False claims by the institution for Title IV, HEA program 
assistance;
    (ii) False claims of independent student status;
    (iii) False claims of citizenship;
    (iv) Use of false identities;
    (v) Forgery of signatures or certifications; and
    (vi) False statements of income;
    (3) Be jointly and severally liable with the institution to the 
Secretary for any violation by the servicer of any statutory provision 
of or applicable to Title IV of the HEA, any regulatory provision 
prescribed under that statutory authority, and any applicable special 
arrangement, agreement, or limitation entered into under the authority 
of statutes applicable to Title IV of the HEA;
    (4) In the case of a third-party servicer that disburses funds 
(including funds received under the Title IV, HEA programs) or delivers 
Federal Stafford Loan Program proceeds to a student--
    (i) Confirm the eligibility of the student before making that 
disbursement

[[Page 448]]

or delivering those proceeds. This confirmation must include, but is not 
limited to, any applicable information contained in the records required 
under Sec. 668.24; and
    (ii) Calculate and return any unearned title IV, HEA program funds 
to the title IV, HEA program accounts and the student's lender, as 
appropriate, in accordance with the provisions of Secs. 668.21 and 
668.22, and applicable program regulations; and
    (5) If the servicer or institution terminates the contract, or if 
the servicer stops providing services for the administration of a Title 
IV, HEA program, goes out of business, or files a petition under the 
Bankruptcy Code, return to the institution all--
    (i) Records in the servicer's possession pertaining to the 
institution's participation in the program or programs for which 
services are no longer provided; and
    (ii) Funds, including Title IV, HEA program funds, received from or 
on behalf of the institution or the institution's students, for the 
purposes of the program or programs for which services are no longer 
provided.
    (d) A third-party servicer may not enter into a written contract 
with an institution for the administration of any aspect of the 
institution's participation in any Title IV, HEA program, if--
    (1)(i) The servicer has been limited, suspended, or terminated by 
the Secretary within the preceding five years;
    (ii) The servicer has had, during the servicer's two most recent 
audits of the servicer's administration of the Title IV, HEA programs, 
an audit finding that resulted in the servicer's being required to repay 
an amount greater than five percent of the funds that the servicer 
administered under the Title IV, HEA programs for any award year; or
    (iii) The servicer has been cited during the preceding five years 
for failure to submit audit reports required under Title IV of the HEA 
in a timely fashion; and
    (2)(i) In the case of a third-party servicer that has been subjected 
to a termination action by the Secretary, either the servicer, or one or 
more persons or entities that the Secretary determines (under the 
provisions of Sec. 668.15) exercise substantial control over the 
servicer, or both, have not submitted to the Secretary financial 
guarantees in an amount determined by the Secretary to be sufficient to 
satisfy the servicer's potential liabilities arising from the servicer's 
administration of the Title IV, HEA programs; and
    (ii) One or more persons or entities that the Secretary determines 
(under the provisions of Sec. 668.15) exercise substantial control over 
the servicer have not agreed to be jointly or severally liable for any 
liabilities arising from the servicer's administration of the Title IV, 
HEA programs and civil and criminal monetary penalties authorized under 
Title IV of the HEA.
    (e)(1)(i) An institution that participates in a Title IV, HEA 
program shall notify the Secretary within 10 days of the date that--
    (A) The institution enters into a new contract or significantly 
modifies an existing contract with a third-party servicer to administer 
any aspect of that program;
    (B) The institution or a third-party servicer terminates a contract 
for the servicer to administer any aspect of that program; or
    (C) A third-party servicer that administers any aspect of the 
institution's participation in that program stops providing services for 
the administration of that program, goes out of business, or files a 
petition under the Bankruptcy Code.
    (ii) The institution's notification must include the name and 
address of the servicer.
    (2) An institution that contracts with a third-party servicer to 
administer any aspect of the institution's participation in a Title IV, 
HEA program shall provide to the Secretary, upon request, a copy of the 
contract, including any modifications, and provide information 
pertaining to the contract or to

[[Page 449]]

the servicer's administration of the institution's participation in any 
Title IV, HEA program.

(Approved by the Office of Management and Budget under control number 
1840-0537)

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

[59 FR 22441, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 61 
FR 60492, Nov. 27, 1996; 63 FR 40624, July 29, 1998; 64 FR 59042, Nov. 
1, 1999]



Sec. 668.26  End of an institution's participation in the Title IV, HEA 
programs.

    (a) An institution's participation in a Title IV, HEA program ends 
on the date that--
    (1) The institution closes or stops providing educational programs 
for a reason other than a normal vacation period or a natural disaster 
that directly affects the institution or the institution's students;
    (2) The institution loses its institutional eligibility under 34 CFR 
part 600;
    (3) The institution's participation is terminated under the 
proceedings in subpart G of this part;
    (4) The institution's period of participation, as specified under 
Sec. 668.13, expires, or the institution's provisional certification is 
revoked under Sec. 668.13;
    (5) The institution's program participation agreement is terminated 
or expires under Sec. 668.14;
    (6) The institution's participation ends under subpart M of this 
part; or
    (7) The Secretary receives a notice from the appropriate State 
postsecondary review entity designated under 34 CFR part 667 that the 
institution's participation should be withdrawn.
    (b) If an institution's participation in a Title IV, HEA program 
ends, the institution shall--
    (1) Immediately notify the Secretary of that fact;
    (2) Submit to the Secretary within 45 days after the date that the 
participation ends--
    (i) All financial, performance, and other reports required by 
appropriate Title IV, HEA program regulations; and
    (ii) A letter of engagement for an independent audit of all funds 
that the institution received under that program, the report of which 
shall be submitted to the Secretary within 45 days after the date of the 
engagement letter;
    (3) Inform the Secretary of the arrangements that the institution 
has made for the proper retention and storage for a minimum of three 
years of all records concerning the administration of that program;
    (4) If the institution's participation in the Federal Perkins Loan 
Program ended, inform the Secretary of how the institution will provide 
for the collection of any outstanding loans made under that program;
    (5) If the institution's participation in the NEISP or LEAP Program 
ended--
    (i) Inform immediately the State in which the institution is located 
of that fact; and
    (ii) Notwithstanding paragraphs (c) through (e) of this section, 
follow the instructions of that State concerning the end of that 
participation;
    (6) If the institution's participation in all the Title IV, HEA 
programs ended, inform the Secretary of how the institution will provide 
for the collection of any outstanding loans made under the National 
Defense/Direct Student Loan programs; and
    (7) Continue to comply with the requirements of Sec. 668.22 for the 
treatment of title IV, HEA program funds when a student withdraws.
    (c) If an institution closes or stops providing educational programs 
for a reason other than a normal vacation period or a natural disaster 
that directly affects the institution or the institution's students, the 
institution shall--
    (1) Return to the Secretary, or otherwise dispose of under 
instructions from the Secretary, any unexpended funds that the 
institution has received under the Title IV, HEA programs for attendance 
at the institution, less the institution's administrative allowance, if 
applicable; and
    (2) Return to the appropriate lenders any Federal Stafford Loan 
program proceeds that the institution has received but not delivered to, 
or credited to the accounts of, students attending the institution.
    (d)(1) An institution may use funds that it has received under the 
Federal

[[Page 450]]

Pell Grant or PAS Program or a campus-based program or request 
additional funds from the Secretary, under conditions specified by the 
Secretary, if the institution does not possess sufficient funds, to 
satisfy any unpaid commitment made to a student under that Title IV, HEA 
program only if--
    (i) The institution's participation in that Title IV, HEA program 
ends during a payment period;
    (ii) The institution continues to provide, from the date that the 
participation ends until the scheduled completion date of that payment 
period, educational programs to otherwise eligible students enrolled in 
the formerly eligible programs of the institution;
    (iii) The commitment was made prior to the end of the participation; 
and
    (iv) The commitment was made for attendance during that payment 
period or a previously completed payment period.
    (2) An institution may credit to a student's account or deliver to 
the student the proceeds of a disbursement of a Federal Family Education 
Loan Programs loan to satisfy any unpaid commitment made to the student 
under the Federal Family Education Loan Programs Loan Program only if--
    (i) The institution's participation in that Title IV, HEA program 
ends during a period of enrollment;
    (ii) The institution continues to provide, from the date that the 
participation ends until the scheduled completion date of that period of 
enrollment, educational programs to otherwise eligible students enrolled 
in the formerly eligible programs of the institution;
    (iii) The commitment was made prior to the end of the participation;
    (iv) The commitment was made for attendance during that period of 
enrollment; and
    (v) The proceeds of the first disbursement of the loan were 
delivered to the student or credited to the student's account prior to 
the end of the participation.
    (3) An institution may use funds that it has received under the 
Direct Loan Program or request additional funds from the Secretary, 
under conditions specified by the Secretary, if the institution does not 
possess sufficient funds, to credit to a student's account or disburse 
to the student the proceeds of a Direct Loan Program loan only if--
    (i) The institution's participation in the Direct Loan Program ends 
during a period of enrollment;
    (ii) The institution continues to provide, from the date that the 
participation ends until the scheduled completion date of that period of 
enrollment, educational programs to otherwise eligible students enrolled 
in the formerly eligible programs of the institution;
    (iii) The loan was made for attendance during that period of 
enrollment; and
    (iv) The proceeds of the first disbursement of the loan were 
delivered to the student or credited to the student's account prior to 
the end of the participation.
    (e) For the purposes of this section--
    (1) A commitment under the Federal Pell Grant and PAS programs 
occurs when a student is enrolled and attending the institution and has 
submitted a valid Student Aid Report to the institution or when an 
institution has received a valid institutional student information 
report;
    (2) A commitment under the campus-based programs occurs when a 
student is enrolled and attending the institution and has received a 
notice from the institution of the amount that he or she can expect to 
receive and how and when that amount will be paid; and
    (3) A commitment under the Federal Stafford and Federal SLS programs 
occurs when the Secretary or a guaranty agency notifies the lender that 
the loan is guaranteed.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094, 1099a-3)

[59 FR 22442, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 61 
FR 60492, Nov. 27, 1996; 63 FR 40624, July 29, 1998; 64 FR 59042, Nov. 
1, 1999; 65 FR 38729, June 22, 2000; 65 FR 65637, Nov. 1, 2000]



Sec. 668.27  Waiver of annual audit submission requirement.

    (a) General. (1) At the request of an institution, the Secretary may 
waive the annual audit submission requirement for the period of time 
contained in paragraph (b) of this section if the institution satisfies 
the requirements

[[Page 451]]

contained in paragraph (c) of this section and posts a letter of credit 
in the amount determined in paragraph (d) of this section.
    (2) An institution requesting a waiver must submit an application to 
the Secretary at such time and in such manner as the Secretary 
prescribes.
    (3) The first fiscal year for which an institution may request a 
waiver is the fiscal year in which it submits its waiver request to the 
Secretary.
    (b) Waiver period. (1) If the Secretary grants the waiver, the 
institution need not submit its compliance or audited financial 
statement until six months after--
    (i) The end of the third fiscal year following the fiscal year for 
which the institution last submitted a compliance audit and audited 
financial statement; or
    (ii) The end of the second fiscal year following the fiscal year for 
which the institution last submitted compliance and financial statement 
audits if the award year in which the institution will apply for 
recertification is part of the third fiscal year.
    (2) The Secretary does not grant a waiver if the award year in which 
the institution will apply for recertification is part of the second 
fiscal year following the fiscal year for which the institution last 
submitted compliance and financial statement audits.
    (3) When an institution must submit its next compliance and 
financial statement audits under paragraph (b)(1) of this section--
    (i) The institution must submit a compliance audit that covers the 
institution's administration of the title IV, HEA programs for the 
period for each fiscal year for which an audit did not have to be 
submitted as a result of the waiver, and an audited financial statement 
for its last fiscal year; and
    (ii) The auditor who conducts the audit must audit the institution's 
annual determinations for the period subject to the waiver that it 
satisfied the 90/10 rule in Sec. 600.5 and the other conditions of 
institutional eligibility in Sec. 600.7 and Sec. 668.8(e)(2), and 
disclose the results of the audit of the 90/10 rule for each year in 
accordance with Sec. 668.23(d)(4).
    (c) Criteria for granting the waiver. The Secretary grants a waiver 
to an institution if the institution--
    (1) Is not a foreign institution;
    (2) Did not disburse $200,000 or more of title IV, HEA program funds 
during each of the two completed award years preceding the institution's 
waiver request;
    (3) Agrees to keep records relating to each award year in the 
unaudited period for two years after the end of the record retention 
period in Sec. 668.24(e) for that award year;
    (4) Has participated in the title IV, HEA programs under the same 
ownership for at least three award years preceding the institution's 
waiver request;
    (5) Is financially responsible under Sec. 668.171, and does not rely 
on the alternative standards of Sec. 668.175 to participate in the title 
IV, HEA programs;
    (6) Is not on the reimbursement or cash monitoring system of 
payment;
    (7) Has not been the subject of a limitation, suspension, fine, or 
termination proceeding, or emergency action initiated by the Department 
or a guarantee agency in the three years preceding the institution's 
waiver request;
    (8) Has submitted its compliance audits and audited financial 
statements for the previous two fiscal years in accordance with and 
subject to Sec. 668.23, and no individual audit disclosed liabilities in 
excess of $10,000; and
    (9) Submits a letter of credit in the amount determined in paragraph 
(d) of this section, which must remain in effect until the Secretary has 
resolved the audit covering the award years subject to the waiver.
    (d) Letter of credit amount. For purposes of this section, the 
letter of credit amount equals 10 percent of the amount of title IV, HEA 
program funds the institution disbursed to or on behalf of its students 
during the award year preceding the institution's waiver request.
    (e) Rescission of the waiver. (1) The Secretary rescinds the waiver 
if the institution--
    (i) Disburses $200,000 or more of title IV, HEA program funds for an 
award year;
    (ii) Undergoes a change in ownership that results in a change of 
control; or

[[Page 452]]

    (iii) Becomes the subject of an emergency action or a limitation, 
suspension, fine, or termination action initiated by the Department or a 
guarantee agency.
    (2) If the Secretary rescinds a waiver, the rescission is effective 
on the last day of the fiscal year in which the rescission takes place.
    (f) Renewal. An institution may request a renewal of its waiver when 
it submits its audits under paragraph (b) of this section. The Secretary 
grants the waiver if the audits and other information available to the 
Secretary show that the institution continues to satisfy the criteria 
for receiving that waiver.

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

[64 FR 58618, Oct. 29, 1999]

Appendix A to Subpart B of Part 668--Standards for Audit of Governmental 
        Organizations, Programs, Activities, and Functions (GAO)

                    Part III Chapter 3--Independence

    (a) The Third general standard for governmental auditing is: In 
matters relating to the audit work, the audit organization and the 
individual auditors shall maintain an independent attitude.
    (b) This standard places upon the auditor and the audit organization 
the responsibility for maintaining sufficient independence so that their 
opinions, conclusions, judgments, and recommendations will be impartial. 
If the auditor is not sufficiently independent to produce unbiased 
opinions, conclusions, and judgments, he should state in a prominent 
place in the audit report his relationship with the organization or 
officials being audited.1
---------------------------------------------------------------------------

    \1 \ If the auditor is not fully independent because he or she is an 
employee of the audited entity, it will be adequate disclosure to so 
indicate. If the auditor is a practicing certified public accountant, 
his or her conduct should be governed by the AICPA ``Statements on 
Auditing Procedure.''
---------------------------------------------------------------------------

    (c) The auditor should consider not only whether his or her own 
attitude and beliefs permit him or her to be independent but also 
whether there is anything about his or her situation which would lead 
others to question his or her independence. Both situations deserve 
consideration since it is important not only that the auditor be, in 
fact, independent and impartial but also that other persons will 
consider him or her so.
    (d) There are three general classes of impairments that the auditor 
needs to consider; these are personal, external, and organizational 
impairments. If one or more of these are of such significance as to 
affect the auditor's ability to perform his or her work and report its 
results impartially, he or she should decline to perform the audit or 
indicate in the report that he or she was not fully independent.

                          Personal Impairments

    There are some circumstances in which an auditor cannot be impartial 
because of his or her views or his or her personal situation. These 
circumstances might include:
    1. Relationships of an official, professional, and/or personal 
nature that might cause the auditor to limit the extent or character of 
the inquiry, to limit disclosure, or to weaken his or her findings in 
any way.
    2. Preconceived ideas about the objectives or quality of a 
particular operation or personal likes or dislikes of individuals, 
groups, or objectives of a particular program.
    3. Previous involvement in a decisionmaking or management capacity 
in the operations of the governmental entity or program being audited.
    4. Biases and prejudices, including those induced by political or 
social convictions, which result from employment in or loyalty to a 
particular group, entity, or level of government.
    5. Actual or potential restrictive influence when the auditor 
performs preaudit work and subsequently performs a post audit.
    6. Financial interest, direct or indirect, in an organization or 
facility which is benefiting from the audited programs.

                          External Impairments

    External factors can restrict the audit or impinge on the auditor's 
ability to form independent and objective opinions and conclusions. For 
example, under the following conditions either the audit itself could be 
adversely affected or the auditor would not have complete freedom to 
make an independent judgment.2
---------------------------------------------------------------------------

    \2 \ Some of these situations may constitute justifiable limitations 
on the scope of the work. In such cases the limitation should be 
identified in the auditor's report.
---------------------------------------------------------------------------

    1. Interference or other influence that improperly or imprudently 
eliminates, restricts, or modifies the scope or character of the audit.
    2. Interference with the selection or application of audit 
procedures of the selection of activities to be examined.
    3. Denial of access to such sources of information as books, 
records, and supporting documents or denial or opportunity to obtain 
explanations by officials and employees

[[Page 453]]

of the governmental organization, program, or activity under audit.
    4. Interference in the assignment of personnel to the audit task.
    5. Retaliatory restrictions placed on funds or other resources 
dedicated to the audit operation.
    6. Activity to overrule or significantly influence the auditors 
judgment as to the appropriate content of the audit report.
    7. Influences that place the auditor's continued employment in 
jeopardy for reasons other than competency or the need for audit 
services.
    8. Unreasonable restriction on the time allowed to competently 
complete an audit assignment.

                       Organizational Impairments

    (a) The auditor's independence can be affected by his or her place 
within the organizational structure of governments. Auditors employed by 
Federal, State, or local government units may be subject to policy 
direction from superiors who are involved either directly or indirectly 
in the government management process. To achieve maximum independence 
such auditors and the audit organization itself not only should report 
to the highest practicable echelon within their government but should be 
organizationally located outside the line-management function of the 
entity under audit.
    (b) These auditors should also be sufficiently removed from 
political pressures to ensure that they can conduct their auditing 
objectively and can report their conclusions completely without fear of 
censure. Whenever feasible they should be under a system which will 
place decisions on compensation, training, job tenure, and advancement 
on a merit basis.
    (c) When independent public accountants or other independent 
professionals are engaged to perform work that includes inquiries into 
compliance with applicable laws and regulations, efficiency and economy 
of operations, or achievement of program results, they should be engaged 
by someone other than the officials responsible for the direction of the 
effort being audited. This practice removes the pressure that may result 
if the auditor must criticize the performance of those by whom he or she 
was engaged. To remove this obstacle to independence, governments should 
arrange to have auditors engaged by officials not directly involved in 
operations to be audited.

[51 FR 41921, Nov. 19, 1986. Redesignated at 65 FR 65650, Nov. 1, 2000]

Appendix B to Subpart B of Part 668--Appendix I, Standards for Audit of 
  Governmental Organizations, Programs, Activities, and Functions (GAO)

     Qualifications of Independent Auditors Engaged by Governmental 
                              Organizations

    (a) When outside auditors are engaged for assignments requiring the 
expression of an opinion on financial reports of governmental 
organizations, only fully qualified public accountants should be 
employed. The type of qualifications, as stated by the Comptroller 
General, deemed necessary for financial audits of governmental 
organizations and programs is quoted below:
    ``Such audits shall be conducted * * * by independent certified 
public accountants or by independent licensed public accountants, 
licensed on or before December 31, 1970, who are certified or licensed 
by a regulatory authority of a State or other political subdivision of 
the United States: Except that independent public accountants licensed 
to practice by such regulatory authority after December 31, 1970, and 
persons who although not so certified or licensed, meet, in the opinion 
of the Secretary, standards of education and experience representative 
of the highest prescribed by the licensing authorities of the several 
States which provide for the continuing licensing of public accountants 
and which are prescribed by the Secretary in appropriate regulations may 
perform such audits until December 31, 1975; Provided, That if the 
Secretary deems it necessary in the public interest, he may prescribe by 
regulations higher standard than those required for the practice of 
public accountancy by the regulatory authorities of the States.'' 
1
---------------------------------------------------------------------------

    \1\ Letter (B-148144, September 15, 1970) from the Comptroller 
General to the heads of Federal departments and agencies. The reference 
to ``Secretary'' means the head of the department or agency.
---------------------------------------------------------------------------

    (b) The standards for examination and evaluation require 
consideration of applicable laws and regulations in the auditor's 
examination. The standards for reporting require a statement in the 
auditor's report regarding any significant instances of noncompliance 
disclosed by his or her examination and evaluation work. What is to be 
included in this statement requires judgment. Significant instances of 
noncompliance, even those not resulting in legal liability to the 
audited entity, should be included. Minor procedural noncompliance need 
not be disclosed.

[[Page 454]]

    (c) Although the reporting standard is generally on an exception 
basis--that only noncompliance need be reported--it should be recognized 
that governmental entities often want positive statements regarding 
whether or not the auditor's tests disclosed instances of noncompliance. 
This is particularly true in grant programs where authorizing agencies 
frequently want assurance in the auditor's report that this matter has 
been considered. For such audits, auditors should obtain an 
understanding with the authorizing agency as to the extent to which such 
positive comments on compliance are desired. When coordinated audits are 
involved, the audit program should specify the extent of comments that 
the auditor is to make regarding compliance.
    (d) When noncompliance is reported, the auditor should place the 
findings in proper perspective. The extent of instances of noncompliance 
should be related to the number of cases examined to provide the reader 
with a basis for judging the prevalence of noncompliance.

[45 FR 86856, Dec. 31, 1980. Redesignated at 65 FR 65650, Nov. 1, 2000]



                     Subpart C--Student Eligibility

    Source: 60 FR 61810, Dec. 1, 1995, unless otherwise noted.



Sec. 668.31  Scope.

    This subpart contains rules by which a student establishes 
eligibility for assistance under the title IV, HEA programs. In order to 
qualify as an eligible student, a student must meet all applicable 
requirements in this subpart.

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



Sec. 668.32  Student eligibility--general.

    A student is eligible to receive title IV, HEA program assistance if 
the student--
    (a)(1) (i) Is a regular student enrolled, or accepted for 
enrollment, in an eligible program at an eligible institution;
    (ii) For purposes of the FFEL and Direct Loan programs, is enrolled 
for no longer than one twelve-month period in a course of study 
necessary for enrollment in an eligible program; or
    (iii) For purposes of the Federal Perkins Loan, FWS, FFEL, and 
Direct Loan programs, is enrolled or accepted for enrollment as at least 
a half-time student at an eligible institution in a program necessary 
for a professional credential or certification from a State that is 
required for employment as a teacher in an elementary or secondary 
school in that State;
    (2) For purposes of the FFEL and Direct Loan programs, is at least a 
half-time student;
    (b) Is not enrolled in either an elementary or secondary school;
    (c)(1) For purposes of the FSEOG Program, does not have a 
baccalaureate or first professional degree;
    (2) For purposes of the Federal Pell Grant Program--
    (i)(A) Does not have a baccalaureate or first professional degree; 
or
    (B) Is enrolled in a postbaccalaureate teacher certificate or 
licensing program as described in 34 CFR 690.6(c); and
    (ii) Is not incarcerated in a Federal or State penal institution; 
and
    (3) For purposes of the Federal Perkins Loan, FFEL, and Direct Loan 
programs, is not incarcerated;
    (d) Satisfies the citizenship and residency requirements contained 
in Sec. 668.33 and subpart I of this part;
    (e)(1) Has a high school diploma or its recognized equivalent;
    (2) Has obtained a passing score specified by the Secretary on an 
independently administered test in accordance with subpart J of this 
part;
    (3) Is enrolled in an eligible institution that participates in a 
State ``process'' approved by the Secretary under subpart J of this 
part; or
    (4) Was home-schooled, and either--
    (i) Obtained a secondary school completion credential for home 
school (other than a high school diploma or its recognized equivalent) 
provided for under State law; or
    (ii) If State law does not require a home-schooled student to obtain 
the credential described in paragraph (e)(4)(i) of this section, has 
completed a secondary school education in a home school setting that 
qualifies as an exemption from compulsory attendance requirements under 
State law;
    (f) Maintains satisfactory progress in his or her course of study 
according to the institution's published standards of satisfactory 
progress that satisfy the provisions of Sec. 668.16(e), and, if 
applicable, the provisions of Sec. 668.34;
    (g) Except as provided in Sec. 668.35--

[[Page 455]]

    (1) Is not in default, and certifies that he or she is not in 
default, on a loan made under any title IV, HEA loan program;
    (2) Has not obtained loan amounts that exceed annual or aggregate 
loan limits made under any title IV, HEA loan program;
    (3) Does not have property subject to a judgment lien for a debt 
owed to the United States; and
    (4) Is not liable for a grant or Federal Perkins loan overpayment. A 
student receives a grant or Federal Perkins loan overpayment if the 
student received grant or Federal Perkins loan payments that exceeded 
the amount he or she was eligible to receive; or if the student 
withdraws, that exceeded the amount he or she was entitled to receive 
for non-institutional charges;
    (h) Files a Statement of Educational Purpose in accordance with the 
instructions of the Secretary;
    (i) Has a correct social security number as determined under 
Sec. 668.36, except that this requirement does not apply to students who 
are residents of the Federated States of Micronesia, Republic of the 
Marshall Islands, or the Republic of Palau;
    (j) Satisfies the Selective Service registration requirements 
contained in Sec. 668.37, and, if applicable, satisfies the requirements 
of Sec. 668.38 and Sec. 668.39 involving enrollment in telecommunication 
and correspondence courses and a study abroad program, respectively;
    (k) Satisfies the program specific requirements contained in--
    (1) 34 CFR 674.9 for the Federal Perkins Loan program;
    (2) 34 CFR 675.9 for the FWS program;
    (3) 34 CFR 676.9 for the FSEOG program;
    (4) 34 CFR 682.201 for the FFEL programs;
    (5) 34 CFR 685.200 for the William D. Ford Federal Direct Loan 
programs;
    (6) 34 CFR 690.75 for the Federal Pell Grant program; and
    (7) 34 CFR 692.40 for the LEAP program; and
    (l) Is not ineligible under Sec. 668.40.

(Authority: 20 U.S.C. 1091, 28 U.S.C. 3201(e))

[60 FR 61810, Dec. 1, 1995, as amended at 63 FR 40624, July 29, 1998; 64 
FR 57358, Oct. 22, 1999; 64 FR 58291, Oct. 28, 1999; 67 FR 67073, Nov. 
1, 2002]



Sec. 668.33  Citizenship and residency requirements.

    (a) Except as provided in paragraph (b) of this section, to be 
eligible to receive title IV, HEA program assistance, a student must--
    (1) Be a citizen or national of the United States; or
    (2) Provide evidence from the U.S. Immigration and Naturalization 
Service that he or she--
    (i) Is a permanent resident of the United States; or
    (ii) Is in the United States for other than a temporary purpose with 
the intention of becoming a citizen or permanent resident;
    (b)(1) A citizen of the Federated States of Micronesia, Republic of 
the Marshall Islands, or the Republic of Palau is eligible to receive 
funds under the FWS, FSEOG, and Federal Pell Grant programs if the 
student attends an eligible institution in a State, or a public or 
nonprofit private eligible institution of higher education in those 
jurisdictions.
    (2) A student who satisfies the requirements of paragraph (a) of 
this section is eligible to receive funds under the FWS, FSEOG, and 
Federal Pell Grant programs if the student attends a public or nonprofit 
private eligible institution of higher education in the Federated States 
of Micronesia, Republic of the Marshall Islands, or the Republic of 
Palau.
    (c)(1) If a student asserts that he or she is a citizen of the 
United States on the Free Application for Federal Student Aid (FAFSA), 
the Secretary attempts to confirm that assertion under a data match with 
the Social Security Administration. If the Social Security 
Administration confirms the student's citizenship, the Secretary reports 
that confirmation to the institution and the student.
    (2) If the Social Security Administration does not confirm the 
student's citizenship assertion under the data match with the Secretary, 
the student can establish U.S. citizenship by submitting documentary 
evidence of that status to the institution. Before denying title IV, HEA 
assistance to a student for failing to establish citizenship, an 
institution must give a student at

[[Page 456]]

least 30 days notice to produce evidence of U.S. citizenship.

(Authority: 20 U.S.C. 1091, 5 U.S.C. 552a)



Sec. 668.34  Satisfactory progress.

    (a) If a student is enrolled in an program of study of more than two 
academic years, to be eligible to receive title IV, HEA program 
assistance after the second year, in addition to satisfying the 
requirements contained in Sec. 668.32(f), the student must be making 
satisfactory under the provisions of paragraphs (b), (c) and (d) of this 
section.
    (b) A student is making satisfactory progress if, at the end of the 
second year, the student has a grade point average of at least a ``C'' 
or its equivalent, or has academic standing consistent with the 
institution's requirements for graduation.
    (c) An institution may find that a student is making satisfactory 
progress even though the student does not satisfy the requirements in 
paragraph (b) of this section, if the institution determines that the 
student's failure to meet those requirements is based upon--
    (1) The death of a relative of the student;
    (2) An injury or illness of the student; or
    (3) Other special circumstances.
    (d) If a student is not making satisfactory progress at the end of 
the second year, but at the end of a subsequent grading period comes 
into compliance with the institution's requirements for graduation, the 
institution may consider the student as making satisfactory progress 
beginning with the next grading period.
    (e) At a minimum, an institution must review a student's academic 
progress at the end of each year.

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



Sec. 668.35  Student debts under the HEA and to the U.S.

    (a) A student who is in default on a loan made under a title IV, HEA 
loan program may nevertheless be eligible to receive title IV, HEA 
program assistance if the student--
    (1) Repays the loan in full; or
    (2) Except as limited by paragraph (c) of this section--
    (i) Makes arrangements, that are satisfactory to the holder of the 
loan and in accordance with the individual title IV, HEA loan program 
regulations, to repay the loan balance; and
    (ii) Makes at least six consecutive monthly payments under those 
arrangements.
    (b) A student who is subject to a judgment for failure to repay a 
loan made under a title IV, HEA loan program may nevertheless be 
eligible to receive title IV, HEA program assistance if the student--
    (1) Repays the debt in full; or
    (2) Except as limited by paragraph (c) of this section--
    (i) Makes repayment arrangements that are satisfactory to the holder 
of the debt; and
    (ii) Makes at least six consecutive, voluntary monthly payments 
under those arrangements. Voluntary payments are those payments made 
directly by the borrower, and do not include payments obtained by 
Federal offset, garnishment, or income or asset execution.
    (c) A student who reestablishes eligibility under either paragraph 
(a)(2) of this section or paragraph (b)(2) of this section may not 
reestablish eligibility again under either of those paragraphs.
    (d) A student who is not in default on a loan made under a title IV, 
HEA loan program, but has inadvertently obtained loan funds under a 
title IV, HEA loan program in an amount that exceeds the annual or 
aggregate loan limits under that program, may nevertheless be eligible 
to receive title IV, HEA program assistance if the student--
    (1) Repays in full the excess loan amount; or
    (2) Makes arrangements, satisfactory to the holder of the loan, to 
repay that excess loan amount.
    (e) A student who receives an overpayment under the Federal Perkins 
Loan Program, or under a title IV, HEA grant program may nevertheless be 
eligible to receive title IV, HEA program assistance if--
    (1) The student pays the overpayment in full;

[[Page 457]]

    (2) The student makes arrangements satisfactory to the holder of the 
overpayment debt to pay the overpayment; or
    (3) The overpayment amount is less than $25 and is neither a 
remaining balance nor a result of the application of the overaward 
threshold in 34 CFR 673.5(d).
    (f) A student who has property subject to a judgement lien for a 
debt owed to the United States may nevertheless be eligible to receive 
title IV, HEA program assistance if the student-
    (1) Pays the debt in full; or
    (2) Makes arrangements, satisfactory to the United States, to pay 
the debt.
    (g) (1) A student is not liable for a Federal Pell Grant overpayment 
received in an award year if the institution can eliminate that 
overpayment by adjusting subsequent Federal Pell Grant payments in that 
same award year.
    (2) A student is not liable for a FSEOG or LEAP overpayment or 
Federal Perkins loan overpayment received in an award year if the 
institution can eliminate that overpayment by adjusting subsequent title 
IV, HEA program (other than Federal Pell Grant) payments in that same 
award year.
    (h) A student who otherwise is in default on a loan made under a 
title IV, HEA loan program, or who otherwise owes an overpayment on a 
title IV, HEA program grant or Federal Perkins loan, is not considered 
to be in default or owe an overpayment if the student--
    (1) Obtains a judicial determination that the debt has been 
discharged or is dischargeable in bankruptcy; or
    (2) Demonstrates to the satisfaction of the holder of the debt that-
-
    (i) When the student filed the petition for bankruptcy relief, the 
loan, or demand for the payment of the overpayment, had been outstanding 
for the period required under 11 U.S.C. 523(a)(8)(A), exclusive of 
applicable suspensions of the repayment period for either debt of the 
kind defined in 34 CFR 682.402(m); and
    (ii) The debt otherwise qualifies for discharge under applicable 
bankruptcy law.

(Authority: 20 U.S.C. 1091 and 11 U.S.C. 523 and 525)

[60 FR 61810, Dec. 1, 1995, as amended at 65 FR 38729, June 22, 2000; 67 
FR 67073, Nov. 1, 2002]



Sec. 668.36  Social security number.

    (a)(1) Except for residents of the Federated States of Micronesia, 
the Republic of the Marshall Islands, and the Republic of Palau, the 
Secretary attempts to confirm the social security number a student 
provides on the Free Application for Federal Student Aid (FAFSA) under a 
data match with the Social Security Administration. If the Social 
Security Administration confirms that number, the Secretary notifies the 
institution and the student of that confirmation.
    (2) If the student's verified social security number is the same 
number as the one he or she provided on the FAFSA, and the institution 
has no reason to believe that the verified social security number is 
inaccurate, the institution may consider the number to be accurate.
    (3) If the Social Security Administration does not verify the 
student's social security number on the FAFSA, or the institution has 
reason to believe that the verified social security number is 
inaccurate, the student can provide evidence to the institution, such as 
the student's social security card, indicating the accuracy of the 
student's social security number. An institution must give a student at 
least 30 days, or until the end of the award year, whichever is later, 
to produce that evidence.
    (4) An institution may not deny, reduce, delay, or terminate a 
student's eligibility for assistance under the title IV, HEA programs 
because verification of that student's social security number is 
pending.
    (b)(1) An institution may not disburse any title IV, HEA program 
funds to a student until the institution is satisfied that the student's 
reported social security number is accurate.

[[Page 458]]

    (2) The institution shall ensure that the Secretary is notified of 
the student's accurate social security number if the student 
demonstrates the accuracy of a social security number that is not the 
number the student included on the FAFSA.
    (c) If the Secretary determines that the social security number 
provided to an institution by a student is incorrect, and that student 
has not provided evidence under paragraph (a)(3) of this section 
indicating the accuracy of the social security number, and a loan has 
been guaranteed for the student under the FFEL program, the institution 
shall notify and instruct the lender and guaranty agency making and 
guaranteeing the loan, respectively, to cease further disbursements of 
the loan, until the Secretary or the institution determines that the 
social security number provided by the student is correct, but the 
guaranty may not be voided or otherwise nullified before the date that 
the lender and the guaranty agency receive the notice.
    (d) Nothing in this section permits the Secretary to take any 
compliance, disallowance, penalty or other regulatory action against--
    (1) Any institution of higher education with respect to any error in 
a social security number, unless the error was the result of fraud on 
the part of the institution; or
    (2) Any student with respect to any error in a social security 
number, unless the error was the result of fraud on the part of the 
student.

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



Sec. 668.37  Selective Service registration.

    (a)(1) To be eligible to receive title IV, HEA program funds, a male 
student who is subject to registration with the Selective Service must 
register with the Selective Service.
    (2) A male student does not have to register with the Selective 
Service if the student--
    (i) Is below the age of 18, or was born before January 1, 1960;
    (ii) Is enrolled in an officer procurement program the curriculum of 
which has been approved by the Secretary of Defense at the following 
institutions:
    (A) The Citadel, Charleston, South Carolina;
    (B) North Georgia College, Dahlonega, Georgia;
    (C) Norwich University, Northfield, Vermont; or
    (D) Virginia Military Institute, Lexington, Virginia; or
    (iii) Is a commissioned officer of the Public Health Service or a 
member of the Reserve of the Public Health Service who is on active duty 
as provided in section 6(a)(2) of the Military Selective Service Act.
    (b)(1) When the Secretary processes a male student's FAFSA, the 
Secretary determines whether the student is registered with the 
Selective Service under a data match with the Selective Service.
    (2) Under the data match, Selective Service reports to the Secretary 
whether its records indicate that the student is registered, and the 
Secretary reports the results of the data match to the student and the 
institution the student is attending.
    (c)(1) If the Selective Service does not confirm through the data 
match, that the student is registered, the student can establish that 
he--
    (i) Is registered;
    (ii) Is not, or was not required to be, registered;
    (iii) Has registered since the submission of the FAFSA; or
    (iv) Meets the conditions of paragraph (d) of this section.
    (2) An institution must give a student at least 30 days, or until 
the end of the award year, whichever is later, to provide evidence to 
establish the condition described in paragraph (c)(1) of this section.
    (d) An institution may determine that a student, who was required 
to, but did not register with the Selective Service, is not ineligible 
to receive title IV, HEA assistance for that reason, if the student can 
demonstrate by submitting clear and unambiguous evidence to the 
institution that--
    (1) He was unable to present himself for registration for reasons 
beyond his control such as hospitalization, incarceration, or 
institutionalization; or
    (2) He is over 26 and when he was between 18 and 26 and required to 
register--

[[Page 459]]

    (i) He did not knowingly and willfully fail to register with the 
Selective Service; or
    (ii) He served as a member of one of the U.S. Armed Forces on active 
duty and received a DD Form 214, ``Certificate of Release or Discharge 
from Active Duty,'' showing military service with other than the reserve 
forces and National Guard.
    (e) For purposes of paragraph (d)(2)(i) of this section, an 
institution may consider that a student did not knowingly and willfully 
fail to register with the Selective Service only if--
    (1) The student submits to the institution an advisory opinion from 
the Selective Service System that does not dispute the student's claim 
that he did not knowingly and willfully fail to register; and
    (2) The institution does not have uncontroverted evidence that the 
student knowingly and willfully failed to register.
    (f)(1) A student who is required to register with the Selective 
Service and has been denied title IV, HEA program assistance because he 
has not proven to the institution that he has registered with Selective 
Service may seek a hearing from the Secretary by filing a request in 
writing with the Secretary. The student must submit with that request--
    (i) A statement that he is in compliance with registration 
requirements;
    (ii) A concise statement of the reasons why he has not been able to 
prove that he is in compliance with those requirements; and
    (iii) Copies of all material that he has already supplied to the 
institution to verify his compliance.
    (2) The Secretary provides an opportunity for a hearing to a student 
who--
    (i) Asserts that he is in compliance with registration requirements; 
and
    (ii) Files a written request for a hearing in accordance with 
paragraph (f)(1) of this section within the award year for which he was 
denied title IV, HEA program assistance or within 30 days following the 
end of the payment period, whichever is later.
    (3) An official designated by the Secretary shall conduct any 
hearing held under paragraph (f)(2) of this section. The sole purpose of 
this hearing is the determination of compliance with registration 
requirements. At this hearing, the student retains the burden of proving 
compliance, by credible evidence, with the requirements of the Military 
Selective Service Act. The designated official shall not consider 
challenges based on constitutional or other grounds to the requirements 
that a student state and verify, if required, compliance with 
registration requirements, or to those registration requirements 
themselves.
    (g) Any determination of compliance made under this section is final 
unless reopened by the Secretary and revised on the basis of additional 
evidence.
    (h) Any determination of compliance made under this section is 
binding only for purposes of determining eligibility for title IV, HEA 
program assistance.

(Authority: 20 U.S.C. 1091 and 50 App. 462)

[60 FR 61812, Dec. 1. 1995, as amended at 61 FR 3776, Feb. 1, 1996]



Sec. 668.38  Enrollment in telecommunications and correspondence courses.

    (a) If a student is enrolled in correspondence courses, the student 
is eligible to receive title IV, HEA program assistance only if the 
correspondence courses are part of a program that leads to an associate, 
bachelor's, or graduate degree.
    (b)(1) For purposes of this section, a student enrolled in a 
telecommunications course at an institution of higher education is not 
enrolled in a correspondence course, if--
    (i) The student is enrolled in a program that leads to a certificate 
for a program of study of 1 year or longer, or an associate, bachelor, 
or graduate degree; and
    (ii) The number of telecommunications and correspondence courses the 
institution offered during its latest completed award year was fewer 
than 50 percent of all the courses the institution offered during that 
same year.
    (2) For purposes of paragraph (b)(1) of this section, an institution 
of higher education is one--
    (i) That is not an institute or school described in section 
521(4)(C) of the Carl D. Perkins Vocational and Applied Technology Act; 
and

[[Page 460]]

    (ii) At which at least 50 percent of the programs of study offered 
by the institution during its latest completed award year led to an 
associate, bachelor, or graduate degree.
    (3) For purposes of paragraph (b)(1)(ii) of this section, the 
institution must calculate the number of courses using the provisions 
contained in 34 CFR 600.7(b)(2).

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

[60 FR 61810, Dec. 1, 1995, as amended at 64 FR 57358, Oct. 22, 1999]



Sec. 668.39  Study abroad programs.

    A student enrolled in a program of study abroad is eligible to 
receive title IV, HEA program assistance if--
    (a) The student remains enrolled as a regular student in an eligible 
program at an eligible institution during his or her program of study 
abroad; and
    (b) The eligible institution approves the program of study abroad 
for academic credit. However, the study abroad program need not be 
required as part of the student's eligible degree program.

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



   Subpart D--Institutional and Financial Assistance Information for 
                                Students

    Source: 51 FR 43323, Dec. 1, 1986, unless otherwise noted.



Sec. 668.40  Conviction for possession or sale of illegal drugs.

    (a)(1) A student is ineligible to receive title IV, HEA program 
funds if the student has been convicted of an offense involving the 
possession or sale of illegal drugs for the period described in 
paragraph (b) of this section. However, the student may regain 
eligibility before that period expires under the conditions described in 
paragraph (c) of this section.
    (2) For purposes of this section, a conviction means only a 
conviction that is on a student's record. A conviction that was 
reversed, set aside, or removed from the student's record is not 
relevant for purposes of this section, nor is a determination or 
adjudication arising out of a juvenile proceeding.
    (3) For purposes of this section, an illegal drug is a controlled 
substance as defined by section 102(6) of the Controlled Substances Act 
(21 U.S.C. 801(6)), and does not include alcohol or tobacco.
    (b)(1) Possession. Except as provided in paragraph (c) of this 
section, if a student has been convicted--
    (i) Only one time for possession of illegal drugs, the student is 
ineligible to receive title IV, HEA program funds for one year after the 
date of conviction;
    (ii) Two times for possession of illegal drugs, the student is 
ineligible to receive title IV, HEA program funds for two years after 
the date of the second conviction; or
    (iii) Three or more times for possession of illegal drugs, the 
student is ineligible to receive title IV, HEA program funds for an 
indefinite period after the date of the third conviction.
    (2) Sale. Except as provided in paragraph (c) of this section, if a 
student has been convicted--
    (i) Only one time for sale of illegal drugs, the student is 
ineligible to receive title IV, HEA program funds for two years after 
the date of conviction; or
    (ii) Two or more times for sale of illegal drugs, the student is 
ineligible to receive Title IV, HEA program funds for an indefinite 
period after the date of the second conviction.
    (c) If a student successfully completes a drug rehabilitation 
program described in paragraph (d) of this section after the student's 
most recent drug conviction, the student regains eligibility on the date 
the student successfully completes the program.
    (d) A drug rehabilitation program referred to in paragraph (c) of 
this section is one which--
    (1) Includes at least two unannounced drug tests; and
    (2)(i) Has received or is qualified to receive funds directly or 
indirectly under a Federal, State, or local government program;
    (ii) Is administered or recognized by a Federal, State, or local 
government agency or court;
    (iii) Has received or is qualified to receive payment directly or 
indirectly from a Federally- or State-licensed insurance company; or

[[Page 461]]

    (iv) Is administered or recognized by a Federally- or State-licensed 
hospital, health clinic or medical doctor.

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

[64 FR 57358, Oct. 22, 1999]



Sec. 668.41  Reporting and disclosure of information.

    (a) Definitions. The following definitions apply to this subpart:
    Athletically related student aid means any scholarship, grant, or 
other form of financial assistance, offered by an institution, the terms 
of which require the recipient to participate in a program of 
intercollegiate athletics at the institution. Other student aid, of 
which a student-athlete simply happens to be the recipient, is not 
athletically related student aid.
    Certificate or degree-seeking student means a student enrolled in a 
course of credit who is recognized by the institution as seeking a 
degree or certificate.
    First-time undergraduate student means an entering undergraduate who 
has never attended any institution of higher education. It includes a 
student enrolled in the fall term who attended a postsecondary 
institution for the first time in the prior summer term, and a student 
who entered with advanced standing (college credit earned before 
graduation from high school).
    Normal time is the amount of time necessary for a student to 
complete all requirements for a degree or certificate according to the 
institution's catalog. This is typically four years for a bachelor's 
degree in a standard term-based institution, two years for an associate 
degree in a standard term-based institution, and the various scheduled 
times for certificate programs.
    Notice means a notification of the availability of information an 
institution is required by this subpart to disclose, provided to an 
individual on a one-to-one basis through an appropriate mailing or 
publication, including direct mailing through the U.S. Postal Service, 
campus mail, or electronic mail. Posting on an Internet website or an 
Intranet website does not constitute a notice.
    Official fall reporting date means that date (in the fall) on which 
an institution must report fall enrollment data to either the State, its 
board of trustees or governing board, or some other external governing 
body.
    Prospective employee means an individual who has contacted an 
eligible institution for the purpose of requesting information 
concerning employment with that institution.
    Prospective student means an individual who has contacted an 
eligible institution requesting information concerning admission to that 
institution.
    Undergraduate students, for purposes of Secs. 668.45 and 668.48 
only, means students enrolled in a bachelor's degree program, an 
associate degree program, or a vocational or technical program below the 
baccalaureate.
    (b) Disclosure through Internet or Intranet websites. Subject to 
paragraphs (c)(2), (e)(2) through (4), or (g)(1)(ii) of this section, as 
appropriate, an institution may satisfy any requirement to disclose 
information under paragraph (d), (e), or (g) of this section for--
    (1) Enrolled students or current employees by posting the 
information on an Internet website or an Intranet website that is 
reasonably accessible to the individuals to whom the information must be 
disclosed; and
    (2) Prospective students or prospective employees by posting the 
information on an Internet website.
    (c) Notice to enrolled students. (1) An institution annually must 
distribute to all enrolled students a notice of the availability of the 
information required to be disclosed pursuant to paragraphs (d), (e), 
and (g) of this section, and pursuant to 34 CFR 99.7 (Sec. 99.7 sets 
forth the notification requirements of the Family Educational Rights and 
Privacy Act of 1974). The notice must list and briefly describe the 
information and tell the student how to obtain the information.
    (2) An institution that discloses information to enrolled students 
as required under paragraph (d), (e), or (g) of this section by posting 
the information on an Internet website or an Intranet website must 
include in the notice described in paragraph (c)(1) of this section--
    (i) The exact electronic address at which the information is posted; 
and

[[Page 462]]

    (ii) A statement that the institution will provide a paper copy of 
the information on request.
    (d) General disclosures for enrolled or prospective students. An 
institution must make available to any enrolled student or prospective 
student, on request, through appropriate publications, mailings or 
electronic media, information concerning--
    (1) Financial assistance available to students enrolled in the 
institution (pursuant to Sec. 668.42);
    (2) The institution (pursuant to Sec. 668.43); and
    (3) The institution's completion or graduation rate and, if 
applicable, its transfer-out rate (pursuant to Sec. 668.45). In the case 
of a request from a prospective student, the information must be made 
available prior to the student's enrolling or entering into any 
financial obligation with the institution.
    (e) Annual security report. (1) Enrolled students and current 
employees--annual security report. By October 1 of each year, an 
institution must distribute, to all enrolled students and current 
employees, its annual security report described in Sec. 668.46(b), 
through appropriate publications and mailings, including--
    (i) Direct mailing to each individual through the U.S. Postal 
Service, campus mail, or electronic mail;
    (ii) A publication or publications provided directly to each 
individual; or
    (iii) Posting on an Internet website or an Intranet website, subject 
to paragraphs (e)(2) and (3) of this section.
    (2) Enrolled students--annual security report. If an institution 
chooses to distribute its annual security report to enrolled students by 
posting the disclosure on an Internet website or an Intranet website, 
the institution must comply with the requirements of paragraph (c)(2) of 
this section.
    (3) Current employees--annual security report. If an institution 
chooses to distribute its annual security report to current employees by 
posting the disclosure on an Internet website or an Intranet website, 
the institution must, by October 1 of each year, distribute to all 
current employees a notice that includes a statement of the report's 
availability, the exact electronic address at which the report is 
posted, a brief description of the report's contents, and a statement 
that the institution will provide a paper copy of the report upon 
request.
    (4) Prospective students and prospective employees--annual security 
report. The institution must provide a notice to prospective students 
and prospective employees that includes a statement of the report's 
availability, a description of its contents, and an opportunity to 
request a copy. An institution must provide its annual security report, 
upon request, to a prospective student or prospective employee. If the 
institution chooses to provide its annual security report to prospective 
students and prospective employees by posting the disclosure on an 
Internet website, the notice described in this paragraph must include 
the exact electronic address at which the report is posted, a brief 
description of the report, and a statement that the institution will 
provide a paper copy of the report upon request.
    (5) Submission to the Secretary--annual security report. Each year, 
by the date and in a form specified by the Secretary, an institution 
must submit the statistics required by Sec. 668.46(c) to the Secretary.
    (f) Prospective student-athletes and their parents, high school 
coach and guidance counselor--report on completion or graduation rates 
for student-athletes.
    (1)(i) Except under the circumstances described in paragraph 
(f)(1)(ii) of this section, when an institution offers a prospective 
student-athlete athletically related student aid, it must provide to the 
prospective student-athlete, and his or her parents, high school coach, 
and guidance counselor, the report produced pursuant to Sec. 668.48(a).
    (ii) An institution's responsibility under paragraph (f)(1)(i) of 
this section with reference to a prospective student athlete's high 
school coach and guidance counselor is satisfied if--
    (A) The institution is a member of a national collegiate athletic 
association;
    (B) The association compiles data on behalf of its member 
institutions, which data the Secretary determines are substantially 
comparable to those required by Sec. 668.48(a); and

[[Page 463]]

    (C) The association distributes the compilation to all secondary 
schools in the United States.
    (2) By July 1 of each year, an institution must submit to the 
Secretary the report produced pursuant to Sec. 668.48.
    (g) Enrolled students, prospective students, and the public--report 
on athletic program participation rates and financial support data. 
(1)(i) An institution of higher education subject to Sec. 668.47 must, 
not later than October 15 of each year, make available on request to 
enrolled students, prospective students, and the public, the report 
produced pursuant to Sec. 668.47(c). The institution must make the 
report easily accessible to students, prospective students, and the 
public and must provide the report promptly to anyone who requests it.
    (ii) The institution must provide notice to all enrolled students, 
pursuant to paragraph (c)(1) of this section, and prospective students 
of their right to request the report described in paragraph (g)(1) of 
this section. If the institution chooses to make the report available by 
posting the disclosure on an Internet website or an Intranet website, it 
must provide in the notice the exact electronic address at which the 
report is posted, a brief description of the report, and a statement 
that the institution will provide a paper copy of the report on request. 
For prospective students, the institution may not use an Intranet 
website for this purpose.
    (2) An institution must submit the report described in paragraph 
(g)(1)(i) of this section to the Secretary within 15 days of making it 
available to students, prospective students, and the public.

(Approved by the Office of Management and Budget under control number 
1845-0004 and 1845-0010)

(Authority: 20 U.S.C. 1092)

[64 FR 59066, Nov. 1, 1999]



Sec. 668.42  Financial assistance information.

    (a)(1) Information on financial assistance that the institution must 
publish and make readily available to current and prospective student's 
under this subpart includes, but is not limited to, a description of all 
the Federal, State, local, private and institutional student financial 
assistance programs available to students who enroll at that 
institution.
    (2) These programs include both need-based and non-need-based 
programs.
    (3) The institution may describe its own financial assistance 
programs by listing them in general categories.
    (b) For each program referred to in paragraph (a) of this section, 
the information provided by the institution must describe--
    (1) The procedures and forms by which students apply for assistance;
    (2) The student eligibility requirements;
    (3) The criteria for selecting recipients from the group of eligible 
applicants; and
    (4) The criteria for determining the amount of a student's award.
    (c) The institution shall describe the rights and responsibilities 
of students receiving financial assistance and, specifically, assistance 
under the title IV, HEA programs. This description must include specific 
information regarding--
    (1) Criteria for continued student eligibility under each program;
    (2)(i) Standards which the student must maintain in order to be 
considered to be making satisfactory progress in his or her course of 
study for the purpose of receiving financial assistance; and
    (ii) Criteria by which the student who has failed to maintain 
satisfactory progress may re-establish his or her eligibility for 
financial assistance;
    (3) The method by which financial assistance disbursements will be 
made to the students and the frequency of those disbursements;
    (4) The terms of any loan received by a student as part of the 
student's financial assistance package, a sample loan repayment schedule 
for sample loans and the necessity for repaying loans;
    (5) The general conditions and terms applicable to any employment 
provided to a student as part of the student's financial assistance 
package;
    (6) The institution shall provide and collect exit counseling 
information as required by 34 CFR 674.42 for borrowers under the Federal 
Perkins Loan Program, by 34 CFR 685.304 for borrowers

[[Page 464]]

under the William D. Ford Federal Direct Student Loan Program, and by 34 
CFR 682.604 for borrowers under the Federal Stafford Loan Program; and
    (7) The terms and conditions under which students receiving Federal 
Family Education Loan or William D. Ford Federal Direct Loan assistance 
may obtain deferral of the repayment of the principal and interest of 
the loan for--
    (i) Service under the Peace Corps Act (22 U.S.C. 2501);
    (ii) Service under the Domestic Volunteer Service Act of 1973 (42 
U.S.C. 4951); or
    (iii) Comparable service as a volunteer for a tax-exempt 
organization of demonstrated effectiveness in the field of community 
service.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1092)

[51 FR 43323, Dec. 1, 1986. Redesignated and amended at 64 FR 59067, 
Nov. 1, 1999]



Sec. 668.43  Institutional information.

    (a) Institutional information that the institution must make readily 
available upon request to enrolled and prospective students under this 
subpart includes, but is not limited to--
    (1) The cost of attending the institution, including--
    (i) Tuition and fees charged to full-time and part-time students;
    (ii) Estimates of costs for necessary books and supplies;
    (iii) Estimates of typical charges for room and board;
    (iv) Estimates of transportation costs for students; and
    (v) Any additional cost of a program in which a student is enrolled 
or expresses a specific interest;
    (2) Any refund policy with which the institution is required to 
comply for the return of unearned tuition and fees or other refundable 
portions of costs paid to the institution;
    (3) The requirements and procedures for officially withdrawing from 
the institution;
    (4) A summary of the requirements under Sec. 668.22 for the return 
of title IV grant or loan assistance;
    (5) The academic program of the institution, including--
    (i) The current degree programs and other educational and training 
programs;
    (ii) The instructional, laboratory, and other physical facilities 
which relate to the academic program; and
    (iii) The institution's faculty and other instructional personnel;
    (6) The names of associations, agencies or governmental bodies that 
accredit, approve, or license the institution and its programs and the 
procedures by which documents describing that activity may be reviewed 
under paragraph (b) of this section;
    (7) A description of any special facilities and services available 
to disabled students;
    (8) The titles of persons designated under Sec. 668.44 and 
information regarding how and where those persons may be contacted; and
    (9) A statement that a student's enrollment in a program of study 
abroad approved for credit by the home institution may be considered 
enrollment at the home institution for the purpose of applying for 
assistance under the title IV, HEA programs.
    (b) The institution must make available for review to any enrolled 
or prospective student, upon request, a copy of the documents describing 
the institution's accreditation, approval or licensing.

(Approved by the Office of Management and Budget under control number 
1845-0022)

Authority: 20 U.S.C. 1092)

[64 FR 59068, Nov. 1, 1999]



Sec. 668.44  Availability of employees for information dissemination purposes.

    (a) Availability. (1) Except as provided in paragraph (b) of this 
section each institution shall designate an employee or group of 
employees who shall be available on a full-time basis to assist enrolled 
or prospective students in obtaining the information specified in 
Secs. 668.43 and 668.44.
    (2) If the institution designates one person, that person shall be 
available, upon reasonable notice, to any enrolled or prospective 
student throughout the normal administrative working hours of that 
institution.

[[Page 465]]

    (3) If more than one person is designated, their combined work 
schedules must be arranged so that at least one of them is available, 
upon reasonable notice, throughout the normal administrative working 
hours of that institution.
    (b) Waiver. (1) the Secretary may waive the requirement that the 
employee or group of employees designated under paragraph (a) of this 
section be available on a full-time basis if the institution's total 
enrollment, or the portion of the enrollment participating in the title 
IV, HEA programs, is too small to necessitate an employee or group of 
employees being available on a full-time basis.
    (2) In determining whether an institution's total enrollment or the 
number of title IV, HEA program recipients is too small, the Secretary 
considers whether there will be an insufficient demand for information 
dissemination services among its enrolled or prospective students to 
necessitate the full-time availability of an employee or group of 
employees.
    (3) To receive a waiver, the institution shall apply to the 
Secretary at the time and in the manner prescribed by the Secretary.
    (c) The granting of a waiver under paragraph (b) of this section 
does not exempt an institution from designating a specific employee or 
group of employees to carry out on a part-time basis the information 
dissemination requirements.

(Authority: 20 U.S.C. 1092)

[51 FR 43323, Dec. 1, 1986. Redesignated at 64 FR 59067, Nov. 1, 1999]



Sec. 668.45  Information on completion or graduation rates.

    (a)(1) An institution annually must prepare the completion or 
graduation rate of its certificate- or degree-seeking, full-time 
undergraduate students, as provided in paragraph (b) of this section.
    (2) An institution that determines that its mission includes 
providing substantial preparation for students to enroll in another 
eligible institution must prepare the transfer-out rate of its 
certificate- or degree-seeking, full-time undergraduate students, as 
provided in paragraph (c) of this section.
    (3)(i) An institution that offers a predominant number of its 
programs based on semesters, trimesters, or quarters must base its 
completion or graduation rate and, if applicable, transfer-out rate 
calculations, on the cohort of first-time, certificate- or degree-
seeking, full-time undergraduate students who enter the institution 
during the fall term of each year.
    (ii) An institution not covered by the provisions of paragraph 
(a)(3)(i) of this section must base its completion or graduation rate 
and, if applicable, transfer-out rate calculations, on the group of 
certificate- or degree-seeking, full-time undergraduate students who 
enter the institution between September 1 of one year and August 31 of 
the following year.
    (iii) For purposes of the completion or graduation rate and, if 
applicable, transfer-out rate calculations required in paragraph (a) of 
this section, an institution must count as entering students only first-
time undergraduate students, as defined in Sec. 668.41(a).
    (4)(i) An institution covered by the provisions of paragraph 
(a)(3)(i) of this section must count as an entering student a first-time 
undergraduate student who is enrolled as of October 15, the end of the 
institution's drop-add period, or another official reporting date as 
defined in Sec. 668.41(a).
    (ii) An institution covered by paragraph (a)(3)(ii) of this section 
must count as an entering student a first-time undergraduate student who 
is enrolled for at least--
    (A) 15 days, in a program of up to, and including, one year in 
length; or
    (B) 30 days, in a program of greater than one year in length.
    (5) An institution must make available its completion or graduation 
rate and, if applicable, transfer-out rate, no later than the July 1 
immediately following the 12-month period ending August 31 during which 
150% of the normal time for completion or graduation has elapsed for all 
of the students in the group on which the institution bases its 
completion or graduation rate and, if applicable, transfer-out rate 
calculations.
    (b) In calculating the completion or graduation rate under paragraph 
(a)(1)

[[Page 466]]

of this section, an institution must count as completed or graduated--
    (1) Students who have completed or graduated by the end of the 12-
month period ending August 31 during which 150% of the normal time for 
completion or graduation from their program has lapsed; and
    (2) Students who have completed a program described in 
Sec. 668.8(b)(1)(ii), or an equivalent program, by the end of the 12-
month period ending August 31 during which 150% of normal time for 
completion from that program has lapsed.
    (c) In calculating the transfer-out rate under paragraph (a)(2) of 
this section, an institution must count as transfers-out students who by 
the end of the 12-month period ending August 31 during which 150% of the 
normal time for completion or graduation from the program in which they 
were enrolled has lapsed, have not completed or graduated but have 
subsequently enrolled in any program of an eligible institution for 
which its program provided substantial preparation.
    (d) For the purpose of calculating a completion or graduation rate 
and a transfer-out rate, an institution may exclude students who--
    (1) Have left school to serve in the Armed Forces;
    (2) Have left school to serve on official church missions;
    (3) Have left school to serve with a foreign aid service of the 
Federal Government, such as the Peace Corps;
    (4) Are totally and permanently disabled; or
    (5) Are deceased.
    (e)(1) The Secretary grants a waiver of the requirements of this 
section to any institution that is a member of an athletic association 
or conference that has voluntarily published completion or graduation 
rate data, or has agreed to publish data, that the Secretary determines 
are substantially comparable to the data required by this section.
    (2) An institution that receives a waiver of the requirements of 
this section must still comply with the requirements of 
Sec. 668.41(d)(3) and (f).
    (3) An institution, or athletic association or conference applying 
on behalf of an institution, that seeks a waiver under paragraph (e)(1) 
of this section must submit a written application to the Secretary that 
explains why it believes the data the athletic association or conference 
publishes are accurate and substantially comparable to the information 
required by this section.
    (f) In addition to calculating the completion or graduation rate 
required by paragraph (a)(1) of this section, an institution may, but is 
not required to--
    (1) Calculate a completion or graduation rate for students who 
transfer into the institution;
    (2) Calculate a completion or graduation rate and transfer-out rate 
for students described in paragraphs (d)(1) through (4) of this section; 
and
    (3) Calculate a transfer-out rate as specified in paragraph (c) of 
this section, if the institution determines that its mission does not 
include providing substantial preparation for its students to enroll in 
another eligible institution.

(Approved by the Office of Management and Budget under control number 
1845-0004)

(Authority: 20 U.S.C. 1092)

[64 FR 59068, Nov. 1, 1999]



Sec. 668.46  Institutional security policies and crime statistics.

    (a) Additional definitions that apply to this section.
    Business day: Monday through Friday, excluding any day when the 
institution is closed.
    Campus: (1) Any building or property owned or controlled by an 
institution within the same reasonably contiguous geographic area and 
used by the institution in direct support of, or in a manner related to, 
the institution's educational purposes, including residence halls; and
    (2) Any building or property that is within or reasonably contiguous 
to the area identified in paragraph (1) of this definition, that is 
owned by the institution but controlled by another person, is frequently 
used by students, and supports institutional purposes (such as a food or 
other retail vendor).
    Campus security authority: (1) A campus police department or a 
campus security department of an institution.

[[Page 467]]

    (2) Any individual or individuals who have responsibility for campus 
security but who do not constitute a campus police department or a 
campus security department under paragraph (1) of this definition, such 
as an individual who is responsible for monitoring entrance into 
institutional property.
    (3) Any individual or organization specified in an institution's 
statement of campus security policy as an individual or organization to 
which students and employees should report criminal offenses.
    (4) An official of an institution who has significant responsibility 
for student and campus activities, including, but not limited to, 
student housing, student discipline, and campus judicial proceedings. If 
such an official is a pastoral or professional counselor as defined 
below, the official is not considered a campus security authority when 
acting as a pastoral or professional counselor.
    Noncampus building or property: (1) Any building or property owned 
or controlled by a student organization that is officially recognized by 
the institution; or
    (2) Any building or property owned or controlled by an institution 
that is used in direct support of, or in relation to, the institution's 
educational purposes, is frequently used by students, and is not within 
the same reasonably contiguous geographic area of the institution.
    Pastoral counselor: A person who is associated with a religious 
order or denomination, is recognized by that religious order or 
denomination as someone who provides confidential counseling, and is 
functioning within the scope of that recognition as a pastoral 
counselor.
    Professional counselor: A person whose official responsibilities 
include providing mental health counseling to members of the 
institution's community and who is functioning within the scope of his 
or her license or certification.
    Public property: All public property, including thoroughfares, 
streets, sidewalks, and parking facilities, that is within the campus, 
or immediately adjacent to and accessible from the campus.
    Referred for campus disciplinary action: The referral of any person 
to any campus official who initiates a disciplinary action of which a 
record is kept and which may result in the imposition of a sanction.
    (b) Annual security report. An institution must prepare an annual 
security report that contains, at a minimum, the following information:
    (1) The crime statistics described in paragraph (c) of this section.
    (2) A statement of current campus policies regarding procedures for 
students and others to report criminal actions or other emergencies 
occurring on campus. This statement must include the institution's 
policies concerning its response to these reports, including--
    (i) Policies for making timely warning reports to members of the 
campus community regarding the occurrence of crimes described in 
paragraph (c)(1) of this section;
    (ii) Policies for preparing the annual disclosure of crime 
statistics; and
    (iii) A list of the titles of each person or organization to whom 
students and employees should report the criminal offenses described in 
paragraph (c)(1) of this section for the purpose of making timely 
warning reports and the annual statistical disclosure. This statement 
must also disclose whether the institution has any policies or 
procedures that allow victims or witnesses to report crimes on a 
voluntary, confidential basis for inclusion in the annual disclosure of 
crime statistics, and, if so, a description of those policies and 
procedures.
    (3) A statement of current policies concerning security of and 
access to campus facilities, including campus residences, and security 
considerations used in the maintenance of campus facilities.
    (4) A statement of current policies concerning campus law 
enforcement that--
    (i) Addresses the enforcement authority of security personnel, 
including their relationship with State and local police agencies and 
whether those security personnel have the authority to arrest 
individuals;
    (ii) Encourages accurate and prompt reporting of all crimes to the 
campus

[[Page 468]]

police and the appropriate police agencies; and
    (iii) Describes procedures, if any, that encourage pastoral 
counselors and professional counselors, if and when they deem it 
appropriate, to inform the persons they are counseling of any procedures 
to report crimes on a voluntary, confidential basis for inclusion in the 
annual disclosure of crime statistics.
    (5) A description of the type and frequency of programs designed to 
inform students and employees about campus security procedures and 
practices and to encourage students and employees to be responsible for 
their own security and the security of others.
    (6) A description of programs designed to inform students and 
employees about the prevention of crimes.
    (7) A statement of policy concerning the monitoring and recording 
through local police agencies of criminal activity in which students 
engaged at off-campus locations of student organizations officially 
recognized by the institution, including student organizations with off-
campus housing facilities.
    (8) A statement of policy regarding the possession, use, and sale of 
alcoholic beverages and enforcement of State underage drinking laws.
    (9) A statement of policy regarding the possession, use, and sale of 
illegal drugs and enforcement of Federal and State drug laws.
    (10) A description of any drug or alcohol-abuse education programs, 
as required under section 120(a) through (d) of the HEA. For the purpose 
of meeting this requirement, an institution may cross-reference the 
materials the institution uses to comply with section 120(a) through (d) 
of the HEA.
    (11) A statement of policy regarding the institution's campus sexual 
assault programs to prevent sex offenses, and procedures to follow when 
a sex offense occurs. The statement must include--
    (i) A description of educational programs to promote the awareness 
of rape, acquaintance rape, and other forcible and nonforcible sex 
offenses;
    (ii) Procedures students should follow if a sex offense occurs, 
including procedures concerning who should be contacted, the importance 
of preserving evidence for the proof of a criminal offense, and to whom 
the alleged offense should be reported;
    (iii) Information on a student's option to notify appropriate law 
enforcement authorities, including on-campus and local police, and a 
statement that institutional personnel will assist the student in 
notifying these authorities, if the student requests the assistance of 
these personnel;
    (iv) Notification to students of existing on- and off-campus 
counseling, mental health, or other student services for victims of sex 
offenses;
    (v) Notification to students that the institution will change a 
victim's academic and living situations after an alleged sex offense and 
of the options for those changes, if those changes are requested by the 
victim and are reasonably available;
    (vi) Procedures for campus disciplinary action in cases of an 
alleged sex offense, including a clear statement that--
    (A) The accuser and the accused are entitled to the same 
opportunities to have others present during a disciplinary proceeding; 
and
    (B) Both the accuser and the accused must be informed of the outcome 
of any institutional disciplinary proceeding brought alleging a sex 
offense. Compliance with this paragraph does not constitute a violation 
of the Family Educational Rights and Privacy Act (20 U.S.C. 1232g). For 
the purpose of this paragraph, the outcome of a disciplinary proceeding 
means only the institution's final determination with respect to the 
alleged sex offense and any sanction that is imposed against the 
accused; and
    (vii) Sanctions the institution may impose following a final 
determination of an institutional disciplinary proceeding regarding 
rape, acquaintance rape, or other forcible or nonforcible sex offenses.
    (12) Beginning with the annual security report distributed by 
October 1, 2003, a statement advising the campus community where law 
enforcement agency information provided by a State under section 
170101(j) of the Violent Crime Control and Law Enforcement Act of 1994 
(42 U.S.C. 14071(j)), concerning registered sex offenders

[[Page 469]]

may be obtained, such as the law enforcement office of the institution, 
a local law enforcement agency with jurisdiction for the campus, or a 
computer network address.
    (c) Crime statistics. (1) Crimes that must be reported. An 
institution must report statistics for the three most recent calendar 
years concerning the occurrence on campus, in or on noncampus buildings 
or property, and on public property of the following that are reported 
to local police agencies or to a campus security authority:
    (i) Criminal homicide:
    (A) Murder and nonnegligent manslaughter.
    (B) Negligent manslaughter.
    (ii) Sex offenses:
    (A) Forcible sex offenses.
    (B) Nonforcible sex offenses.
    (iii) Robbery.
    (iv) Aggravated assault.
    (v) Burglary.
    (vi) Motor vehicle theft.
    (vii) Arson.
    (viii) (A) Arrests for liquor law violations, drug law violations, 
and illegal weapons possession.
    (B) Persons not included in paragraph (c)(1)(viii)(A) of this 
section, who were referred for campus disciplinary action for liquor law 
violations, drug law violations, and illegal weapons possession.
    (2) Recording crimes. An institution must record a crime statistic 
in its annual security report for the calendar year in which the crime 
was reported to a campus security authority.
    (3) Reported crimes if a hate crime. An institution must report, by 
category of prejudice, any crime it reports pursuant to paragraphs 
(c)(1)(i) through (vii) of this section, and any other crime involving 
bodily injury reported to local police agencies or to a campus security 
authority, that manifest evidence that the victim was intentionally 
selected because of the victim's actual or perceived race, gender, 
religion, sexual orientation, ethnicity, or disability.
    (4) Crimes by location. The institution must provide a geographic 
breakdown of the statistics reported under paragraphs (c)(1) and (3) of 
this section according to the following categories:
    (i) On campus.
    (ii) Of the crimes in paragraph (c)(4)(i) of this section, the 
number of crimes that took place in dormitories or other residential 
facilities for students on campus.
    (iii) In or on a noncampus building or property.
    (iv) On public property.
    (5) Identification of the victim or the accused. The statistics 
required under paragraphs (c)(1) and (3) of this section may not include 
the identification of the victim or the person accused of committing the 
crime.
    (6) Pastoral and professional counselor. An institution is not 
required to report statistics under paragraphs (c)(1) and (3) of this 
section for crimes reported to a pastoral or professional counselor.
    (7) UCR definitions. An institution must compile the crime 
statistics required under paragraphs (c)(1) and (3) of this section 
using the definitions of crimes provided in appendix A to this subpart 
and the Federal Bureau of Investigation's Uniform Crime Reporting (UCR) 
Hate Crime Data Collection Guidelines and Training Guide for Hate Crime 
Data Collection. For further guidance concerning the application of 
definitions and classification of crimes, an institution must use either 
the UCR Reporting Handbook or the UCR Reporting Handbook: NIBRS EDITION, 
except that in determining how to report crimes committed in a multiple-
offense situation an institution must use the UCR Reporting Handbook. 
Copies of the UCR publications referenced in this paragraph are 
available from: FBI, Communications Unit, 1000 Custer Hollow Road, 
Clarksburg, WV 26306 (telephone: 304-625-2823).
    (8) Use of a map. In complying with the statistical reporting 
requirements under paragraphs (c)(1) and (3) of this section, an 
institution may provide a map to current and prospective students and 
employees that depicts its campus, noncampus buildings or property, and 
public property areas if the map accurately depicts its campus, 
noncampus buildings or property, and public property areas.
    (9) Statistics from police agencies. In complying with the 
statistical reporting requirements under paragraphs (c)(1) through (4) 
of this section, an institution must make a reasonable,

[[Page 470]]

good faith effort to obtain the required statistics and may rely on the 
information supplied by a local or State police agency. If the 
institution makes such a reasonable, good faith effort, it is not 
responsible for the failure of the local or State police agency to 
supply the required statistics.
    (d) Separate campus. An institution must comply with the 
requirements of this section for each separate campus.
    (e) Timely warning. (1) An institution must, in a manner that is 
timely and will aid in the prevention of similar crimes, report to the 
campus community on crimes that are--
    (i) Described in paragraph (c)(1) and (3) of this section;
    (ii) Reported to campus security authorities as identified under the 
institution's statement of current campus policies pursuant to paragraph 
(b)(2) of this section or local police agencies; and
    (iii) Considered by the institution to represent a threat to 
students and employees.
    (2) An institution is not required to provide a timely warning with 
respect to crimes reported to a pastoral or professional counselor.
    (f) Crime log. (1) An institution that maintains a campus police or 
a campus security department must maintain a written, easily understood 
daily crime log that records, by the date the crime was reported, any 
crime that occurred on campus, on a noncampus building or property, on 
public property, or within the patrol jurisdiction of the campus police 
or the campus security department and is reported to the campus police 
or the campus security department. This log must include--
    (i) The nature, date, time, and general location of each crime; and
    (ii) The disposition of the complaint, if known.
    (2) The institution must make an entry or an addition to an entry to 
the log within two business days, as defined under paragraph (a) of this 
section, of the report of the information to the campus police or the 
campus security department, unless that disclosure is prohibited by law 
or would jeopardize the confidentiality of the victim.
    (3)(i) An institution may withhold information required under 
paragraphs (f)(1) and (2) of this section if there is clear and 
convincing evidence that the release of the information would--
    (A) Jeopardize an ongoing criminal investigation or the safety of an 
individual;
    (B) Cause a suspect to flee or evade detection; or
    (C) Result in the destruction of evidence.
    (ii) The institution must disclose any information withheld under 
paragraph (f)(3)(i) of this section once the adverse effect described in 
that paragraph is no longer likely to occur.
    (4) An institution may withhold under paragraphs (f)(2) and (3) of 
this section only that information that would cause the adverse effects 
described in those paragraphs.
    (5) The institution must make the crime log for the most recent 60-
day period open to public inspection during normal business hours. The 
institution must make any portion of the log older than 60 days 
available within two business days of a request for public inspection.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1092)

[64 FR 59069, Nov. 1, 1999, as amended at 65 FR 65637, Nov. 1, 2000; 67 
FR 66520, Oct. 31, 2002]



Sec. 668.47  Report on athletic program participation rates and financial support data.

    (a) Applicability. This section applies to a co-educational 
institution of higher education that--
    (1) Participates in any title IV, HEA program; and
    (2) Has an intercollegiate athletic program.
    (b) Definitions. The following definitions apply for purposes of 
this section only.
    (1) Expenses--(i) Expenses means expenses attributable to 
intercollegiate athletic activities. This includes appearance guarantees 
and options, athletically related student aid, contract services, 
equipment, fundraising activities, operating expenses, promotional 
activities, recruiting expenses, salaries and benefits, supplies, 
travel, and any

[[Page 471]]

other expenses attributable to intercollegiate athletic activities.
    (ii) Operating expenses means all expenses an institution incurs 
attributable to home, away, and neutral-site intercollegiate athletic 
contests (commonly known as ``game-day expenses''), for--
    (A) Lodging, meals, transportation, uniforms, and equipment for 
coaches, team members, support staff (including, but not limited to team 
managers and trainers), and others; and
    (B) Officials.
    (iii) Recruiting expenses means all expenses an institution incurs 
attributable to recruiting activities. This includes, but is not limited 
to, expenses for lodging, meals, telephone use, and transportation 
(including vehicles used for recruiting purposes) for both recruits and 
personnel engaged in recruiting, any other expenses for official and 
unofficial visits, and all other expenses related to recruiting.
    (2) Institutional salary means all wages and bonuses an institution 
pays a coach as compensation attributable to coaching.
    (3)(i) Participants means students who, as of the day of a varsity 
team's first scheduled contest--
    (A) Are listed by the institution on the varsity team's roster;
    (B) Receive athletically related student aid; or
    (C) Practice with the varsity team and receive coaching from one or 
more varsity coaches.
    (ii) Any student who satisfies one or more of the criteria in 
paragraphs (b)(3)(i)(A) through (C) of this section is a participant, 
including a student on a team the institution designates or defines as 
junior varsity, freshman, or novice, or a student withheld from 
competition to preserve eligibility (i.e., a redshirt), or for academic, 
medical, or other reasons.
    (4) Reporting year means a consecutive twelve-month period of time 
designated by the institution for the purposes of this section.
    (5) Revenues means revenues attributable to intercollegiate athletic 
activities. This includes revenues from appearance guarantees and 
options, an athletic conference, tournament or bowl games, concessions, 
contributions from alumni and others, institutional support, program 
advertising and sales, radio and television, royalties, signage and 
other sponsorships, sports camps, State or other government support, 
student activity fees, ticket and luxury box sales, and any other 
revenues attributable to intercollegiate athletic activities.
    (6) Undergraduate students means students who are consistently 
designated as such by the institution.
    (7) Varsity team means a team that--
    (i) Is designated or defined by its institution or an athletic 
association as a varsity team; or
    (ii) Primarily competes against other teams that are designated or 
defined by their institutions or athletic associations as varsity teams.
    (c) Report. An institution described in paragraph (a) of this 
section must annually, for the preceding reporting year, prepare a 
report that contains the following information:
    (1) The number of male and the number of female full-time 
undergraduate students that attended the institution.
    (2) A listing of the varsity teams that competed in intercollegiate 
athletic competition and for each team the following data:
    (i) The total number of participants as of the day of its first 
scheduled contest of the reporting year, the number of participants who 
also participated on another varsity team, and the number of other 
varsity teams on which they participated.
    (ii) Total operating expenses attributable to the team, except that 
an institution may report combined operating expenses for closely 
related teams, such as track and field or swimming and diving. Those 
combinations must be reported separately for men's and women's teams.
    (iii) In addition to the data required by paragraph (c)(2)(ii) of 
this section, an institution may report operating expenses attributable 
to the team on a per-participant basis.
    (iv)(A) Whether the head coach was male or female, was assigned to 
the team on a full-time or part-time basis, and, if assigned on a part-
time basis, whether the head coach was a full-time or part-time employee 
of the institution.

[[Page 472]]

    (B) The institution must consider graduate assistants and volunteers 
who served as head coaches to be head coaches for the purposes of this 
report.
    (v)(A) The number of assistant coaches who were male and the number 
of assistant coaches who were female, and, within each category, the 
number who were assigned to the team on a full-time or part-time basis, 
and, of those assigned on a part-time basis, the number who were full-
time and part-time employees of the institution.
    (B) The institution must consider graduate assistants and volunteers 
who served as assistant coaches to be assistant coaches for purposes of 
this report.
    (3) The unduplicated head count of the individuals who were listed 
under paragraph (c)(2)(i) of this section as a participant on at least 
one varsity team, by gender.
    (4)(i) Revenues derived by the institution according to the 
following categories (Revenues not attributable to a particular sport or 
sports must be included only in the total revenues attributable to 
intercollegiate athletic activities, and, if appropriate, revenues 
attributable to men's sports combined or women's sports combined. Those 
revenues include, but are not limited to, alumni contributions to the 
athletic department not targeted to a particular sport or sports, 
investment interest income, and student activity fees.):
    (A) Total revenues attributable to its intercollegiate athletic 
activities.
    (B) Revenues attributable to all men's sports combined.
    (C) Revenues attributable to all women's sports combined.
    (D) Revenues attributable to football.
    (E) Revenues attributable to men's basketball.
    (F) Revenues attributable to women's basketball.
    (G) Revenues attributable to all men's sports except football and 
basketball, combined.
    (H) Revenues attributable to all women's sports except basketball, 
combined.
    (ii) In addition to the data required by paragraph (c)(4)(i) of this 
section, an institution may report revenues attributable to the 
remainder of the teams, by team.
    (5) Expenses incurred by the institution, according to the following 
categories (Expenses not attributable to a particular sport, such as 
general and administrative overhead, must be included only in the total 
expenses attributable to intercollegiate athletic activities.):
    (i) Total expenses attributable to intercollegiate athletic 
activities.
    (ii) Expenses attributable to football.
    (iii) Expenses attributable to men's basketball.
    (iv) Expenses attributable to women's basketball.
    (v) Expenses attributable to all men's sports except football and 
basketball, combined.
    (vi) Expenses attributable to all women's sports except basketball, 
combined.
    (6) The total amount of money spent on athletically related student 
aid, including the value of waivers of educational expenses, aggregately 
for men's teams, and aggregately for women's teams.
    (7) The ratio of athletically related student aid awarded male 
athletes to athletically related student aid awarded female athletes.
    (8) The total amount of recruiting expenses incurred, aggregately 
for all men's teams, and aggregately for all women's teams.
    (9)(i) The average annual institutional salary of the non-volunteer 
head coaches of all men's teams, across all offered sports, and the 
average annual institutional salary of the non-volunteer head coaches of 
all women's teams, across all offered sports, on a per person and a per 
full-time equivalent position basis. These data must include the number 
of persons and full-time equivalent positions used to calculate each 
average.
    (ii) If a head coach has responsibilities for more than one team and 
the institution does not allocate that coach's salary by team, the 
institution must divide the salary by the number of teams for which the 
coach has responsibility and allocate the salary among the teams on a 
basis consistent with the coach's responsibilities for the different 
teams.

[[Page 473]]

    (10)(i) The average annual institutional salary of the non-volunteer 
assistant coaches of men's teams, across all offered sports, and the 
average annual institutional salary of the non-volunteer assistant 
coaches of women's teams, across all offered sports, on a per person and 
a full-time equivalent position basis. These data must include the 
number of persons and full-time equivalent positions used to calculate 
each average.
    (ii) If an assistant coach had responsibilities for more than one 
team and the institution does not allocate that coach's salary by team, 
the institution must divide the salary by the number of teams for which 
the coach has responsibility and allocate the salary among the teams on 
a basis consistent with the coach's responsibilities for the different 
teams.

(Approved by the Office of Management and Budget under control number 
1845-0010)

(Authority: 20 U.S.C. 1092)

[64 FR 59071, Nov. 1, 1999]



Sec. 668.48  Report on completion or graduation rates for student-athletes.

    (a)(1) Annually, by July 1, an institution that is attended by 
students receiving athletically-related student aid must produce a 
report containing the following information:
    (i) The number of students, categorized by race and gender, who 
attended that institution during the year prior to the submission of the 
report.
    (ii) The number of students described in paragraph (a)(1)(i) of this 
section who received athletically-related student aid, categorized by 
race and gender within each sport.
    (iii) The completion or graduation rate and if applicable, transfer-
out rate of all the entering, certificate- or degree-seeking, full-time, 
undergraduate students described in Sec. 668.45(a)(1), categorized by 
race and gender.
    (iv) The completion or graduation rate and if applicable, transfer-
out rate of the entering students described in Sec. 668.45(a)(1) who 
received athletically-related student aid, categorized by race and 
gender within each sport.
    (v) The average completion or graduation rate and if applicable, 
transfer-out rate for the four most recent completing or graduating 
classes of entering students described in Sec. 668.45(a)(1), (3), and 
(4) categorized by race and gender. If an institution has completion or 
graduation rates and, if applicable, transfer-out rates for fewer than 
four of those classes, it must disclose the average rate of those 
classes for which it has rates.
    (vi) The average completion or graduation rate and if applicable, 
transfer-out rate of the four most recent completing or graduating 
classes of entering students described in Sec. 668.45 (a)(1) who 
received athletically-related student aid, categorized by race and 
gender within each sport. If an institution has completion or graduation 
rates and if applicable, transfer-out rates for fewer than four of those 
classes, it must disclose the average rate of those classes for which it 
has rates.
    (2) For purposes of this section, sport means--
    (i) Basketball;
    (ii) Football;
    (iii) Baseball;
    (iv) Cross-country and track combined; and
    (v) All other sports combined.
    (3) If a category of students identified in paragraph (a)(1)(iv) 
above contains five or fewer students, the institution need not disclose 
information on that category of students.
    (b) The provisions of Sec. 668.45 (a), (b), (c), and (d) apply for 
purposes of calculating the completion or graduation rates and, if 
applicable, transfer-out rates required under paragraphs (a)(1)(iii) 
through (vi) of this section.
    (c) Each institution of higher education described in paragraph (a) 
of this section may also provide to students and the Secretary 
supplemental information containing--
    (1) The graduation or completion rate of the students who 
transferred into the institution; and
    (2) The number of students who transferred out of the institution.
    (d) The provisions of Sec. 668.46(e) apply for purposes of this 
section.

(Approved by the Office of Management and Budget under control number 
1845-0004)

(Authority: 20 U.S.C. 1092)

[60 FR 61788, Dec. 1, 1995. Redesignated and amended at 64 FR 59067, 
59072, Nov. 1, 1999]

[[Page 474]]

  Appendix A to Subpart D of Part 668--Crime Definitions in Accordance 
   With the Federal Bureau of Investigation's Uniform Crime Reporting 
                                 Program

    The following definitions are to be used for reporting the crimes 
listed in Sec. 668.47, in accordance with the Federal Bureau of 
Investigation's Uniform Crime Reporting Program. The definitions for 
murder, robbery, aggravated assault, burglary, motor vehicle theft, 
weapon law violations, drug abuse violations and liquor law violations 
are excerpted from the Uniform Crime Reporting Handbook. The definitions 
of forcible and nonforcible sex offenses are excerpted from the National 
Incident-Based Reporting System Edition of the Uniform Crime Reporting 
Handbook.

       Crime Definitions From the Uniform Crime Reporting Handbook

                                  Arson

    Any willful or malicious burning or attempt to burn, with or without 
intent to defraud, a dwelling house, public building, motor vehicle or 
aircraft, personal property of another, etc.

              Criminal Homicide--Manslaughter by Negligence

    The killing of another person through gross negligence.

         Criminal Homicide--Murder and Nonnegligent Manslaughter

    The willful (nonnegligent) killing of one human being by another.

                                 Robbery

    The taking or attempting to take anything of value from the care, 
custody, or control of a person or persons by force or threat of force 
or violence and/or by putting the victim in fear.

                           Aggravated Assault

    An unlawful attack by one person upon another for the purpose of 
inflicting severe or aggravated bodily injury. This type of assault 
usually is accompanied by the use of a weapon or by means likely to 
produce death or great bodily harm. (It is not necessary that injury 
result from an aggravated assault when a gun, knife, or other weapon is 
used which could and probably would result in serious personal injury if 
the crime were successfully completed.)

                                Burglary

    The unlawful entry of a structure to commit a felony or a theft. For 
reporting purposes this definition includes: unlawful entry with intent 
to commit a larceny or felony; breaking and entering with intent to 
commit a larceny; housebreaking; safecracking; and all attempts to 
commit any of the aforementioned.

                           Motor Vehicle Theft

    The theft or attempted theft of a motor vehicle. (Classify as motor 
vehicle theft all cases where automobiles are taken by persons not 
having lawful access even though the vehicles are later abandoned--
including joyriding.)

                          Weapon Law Violations

    The violation of laws or ordinances dealing with weapon offenses, 
regulatory in nature, such as: manufacture, sale, or possession of 
deadly weapons; carrying deadly weapons, concealed or openly; furnishing 
deadly weapons to minors; aliens possessing deadly weapons; and all 
attempts to commit any of the aforementioned.

                          Drug Abuse Violations

    Violations of State and local laws relating to the unlawful 
possession, sale, use, growing, manufacturing, and making of narcotic 
drugs. The relevant substances include: opium or cocaine and their 
derivatives (morphine, heroin, codeine); marijuana; synthetic narcotics 
(demerol, methadones); and dangerous nonnarcotic drugs (barbiturates, 
benzedrine).

                          Liquor Law Violations

    The violation of laws or ordinances prohibiting: the manufacture, 
sale, transporting, furnishing, possessing of intoxicating liquor; 
maintaining unlawful drinking places; bootlegging; operating a still; 
furnishing liquor to a minor or intemperate person; using a vehicle for 
illegal transportation of liquor; drinking on a train or public 
conveyance; and all attempts to commit any of the aforementioned. 
(Drunkenness and driving under the influence are not included in this 
definition.)

  Sex Offenses Definitions From the National Incident-Based Reporting 
          System Edition of the Uniform Crime Reporting Program

                         Sex Offenses--Forcible

    Any sexual act directed against another person, forcibly and/or 
against that person's will; or not forcibly or against the person's will 
where the victim is incapable of giving consent.
    A. Forcible Rape--The carnal knowledge of a person, forcibly and/or 
against that person's will; or not forcibly or against the person's will 
where the victim is incapable of giving consent because of his/her 
temporary or permanent mental or physical incapacity (or because of his/
her youth).

[[Page 475]]

    B. Forcible Sodomy--Oral or anal sexual intercourse with another 
person, forcibly and/or against that person's will; or not forcibly 
against the person's will where the victim is incapable of giving 
consent because of his/her youth or because of his/her temporary or 
permanent mental or physical incapacity.
    C. Sexual Assault With An Object-- The use of an object or 
instrument to unlawfully penetrate, however slightly, the genital or 
anal opening of the body of another person, forcibly and/or against that 
person's will; or not forcibly or against the person's will where the 
victim is incapable of giving consent because of his/her youth or 
because of his/her temporary or permanent mental or physical incapacity.
    D. Forcible Fondling--The touching of the private body parts of 
another person for the purpose of sexual gratification, forcibly and/or 
against that person's will; or, not forcibly or against the person's 
will where the victim is incapable of giving consent because of his/her 
youth or because of his/her temporary or permanent mental incapacity.

                        Sex Offenses--Nonforcible

    Unlawful, nonforcible sexual intercourse.
    A. Incest--Nonforcible sexual intercourse between persons who are 
related to each other within the degrees wherein marriage is prohibited 
by law.
    B. Statutory Rape--Nonforcible sexual intercourse with a person who 
is under the statutory age of consent.

[59 FR 22320, Apr. 29, 1994, as amended at 64 FR 59073, Nov. 1, 1999. 
Redesignated at 65 FR 65650, Nov. 1, 2000]



     Subpart E--Verification of Student Aid Application Information

    Source: 56 FR 61337, Dec. 2, 1991, unless otherwise noted.



Sec. 668.51  General.

    (a) Scope and purpose. The regulations in this subpart govern the 
verification by institutions of information submitted by applicants for 
student financial assistance in connection with the calculation of their 
expected family contributions (EFC) for the Federal Pell Grant, campus-
based, Federal Stafford Loan, Federal Direct Stafford/Ford Loan 
programs.
    (b) Applicant responsibility. If the Secretary or the institution 
requests documents or information from an applicant under this subpart, 
the applicant shall provide the specified documents or information.
    (c) Foreign schools. The Secretary exempts from the provisions of 
this subpart institutions participating in the Federal Stafford Loan 
Program that are not located in a State.

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 22067, Apr. 28, 1994; 59 
FR 61207, Nov. 29, 1994; 63 FR 40625, July 29, 1998]



Sec. 668.52  Definitions.

    The following definitions apply to this subpart:
    Base year means the calendar year preceding the first calendar year 
of an award year.
    Edits means a set of pre-established factors for identifying--
    (a) Student aid applications that may contain incorrect, missing, 
illogical, or inconsistent information; and
    (b) Randomly selected student aid applications.
    Expected family contribution (EFC) means the amount an applicant and 
his or her spouse and family are expected to contribute toward the 
applicant's cost of attendance.
    Institutional student information report as defined in 34 CFR 690.2 
for purposes of the Federal Pell Grant, campus-based, Federal Stafford 
Loan, and William D. Ford Federal Direct Loan programs.
    Student aid application means an application approved by the 
Secretary and submitted by a person to have his or her EFC determined 
under the Federal Pell Grant, campus-based, Federal Stafford Loan, 
Federal Direct Loan or programs.

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 22067, Apr. 28, 1994; 59 
FR 61206, 61207, Nov. 29, 1994]



Sec. 668.53  Policies and procedures.

    (a) An institution shall establish and use written policies and 
procedures for verifying information contained in a student aid 
application in accordance with the provisions of this subpart. These 
policies and procedures must include--

[[Page 476]]

    (1) The time period within which an applicant shall provide the 
documentation;
    (2) The consequences of an applicant's failure to provide required 
documentation within the specified time period;
    (3) The method by which the institution notifies an applicant of the 
results of verification if, as a result of verification, the applicant's 
EFC changes and results in a change in the applicant's award or loan;
    (4) The procedures the institution requires an applicant to follow 
to correct application information determined to be in error; and
    (5) The procedures for making referrals under Sec. 668.16.
    (b) The institution's procedures must provide that it shall furnish, 
in a timely manner, to each applicant selected for verification a clear 
explanation of--
    (1) The documentation needed to satisfy the verification 
requirements; and
    (2) The applicant's responsibilities with respect to the 
verification of application information, including the deadlines for 
completing any actions required under this subpart and the consequences 
of failing to complete any required action.

(Approved by the Office of Management and Budget under Control Number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 61206, Nov. 29, 1994]



Sec. 668.54  Selection of applications for verification.

    (a) General requirements. (1) Except as provided in paragraph (b) of 
this section, an institution shall require an applicant to verify 
application information as specified in this paragraph.
    (2)(i) An institution shall require each applicant whose application 
is selected for verification on the basis of edits specified by the 
Secretary, to verify all of the applicable items specified in 
Sec. 668.56, except that no institution is required to verify the 
applications of more than 30 percent of its total number of applicants 
for assistance under the Federal Pell Grant, Federal Direct Stafford/
Ford Loan, campus-based, and Federal Stafford Loan programs in an award 
year.
    (ii) An institution may only include those applicants selected for 
verification by the Secretary in its calculation of 30 percent of total 
applicants.
    (3) If an institution has reason to believe that any information on 
an application used to calculate an EFC is inaccurate, it shall require 
the applicant to verify the information that it has reason to believe is 
inaccurate.
    (4) If an applicant is selected to verify the information on his or 
her application under paragraph (a)(2) of this section, the institution 
shall require the applicant to verify the information as specified in 
Sec. 668.56 on each additional application he or she submits for that 
award year, except for information already verified under a previous 
application submitted for the applicable award year.
    (5) An institution or the Secretary may require an applicant to 
verify any data elements that the institution or the Secretary 
specifies.
    (b) Exclusions from verification. (1) An institution need not verify 
an application submitted for an award year if the applicant dies during 
the award year.
    (2) Unless the institution has reason to believe that the 
information reported by the applicant is incorrect, it need not verify 
applications of the following applicants:
    (i) An applicant who is--
    (A) A legal resident of and, in the case of a dependent student, 
whose parents are also legal residents of, the Commonwealth of the 
Northern Mariana Islands, Guam, or American Samoa; or
    (B) A citizen of and, in the case of a dependent student, whose 
parents are also citizens of, the Republic of the Marshall Islands, the 
Federated States of Micronesia, or the Republic of Palau.
    (ii) An applicant who is incarcerated at the time at which 
verification would occur.
    (iii) An applicant who is a dependent student, whose parents are 
residing in a country other than the United States and cannot be 
contacted by normal means of communication.
    (iv) An applicant who is an immigrant and who arrived in the United

[[Page 477]]

States during either calendar year of the award year.
    (v) An applicant whose parents' address is unknown and cannot be 
obtained by the applicant.
    (vi) An applicant who is a dependent student, both of whose parents 
are deceased or are physically or mentally incapacitated.
    (vii) An applicant who does not receive assistance for reasons other 
than his or her failure to verify the information on the application.
    (viii) An applicant who transfers to the institution, had previously 
completed the verification process at the institution from which he or 
she transferred, and applies for assistance on the same application used 
at the previous institution, if the current institution obtains a letter 
from the previous institution stating that it has verified the 
applicant's information, the transaction number of the verified 
application, and, if relevant, the provision used in Sec. 668.59 for not 
recalculating the applicant's EFC.
    (3) An institution need not require an applicant to document a 
spouse's information or provide a spouse's signature if--
    (i) The spouse is deceased;
    (ii) The spouse is mentally or physically incapacitated;
    (iii) The spouse is residing in a country other than the United 
States and cannot be contacted by normal means of communication; or
    (iv) The spouse cannot be located because his or her address is 
unknown and cannot be obtained by the applicant.

(Approved by the Office of Management and Budget under Control Number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 22067, Apr. 28, 1994; 59 
FR 61206, Nov. 29, 1994; 63 FR 40625, July 29, 1998]



Sec. 668.55  Updating information.

    (a)(1) Unless the provisions of paragraph (a)(2) or (a)(3) of this 
section apply, an applicant is required to update--
    (i) The number of family members in the applicant's household and 
the number of those household members attending postsecondary 
educational institutions, in accordance with provisions of paragraph (b) 
of this section; and
    (ii) His or her dependency status in accordance with the provisions 
of paragraph (d) of this section.
    (2) An institution need not require an applicant to verify the 
information contained in his or her application for assistance in an 
award year if--
    (i) The applicant previously submitted an application for assistance 
for that award year;
    (ii) The applicant updated and verified the information contained in 
that application; and
    (iii) No change in the information to be updated has taken place 
since the last update.
    (3) If, as a result of a change in the applicant's marital status, 
the number of family members in the applicant's household, the number of 
those household members attending postsecondary education institutions, 
or the applicant's dependency status changes, the applicant shall not 
update those factors or that status.
    (b) If the number of family members in the applicant's household or 
the number of those household members attending postsecondary 
educational institutions changes for a reason other than a change in the 
applicant's marital status, an applicant who is selected for 
verification shall update the information contained in his or her 
application regarding those factors so that the information is correct 
as of the day the applicant verifies the information.
    (c) If an applicant has received Federal Pell Grant, campus-based, 
Federal Stafford Loan, or Federal Direct Stafford/Ford Loan program 
assistance for an award year, and the applicant subsequently submits 
another application for assistance under any of those programs for that 
award year, and the applicant is required to update household size and 
number attending postsecondary educational institutions on the 
subsequent application, the institution--
    (1) Is required to take that newly updated information into account 
when awarding for that award year further Federal Pell Grant or campus-
based,

[[Page 478]]

assistance or certifying a Federal Stafford Loan application, or 
originating a Direct Subsidized Loan; and
    (2) Is not required to adjust the Federal Pell Grant or campus-
based, assistance previously awarded to the applicant for that award 
year, or any previously certified Federal Stafford Loan application or 
previously originated Direct Subsidized Loan for that award year, to 
reflect the newly updated information unless the applicant would 
otherwise receive an overaward.
    (d)(1) Except as provided in paragraphs (a)(3) and (d)(2) of this 
section, if an applicant's dependency status changes after the applicant 
applies to have his or her EFC calculated for an award year, the 
applicant must file a new application for that award year reflecting the 
applicant's new dependency status regardless of whether ther applicant 
is selected for verification.
    (2) If the institution has previously certified a Federal Stafford 
Loan application for an applicant, the applicant shall not update his or 
her dependency status on the Federal Stafford Loan application. If the 
institution has previously originated a Direct Subsidized Loan for a 
borrower, the school shall not update the borrower's dependence status 
on the loan origination record.

(Approved by the Office of Management and Budget under Control Number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 22067, 22068, Apr. 28, 
1994; 59 FR 61206, 61207, Nov. 29, 1994; 63 FR 40625, July 29, 1998]



Sec. 668.56  Items to be verified.

    (a) Except as provided in paragraphs (b), (c), (d), and (e) of this 
section, an institution shall require an applicant selected for 
verification under Sec. 668.54(a)(2) or (3) to submit acceptable 
documentation described in Sec. 668.57 that will verify or update the 
following information used to determine the applicant's EFC:
    (1) Adjusted gross income (AGI) for the base year if base year data 
was used in determining eligibility, or income earned from work, for a 
non-tax filer.
    (2) U.S. income tax paid for the base year if base year data was 
used in determining eligibility.
    (3)(i) For an applicant who is a dependent student, the aggregate 
number of family members in the household or households of the 
applicant's parents if--
    (A) The applicant's parent is single, divorced, separated or widowed 
and the aggregate number of family members is greater than two; or
    (B) The applicant's parents are married to each other and not 
separated and the aggregate number of family members is greater than 
three.
    (ii) For an applicant who is an independent student, the number of 
family members in the household of the applicant if--
    (A) The applicant is single, divorced, separated, or widowed and the 
number of family members is greater than one; or
    (B) The applicant is married and not separated and the number of 
family members is greater than two.
    (4) The number of family members in the household who are enrolled 
as at least half-time students in postsecondary educational institutions 
if that number is greater than one.
    (5) The following untaxed income and benefits for the base year if 
base year data was used in determining eligibility--
    (i) Social Security benefits if the institution has reason to 
believe that those benefits were received and were not reported or were 
incorrectly reported;
    (ii) Child support if the institution has reason to believe that 
child support was received;
    (iii) U.S. income tax deduction for a payment made to an individual 
retirement account (IRA) or Keogh account;
    (iv) Interest on tax-free bond;
    (v) Foreign income excluded from U.S. income taxation if the 
institution has reason to believe that foreign income was received;
    (vi) The earned income credit taken on the applicant's tax return; 
and
    (vii) All other untaxed income subject to U.S. income tax reporting 
requirements in the base year which is included on the tax return form, 
excluding information contained on schedules appended to such forms.
    (b) If an applicant selected for verification submits an SAR or 
output

[[Page 479]]

document to the institution or the institution receives the applicant's 
ISIR, within 90 days of the date the applicant signed his or her 
application, or if an applicant is selected for verification under 
Sec. 668.54(a)(2), the institution need not require the applicant to 
verify--
    (1) The number of family members in the household; or
    (2) The number of family members in the household, who are enrolled 
as at least half-time students in postsecondary educational 
institutions.
    (c) If the number of family members in the household or the amount 
of child support reported by an applicant selected for verification is 
the same as that verified by the institution in the previous award year, 
the institution need not require the applicant to verify that 
information.
    (d) If the family members who are enrolled as at least half-time 
students in postsecondary educational institutions are enrolled at the 
same institution as the applicant, and the institution verifies their 
enrollment status from its own records, the institution need not require 
the applicant to verify that information.
    (e) If the applicant or the applicant's spouse or, in the case of a 
dependent student, the applicant's parents receive untaxed income or 
benefits from a Federal, State, or local government agency determining 
their eligibility for that income or those benefits by means of a 
financial needs test, the institution need not require the untaxed 
income and benefits to be verified.

(Approved by the Office of Management and Budget under Control Number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 57 FR 39089, Aug. 27, 1992; 59 
FR 22067, Apr. 28, 1994; 59 FR 61206, Nov. 29, 1994]



Sec. 668.57  Acceptable documentation.

    (a) Adjusted Gross Income (AGI), income earned from work, and U.S. 
income tax paid. (1) Except as provided in paragraphs (a)(2), (a)(3), 
and (a)(4) of this section, an institution shall require an applicant 
selected for verification to verify AGI and U.S. income tax paid by 
submitting to it, if relevant--
    (i) A copy of the income tax return of the applicant, his or her 
spouse, and his or her parents. The copy of the return must be signed by 
the filer of the return or by one of the filers of a joint return;
    (ii) For a dependent student, a copy of each Internal Revenue 
Service (IRS) Form W-2 received by the parent whose income is being 
taken into account if--
    (A) The parents filed a joint return; and
    (B) The parents are divorced or separated or one of the parents has 
died; and
    (iii) For an independent student, a copy of each IRS Form W-2 he or 
she received if the independent student--
    (A) Filed a joint return; and
    (B) Is a widow or widower, or is divorced or separated.
    (2) If an individual who filed a U.S. tax return and who is required 
by paragraph (a)(1) of this section to provide a copy of his or her tax 
return does not have a copy of that return, the institution may require 
that individual to submit, in lieu of a copy of the tax return, a copy 
of an IRS form which lists tax account information.
    (3) An institution shall accept, in lieu of an income tax return or 
an IRS listing of tax account information of an individual whose income 
was used in calculating the EFC of an applicant, the documentation set 
forth in paragraph (a)(4) of this section if the individual for the base 
year--
    (i) Has not filed and is not required to file an income tax return;
    (ii) Is required to file a U.S. tax return and has been granted a 
filing extension by the IRS; or
    (iii) Has requested a copy of the tax return or a Listing of Tax 
Account Information, and the IRS or a government of a U.S. territory or 
commonwealth or a foreign central government cannot locate the return or 
provide a Listing of Tax Account Information.
    (4) An institution shall accept--
    (i) For an individual described in paragraph (a)(3)(i) of this 
section, a statement signed by that individual certifying that he or she 
has not filed nor is required to file an income tax return for the base 
year and certifying for that year that individual's--
    (A) Sources of income earned from work as stated on the application; 
and

[[Page 480]]

    (B) Amounts of income from each source;
    (ii) For an individual described in paragraph (a)(3)(ii) of this 
section--
    (A) A copy of the IRS Form 4868, ``Application for Automatic 
Extension of Time to File U.S. Individual Income Tax Return,'' that the 
individual filed with the IRS for the base year, or a copy of the IRS's 
approval of an extension beyond the automatic four-month extension if 
the individual requested an additional extension of the filing time; and
    (B) A copy of each IRS Form W-2 that the individual received for the 
base year, or for a self-employed individual, a statement signed by the 
individual certifying the amount of adjusted gross income for the base 
year; and
    (iii) For an individual described in paragraph (a)(3)(iii) of this 
section--
    (A) A copy of each IRS Form W-2 that the individual received for the 
base year; or
    (B) For an individual who is self-employed or has filed an income 
tax return with a government of a U. S. territory or commonwealth, or a 
foreign central government, a statement signed by the individual 
certifying the amount of adjusted gross income for the base year.
    (5) An institution shall require an individual described in 
paragraph (a)(3)(ii) of this section to provide to it a copy of his or 
her completed income tax return when filed. When an institution receives 
the copy of the return, it may re-verify the adjusted gross income and 
taxes paid by the applicant and his or her spouse or parents.
    (6) If an individual who is required to submit an IRS Form W-2 under 
this paragraph is unable to obtain one in a timely manner, the 
institution may permit that individual to set forth, in a statement 
signed by the individual, the amount of income earned from work, the 
source of that income, and the reason that the IRS Form W-2 is not 
available in a timely manner.
    (7) For the purpose of this section, an institution may accept in 
lieu of a copy of an income tax return signed by the filer of the return 
or one of the filers of a joint return, a copy of the filer's return 
that has been signed by the preparer of the return or stamped with the 
name and address of the preparer of the return.
    (b) Number of family members in household. An institution shall 
require an applicant selected for verification to verify the number of 
family members in the household by submitting to it a statement signed 
by the applicant and one of the applicant's parents if the applicant is 
a dependent student, or the applicant if the applicant is an independent 
student, listing the name and age of each family member in the household 
and the relationship of that household member to the applicant.
    (c) Number of family household members enrolled in postsecondary 
institutions. (1) Except as provided in Sec. 668.56(b), (c), (d), and 
(e), an institution shall require an applicant selected for verification 
to verify annually information included on the application regarding the 
number of household members in the applicant's family enrolled on at 
least a half-time basis in postsecondary institutions. The institution 
shall require the applicant to verify the information by submitting a 
statement signed by the applicant and one of the applicant's parents, if 
the applicant is a dependent student, or by the applicant if the 
applicant is an independent student, listing--
    (i) The name of each family member who is or will be attending a 
postsecondary educational institution as at least a half-time student in 
the award year;
    (ii) The age of each student; and
    (iii) The name of the institution attended by each student.
    (2) If the institution has reason to believe that the information 
included on the application regarding the number of family household 
members enrolled in postsecondary institutions is inaccurate, the 
institution shall require--
    (i) The statement required in paragraph (c)(1) of this section from 
the individuals described in paragraph (c)(1) of this section; and
    (ii) A statement from each institution named by the applicant in 
response to the requirement of paragraph (c)(1)(iii) of this section 
that the household member in question is or will be attending the 
institution on at least a half-time basis, unless the institution

[[Page 481]]

the student is attending determines that such a statement is not 
available because the household member in question has not yet 
registered at the institution he or she plans to attend or the 
institution has information itself that the student will be attending 
the same school as the applicant.
    (d) Untaxed income and benefits. An institution shall require an 
applicant selected for verification to verify--
    (1) Untaxed income and benefits described in Sec. 668.56(a)(5)(iii), 
(iv), (v), (vi), and (vii) by submitting to it--
    (i) A copy of the U.S. income tax return signed by the filer or one 
of the filers if a joint return, if collected under paragraph (a) of 
this section, or the IRS listing of tax account information if collected 
by the institution to verify adjusted gross income; or
    (ii) If no tax return was filed or is required to be filed, a 
statement signed by the relevant individuals certifying that no tax 
return was filed or is required to be filed and providing the sources 
and amount of untaxed income and benefits specified in Sec. 668.56(a)(5) 
(iii), (iv), (v), and (vi);
    (2) Social Security benefits if the institution has reason to 
believe that those benefits were received and were not reported, or that 
the applicant has incorrectly reported Social Security benefits received 
by the applicant, the applicant's parents, or any other children of the 
applicant's parents who are members of the applicant's household, in the 
case of a dependent student, or by the applicant, the applicant's 
spouse, or the applicant's children in the case of an independent 
student. The applicant shall verify Social Security benefits by 
submitting a document from the Social Security Administration showing 
the amount of benefits received in the appropriate calendar year for the 
appropriate individuals listed above or, at the institution's option, a 
statement signed by both the applicant and the applicant's parent, in 
the case of a dependent student, or by the applicant, in the case of an 
independent student, certifying that the amount listed on the 
applicant's aid application is correct; and
    (3) Child support received by submitting to it--
    (i) A statement signed by the applicant and one of the applicant's 
parents in the case of a dependent student, or by the applicant in the 
case of an independent student, certifying the amount of child support 
received; and
    (ii) If the institution has reason to believe that the information 
provided is inaccurate, the applicant must verify the amount of child 
support received by providing a document such as--
    (A) a copy of the separation agreement or divorce decree showing the 
amount of child support to be provided;
    (B) A statement from the parent providing the child support showing 
the amount provided; or
    (C) Copies of the child support checks or money order receipts.

(Approved by the Office of Management and Budget under Control Number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 57 FR 39089, Aug. 27, 1992; 59 
FR 22067, Apr. 28, 1994; 59 FR 61206, Nov. 29, 1994; 60 FR 34432, June 
30, 1995]



Sec. 668.58  Interim disbursements.

    (a)(1) If an institution has reason to believe that the information 
included on the application is inaccurate, until the applicant verifies 
or corrects the information included on his or her application, the 
institution may not--
    (i) Disburse any Federal Pell Grant or campus-based program funds to 
the applicant;
    (ii) Employ the applicant in its Federal Work-Study Program;
    (iii) Certify the applicant's Federal Stafford Loan application or 
process Federal Stafford Loan proceeds for any previously certified 
Federal Stafford Loan application; or
    (2) If an institution does not have reason to believe that the 
information included on an application is inaccurate prior to 
verification, the institution--
    (i) May withhold payment of Federal Pell Grant, campus-based funds; 
or
    (ii)(A) May make one disbursement of any combination of Federal Pell 
Grant, Federal Perkins Loan, or FSEOG funds for the applicant's first 
payment period; and
    (B) May employ or allow an employer to employ an eligible student 
under the

[[Page 482]]

Federal Work-Study Program for the first 60 consecutive days after the 
student's enrollment in that award year; and
    (iii)(A) May withhold certification of the applicant's Federal 
Stafford Loan application or origination of the applicant's Direct 
Subsidized Loan; or
    (B) May certify the Federal Stafford Loan application or originate 
the Direct Subsidized Loan provided that the institution does not 
deliver Federal Stafford Loan proceeds or disburse Direct Subsidized 
Loan proceeds.
    (b) If an institution chooses to make disbursement under paragraph 
(a)(2)(ii) (A) or (B) of this section, it is liable for any overpayment 
discovered as a result of the verification process to the extent that 
the overpayment is not recovered from the student.
    (c) An institution may not withhold any Federal Stafford Loan or 
Direct Loan proceeds from a student under paragraph (a)(2) of this 
section for more than 45 days. If the applicant does not complete the 
verification process within the 45 day period, the institution shall 
return the proceeds to the lender.
    (d)(1) If the institution receives Federal Stafford Loan or Direct 
Loan proceeds in an amount which exceeds the student's need for the loan 
based upon the verified information and the excess funds can be 
eliminated by reducing subsequent disbursements for the applicable loan 
period, the institution shall process the proceeds and advise the lender 
to reduce the subsequent disbursements.
    (2) If the institution receives Federal Stafford Loan or Direct Loan 
proceeds in an amount which exceed the student's need for the loan based 
upon the verified information and the excess funds cannot be eliminated 
in subsequent disbursements for the applicable loan period, the 
institution shall return the excess proceeds to the lender.

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

[56 FR 61337, Dec. 2, 1991, as amended at 57 FR 39089, Aug. 27, 1992; 59 
FR 22067, 22068, Apr. 28, 1994; 59 FR 61207, Nov. 29, 1994; 63 FR 40625, 
July 29, 1998]



Sec. 668.59  Consequences of a change in application information.

    (a) For the Federal Pell Grant Program--
    (1) Except as provided in paragraph (a)(2) of this section, if the 
information on an application changes as a result of the verification 
process, the institution shall require the applicant to resubmit his or 
her application information to the Secretary for corrections if--
    (i) The institution recalculates the applicant's EFC, determines 
that the applicant's EFC changes, and determines that the change in the 
EFC changes the applicant's Federal Pell Grant award; or
    (ii) The institution does not recalculate the applicant's EFC.
    (2) An institution need not require an applicant to resubmit his or 
her application information to the Secretary, recalculate an applicant's 
EFC, or adjust an applicant's Federal Pell Grant award if, as a result 
of the verification process, the institution finds--
    (i) No errors in nondollar items used to calculate the applicant's 
EFC;
    (ii) No dollar amount in excess of $400 as calculated by the net 
difference between the corrected sum of Adjusted Gross Income (AGI) plus 
untaxed income minus U.S. taxes paid and the uncorrected sum of Adjusted 
Gross Income (AGI) plus untaxed income minus U.S. taxes paid. If no 
Federal Income Tax Return was filed, income earned from work may be used 
in lieu of Adjusted Gross Income (AGI).
    (b) For the Federal Pell Grant Program--
    (1) If an institution does not recalculate an applicant's EFC under 
the provisions of paragraph (a)(2) of this section, the institution 
shall calculate and disburse the applicant's Federal Pell Grant award on 
the basis of the applicant's original EFC.
    (2)(i) Except as provided under paragraph (b)(2)(ii) of this 
section, if an institution recalculates an applicant's EFC because of a 
change in application information resulting from the verification 
process, the institution shall--
    (A) Require the applicant to resubmit his or her application to the 
Secretary;
    (B) Recalculate the applicant's Federal Pell Grant award on the 
basis of

[[Page 483]]

the EFC on the corrected SAR or ISIR; and
    (C) Disburse any additional funds under that award only if the 
applicant provides the institution with the corrected SAR or ISIR and 
only to the extent that additional funds are payable based on the 
recalculation.
    (ii) If an institution recalculates an applicant's EFC because of a 
change in application information resulting from the verification 
process and determines that the change in the EFC increases the 
applicant's award, the institution--
    (A) May disburse the applicant's Federal Pell Grant award on the 
basis of the original EFC without requiring the applicant to resubmit 
his or her application information to the Secretary; and
    (B) Except as provided in Sec. 668.60(b), shall disburse any 
additional funds under the increased award reflecting the new EFC if the 
institution receives the corrected SAR or ISIR.
    (c) For the campus-based, and Federal Stafford Loan or Federal 
Direct Stafford/Ford Direct Loan programs--
    (1) Except as provided in paragraph (c)(2) of this section, if the 
information on an application changes as a result of the verification 
process, the institution shall--
    (i) Recalculate the applicant's EFC; and
    (ii) Adjust the applicant's financial aid package for the campus-
based, and Federal Stafford Loan or Federal Direct Stafford/Ford Direct 
Loan programs to reflect the new EFC if the new EFC results in an 
overaward of campus-based funds or decreases the applicant's recommended 
loan amount.
    (2) An institution need not recalculate an applicant's EFC or adjust 
his or her aid package if, as a result of the verification process, the 
institution finds--
    (i) No errors in nondollar items used to calculate the applicant's 
EFC;
    (ii) No dollar amount in excess of $400 as calculated by the net 
difference between the corrected sum of Adjusted Gross Income (AGI) plus 
untaxed income minus U.S. taxes paid and the uncorrected sum of Adjusted 
Gross Income (AGI) plus untaxed income minus U.S. taxes paid. If no 
Federal Income Tax Return was filed, income earned from work may be used 
in lieu of Adjusted Gross Income (AGI).
    (d)(1) If the institution selects an applicant for verification for 
an award year who previously received a Direct Subsidized Loan for that 
award year, and as a result of verification the loan amount is reduced, 
the institution shall comply with the procedures specified in 
Sec. 668.61(b)(2).
    (2) If the institution selects an applicant for verification for an 
award year who previously received a loan under the Federal Stafford 
Loan Program for that award year, and as a result of verification the 
loan amount is reduced, the institution shall comply with the procedures 
for notifying the borrower and lender specified in Sec. 668.61(b) and 
Sec. 682.604(h).
    (e) If the applicant has received funds based on information which 
may be incorrect and the institution has made a reasonable effort to 
resolve the alleged discrepancy, but cannot do so, the institution shall 
forward the applicant's name, social security number, and other relevant 
information to the Secretary.

(Approved by the Office of Management and Budget under Control Number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 22067, 22068, Apr. 28, 
1994; 59 FR 61206, 61207, Nov. 29, 1994; 60 FR 34432, June 30, 1995; 63 
FR 40625, July 29, 1998]



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

    (a) An institution shall require an applicant selected for 
verification to submit to it, within the period of time it or the 
Secretary specifies, the documents set forth in Sec. 668.57 that are 
requested by the institution or the Secretary.
    (b) For purposes of the campus-based, Federal Stafford Loan, Federal 
Direct Stafford/Ford Loan programs--
    (1) If an applicant fails to provide the requested documentation 
within a reasonable time period established by the institution or by the 
Secretary--
    (i) The institution may not--
    (A) Disburse any additional Federal Perkins Loan, FSEOG or funds to 
the applicant;

[[Page 484]]

    (B) Continue to employ or allow an employer to employ the applicant 
under FWS;
    (C) Certify the applicant's Federal Stafford Loan application or 
originate the applicant's Direct Subsidized Loan; or
    (D) Process Federal Stafford Loan or Direct Subsidized Loan Direct 
Loan proceeds for the applicant;
    (ii) The institution shall return to the lender, or to the 
Secretary, in the case of a Direct Subsidized Loan, any Federal Stafford 
Loan or Direct Subsidized Loan proceeds that otherwise would be payable 
to the applicant; and
    (iii) The applicant shall repay to the institution any Federal 
Perkins Loan, FSEOG, or payments received for that award year;
    (2) If the applicant provides the requested documentation after the 
time period established by the institution, the institution may, at its 
option, award aid to the applicant notwithstanding paragraph (b)(1)(i) 
of this section; and
    (3) An institution may not withhold any Federal Stafford Loan 
proceeds from an applicant under paragraph (b)(1)(i)(D) of this section 
for more than 45 days. If the applicant does not complete verification 
within the 45-day period, the institution shall return the Federal 
Stafford Loan proceeds to the lender.
    (c) For purposes of the Federal Pell Grant Program--
    (1) An applicant may submit a verified SAR to the institution or the 
institution may receive a verified ISIR after the applicable deadline 
specified in 34 CFR 690.61 but within an established additional time 
period set by the Secretary through publication of a notice in the 
Federal Register. If the institution receives a verified SAR or ISIR 
during the established additional time period, and the EFC on the two 
SARs or ISIRs are different, payment must be based on the higher of the 
two EFCs.
    (2) If the applicant does not provide to the institution the 
requested documentation and, if necessary, a verified SAR or the 
institution does not receive a verified ISIR, within the additional time 
period referenced in paragraph (c)(1) of this section, the applicant--
    (i) Forfeits the Federal Pell Grant for the award year; and
    (ii) Shall return any Federal Pell Grant payments previously 
received for that award year to the Secretary.
    (d) The Secretary may determine not to process any subsequent 
application for Federal Pell Grant, and an institution, if directed by 
the Secretary, may not process any subsequent application for campus-
based, Federal Direct Stafford/Ford Loan, or Federal Stafford Loan 
program assistance of an applicant who has been requested to provide 
documentation until the applicant provides the documentation or the 
Secretary decides that there is no longer a need for the documentation.
    (e) If an applicant selected for verification for an award year dies 
before the deadline for completing the verification process without 
completing that process, and the deadline is in the subsequent award 
year, the institution may not--
    (1) Make any further disbursements on behalf of that applicant;
    (2) Certify that applicant's Federal Stafford Loan application, 
originate that applicant's Direct Subsidized Loan, or process that 
applicant's Federal Stafford Loan or Direct Subsidized Loan proceeds; or
    (3) Consider any funds it disbursed to that applicant under 
Sec. 668.58(a)(2) as an overpayment.

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

[56 FR 61337, Dec. 2, 1991, as amended at 59 FR 22068, Apr. 28, 1994; 59 
FR 61207, Nov. 29, 1994; 63 FR 40625, July 29, 1998]



Sec. 668.61  Recovery of funds.

    (a) If an institution discovers, as a result of the verification 
process, that an applicant received under Sec. 668.58(a)(2)(ii)(A) more 
financial aid than the applicant was eligible to receive, the 
institution shall eliminate the overpayment by--
    (1) Adjusting subsequent financial aid payments in the award year in 
which the overpayment occurred; or
    (2) Reimbursing the appropriate program account by--
    (i) Requiring the applicant to return the overpayment to the 
institution if the institution cannot correct the overpayment under 
paragraph (a)(1) of this section; or

[[Page 485]]

    (ii) Making restitution from its own funds, by the earlier of the 
following dates, if the applicant does not return the overpayment:
    (A) Sixty days after the applicant's last day of attendance.
    (B) The last day of the award year in which the institution 
disbursed Federal Pell Grant, Federal Perkins Loan, or FSEOG funds to 
the applicant.
    (b)(1) If the institution determines as a result of the verification 
process that an applicant received Stafford Loan or proceeds for an 
award year in excess of the student's financial need for the loan, the 
institution shall withhold and promptly return to the lender or escrow 
agent any disbursement not yet delivered to the student that exceeds the 
amount of assistance for which the student is eligible, taking into 
account other financial aid received by the student. However, instead of 
returning the entire undelivered disbursement, the school may choose to 
return promptly to the lender only the portion of the disbursement for 
which the student is ineligible. In either case, the institution shall 
provide the lender with a written statement describing the reason for 
the returned loan funds.
    (2) If the institution determines as a result of the verification 
process that a student received Direct Subsidized Loan proceeds for an 
award year in excess of the student's need for the loan, the institution 
shall reduce or cancel one or more subsequent disbursements to eliminate 
the amount in excess of the student's need.

(Approved by the Office of Management and Budget under control number 
1840-0570)

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

[56 FR 61337, Dec. 2, 1991, as amended at 57 FR 39089, Aug. 27, 1992; 59 
FR 22068, Apr. 28, 1994; 59 FR 23095, May 4, 1994; 59 FR 61207, Nov. 29, 
1994; 63 FR 40626, July 29, 1998]



                      Subpart F--Misrepresentation

    Source: 51 FR 43324, Dec. 1, 1986, unless otherwise noted.



Sec. 668.71  Scope and special definitions.

    (a) This subpart establishes the standards and rules by which the 
Secretary may initiate a proceeding under subpart G against an otherwise 
eligible institution for any substantial misrepresentation made by that 
institution regarding the nature of its educational program, its 
financial charges or the employability of its graduates.
    (b) The following definitions apply to this subpart:
    Misrepresentation: Any false, erroneous or misleading statement an 
eligible institution makes to a student enrolled at the institution, to 
any prospective student, to the family of an enrolled or prospective 
student, or to the Secretary. Misrepresentation includes the 
dissemination of endorsements and testimonials that are given under 
duress.
    Prospective student: Any individual who has contacted an eligible 
institution for the purpose of requesting information about enrolling at 
the institution or who has been contacted directly by the institution or 
indirectly through general advertising about enrolling at the 
institution.
    Substantial misrepresentation: Any misrepresentation on which the 
person to whom it was made could reasonably be expected to rely, or has 
reasonably relied, to that person's detriment.

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



Sec. 668.72  Nature of educational program.

    Misrepresentation by an institution of the nature of its educational 
program includes, but is not limited to, false, erroneous or misleading 
statements concerning--
    (a) The particular type(s), specific source(s), nature and extent of 
its accreditation;
    (b) Whether a student may transfer course credits earned at the 
institution to any other institution;
    (c) Whether successful completion of a course of instruction 
qualifies a student for--
    (1) Acceptance into a labor union or similar organization; or
    (2) Receipt of a local, State or Federal license or a non-
governmental certification required as a precondition for employment or 
to perform certain functions;
    (d) Whether its courses are recommended by--
    (1) Vocational counselors, high schools or employment agencies; or

[[Page 486]]

    (2) Governmental officials for governmental employment;
    (e) Its size, location, facilities or equipment;
    (f) The availability, frequency and appropriateness of its courses 
and programs to the employment objectives that it states its programs 
are designed to meet;
    (g) The nature, age and availability of its training devices or 
equipment and their appropriateness to the employment objectives that it 
states its programs and courses are designed to meet;
    (h) The number, availability and qualifications, including the 
training and experience, of its faculty and other personnel;
    (i) The availability of part-time employment or other forms of 
financial assistance;
    (j) The nature and availability of any tutorial or specialized 
instruction, guidance and counseling, or other supplementary assistance 
it will provide its students before, during or after the completion of a 
course;
    (k) The nature of extent of any prerequisites established for 
enrollment in any course; or
    (l) Any matters required to be disclosed to prospective students 
under Secs. 668.44 and 668.47 of this part.

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

[51 FR 43324, Dec. 1, 1986, as amended at 54 FR 24118, June 5, 1989; 59 
FR 22320, Apr. 29, 1994]



Sec. 668.73  Nature of financial charges.

    Misrepresentation by an institution of the nature of its financial 
charges includes, but is not limited to, false, erroneous or misleading 
statements concerning--
    (a) Offers of scholarships to pay all or part of a course charge, 
unless a scholarship is actually used to reduce tuition charges made 
known to the student in advance. The charges made known to the student 
in advance are the charges applied to all students not receiving a 
scholarship; or
    (b) Whether a particular charge is the customary charge at the 
institution for a course.

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



Sec. 668.74  Employability of graduates.

    Misrepresentation by an institution regarding the employability of 
its graduates includes, but is not limited to, false, erroneous or 
misleading statements--
    (a) That the institution is connected with any organization or is an 
employment agency or other agency providing authorized training leading 
directly to employment.
    (b) That the institution maintains a placement service for graduates 
or will otherwise secure or assist its graduates to obtain employment, 
unless it provides the student with a clear and accurate description of 
the extent and nature of this service or assistance; or
    (c) Concerning government job market statistics in relation to the 
potential placement of its graduates.

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



Sec. 668.75  Procedures.

    (a) On receipt of a written allegation or compliant from a student 
enrolled at the institution, a prospective student, the family of a 
student or prospective student, or a governmental official, the 
designated department official as defined in Sec. 688.81 reviews the 
allegation or compliant to determine its factual base and seriousness.
    (b) If the misrepresentation is minor and can be readily corrected, 
the designated department official informs the institution and endeavors 
to obtain an informal, voluntary correction.
    (c) If the designated department official finds that the complaint 
or allegation is a substantial misrepresentation as to the nature of the 
educational programs, the financial charges of the institution or the 
employability of its graduates, the official--
    (1) Initiates action to fine or to limit, suspend or terminate the 
institution's eligibility to participate in the Title IV, HEA programs 
according to the procedures set forth in subpart G, or

[[Page 487]]

    (2) Take other appropriate action.

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



   Subpart G--Fine, Limitation, Suspension and Termination Proceedings

    Source: 51 FR 43325, Dec. 1, 1986, unless otherwise noted.



Sec. 668.81  Scope and special definitions.

    (a) This subpart establishes regulations for the following actions 
with respect to a participating institution or third-party servicer:
    (1) An emergency action.
    (2) The imposition of a fine.
    (3) The limitation, suspension, or termination of the participation 
of the institution in a title IV, HEA program.
    (4) The limitation, suspension, or termination of the eligibility of 
the servicer to contract with any institution to administer any aspect 
of the institution's participation in a Title IV, HEA program.
    (b) This subpart applies to an institution or a third-party servicer 
that violates any statutory provision of or applicable to Title IV of 
the HEA, any regulatory provision prescribed under that statutory 
authority, or any applicable special arrangement, agreement, or 
limitation entered into under the authority of statutes applicable to 
Title IV of the HEA.
    (c) This subpart does not apply to a determination that--
    (1) An institution or any of its locations or educational programs 
fails to qualify for initial designation as an eligible institution, 
location, or educational program because the institution, location, or 
educational program fails to satisfy the statutory and regulatory 
provisions that define an eligible institution or educational program 
with respect to the Title IV, HEA program for which a designation of 
eligibility is sought;
    (2) An institution fails to qualify for initial certification or 
provisional certification to participate in any Title IV, HEA program 
because the institution does not meet the factors of financial 
responsibility and standards of administrative capability contained in 
subpart B of this part;
    (3) A participating institution's or a provisionally certified 
participating institution's period of participation, as specified under 
Sec. 668.13, has expired; or
    (4) A participating institution's provisional certification is 
revoked under the procedures in Sec. 668.13.
    (d) This subpart does not apply to a determination by the Secretary 
of the system to be used to disburse Title IV, HEA program funds to a 
participating institution (i.e., advance payments and payments by way of 
reimbursements).

(Authority: 20 U.S.C. 1094 and 1099a-3(h))

[51 FR 43325, Dec. 1, 1986, as amended at 55 FR 32183, Aug. 7, 1990; 58 
FR 13344, Mar. 10, 1993; 59 FR 22443, Apr. 29, 1994; 59 FR 61186, Nov. 
29, 1994; 63 FR 40626, July 29, 1998]



Sec. 668.82  Standard of conduct.

    (a) A participating institution or a third-party servicer that 
contracts with that institution acts in the nature of a fiduciary in the 
administration of the Title IV, HEA programs. To participate in any 
Title IV, HEA program, the institution or servicer must at all times act 
with the competency and integrity necessary to qualify as a fiduciary.
    (b) In the capacity of a fiduciary--
    (1) A participating institution is subject to the highest standard 
of care and diligence in administering the programs and in accounting to 
the Secretary for the funds received under those programs; and
    (2) A third-party servicer is subject to the highest standard of 
care and diligence in administering any aspect of the programs on behalf 
of the institutions with which the servicer contracts and in accounting 
to the Secretary and those institutions for any funds administered by 
the servicer under those programs.
    (c) The failure of a participating institution or any of the 
institution's third-party servicers to administer a Title IV, HEA 
program, or to account for the funds that the institution or servicer 
receives under that program, in accordance with the highest standard of 
care and diligence required of a fiduciary, constitutes grounds for--
    (1) An emergency action against the institution, a fine on the 
institution,

[[Page 488]]

or the limitation, suspension, or termination of the institution's 
participation in that program; or
    (2) An emergency action against the servicer, a fine on the 
servicer, or the limitation, suspension, or termination of the 
servicer's eligibility to contract with any institution to administer 
any aspect of the institution's participation in that program.
    (d)(1) A participating institution or a third-party servicer with 
which the institution contracts violates its fiduciary duty if--
    (i)(A) The servicer has been convicted of, or has pled nolo 
contendere or guilty to, a crime involving the acquisition, use, or 
expenditure of Federal, State, or local government funds, or has been 
administratively or judicially determined to have committed fraud or any 
other material violation of law involving those funds;
    (B) A person who exercises substantial control over the servicer, as 
determined according to Sec. 668.15, has been convicted of, or has pled 
nolo contendere or guilty to, a crime involving the acquisition, use, or 
expenditure of Federal, State, or local government funds, or has been 
administratively or judicially determined to have committed fraud or any 
other material violation of law involving those funds;
    (C) The servicer employs a person in a capacity that involves the 
administration of Title IV, HEA programs or the receipt of Title IV, HEA 
program funds who has been convicted of, or has pled nolo contendere or 
guilty to, a crime involving the acquisition, use, or expenditure of 
Federal, State, or local government funds, or who has been 
administratively or judicially determined to have committed fraud or any 
other material violation of law involving those funds; or
    (D) The servicer uses or contracts in a capacity that involves any 
aspect of the administration of the Title IV, HEA programs with any 
other person, agency, or organization that has been or whose officers or 
employees have been--
    (1) Convicted of, or pled nolo contendere or guilty to, a crime 
involving the acquisition, use, or expenditure of Federal, State, or 
local government funds; or
    (2) Administratively or judicially determined to have committed 
fraud or any other material violation of law involving Federal, State, 
or local government funds; and
    (ii) Upon learning of a conviction, plea, or administrative or 
judicial determination described in paragraph (d)(1)(i) of this section, 
the institution or servicer, as applicable, does not promptly remove the 
person, agency, or organization from any involvement in the 
administration of the institution's participation in Title IV, HEA 
programs, or, as applicable, the removal or elimination of any 
substantial control, as determined according to Sec. 668.15, over the 
servicer.
    (2) A violation for a reason contained in paragraph (d)(1) of this 
section is grounds for terminating--
    (i) The servicer's eligibility to contract with any institution to 
administer any aspect of the institution's participation in a Title IV, 
HEA program; and
    (ii) The participation in any Title IV, HEA program of any 
institution under whose contract the servicer committed the violation, 
if that institution had been aware of the violation and had failed to 
take the appropriate action described in paragraph (d)(1)(ii) of this 
section.
    (e)(1) A participating institution or third-party servicer, as 
applicable, violates its fiduciary duty if--
    (i)(A) The institution or servicer, as applicable, is debarred or 
suspended under Executive Order (E.O.) 12549 (3 CFR, 1986 Comp., p. 189) 
or the Federal Acquisition Regulations (FAR), 48 CFR part 9, subpart 
9.4; or
    (B) Cause exists under 34 CFR 85.305 or 85.405 for debarring or 
suspending the institution, servicer, or any principal or affiliate of 
the institution or servicer under E.O. 12549 (3 CFR, 1986 Comp., p. 189) 
or the FAR, 48 CFR part 9, subpart 9.4; and
    (ii) Upon learning of the debarment, suspension, or cause for 
debarment or suspension, the institution or servicer, as applicable, 
does not promptly--
    (A) Discontinue the affiliation; or
    (B) Remove the principal from responsibility for any aspect of the 
administration of an institution's or

[[Page 489]]

servicer's participation in the Title IV, HEA programs.
    (2) A violation for a reason contained in paragraph (e)(1) of this 
section is grounds for terminating--
    (i) The institution's participation in any Title IV, HEA program; 
and
    (ii) The servicer's eligibility to contract with any institution to 
administer any aspect of the institution's participation in any Title 
IV, HEA program. The violation is also grounds for terminating, under 
this subpart, the participation in any Title IV, HEA program of any 
institution under whose contract the servicer committed the violation, 
if that institution knew or should have known of the violation.
    (f)(1) The debarment of a participating institution or third-party 
servicer, as applicable, under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or 
the FAR, 48 CFR part 9, subpart 9.4, or another Federal agency from 
participation in Federal programs, under procedures described in 34 CFR 
85.201(c) terminates, for the duration of the debarment--
    (i) The institution's participation in any Title IV, HEA program; 
and
    (ii) The servicer's eligibility to contract with any institution to 
administer any aspect of the institution's participation in any Title 
IV, HEA program.
    (2)(i) The suspension of a participating institution or third-party 
servicer, as applicable, under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or 
the FAR, 48 CFR part 9, subpart 9.4, or another Federal agency from 
participation in Federal programs, under procedures described in 34 CFR 
85.201(c), suspends--
    (A) The institution's participation in any Title IV, HEA program; 
and
    (B) The servicer's eligibility to contract with any institution to 
administer any aspect of the institution's participation in any Title 
IV, HEA program.
    (ii) A suspension described in paragraph (f)(2) of this section 
lasts for a period of 60 days, beginning on the effective date specified 
in the notice by the Secretary under 34 CFR 85.201(b), unless--
    (A) The institution or servicer, as applicable, and the Secretary, 
agree to an extension of the suspension; or
    (B) The Secretary begins a limitation or termination proceeding 
against the institution or servicer, as applicable, under this subpart 
before the 60th day of the suspension.
    (3) A debarment or suspension not described in (f)(1) or (f)(2) of 
this section of a participating institution or third-party servicer by 
another Federal agency constitutes prima facie evidence in a proceeding 
under this subpart that cause for suspension or debarment and 
termination, as applicable, exists.

(Authority: E.O. 12549 (3 CFR, 1986 Comp., p. 189), E.O. 12689 (3 CFR, 
1989 Comp., p. 235); 20 U.S.C. 1070, et seq., 1082(a)(1) and (h)(1), 
1094(c)(1)(D) and (H), and 3474)

[59 FR 22444, Apr. 29, 1994, as amended at 60 FR 33058, June 26, 1995]



Sec. 668.83  Emergency action.

    (a) Under an emergency action, the Secretary may--
    (1) Withhold Title IV, HEA program funds from a participating 
institution or its students, or from a third-party servicer, as 
applicable;
    (2)(i) Withdraw the authority of the institution or servicer, as 
applicable, to commit, disburse, deliver, or cause the commitment, 
disbursement, or delivery of Title IV, HEA program funds; or
    (ii) Withdraw the authority of the institution or servicer, as 
applicable, to commit, disburse, deliver, or cause the commitment, 
disbursement, or delivery of Title IV, HEA program funds except in 
accordance with a particular procedure; and
    (3)(i) Withdraw the authority of the servicer to administer any 
aspect of any institution's participation in any Title IV, HEA program; 
or
    (ii) Withdraw the authority of the servicer to administer any aspect 
of any institution's participation in any Title IV, HEA program except 
in accordance with a particular procedure.
    (b)(1) An initiating official begins an emergency action against an 
institution or third-party servicer by sending the institution or 
servicer a notice by registered mail, return receipt requested. In an 
emergency action against a third-party servicer, the official also sends 
the notice to each institution that contracts with the servicer.

[[Page 490]]

The official also may transmit the notice by other, more expeditious 
means if practical.
    (2) The emergency action takes effect on the date the initiating 
official mails the notice to the institution or servicer, as applicable.
    (3) The notice states the grounds on which the emergency action is 
based, the consequences of the emergency action, and that the 
institution or servicer, as applicable, may request an opportunity to 
show cause why the emergency action is unwarranted.
    (c)(1) An initiating official takes emergency action against an 
institution or third-party servicer only if that official--
    (i) Receives information, determined by the official to be reliable, 
that the institution or servicer, as applicable, is violating any 
statutory provision of or applicable to Title IV of the HEA, any 
regulatory provision prescribed under that statutory authority, or any 
applicable special arrangement, agreement, or limitation entered into 
under the authority of statutes applicable to Title IV of the HEA;
    (ii) Determines that immediate action is necessary to prevent misuse 
of Title IV, HEA program funds; and
    (iii) Determines that the likelihood of loss from that misuse 
outweighs the importance of awaiting completion of any proceeding that 
may be initiated to limit, suspend, or terminate, as applicable--
    (A) The participation of the institution in one or more Title IV, 
HEA programs; or
    (B) The eligibility of the servicer to contract with any institution 
to administer any aspect of the institution's participation in a Title 
IV, HEA program.
    (2) Examples of violations of a Title IV, HEA program requirement 
that cause misuse and the likely loss of Title IV, HEA program funds 
include--
    (i) Causing the commitment, disbursement, or delivery by any party 
of Title IV, HEA program funds in an amount that exceeds--
    (A) The amount for which students are eligible; or
    (B) The amount of principal, interest, or special allowance payments 
that would have been payable to the holder of a Federal Stafford or 
Federal PLUS loan if a refund allocable to that loan had been made in 
the amount and at the time required;
    (ii) Using, offering to make available, or causing the use or 
availability of Title IV, HEA program funds for educational services if-
-
    (A) The institution, servicer, or agents of the institution or 
servicer have made a substantial misrepresentation as described in 
Secs. 668.72, 668.73, or 668.74 related to those services;
    (B) The institution lacks the administrative or financial ability to 
provide those services in full; or
    (C) The institution, or servicer, as applicable, lacks the 
administrative or financial ability to make all required payments under 
Sec. 668.22; and
    (iii) Engaging in fraud involving the administration of a Title IV, 
HEA program. Examples of fraud include--
    (A) Falsification of any document received from a student or 
pertaining to a student's eligibility for assistance under a Title IV, 
HEA program;
    (B) Falsification, including false certifications, of any document 
submitted by the institution or servicer to the Secretary;
    (C) Falsification, including false certifications, of any document 
used for or pertaining to--
    (1) The legal authority of an institution to provide postsecondary 
education in the State in which the institution is located; or
    (2) The accreditation or preaccreditation of an institution or any 
of the institution's educational programs or locations;
    (D) Falsification, including false certifications, of any document 
submitted to a guaranty agency under the Federal Stafford Loan or 
Federal PLUS programs or an independent auditor;
    (E) Falsification of any document submitted to a third-party 
servicer by an institution or to an institution by a third-party 
servicer pertaining to the institution's participation in a Title IV, 
HEA program; and
    (F) Falsification, including false certifications, of any document 
pertaining to the performance of any loan collection activity, including 
activity that is not required by the HEA or applicable program 
regulations.

[[Page 491]]

    (3) If the Secretary begins an emergency action against a third-
party servicer, the Secretary may also begin an emergency action against 
any institution under whose contract a third-party servicer commits the 
violation.
    (d)(1) Except as provided in paragraph (d)(2) of this section, after 
an emergency action becomes effective, an institution or third-party 
servicer, as applicable, may not--
    (i) Make or increase awards or make other commitments of aid to a 
student under the applicable Title IV, HEA program;
    (ii) Disburse either program funds, institutional funds, or other 
funds as assistance to a student under that Title IV, HEA program;
    (iii) In the case of an emergency action pertaining to participation 
in the Federal Stafford Loan or Federal PLUS programs--
    (A) Certify an application for a loan under that program;
    (B) Deliver loan proceeds to a student under that program; or
    (C) Retain the proceeds of a loan made under that program that are 
received after the emergency action takes effect; or
    (iv) In the case of an emergency action against a third-party 
servicer, administer any aspect of any institution's participation in 
any Title IV, HEA program.
    (2) If the initiating official withdraws, by an emergency action, 
the authority of the institution or servicer to commit, disburse, 
deliver, or cause the commitment, disbursement, or delivery of Title IV, 
HEA program funds, or the authority of the servicer to administer any 
aspect of any institution's participation in any Title IV, HEA program, 
except in accordance with a particular procedure specified in the notice 
of emergency action, the institution or servicer, as applicable, may not 
take any action described in paragraph (d)(1) of this section except in 
accordance with the procedure specified in the notice.
    (e)(1) Upon request by the institution or servicer, as applicable, 
the Secretary provides the institution or servicer, as soon as 
practicable, with an opportunity to show cause that the emergency action 
is unwarranted or should be modified.
    (2) An opportunity to show cause consists of an opportunity to 
present evidence and argument to a show-cause official. The initiating 
official does not act as the show-cause official for any emergency 
action that the initiating official has begun. The show-cause official 
is authorized to grant relief from the emergency action. The institution 
or servicer may make its presentation in writing or, upon its request, 
at an informal meeting with the show-cause official.
    (3) The show-cause official may limit the time and manner in which 
argument and evidence may be presented in order to avoid unnecessary 
delay or the presentation of immaterial, irrelevant, or repetitious 
matter.
    (4) The institution or servicer, as applicable, has the burden of 
persuading the show-cause official that the emergency action imposed by 
the notice is unwarranted or should be modified because--
    (i) The grounds stated in the notice did not, or no longer, exist;
    (ii) The grounds stated in the notice will not cause loss or misuse 
of Title IV, HEA program funds; or
    (iii) The institution or servicer, as applicable, will use 
procedures that will reliably eliminate the risk of loss from the misuse 
described in the notice.
    (5) The show-cause official continues, modifies, or revokes the 
emergency action promptly after consideration of any argument and 
evidence presented by the institution or servicer, as applicable, and 
the initiating official.
    (6) The show-cause official notifies the institution or servicer, as 
applicable, of that official's determination promptly after the 
completion of the show-cause meeting or, if no meeting is requested, 
after the official receives all the material submitted by the 
institution in opposition to the emergency action. In the case of a 
notice to a third-party servicer, the official also notifies each 
institution that contracts with the servicer of that determination. The 
show-cause official may explain that

[[Page 492]]

determination by adopting or modifying the statement of reasons provided 
in the notice of emergency action.
    (f)(1) An emergency action does not extend more than 30 days after 
initiated unless the Secretary initiates a limitation, suspension, or 
termination proceeding under this part or under 34 CFR part 600 against 
the institution or servicer, as applicable, within that 30-day period, 
in which case the emergency action continues until a final decision is 
issued in that proceeding, as provided in Sec. 668.90(c), as applicable.
    (2) Until a final decision is issued by the Secretary in a 
proceeding described in paragraph (f)(1) of this section, any action 
affecting the emergency action is at the sole discretion of the 
initiating official, or, if a show- cause proceeding is conducted, the 
show-cause official.
    (3) If an emergency action extends beyond 180 days by virtue of 
paragraph (f)(1) of this section, the institution or servicer, as 
applicable, may then submit written material to the show-cause official 
to demonstrate that because of facts occurring after the later of the 
notice by the initiating official or the show-cause meeting, 
continuation of the emergency action is unwarranted and the emergency 
action should be modified or ended. The show-cause official considers 
any written material submitted and issues a determination that 
continues, modifies, or revokes the emergency action.
    (g) The expiration of an emergency action, or its modification or 
revocation by the show-cause official, does not bar subsequent emergency 
action on a ground other than one specifically identified in the notice 
imposing the prior emergency action. Separate grounds may include 
violation of an agreement or limitation imposed or resulting from the 
prior emergency action.

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

[59 FR 22445, Apr. 29, 1994, as amended at 60 FR 34432, June 30, 1995; 
63 FR 40626, July 29, 1998; 64 FR 59042, Nov. 1, 1999]



Sec. 668.84  Fine proceedings.

    (a) Scope and consequences. (1) The Secretary may impose a fine of 
up to $27,500 \1\ per violation on a participating institution or third-
party servicer that--
---------------------------------------------------------------------------

    \1\ As adjusted in accordance with the Federal Civil Penalties 
Inflation Adjustment Act of 1990, as amended (28 U.S.C. 2461 note).
---------------------------------------------------------------------------

    (i) Violates any statutory provision of or applicable to Title IV of 
the HEA, any regulatory provision prescribed under that statutory 
authority, or any applicable special arrangement, agreement, or 
limitation entered into under the authority of statutes applicable to 
Title IV of the HEA; or
    (ii) Substantially misrepresents the nature of--
    (A) In the case of an institution, its educational program, its 
financial charges, or the employability of its graduates; or
    (B) In the case of a third-party servicer, as applicable, the 
educational program, financial charges, or employability of the 
graduates of any institution that contracts with the servicer.
    (2) If the Secretary begins a fine proceeding against a third-party 
servicer, the Secretary also may begin a fine, limitation, suspension, 
or termination proceeding against any institution under whose contract a 
third-party servicer commits the violation.
    (b) Procedures. (1) A designated department official begins a fine 
proceeding by sending the institution or servicer, as applicable, a 
notice by certified mail, return receipt requested. In the case of a 
fine proceeding against a third-party servicer, the official also sends 
the notice to each institution that is affected by the alleged 
violations identified as the basis for the fine action, and, to the 
extent possible, to each institution that contracts with the servicer 
for the same service affected by the violation. This notice--
    (i) Informs the institution or servicer of the Secretary's intent to 
fine the institution or servicer, as applicable, and the amount of the 
fine and identifies the alleged violations that constitute the basis for 
the action;
    (ii) Specifies the proposed effective date of the fine, which is at 
least 20 days from mailing of the notice of intent;
    (iii) Informs the institution or servicer that the fine will not be 
effective on the date specified in the notice

[[Page 493]]

if the designated department official receives from the institution or 
servicer, as applicable, by that date a written request for a hearing or 
written material indicating why the fine should not be imposed; and
    (iv) In the case of a fine proceeding against a third-party 
servicer, informs each institution that is affected by the alleged 
violations of the consequences of the action to the institution.
    (2) If the institution or servicer does not request a hearing but 
submits written material, the designated department official, after 
considering that material, notifies the institution or, in the case of a 
third-party servicer, the servicer and each institution affected by the 
alleged violations that--
    (i) The fine will not be imposed; or
    (ii) The fine is imposed as of a specified date, and in a specified 
amount.
    (3) If the institution or servicer requests a hearing by the time 
specified in paragraph (b)(1)(iii) of this section, the designated 
department official sets the date and the place. The date is at least 15 
days after the designated department official receives the request.
    (4) A hearing official conducts a hearing in accordance with 
Sec. 668.88.
    (c) Expedited proceedings. With the approval of the hearing official 
and the consent of the designated department official and the 
institution or servicer, any time schedule specified in this section may 
be shortened.

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

[59 FR 22446, Apr. 29, 1994, as amended at 67 FR 69655, Nov. 18, 2002]



Sec. 668.85  Suspension proceedings.

    (a) Scope and consequences. (1) The Secretary may suspend an 
institution's participation in a Title IV, HEA program or the 
eligibility of a third-party servicer to contract with any institution 
to administer any aspect of the institution's participation in any Title 
IV, HEA program, if the institution or servicer--
    (i) Violates any statutory provision of or applicable to Title IV of 
the HEA, any regulatory provision prescribed under that statutory 
authority, or any applicable special arrangement, agreement, or 
limitation entered into under the authority of statutes applicable to 
Title IV of the HEA; or
    (ii) Substantially misrepresents the nature of--
    (A) In the case of an institution, its educational program, its 
financial charges, or the employability of its graduates; or
    (B) In the case of a third-party servicer, as applicable, the 
educational program, financial charges, or employability of the 
graduates of any institution that contracts with the servicer.
    (2) If the Secretary begins a suspension proceeding against a third-
party servicer, the Secretary also may begin a fine, limitation, 
suspension, or termination proceeding against any institution under 
whose contract a third-party servicer commits the violation.
    (3) The suspension may not exceed 60 days unless--
    (i) The institution or servicer and the Secretary agree to an 
extension if the institution or servicer, as applicable, has not 
requested a hearing; or
    (ii) The designated department official begins a limitation or 
termination proceeding under Sec. 668.86.
    (b) Procedures. (1) A designated department official begins a 
suspension proceeding by sending a notice to an institution or third-
party servicer by certified mail, return receipt requested. In the case 
of a suspension proceeding against a third-party servicer, the official 
also sends the notice to each institution that contracts with the 
servicer. The designated department official may also transmit the 
notice by other, more expeditious means if practical. The notice--
    (i) Informs the institution or servicer of the intent of the 
Secretary to suspend the institution's participation or the servicer's 
eligibility, as applicable, cites the consequences of that action, and 
identifies the alleged violations that constitute the basis for the 
action;
    (ii) Specifies the proposed effective date of the suspension, which 
is at least 20 days after the date of mailing of the notice of intent;
    (iii) Informs the institution or servicer that the suspension will 
not be effective on the date specified in the notice, except as provided 
in

[[Page 494]]

Sec. 668.90(b)(2), if the designated department official receives from 
the institution or servicer, as applicable, by that date a request for a 
hearing or written material indicating why the suspension should not 
take place; and
    (iv) In the case of a suspension proceeding against a third-party 
servicer, informs each institution that contracts with the servicer of 
the consequences of the action to the institution.
    (2) If the institution or servicer does not request a hearing, but 
submits written material, the designated department official, after 
considering that material, notifies the institution or, in the case of a 
third-party servicer, the servicer and each institution that contracts 
with the servicer that--
    (i) The proposed suspension is dismissed; or
    (ii) The suspension is effective as of a specified date.
    (3) If the institution or servicer requests a hearing by the time 
specified in paragraph (b)(1)(iii) of this section, the designated 
department official sets the date and place. The date is at least 15 
days after the designated department official receives the request. The 
suspension does not take place until after the requested hearing is 
held.
    (4) A hearing official conducts a hearing in accordance with 
Sec. 668.88.
    (c) Expedited proceedings. With the approval of the hearing official 
and the consent of the designated department official and the 
institution or servicer, as applicable, any time period specified in 
this section may be shortened.

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

[59 FR 22447, Apr. 29, 1994, as amended at 60 FR 61773, Dec. 1, 1995; 65 
FR 65637, Nov. 1, 2000]



Sec. 668.86  Limitation or termination proceedings.

    (a) Scope and consequences. (1) The Secretary may limit or terminate 
an institution's participation in a Title IV, HEA program or the 
eligibility of a third-party servicer to contract with any institution 
to administer any aspect of the institution's participation in any Title 
IV, HEA program, if the institution or servicer--
    (i) Violates any statutory provision of or applicable to Title IV of 
the HEA, any regulatory provision prescribed under that statutory 
authority, or any applicable special arrangement, agreement, or 
limitation entered into under the authority of statutes applicable to 
Title IV of the HEA; or
    (ii) Substantially misrepresents the nature of--
    (A) In the case of an institution, its educational program, its 
financial charges, or the employability of its graduates; or
    (B) In the case of a third-party servicer, as applicable, the 
educational program, financial charges, or employability of the 
graduates of any institution that contracts with the servicer.
    (2) If the Secretary begins a limitation or termination proceeding 
against a third-party servicer, the Secretary also may begin a fine, 
limitation, suspension, or termination proceeding against any 
institution under whose contract a third-party servicer commits the 
violation.
    (3) The consequences of the limitation or termination of the 
institution's participation or the servicer's eligibility are described 
in Secs. 668.93 and 668.94, respectively.
    (b) Procedures. (1) A designated department official begins a 
limitation or termination proceeding by sending an institution or third-
party servicer a notice by certified mail, return receipt requested. In 
the case of a limitation or termination proceeding against a third-party 
servicer, the official also sends the notice to each institution that 
contracts with the servicer. The designated department official may also 
transmit the notice by other, more expeditious means if practical. This 
notice--
    (i) Informs the institution or servicer of the intent of the 
Secretary to limit or terminate the institution's participation or 
servicer's eligibility, as applicable, cites the consequences of that 
action, and identifies the alleged violations that constitute the basis 
for the action, and, in the case of a limitation proceeding, states the 
limits to be imposed;
    (ii) Specifies the proposed effective date of the limitation or 
termination, which is at least 20 days after the date of mailing of the 
notice of intent;

[[Page 495]]

    (iii) Informs the institution or servicer that the limitation or 
termination will not be effective on the date specified in the notice if 
the designated department official receives from the institution or 
servicer, as applicable, by that date a request for a hearing or written 
material indicating why the limitation or termination should not take 
place; and
    (iv) In the case of a limitation or termination proceeding against a 
third-party servicer, informs each institution that contracts with the 
servicer of the consequences of the action to the institution.
    (2) If the institution or servicer does not request a hearing but 
submits written material, the designated department official, after 
considering that material, notifies the institution or, in the case of a 
third-party servicer, the servicer and each institution that contracts 
with the servicer that--
    (i) The proposed action is dismissed;
    (ii) Limitations are effective as of a specified date; or
    (iii) The termination is effective as of a specified date.
    (3) If the institution or servicer requests a hearing by the time 
specified in paragraph (b)(1)(iii) of this section, the designated 
department official sets the date and place. The date is at least 15 
days after the designated department official receives the request. The 
limitation or termination does not take place until after the requested 
hearing is held.
    (4) A hearing official conducts a hearing in accordance with 
Sec. 668.88.
    (c) Expedited proceeding. With the approval of the hearing official 
and the consent of the designated department official and the 
institution or servicer, as applicable, any time schedule specified in 
this section may be shortened.

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

[59 FR 22447, Apr. 29, 1994, as amended at 60 FR 61774, Dec. 1, 1995; 65 
FR 65637, Nov. 1, 2000]



Sec. 668.87  Prehearing conference.

    (a) A hearing official may convene a prehearing conference if he or 
she thinks that the conference would be useful, or if the conference is 
requested by--
    (1) The designated department official who brought a proceeding 
against an institution or third-party servicer under this subpart; or
    (2) The institution or servicer, as applicable.
    (b) The purpose of a prehearing conference is to allow the parties 
to settle or narrow the dispute.
    (c) If the hearing official, the designated department official, and 
the institution, or servicer, as applicable, agree, a prehearing 
conference may consist of--
    (1) A conference telephone call;
    (2) An informal meeting; or
    (3) The submission and exchange of written material.

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

[59 FR 22448, Apr. 29, 1994]



Sec. 668.88  Hearing.

    (a) A hearing is an orderly presentation of arguments and evidence 
conducted by a hearing official.
    (b) If the hearing official, the designated department official who 
brought a proceeding against an institution or third-party servicer 
under this subpart, and the institution or servicer, as applicable, 
agree, the hearing process may be expedited. Procedures to expedite the 
hearing process may include, but are not limited to, the following--
    (1) A restriction on the number or length of submissions;
    (2) The conduct of the hearing by telephone conference call;
    (3) A stipulation by the parties to facts and legal authorities not 
in dispute; or
    (4) A review limited to the written record.
    (c)(1) The formal rules of evidence and procedures applicable to 
proceedings in a court of law are not applicable. However, discussions 
of settlement between the parties or the terms of settlement offers are 
not admissible.
    (2) The designated department official has the burden of persuasion 
in any fine, suspension, limitation or termination proceeding under this 
subpart.
    (3) Discovery, as provided for under the Federal Rules of Civil 
Procedure, is not permitted.

[[Page 496]]

    (4) The hearing official accepts only evidence that is relevant and 
material to the proceeding and is not unduly repetitious.
    (d) The designated department official makes a transcribed record of 
the proceeding and makes one copy of the record available to the 
institution or servicer.

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

[51 FR 43325, Dec. 1, 1986, as amended at 57 FR 47753, 47754, Oct. 19, 
1992; 57 FR 60034, Dec. 17, 1992; 59 FR 22448, Apr. 29, 1994]



Sec. 668.89  Authority and responsibilities of the hearing official.

    (a) The hearing official regulates the course of a hearing and the 
conduct of the parties during the hearing. The hearing official takes 
all necessary steps to conduct a fair and impartial hearing.
    (b)(1) The hearing official is not authorized to issue subpoenas.
    (2) If requested by the hearing official, the parties to a hearing 
shall provide available personnel who have knowledge about the matter 
under review for oral or written examination.
    (c) The hearing official takes whatever measures are appropriate to 
expedite a hearing. These measures may include, but are not limited to, 
the following--
    (1) Scheduling of conferences;
    (2) Setting time limits for hearings and submission of written 
documents; and
    (3) Terminating the hearing and issuing a decision against a party 
if that party does not meet those time limits.
    (d) The hearing official is bound by all applicable statutes and 
regulations. The hearing official may not--
    (1) Waive applicable statutes and regulations; or
    (2) Rule them invalid.

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

[51 FR 43325, Dec. 1, 1986, as amended at 57 FR 47753, Oct. 19, 1992; 59 
FR 22448, Apr. 29, 1994]



Sec. 668.90  Initial and final decisions--Appeals.

    (a)(1)(i) A hearing official issues a written initial decision in a 
hearing by certified mail, return receipt requested to--
    (A) The designated department official who began a proceeding 
against an institution or third-party servicer;
    (B) The institution or servicer, as applicable; and
    (C) In the case of a proceeding against a third-party servicer, each 
institution that contracts with the servicer.
    (ii) The hearing official may also transmit the notice by other, 
more expeditious means if practical.
    (iii) The hearing official issues the decision within the latest of 
the following dates:
    (A) The 30th day after the last submission is filed with the hearing 
official.
    (B) The 60th day after the last submission is filed with the hearing 
official if the Secretary, upon request of the hearing official, 
determines that the unusual complexity of the case requires additional 
time for preparation of the decision.
    (C) The 50th day after the last day of the hearing, if the hearing 
official does not request the parties to make any posthearing 
submission.
    (2) The hearing official's initial decision states whether the 
imposition of the fine, limitation, suspension, or termination sought by 
the designated department official is warranted, in whole or in part. If 
the designated department official brought a termination action against 
the institution or servicer, the hearing official may, if appropriate, 
issue an initial decision to fine the institution or servicer, as 
applicable, or, rather than terminating the institution's participation 
or servicer's eligibility, as applicable, impose one or more limitations 
on the institution's participation or servicer's eligibility.
    (3) Notwithstanding the provisions of paragraph (a)(2) of this 
section--
    (i) If, in a termination action against an institution, the hearing 
official finds that the institution has violated the provisions of 
Sec. 668.14(b)(18), the hearing official also finds that termination of 
the institution's participation is warranted;
    (ii) If, in a termination action against a third-party servicer, the

[[Page 497]]

hearing official finds that the servicer has violated the provisions of 
Sec. 668.82(d)(1), the hearing official also finds that termination of 
the institution's participation or servicer's eligibility, as 
applicable, is warranted;
    (iii) If an action brought against an institution or third-party 
servicer involves its failure to provide surety in the amount specified 
by the Secretary under Sec. 668.15, the hearing official finds that the 
amount of the surety established by the Secretary was appropriate, 
unless the institution can demonstrate that the amount was unreasonable;
    (iv) In a termination action taken against an institution or third-
party servicer based on the grounds that the institution or servicer 
failed to comply with the requirements of Sec. 668.23(c)(3), if the 
hearing official finds that the institution or servicer failed to meet 
those requirements, the hearing official finds that the termination is 
warranted;
    (v) In a termination action against an institution based on the 
grounds that the institution is not financially responsible under 
Sec. 668.15(c)(1), the hearing official finds that the termination is 
warranted unless the institution demonstrates that all applicable 
conditions described in Sec. 668.15(d)(4) have been met; and
    (vi) In a termination action against an institution or third-party 
servicer on the grounds that the institution or servicer, as applicable, 
engaged in fraud involving the administration of any Title IV, HEA 
program, the hearing official finds that the termination action is 
warranted if the hearing official finds that the institution or 
servicer, as applicable, engaged in that fraud. Examples of fraud 
include--
    (A) Falsification of any document received from a student or 
pertaining to a student's eligibility for assistance under a Title IV, 
HEA program;
    (B) Falsification, including false certifications, of any document 
submitted by the institution or servicer to the Department of Education;
    (C) Falsification, including false certifications, of any document 
used for or pertaining to--
    (1) The legal authority of an institution to provide postsecondary 
education in the State in which the institution is located; or
    (2) The accreditation or preaccreditation of an institution or any 
of the institution's educational programs or locations;
    (D) Falsification, including false certifications, of any document 
submitted to a guaranty agency under the Federal Stafford Loan, Federal 
PLUS, and Federal SLS programs, an independent auditor, an eligible 
institution, or a third-party servicer;
    (E) Falsification of any document submitted to a third-party 
servicer by an institution or to an institution by a third-party 
servicer pertaining to the institution's participation in a Title IV, 
HEA program; and
    (F) Falsification, including false certifications, of any document 
pertaining to the performance of any loan collection activity, including 
activity that is not required by the HEA or applicable program 
regulations.
    (4) The hearing official bases findings of fact only on evidence 
considered at the hearing and on matters given judicial notice. If a 
hearing is conducted solely through written submissions, the parties 
must agree to findings of fact.
    (b)(1) In a suspension proceeding, the Secretary reviews the hearing 
official's initial decision and issues a final decision within 20 days 
after the initial decision. The Secretary adopts the initial decision 
unless it is clearly unsupported by the evidence presented at the 
hearing.
    (2) The Secretary notifies the institution or servicer and, in the 
case of a suspension proceeding against a third-party servicer, each 
institution that contracts with the servicer of the final decision. If 
the Secretary suspends the institution's participation or servicer's 
eligibility, the suspension takes effect on the later of--
    (i) The day that the institution or servicer receives the notice; or
    (ii) The date specified in the designated department official's 
original notice of intent to suspend the institution's participation or 
servicer's eligibility.
    (3) A suspension may not exceed 60 days unless a designated 
department

[[Page 498]]

official begins a limitation or termination proceeding under this 
subpart before the expiration of that period. In that case, the period 
may be extended until a final decision is issued in that proceeding 
according to paragraph (c) of this section.
    (c)(1) In a fine, limitation, or termination proceeding, the hearing 
official's initial decision automatically becomes the Secretary's final 
decision 30 days after the initial decision is issued and received by 
both parties unless, within that 30-day period, the institution or 
servicer, as applicable, or the designated department official appeals 
the initial decision to the Secretary.
    (2)(i) A party may appeal the hearing official's initial decision by 
submitting to the Secretary, within 30 days after the party receives the 
initial decision, a brief or other written statement that explains why 
the party believes that the Secretary should reverse or modify the 
decision of the hearing official.
    (ii) At the time the party files its appeal submission, the party 
shall provide a copy of that submission to the opposing party.
    (iii) The opposing party shall submit its brief or other responsive 
statement to the Secretary, with a copy to the appellant, within 30 days 
after the opposing party receives the appellant's brief or written 
statement.
    (iv) The appealing party may submit proposed findings of fact or 
conclusions of law. However, the proposed findings of fact must be 
supported by--
    (A) The evidence introduced into the record at the hearing;
    (B) Stipulations of the parties if the hearing consisted of written 
submissions; or
    (C) Matters that may be judicially noticed.
    (v) Neither party may introduce new evidence on appeal.
    (vi) The initial decision of the hearing official imposing a fine or 
limiting or terminating the institution's participation or servicer's 
eligibility does not take effect pending the appeal.
    (vii) The Secretary renders a final decision. The Secretary may 
delegate to a designated department official the functions described in 
paragraph (c)(2) (vii) through (ix) of this section.
    (viii) In rendering a final decision, the Secretary considers only 
evidence introduced into the record at the hearing and facts agreed to 
by the parties if the hearing consisted only of written submissions and 
matters that may be judicially noticed.
    (ix) If the hearing official finds that a termination is warranted 
pursuant to paragraph (a)(3) of this section, the Secretary may affirm, 
modify, or reverse the initial decision, or may remand the case to the 
hearing official for further proceedings consistent with the Secretary's 
decision. If the Secretary affirms the initial decision without issuing 
a statement of reasons, the Secretary adopts the opinion of the hearing 
official as the decision of the Secretary. If the Secretary modifies, 
remands, or reverses the initial decision, in whole or in part, the 
Secretary's decision states the reasons for the action taken.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1082, 1094)

[59 FR 22448, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 60 
FR 61774, Dec. 1, 1995; 65 FR 65637, Nov. 1, 2000]



Sec. 668.91  Filing of requests for hearings and appeals; confirmation of 
mailing and receipt dates.

    (a) Filing of request for hearing, show-cause opportunity, or 
appeal. (1) A request by an institution or third-party servicer for a 
hearing or show-cause opportunity, other material submitted by an 
institution or third-party servicer in response to a notice of proposed 
action under this subpart, or an appeal to the Secretary under this 
subpart must be filed with the designated department official by hand-
delivery, mail, or facsimile transmission.
    (2) Documents filed by facsimile transmission must be transmitted to 
the designated department official identified, either in the notice 
initiating the action, or, for an appeal, in instructions provided by 
the hearing official, as the individual responsible to receive them. A 
party filing a document by facsimile transmission must confirm that a 
complete and legible copy of the document was received by the Department 
of Education, and may

[[Page 499]]

be required by the designated department official to provide a hard copy 
of the document.
    (3) The Secretary discourages the use of facsimile transmission for 
documents longer than five pages.
    (4) If agreed upon by the parties, service of a document required to 
be served on another party may be made upon the other party by facsimile 
transmission.
    (b) Confirmation of mailing and receipt dates. (1) The mailing date 
of a notice from a designated department official initiating an action 
under this subpart is the date evidenced on the original receipt of 
mailing from the U.S. Postal Service.
    (2) The date on which a request for a show-cause opportunity, a 
request for a hearing, other material submitted in response to a notice 
of action under this subpart, a decision by a hearing official, or a 
notice of appeal is received is, as applicable--
    (i) The date of receipt evidenced on the original receipt for a 
document sent by certified mail.
    (ii) The date following the date recorded by the delivery service as 
the date material was sent for a document sent by next-day delivery 
service.
    (iii) The date a document sent by regular mail is recorded, 
according to the regular business practice of the office receiving the 
document, as received.
    (iv) The date a document sent by facsimile transmission is recorded 
as received by the facsimile equipment that receives the transmission.
    (c) Refusals. If an institution or third-party servicer refuses to 
accept a notice mailed under this subpart, the Secretary considers the 
notice as being received on the date that the institution or servicer 
refuses to accept the notice.

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

[51 FR 43325, Dec. 1, 1986, as amended at 58 FR 13345, Mar. 10, 1993; 59 
FR 22450, Apr. 29, 1994]



Sec. 668.92  Fines.

    (a) In determining the amount of a fine, the designated department 
official, hearing official, and Secretary take into account--
    (1) (i) The gravity of an institution's or third-party servicer's 
violation or failure to carry out the relevant statutory provision, 
regulatory provision, special arrangement, agreement, or limitation 
entered into under the authority of statutes applicable to Title IV of 
the HEA; or
    (ii) The gravity of the institution's or servicer's 
misrepresentation;
    (2) The size of the institution;
    (3) The size of the servicer's business, including the number of 
institutions and students served by the servicer;
    (4) In the case of a violation by a third-party servicer, the extent 
to which the servicer can document that the institution contributed to 
that violation; and
    (5) For purposes of assessing a fine on a third-party servicer, the 
extent to which--
    (i) Violations are caused by repeated mechanical systemic 
unintentional errors. The Secretary counts the total of violations 
caused by a repeated mechanical systemic unintentional error as a single 
violation, unless the servicer has been cited for a similar violation 
previously and had failed to make the appropriate corrections to the 
system; and
    (ii) The financial loss of Title IV, HEA program funds was 
attributable to a repeated mechanical systemic unintentional error.
    (b) In determining the gravity of the institution's or servicer's 
violation, failure, or misrepresentation under paragraph (a) of this 
section, the designated department official, hearing official, and 
Secretary take into account the amount of any liability owed by the 
institution and any third-party servicer that contracts with the 
institution, and the number of students affected as a result of that 
violation, failure, or misrepresentation on--
    (1) Improperly expended or unspent Title IV, HEA program funds 
received by the institution or servicer, as applicable; or
    (2) Required refunds, including the treatment of title IV, HEA 
program funds when a student withdraws under Sec. 668.22.
    (c) Upon the request of the institution or third-party servicer, the 
Secretary may compromise the fine.
    (d)(1) Notwithstanding any other provision of statute or regulation, 
any individual described in paragraph (d)(2)

[[Page 500]]

of this section, in addition to other penalties provided by law, is 
liable to the Secretary for amounts that should have been refunded or 
returned under Sec. 668.22 of the title IV program funds not returned, 
to the same extent with respect to those funds that such an individual 
would be liable as a responsible person for a penalty under section 
6672(a) of Internal Revenue Code of 1986 with respect to the nonpayment 
of taxes.
    (2) The individual subject to the penalty described in paragraph 
(d)(1) is any individual who--
    (i) The Secretary determines, in accordance with Sec. 668.174(c), 
exercises substantial control over an institution participating in, or 
seeking to participate in, a program under this title;
    (ii) Is required under Sec. 668.22 to return title IV program funds 
to a lender or to the Secretary on behalf of a student or borrower, or 
was required under Sec. 668.22 in effect on June 30, 2000 to return 
title IV program funds to a lender or to the Secretary on behalf of a 
student or borrower; and
    (iii) Willfully fails to return those funds or willfully attempts in 
any manner to evade that payment.

(Authority: 20 U.S.C. 1094 and 1099c)

[59 FR 22450, Apr. 29, 1994, as amended at 64 FR 58618, Oct. 29, 1999; 
64 FR 59042, Nov. 1, 1999]



Sec. 668.93  Limitation.

    A limitation may include, as appropriate to the Title IV, HEA 
program in question--
    (a) A limit on the number or percentage of students enrolled in an 
institution who may receive Title IV, HEA program funds;
    (b) A limit, for a stated period of time, on the percentage of an 
institution's total receipts from tuition and fees derived from Title 
IV, HEA program funds;
    (c) A limit on the number or size of institutions with which a 
third-party servicer may contract;
    (d) A limit on the number of borrower or loan accounts that a third-
party servicer may service under a contract with an institution;
    (e) A limit on the responsibilities that a third-party servicer may 
perform under a contract with an institution;
    (f) A requirement for a third-party servicer to perform additional 
responsibilities under a contract with an institution;
    (g) A requirement that an institution obtain surety, in a specified 
amount, to assure its ability to meet its financial obligations to 
students who receive Title IV, HEA program funds;
    (h) A requirement that a third-party servicer obtain surety, in a 
specified amount, to assure the servicer's ability to meet the 
servicer's financial obligations under a contract; or
    (i) Other conditions as may be determined by the Secretary to be 
reasonable and appropriate.

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

[59 FR 22450, Apr. 29, 1994]



Sec. 668.94  Termination.

    (a) A termination--(1) Ends an institution's participation in a 
Title IV, HEA program or ends a third-party servicer's eligibility to 
contract with any institution to administer any aspect of the 
institution's participation in a Title IV, HEA program;
    (2) Ends the authority of a third-party servicer to administer any 
aspect of any institution's participation in that program;
    (3) Prohibits an institution or third-party servicer, as applicable, 
or the Secretary from making or increasing awards under that program;
    (4) Prohibits an institution or third-party servicer, as applicable, 
from making any other new commitments of funds under that program; and
    (5) If an institution's participation in the Federal Stafford Loan 
Program or Federal PLUS programs has been terminated, prohibits further 
guarantee commitments by the Secretary for loans under that program to 
students to attend that institution, and, if the institution is a lender 
under that program, prohibits further disbursements by the institution 
(whether or not guarantee commitments have been issued by the Secretary 
or a guaranty agency for those disbursements).
    (b) After its participation in a Title IV, HEA program has been 
terminated, an institution may disburse or deliver

[[Page 501]]

funds under that Title IV, HEA program to students enrolled at the 
institution only in accordance with Sec. 668.26 and with any additional 
requirements imposed under this part.
    (c) If a third-party servicer's eligibility is terminated, the 
servicer must return to each institution that contracts with the 
servicer any funds received by the servicer under the applicable Title 
IV, HEA program on behalf of the institution or the institution's 
students or otherwise dispose of those funds under instructions from the 
Secretary. The servicer also must return to each institution that 
contracts with the servicer all records pertaining to the servicer's 
administration of that program on behalf of that institution.

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

[59 FR 22450, Apr. 29, 1994, as amended at 63 FR 40626, July 29, 1998]



Sec. 668.95  Reimbursements, refunds, and offsets.

    (a) The designated department official, hearing official, or 
Secretary may require an institution or third-party servicer to take 
reasonable and appropriate corrective action to remedy the institution's 
or servicer's violation, as applicable, of any statutory provision of or 
applicable to Title IV of the HEA, any regulatory provision prescribed 
under that statutory authority, or any applicable special arrangement, 
agreement, or limitation entered into under the authority of statutes 
applicable to Title IV of the HEA.
    (b) The corrective action may include payment of any funds to the 
Secretary, or to designated recipients, that the institution or 
servicer, as applicable, improperly received, withheld, disbursed, or 
caused to be disbursed. Corrective action may, for example, relate to--
    (1) With respect to the Federal Stafford Loan, Federal PLUS, and 
Federal SLS programs--
    (i) Ineligible interest benefits, special allowances, or other 
claims paid by the Secretary; and
    (ii) Discounts, premiums, or excess interest paid in violation of 34 
CFR part 682; and
    (2) With respect to all Title IV, HEA programs--
    (i) Refunds or returns of title IV, HEA program funds required under 
program regulations when a student withdraws.
    (ii) Any grants, work-study assistance, or loans made in violation 
of program regulations.
    (c) If any final decision requires an institution or third-party 
servicer to reimburse or make any other payment to the Secretary, the 
Secretary may offset these claims against any benefits or claims due to 
the institution or servicer.
    (d) If an institution's violation in paragraph (a) of this section 
results from an administrative, accounting, or recordkeeping error, and 
that error was not part of a pattern of error, and there is no evidence 
of fraud or misconduct related to the error, the Secretary permits the 
institution to correct or cure the error. If the institution corrects or 
cures the error, the Secretary does not limit, suspend, terminate, or 
fine the institution for that error.

(Authority: 20 U.S.C. 1094 and 1099c-1)

[59 FR 22451, Apr. 29, 1994, as amended at 64 FR 58619, Oct. 29, 1999; 
64 FR 59042, Nov. 1, 1999]



Sec. 668.96  Reinstatement after termination.

    (a)(1) An institution whose participation in a Title IV, HEA program 
has been terminated may file a request for reinstatement of that 
participation.
    (2) A third-party servicer whose eligibility to contract with any 
institution to administer any aspect of the institution's participation 
in a Title IV, HEA program has been terminated may file a request for 
reinstatement of that eligibility.
    (b) An institution whose participation has been terminated or a 
third-party servicer whose eligibility has been terminated may request 
reinstatement only after the later of the expiration of--
    (1) Eighteen months from the effective date of the termination; or
    (2) A debarment or suspension under Executive Order 12549 (3 CFR, 
1986 Comp., p. 189) or the Federal Acquisition Regulations, 48 CFR part 
9, subpart 9.4.
    (c) To be reinstated, an institution or third-party servicer must 
submit its request for reinstatement in writing to the Secretary and 
must--

[[Page 502]]

    (1) Demonstrate to the Secretary's satisfaction that it has 
corrected the violation or violations on which its termination was 
based, including payment in full to the Secretary or to other recipients 
of funds that the institution or servicer, as applicable, has improperly 
received, withheld, disbursed, or caused to be disbursed;
    (2) Meet all applicable requirements of this part; and
    (3) In the case of an institution, enter into a new program 
participation agreement with the Secretary.
    (d) The Secretary, within 60 days of receiving the reinstatement 
request--
    (1) Grants the request;
    (2) Denies the request; or
    (3) Grants the request subject to a limitation or limitations.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094; E.O. 12549 (3 CFR, 1986 Comp., p. 189), 
12689 (3 CFR, 1989 Comp., p. 235))

[59 FR 22451, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994]



Sec. 668.97  Removal of limitation.

    (a) An institution whose participation in a Title IV, HEA program 
has been limited may not apply for removal of the limitation before the 
expiration of 12 months from the effective date of the limitation.
    (b) A third-party servicer whose eligibility to contract with any 
institution to administer any aspect of the institution's participation 
in a Title IV, HEA program has been limited may request removal of the 
limitation.
    (c) The institution or servicer may not apply for removal of the 
limitation before the later of the expiration of--
    (1) Twelve months from the effective date of the limitation; or
    (2) A debarment or suspension under Executive Order 12549 (3 CFR, 
1986 Comp., p. 189) or the Federal Acquisition Regulations, 48 CFR part 
9, subpart 9.4.
    (d) If the institution or servicer requests removal of the 
limitation, the request must be in writing and show that the institution 
or servicer, as applicable, has corrected the violation or violations on 
which the limitation was based.
    (e) No later than 60 days after the Secretary receives the request, 
the Secretary responds to the institution or servicer--
    (1) Granting its request;
    (2) Denying its request; or
    (3) Granting the request subject to other limitation or limitations.
    (f) If the Secretary denies the request or establishes other 
limitations, the Secretary grants the institution or servicer, upon the 
institution's or servicer's request, an opportunity to show cause why 
the participation or eligibility, as applicable, should be fully 
reinstated.
    (g) The institution's or servicer's request for an opportunity to 
show cause does not waive--
    (1) The institution's right to participate in any or all Title IV, 
HEA programs if it complies with the continuing limitation or 
limitations pending the outcome of the opportunity to show cause; and
    (2) The servicer's right to contract with any institution to 
administer any aspect of the institution's participation in any Title 
IV, HEA program, if the servicer complies with the continuing limitation 
pending the outcome of the opportunity to show cause.

(Authority: 20 U.S.C. 1094; E.O. 12549 (3 CFR, 1986 Comp., p. 189), 
12689 (3 CFR, 1989 Comp., p. 235))

[59 FR 22451, Apr. 29, 1994]



Sec. 668.98  Interlocutory appeals to the Secretary from rulings of a hearing official.

    (a) A ruling by a hearing official may not be appealed to the 
Secretary until the issuance of an initial decision, except that the 
Secretary may, at any time prior to the issuance of the initial 
decision, grant a review of a ruling upon either a certification by a 
hearing official of the ruling to the Secretary for review or the filing 
of a petition for review of a ruling by one or both of the parties, if--
    (1) That ruling involves a controlling question of substantive or 
procedural law; and
    (2) The immediate resolution of the question will materially advance 
the final disposition of the proceeding or subsequent review will be an 
inadequate remedy.

[[Page 503]]

    (b)(1) A petition for interlocutory review of an interim ruling must 
include the following:
    (i) A brief statement of the facts necessary to an understanding of 
the issue on which review is sought.
    (ii) A statement of the issue.
    (iii) A statement of the reasons showing that the ruling complained 
of involves a controlling question of substantive or procedural law and 
why immediate review of the ruling will materially advance the 
disposition of the case, or why subsequent review will be an inadequate 
remedy.
    (2) A petition may not exceed ten pages, double-spaced, and must be 
filed with a copy of the ruling and any findings and opinions relating 
to the ruling.
    (c) A copy of the petition must be provided to the hearing official 
at the time of filing with the secretary, and a copy of a petition or 
any certification must be served upon the parties by certified mail, 
return receipt requested. The petition or certification must reflect 
this service.
    (d) If a party files a petition under this section, the hearing 
official may state to the Secretary a view as to whether review is 
appropriate or inappropriate by submitting a brief statement addressing 
the party's petition within 10 days of the receipt of that petition by 
the hearing official. A copy of the statement must be served on all 
parties by certified mail, return receipt requested.
    (e) A party's response to a petition or certification for 
interlocutory review must be filed within seven days after service of 
the petition or statement, as applicable, and may not exceed ten pages, 
double-spaced, in length. A copy of the response must be served on the 
parties and the hearing official by hand delivery or regular mail.
    (f) The filing of a petition for interlocutory review does not 
automatically stay the proceedings. A stay during consideration of a 
petition for review may be granted by the hearing official if that 
official has certified or stated to the Secretary that review of the 
ruling is appropriate. The Secretary may order a stay of proceedings at 
any time after the filing of a request for interlocutory review.
    (g) The Secretary notifies the parties if a petition or 
certification for interlocutory review is accepted, and may provide the 
parties a reasonable time within which to submit written argument with 
regard to the merit of the petition or certification.
    (h) If the Secretary takes no action on a petition or certification 
for review within 15 days of receipt of it, the request is deemed to be 
denied.
    (i) The Secretary may affirm, modify, set aside, or remand the 
interim ruling of the hearing official.
    (j) The Secretary may delegate to a designated department official 
the functions described in paragraphs (f) through (i) of this section.

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

(Approved by the Office of Management and Budget under control number 
1801-0003)

[57 FR 60034, Dec. 17, 1992, as amended at 58 FR 14153, Mar. 16, 1993]



Subpart H--Appeal Procedures for Audit Determinations and Program Review 
                             Determinations

    Source: 52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 
46354, Dec. 7, 1987, unless otherwise noted.



Sec. 668.111  Scope and purpose.

    (a) This subpart establishes rules governing the appeal by an 
institution or third-party servicer from a final audit determination or 
a final program review determination arising from an audit or program 
review of the institution's participation in any Title IV, HEA program 
or of the servicer's administration of any aspect of an institution's 
participation in any Title IV, HEA program.
    (b) This subpart applies to any participating institution or third-
party servicer that appeals a final audit determination or final program 
review determination.
    (c) This subpart does not apply to proceedings governed by subpart G 
of this part or to a determination that--
    (1) An institution fails to meet the applicable statutory definition 
set forth in sections 435, 481, or 1201 of the HEA, except to the extent 
that such a determination forms the basis of a

[[Page 504]]

final audit determination or a final program review determination; or
    (2) An institution fails to qualify for certification to participate 
in the title IV, HEA programs because it does not meet the fiscal and 
administrative standards set forth in subpart B of this part, except to 
the extent that such a determination forms the basis of a final audit 
determination or a program review determination.

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

[52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 46354, Dec. 
7, 1987, as amended at 59 FR 22452, Apr. 29, 1994]



Sec. 668.112  Definitions.

    The following definitions apply to this subpart:
    (a) Final audit determination means the written notice of a 
determination issued by a designated department official based on an 
audit of--
    (1) An institution's participation in any or all of the Title IV, 
HEA programs; or
    (2) A third-party servicer's administration of any aspect of an 
institution's participation in any or all of the Title IV, HEA programs.
    (b) Final program review determination means the written notice of a 
determination issued by a designated department official and resulting 
from a program compliance review of--
    (1) An institution's participation in any or all of the Title IV, 
HEA programs; or
    (2) A third-party servicer's administration of any aspect of an 
institution's participation in any Title IV, HEA program.

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

[59 FR 22452, Apr. 29, 1994]



Sec. 668.113  Request for review.

    (a) An institution or third-party servicer seeking the Secretary's 
review of a final audit determination or a final program review 
determination shall file a written request for review with the 
designated department official.
    (b) The institution or servicer shall file its request for review 
and any records or materials admissible under the terms of 
Sec. 668.116(e) and (f), no later than 45 days from the date that the 
institution or servicer receives the final audit determination or final 
program review determination.
    (c) The institution or servicer shall attach to the request for 
review a copy of the final audit determination or final program review 
determination, and shall--
    (1) Identify the issues and facts in dispute; and
    (2) State the institution's or servicer's position, as applicable, 
together with the pertinent facts and reasons supporting that position.
    (d)(1) If an institution's violation that resulted in the final 
audit determination or final program review determination in paragraph 
(a) of this section results from an administrative, accounting, or 
recordkeeping error, and that error was not part of a pattern of error, 
and there is no evidence of fraud or misconduct related to the error, 
the Secretary permits the institution to correct or cure the error.
    (2) If the institution is charged with a liability as a result of an 
error described in paragraph (d)(1) of this section, the institution 
cures or corrects that error with regard to that liability if the cure 
or correction eliminates the basis for the liability.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094 and 1099c-1)

[59 FR 22452, Apr. 29, 1994, as amended at 59 FR 34964, July 7, 1994; 64 
FR 58619, Oct. 29, 1999]



Sec. 668.114  Notification of hearing.

    (a) Upon receipt of an institution's or third-party servicer's 
request for review, the designated department official arranges for a 
hearing before a hearing official.
    (b) Within 30 days of the designated department official's receipt 
of an institution's or third-party servicer's request for review, the 
hearing official notifies the designated department official and the 
parties to the proceeding of the schedule for the submission of briefs 
by both the designated department official and, as applicable, the 
institution or servicer.
    (c) The hearing official schedules the submission of briefs and of 
accompanying evidence admissible under the

[[Page 505]]

terms of Sec. 668.116 (e) and (f) to occur no later than 120 days from 
the date that the hearing official notifies the institution or servicer.

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

[59 FR 22452, Apr. 29, 1994]



Sec. 668.115  Prehearing conference.

    (a) In the event that the hearing official considers a prehearing 
conference necessary, he may convene a prehearing conference.
    (b) The purpose of a prehearing conference is to allow the parties 
to settle or narrow the dispute. A prehearing conference consists of--
    (1) A telephone conference call;
    (2) An informal meeting of the parties with the hearing official; or
    (3) The submission and exchange of written materials by the parties.
    (c) All prehearing conferences requiring appearances by the parties 
shall take place in the Washington, D.C. metropolitan area.

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

[52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 46354, Dec. 
7, 1987, as amended at 57 FR 47753, Oct. 19, 1992]



Sec. 668.116  Hearing.

    (a) A hearing is a process conducted by the hearing official whereby 
an orderly presentation of arguments and evidence is made by the 
parties.
    (b) The hearing process consists of the submission of written briefs 
to the hearing official by the institution or third-party servicer, as 
applicable, and by the designated department official, unless the 
hearing official determines, under paragraph (g) of this section, that 
an oral hearing is also necessary.
    (c) Each party shall provide a copy of its brief and any 
accompanying materials to the opposing party simultaneously with the 
filing of its brief and materials with the hearing official.
    (d) An institution or third-party servicer requesting review of the 
final audit determination or final program review determination issued 
by the designated department official shall have the burden of proving 
the following matters, as applicable:
    (1) That expenditures questioned or disallowed were proper.
    (2) That the institution or servicer complied with program 
requirements.
    (e)(1) A party may submit as evidence to the hearing official only 
materials within one or more of the following categories:
    (i) Department of Education audit reports and audit work papers for 
audits performed by the department's Office of Inspector General.
    (ii) In the case of an institution, institutional audit work papers, 
records, and other materials, if the institution provided those work 
papers, records, or materials to the Department of Education no later 
than the date by which the institution was required to file its request 
for review in accordance with Sec. 668.113.
    (iii) In the case of a third-party servicer, the servicer's audit 
work papers and the records and other materials of the servicer or any 
institution that contracts with the servicer, if the servicer provided 
those work papers, records, or materials to the Department of Education 
no later than the date that the servicer was required to file the 
request for review under Sec. 668.113.
    (iv) Department of Education program review reports and work papers 
for program reviews.
    (v) Institutional or servicer records and other materials (including 
records and other materials of any institution that contracts with the 
servicer) provided to the Department of Education in response to a 
program review, if the records or materials were provided to the 
Department of Education by the institution or servicer no later than the 
date by which the institution or servicer was required to file its 
request for review in accordance with Sec. 668.113.
    (vi) Other Department of Education records and materials if the 
records and materials were provided to the hearing official no later 
than 30 days after the institution's or servicer's filing of its request 
for review.
    (2) A party desiring to submit as evidence any materials described 
in paragraph (e)(1) of this section shall submit that evidence with its 
initial brief.
    (f) The hearing official accepts only evidence that is both 
admissible and timely under the terms of paragraph (e) of this section, 
and relevant and

[[Page 506]]

material to the appeal. Examples of evidence that shall be deemed 
irrelevant and immaterial except upon a clear showing of probative value 
respecting the matters described in paragraph (d) of this section 
include--
    (1) Evidence relating to a period of time other than the period of 
time covered by the audit or program review;
    (2) Evidence relating to an audit or program review of an 
institution or third-party servicer other than the institution or 
servicer bringing the appeal, or the resolution thereof; and
    (3) Evidence relating to the current practice of the institution or 
servicer bringing the appeal in the program areas at issue in the 
appeal.
    (g)(1) The hearing official may schedule an oral argument if he or 
she determines that an oral argument is necessary to clarify the issues 
and the positions of the parties as presented in the parties' written 
submissions.
    (2) In the event that an oral argument is conducted, the designated 
department official makes a transcribed record of the proceedings and 
makes one copy of that record available to each of the parties to the 
proceeding.
    (h) Any oral argument shall take place in the Washington, DC 
metropolitan area.
    (i) Either party may be represented by counsel.

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

[52 FR 30115, Aug. 12, 1987; 52 FR 46354, Dec. 7, 1987, as amended at 57 
FR 47753, Oct. 19, 1992; 59 FR 22452, Apr. 29, 1994; 59 FR 61186, Nov. 
29, 1994]



Sec. 668.117  Authority and responsibilities of the hearing official.

    (a) The hearing official regulates the course of the proceedings and 
the conduct of the parties following a request for review and takes all 
steps necessary to conduct fair and impartial proceedings.
    (b) The hearing official is not authorized to issue subpoenas or 
compel discovery as provided for in the Federal Rules of Civil 
Procedure.
    (c) The hearing official shall take whatever measures are 
appropriate to expedite the proceedings. These measures may include, but 
are not limited to, one or more of the following:
    (1) Scheduling of conferences.
    (2) Setting time limits for oral arguments and the submission of 
briefs.
    (3) Terminating the hearing process and issuing a decision against a 
party if that party does not meet time limits established by the hearing 
official.
    (d) The hearing official is bound by all applicable statutes and 
regulations. The hearing official may not--
    (1) Waive applicable statutes and regulations; or
    (2) Rule them invalid.

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

[52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 46354, Dec. 
7, 1987, as amended at 57 FR 47753, Oct. 19, 1992]



Sec. 668.118  Decision of the hearing official.

    (a) Upon review of the parties' written submissions and termination 
of the oral argument if one is held, the hearing official issues a 
written decision.
    (b) The hearing official's decision states and explains whether the 
final audit determination or final program review determination issued 
by the designated ED official was supportable, in whole or in part.
    (c) The hearing official bases any findings of fact only on evidence 
properly presented before him, on matters given official notice, or on 
facts stipulated to by the parties.

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

[52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 46354, Dec. 
7, 1987, as amended at 57 FR 47753, Oct. 19, 1992]



Sec. 668.119  Appeal to the Secretary.

    (a) Within 30 days of its receipt of the initial decision of the 
hearing official, a party wishing to appeal the decision shall submit a 
brief or other written material to the Secretary explaining why the 
decision of the hearing official should be overturned or modified.
    (b) The party appealing the initial decision shall, simultaneously 
with its filing of the appeal, provide the opposing party with a copy of 
its brief or other written material.
    (c) In its brief to the Secretary, the party appealing the initial 
decision may submit proposed findings of fact or conclusions of law. 
However, the proposed findings of fact must be supported by--

[[Page 507]]

    (1) The admissible evidence already in the record;
    (2) Matters that may be given official notice; or
    (3) Stipulations of the parties
    (d) The opposing party shall file its response to the appeal, if 
any, with the Secretary within 30 days of that party's receipt of the 
appeal to the Secretary.
    (e) The opposing party shall, simultaneously with the filing of any 
response, provide a copy of its response to the appeal to the party 
appealing the initial decision.
    (f) Neither party may introduce new evidence on appeal.

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

[52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 46354, Dec. 
7, 1987, as amended at 57 FR 47753, Oct. 19, 1992; 57 FR 60035, Dec. 17, 
1992]



Sec. 668.120  Decision of the Secretary.

    (a)(1) The Secretary issues a final decision. The Secretary may 
affirm, modify, or reverse the decision of the hearing official, or may 
remand the case to the hearing official for further proceedings 
consistent with the Secretary's decision.
    (2) The Secretary may delegate the performance of functions under 
this section to a designated department official.
    (b) If the Secretary modifies, remands, or overturns the initial 
decision of the hearing official, the Secretary issues a decision that--
    (1) Includes a statement of the reasons for this action;
    (2) Is provided to both parties; and
    (3) Unless the decision is remanded to the hearing official for 
further review or determination of fact, becomes final upon its 
issuance.

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

[52 FR 30115, Aug. 12, 1987, correctly designated at 52 FR 46354, Dec. 
7, 1987, as amended at 57 FR 47753, Oct. 19, 1992; 57 FR 60035, Dec. 17, 
1992]



Sec. 668.121  Final decision of the Department.

    (a) In the event that the initial decision of the hearing official 
is appealed, the decision of the Secretary is the final decision of the 
Department, unless the hearing official's decision is remanded by the 
Secretary.
    (b) In the event that the initial decision of the hearing official 
is not appealed within the time limit specified in Sec. 668.119(a), the 
initial decision automatically becomes the final decision of the 
Department.

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

[52 FR 30115, Aug. 12, 1987; 52 FR 46354, Dec. 7, 1987, as amended at 57 
FR 47753, Oct. 19, 1992]



Sec. 668.122  Determination of filing, receipt, and submission dates.

    (a) The request for review, appeals, and other written submissions 
referred to in this subpart may be either hand-delivered or mailed.
    (b) All mailed written submissions referred to in this subpart shall 
be mailed by certified mail, return receipt requested.
    (c) Determination of filing, receipt, or submission dates shall be 
based on either the date of hand-delivery or the date of receipt 
indicated on the original U.S. Postal Service return receipt.

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



Sec. 668.123  Collection.

    To the extent that the decision of the Secretary sustains the final 
audit determination or program review determination, subject to the 
provisions of Sec. 668.24(c)(3), the Department of Education will take 
steps to collect the debt at issue or otherwise effect the determination 
that was subject to the request for review.

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

[59 FR 22453, Apr. 29, 1994]



Sec. 668.124  Interlocutory appeals to the Secretary from rulings of a 
hearing official.

    (a) A ruling by a hearing official may not be appealed to the 
Secretary until the issuance of an initial decision, except that the 
Secretary may, at any time prior to the issuance of the initial 
decision, grant a review of a ruling upon either a certification by a 
hearing official of the ruling to the Secretary for review or the filing 
of a petition for review of a ruling by one or both of the parties, if--

[[Page 508]]

    (1) That ruling involves a controlling question of substantive or 
procedural law; and
    (2) The immediate resolution of the question will materially advance 
the final disposition of the proceeding or subsequent review will be an 
inadequate remedy.
    (b)(1) A petition for interlocutory review of an interim ruling must 
include the following:
    (i) A brief statement of the facts necessary to an understanding of 
the issue on which review is sought.
    (ii) A statement of the issue.
    (iii) A statement of the reasons showing that the ruling complained 
of involves a controlling question of substantive or procedural law and 
why immediate review of the ruling will materially advance the 
disposition of the case, or why subsequent review will be an inadequate 
remedy.
    (2) A petition may not exceed ten pages, double-spaced, and must be 
filed with a copy of the ruling and any findings and opinions relating 
to the ruling.
    (c) A copy of the petition must be provided to the hearing official 
at the time of filing with the Secretary, and a copy of a petition or 
any certification must be served upon the parties by certified mail, 
return receipt requested. The petition or certification must reflect 
this service.
    (d) If a party files a petition under this section, the hearing 
official may state to the Secretary a view as to whether review is 
appropriate or inappropriate by submitting a brief statement addressing 
the party's petition within 10 days of the receipt of that petition by 
the hearing official. A copy of the statement must be served on all 
parties by certified mail, return receipt requested.
    (e) A party's response to a petition or certification for 
interlocutory review must be filed within seven days after service of 
the petition or statement, as applicable, and may not exceed ten pages, 
double-spaced, in length. A copy of the response must be served on the 
parties and the hearing official by hand delivery or regular mail.
    (f) The filing of a petition for interlocutory review does not 
automatically stay the proceedings. A stay during consideration of a 
petition for review may be granted by the hearing official if that 
official has certified or stated to the Secretary that review of the 
ruling is appropriate. The Secretary may order a stay of proceedings at 
any time after the filing of a request for interlocutory review.
    (g) The Secretary notifies the parties if a petition or 
certification for interlocutory review is accepted, and may provide the 
parties a reasonable time within which to submit written argument with 
regard to the merit of the petition or certification.
    (h) If the Secretary takes no action on a petition or certification 
for review within 15 days of receipt of it, the request is deemed to be 
denied.
    (i) The Secretary may affirm, modify, set aside, or remand the 
interim ruling of the hearing official.
    (j) The Secretary may delegate to a designated department official 
the functions described in paragraphs (f) through (i) of this section.

(Approved by the Office of Management and Budget under control number 
1801-0003)

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

[57 FR 60035, Dec. 17, 1992, as amended at 58 FR 14153, Mar. 16, 1993]



               Subpart I--Immigration-Status Confirmation

    Authority: 20 U.S.C. 1091, 1092, and 1094, unless otherwise noted.

    Source: 58 FR 3184, Jan. 7, 1993, unless otherwise noted.



Sec. 668.130  General.

    (a) Scope and purpose. The regulations in this subpart govern the 
responsibilities of institutions and students in determining the 
eligibility of those noncitizen applicants for title IV, HEA assistance 
who must, under Sec. 668.33(a)(2), produce evidence from the United 
States Immigration and Naturalization Service (INS) that they are 
permanent residents of the United States or in the United States for 
other than a temporary purpose with the intention of becoming citizens 
or permanent residents.
    (b) Student responsibility. At the request of the Secretary or the 
institution at which an applicant for title IV,

[[Page 509]]

HEA financial assistance is enrolled or accepted for enrollment, an 
applicant who asserts eligibility under Sec. 668.33(a)(2) shall provide 
documentation from the INS of immigration status.

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

[58 FR 3184, Jan. 7, 1993, as amended at 63 FR 40626, July 29, 1998]



Sec. 668.131  Definitions.

    The following definitions apply to this subpart:
    Eligible noncitizen: An individual possessing an immigration status 
that meets the requirements of Sec. 668.33(a)(2).
    Immigration status: The status conferred on a noncitizen under the 
Immigration and Nationality Act of 1952, as amended, 8 U.S.C. 1182.
    Primary confirmation: A process by which the Secretary, by means of 
a matching program conducted with the INS, compares the information 
contained in an Application for Federal Student Aid or a multiple data 
entry application regarding the immigration status of a noncitizen 
applicant for title IV, HEA assistance with records of that status 
maintained by the INS in its Alien Status Verification Index (ASVI) 
system for the purpose of determining whether a student's immigration 
status meets the requirements of Sec. 668.33(a)(2) and reports the 
results of this comparison on an output document.
    Secondary confirmation: A process by which the INS, in response to 
the submission of INS Document Verification Form G-845 by an 
institution, searches pertinent paper and automated INS files, other 
than the ASVI database, for the purpose of determining a student's 
immigration status and the validity of the submitted INS documents, and 
reports the results of this search to the institution.

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

[58 FR 3184, Jan. 7, 1993, as amended at 59 FR 12521, Mar. 16, 1994; 63 
FR 40626, July 29, 1998]



Sec. 668.132  Institutional determinations of eligibility based on primary 
confirmation.

    (a) Except as provided in Sec. 668.133(a)(1)(ii), the institution 
shall determine a student to be an eligible noncitizen if the 
institution receives an output document for that student establishing 
that--
    (1) The INS has confirmed the student's immigration status; and
    (2) The student's immigration status meets the noncitizen 
eligibility requirements of Sec. 668.33(a)(2).
    (b) If an institution determines a student to be an eligible 
noncitizen in accordance with paragraph (a) of this section, the 
institution may not require the student to produce the documentation 
otherwise required under Sec. 668.33(a)(2).

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

[58 FR 3184, Jan. 7, 1993, as amended at 63 FR 40626, July 29, 1998]



Sec. 668.133  Conditions under which an institution shall require documentation 
and request secondary confirmation.

    (a) General requirements. Except as provided in paragraph (b) of 
this section, an institution shall require the student to produce the 
documentation required under Sec. 668.33(a)(2) and request the INS to 
perform secondary confirmation for a student claiming eligibility under 
Sec. 668.33(a)(2), in accordance with the procedures set forth in 
Sec. 668.135, if--
    (1) The institution--
    (i) Receives an output document indicating that the student must 
provide the institution with evidence of the student's immigration 
status required under Sec. 668.33(a)(2); or
    (ii) Receives an output document that satisfies the requirements of 
Sec. 668.132(a) (1) and (2), but the institution--
    (A) Has documentation that conflicts with immigration-status 
documents submitted by the student or the immigration status reported on 
the output document; or
    (B) Has reason to believe that the immigration status reported by 
the student or on the output document is incorrect; and
    (2) The institution determines that the immigration-status documents 
submitted by the student constitute reasonable evidence of the student's 
claim to be an eligible noncitizen.
    (b) Exclusions from secondary confirmation. (1) An institution may 
not require

[[Page 510]]

the student to produce the documentation requested under 
Sec. 668.33(a)(2) and may not request that INS perform secondary 
confirmation, if the student--
    (i) Demonstrates eligibility under the provisions of Sec. 668.33 
(a)(1) or (b); or
    (ii) Demonstrated eligibility under the provisions of 
Sec. 668.33(a)(2) in a previous award year as a result of secondary 
confirmation and the documents used to establish that eligibility have 
not expired; and
    (iii) The institution does not have conflicting documentation or 
reason to believe that the student's claim of citizenship or immigration 
status is incorrect.
    (2) [Reserved]

(Approved by the Office of Management and Budget under control number 
1840-0650)

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

[58 FR 3184, Jan. 7, 1993, as amended at 58 FR 26674, May 4, 1993; 60 FR 
61813, Dec. 1, 1995; 63 FR 40626, July 29, 1998]



Sec. 668.134  Institutional policies and procedures for requesting 
documentation and receiving secondary confirmation.

    (a) An institution shall establish and use written policies and 
procedures for requesting proof and securing confirmation of the 
immigration status of applicants for title IV, HEA student financial 
assistance who claim to meet the eligibility requirements of 
Sec. 668.33(a)(2). These policies and procedures must include--
    (1) Providing the student a deadline by which to provide the 
documentation that the student wishes to have considered to support the 
claim that the student meets the requirements of Sec. 668.33(a)(2);
    (2) Providing to the student information concerning the consequences 
of a failure to provide the documentation by the deadline set by the 
institution; and
    (3) Providing that the institution will not make a determination 
that the student is not an eligible noncitizen until the institution has 
provided the student the opportunity to submit the documentation in 
support of the student's claim of eligibility under Sec. 668.33(a)(2).
    (b) An institution shall furnish, in writing, to each student 
required to undergo secondary confirmation--
    (1) A clear explanation of the documentation the student must submit 
as evidence that the student satisfies the requirements of 
Sec. 668.33(a)(2); and
    (2) A clear explanation of the student's responsibilities with 
respect to the student's compliance with Sec. 668.33(a)(2), including 
the deadlines for completing any action required under this subpart and 
the consequences of failing to complete any required action, as 
specified in Sec. 668.137.

(Approved by the Office of Management and Budget under control number 
1840-0650)

(Authority: 20 U.S.C. 1091, 1092, 1094)

[58 FR 3184, Jan. 7, 1993, as amended at 58 FR 26674, May 4, 1993; 63 FR 
40626, July 29, 1998]



Sec. 668.135  Institutional procedures for completing secondary confirmation.

    Within 10 business days after an institution receives the 
documentary evidence of immigration status submitted by a student 
required to undergo secondary confirmation, the institution shall--
    (a) Complete the request portion of the INS Document Verification 
Request Form G-845;
    (b) Copy front and back sides of all immigration-status documents 
received from the student and attach copies to the Form G-845; and
    (c) Submit Form G-845 and attachments to the INS District Office.

(Approved by the Office of Management and Budget under control number 
1840-0650)

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

[58 FR 3184, Jan. 7, 1993, as amended at 58 FR 26674, May 4, 1993]



Sec. 668.136  Institutional determinations of eligibility based on INS 
responses to secondary confirmation requests.

    (a) Except as provided in paragraphs (b) and (c) of this section, an 
institution that has requested secondary confirmation under 
Sec. 668.133(a) shall make its determination concerning a student's 
eligibility under Sec. 668.33(a)(2) by relying on the INS response to 
the Form G-845.

[[Page 511]]

    (b) An institution shall make its determination concerning a 
student's eligibility under Sec. 668.33(a)(2) pending the institution's 
receipt of an INS response to the institution's Form G-845 request 
concerning that student, if--
    (1) The institution has given the student an opportunity to submit 
documents to the institution to support the student's claim to be an 
eligible noncitizen;
    (2) The institution possesses sufficient documentation concerning a 
student's immigration status to make that determination;
    (3) At least 15 business days have elapsed from the date that the 
institution sent the Form G-845 request to the INS;
    (4) The institution has no documentation that conflicts with the 
immigration-status documentation submitted by the student; and
    (5) The institution has no reason to believe that the immigration 
status reported by the applicant is incorrect.
    (c) An institution shall establish and use policies and procedures 
to ensure that, if the institution has disbursed or released title IV, 
HEA funds to the student in the award year or employed the student under 
the Federal Work-Study Program, and the institution determines, in 
reliance on the INS response to the institution's request for secondary 
confirmation regarding that student, that the student was in fact not an 
eligible noncitizen during that award year, the institution provides the 
student with notice of the institution's determination, an opportunity 
to contest the institution's determination, and notice of the 
institution's final determination.

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

[58 FR 3184, Jan. 7, 1993, as amended at 63 FR 40626, July 29, 1998]



Sec. 668.137  Deadlines for submitting documentation and the consequences 
of failure to submit documentation.

    (a) A student shall submit before a deadline specified by the 
institution all documentation the student wishes to have considered to 
support a claim that the student meets the requirements of 
Sec. 668.33(a)(2). The deadline, set by the institution, must be not 
less than 30 days from the date the institution receives the student's 
output document.
    (b) If a student fails to submit the documentation by the deadline 
established in accordance with paragraph (a) of this section, the 
institution may not disburse to the student, or certify the student as 
eligible for, any title IV, HEA program funds for that period of 
enrollment or award year; employ the student under the Federal Work-
Study Program; certify a Federal Stafford or Federal PLUS loan 
application, or originate a Direct Loan Program loan application for the 
student for that period of enrollment.

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

[58 FR 3184, Jan. 7, 1993, as amended at 63 FR 40626, July 29, 1998]



Sec. 668.138  Liability.

    (a) A student is liable for any LEAP, FSEOG, or Federal Pell Grant 
payment and for any Federal Stafford, Direct Subsidized, Direct 
Unsubsidized or Federal Perkins loan made to him or her if the student 
was ineligible for the Title IV, HEA assistance.
    (b) A Federal PLUS or Direct PLUS Loan borrower is liable for any 
Federal PLUS or Direct PLUS Loan made to him or her on behalf of an 
ineligible student.
    (c) The Secretary does not take any action against an institution 
with respect to an error in the institution's determination that a 
student is an eligible noncitizen if, in making that determination, the 
institution followed the provisions in this subpart and relied on--
    (1) An output document for that student indicating that the INS has 
confirmed that the student's immigration status meets the eligibility 
requirements for title IV, HEA assistance;
    (2) An INS determination of the student's immigration status and the 
authenticity of the student's immigration documents provided in response 
to the institution's request for secondary confirmation; or
    (3) Immigration-status documents submitted by the student and the 
institution did not have reason to believe that the documents did not 
support the student's claim to be an eligible noncitizen.

[[Page 512]]

    (d) Except as provided in paragraph (c) of this section, if an 
institution makes an error in its determination that a student is an 
eligible noncitizen, the institution is liable for any title IV, HEA 
disbursements made to this student during the award year or period of 
enrollment for which the student applied for title IV, HEA assistance.

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

[58 FR 3184, Jan. 7, 1993, as amended at 63 FR 40626, July 29, 1998; 65 
FR 38729, June 22, 2000]



Sec. 668.139  Recovery of payments and loan disbursements to ineligible 
students.

    (a) If an institution makes a payment of a grant or a disbursement 
of a Federal Perkins loan to an ineligible student for which it is not 
liable in accordance with Sec. 668.138, it shall assist the Secretary in 
recovering the funds by--
    (1) Making a reasonable effort to contact the student; and
    (2) Making a reasonable effort to collect the payment or Federal 
Perkins loan.
    (b) If an institution causes a Federal Stafford, Federal PLUS, 
Direct Subsidized, Direct Unsubsidized, or Direct PLUS Loan to be 
disbursed to or on behalf of an ineligible student for which it is not 
liable in accordance with Sec. 668.138, it shall assist the Secretary in 
recovering the funds by notifying the lender in the case of an FFEL 
Program loan or the Secretary in the case of a Direct Loan Program loan 
that the student has failed to establish eligibility under the 
requirements of Secs. 668.201 or 685.200, as appropriate.
    (c) If an institution is liable for a payment of a grant or Federal 
Perkins loan to an ineligible student, the institution shall restore the 
amount equal to the payment or disbursement to the institution's Federal 
Perkins loan fund or Federal Pell Grant, Federal SEOG, or LEAP amount, 
even if the institution cannot collect the payment or disbursement from 
the student.
    (d) If an institution is liable for a Federal Stafford, Federal 
PLUS, Direct Subsidized, Direct Unsubsidized, or Direct PLUS Loan 
disbursement to an ineligible student, the institution shall repay an 
amount equal to the disbursement to the lender in the case of an FFEL 
Program loan or the Secretary in the case of a Direct Loan Program loan, 
and provide written notice to the borrower.

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

[58 FR 3184, Jan. 7, 1993, as amended at 63 FR 40626, July 29, 1998; 64 
FR 38729, June 22, 2000]



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

    Source: 60 FR 61838, Dec. 1, 1995, unless otherwise noted.



Sec. 668.141  Scope.

    (a) This subpart sets forth the provisions under which a student who 
has neither a high school diploma nor its recognized equivalent may 
become eligible to receive Title IV, HEA program funds by--
    (1) Achieving a passing score, specified by the Secretary, on an 
independently administered test approved by the Secretary under this 
subpart; or
    (2) Being enrolled in an eligible institution that participates in a 
State process approved by the Secretary under this subpart.
    (b) Under this subpart, the Secretary sets forth--
    (1) The procedures and criteria the Secretary uses to approve tests;
    (2) The basis on which the Secretary specifies a passing score on 
each approved test;
    (3) The procedures and conditions under which the Secretary 
determines that an approved test is independently administered; and
    (4) The procedures and conditions under which the Secretary 
determines that a State process demonstrates that students in the 
process have the ability to benefit from the education and training 
being offered to them.

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



Sec. 668.142  Special definitions.

    The following definitions apply to this subpart:
    Assessment center: A center that--

[[Page 513]]

    (1) Is located at an eligible institution that provides two-year or 
four-year degrees, or qualifies as an eligible public vocational 
institution, i.e. a ``postsecondary vocational institution;''
    (2) Is responsible for gathering and evaluating information about 
individual students for multiple purposes, including appropriate course 
placement;
    (3) Is independent of the admissions and financial aid processes at 
the institution at which it is located;
    (4) Is staffed by professionally trained personnel; and
    (5) Does not have as its primary purpose the administration of 
ability-to-benefit tests.
    Computer-based test: A test taken by a student on a computer and 
scored by a computer.
    Disabled student: A student who has a physical or mental impairment 
that substantially limits one or more major life activities, has a 
record of such an impairment, or is regarded as having such an 
impairment.
    General learned abilities: Cognitive operations, such as deductive 
reasoning, reading comprehension, or translation from graphic to 
numerical representation, that may be learned in both school and non-
school environments.
    Non-native speaker of English: A person whose first language is not 
English and who is not fluent in English.
    Secondary school level: As applied to ``content,'' ``curricula,'' or 
``basic verbal and quantitative skills,'' refers to basic knowledge or 
skills generally learned in the 9th through 12th grades in United States 
secondary schools.
    Test administrator: An individual who may give tests under this 
subpart.
    Test item: A question on a test.
    Test publisher: An individual, organization, or agency that owns a 
registered copyright of a test, or is licensed by the copyright holder 
to sell or distribute a test.

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



Sec. 668.143  Approval of State tests or assessments.

    (a) The Secretary approves tests or other assessments submitted by a 
State that the State uses to measure a student's skills and abilities 
for the purpose of determining whether the student has the skills and 
abilities the State expects of a high school graduate in that State.
    (b) The Secretary approves passing scores or other methods of 
evaluation established by the State for each test or assessment 
described in paragraph (a) of this section.
    (c) If the Secretary approves a State's tests and assessments and 
the passing scores on those tests and assessments under paragraphs (a) 
and (b) of this section, that test or assessment may be used, for 
purposes of section 484(d) of the HEA, only for students who attend 
eligible institutions located in that State.
    (d) If a State wishes to have the Secretary approve its tests or 
assessments under this section, the State shall--
    (1) Submit to the Secretary those tests and assessments, its passing 
scores on those tests and assessments, and the educational standards 
those tests and assessments measure at such time and in such manner as 
the Secretary may prescribe;
    (2) Provide the Secretary with an explanation of how the tests, 
assessments, and passing scores are appropriate in light of the State's 
educational standards; and
    (3) Provide the Secretary with an assurance that the tests and 
assessments will be administered in an independent, fair, and secure 
manner.

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

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

[60 FR 61839, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



Sec. 668.144  Application for test approval.

    Except as provided in Sec. 668.143--
    (a) The Secretary only reviews tests under this subpart that are 
submitted by the publisher of that test;
    (b) A test publisher that wishes to have its test approved by the 
Secretary under this subpart must submit an application to the Secretary 
at such time and in such manner as the Secretary may prescribe. The 
application shall contain all the information necessary for the 
Secretary to approve the test under this subpart, including but not

[[Page 514]]

limited to, the information contained in this section; and
    (c) A test publisher shall include with its application--
    (1) A summary of the precise editions, forms, levels, and (if 
applicable) sub-tests and abbreviated tests for which approval is being 
sought;
    (2) The name, address, and telephone number of a contact person to 
whom the Secretary may address inquiries;
    (3) Each edition and form of the test for which the publisher 
requests approval;
    (4) The distribution of test scores for each edition, form, level, 
sub-test, or partial battery, for which approval is sought, that allows 
the Secretary to prescribe the passing score for each test in accordance 
with Sec. 668.147;
    (5) Documentation of test development, including a history of the 
test's use;
    (6) Norming data and other evidence used in determining the 
distribution of test scores;
    (7) Material that defines the content domains addressed by the test;
    (8) For tests first published five years or more before the date 
submitted to the Secretary for review and approval, documentation of 
periodic reviews of the content and specifications of the test to ensure 
that the test continues to reflect secondary school level verbal and 
quantitative skills;
    (9) If a test has been revised from the most recent edition approved 
by the Secretary, an analysis of the revisions, including the reasons 
for the revisions, the implications of the revisions for the 
comparability of scores on the current test to scores on the previous 
test, and data from validity studies of the test undertaken subsequent 
to the revisions;
    (10) A description of the manner in which test-taking time was 
determined in relation to the content representativeness requirements in 
Sec. 668.146(b)(2), and an analysis of the effects of time on 
performance;
    (11) A technical manual that includes--
    (i) An explanation of the methodology and procedures for measuring 
the reliability of the test;
    (ii) Evidence that different forms of the test, including, if 
applicable, short forms, are comparable in reliability;
    (iii) Other evidence demonstrating that the test permits consistent 
assessment of individual skill and ability;
    (iv) Evidence that the test was normed using--
    (A) Groups that were of sufficient size to produce defensible 
standard errors of the mean and were not disproportionately composed of 
any race or gender; and
    (B) A contemporary population representative of persons who are 
beyond the usual age of compulsory school attendance in the United 
States;
    (v) Documentation of the level of difficulty of the test;
    (vi) Unambiguous scales and scale values so that standard errors of 
measurement can be used to determine statistically significant 
differences in performance; and
    (vii) Additional guidance on the interpretation of scores resulting 
from any modifications of the tests for persons with documented 
disabilities.
    (12) The manual provided to test administrators containing 
procedures and instructions for test security and administration, and 
the forwarding of tests to the test publisher;
    (13) An analysis of the item-content of each edition, form, level, 
and (if applicable) sub-test to demonstrate compliance with the required 
secondary school level criterion specified in Sec. 668.146(b);
    (14) For performance-based tests or tests containing performance-
based sections, a description of the training or certification required 
of test administrators and scorers by the test publisher;
    (15) A description of retesting procedures and the analysis upon 
which the criteria for retesting are based; and
    (16) Other evidence establishing the test's compliance with the 
criteria for approval of tests as provided in Sec. 668.146.

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

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

[60 FR 61839, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]

[[Page 515]]



Sec. 668.145  Test approval procedures.

    Except as provided in Sec. 668.143--
    (a)(1) When the Secretary receives a complete application from a 
test publisher, the Secretary selects experts in the field of 
educational testing and assessment, who possess appropriate advanced 
degrees and experience in test development or psychometric research, to 
determine whether the test meets the requirements for test approval 
contained in Secs. 668.146, 668.147, 668.148, or 668.149, as 
appropriate, and to advise the Secretary of their determinations;
    (2) If the test involves a language other than English, the 
Secretary selects at least one individual described in paragraph (a)(1) 
of this section who is fluent in the language in which the test is 
written to advise the Secretary on whether the test meets the additional 
criteria, provisions, and conditions for test approval contained in 
Secs. 668.148 and 668.149;
    (b) The Secretary determines whether the test publisher's test meets 
the criteria and requirements for approval after taking the advice of 
the experts into account;
    (c)(1) If the Secretary determines that a test satisfies the 
criteria and requirements for test approval, the Secretary notifies the 
test publisher of the Secretary's decision, and publishes the name of 
the test and the passing scores in the Federal Register.
    (2) If the Secretary determines that a test does not satisfy the 
criteria and requirements for test approval, the Secretary notifies the 
test publisher of the Secretary's decision, and the reasons why the test 
did not meet those criteria and requirements.
    (3) The test publisher may request that the Secretary reevaluate the 
Secretary's decision. Such a request must be accompanied by--
    (i) Documentation and information that address the reasons for the 
non-approval of the test; and
    (ii) An analysis of why the information and documentation submitted 
meet the criteria and requirements for test approval notwithstanding the 
Secretary's earlier decision to the contrary.
    (d)(1) The Secretary approves a test for a period not to exceed five 
years from the date of the Secretary's written notice to the test 
publisher.
    (2) The Secretary extends the approval period of a test to include 
the period of review if the test publisher re-submits the test for 
review and approval under Sec. 668.144 at least six months before the 
date on which the test approval is scheduled to expire;
    (e) The approval of a test may be withdrawn if the Secretary 
determines that the publisher violated any terms of the agreement 
described in Sec. 668.150, or that the information the publisher 
submitted as a basis for approval of the test was inaccurate;
    (f) If the Secretary revokes approval of a previously approved test, 
the Secretary publishes a notice of that revocation in the Federal 
Register. The revocation becomes effective 120 days from the date the 
notice of revocation is published in the Federal Register; and
    (g) For test batteries that contain multiple sub-tests measuring 
content domains other than verbal and quantitative domains, the 
Secretary reviews only those subtests covering verbal and quantitative 
domains.

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

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

[60 FR 61840, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



Sec. 668.146  Criteria for approving tests.

    Except as provided in Sec. 668.143--
    (a) Except as provided in Sec. 668.148, the Secretary approves a 
test under this subpart if the test meets the criteria set forth in 
paragraph (b) of this section and the test publisher satisfies the 
requirements set forth in paragraph (c) of this section;
    (b) To be approved under this subpart, a test shall--
    (1) Assess secondary school level basic verbal and quantitative 
skills and general learned abilities;
    (2) Sample the major content domains of secondary school level 
verbal and quantitative skills with sufficient numbers of questions to--
    (i) Adequately represent each domain; and
    (ii) Permit meaningful analyses of item-level performance by 
students

[[Page 516]]

who are representative of the contemporary population beyond the age of 
compulsory school attendance and have earned a high school diploma;
    (3) Require appropriate test-taking time to permit adequate sampling 
of the major content domains described in paragraph (a)(2) of this 
section;
    (4) Have all forms (including short forms) comparable in 
reliability;
    (5) If the test is revised, have new scales, scale values, and 
scores that are demonstrably comparable to the old scales, scale values, 
and scores; and
    (6) Meet all primary and applicable conditional and secondary 
standards for test construction provided in the 1985 edition of the 
Standards for Educational and Psychological Testing, with amendments 
dated June 2, 1989, prepared by a joint committee of the American 
Educational Research Association, the American Psychological 
Association, and the National Council on Measurement in Education 
incorporated by reference in this section. Incorporation by reference of 
this document has been approved by the Director of the Office of the 
Federal Register pursuant to the Director's authority under 5 U.S.C. 
552(a) and 1 CFR part 51. The incorporated document is on file at the 
Department of Education, Office of Postsecondary Education, Room 4318, 
ROB-3, 600 Independence Avenue, S.W., Washington, D.C. 20202 and at the 
Office of the Federal Register, 800 North Capitol Street, N.W., Suite 
700, Washington, DC. The standards may be obtained from the American 
Psychological Association, Inc., 750 First Street, N.W., Washington, DC 
20026.
    (7) Have publisher's guidelines for retesting, including time 
between test-taking, be based on empirical analyses that are part of the 
studies of test reliability; and
    (c) In order for a test to be approved under this subpart, a test 
publisher shall--
    (1) Include in the test booklet or package--
    (i) Clear, specific, and complete instructions for test 
administration, including information for test takers on the purpose, 
timing, and scoring of the test; and
    (ii) Sample questions representative of the content and average 
difficulty of the test;
    (2) Have two or more secure, equated, alternate forms of the test;
    (3) Except as provided in Secs. 668.148 and 668.149, provide tables 
of distributions of test scores which clearly indicate the mean score 
and standard deviation for high school graduates who have taken the test 
within three years prior to the date on that the test is submitted to 
the Secretary for approval under Sec. 668.144;
    (4) Norm the test with--
    (i) Groups that were of sufficient size to produce defensible 
standard errors of the mean and were not disproportionately composed of 
any race or gender; and
    (ii) A contemporary population representative of persons who are 
beyond the usual age of compulsory school attendance in the United 
States; and
    (5) If test batteries include sub-tests assessing different verbal 
and/or quantitative skills, a distribution of test scores as described 
in paragraph (c)(3) of this section that allows the Secretary to 
prescribe either--
    (i) A passing score for each sub-test; or
    (ii) One composite passing score for verbal skills and one composite 
passing score for quantitative skills.

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

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

[60 FR 61840, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



Sec. 668.147  Passing scores.

    Except as provided in Secs. 668.143, 668.148 and 668.149, to 
demonstrate that a test taker has the ability to benefit from the 
education and training offered, the Secretary specifies that the passing 
score on each approved test is one standard deviation below the mean for 
students with high school diplomas who have taken the test within three 
years before the date on which the test is submitted to the Secretary 
for approval.

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

[[Page 517]]



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

    Except as provided in Sec. 668.143--
    (a) In addition to satisfying the criteria in Sec. 668.146, to be 
approved by the Secretary, a test or a test publisher must meet the 
following criteria, if applicable:
    (1) In the case of a test that is performance-based, or includes 
performance-based sections, for measuring writing, speaking, listening, 
or quantitative problem-solving skills, the test publisher must provide-
-
    (i) A minimum of four parallel forms of the test; and
    (ii) A description of the training provided to test administrators, 
and the criteria under which trained individuals are certified to 
administer and score the test.
    (2) In the case of a test developed for a non-native speaker of 
English who is enrolled in a program that is taught in his or her native 
language, the test must be--
    (i) Linguistically accurate and culturally sensitive to the 
population for which the test is designed, regardless of the language in 
which the test is written;
    (ii) Supported by documentation detailing the development of 
normative data;
    (iii) If translated from an English version, supported by 
documentation of procedures to determine its reliability and validity 
with reference to the population for which the translated test was 
designed;
    (iv) Developed in accordance with guidelines provided in the 1985 
edition of the ``Testing Linguistic Minorities'' section of the 
Standards for Educational and Psychological Testing, with amendments 
dated June 2, 1989, prepared by a joint committee of the American 
Educational Research Association, the American Psychological 
Association, and the National Council on Measurement in Education 
incorporated by reference in this section. Incorporation by reference of 
this document has been approved by the Director of the Office of the 
Federal Register pursuant to the Director's authority under 5 U.S.C. 
552(a) and 1 CFR part 51. The incorporated document is on file at the 
Department of Education, Office of Postsecondary Education, Room 4318, 
ROB-3, 600 Independence Avenue, S.W., Washington, D.C. 20202 and at the 
Office of the Federal Register, 800 North Capitol Street, N.W., Suite 
700, Washington, DC. The standards may be obtained from the American 
Psychological Association, Inc., 750 First Street, N.W., Washington, DC 
20026; and
    (v)(A) If the test is in Spanish, accompanied by a distribution of 
test scores that clearly indicates the mean score and standard deviation 
for Spanish-speaking students with high school diplomas who have taken 
the test within 5 years before the date on which the test is submitted 
to the Secretary for approval; and
    (B) If the test is in a language other than Spanish, accompanied by 
a recommendation for a provisional passing score based upon performance 
of a sample of test takers representative of the intended population and 
large enough to produce stable norms.
    (3) In the case of a test that is modified for use for persons with 
disabilities, the test publisher must--
    (i) Follow guidelines provided in the ``Testing People Who Have 
Handicapping Conditions'' section of the Standards for Educational and 
Psychological Testing;
    (ii) Provide documentation of the appropriateness and feasibility of 
the modifications relevant to test performance; and
    (iii) Recommend passing score(s) based on the previous performance 
of test-takers.
    (4) In the case of a computer-based test, the test publisher must--
    (i) Provide documentation to the Secretary that the test complies 
with the basic principles of test construction and standards of 
reliability and validity as promulgated in the Standards for Educational 
and Psychological Testing, as well as specific guidelines set forth in 
the American Psychological Association's Guidelines for Computer-based 
Tests and Interpretations (1986);
    (ii) Provide test administrators with instructions for familiarizing 
test takers with computer hardware prior to test-taking; and

[[Page 518]]

    (iii) Provide two or more parallel, equated forms of the test, or, 
if parallel forms are generated from an item pool, provide documentation 
of the methods of item selection for alternate forms; and
    (b) If a test is designed solely to measure the English language 
competence of non-native speakers of English--
    (1) The test must meet the criteria set forth in Sec. 668.146(b)(6), 
and Sec. 668.146 (c)(1), (c)(2), and (c)(4); and
    (2) The test publisher must recommend a passing score based on the 
mean score of test takers beyond the age of compulsory school attendance 
who entered U.S. high school equivalency programs, formal training 
programs, or bilingual vocational programs.

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

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

[60 FR 61841, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



Sec. 668.149  Special provisions for the approval of assessment procedures 
for special populations for whom no tests are reasonably available.

    If no test is reasonably available for persons with disabilities or 
students whose native language is not English and who are not fluent in 
English, so that no test can be approved under Secs. 668.146 or 668.148 
for these students, the following procedures apply:
    (a) Persons with disabilities. (1) The Secretary considers a 
modified test or testing procedure, or instrument that has been 
scientifically developed specifically for the purpose of evaluating the 
ability to benefit from postsecondary training or education of disabled 
students to be an approved test for purposes of this subpart provided 
that the testing procedure or instrument measures both basic verbal and 
quantitative skills at the secondary school level.
    (2) The Secretary considers the passing scores for these testing 
procedures or instruments to be those recommended by the test developer, 
provided that the test administrator--
    (i) Uses those procedures or instruments;
    (ii) Maintains appropriate documentation, including a description of 
the procedures or instruments, their content domains, technical 
properties, and scoring procedures; and
    (iii) Observes recommended passing scores.
    (b) Students whose native language is not English. The Secretary 
considers a test in a student's native language for a student whose 
native language is not English to be an approved test under this subpart 
if--
    (1) The Secretary has not approved any test in that native language;
    (2) The test was not previously rejected for approval by the 
Secretary;
    (3) The test measures both basic verbal and quantitative skills at 
the secondary school level; and
    (4) The passing scores and the methods for determining the passing 
scores are fully documented.

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

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

[60 FR 61841, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



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

    (a) If the Secretary approves a test under this subpart, the test 
publisher must enter into an agreement with the Secretary that contains 
the provisions set forth in paragraph (b) of this section before an 
institution may use the test to determine a student's eligibility for 
Title IV, HEA program funds.
    (b) The agreement between a test publisher and the Secretary 
provides that the test publisher shall--
    (1) Allow only test administrators that it certifies to give its 
test;
    (2) Certify test administrators who have--
    (i) The necessary training, knowledge, and skill to test students in 
accordance with the test publisher's testing requirements; and
    (ii) The ability and facilities to keep its test secure against 
disclosure or release;
    (3) Decertify a test administrator for a period that coincides with 
the period for which the publisher's test is approved if the test 
publisher finds that the test administrator--

[[Page 519]]

    (i) Has repeatedly failed to give its test in accordance with the 
publisher's instructions;
    (ii) Has not kept the test secure;
    (iii) Has compromised the integrity of the testing process; or
    (iv) Has given the test in violation of the provisions contained in 
Sec. 668.151;
    (4) Score a test answer sheet that it receives from a test 
administrator;
    (5) If a computer-based test, provide the test administrator with 
software that will:
    (i) Immediately generate a score report for each test taker;
    (ii) Allow the test administrator to send to the test publisher a 
secure write-protected diskette copy of the test taker's performance on 
each test item and the test taker's test scores; and
    (iii) Prohibit any changes in test taker responses or test scores.
    (6) Promptly send to the student and the institution the student 
indicated he or she is attending or scheduled to attend a notice stating 
the student's score for the test and whether or not the student passed 
the test;
    (7) Keep for a period of three years each test answer sheet or 
electronic record forwarded for scoring and all other documents 
forwarded by the test administrator with regard to the test;
    (8) Three years after the date the Secretary approves the test and 
for each subsequent three-year period, analyze the test scores of 
students to determine whether the test scores produce any irregular 
pattern that raises an inference that the tests were not being properly 
administered, and provide the Secretary with a copy of this analysis; 
and
    (9) Upon request, give the Secretary, a guaranty agency, or an 
accrediting agency access to test records or other documents related to 
an audit, investigation, or program review of the institution, test 
publisher, or test administrator.
    (c)(1) The Secretary may terminate an agreement with a test 
publisher if the test publisher fails to carry out the terms of the 
agreement described in paragraph (b) of this section.
    (2) Before terminating the agreement, the Secretary gives the test 
publisher the opportunity to show that it has not failed to carry out 
the terms of its agreement.
    (3) If the Secretary terminates an agreement with a test publisher 
under this section, the Secretary notifies institutions through 
publication in the Federal Register when they may no longer use the 
publisher's test(s) for purposes of determining a student's eligibility 
for Title IV, HEA program funds.

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

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

[60 FR 61842, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



Sec. 668.151  Administration of tests.

    (a)(1) To establish a student's eligibility for Title IV, HEA 
program funds under this subpart, if a student has not passed an 
approved state test, under Sec. 668.143, an institution must select a 
certified test administrator to give an approved test.
    (2) An institution may use the results of an approved test it 
received from an approved test publisher or assessment center to 
determine a student's eligibility to receive Title IV, HEA programs 
funds if the test was independently administered and properly 
administered.
    (b) The Secretary considers that a test is independently 
administered if the test is--
    (1) Given at an assessment center by a test administrator who is an 
employee of the center; or
    (2) Given by a test administrator who--
    (i) Has no current or prior financial or ownership interest in the 
institution, its affiliates, or its parent corporation, other than the 
interest obtained through its agreement to administer the test, and has 
no controlling interest in any other educational institution;
    (ii) Is not a current or former employee of or consultant to the 
institution, its affiliates, or its parent corporation, a person in 
control of another institution, or a member of the family of any of 
these individuals;
    (iii) Is not a current or former member of the board of directors, a 
current or former employee of or a consultant

[[Page 520]]

to a member of the board of directors, chief executive officer, chief 
financial officer of the institution or its parent corporation or at any 
other institution, or a member of the family of any of the above 
individuals; and
    (iv) Is not a current or former student of the institution.
    (c) The Secretary considers that a test is not independently 
administered if an institution--
    (1) Compromises test security or testing procedures;
    (2) Pays a test administrator a bonus, commission, or any other 
incentive based upon the test scores or pass rates of its students who 
take the test;
    (3) Otherwise interferes with the test administrator's independence 
or test administration.
    (d) The Secretary considers that a test is properly administered if 
the test administrator--
    (1) Is certified by the test publisher to give the publisher's test;
    (2) Administers the test in accordance with instructions provided by 
the test publisher, and in a manner that ensures the integrity and 
security of the test;
    (3) Makes the test available only to a test-taker, and then only 
during a regularly scheduled test;
    (4) Secures the test against disclosure or release;
    (5) Submits the completed test to the test publisher within two 
business days after test administration in accordance with the test 
publisher's instructions; and
    (6) Upon request, gives the Secretary, guaranty agency, licensing 
agency, accrediting agency, and law enforcement agencies access to test 
records or other documents related to an audit, investigation, or 
program review of the institution, or test publisher.
    (e) Except as provided in Sec. 668.152, a certified test 
administrator may not score a test.
    (f) A student who fails to pass a test approved under this subpart 
may not retake the same form of the test for the period prescribed by 
the test's publisher.
    (g) An institution shall maintain a record for each student who took 
a test under this subpart of--
    (1) The test taken by the student;
    (2) The date of the test; and
    (3) The student's scores as reported by the test publisher, 
assessment center, or State.

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

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

[60 FR 61842, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996; 67 
FR 67073, Nov. 1, 2002]



Sec. 668.152  Administration of tests by assessment centers.

    (a)(1) If a test is given by an assessment center, the assessment 
center shall properly administer the test as described in 
Sec. 668.151(d).
    (2) [Reserved]
    (b)(1) Unless an agreement between a test publisher and an 
assessment center indicates otherwise, an assessment center scores the 
tests it gives and promptly notifies the institution and the student of 
the student's score on the test and whether the student passed the test.
    (2) If the assessment center scores the test, it must provide 
annually to the test publisher--
    (i) All copies of completed tests; or
    (ii) A report listing all test-takers' scores and institutions to 
which the scores were sent.

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

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

[60 FR 61843, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



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

    Except as provided in Sec. 668.143--
    (a) Students whose native language is not English. For a student 
whose native language is not English and who is not fluent in English, 
the institution shall use the following tests, as applicable:
    (1) If the student is enrolled in a program conducted entirely in 
his or her native language, the student must take a test approved under 
Secs. 668.146 and 668.148(a)(2), or 668.149(b).
    (2) If the student is enrolled in a program that is taught in 
English with an ESL component, and the student is enrolled in that 
program and the ESL

[[Page 521]]

component, the student must take either an ESL test approved under 
Sec. 668.148(b), or a test in the student's native language approved 
under Secs. 668.146, 668.148 or 668.149.
    (3) If the student is enrolled in a program that is taught in 
English without an ESL component, or the student does not enroll in the 
ESL component if the institution offers such a component, the student 
must take a test in English approved under Sec. 668.146.
    (4) If the student enrolls in an ESL program, the student must take 
an ESL test approved under Sec. 668.148(b); and
    (b) Persons with disabilities. (1) An institution shall use a test 
described in Sec. 668.148(a)(3) or 668.149(a) for a student with a 
documented impairment who has neither a high school diploma nor its 
equivalent and who is applying for Title IV, HEA program funds.
    (2) The test must reflect the student's skills and general learned 
abilities rather than reflect the student's impairment.
    (3) The institution shall document that a student is disabled and 
unable to be evaluated by the use of a conventional test from the list 
of tests approved by the Secretary.
    (4) Documentation of a student's impairment may be satisfied by--
    (i) A written determination, including a diagnosis and recommended 
testing accommodations, by a licensed psychologist or medical physician; 
or
    (ii) A record of such a determination by an elementary or secondary 
school or a vocational rehabilitation agency, including a diagnosis and 
recommended testing accommodations.

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

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

[60 FR 61843, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



Sec. 668.154  Institutional accountability.

    An institution shall be liable for the Title IV, HEA program funds 
disbursed to a student whose eligibility is determined under this 
subpart only if the institution--
    (a) Used a test administrator who was not independent of the 
institution at the time the test was given;
    (b) Compromises the testing process in any way; or
    (c) Is unable to document that the student received a passing score 
on an approved test.

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



Sec. 668.155  Transitional rule for the 1996-97 award year.

    (a) Notwithstanding any other provision of this part, an institution 
may continue to base an eligibility determination under section 484(d) 
of the HEA for a student on a test that was an approved test as of June 
30, 1996, and the passing score on that test, until 60 days after the 
Secretary publishes in the Federal Register the name of an approved test 
and the passing score on that test that is appropriate for that student.
    (b) If an institution properly based a student's eligibility 
determination for purposes of section 484(d) of the HEA on a test and 
passing score that was in effect on June 30, 1996, the institution does 
not have to redetermine the student's eligibility based upon a test and 
passing score that was approved under Secs. 668.143 through 668.149.

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



Sec. 668.156  Approved State process.

    (a)(1) A State that wishes the Secretary to consider its State 
process as an alternative to achieving a passing score on an approved, 
independently administered test for the purpose of determining a 
student's eligibility for Title IV, HEA program funds must apply to the 
Secretary for approval of that process.
    (2) To be an approved State process, the State process does not have 
to include all the institutions located in that State, but must indicate 
which institutions are included.
    (b) The Secretary approves a State's process if--
    (1) The State administering the process can demonstrate that the 
students it admits under that process without a high school diploma or 
its equivalent, who enroll in participating institutions have a success 
rate as determined under paragraph (h) of this section that is within 95 
percent of the success rate

[[Page 522]]

of students with high school diplomas; and
    (2) The State's process satisfies the requirements contained in 
paragraphs (c) and (d) of this section.
    (c) A State process must require institutions participating in the 
process to provide each student they admit without a high school diploma 
or its recognized equivalent with the following services--
    (1) Orientation regarding the institution's academic standards and 
requirements, and student rights;
    (2) Assessment of each student's existing capabilities through means 
other than a single standardized test;
    (3) Tutoring in basic verbal and quantitative skills, if 
appropriate;
    (4) Assistance in developing educational goals;
    (5) Counseling, including counseling regarding the appropriate class 
level for that student given the student's individual's capabilities; 
and
    (6) Follow-up by teachers and counselors regarding the student's 
classroom performance and satisfactory progress toward program 
completion.
    (d) A State process must--
    (1) Monitor on an annual basis each participating institution's 
compliance with the requirements and standards contained in the State's 
process;
    (2) Require corrective action if an institution is found to be in 
noncompliance with the State process requirements; and
    (3) Terminate an institution from the State process if the 
institution refuses or fails to comply with the State process 
requirements.
    (e)(1) The Secretary responds to a State's request for approval of 
its State's process within six months after the Secretary's receipt of 
that request. If the Secretary does not respond by the end of six 
months, the State's process becomes effective.
    (2) An approved State process becomes effective for purposes of 
determining student eligibility for Title IV, HEA program funds under 
this subpart six months after the date on which the State submits the 
process to the Secretary for approval, if the Secretary approves, or 
does not disapprove, the process during that six month period.
    (f) The Secretary approves a State process for a period not to 
exceed five years.
    (g)(1) The Secretary withdraws approval of a State process if the 
Secretary determines that the State process violated any terms of this 
section or that the information that the State submitted as a basis for 
approval of the State process was inaccurate.
    (2) The Secretary provides a State with the opportunity to contest a 
finding that the State process violated any terms of this section or 
that the information that the State submitted as a basis for approval of 
the State process was inaccurate.
    (h) The State shall calculate the success rates as referenced in 
paragraph (b) of this section by--
    (1) Determining the number of students with high school diplomas 
who, during the applicable award year described in paragraph (i) of this 
section, enrolled in participating institutions and--
    (i) Successfully completed education or training programs;
    (ii) Remained enrolled in education or training programs at the end 
of that award year; or
    (iii) Successfully transferred to and remained enrolled in another 
institution at the end of that award year;
    (2) Determining the number of students with high school diplomas who 
enrolled in education or training programs in participating institutions 
during that award year;
    (3) Determining the number of students calculated in paragraph 
(h)(2) of this section who remained enrolled after subtracting the 
number of students who subsequently withdrew or were expelled from 
participating institutions and received a 100 percent refund of their 
tuition under the institutions' refund policies;
    (4) Dividing the number of students determined in paragraph (h)(1) 
of this section by the number of students determined in paragraph (h)(3) 
of this section;
    (5) Making the calculations described in paragraphs (h)(1) through 
(h)(4) of this section for students without a high school diploma or its 
recognized equivalent who enrolled in participating institutions.

[[Page 523]]

    (i) For purposes of paragraph (h) of this section, the applicable 
award year is the latest complete award year for which information is 
available that immediately precedes the date on which the State requests 
the Secretary to approve its State process, except that the award year 
selected must be one of the latest two completed award years preceding 
that application date.

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

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

[60 FR 61843, Dec. 1, 1995, as amended at 61 FR 31035, June 19, 1996]



                       Subpart K--Cash Management

    Source: 61 FR 60603, Nov. 29, 1996, unless otherwise noted.



Sec. 668.161  Scope and purpose.

    (a) General. (1) This subpart establishes the rules and procedures 
under which a participating institution requests, maintains, disburses, 
and otherwise manages title IV, HEA program funds. This subpart is 
intended to--
    (i) Promote sound cash management of title IV, HEA program funds by 
an institution;
    (ii) Minimize the financing costs to the Federal Government of 
making title IV, HEA program funds available to a student or an 
institution; and
    (iii) Minimize the costs that accrue to a student under a title IV, 
HEA loan program.
    (2) The rules and procedures that apply to an institution under this 
subpart also apply to a third-party servicer.
    (3) As used in this subpart--
    (i) The title IV, HEA programs include only the Federal Pell Grant, 
FSEOG, Federal Perkins Loan, FWS, Direct Loan, and FFEL programs;
    (ii) The term ``parent'' means a parent borrower under the PLUS 
programs;
    (iii) With regard to the FFEL Programs, the term ``disburse'' means 
the same as deliver loan proceeds under 34 CFR part 682 of the FFEL 
Program regulations; and
    (iv) A day is a calendar day unless otherwise specified.
    (4) FWS Program. An institution must follow the disbursement 
procedures in 34 CFR 675.16 for paying a student his or her wages under 
the FWS Program instead of the disbursement procedures in 
Secs. 668.164(b) through (g) and 668.165.
    (b) Federal interest in title IV, HEA program funds. Except for 
funds received by an institution for administrative expenses and for 
funds used for the Job Location and Development Program under the FWS 
Programs, funds received by an institution under the title IV, HEA 
programs are held in trust for the intended student beneficiaries and 
the Secretary. FFEL program funds are also held in trust for the lenders 
and guaranty agencies, in addition to the student beneficiaries and the 
Secretary, under 34 CFR 682.207. The institution, as a trustee of 
Federal funds, may not use or hypothecate (i.e., use as collateral) 
title IV, HEA program funds for any other purpose.

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

[61 FR 60603, Nov. 29, 1996, as amended at 64 FR 58291, Oct. 28, 1999]



Sec. 668.162  Requesting funds.

    (a) General. (1) The Secretary has sole discretion to determine the 
method under which the Secretary provides title IV, HEA program funds to 
an institution. In accordance with procedures established by the 
Secretary, the Secretary may provide funds to an institution under the 
advance, reimbursement, just-in-time, or cash monitoring payment 
methods.
    (2) Each time an institution requests funds from the Secretary, the 
institution must identify the amount of funds requested by program and 
fiscal year designation that the Secretary assigned to the authorization 
for those funds.
    (b) Advance payment method. Under the advance payment method--
    (1) An institution submits a request for funds to the Secretary. The 
institution's request for funds may not exceed the amount of funds the 
institution needs immediately for disbursements the institution has made 
or will make to eligible students and parents;

[[Page 524]]

    (2) If the Secretary accepts that request, the Secretary initiates 
an electronic funds transfer (EFT) of that amount to a bank account 
designated by the institution; and
    (3) The institution must disburse the funds requested as soon as 
administratively feasible but no later than three business days 
following the date the institution received those funds.
    (c) Just-in-time payment method. Under the just-in-time payment 
method--
    (1) For each student or parent that an institution determines is 
eligible for title IV, HEA program funds, the institution transmits 
electronically to the Secretary, within a timeframe established by the 
Secretary, records that contain program award information for that 
student or parent. As part of those records, the institution reports the 
date and amount of the disbursements that it will make or has made to 
that student or that student's parent;
    (2) For each record the Secretary accepts for a student or parent, 
the Secretary provides by EFT the corresponding disbursement amount to 
the institution on or before the date reported by the institution for 
that disbursement;
    (3) When the institution receives the funds for each record accepted 
by the Secretary, the institution may disburse those funds based on its 
determination at the time the institution transmitted that record to the 
Secretary that the student is eligible for that disbursement; and
    (4) The institution must report any adjustment to a previously 
accepted record within the time established by the Secretary in a notice 
published in the Federal Register.
    (d) Reimbursement payment method. Under the reimbursement payment 
method--
    (1) An institution must first make disbursements to students and 
parents for the amount of funds those students and parents are eligible 
to receive under the Federal Pell Grant, Direct Loan, and campus-based 
programs before the institution may seek reimbursement from the 
Secretary for those disbursements. The Secretary considers an 
institution to have made a disbursement if the institution has either 
credited a student's account or paid a student or parent directly with 
its own funds;
    (2) An institution seeks reimbursement by submitting to the 
Secretary a request for funds that does not exceed the amount of the 
actual disbursements the institution has made to students and parents 
included in that request;
    (3) As part of the institution's reimbursement request, the 
Secretary requires the institution to--
    (i) Identify the students for whom reimbursement is sought; and
    (ii) Submit to the Secretary or entity approved by the Secretary 
documentation that shows that each student and parent included in the 
request was eligible to receive and has received the title IV, HEA 
program funds for which reimbursement is sought; and
    (4) The Secretary approves the amount of the institution's 
reimbursement request for a student or parent and pays the institution 
that amount, if the Secretary determines with regard to that student or 
parent that the institution--
    (i) Accurately determined the student's eligibility for title IV, 
HEA program funds;
    (ii) Accurately determined the amount of title IV, HEA program funds 
paid to the student or parent; and
    (iii) Submitted the documentation required under paragraph (d)(3) of 
this section.
    (e) Cash monitoring payment method. Under the cash monitoring 
payment method, the Secretary provides title IV, HEA program funds to an 
institution under the provisions described in paragraph (e)(1) or (e)(2) 
of this section. Under either paragraph (e)(1) or (e)(2) of this 
section, an institution must first make disbursements to students and 
parents for the amount of title IV, HEA program funds that those 
students and parents are eligible to receive, before the institution--
    (1) Submits a request for funds under the provisions of the advance 
payment ethod described in paragraph (b) of this section, except that 
the institution's request may not exceed the amount of the actual 
disbursements the institution made to the students and parents included 
in that request; or

[[Page 525]]

    (2) Seeks reimbursement for those disbursements under the provisions 
of the reimbursement payment method described in paragraph (d) of this 
section, except that the Secretary may modify the documentation 
requirements and review procedures used to approve the reimbursement 
request.

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

[61 FR 60603, Nov. 29, 1996, as amended at 62 FR 62876, Nov. 25, 1997]



Sec. 668.163  Maintaining and accounting for funds.

    (a)(1) Bank or investment account. An institution must maintain 
title IV, HEA program funds in a bank or investment account that is 
Federally insured or secured by collateral of value reasonably 
equivalent to the amount of those funds.
    (2) For each bank or investment account that includes title IV, HEA 
program funds, an institution must clearly identify that title IV, HEA 
program funds are maintained in that account by--
    (i) Including in the name of each account the phrase ``Federal 
Funds''; or
    (ii)(A) Notifying the bank or investment company of the accounts 
that contain title IV, HEA program funds and retaining a record of that 
notice; and
    (B) Except for a public institution, filing with the appropriate 
State or municipal government entity a UCC-1 statement disclosing that 
the account contains Federal funds and maintaining a copy of that 
statement.
    (b) Separate bank account. The Secretary may require an institution 
to maintain title IV, HEA program funds in a separate bank or investment 
account that contains no other funds if the Secretary determines that 
the institution failed to comply with--
    (1) The requirements in this subpart;
    (2) The recordkeeping and reporting requirements in subpart B of 
this part; or
    (3) Applicable program regulations.
    (c) Interest-bearing or investment account. (1) An institution must 
maintain the Fund described in Sec. 674.8(a) of the Federal Perkins Loan 
Program regulations in an interest-bearing bank account or investment 
account consisting predominately of low-risk, income-producing 
securities, such as obligations issued or guaranteed by the United 
States. Interest or income earned on Fund proceeds are retained by the 
institution as part of the Fund.
    (2) Except as provided in paragraph (c)(3) of this section, an 
institution must maintain Direct Loan, Federal Pell Grant, FSEOG, and 
FWS program funds in an interest-bearing bank account or an investment 
account as described in paragraph (c)(1) of this section.
    (3) An institution does not have to maintain Direct Loan, Federal 
Pell Grant, FSEOG, and FWS program funds in an interest-bearing bank 
account or an investment account for an award year if--
    (i) The institution drew down less than a total of $3 million of 
those funds in the prior award year and anticipates that it will not 
draw down more than that amount in the current award year;
    (ii) The institution demonstrates by its cash management practices 
that it will not earn over $250 on those funds during the award year; or
    (iii) The institution requests those funds from the Secretary under 
the just-in-time payment method.
    (4) If an institution maintains Direct Loan, Federal Pell Grant, 
FSEOG, and FWS program funds in an interest-bearing or investment 
account, the institution may keep the initial $250 it earns on those 
funds during an award year. By June 30 of that award year, the 
institution must remit to the Secretary any earnings over $250.
    (d) Accounting and internal control systems and financial records. 
(1) An institution must maintain accounting and internal control systems 
that--
    (i) Identify the cash balance of the funds of each title IV, HEA 
program that are included in the institution's bank or investment 
account as readily as if those program funds were maintained in a 
separate account; and
    (ii) Identify the earnings on title IV, HEA program funds maintained 
in the institution's bank or investment account.
    (2) An institution must maintain its financial records in accordance 
with the provisions under Sec. 668.24.
    (e) Standard of conduct. An institution must exercise the level of 
care and

[[Page 526]]

diligence required of a fiduciary with regard to maintaining and 
investing title IV, HEA program funds.

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



Sec. 668.164  Disbursing funds.

    (a) Disbursement. (1) Except as provided in paragraph (a)(2) of this 
section, an institution makes a disbursement of title IV, HEA program 
funds on the date that the institution credits a student's account at 
the institution or pays a student or parent directly with--
    (i) Funds received from the Secretary;
    (ii) Funds received from a lender under the FFEL Programs; or
    (iii) Institutional funds used in advance of receiving title IV, HEA 
program funds.
    (2) If, earlier than 10 days before the first day of classes of a 
payment period, or for a student subject to the requirements of 
Sec. 682.604(c)(5) or Sec. 685.303(b)(4) earlier than 30 days after the 
first day of the payment period, an institution credits a student's 
institutional account with institutional funds in advance of receiving 
title IV, HEA program funds, the Secretary considers that the 
institution makes that disbursement on the 10th day before the first day 
of classes, or the 30th day after the beginning of the payment period 
for a student subject to the requirements of Sec. 682.604(c)(5) or 
Sec. 685.303(b)(4).
    (b) Disbursements by payment period. (1) Except as provided in 
paragraph (b)(2) of this section, an institution must disburse title IV, 
HEA program funds on a payment period basis. Except as provided in 
paragraph (g) of this section, an institution may disburse title IV, HEA 
program funds to a student or parent for a payment period only if the 
student is enrolled for classes for that payment period and is eligible 
to receive those funds.
    (2) The provisions of paragraph (b)(1) of this section do not apply 
to the disbursement of FWS Program funds.
    (3) For a student enrolled in an eligible program at an institution 
that measures academic progress in clock hours, in determining whether 
the student completes the clock hours in a payment period, an 
institution may include clock hours for which the student has an excused 
absence if--
    (i) The institution has a written policy that permits excused 
absences; and
    (ii) The number of excused absences under the written policy for 
purposes of this paragraph does not exceed the lesser of--
    (A) The policy on excused absences of the institution's accrediting 
agency or, if the institution has more than one accrediting agency, the 
agency designated under 34 CFR part 600.11(b);
    (B) The policy on excused absences of any State agency that licenses 
the institution or otherwise legally authorizes the institution to 
operate in the State; or
    (C) Ten percent of the clock hours in the payment period.
    (4) For purposes of paragraph (b)(3) of this section, an ``excused 
absence'' is an absence that a student does not have to make up.
    (c) Direct payments. An institution pays a student or parent 
directly by--
    (1) Releasing to the student or parent a check provided by a lender 
to the institution under an FFEL Program;
    (2) Issuing a check or other instrument payable to and requiring the 
endorsement or certification of the student or parent. An institution 
issues a check by--
    (i) Releasing or mailing the check to a student or parent; or
    (ii) Notifying the student or parent that the check is available for 
immediate pickup;
    (3) Initiating an electronic funds transfer (EFT) to a bank account 
designated by the student or parent; or
    (4) Dispensing cash for which an institution obtains a signed 
receipt from the student or parent.
    (d) Crediting a student's account at the institution. (1) Without 
obtaining the student's or parent's authorization under Sec. 668.165, an 
institution may use title IV, HEA program funds to credit a student's 
account at the institution to satisfy current charges for--
    (i) Tuition and fees;
    (ii) Board, if the student contracts with the institution for board; 
and
    (iii) Room, if the student contracts with the institution for room.
    (2) After obtaining the appropriate authorization from a student or 
parent

[[Page 527]]

under Sec. 668.165, the institution may use title IV, HEA program funds 
to credit a student's account at the institution to satisfy--
    (i) Current charges that are in addition to the charges described in 
paragraph (d)(1) of this section that were incurred by the student at 
the institution for educationally related activities; and
    (ii) Minor prior award year charges if these charges are less than 
$100 or if the payment of these charges does not, and will not, prevent 
the student from paying his or her current educational costs.
    (3) If an institution disburses Direct Loan Program funds by 
crediting a student's account at the institution, the institution must 
first credit the student's account with those funds to pay for 
outstanding current and authorized charges.
    (4) For purposes of this paragraph, current charges refers to 
charges assessed the student by the institution for--
    (i) The current award year; or
    (ii) The loan period for which an institution certified or 
originated a loan under the FFEL or Direct Loan programs.
    (e) Credit balances. Whenever an institution disburses title IV, HEA 
program funds by crediting a student's account and the total amount of 
all title IV, HEA program funds credited exceeds the amount of tuition 
and fees, room and board, and other authorized charges the institution 
assessed the student, the institution must pay the resulting credit 
balance directly to the student or parent as soon as possible but--
    (1) No later than 14 days after the balance occurred if the credit 
balance occurred after the first day of class of a payment period; or
    (2) No later than 14 days after the first day of class of a payment 
period if the credit balance occurred on or before the first day of 
class of that payment period.
    (f) Early disbursements. Except as provided under paragraph (f)(3) 
of this section--
    (1) If a student is enrolled in a credit-hour educational program 
that is offered in semester, trimester, or quarter academic terms, the 
earliest an institution may disburse title IV, HEA program funds to a 
student or parent for any payment period is 10 days before the first day 
of classes for a payment period.
    (2) If a student is enrolled in a credit-hour educational program 
that is not offered in semester, trimester, or quarter academic terms, 
or in a clock hour educational program the earliest an institution may 
disburse title IV, HEA program funds to a student or parent for any 
payment period is the later of--
    (i) Ten days before the first day of classes of the payment period; 
or
    (ii) The date the student completed the previous payment period for 
which he or she received title IV, HEA program funds, except that this 
provision does not apply to the payment of Direct Loan or FFEL program 
funds under the conditions described in 34 CFR 685.301 (b)(3)(ii), 
(b)(5), and (b)(6) and 34 CFR 682.604 (c)(6)(ii), (c)(7), and (c)(8), 
respectively.
    (3) The earliest an institution may disburse the initial installment 
of a loan under the Direct Loan or FFEL programs to a first-year, first-
time borrower as described in 34 CFR 682.604(c) and 34 CFR 685.303(b)(4) 
is 30 days after the first day of the student's program of study.
    (g) Late disbursements--(1) Ineligible student. For purposes of this 
paragraph, an otherwise eligible student becomes ineligible to receive 
title IV, HEA program funds on the date that--
    (i) For a loan under the FFEL and Direct Loan programs, the student 
is no longer enrolled at the institution as at least a half-time student 
for the period of enrollment for which the loan was intended; or
    (ii) For an award under the Federal Pell Grant, FSEOG, and Federal 
Perkins Loan programs, the student is no longer enrolled at the 
institution for the award year.
    (2) Conditions for a late disbursement. Except as limited under 
paragraph (g)(4) of this section, a student who becomes ineligible (or 
the student's parent in the case of a PLUS loan) qualifies for a late 
disbursement if, before the date the student became ineligible--

[[Page 528]]

    (i) Except in the case of a PLUS loan, the Secretary processed a SAR 
or ISIR with an official expected family contribution; and
    (ii) (A) For a loan under the FFEL or Direct Loan programs, the 
institution certified or originated the loan; or
    (B) For an award under the Federal Perkins Loan or FSEOG programs, 
the institution made that award to the student.
    (3) Making a late disbursement. Provided that the conditions 
described in paragraph (g)(2) of this section are satisfied--
    (i) If the student withdrew from the institution during a payment 
period or period of enrollment, the institution must make any post-
withdrawal disbursement required under Sec. 668.22(a)(3) in accordance 
with the provisions of Sec. 668.22(a)(4);
    (ii) If the student successfully completed the payment period or 
period of enrollment, the institution must provide the student (or 
parent) the opportunity to receive the amount of title IV, HEA program 
funds that the student (or parent) was eligible to receive while the 
student was enrolled at the institution. For a late disbursement in this 
circumstance, the institution may credit the student's account to pay 
for current and allowable charges as described in paragraph (d) of this 
section, but must pay or offer any remaining amount to the student or 
parent; or
    (iii) If the student did not withdraw but ceased to be enrolled as 
at least a half-time student, the institution may make the late 
disbursement of a loan under the FFEL or Direct Loan programs to pay for 
educational costs that the institution determines the student incurred 
for the period in which the student was eligible.
    (4) Limitations. (i) Generally, an institution may not make a late 
disbursement later than 120 days after the date of the institution's 
determination that the student withdrew, as provided under Sec. 668.22, 
or, for a student who did not withdraw, 120 days after the date the 
student otherwise became ineligible. On an exception basis, and with the 
approval of the Secretary, an institution may make a late disbursement 
after the applicable 120-day period, if the reason the late disbursement 
was not made within the 120-day period was not the fault of the student.
    (ii) An institution may not make a second or subsequent late 
disbursement of a loan under the FFEL or Direct Loan programs unless the 
student successfully completed the period of enrollment for which the 
loan was intended.
    (iii) An institution may not make a late disbursement of a loan 
under the FFEL or Direct Loan programs if the student was a first-year, 
first-time borrower unless the student completed the first 30 days of 
his or her program of study. This limitation does not apply if the 
institution is exempt from the 30-day delayed disbursement requirements 
under Sec. 682.604(c)(5)(i), (ii), or (iii) or Sec. 685.303(b)(4)(i)(A), 
(B), or (C) of this chapter.
    (iv) An institution may not make a late disbursement of a Federal 
Pell Grant unless it received a valid SAR or a valid ISIR for the 
student by the deadline date established by the Secretary in a notice 
published in the Federal Register.

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

[61 FR 60603, Nov. 29, 1996, as amended at 64 FR 59042, Nov. 1, 1999; 67 
FR 67073, Nov. 1, 2003]



Sec. 668.165  Notices and authorizations.

    (a) Notices. (1) Before an institution disburses title IV, HEA 
program funds for any award year, the institution must notify a student 
of the amount of funds that the student or his or her parent can expect 
to receive under each title IV, HEA program, and how and when those 
funds will be disbursed. If those funds include Direct Loan or FFEL 
Program funds, the notice must indicate which funds are from subsidized 
loans and which are from unsubsidized loans.
    (2) If an institution credits a student's account at the institution 
with Direct Loan, FFEL, or Federal Perkins Loan Program funds, the 
institution must notify the student, or parent of--
    (i) The date and amount of the disbursement;
    (ii) The student's right, or parent's right to cancel all or a 
portion of that loan or loan disbursement and have the loan proceeds 
returned to the holder of that loan. However, the institution

[[Page 529]]

does not have to provide this information with regard to FFEL Program 
funds unless the institution received the loan funds from a lender 
through an EFT payment or master check; and
    (iii) The procedures and the time by which the student or parent 
must notify the institution that he or she wishes to cancel the loan or 
loan disbursement.
    (3) The institution must send the notice described in paragraph 
(a)(2) of this section in writing no earlier than 30 days before, and no 
later than 30 days after, crediting the student's account at the 
institution.
    (4)(i) A student or parent must inform the institution if he or she 
wishes to cancel all or a portion of a loan or loan disbursement.
    (ii) The institution must return the loan proceeds, cancel the loan, 
or do both, in accordance with applicable program regulations if the 
institution receives a loan cancellation request either--
    (A) Within 14 days after the date the institution sends the notice 
described in paragraph (a)(2) of this section; or
    (B) If the institution sends the notice described in paragraph 
(a)(2) of this section more than 14 days prior to the first day of the 
payment period, by the first day of the payment period.
    (iii) If a student or parent requests a loan cancellation after the 
period set forth in paragraph (a)(4)(ii) of this section, the 
institution may return the loan proceeds, cancel the loan, or do both, 
in accordance with applicable program regulations.
    (5) An institution must inform a student or parent in writing or 
electronically regarding the outcome of any cancellation request.
    (b) Student or parent authorizations. (1) If an institution obtains 
written authorization from a student or parent, as applicable, the 
institution may--
    (i) Disburse title IV, HEA program funds to a bank account 
designated by the student or parent;
    (ii) Use the student's or parent's title IV, HEA program funds to 
pay for charges described in Sec. 668.164(d)(2) that are included in 
that authorization; and
    (iii) Except if prohibited by the Secretary under the reimbursement 
method, hold on behalf of the student or parent any title IV, HEA 
program funds that would otherwise be paid directly to the student or 
parent under Sec. 668.164(e).
    (2) In obtaining the student's or parent's authorization to perform 
an activity described in paragraph (b)(1) of this section, an 
institution--
    (i) May not require or coerce the student or parent to provide that 
authorization;
    (ii) Must allow the student or parent to cancel or modify that 
authorization at any time; and
    (iii) Must clearly explain how it will carry out that activity.
    (3) A student or parent may authorize an institution to carry out 
the activities described in paragraph (b)(1) of this section for the 
period during which the student is enrolled at the institution.
    (4)(i) If a student or parent modifies an authorization, the 
modification takes effect on the date the institution receives the 
modification notice.
    (ii) If a student or parent cancels an authorization to use title 
IV, HEA program funds to pay for authorized charges under 
Sec. 668.164(d)(2), the institution may use title IV, HEA program funds 
to pay only those authorized charges incurred by the student before the 
institution received the notice.
    (iii) If a student or parent cancels an authorization to hold title 
IV, HEA program funds under paragraph (b)(1)(iii) of this section, the 
institution must pay those funds directly to the student or parent as 
soon as possible but no later than 14 days after the institution 
receives that notice.
    (5) If an institution holds excess student funds under paragraph 
(b)(1)(iii) of this section, the institution must--
    (i) Identify the amount of funds the institution holds for each 
student or parent in a subsidiary ledger account designed for that 
purpose;
    (ii) Maintain, at all times, cash in its bank account in an amount 
at least equal to the amount of funds the institution holds for the 
student; and
    (iii) Notwithstanding any authorization obtained by the institution 
under this paragraph, pay any remaining balance on loan funds by the end 
of the loan period and any remaining other title IV, HEA program funds 
by the end

[[Page 530]]

of the last payment period in the award year for which they were 
awarded.

(Approved by the Office of Management and Budget under control number 
1845-0038)

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

[61 FR 60603, Nov. 29, 1996, as amended at 62 FR 27128, May 16, 1997; 65 
FR 65675, Nov. 1, 2000; 67 FR 67074, Nov. 1, 2003]



Sec. 668.166  Excess cash.

    (a) General. (1) The Secretary considers excess cash to be any 
amount of title IV, HEA program funds, other than Federal Perkins Loan 
Program funds, that an institution does not disburse to students or 
parents by the end of the third business day following the date the 
institution received those funds from the Secretary. Except as provided 
in paragraph (b) of this section, an institution must return promptly to 
the Secretary any amount of excess cash in its account or accounts.
    (2) The provisions in this section do not apply to the title IV, HEA 
program funds that an institution receives from the Secretary under the 
just-in-time payment method.
    (b) Excess cash tolerances. (1) If an institution draws down title 
IV, HEA program funds in excess of its immediate cash needs, the 
institution may maintain the excess cash balance in the account the 
institution established under Sec. 668.164 only if--
    (i) In the award year preceding that drawdown, the amount of that 
excess cash balance is less than--
    (A) For a period of peak enrollment at the institution during which 
that drawdown occurs, three percent of its total prior-year drawdowns; 
or
    (B) For any other period, one percent of its total prior-year 
drawdowns; and
    (ii) Within the next seven days, the institution eliminates its 
excess cash balance by disbursing title IV, HEA program funds to 
students or parents for at least the amount of that balance.
    (2) For the purposes of this section, a period of peak enrollment at 
an institution occurs when at least 25 percent of the institution's 
students start classes during a given 30-day period. For any award year, 
an institution calculates the percentage of students who started classes 
during a given 30-day period by--
    (i) For the prior award year in which the 30-day period began, 
determining the number of students who started classes during that 
period;
    (ii) Determining the total number of students who started classes 
during the entire award year used in paragraph (b)(2)(i) of this 
section;
    (iii) Dividing the number of students in paragraph (b)(2)(i) of this 
section by the number of students in paragraph (b)(2)(ii) of this 
section; and
    (iv) Multiplying the result obtained in paragraph (b)(2)(iii) of 
this section by 100.
    (3) For the purpose of determining the total amount of title IV, HEA 
program funds under paragraph (b)(1)(i) of this section, an institution 
that participates in the Direct Loan Program may include, for the latest 
year for which the Secretary has complete data, the total amount of 
loans guaranteed under the FFEL Program for students attending the 
institution during that year.
    (c) Consequences for maintaining excess cash balances. (1) If the 
Secretary finds that an institution maintains in its account excess cash 
balances greater than those allowed under paragraph (b) of this section, 
the Secretary--
    (i) As provided in paragraph (c)(2) of this section, requires the 
institution to reimburse the Secretary for the costs the Secretary deems 
to have incurred in making those excess funds available to the 
institution; and
    (ii) May initiate a proceeding to fine, limit, suspend, or terminate 
the institution's participation in one or more title IV, HEA programs 
under subpart G of this part.
    (2) For the purposes of this section, upon a finding that an 
institution has maintained excess cash, the Secretary--
    (i) Considers the institution to have issued a check on the date 
that the check cleared the institution's bank account, unless the 
institution demonstrates to the satisfaction of the Secretary that it 
issued the check shortly after the institution wrote the check; and
    (ii) Calculates, or requires the institution to calculate, a 
liability for

[[Page 531]]

maintaining excess cash balances in accordance with procedures 
established by the Secretary. Under those procedures, the Secretary 
assesses a liability that is equal to the difference between the 
earnings that the excess cash balances would have yielded if invested 
under the applicable current value of funds rate and the actual interest 
earned on those balances. The current value of funds rate is an annual 
percentage rate, published in a Treasury Financial Manual (TFM) 
bulletin, that reflects the current value of funds to the Department of 
Treasury based on certain investment rates. The current value of funds 
rate is computed each year by averaging investment rates for the 12-
month period ending every September. The TFM bulletin is published 
annually by the Department of Treasury. Each annual bulletin identifies 
the current value of funds rate and the effective date of that rate.

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

[61 FR 60603, Nov. 29, 1996, as amended at 63 FR 40626, July 29, 1998]



Sec. 668.167  FFEL Program funds.

    (a) Requesting FFEL Program funds. In certifying a loan application 
for a borrower under Sec. 682.603--
    (1) An institution may not request a lender to provide it with loan 
funds by EFT or master check earlier than--
    (i) Twenty-seven days after the first day of classes of the first 
payment period for a first-year, first-time Federal Stafford Loan 
Program borrower as defined in Sec. 682.604(c)(5); or
    (ii) Thirteen days before the first day of classes for any 
subsequent payment period for a first-year, first-time Federal Stafford 
Loan Program borrower or for any payment period for all other Federal 
Stafford Loan Program borrowers; and
    (2) An institution may not request a lender to provide it with loan 
funds by check requiring the endorsement of the borrower earlier than--
    (i) The first day of classes of the first payment period for a 
first-year, first-time Federal Stafford Loan Program borrower as defined 
in Sec. 682.604(c)(5); or
    (ii) Thirty days before the first day of classes for any subsequent 
payment period for a first-year, first-time Federal Stafford Loan 
Program borrower or for any payment period for all other Federal 
Stafford borrowers; and
    (3)(i) An institution may not request a lender to provide it with 
loan funds by EFT or master check for any Federal PLUS Program loan 
earlier than 13 days before the first day of classes for any payment 
period.
    (ii) An institution may not request a lender to provide with loan 
funds by check requiring the endorsement of the borrower for any Federal 
PLUS Program loan earlier than 30 days before the first day of classes 
for any payment period.
    (b) Returning funds to a lender. (1) Except as provided in paragraph 
(c) of this section, an institution must return FFEL Program funds to a 
lender if the institution does not disburse those funds to a student or 
parent for a payment period within--
    (i) Ten business days following the date the institution receives 
the funds if the lender provides those funds to the institution by EFT 
or master check on or after July 1, 1997 but before July 1, 1999;
    (ii) Three business days following the date the institution receives 
the funds if the lender provides those funds to the institution by EFT 
and master check on or after July 1, 1999; or
    (iii) Thirty days after the institution receives the funds if a 
lender provides those funds by a check payable to the borrower or 
copayable to the borrower and the institution.
    (2) If the institution does not disburse the loan funds as specified 
in paragraph (b)(1) or (c) of this section, the institution must return 
those funds to the lender promptly but no later than 10 business days 
after the date the institution is required to disburse the funds.
    (3) If an institution must return loan funds to the lender under 
paragraph (b)(2) of this section and the institution determines that the 
student is eligible to receive the loan funds, the school may disburse 
the funds to the student or parent rather than return them to the lender 
provided the funds are disbursed prior to the end of the applicable 
timeframe under paragraph (b)(2) of this section.

[[Page 532]]

    (c) Delay in returning funds to a lender. An institution may delay 
returning FFEL program funds to a lender for--
    (1) Ten business days after the date set forth in paragraph (b)(1) 
of this section if--
    (i)(A) The institution does not disburse FFEL Program funds to a 
borrower because the student did not complete the required number of 
clock or credit hours in a preceding payment period; and
    (B) The institution expects the student to complete required hours 
within this 10-day period; or
    (ii)(A) The student has not met all the FFEL Programs eligibility 
requirements; and
    (B) The institution expects the student to meet those requirements 
within this 10-day period; or
    (2) Thirty days after the date set forth in paragraph (b) of this 
section for funds a lender provides by EFT or master check if the 
Secretary places the institution on the reimbursement payment method 
under paragraph (d) or (e) of this section.
    (d) An institution placed under the reimbursement payment method. 
(1) If the Secretary places an institution under the reimbursement 
payment method for the Federal Pell Grant, Direct Loan or campus-based 
programs, the institution--
    (i) May not disburse FFEL Program funds to a borrower until the 
Secretary approves a request from the institution to make that 
disbursement for that borrower; and
    (ii) If prohibited by the Secretary, may not certify a borrower's 
loan application until the Secretary approves a request from the 
institution to make that certification for that borrower.
    (2) In order for the Secretary to approve a disbursement or 
certification request from the institution, the institution must submit 
documentation to the Secretary or entity approved by the Secretary that 
shows that each borrower included in that request whose loan has not 
been disbursed or certified is eligible to receive that disbursement or 
certification.
    (3) Pending the Secretary's approval of a disbursement or 
certification request, the Secretary may--
    (i) Prohibit the institution from endorsing a master check or 
obtaining a borrower's endorsement of any loan check the institution 
receives from a lender;
    (ii) Require the institution to maintain loan funds that it receives 
from a lender via EFT in a separate bank account that meets the 
requirements under Sec. 668.164; and
    (iii) Prohibit the institution from certifying a borrower's loan 
application.
    (e) An institution participating solely in the FFEL Programs. If the 
FFEL Programs are the only title IV, HEA programs in which an 
institution participates and the Secretary determines that there is a 
need to monitor strictly the institution's participation in those 
programs, the Secretary may subject the institution to the conditions 
and limitations contained in paragraph (d) of this section.
    (f) An institution placed under the cash monitoring payment method. 
The Secretary may require an institution that is placed under the cash 
monitoring described under paragraph Sec. 668.162(e), to comply with the 
disbursement and certification provisions under paragraph (d) of this 
section, except that the Secretary may modify the documentation 
requirements and review procedures used to approve the institution's 
disbursement or certification request.

(Approved by the Office of Management and Budget under control number 
1840-0697)

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

[61 FR 60603, Nov. 29, 1996, as amended at 62 FR 27128, May 16, 1997; 62 
FR 62877, Nov. 25, 1997; 63 FR 40626, July 29, 1998]



                   Subpart L--Financial Responsibility

    Source: 62 FR 62877, Nov. 25, 1997, unless otherwise noted.



Sec. 668.171  General.

    (a) Purpose. To begin and to continue to participate in any title 
IV, HEA program, an institution must demonstrate to the Secretary that 
it is financially responsible under the standards established in this 
subpart. As provided under section 498(c)(1) of the HEA, the

[[Page 533]]

Secretary determines whether an institution is financially responsible 
based on the institution's ability to--
    (1) Provide the services described in its official publications and 
statements;
    (2) Administer properly the title IV, HEA programs in which it 
participates; and
    (3) Meet all of its financial obligations.
    (b) General standards of financial responsibility. Except as 
provided under paragraphs (c) and (d) of this section, the Secretary 
considers an institution to be financially responsible if the Secretary 
determines that--
    (1) The institution's Equity, Primary Reserve, and Net Income ratios 
yield a composite score of at least 1.5, as provided under Sec. 668.172 
and appendices A and B to this subpart;
    (2) The institution has sufficient cash reserves to make required 
returns of unearned title IV HEA program funds, as provided under 
Sec. 668.173;
    (3) The institution is current in its debt payments. An institution 
is not current in its debt payments if--
    (i) It is in violation of any existing loan agreement at its fiscal 
year end, as disclosed in a note to its audited financial statements or 
audit opinion; or
    (ii) It fails to make a payment in accordance with existing debt 
obligations for more than 120 days, and at least one creditor has filed 
suit to recover funds under those obligations; and
    (4) The institution is meeting all of its financial obligations, 
including but not limited to--
    (i) Refunds that it is required to make under its refund policy, 
including the return of title IV, HEA program funds for which it is 
responsible under Sec. 668.22; and
    (ii) Repayments to the Secretary for debts and liabilities arising 
from the institution's participation in the title IV, HEA programs.
    (c) Public institutions. The Secretary considers a public 
institution to be financially responsible if the institution--
    (1)(i) Notifies the Secretary that it is designated as a public 
institution by the State, local or municipal government entity, tribal 
authority, or other government entity that has the legal authority to 
make that designation; and
    (ii) Provides a letter from an official of that State or other 
government entity confirming that the institution is a public 
institution; and
    (2) Is not in violation of any past performance requirement under 
Sec. 668.174.
    (d) Audit opinions and past performance provisions. Even if an 
institution satisfies all of the general standards of financial 
responsibility under paragraph (b) of this section, the Secretary does 
not consider the institution to be financially responsible if--
    (1) In the institution's audited financial statements, the opinion 
expressed by the auditor was an adverse, qualified, or disclaimed 
opinion, or the auditor expressed doubt about the continued existence of 
the institution as a going concern, unless the Secretary determines that 
a qualified or disclaimed opinion does not have a significant bearing on 
the institution's financial condition; or
    (2) As provided under the past performance provisions in 
Sec. 668.174 (a) and (b)(1), the institution violated a title IV, HEA 
program requirement, or the persons or entities affiliated with the 
institution owe a liability for a violation of a title IV, HEA program 
requirement.
    (e) Administrative actions. If the Secretary determines that an 
institution is not financially responsible under the standards and 
provisions of this section or under an alternative standard in 
Sec. 668.175, or the institution does not submit its financial and 
compliance audits by the date permitted and in the manner required under 
Sec. 668.23, the Secretary may--
    (1) Initiate an action under subpart G of this part to fine the 
institution, or limit, suspend, or terminate the institution's 
participation in the title IV, HEA programs; or
    (2) For an institution that is provisionally certified, take an 
action

[[Page 534]]

against the institution under the procedures established in 
Sec. 668.13(d).

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094 and 1099c and section 4 of Pub. L. 95-452, 92 
Stat. 1101-1109)

[62 FR 62877, Nov. 25, 1997, as amended at 63 FR 40348, July 28, 1998; 
64 FR 59042, Nov. 1, 1999; 65 FR 65637, Nov. 1, 2000; 67 FR 67074, Nov. 
1, 2002]



Sec. 668.172  Financial ratios.

    (a) Appendices A and B, ratio methodology. As provided under 
appendices A and B to this subpart, the Secretary determines an 
institution's composite score by--
    (1) Calculating the result of its Primary Reserve, Equity, and Net 
Income ratios, as described under paragraph (b) of this section;
    (2) Calculating the strength factor score for each of those ratios 
by using the corresponding algorithm;
    (3) Calculating the weighted score for each ratio by multiplying the 
strength factor score by its corresponding weighting percentage;
    (4) Summing the resulting weighted scores to arrive at the composite 
score; and
    (5) Rounding the composite score to one digit after the decimal 
point.
    (b) Ratios. The Primary Reserve, Equity, and Net Income ratios are 
defined under appendix A for proprietary institutions, and under 
appendix B for private non-profit institutions.
    (1) The ratios for proprietary institutions are:
    For proprietary institutions:
    [GRAPHIC] [TIFF OMITTED] TR25NO97.022
    
    (2) The ratios for private non-profit institutions are:
    [GRAPHIC] [TIFF OMITTED] TR25NO97.023
    
    (c) Excluded items. In calculating an institution's ratios, the 
Secretary--
    (1) Generally excludes extraordinary gains or losses, income or 
losses from discontinued operations, prior period adjustments, the 
cumulative effect of changes in accounting principles, and the effect of 
changes in accounting estimates;
    (2) May include or exclude the effects of questionable accounting 
treatments, such as excessive capitalization of marketing costs;

[[Page 535]]

    (3) Excludes all unsecured or uncollateralized related-party 
receivables;
    (4) Excludes all intangible assets defined as intangible in 
accordance with generally accepted accounting principles; and
    (5) Excludes from the ratio calculations Federal funds provided to 
an institution by the Secretary under program authorized by the HEA only 
if--
    (i) In the notes to the institution's audited financial statement, 
or as a separate attestation, the auditor discloses by name and CFDA 
number, the amount of HEA program funds reported as expenses in the 
Statement of Activities for the fiscal year covered by that audit or 
attestation; and
    (ii) The institution's composite score, as determined by the 
Secretary, is less than 1.5 before the reported expenses arising from 
those HEA funds are excluded from the ratio calculations.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094 and 1099c and section 4 of Pub. L. 95-452, 92 
Stat. 1101-1109)

[62 FR 62877, Nov. 25, 1997, as amended at 63 FR 40348, July 28, 1998; 
65 FR 65637, Nov. 1, 2000]



Sec. 668.173  Refund reserve standards.

    (a) General. The Secretary considers that an institution has 
sufficient cash reserves, as required under Sec. 668.171(b)(2), if the 
institution--
    (1) Satisfies the requirements for a public institution under 
Sec. 668.171(c)(1);
    (2) Is located in a State that has a tuition recovery fund approved 
by the Secretary and the institution contributes to that fund; or
    (3) Returns, in a timely manner as described in paragraph (b) of 
this section, unearned title IV, HEA program funds that it is 
responsible for returning under the provisions of Sec. 668.22 for a 
student that withdrew from the institution.
    (b) Timely return of title IV, HEA program funds. In accordance with 
procedures established by the Secretary or FFEL Program lender, an 
institution returns unearned title IV, HEA funds timely if--
    (1) The institution deposits or transfers the funds into the bank 
account it maintains under Sec. 668.163 no later than 30 days after the 
date it determines that the student withdrew;
    (2) The institution initiates an electronic funds transfer (EFT) no 
later than 30 days after the date it determines that the student 
withdrew;
    (3) The institution initiates an electronic transaction, no later 
than 30 days after the date it determines that the student withdrew, 
that informs an FFEL lender to adjust the borrower's loan account for 
the amount returned; or
    (4) The institution issues a check no later than 30 days after the 
date it determines that the student withdrew. However, the Secretary 
considers that the institution did not satisfy this requirement if--
    (i) The institution's records show that the check was issued more 
than 30 days after the date the institution determined that the student 
withdrew; or
    (ii) The date on the cancelled check shows that the bank used by the 
Secretary or FFEL Program lender endorsed that check more than 45 days 
after the date the institution determined that the student withdrew.
    (c) Compliance thresholds. (1) An institution does not comply with 
the reserve standard under Sec. 668.173(a)(3) if, in a compliance audit 
conducted under Sec. 668.23, an audit conducted by the Office of the 
Inspector General, or a program review conducted by the Department or 
guaranty agency, the auditor or reviewer finds--
    (i) In the sample of student records audited or reviewed that the 
institution did not return unearned title IV, HEA program funds within 
the timeframes described in paragraph (b) of this section for 5% or more 
of the students in the sample. (For purposes of determining this 
percentage, the sample includes only students for whom the institution 
was required to return unearned funds during its most recently completed 
fiscal year.); or
    (ii) A material weakness or reportable condition in the 
institution's report on internal controls relating to the return of 
unearned title IV, HEA program funds.
    (2) The Secretary does not consider an institution to be out of 
compliance with the reserve standard under Sec. 668.173(a)(3) if the 
institution is cited

[[Page 536]]

in any audit or review report because it did not return unearned funds 
in a timely manner for one or two students, or for less than 5% of the 
students in the sample referred to in paragraph (c)(1)(i) of this 
section.
    (d) Letter of credit. (1) Except as provided under paragraph (e)(1) 
of this section, an institution that can satisfy the reserve standard 
only under paragraph (a)(3) of this section, must submit an irrevocable 
letter of credit acceptable and payable to the Secretary if a finding in 
an audit or review shows that the institution exceeded the compliance 
thresholds in paragraph (c) of this section for either of its two most 
recently completed fiscal years.
    (2) The amount of the letter of credit required under paragraph 
(d)(1) of this section is 25 percent of the total amount of unearned 
title IV, HEA program funds that the institution was required to return 
under Sec. 668.22 during the institution's most recently completed 
fiscal year.
    (3) An institution that is subject to paragraph (d)(1) of this 
section must submit to the Secretary a letter of credit no later than 30 
days after the earlier of the date that--
    (i) The institution is required to submit its compliance audit;
    (ii) The Office of the Inspector General issues a final audit 
report;
    (iii) The designated department official issues a final program 
review determination;
    (iv) The Department issues a preliminary program review report or 
draft audit report, or a guaranty agency issues a preliminary report 
showing that the institution did not return unearned funds for more than 
10% of the sampled students; or
    (v) The Secretary sends a written notice to the institution 
requesting the letter of credit that explains why the institution has 
failed to return unearned funds in a timely manner.
    (e) Exceptions. With regard to the letter of credit described in 
paragraph (d) of this section--
    (1) An institution does not have to submit the letter of credit if 
the amount calculated under paragraph (d)(2) of this section is less 
than $5,000 and the institution can demonstrate that it has cash 
reserves of at least $5,000 available at all times.
    (2) An institution may delay submitting the letter of credit and 
request the Secretary to reconsider a finding made in its most recent 
audit or review report that it failed to return unearned title IV, HEA 
program funds in a timely manner if--
    (i)(A) The institution submits documents showing that the unearned 
title IV, HEA program funds were not returned in a timely manner solely 
because of exceptional circumstances beyond the institution's control 
and that the institution would not have exceeded the compliance 
thresholds under paragraph (c)(1) of this section had it not been for 
these exceptional circumstances; or
    (B) The institution submits documents showing that it did not fail 
to make timely refunds as provided under paragraphs (b) and (c) of this 
section; and
    (ii) The institution's request, along with the documents described 
in paragraph (e)(2)(i) of this section, is submitted to the Secretary no 
later than the date it would otherwise be required to submit a letter of 
credit under paragraph (d)(3).
    (3) If the Secretary denies the institution's request under 
paragraph (e)(2) of this section, the Secretary notifies the institution 
of the date it must submit the letter of credit.
    (f) State tuition recovery funds. In determining whether to approve 
a State's tuition recovery fund, the Secretary considers the extent to 
which that fund--
    (1) Provides refunds to both in-State and out-of-State students;
    (2) Allocates all refunds in accordance with the order required 
under Sec. 668.22; and
    (3) Provides a reliable mechanism for the State to replenish the 
fund should any claims arise that deplete the fund's assets.

(Authority: 20 U.S.C. 1094 and 1099c and section 4 of Pub. L. 95-452, 92 
Stat. 1101-1109)

(Approved by the Office of Management and Budget under control number 
1845-0022)

[62 FR 62877, Nov. 25, 1997, as amended at 63 FR 40348, July 28, 1998; 
64 FR 59042, Nov. 1, 1999; 67 FR 67074, Nov. 1, 2003]

[[Page 537]]



Sec. 668.174  Past performance.

    (a) Past performance of an institution. An institution is not 
financially responsible if the institution--
    (1) Has been limited, suspended, terminated, or entered into a 
settlement agreement to resolve a limitation, suspension, or termination 
action initiated by the Secretary or a guaranty agency, as defined in 34 
CFR part 682, within the preceding five years;
    (2) In either of its two most recent compliance audits had an audit 
finding, or in a report issued by the Secretary had a program review 
finding for its current fiscal year or either of its preceding two 
fiscal years, that resulted in the institution's being required to repay 
an amount greater than 5 percent of the funds that the institution 
received under the title IV, HEA programs during the year covered by 
that audit or program review;
    (3) Has been cited during the preceding five years for failure to 
submit in a timely fashion acceptable compliance and financial statement 
audits required under this part, or acceptable audit reports required 
under the individual title IV, HEA program regulations; or
    (4) Has failed to resolve satisfactorily any compliance problems 
identified in audit or program review reports based upon a final 
decision of the Secretary issued pursuant to subpart G or H of this 
part.
    (b) Past performance of persons affiliated with an institution. 
(1)(i) Except as provided under paragraph (b)(2) of this section, an 
institution is not financially responsible if a person who exercises 
substantial control over the institution, as described under 34 CFR 
600.30, or any member or members of that person's family, alone or 
together--
    (A) Exercises or exercised substantial control over another 
institution or a third-party servicer that owes a liability for a 
violation of a title IV, HEA program requirement; or
    (B) Owes a liability for a violation of a title IV, HEA program 
requirement; and
    (ii) That person, family member, institution, or servicer does not 
demonstrate that the liability is being repaid in accordance with an 
agreement with the Secretary.
    (2) The Secretary may determine that an institution is financially 
responsible, even if the institution is not otherwise financially 
responsible under paragraph (b)(1) of this section, if--
    (i) The institution notifies the Secretary, within the time 
permitted and in the manner provided under 34 CFR 600.30, that the 
person referenced in paragraph (b)(1) of this section exercises 
substantial control over the institution; and
    (ii) The person referenced in paragraph (b)(1) of this section 
repaid to the Secretary a portion of the applicable liability, and the 
portion repaid equals or exceeds the greater of--
    (A) The total percentage of the ownership interest held in the 
institution or third-party servicer that owes the liability by that 
person or any member or members of that person's family, either alone or 
in combination with one another;
    (B) The total percentage of the ownership interest held in the 
institution or servicer that owes the liability that the person or any 
member or members of the person's family, either alone or in combination 
with one another, represents or represented under a voting trust, power 
of attorney, proxy, or similar agreement; or
    (C) Twenty-five percent, if the person or any member of the person's 
family is or was a member of the board of directors, chief executive 
officer, or other executive officer of the institution or servicer that 
owes the liability, or of an entity holding at least a 25 percent 
ownership interest in the institution that owes the liability; or
    (iii) The applicable liability described in paragraph (b)(1) of this 
section is currently being repaid in accordance with a written agreement 
with the Secretary; or
    (iv) The institution demonstrates to the satisfaction of the 
Secretary why--
    (A) The person who exercises substantial control over the 
institution should nevertheless be considered to lack that control; or
    (B) The person who exercises substantial control over the 
institution

[[Page 538]]

and each member of that person's family nevertheless does not or did not 
exercise substantial control over the institution or servicer that owes 
the liability.
    (c) Ownership interest. (1) An ownership interest is a share of the 
legal or beneficial ownership or control of, or a right to share in the 
proceeds of the operation of, an institution, an institution's parent 
corporation, a third-party servicer, or a third-party servicer's parent 
corporation. The term ``ownership interest'' includes, but is not 
limited to--
    (i) An interest as tenant in common, joint tenant, or tenant by the 
entireties;
    (ii) A partnership; and
    (iii) An interest in a trust.
    (2) The term ``ownership interest'' does not include any share of 
the ownership or control of, or any right to share in the proceeds of 
the operation of a profit-sharing plan, provided that all employees are 
covered by the plan.
    (3) The Secretary generally considers a person to exercise 
substantial control over an institution or third-party servicer if the 
person--
    (i) Directly or indirectly holds at least a 25 percent ownership 
interest in the institution or servicer;
    (ii) Holds, together with other members of his or her family, at 
least a 25 percent ownership interest in the institution or servicer;
    (iii) Represents, either alone or together with other persons under 
a voting trust, power of attorney, proxy, or similar agreement, one or 
more persons who hold, either individually or in combination with the 
other persons represented or the person representing them, at least a 25 
percent ownership in the institution or servicer; or
    (iv) Is a member of the board of directors, a general partner, the 
chief executive officer, or other executive officer of--
    (A) The institution or servicer; or
    (B) An entity that holds at least a 25 percent ownership interest in 
the institution or servicer.
    (4) ``Family member'' is defined in Sec. 600.21(f) of this chapter.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094 and 1099c and section 4 of Pub. L. 95-452, 92 
Stat. 1101-1109)

[62 FR 62877, Nov. 25, 1997, as amended at 63 FR 40348, 40349, July 28, 
1998; 67 FR 67075, Nov. 1, 2002]



Sec. 668.175  Alternative standards and requirements.

    (a) General. An institution that is not financially responsible 
under the general standards and provisions in Sec. 668.171, may begin or 
continue to participate in the title IV, HEA programs by qualifying 
under an alternate standard set forth in this section.
    (b) Letter of credit alternative for new institutions. A new 
institution that is not financially responsible solely because the 
Secretary determines that its composite score is less than 1.5, 
qualifies as a financially responsible institution by submitting an 
irrevocable letter of credit, that is acceptable and payable to the 
Secretary, for an amount equal to at least one-half of the amount of 
title IV, HEA program funds that the Secretary determines the 
institution will receive during its initial year of participation. A new 
institution is an institution that seeks to participate for the first 
time in the title IV, HEA programs.
    (c) Letter of credit alternative for participating institutions. A 
participating institution that is not financially responsible either 
because it does not satisfy one or more of the standards of financial 
responsibility under Sec. 668.171(b), or because of an audit opinion 
described under Sec. 668.171(d), qualifies as a financially responsible 
institution by submitting an irrevocable letter of credit, that is 
acceptable and payable to the Secretary, for an amount determined by the 
Secretary that is not less than one-half of the title IV, HEA program 
funds received by the institution during its most recently completed 
fiscal year.
    (d) Zone alternative. (1) A participating institution that is not 
financially responsible solely because the

[[Page 539]]

Secretary determines that its composite score is less than 1.5 may 
participate in the title IV, HEA programs as a financially responsible 
institution for no more than three consecutive years, beginning with the 
year in which the Secretary determines that the institution qualifies 
under this alternative. (i)(A) An institution qualifies initially under 
this alternative if, based on the institution's audited financial 
statement for its most recently completed fiscal year, the Secretary 
determines that its composite score is in the range from 1.0 to 1.4; and
    (B) An institution continues to qualify under this alternative if, 
based on the institution's audited financial statement for each of its 
subsequent two fiscal years, the Secretary determines that the 
institution's composite score is in the range from 1.0 to 1.4.
    (ii) An institution that qualified under this alternative for three 
consecutive years or for one of those years, may not seek to qualify 
again under this alternative until the year after the institution 
achieves a composite score of at least 1.5, as determined by the 
Secretary.
    (2) Under this zone alternative, the Secretary--
    (i) Requires the institution to make disbursements to eligible 
students and parents under either the cash monitoring or reimbursement 
payment method described in Sec. 668.162;
    (ii) Requires the institution to provide timely information 
regarding any of the following oversight and financial events--
    (A) Any adverse action, including a probation or similar action, 
taken against the institution by its accrediting agency;
    (B) Any event that causes the institution, or related entity as 
defined in the Statement of Financial Accounting Standards (SFAS) 57, to 
realize any liability that was noted as a contingent liability in the 
institution's or related entity's most recent audited financial 
statement;
    (C) Any violation by the institution of any loan agreement;
    (D) Any failure of the institution to make a payment in accordance 
with its debt obligations that results in a creditor filing suit to 
recover funds under those obligations;
    (E) Any withdrawal of owner's equity from the institution by any 
means, including by declaring a dividend; or
    (F) Any extraordinary losses, as defined in accordance with 
Accounting Principles Board (APB) Opinion No. 30.
    (iii) May require the institution to submit its financial statement 
and compliance audits earlier than the time specified under 
Sec. 668.23(a)(4); and
    (iv) May require the institution to provide information about its 
current operations and future plans.
    (3) Under the zone alternative, the institution must--
    (i) For any oversight or financial event described under paragraph 
(d)(2)(ii) of this section for which the institution is required to 
provide information, provide that information to the Secretary by 
certified mail or electronic or facsimile transmission no later than 10 
days after that event occurs. An institution that provides this 
information electronically or by facsimile transmission is responsible 
for confirming that the Secretary received a complete and legible copy 
of that transmission; and
    (ii) As part of its compliance audit, require its auditor to express 
an opinion on the institution's compliance with the requirements under 
the zone alternative, including the institution's administration of the 
payment method under which the institution received and disbursed title 
IV, HEA program funds.
    (4) If an institution fails to comply with the requirements under 
paragraphs (d) (2) or (3) of this section, the Secretary may determine 
that the institution no longer qualifies under this alternative.
    (e) Transition year alternative. A participating institution that is 
not financially responsible solely because the Secretary determines that 
its composite score is less than 1.5 for the institution's fiscal year 
that began on or after July 1, 1997 but on or before June 30, 1998, may 
qualify as a financially responsible institution under the provisions in 
Sec. 668.15(b)(7), (b)(8), (d)(2)(ii), or (d)(3), as applicable.

[[Page 540]]

    (f) Provisional certification alternative. (1) The Secretary may 
permit an institution that is not financially responsible to participate 
in the title IV, HEA programs under a provisional certification for no 
more than three consecutive years if--
    (i) The institution is not financially responsible because it does 
not satisfy the general standards under Sec. 668.171(b) or because of an 
audit opinion described under Sec. 668.171(d); or
    (ii) The institution is not financially responsible because of a 
condition of past performance, as provided under Sec. 668.174(a), and 
the institution demonstrates to the Secretary that it has satisfied or 
resolved that condition.
    (2) Under this alternative, the institution must--
    (i) Submit to the Secretary an irrevocable letter of credit that is 
acceptable and payable to the Secretary, for an amount determined by the 
Secretary that is not less than 10 percent of the title IV, HEA program 
funds received by the institution during its most recently completed 
fiscal year, except that this requirement does not apply to a public 
institution;
    (ii) Demonstrate that it was current on its debt payments and has 
met all of its financial obligations, as required under Sec. 668.171 
(b)(3) and (b)(4), for its two most recent fiscal years; and
    (iii) Comply with the provisions under the zone alternative, as 
provided under paragraph (d) (2) and (3) of this section.
    (3) If at the end of the period for which the Secretary 
provisionally certified the institution, the institution is still not 
financially responsible, the Secretary may again permit the institution 
to participate under a provisional certification, but the Secretary--
    (i) May require the institution, or one or more persons or entities 
that exercise substantial control over the institution, as determined 
under Sec. 668.174(b)(1) and (c), or both, to submit to the Secretary 
financial guarantees for an amount determined by the Secretary to be 
sufficient to satisfy any potential liabilities that may arise from the 
institution's participation in the title IV, HEA programs; and
    (ii) May require one or more of the persons or entities that 
exercise substantial control over the institution, as determined under 
Sec. 668.174(b)(1) and (c), to be jointly or severally liable for any 
liabilities that may arise from the institution's participation in the 
title IV, HEA programs.
    (g) Provisional certification alternative for persons or entities 
owing liabilities. (1) The Secretary may permit an institution that is 
not financially responsible because the persons or entities that 
exercise substantial control over the institution owe a liability for a 
violation of a title IV, HEA program requirement, to participate in the 
title IV, HEA programs under a provisional certification only if--
    (i)(A) The persons or entities that exercise substantial control, as 
determined under Sec. 668.174(b)(1) and (c), repay or enter into an 
agreement with the Secretary to repay the applicable portion of that 
liability, as provided under Sec. 668.174(b)(2)(ii); or
    (B) The institution assumes that liability, and repays or enters 
into an agreement with the Secretary to repay that liability;
    (ii) The institution satisfies the general standards and provisions 
of financial responsibility under Sec. 668.171(b) and (d)(1), except 
that institution must demonstrate that it was current on its debt 
payments and has met all of its financial obligations, as required under 
Sec. 668.171 (b)(3) and (b)(4), for its two most recent fiscal years; 
and
    (iii) The institution submits to the Secretary an irrevocable letter 
of credit that is acceptable and payable to the Secretary, for an amount 
determined by the Secretary that is not less than 10 percent of the 
title IV, HEA program funds received by the institution during its most 
recently completed fiscal year.
    (2) Under this alternative, the Secretary--
    (i) Requires the institution to comply with the provisions under the 
zone alternative, as provided under paragraph (d) (2) and (3) of this 
section;
    (ii) May require the institution, or one or more persons or entities 
that exercise substantial control over the institution, or both, to 
submit to the Secretary financial guarantees for an

[[Page 541]]

amount determined by the Secretary to be sufficient to satisfy any 
potential liabilities that may arise from the institution's 
participation in the title IV, HEA programs; and
    (iii) May require one or more of the persons or entities that 
exercise substantial control over the institution to be jointly or 
severally liable for any liabilities that may arise from the 
institution's participation in the title IV, HEA programs.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1094 and 1099c and section 4 of Pub. L. 95-452, 92 
Stat. 1101-1109)

[62 FR 62877, Nov. 25, 1997, as amended at 63 FR 40348, 40349, July 28, 
1998]

[[Page 542]]

 Appendix A to Subpart L of Part 668--Ratio Methodology for Proprietary 
                              Institutions
[GRAPHIC] [TIFF OMITTED] TR25NO97.014


[[Page 543]]


[GRAPHIC] [TIFF OMITTED] TR25NO97.015


[[Page 544]]


[GRAPHIC] [TIFF OMITTED] TR25NO97.016


[62 FR 62882, Nov. 25, 1997. Redesignated at 65 FR 65650, Nov. 1, 2000]

[[Page 545]]

 Appendix B to Subpart L of Part 668--Ratio Methodology for Private Non-
                           Profit Institutions
[GRAPHIC] [TIFF OMITTED] TC15NO91.218


[[Page 546]]


[GRAPHIC] [TIFF OMITTED] TR25NO97.018


[[Page 547]]


[GRAPHIC] [TIFF OMITTED] TR25NO97.019


[62 FR 62885, Nov. 25, 1997, as amended at 63 FR 40349, July 28, 1998. 
Redesignated at 65 FR 65650, Nov. 1, 2000]

[[Page 548]]

                     Subpart M--Cohort Default Rates

    Source: 65 FR 65638, Nov. 1, 2000, unless otherwise noted.

Sec. 668.181  Purpose of this subpart.

    Your cohort default rate is a measure we use to determine your 
eligibility to participate in various Title IV, HEA programs. We may 
also use it for determining your eligibility for exemptions, such as 
those for certain disbursement requirements under the FFEL and Direct 
Loan Programs. This subpart describes how cohort default rates are 
calculated, some of the consequences of cohort default rates, and how 
you may request changes to your cohort default rates or appeal their 
consequences. Under this subpart, you submit a ``challenge'' after you 
receive your draft cohort default rate, and you request an 
``adjustment'' or ``appeal'' after your official cohort default rate is 
published.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.182  Definitions of terms used in this subpart.

    We use the following definitions in this subpart:
    (a) Cohort. Your cohort is a group of borrowers used to determine 
your cohort default rate. The method for identifying the borrowers in a 
cohort is provided in Sec. 668.183(b).
    (b) Data manager. (1) For FFELP loans held by a guaranty agency or 
lender, the guaranty agency is the data manager.
    (2) For FFELP loans that we hold, we are the data manager.
    (3) For Direct Loan Program loans, the Direct Loan Servicer, as 
defined in 34 CFR 685.102, is the data manager.
    (c) Days. In this subpart, ``days'' means calendar days.
    (d) Default. A borrower is considered to be in default for cohort 
default rate purposes under the rules in Sec. 668.183(c).
    (e) Draft cohort default rate. Your draft cohort default rate is a 
rate we issue, for your review, before we issue your official cohort 
default rate. A draft cohort default rate is used only for the purposes 
described in Sec. 668.185.
    (f) Entering repayment. (1) Except as provided in paragraphs (f)(2) 
and (f)(3) of this section, loans are considered to enter repayment on 
the dates described in 34 CFR 682.200 (under the definition of 
``repayment period'') and in 34 CFR 685.207.
    (2) A Federal SLS loan is considered to enter repayment--
    (i) At the same time the borrower's Federal Stafford loan enters 
repayment, if the borrower received the Federal SLS loan and the Federal 
Stafford loan during the same period of continuous enrollment; or
    (ii) In all other cases, on the day after the student ceases to be 
enrolled at an institution on at least a half-time basis in an 
educational program leading to a degree, certificate, or other 
recognized educational credential.
    (3) For the purposes of this subpart, a loan is considered to enter 
repayment on the date that a borrower repays it in full, if the loan is 
paid in full before the loan enters repayment under paragraphs (f)(1) or 
(f)(2) of this section.
    (g) Fiscal year. A fiscal year begins on October 1 and ends on the 
following September 30. A fiscal year is identified by the calendar year 
in which it ends.
    (h) Loan record detail report. The loan record detail report is a 
report that we produce. It contains the data used to calculate your 
draft or official cohort default rate.
    (i) Official cohort default rate. Your official cohort default rate 
is the cohort default rate that we publish for you under Sec. 668.186. 
Cohort default rates calculated under this subpart are not related in 
any way to cohort default rates that are calculated for the Federal 
Perkins Loan Program.
    (j) We. We are the Department, the Secretary, or the Secretary's 
designee.
    (k) You. You are an institution.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.183  Calculating and applying cohort default rates.

    (a) General. This section describes the four steps that we follow to 
calculate and apply your cohort default rate for a fiscal year:

[[Page 549]]

    (1) First, under paragraph (b) of this section, we identify the 
borrowers in your cohort for the fiscal year. If the total number of 
borrowers in that cohort is fewer than 30, we also identify the 
borrowers in your cohorts for the 2 most recent prior fiscal years.
    (2) Second, under paragraph (c) of this section, we identify the 
borrowers in the cohort (or cohorts) who are considered to be in 
default. If more than one cohort will be used to calculate your cohort 
default rate, we identify defaulted borrowers separately for each 
cohort.
    (3) Third, under paragraph (d) of this section, we calculate your 
cohort default rate.
    (4) Fourth, we apply your cohort default rate to all of your 
locations--
    (i) As you exist on the date you receive the notice of your official 
cohort default rate; and
    (ii) From the date on which you receive the notice of your official 
cohort default rate until you receive our notice that the cohort default 
rate no longer applies.
    (b) Identify the borrowers in a cohort. (1) Your cohort for a fiscal 
year consists of all of your current and former students who, during 
that fiscal year, entered repayment on any Federal Stafford loan, 
Federal SLS loan, Direct Subsidized loan, or Direct Unsubsidized loan 
that they received to attend your institution, or on the portion of a 
loan made under the Federal Consolidation Loan Program or the Federal 
Direct Consolidation Loan Program (as defined in 34 CFR 685.102) that is 
used to repay those loans.
    (2) A borrower may be included in more than one of your cohorts and 
may be included in the cohorts of more than one institution in the same 
fiscal year.
    (c) Identify the borrowers in a cohort who are in default. (1) 
Except as provided in paragraph (c)(2) of this section, for the purposes 
of this subpart a borrower in a cohort for a fiscal year is considered 
to be in default if--
    (i) Before the end of the following fiscal year, the borrower 
defaults on any FFELP loan that was used to include the borrower in the 
cohort or on any Federal Consolidation Loan Program loan that repaid a 
loan that was used to include the borrower in the cohort (however, a 
borrower is not considered to be in default unless a claim for insurance 
has been paid on the loan by a guaranty agency or by us);
    (ii) Before the end of the following fiscal year, the borrower fails 
to make an installment payment, when due, on any Direct Loan Program 
loan that was used to include the borrower in the cohort or on any 
Federal Direct Consolidation Loan Program loan that repaid a loan that 
was used to include the borrower in the cohort, and the borrower's 
failure persists for 360 days (or for 270 days, if the borrower's first 
day of delinquency was before October 7, 1998); or
    (iii) Before the end of the following fiscal year, you or your 
owner, agent, contractor, employee, or any other affiliated entity or 
individual make a payment to prevent a borrower's default on a loan that 
is used to include the borrower in that cohort.
    (2) A borrower is not considered to be in default based on a loan 
that is, before the end of the fiscal year immediately following the 
fiscal year in which it entered repayment--
    (i) Rehabilitated under 34 CFR 682.405 or 34 CFR 685.211(e); or
    (ii) Repurchased by a lender because the claim for insurance was 
submitted or paid in error.
    (d) Calculate the cohort default rate. Except as provided in 
Sec. 668.184, if there are--
    (1) Thirty or more borrowers in your cohort for a fiscal year, your 
cohort default rate is the percentage that is derived by dividing--
    (i) The number of borrowers in the cohort who are in default, as 
determined under paragraph (c) of this section; by
    (ii) The number of borrowers in the cohort, as determined under 
paragraph (b) of this section.
    (2) Fewer than 30 borrowers in your cohort for a fiscal year, your 
cohort default rate is the percentage that is derived by dividing--
    (i) The total number of borrowers in that cohort and in the two most 
recent prior cohorts who are in default, as determined for each cohort 
under paragraph (c) of this section; by
    (ii) The total number of borrowers in that cohort and the two most 
recent

[[Page 550]]

prior cohorts, as determined for each cohort under paragraph (b) of this 
section.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

[65 FR 65638, Nov. 1, 2000, as amended at 67 FR 67075, Nov. 1, 2002]

Sec. 668.184  Determining cohort default rates for institutions that 
          have undergone a change in status.

    (a) General. (1) If you undergo a change in status identified in 
this section, your cohort default rate is determined under this section.
    (2) In determining cohort default rates under this section, the date 
of a merger, acquisition, or other change in status is the date the 
change occurs.
    (3) A change in status may affect your eligibility to participate in 
Title IV, HEA programs under Sec. 668.187 or Sec. 668.188.
    (4) If another institution's cohort default rate is applicable to 
you under this section, you may challenge, request an adjustment, or 
submit an appeal for the cohort default rate under the same requirements 
that would be applicable to the other institution under Secs. 668.185 
and 668.189.
    (b) Acquisition or merger of institutions. If your institution 
acquires, or was created by the merger of, one or more institutions that 
participated independently in the Title IV, HEA programs immediately 
before the acquisition or merger--
    (1) For the cohort default rates published before the date of the 
acquisition or merger, your cohort default rates are the same as those 
of your predecessor that had the highest total number of borrowers 
entering repayment in the two most recent cohorts used to calculate 
those cohort default rates; and
    (2) Beginning with the first cohort default rate published after the 
date of the acquisition or merger, your cohort default rates are 
determined by including the applicable borrowers from each institution 
involved in the acquisition or merger in the calculation under 
Sec. 668.183.
    (c) Acquisition of branches or locations. If you acquire a branch or 
a location from another institution participating in the Title IV, HEA 
programs--
    (1) The cohort default rates published for you before the date of 
the change apply to you and to the newly acquired branch or location;
    (2) Beginning with the first cohort default rate published after the 
date of the change, your cohort default rates for the next 3 fiscal 
years are determined by including the applicable borrowers from your 
institution and the other institution (including all of its locations) 
in the calculation under Sec. 668.183;
    (3) After the period described in paragraph (c)(2) of this section, 
your cohort default rates do not include borrowers from the other 
institution in the calculation under Sec. 668.183; and
    (4) At all times, the cohort default rate for the institution from 
which you acquired the branch or location is not affected by this change 
in status.
    (d) Branches or locations becoming institutions. If you are a branch 
or location of an institution that is participating in the Title IV, HEA 
programs, and you become a separate, new institution for the purposes of 
participating in those programs--
    (1) The cohort default rates published before the date of the change 
for your former parent institution are also applicable to you;
    (2) Beginning with the first cohort default rate published after the 
date of the change, your cohort default rates for the next 3 fiscal 
years are determined by including the applicable borrowers from your 
institution and your former parent institution (including all of its 
locations) in the calculation under Sec. 668.183; and
    (3) After the period described in paragraph (d)(2) of this section, 
your cohort default rates do not include borrowers from your former 
parent institution in the calculation under Sec. 668.183.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.185  Draft cohort default rates and your ability to challenge 
          before official cohort default rates are issued.

    (a) General. (1) We notify you of your draft cohort default rate 
before your

[[Page 551]]

official cohort default rate is calculated. Our notice includes the loan 
record detail report for the draft cohort default rate.
    (2) Regardless of the number of borrowers included in your cohort, 
your draft cohort default rate is always calculated using data for that 
fiscal year alone, using the method described in Sec. 668.183(d)(1).
    (3) Your draft cohort default rate and the loan record detail report 
are not considered public information and may not be otherwise 
voluntarily released by a data manager.
    (4) Any challenge you submit under this section and any response 
provided by a data manager must be in a format acceptable to us. This 
acceptable format is described in the ``Cohort Default Rate Guide'' that 
we provide to you. If your challenge does not comply with the 
requirements in the ``Cohort Default Rate Guide,'' we may deny your 
challenge.
    (b) Incorrect data challenges. (1) You may challenge the accuracy of 
the data included on the loan record detail report by sending a 
challenge to the relevant data manager, or data managers, within 45 days 
after you receive the data. Your challenge must include--
    (i) A description of the information in the loan record detail 
report that you believe is incorrect; and
    (ii) Documentation that supports your contention that the data are 
incorrect.
    (2) Within 30 days after receiving your challenge, the data manager 
must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation that supports the data manager's 
position.
    (3) If your data manager concludes that draft data in the loan 
record detail report are incorrect, and we agree, we use the corrected 
data to calculate your cohort default rate.
    (4) If you fail to challenge the accuracy of data under this 
section, you cannot contest the accuracy of those data in an uncorrected 
data adjustment, under Sec. 668.190, or in an erroneous data appeal, 
under Sec. 668.192.
    (c) Participation rate index challenges. (1)(i) You may challenge an 
anticipated loss of eligibility under Sec. 668.187(a)(1), based on one 
cohort default rate over 40 percent, if your participation rate index 
for that cohort's fiscal year is equal to or less than 0.06015.
    (ii) You may challenge an anticipated loss of eligibility under 
Sec. 668.187(a)(2), based on three cohort default rates of 25 percent or 
greater, if your participation rate index is equal to or less than 
0.0375 for any of those three cohorts' fiscal years.
    (2) For a participation rate index challenge, your participation 
rate index is calculated as described in Sec. 668.195(b), except that--
    (i) The draft cohort default rate is considered to be your most 
recent cohort default rate; and
    (ii) If the cohort used to calculate your draft cohort default rate 
included fewer than 30 borrowers, you may calculate your participation 
rate index for that fiscal year using either your most recent draft 
cohort default rate or the average rate that would be calculated for 
that fiscal year, using the method described in Sec. 668.183(d)(2).
    (3) You must send your participation rate index challenge, including 
all supporting documentation, to us within 45 days after you receive 
your draft cohort default rate.
    (4) We notify you of our determination on your participation rate 
index challenge before your official cohort default rate is published.
    (5) If we determine that you qualify for continued eligibility based 
on your participation rate index challenge, you will not lose 
eligibility under Sec. 668.187 when your next official cohort default 
rate is published. A successful challenge that is based on your draft 
cohort default rate does not excuse you from any other loss of 
eligibility. However, if your successful challenge of a loss of 
eligibility under paragraph (c)(1)(ii) of this section is based on a 
prior, official cohort default rate, and not on your draft cohort 
default rate, we also excuse you from any subsequent loss of 
eligibility, under Sec. 668.187(a)(2), that would be based on that 
official cohort default rate.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

[[Page 552]]

Sec. 668.186  Notice of your official cohort default rate.

    (a) We notify you of your cohort default rate after we calculate it. 
After we send our notice to you, we publish a list of cohort default 
rates for all institutions.
    (b) If your cohort default rate is 10 percent or more, we include a 
copy of the loan record detail report with the notice.
    (c) If your cohort default rate is less than 10 percent--
    (1) You may request a copy of any loan record detail report that 
lists loans included in your cohort default rate calculation; and
    (2) If you are requesting an adjustment or appealing under this 
subpart, your request for a copy of the loan record detail report or 
reports must be sent to us within 15 days after you receive the notice 
of your cohort default rate.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.187  Consequences of cohort default rates on your ability to 
          participate in Title IV, HEA programs.

    (a) End of participation. (1) Except as provided in paragraph (f) of 
this section, you lose your eligibility to participate in the FFEL and 
Direct Loan programs 30 days after you receive our notice that your most 
recent cohort default rate is greater than 40 percent.
    (2) Except as provided in paragraphs (e) and (f) of this section, 
you lose your eligibility to participate in the FFEL, Direct Loan, and 
Federal Pell Grant programs 30 days after you receive our notice that 
your three most recent cohort default rates are each 25 percent or 
greater.
    (b) Length of period of ineligibility. Your loss of eligibility 
under this section continues--
    (1) For the remainder of the fiscal year in which we notify you that 
you are subject to a loss of eligibility; and
    (2) For the next 2 fiscal years.
    (c) Using a cohort default rate more than once. The use of a cohort 
default rate as a basis for a loss of eligibility under this section 
does not preclude its use as a basis for--
    (1) Any concurrent or subsequent loss of eligibility under this 
section; or
    (2) Any other action by us.
    (d) Special institutions. If you are a special institution that 
satisfies the requirements for continued eligibility under Sec. 668.198, 
you are not subject to any loss of eligibility under this section or to 
provisional certification under Sec. 668.16(m).
    (e) Continuing participation in Pell. If you are subject to a loss 
of eligibility under paragraph (a)(2) of this section, based on three 
cohort default rates of 25 percent or greater, you may continue to 
participate in the Federal Pell Grant Program if we determine that you--
    (1) Were ineligible to participate in the FFEL and Direct Loan 
programs before October 7, 1998, and your eligibility was not 
reinstated;
    (2) Requested in writing, before October 7, 1998, to withdraw your 
participation in the FFEL and Direct Loan programs, and you were not 
later reinstated; or
    (3) Have not certified an FFELP loan or originated a Direct Loan 
Program loan on or after July 7, 1998.
    (f) Requests for adjustments and appeals. (1) A loss of eligibility 
under this section does not take effect while your request for 
adjustment or appeal, as listed in Sec. 668.189(a), is pending, provided 
your request for adjustment or appeal is complete, timely, accurate, and 
in the required format.
    (2) Eligibility continued under paragraph (f)(1) of this section 
ends if we determine that none of the requests for adjustments and 
appeals you have submitted qualify you for continued eligibility under 
Sec. 668.189. Loss of eligibility takes effect on the date that you 
receive notice of our determination on your last pending request for 
adjustment or appeal.
    (3) You do not lose eligibility under this section if we determine 
that your request for adjustment or appeal meets all requirements of 
this subpart and qualifies you for continued eligibility under 
Sec. 668.189.
    (4) To avoid liabilities you might otherwise incur under paragraph 
(g) of this section, you may choose to suspend

[[Page 553]]

your participation in the FFEL and Direct Loan programs during the 
adjustment or appeal process.
    (g) Liabilities during the adjustment or appeal process. If you 
continued to participate in the FFEL or Direct Loan Program under 
paragraph (f)(1) of this section, and we determine that none of your 
requests for adjustments or appeals qualify you for continued 
eligibility--
    (1) For any FFEL or Direct Loan Program loan that you certified and 
delivered or originated and disbursed more than 30 days after you 
received the notice of your cohort default rate, we estimate the amount 
of interest, special allowance, reinsurance, and any related or similar 
payments we make or are obligated to make on those loans;
    (2) We exclude from this estimate any amount attributable to funds 
that you delivered or disbursed more than 45 days after you submitted 
your completed appeal to us;
    (3) We notify you of the estimated amount; and
    (4) Within 45 days after you receive our notice of the estimated 
amount, you must pay us that amount, unless--
    (i) You file an appeal under the procedures established in subpart H 
of this part (for the purposes of subpart H of this part, our notice of 
the estimate is considered to be a final program review determination); 
or
    (ii) We permit a longer repayment period.
    (h) Regaining eligibility. If you lose your eligibility to 
participate in a program under this section, you may not participate in 
that program until--
    (1) The period described in paragraph (b) of this section has ended;
    (2) You pay any amount owed to us under this section or are meeting 
that obligation under an agreement acceptable to us;
    (3) You submit a new application for participation in the program;
    (4) We determine that you meet all of the participation requirements 
in effect at the time of your application; and
    (5) You and we enter into a new program participation agreement.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.188  Preventing evasion of the consequences of cohort default 
          rates.

    (a) General. Unless you are a special institution complying with 
Sec. 668.198, you are subject to a loss of eligibility that has already 
been imposed against another institution under Sec. 668.187 if--
    (1) You and the ineligible institution are both parties to a 
transaction that results in a change of ownership, a change in control, 
a merger, a consolidation, an acquisition, a change of name, a change of 
address, any change that results in a location becoming a freestanding 
institution, a purchase or sale, a transfer of assets, an assignment, a 
change of identification number, a contract for services, an addition or 
closure of one or more locations or branches or educational programs, or 
any other change in whole or in part in institutional structure or 
identity;
    (2) Following the change described in paragraph (a)(1) of this 
section, you offer an educational program at substantially the same 
address at which the ineligible institution had offered an educational 
program before the change; and
    (3) There is a commonality of ownership or management between you 
and the ineligible institution, as the ineligible institution existed 
before the change.
    (b) Commonality of ownership or management. For the purposes of this 
section, a commonality of ownership or management exists if, at each 
institution, the same person (as defined in 34 CFR 600.31) or members of 
that person's family, directly or indirectly--
    (1) Holds or held a managerial role; or
    (2) Has or had the ability to affect substantially the institution's 
actions, within the meaning of 34 CFR 600.21.
    (c) Teach-outs. Notwithstanding paragraph (b)(1) of this section, a 
commonality of management does not exist if you are conducting a teach-
out under a teach-out agreement as defined in 34

[[Page 554]]

CFR 602.3 and administered in accordance with 34 CFR 602.24(c), and--
    (1)(i) Within 60 days after the change described in this section, 
you send us the names of the managers for each facility undergoing the 
teach-out as it existed before the change and for each facility as it 
exists after you believe that the commonality of management has ended; 
and
    (ii) We determine that the commonality of management, as described 
in paragraph (b)(1) of this section, has ended; or
    (2)(i) Within 30 days after you receive our notice that we have 
denied your submission under paragraph (c)(1)(i) of this section, you 
make the management changes we request and send us a list of the names 
of the managers for each facility undergoing the teach-out as it exists 
after you make those changes; and
    (ii) We determine that the commonality of management, as described 
in paragraph (b)(1) of this section, has ended.
    (d) Initial determination. We encourage you to contact us before 
undergoing a change described in this section. If you write to us, 
providing the information we request, we will provide a written initial 
determination of the anticipated change's effect on your eligibility.
    (e) Notice of accountability. (1) We notify you in writing if, in 
response to your notice or application filed under 34 CFR 600.20 or 
600.21, we determine that you are subject to a loss of eligibility, 
under paragraph (a) of this section, that has been imposed against 
another institution.
    (2) Our notice also advises you of the scope and duration of your 
loss of eligibility. The loss of eligibility applies to all of your 
locations from the date you receive our notice until the expiration of 
the period of ineligibility applicable to the other institution.
    (3) If you are subject to a loss of eligibility under this section 
that has already been imposed against another institution, you may only 
request an adjustment or submit an appeal for the loss of eligibility 
under the same requirements that would be applicable to the other 
institution under Sec. 668.189.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.189  General requirements for adjusting official cohort default 
          rates and for appealing their consequences.

    (a) Remaining eligible. You do not lose eligibility under 
Sec. 668.187 if--
    (1) We recalculate your cohort default rate, and it is below the 
percentage threshold for the loss of eligibility as the result of--
    (i) An uncorrected data adjustment submitted under this section and 
Sec. 668.190;
    (ii) A new data adjustment submitted under this section and 
Sec. 668.191;
    (iii) An erroneous data appeal submitted under this section and 
Sec. 668.192; or
    (iv) A loan servicing appeal submitted under this section and 
Sec. 668.193; or
    (2) You meet the requirements for--
    (i) An economically disadvantaged appeal submitted under this 
section and Sec. 668.194;
    (ii) A participation rate index appeal submitted under this section 
and Sec. 668.195;
    (iii) An average rates appeal submitted under this section and 
Sec. 668.196; or
    (iv) A thirty-or-fewer borrowers appeal submitted under this section 
and Sec. 668.197.
    (b) Limitations on your ability to dispute your cohort default rate. 
(1) You may not dispute the calculation of a cohort default rate except 
as described in this subpart.
    (2) You may not request an adjustment or appeal a cohort default 
rate, under Sec. 668.190, Sec. 668.191, Sec. 668.192, or Sec. 668.193, 
more than once.
    (3) You may not request an adjustment or appeal a cohort default 
rate, under Sec. 668.190, Sec. 668.191, Sec. 668.192, or Sec. 668.193, 
if you previously lost your eligibility to participate in a Title IV, 
HEA program, under Sec. 668.187, based entirely or partially on that 
cohort default rate.
    (c) Content and format of requests for adjustments and appeals. We 
may deny

[[Page 555]]

your request for adjustment or appeal if it does not meet the following 
requirements:
    (1) All appeals, notices, requests, independent auditor's opinions, 
management's written assertions, and other correspondence that you are 
required to send under this subpart must be complete, timely, accurate, 
and in a format acceptable to us. This acceptable format is described in 
the ``Cohort Default Rate Guide'' that we provide to you.
    (2) Your completed request for adjustment or appeal must include--
    (i) All of the information necessary to substantiate your request 
for adjustment or appeal; and
    (ii) A certification by your chief executive officer, under penalty 
of perjury, that all the information you provide is true and correct.
    (d) Our copies of your correspondence. Whenever you are required by 
this subpart to correspond with a party other than us, you must send us 
a copy of your correspondence within the same time deadlines. However, 
you are not required to send us copies of documents that you received 
from us originally.
    (e) Requirements for data managers' responses. (1) Except as 
otherwise provided in this subpart, if this subpart requires a data 
manager to correspond with any party other than us, the data manager 
must send us a copy of the correspondence within the same time 
deadlines.
    (2) If a data manager sends us correspondence under this subpart 
that is not in a format acceptable to us, we may require the data 
manager to revise that correspondence's format, and we may prescribe a 
format for that data manager's subsequent correspondence with us.
    (f) Our decision on your request for adjustment or appeal. (1) We 
determine whether your request for an adjustment or appeal is in 
compliance with this subpart.
    (2) In making our decision for an adjustment, under Sec. 668.190 or 
Sec. 668.191, or an appeal, under Sec. 668.192 or Sec. 668.193--
    (i) We presume that the information provided to you by a data 
manager is correct unless you provide substantial evidence that shows 
the information is not correct; and
    (ii) If we determine that a data manager did not provide the 
necessary clarifying information or legible records in meeting the 
requirements of this subpart, we presume that the evidence that you 
provide to us is correct unless it is contradicted or otherwise proven 
to be incorrect by information we maintain.
    (3) Our decision is based on the materials you submit under this 
subpart. We do not provide an oral hearing.
    (4) We notify you of our decision--
    (i) If you request an adjustment or appeal because you are subject 
to a loss of eligibility under Sec. 668.187, within 45 days after we 
receive your completed request for an adjustment or appeal; or
    (ii) In all other cases, except for appeals submitted under 
Sec. 668.192(a) to avoid provisional certification, before we notify you 
of your next official cohort default rate.
    (5) You may not seek judicial review of our determination of a 
cohort default rate until we issue our decision on all pending requests 
for adjustments or appeals for that cohort default rate.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.190  Uncorrected data adjustments.

    (a) Eligibility. You may request an uncorrected data adjustment for 
your most recent cohort of borrowers, used to calculate your most recent 
official cohort default rate, if in response to your challenge under 
Sec. 668.185(b), a data manager agreed correctly to change the data, but 
the changes are not reflected in your official cohort default rate.
    (b) Deadlines for requesting an uncorrected data adjustment. (1) If 
the loan record detail report was not included with your official cohort 
default rate notice, you must request it within 15 days after you 
receive the notice of your official cohort default rate.
    (2) You must send us a request for an uncorrected data adjustment, 
including all supporting documentation, within 30 days after you receive 
your loan record detail report from us.
    (c) Determination. We recalculate your cohort default rate, based on 
the corrected data, if we determine that--

[[Page 556]]

    (1) In response to your challenge under Sec. 668.185(b), a data 
manager agreed to change the data;
    (2) The changes described in paragraph (c)(1) of this section are 
not reflected in your official cohort default rate; and
    (3) We agree that the data are incorrect.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.191  New data adjustments.

    (a) Eligibility. You may request a new data adjustment for your most 
recent cohort of borrowers, used to calculate your most recent official 
cohort default rate, if--
    (1) A comparison of the loan record detail reports that we provide 
to you for the draft and official cohort default rates shows that the 
data have been newly included, excluded, or otherwise changed; and
    (2) You identify errors in the data described in paragraph (a)(1) of 
this section that are confirmed by the data manager.
    (b) Deadlines for requesting a new data adjustment. (1) If the loan 
record detail report was not included with your official cohort default 
rate notice, you must request it within 15 days after you receive the 
notice of your official cohort default rate.
    (2) You must send the relevant data manager, or data managers, and 
us a request for a new data adjustment, including all supporting 
documentation, within 15 days after you receive your loan record detail 
report from us.
    (3) Within 20 days after receiving your request for a new data 
adjustment, the data manager must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation used to support the data manager's 
position.
    (4) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for a new data adjustment for that loan. We respond to your 
request under paragraph (b)(3) of this section.
    (5) Within 15 days after receiving incomplete or illegible records 
or data from a data manager, you must send a request for replacement 
records or clarification of data to the data manager and us.
    (6) Within 20 days after receiving your request for replacement 
records or clarification of data, the data manager must--
    (i) Replace the missing or illegible records;
    (ii) Provide clarifying information; or
    (iii) Notify you and us that no clarifying information or additional 
or improved records are available.
    (7) You must send us your completed request for a new data 
adjustment, including all supporting documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request or requests; or
    (ii) If you are also filing an erroneous data appeal or a loan 
servicing appeal, by the latest of the filing dates required in 
paragraph (b)(7)(i) of this section or in Sec. 668.192(b)(6)(i) or 
Sec. 668.193(c)(10)(i).
    (c) Determination. If we determine that incorrect data were used to 
calculate your cohort default rate, we recalculate your cohort default 
rate based on the correct data.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.192  Erroneous data appeals.

    (a) Eligibility. Except as provided in Sec. 668.189(b), you may 
appeal the calculation of a cohort default rate upon which a loss of 
eligibility, under Sec. 668.187, or provisional certification, under 
Sec. 668.16(m), is based if--
    (1) You dispute the accuracy of data that you previously challenged 
on the basis of incorrect data, under Sec. 668.185(b); or
    (2) A comparison of the loan record detail reports that we provide 
to you for the draft and official cohort default rates shows that the 
data have been newly included, excluded, or otherwise changed, and you 
dispute the accuracy of that data.
    (b) Deadlines for submitting an appeal. (1) You must send a request 
for verification of data errors to the relevant data manager, or data 
managers,

[[Page 557]]

and to us within 15 days after you receive the notice of your loss of 
eligibility or provisional certification. Your request must include a 
description of the information in the cohort default rate data that you 
believe is incorrect and all supporting documentation that demonstrates 
the error.
    (2) Within 20 days after receiving your request for verification of 
data errors, the data manager must send you and us a response that--
    (i) Addresses each of your allegations of error; and
    (ii) Includes the documentation used to support the data manager's 
position.
    (3) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for verification of that loan's data errors. Your request 
must include a description of the information in the cohort default rate 
data that you believe is incorrect and all supporting documentation that 
demonstrates the error. We respond to your request under paragraph 
(b)(2) of this section.
    (4) Within 15 days after receiving incomplete or illegible records 
or data, you must send a request for replacement records or 
clarification of data to the data manager and us.
    (5) Within 20 days after receiving your request for replacement 
records or clarification of data, the data manager must--
    (i) Replace the missing or illegible records;
    (ii) Provide clarifying information; or
    (iii) Notify you and us that no clarifying information or additional 
or improved records are available.
    (6) You must send your completed appeal to us, including all 
supporting documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request; or
    (ii) If you are also requesting a new data adjustment or filing a 
loan servicing appeal, by the latest of the filing dates required in 
paragraph (b)(6)(i) of this section or in Sec. 668.191(b)(7)(i) or 
Sec. 668.193(c)(10)(i).
    (c) Determination. If we determine that incorrect data were used to 
calculate your cohort default rate, we recalculate your cohort default 
rate based on the correct data.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.193  Loan servicing appeals.

    (a) Eligibility. Except as provided in Sec. 668.189(b), you may 
appeal, on the basis of improper loan servicing or collection, the 
calculation of--
    (1) Your most recent cohort default rate; or
    (2) Any cohort default rate upon which a loss of eligibility under 
Sec. 668.187 is based.
    (b) Improper loan servicing. For the purposes of this section, a 
default is considered to have been due to improper loan servicing or 
collection only if the borrower did not make a payment on the loan and 
you prove that the FFEL Program lender or the Direct Loan Servicer, as 
defined in 34 CFR 685.102, failed to perform one or more of the 
following activities, if that activity applies to the loan:
    (1) Send at least one letter (other than the final demand letter) 
urging the borrower to make payments on the loan;
    (2) Attempt at least one phone call to the borrower;
    (3) Send a final demand letter to the borrower;
    (4) For a Direct Loan Program loan only, document that skip tracing 
was performed if the Direct Loan Servicer determined that it did not 
have the borrower's current address; and
    (5) For an FFELP loan only--
    (i) Submit a request for preclaims or default aversion assistance to 
the guaranty agency; and
    (ii) Submit a certification or other documentation that skip tracing 
was performed to the guaranty agency.
    (c) Deadlines for submitting an appeal. (1) If the loan record 
detail report was not included with your official cohort default rate 
notice, you must request it within 15 days after you receive the notice 
of your official cohort default rate.
    (2) You must send a request for loan servicing records to the 
relevant data manager, or data managers, and to us within 15 days after 
you receive your loan record detail report from us. If the data manager 
is a guaranty agency,

[[Page 558]]

your request must include a copy of the loan record detail report.
    (3) Within 20 days after receiving your request for loan servicing 
records, the data manager must--
    (i) Send you and us a list of the borrowers in your representative 
sample, as described in paragraph (d) of this section (the list must be 
in social security number order, and it must include the number of 
defaulted loans included in the cohort for each listed borrower);
    (ii) Send you and us a description of how your representative sample 
was chosen; and
    (iii) Either send you copies of the loan servicing records for the 
borrowers in your representative sample and send us a copy of its cover 
letter indicating that the records were sent, or send you and us a 
notice of the amount of its fee for providing copies of the loan 
servicing records.
    (4) The data manager may charge you a reasonable fee for providing 
copies of loan servicing records, but it may not charge more than $10 
per borrower file. If a data manager charges a fee, it is not required 
to send the documents to you until it receives your payment of the fee.
    (5) If the data manager charges a fee for providing copies of loan 
servicing records, you must send payment in full to the data manager 
within 15 days after you receive the notice of the fee.
    (6) If the data manager charges a fee for providing copies of loan 
servicing records, and--
    (i) You pay the fee in full and on time, the data manager must send 
you, within 20 days after it receives your payment, a copy of all loan 
servicing records for each loan in your representative sample (the 
copies are provided to you in hard copy format unless the data manager 
and you agree that another format may be used), and it must send us a 
copy of its cover letter indicating that the records were sent; or
    (ii) You do not pay the fee in full and on time, the data manager 
must notify you and us of your failure to pay the fee and that you have 
waived your right to challenge the calculation of your cohort default 
rate based on the data manager's records. We accept that determination 
unless you prove that it is incorrect.
    (7) Within 15 days after receiving a guaranty agency's notice that 
we hold an FFELP loan about which you are inquiring, you must send us 
your request for the loan servicing records for that loan. We respond to 
your request under paragraph (c)(3) of this section.
    (8) Within 15 days after receiving incomplete or illegible records, 
you must send a request for replacement records to the data manager and 
us.
    (9) Within 20 days after receiving your request for replacement 
records, the data manager must either--
    (i) Replace the missing or illegible records; or
    (ii) Notify you and us that no additional or improved copies are 
available.
    (10) You must send your appeal to us, including all supporting 
documentation--
    (i) Within 30 days after you receive the final data manager's 
response to your request for loan servicing records; or
    (ii) If you are also requesting a new data adjustment or filing an 
erroneous data appeal, by the latest of the filing dates required in 
paragraph (c)(10)(i) of this section or in Sec. 668.191(b)(7)(i) or 
Sec. 668.192(b)(6)(i).
    (d) Representative sample of records. (1) To select a representative 
sample of records, the data manager first identifies all of the 
borrowers for whom it is responsible and who had loans that were 
considered to be in default in the calculation of the cohort default 
rate you are appealing.
    (2) From the group of borrowers identified under paragraph (d)(1) of 
this section, the data manager identifies a sample that is large enough 
to derive an estimate, acceptable at a 95 percent confidence level with 
a plus or minus 5 percent confidence interval, for use in determining 
the number of borrowers who should be excluded from the calculation of 
the cohort default rate due to improper loan servicing or collection.
    (e) Loan servicing records. Loan servicing records are the 
collection and payment history records--
    (1) Provided to the guaranty agency by the lender and used by the 
guaranty agency in determining whether to pay a claim on a defaulted 
loan; or

[[Page 559]]

    (2) Maintained by our Direct Loan Servicer that are used in 
determining your cohort default rate.
    (f) Determination. (1) We determine the number of loans, included in 
your representative sample of loan servicing records, that defaulted due 
to improper loan servicing or collection, as described in paragraph (b) 
of this section.
    (2) Based on our determination, we use a statistically valid 
methodology to exclude the corresponding percentage of borrowers from 
both the numerator and denominator of the calculation of your cohort 
default rate.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

[65 FR 65638, Nov. 1, 2000, as amended at 67 FR 67075, Nov. 1, 2002]

Sec. 668.194  Economically disadvantaged appeals.

    (a) Eligibility. As described in this section, you may appeal a 
notice of a loss of eligibility under Sec. 668.187 if an independent 
auditor's opinion certifies that your low income rate is two-thirds or 
more and--
    (1) You offer an associate, baccalaureate, graduate, or professional 
degree, and your completion rate is 70 percent or more; or
    (2) You do not offer an associate, baccalaureate, graduate, or 
professional degree, and your placement rate is 44 percent or more.
    (b) Low income rate. (1) Your low income rate is the percentage of 
your students, as described in paragraph (b)(2) of this section, who--
    (i) For an award year that overlaps the 12-month period selected 
under paragraph (b)(2) of this section, have an expected family 
contribution, as defined in 34 CFR 690.2, that is equal to or less than 
the largest expected family contribution that would allow a student to 
receive one-half of the maximum Federal Pell Grant award, regardless of 
the student's enrollment status or cost of attendance; or
    (ii) For a calendar year that overlaps the 12-month period selected 
under paragraph (b)(2) of this section, have an adjusted gross income 
that, when added to the adjusted gross income of the student's parents 
(if the student is a dependent student) or spouse (if the student is a 
married independent student), is less than the amount listed in the 
Department of Health and Human Services poverty guidelines for the size 
of the student's family unit.
    (2) The students who are used to determine your low income rate 
include only students who were enrolled on at least a half-time basis in 
an eligible program at your institution during any part of a 12-month 
period that ended during the 6 months immediately preceding the cohort's 
fiscal year.
    (c) Completion rate. (1) Your completion rate is the percentage of 
your students, as described in paragraph (c)(2) of this section, who--
    (i) Completed the educational programs in which they were enrolled;
    (ii) Transferred from your institution to a higher level educational 
program;
    (iii) Remained enrolled and are making satisfactory progress toward 
completion of their educational programs at the end of the same 12-month 
period used to calculate the low income rate; or
    (iv) Entered active duty in the Armed Forces of the United States 
within 1 year after their last date of attendance at your institution.
    (2) The students who are used to determine your completion rate 
include only regular students who were--
    (i) Initially enrolled on a full-time basis in an eligible program; 
and
    (ii) Originally scheduled to complete their programs during the same 
12-month period used to calculate the low income rate.
    (d) Placement rate. (1) Except as provided in paragraph (d)(2) of 
this section, your placement rate is the percentage of your students, as 
described in paragraphs (d)(3) and (d)(4) of this section, who--
    (i) Are employed, in an occupation for which you provided training, 
on the date following 1 year after their last date of attendance at your 
institution;
    (ii) Were employed for at least 13 weeks, in an occupation for which 
you provided training, between the date they enrolled at your 
institution and the first date that is more than a year after their last 
date of attendance at your institution; or

[[Page 560]]

    (iii) Entered active duty in the Armed Forces of the United States 
within 1 year after their last date of attendance at your institution.
    (2) For the purposes of this section, a former student is not 
considered to have been employed based on any employment by your 
institution.
    (3) The students who are used to determine your placement rate 
include only former students who--
    (i) Were initially enrolled in an eligible program on at least a 
half-time basis;
    (ii) Were originally scheduled, at the time of enrollment, to 
complete their educational programs during the same 12-month period used 
to calculate the low income rate; and
    (iii) Remained in the program beyond the point at which a student 
would have received a 100 percent tuition refund from you.
    (4) A student is not included in the calculation of your placement 
rate if that student, on the date that is 1 year after the student's 
originally scheduled completion date, remains enrolled in the same 
program and is making satisfactory progress.
    (e) Scheduled to complete. In calculating a completion or placement 
rate under this section, the date on which a student is originally 
scheduled to complete a program is based on--
    (1) For a student who is initially enrolled full-time, the amount of 
time specified in your enrollment contract, catalog, or other materials 
for completion of the program by a full-time student; or
    (2) For a student who is initially enrolled less than full-time, the 
amount of time that it would take the student to complete the program if 
the student remained at that level of enrollment throughout the program.
    (f) Deadline for submitting an appeal. (1) Within 30 days after you 
receive the notice of your loss of eligibility, you must send us your 
management's written assertion, as described in the Cohort Default Rate 
Guide.
    (2) Within 60 days after you receive the notice of your loss of 
eligibility, you must send us the independent auditor's opinion 
described in paragraph (g) of this section.
    (g) Independent auditor's opinion. (1) The independent auditor's 
opinion must state whether your management's written assertion, as you 
provided it to the auditor and to us, meets the requirements for an 
economically disadvantaged appeal and is fairly stated in all material 
respects.
    (2) The engagement that forms the basis of the independent auditor's 
opinion must be an examination-level compliance attestation engagement 
performed in accordance with--
    (i) The American Institute of Certified Public Accountant's (AICPA) 
Statement on Standards for Attestation Engagements, Compliance 
Attestation (AICPA, Professional Standards, vol. 1, AT sec. 500), as 
amended (these standards may be obtained by calling the AICPA's order 
department, at 1-888-777-7077); and
    (ii) Government Auditing Standards issued by the Comptroller General 
of the United States.
    (h) Determination. You do not lose eligibility under Sec. 668.187 
if--
    (1) Your independent auditor's opinion agrees that you meet the 
requirements for an economically disadvantaged appeal; and
    (2) We determine that the independent auditor's opinion and your 
management's written assertion--
    (i) Meet the requirements for an economically disadvantaged appeal; 
and
    (ii) Are not contradicted or otherwise proven to be incorrect by 
information we maintain, to an extent that would render the independent 
auditor's opinion unacceptable.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.195  Participation rate index appeals.

    (a) Eligibility. (1) You may appeal a notice of a loss of 
eligibility under Sec. 668.187(a)(1), based on one cohort default rate 
over 40 percent, if your participation rate index for that cohort's 
fiscal year is equal to or less than 0.06015.
    (2) You may appeal a notice of a loss of eligibility under 
Sec. 668.187(a)(2), based on three cohort default rates of 25 percent or 
greater, if your participation rate index is equal to or less than 
0.0375

[[Page 561]]

for any of those three cohorts' fiscal years.
    (b) Calculating your participation rate index. (1) Except as 
provided in paragraph (b)(2) of this section, your participation rate 
index for a fiscal year is determined by multiplying your cohort default 
rate for that fiscal year by the percentage that is derived by dividing-
-
    (i) The number of students who received an FFELP or a Direct Loan 
Program loan to attend your institution during a period of enrollment, 
as defined in 34 CFR 682.200 or 685.102, that overlaps any part of a 12-
month period that ended during the 6 months immediately preceding the 
cohort's fiscal year, by
    (ii) The number of regular students who were enrolled at your 
institution on at least a half-time basis during any part of the same 
12-month period.
    (2) If your cohort default rate for a fiscal year is calculated as 
an average rate under Sec. 668.183(d)(2), you may calculate your 
participation rate index for that fiscal year using either that average 
rate or the cohort default rate that would be calculated for the fiscal 
year alone using the method described in Sec. 668.183(d)(1).
    (c) Deadline for submitting an appeal. You must send us your appeal 
under this section, including all supporting documentation, within 30 
days after you receive the notice of your loss of eligibility.
    (d) Determination. (1) You do not lose eligibility under 
Sec. 668.187 if we determine that you meet the requirements for a 
participation rate index appeal.
    (2) If we determine that your participation rate index for a fiscal 
year is equal to or less than 0.0375, under paragraph (d)(1) of this 
section, we also excuse you from any subsequent loss of eligibility 
under Sec. 668.187(a)(2) that would be based on the official cohort 
default rate for that fiscal year.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.196  Average rates appeals.

    (a) Eligibility. (1) You may appeal a notice of a loss of 
eligibility under Sec. 668.187(a)(1), based on one cohort default rate 
over 40 percent, if that cohort default rate is calculated as an average 
rate under Sec. 668.183(d)(2).
    (2) You may appeal a notice of a loss of eligibility under 
Sec. 668.187(a)(2), based on three cohort default rates of 25 percent or 
greater, if at least two of those cohort default rates--
    (i) Are calculated as average rates under Sec. 668.183(d)(2); and
    (ii) Would be less than 25 percent if calculated for the fiscal year 
alone using the method described in Sec. 668.183(d)(1).
    (b) Deadline for submitting an appeal. (1) Before notifying you of 
your official cohort default rate, we make an initial determination 
about whether you qualify for an average rates appeal. If we determine 
that you qualify, we notify you of that determination at the same time 
that we notify you of your official cohort default rate.
    (2) If you disagree with our initial determination, you must send us 
your average rates appeal, including all supporting documentation, 
within 30 days after you receive the notice of your loss of eligibility.
    (c) Determination. You do not lose eligibility under Sec. 668.187 if 
we determine that you meet the requirements for an average rates appeal.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.197  Thirty-or-fewer borrowers appeals.

    (a) Eligibility. You may appeal a notice of a loss of eligibility 
under Sec. 668.187 if 30 or fewer borrowers, in total, are included in 
the 3 most recent cohorts of borrowers used to calculate your cohort 
default rates.
    (b) Deadline for submitting an appeal. (1) Before notifying you of 
your official cohort default rate, we make an initial determination 
about whether you qualify for a thirty-or-fewer borrowers appeal. If we 
determine that you qualify, we notify you of that determination at the 
same time that we notify you of your official cohort default rate.
    (2) If you disagree with our initial determination, you must send us 
your thirty-or-fewer borrowers appeal, including all supporting 
documentation,

[[Page 562]]

within 30 days after you receive the notice of your loss of eligibility.
    (c) Determination. You do not lose eligibility under Sec. 668.187 if 
we determine that you meet the requirements for a thirty-or-fewer 
borrowers appeal.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

Sec. 668.198  Relief from the consequences of cohort default rates for 
          special institutions.

    (a) Eligibility. You are only eligible for relief from the 
consequences of cohort default rates under this section if you are a--
    (1) Historically black college or university as defined in section 
322(2) of the HEA;
    (2) Tribally controlled community college as defined in section 
2(a)(4) of the Tribally Controlled Community College Assistance Act of 
1978; or
    (3) Navajo community college under the Navajo Community College Act.
    (b) Applicability of requirements. We may determine that the loss of 
eligibility provisions in Sec. 668.187 and the prohibition against full 
certification in Sec. 668.16(m) do not apply to you for each 1-year 
period beginning on July 1 of 1999, 2000, or 2001, if you meet the 
requirements in paragraph (a) of this section and you send us--
    (1) By July 1 of the first 1-year period that begins after you 
receive our notice of a loss of eligibility under Sec. 668.187--
    (i) A default management plan; and
    (ii) A certification that you have engaged an independent third 
party, as described in this section; and
    (2) By July 1 of each subsequent 1-year period--
    (i) Evidence that you have implemented your default management plan 
during the preceding 1-year period;
    (ii) Evidence that you have made substantial improvement in the 
preceding 1-year period in your cohort default rate; and
    (iii) A certification that you continue to engage an independent 
third party, as described in this section.
    (c) Default management plan. (1) Your default management plan must 
provide reasonable assurance that you will, no later than July 1, 2002, 
have a cohort default rate that is less than 25 percent. Measures that 
you must take to provide this assurance include but are not limited to--
    (i) Establishing a default management team by engaging your chief 
executive officer and relevant senior executive officials and enlisting 
the support of representatives from offices other than the financial aid 
office;
    (ii) Identifying and allocating the personnel, administrative, and 
financial resources appropriate to implement the default management 
plan;
    (iii) Defining the roles and responsibilities of the independent 
third party;
    (iv) Defining evaluation methods and establishing a data collection 
system for measuring and verifying relevant default management 
statistics, including a statistical analysis of the borrowers who 
default on their loans;
    (v) Establishing annual targets for reductions in your cohort 
default rate; and
    (vi) Establishing a process to ensure the accuracy of your cohort 
default rate.
    (2) We will determine whether your default management plan is 
acceptable, after considering your history, resources, dollars in 
default, and targets for default reduction in making this determination.
    (3) If we determine that your proposed default management plan is 
unacceptable, you must consult with us to develop a revised plan and 
submit the revised plan to us within 30 days after you receive our 
notice that your proposed plan is unacceptable.
    (4) If we determine, based on the evidence you submit under 
paragraph (b)(2) of this section, that your default management plan is 
no longer acceptable, you must develop a revised plan in consultation 
with us and submit the revised plan to us within 60 days after you 
receive our notice that your plan is no longer acceptable.
    (5) A sample default management plan is provided in appendix B to 
this subpart. The sample is included to illustrate components of an 
acceptable default management plan. Since institutions' family income 
profiles, student borrowing patterns, histories, resources, dollars in 
default, and targets for default reduction are different, you

[[Page 563]]

must consider your own, individual circumstances in developing and 
submitting your plan.
    (d) Independent third party. (1) An independent third party may be 
any individual or entity that--
    (i) Provides technical assistance in developing and implementing 
your default management plan; and
    (ii) Is not substantially controlled by a person who also exercises 
substantial control over your institution.
    (2) An independent third party need not be paid by you for its 
services.
    (3) The services of a lender, guaranty agency, or secondary market 
as an independent third party under this section are not considered to 
be inducements under 34 CFR 682.200 or 682.401(e).
    (e) Substantial improvement. (1) For the purposes of this section, 
your substantial improvement is determined based on--
    (i) A reduction in your most recent draft or official cohort default 
rate;
    (ii) An increase in the percentage of delinquent borrowers who avoid 
default by using deferments, forbearances, and job placement assistance;
    (iii) An increase in the academic persistence of student borrowers;
    (iv) An increase in the percentage of students pursuing graduate or 
professional study;
    (v) An increase in the percentage of borrowers for whom a current 
address is known;
    (vi) An increase in the percentage of delinquent borrowers that you 
contacted;
    (vii) The implementation of alternative financial aid award policies 
and development of financial resources that reduce the need for student 
borrowing; or (viii) An increase in the percentage of accurate and 
timely enrollment status changes that you submitted to the National 
Student Loan Data System (NSLDS) on the Student Status Confirmation 
Report (SSCR).
    (2) When making a determination of your substantial improvement, we 
consider your performance in light of--
    (i) Your history, resources, dollars in default, and targets for 
default reduction;
    (ii) Your level of effort in meeting the terms of your approved 
default management plan during the previous 1-year period; and
    (iii) Any other mitigating circumstance at your institution during 
the 1-year period.
    (f) Determination. (1) If we determine that you are in compliance 
with this section, the provisions of Secs. 668.187 and 668.16(m) do not 
apply to you for that 1-year period, beginning on July 1 of 1999, 2000, 
or 2001.
    (2) If we determine that you are not in compliance with this 
section, you are subject to the provisions of Secs. 668.187 and 
668.16(m). You lose your eligibility to participate in the FFEL, Direct 
Loan, and Federal Pell Grant programs on the date you receive our notice 
of the determination.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)

   Appendix A to Subpart M of Part 668--Summaries of Eligibility and 
    Submission Requirements for Challenges, Adjustments, and Appeals

                  I. Summary of Submission Eligibility

    Some types of appeals may be submitted only if you are subject to a 
loss of eligibility under Sec. 668.187 or to provisional certification 
under Sec. 668.16(m). These types of appeals are identified in the 
following table. Submission deadlines are described in the paragraphs 
and sections that are cited in the table. For example, although you may 
submit an uncorrected data adjustment, new data adjustment, or loan 
servicing appeal if you are subject to provisional certification, the 
deadlines for those submissions are based on the date you receive your 
cohort default rate, not the date you receive the notice of your 
provisional certification.

[[Page 564]]

[GRAPHIC] [TIFF OMITTED] TR01NO00.006

                   II. Summary of Submission Deadlines

    1. General. The deadlines you must meet when submitting a challenge, 
a request for adjustment, or an appeal are summarized in the following 
table. The full, official requirements for these deadlines are in 
Sec. 668.189 and in the sections and paragraphs cited in the table.
    2. Timeframes. The timeframes provided in the table (``30 Days'', 
``15 Days'', etc.) identify the number of calendar days within which 
that action must be performed. Timeframes begin on the date that the 
previous action (connected to that timeframe with an arrowed line) is 
completed:
    (i) For your first action (and for both actions, during an 
economically disadvantaged appeal), the timeframe begins on the date 
that you receive your draft cohort default rate, official cohort default 
rate, notice of loss of eligibility, or notice of provisional 
certification.
    (ii) For all other actions, the timeframe begins on the date you 
receive the response to your pending request. If you are waiting for 
responses from more than one data manager, the timeframe begins on the 
date that you receive the final response from the last data manager.
    3. Dotted borders. Some actions identified in the table are required 
only in certain circumstances. For example, if we don't send you a loan 
record detail report, because your cohort default rate is less than 10 
percent, you must request one before you can request an adjustment or 
appeal. Timeframes for actions that aren't always required are 
identified in the table by dotted borders:
    (i) If you are required to perform that action, the timeframes begin 
on the same dates that they would if the timeframe borders were not 
dotted.
    (ii) If you are not required to perform that action, the timeframe 
for your next required action is determined as if the timeframes with 
the dotted borders were not there. The timeframe for your next required 
action begins on the date that the last required action was completed.

[[Page 565]]

[GRAPHIC] [TIFF OMITTED] TR01NO00.007

Appendix B to Subpart M of Part 668--Sample Default Management Plan for 
      Special Institutions to Use When Complying With Sec. 668.198

    This appendix is provided as a sample plan for those institutions 
developing a default management plan in accordance with Sec. 668.198. It 
describes some measures you may find helpful in reducing the number of 
students that default on federally funded loans. These are not the only 
measures you could

[[Page 566]]

implement when developing a default management plan. In developing a 
default management plan, you must consider your history, resources, 
dollars in default, and targets for default reduction to determine which 
activities will result in the most benefit to your students and to you.

     I. Core Default Reduction Strategies (From Sec. 668.198(c)(1))

    1. Establish a default management team by engaging your chief 
executive officer and relevant senior executive officials and enlisting 
the support of representatives from offices other than the financial aid 
office.
    2. Identify and allocate the personnel, administrative, and 
financial resources appropriate to implement the default management 
plan.
    3. Define the roles and responsibilities of the independent third 
party.
    4. Define evaluation methods and establish a data collection system 
for measuring and verifying relevant default management statistics, 
including a statistical analysis of the borrowers who default on their 
loans.
    5. Establish annual targets for reductions in your rate.
    6. Establish a process to ensure the accuracy of your rate.

               II. Additional Default Reduction Strategies

    1. Enhance the borrower's understanding of his or her loan repayment 
responsibilities through counseling and debt management activities.
    2. Enhance the enrollment retention and academic persistence of 
borrowers through counseling and academic assistance.
    3. Maintain contact with the borrower after he or she leaves your 
institution by using activities such as skip tracing to locate the 
borrower.
    4. Track the borrower's delinquency status by obtaining reports from 
data managers and FFEL Program lenders.
    5. Enhance student loan repayments through counseling the borrower 
on loan repayment options and facilitating contact between the borrower 
and the data manager or FFEL Program lender.
    6. Assist a borrower who is experiencing difficulty in finding 
employment through career counseling, job placement assistance, and 
facilitating unemployment deferments.
    7. Identify and implement alternative financial aid award policies 
and develop alternative financial resources that will reduce the need 
for student borrowing in the first 2 years of academic study.
    8. Familiarize the parent, or other adult relative or guardian, with 
the student's debt profile, repayment obligations, and loan status by 
increasing, whenever possible, the communication and contact with the 
parent or adult relative or guardian.

 III. Defining the Roles and Responsibilities of Independent Third Party

    1. Specifically define the role of the independent third party.
    2. Specify the scope of work to be performed by the independent 
third party.
    3. Tie the receipt of payments, if required, to the performance of 
specific tasks.
    4. Assure that all the required work is satisfactorily completed.

                  IV. Statistics for Measuring Progress

    1. The number of students enrolled at your institution during each 
fiscal year.
    2. The average amount borrowed by a student each fiscal year.
    3. The number of borrowers scheduled to enter repayment each fiscal 
year.
    4. The number of enrolled borrowers who received default prevention 
counseling services each fiscal year.
    5. The average number of contacts that you or your agent had with a 
borrower who was in deferment or forbearance or in repayment status 
during each fiscal year.
    6. The number of borrowers at least 60 days delinquent each fiscal 
year.
    7. The number of borrowers who defaulted in each fiscal year.
    8. The type, frequency, and results of activities performed in 
accordance with the default management plan.



PART 669--LANGUAGE RESOURCE CENTERS PROGRAM--Table of Contents




                           Subpart A--General

Sec.
669.1  What is the Language Resource Centers Program?
669.2  Who is eligible to receive assistance under this program?
669.3  What activities may the Secretary fund?
669.4  What regulations apply?
669.5  What definitions apply?

Subpart B [Reserved]

             Subpart C--How Does the Secretary Make a Grant?

669.20  How does the Secretary evaluate an application?
669.21  What selection criteria does the Secretary use?
669.22  What priorities may the Secretary establish?

          Subpart D--What Conditions Must Be Met by a Grantee?

669.30  What are allowable equipment costs?


[[Page 567]]


    Authority: 20 U.S.C. 1123, unless otherwise noted.

    Source: 55 FR 2773, Jan. 26, 1990, unless otherwise noted.



                           Subpart A--General



Sec. 669.1  What is the Language Resource Centers Program?

    The Language Resource Centers Program makes awards, through grants 
or contracts, for the purpose of establishing, strengthening, and 
operating centers that serve as resources for improving the nation's 
capacity for teaching and learning foreign languages effectively.

(Authority: 20 U.S.C. 1123)



Sec. 669.2  Who is eligible to receive assistance under this program?

    An institution of higher education or a combination of institutions 
of higher education is eligible to receive an award under this part.

(Authority: 20 U.S.C. 1123)



Sec. 669.3  What activities may the Secretary fund?

    Centers funded under this part must carry out activities to improve 
the teaching and learning of foreign languages. These activities must 
include effective dissemination efforts, whenever appropriate, and may 
include--
    (a) The conduct and dissemination of research on new and improved 
methods for teaching foreign languages, including the use of advanced 
educational technology;
    (b) The development and dissemination of new materials for teaching 
foreign languages, to reflect the results of research on effective 
teaching strategies;
    (c) The development, application, and dissemination of performance 
testing that is appropriate for use in an educational setting to be used 
as a standard and comparable measurement of skill levels in foreign 
languages;
    (d) The training of teachers in the administration and 
interpretation of foreign language performance tests, the use of 
effective teaching strategies, and the use of new technologies;
    (e) A significant focus on the teaching and learning needs of the 
less commonly taught languages, including an assessment of the strategic 
needs of the United States, the determination of ways to meet those 
needs nationally, and the publication and dissemination of instructional 
materials in the less commonly taught languages;
    (f) The development and dissemination of materials designed to serve 
as a resource for foreign language teachers at the elementary and 
secondary school levels; and
    (g) The operation of intensive summer language institutes to train 
advanced foreign language students, to provide professional development, 
and to improve language instruction through preservice and inservice 
language training for teachers.

(Authority: 20 U.S.C. 1123)

[64 FR 7741, Feb. 16, 1999]



Sec. 669.4  What regulations apply?

    The following regulations apply to this program:
    (a) The regulations in 34 CFR part 655.
    (b) The regulations in this part 669.

(Authority: 20 U.S.C. 1123)

[58 FR 32577, June 10, 1993]



Sec. 669.5  What definitions apply?

    The following definitions apply to this part:
    (a) The definitions in 34 CFR 655.4.
    (b) ``Language Resource Center'' means a coordinated concentration 
of educational research and training resources for improving the 
nation's capacity to teach and learn foreign languages.

(Authority: 20 U.S.C. 1123)

Subpart B [Reserved]



             Subpart C--How Does the Secretary Make a Grant?



Sec. 669.20  How does the Secretary evaluate an application?

    (a) The Secretary evaluates an application for an award on the basis 
of the criteria contained in Sec. 669.21.
    (b) The Secretary awards up to 100 possible points for these 
criteria. However, if the Secretary establishes one or more priorities 
under Sec. 669.22, the

[[Page 568]]

Secretary awards up to 120 possible points.
    (c) The maximum possible points for each criterion are shown in 
parentheses.

(Authority: 20 U.S.C. 1123)



Sec. 669.21  What selection criteria does the Secretary use?

    The Secretary uses the following criteria in evaluating applications 
under this part:
    (a) Plan of operation. (15 points) (See 34 CFR 655.31(a))
    (b) Quality of key personnel. (20 points) (See 34 CFR 655.31(b))
    (c) Budget and cost-effectiveness. (10 points) (See 34 CFR 
Sec. 655.31(c))
    (d) Evaluation plan. (5 points) (See 34 CFR 655.31 (d))
    (e) Adequacy of resources. (5 points) (See 34 CFR 655.31(e))
    (f) Need and potential impact. (30 points) The Secretary reviews 
each application to determine--
    (1) The extent to which the proposed materials or activities are 
needed in the foreign languages on which the project focuses;
    (2) The extent to which the proposed materials may be used 
throughout the United States; and
    (3) The extent to which the proposed work or activity may contribute 
significantly to strengthening, expanding, or improving programs of 
foreign language study in the United States.
    (g) Likelihood of achieving results. (10 points) The Secretary 
reviews each application to determine--
    (1) The quality of the outlined methods and procedures for preparing 
the materials; and
    (2) The extent to which plans for carrying out activities are 
practicable and can be expected to produce the anticipated results.
    (h) Description of final form of results. (5 points) The Secretary 
reviews each application to determine the degree of specificity and the 
appropriateness of the description of the expected results from the 
project.
    (i) Priorities. (20 points) If, under the provisions of Sec. 669.22, 
the application notice specifies priorities for this program, the 
Secretary determines the degrees to which the priorities are served.

(Approved by the Office of Management and Budget under control number 
1840-0608)

(Authority: 20 U.S.C. 1123)

[55 FR 2773, Jan. 26, 1990, as amended at 58 FR 32577, June 10, 1993]



Sec. 669.22  What priorities may the Secretary establish?

    (a) The Secretary may each year select funding priorities from among 
the following:
    (1) Categories of allowable activities described in Sec. 669.3.
    (2) Specific foreign languages for study or materials development.
    (3) Levels of education, for example, elementary, secondary, 
postsecondary, or teacher education.
    (b) The Secretary announces any priorities in the application notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1123)



          Subpart D--What Conditions Must Be Met by a Grantee?



Sec. 669.30  What are allowable equipment costs?

    Equipment costs may not exceed fifteen percent of the grant amount.

(Authority: 20 U.S.C. 1123)



PART 673--GENERAL PROVISIONS FOR THE FEDERAL PERKINS LOAN PROGRAM, FEDERAL 
WORK-STUDY PROGRAM, AND FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT 
PROGRAM--Table of Contents




                      Subpart A--Purpose and Scope

Sec.
673.1  Purpose.
673.2  Applicability of regulations.

  Subpart B--General Provisions for the Federal Perkins Loan, FWS, and 
                             FSEOG Programs

673.3  Application.
673.4  Allocation and reallocation.
673.5  Overaward.
673.6  Coordination with BIA grants.
673.7  Administrative cost allowance.

[[Page 569]]


    Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii; 42 
U.S.C. 2751-2756b, unless otherwise noted.

    Source: 61 FR 60393, Nov. 27, 1996, unless otherwise noted.



                      Subpart A--Purpose and Scope



Sec. 673.1  Purpose.

    This part governs the following three programs authorized by title 
IV of the Higher Education Act of 1965, as amended (HEA) that 
participating institutions administer:
    (a) The Federal Perkins Loan Program, which encourages the making of 
loans by institutions to needy undergraduate and graduate students to 
help pay for their cost of education.
    (b) The Federal Work-Study (FWS) Program, which encourages the part-
time employment of undergraduate and graduate students who need the 
income to help pay for their cost of education and which encourages FWS 
recipients to participate in community service activities.
    (c) The Federal Supplemental Educational Opportunity Grant (FSEOG) 
Program, which encourages the providing of grants to exceptionally needy 
undergraduate students to help pay for their cost of education.

(Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii; 42 
U.S.C. 2751-2756b)



Sec. 673.2  Applicability of regulations.

    The participating institution is responsible for administering these 
programs in accordance with the regulations in this part and the 
applicable program regulations in 34 CFR parts 674, 675, and 676.

(Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii; 42 
U.S.C. 2751-2756b)



  Subpart B--General Provisions for the Federal Perkins Loan, FWS, and 
                             FSEOG Programs



Sec. 673.3  Application.

    (a) To participate in the Federal Perkins Loan, FWS, or FSEOG 
programs, an institution shall file an application before the deadline 
date established annually by the Secretary through publication of a 
notice in the Federal Register.
    (b) The application for the Federal Perkins Loan, FWS, and FSEOG 
programs must be on a form approved by the Secretary and must contain 
the information needed by the Secretary to determine the institution's 
allocation or reallocation of funds under sections 462, 442, and 413D of 
the HEA, respectively.

(Authority: 20 U.S.C. 1070b-3 and 1087bb; 42 U.S.C. 2752)



Sec. 673.4  Allocation and reallocation.

    (a) Allocation and reallocation of Federal Perkins Loan funds. (1) 
The Secretary allocates Federal capital contributions to institutions 
participating in the Federal Perkins Loan Program in accordance with 
section 462 of the HEA.
    (2) The Secretary reallocates Federal capital contributions to 
institutions participating in the Federal Perkins Loan Program by--
    (i) Reallocating 80 percent of the total funds available in 
accordance with section 462(j) of the HEA; and
    (ii) Reallocating 20 percent of the total funds available in a 
manner that best carries out the purposes of the Federal Perkins Loan 
Program.
    (b) Allocation and reallocation of FWS funds. The Secretary 
allocates and reallocates funds to institutions participating in the FWS 
Program in accordance with section 442 of the HEA.
    (c) Allocation and reallocation of FSEOG funds. (1) The Secretary 
allocates funds to institutions participating in the FSEOG program in 
accordance with section 413D of the HEA.
    (2) The Secretary reallocates funds to institutions participating in 
the FSEOG Program in a manner that best carries out the purposes of the 
FSEOG Program.
    (d) General allocation and reallocation--(1) Categories. As used in 
section 462 (Federal Perkins Loan Program), section 442 (FWS Program), 
and section 413D (FSEOG Program) of the HEA, ``Eligible institutions 
offering comparable programs of instruction'' means institutions that 
are being compared with the applicant institution and that fall within 
one of the following six categories:
    (i) Cosmetology.
    (ii) Business.

[[Page 570]]

    (iii) Trade/Technical.
    (iv) Art Schools.
    (v) Other Proprietary Institutions.
    (vi) Non-Proprietary Institutions.
    (2) Payments to institutions. The Secretary allocates funds for a 
specific period of time. The Secretary provides an institution its 
allocation in accordance with the payment methods described in 34 CFR 
668.162.
    (3) Unexpended funds. (i) If an institution returns more than 10 
percent of its Federal Perkins Loan, FWS, or FSEOG allocation for an 
award year, the Secretary reduces the institution's allocation for that 
program for the second succeeding award year by the dollar amount 
returned.
    (ii) The Secretary may waive the provision of paragraph (d)(3)(i) of 
this section for a specific institution if the Secretary finds that 
enforcement would be contrary to the interests of the program.
    (iii) The Secretary considers enforcement of paragraph (d)(3)(i) of 
this section to be contrary to the interest of the program only if the 
institution returns more than 10 percent of its allocation due to 
circumstances beyond the institution's control that are not expected to 
recur.
    (e) Anticipated collections of Federal Perkins Loan funds. (1) For 
the purposes of calculating an institution's share of any excess 
allocation of Federal Perkins Loan funds, an institution's anticipated 
collections are equal to the amount that was collected by the 
institution during the second year preceding the beginning of the award 
period multiplied by 1.21.
    (2) The Secretary may waive the provision of paragraph (e)(1) of 
this section for any institution that has a cohort default rate that 
does not exceed 7.5 percent.
    (f) Authority to expend FWS funds. Except as specifically provided 
in 34 CFR 675.18 (b), (c), and (f), an institution may not use funds 
allocated or reallocated for an award year--
    (1) To meet FWS wage obligations incurred with regard to an award of 
FWS employment made for any other award year; or
    (2) To satisfy any other obligation incurred after the end of the 
designated award year.
    (g) Authority to expend FSEOG funds. Except as specifically provided 
in 34 CFR 668.164(g), an institution shall not use funds allocated or 
reallocated for an award year--
    (1) To make FSEOG disbursements to students in any other award year; 
or
    (2) To satisfy any other obligation incurred after the end of the 
designated award year.

(Authority: 20 U.S.C. 1070b-3 and 1087bb, 42 U.S.C. 2752)



Sec. 673.5  Overaward.

    (a) Overaward prohibited--(1) Federal Perkins Loan and FSEOG 
Programs. An institution may only award or disburse a Federal Perkins 
loan or an FSEOG to a student if that loan or the FSEOG, combined with 
the other resources the student receives, does not exceed the student's 
financial need.
    (2) FWS Program. An institution may only award FWS employment to a 
student if the award, combined with the other resources the student 
receives, does not exceed the student's financial need.
    (b) Awarding and disbursement. (1) When awarding and disbursing a 
Federal Perkins loan or an FSEOG or awarding FWS employment to a 
student, the institution shall take into account those resources it--
    (i) Can reasonably anticipate at the time it awards Federal Perkins 
Loan funds, an FSEOG, or FWS funds to the student;
    (ii) Makes available to its students; or
    (iii) Otherwise knows about.
    (2) If a student receives resources at any time during the award 
period that were not considered in calculating the Federal Perkins Loan 
amount or the FWS or FSEOG award, and the total resources including the 
loan, the FSEOG, or the prospective FWS wages exceed the student's need, 
the overaward is the amount that exceeds need.
    (c) Resources. (1) Except as provided in paragraphs (c)(2), (c)(3), 
and (c)(4) of this section, the Secretary considers that ``resources'' 
include, but are not limited to, any--
    (i) Funds a student is entitled to receive from a Federal Pell 
Grant;

[[Page 571]]

    (ii) William D. Ford Federal Direct Loans;
    (iii) Federal Family Education Loans;
    (iv) Long-term loans, including Federal Perkins loans made by the 
institution;
    (v) Grants, including FSEOGs, State grants, and ROTC subsistence 
allowances;
    (vi) Scholarships, including athletic scholarships and ROTC 
scholarships;
    (vii) Waivers of tuition and fees;
    (viii) Fellowships or assistantships;
    (ix) Veterans educational benefits paid under Chapters 30, 31, 32, 
and 35 of title 38 of the United States Code;
    (x) National service education awards or post-service benefits paid 
for the cost of attendance under title I of the National and Community 
Service Act of 1990 (AmeriCorps);
    (xi) Net earnings from need-based employment; and
    (xii) Insurance programs for the student's education.
    (2) The Secretary does not consider as a resource--
    (i) Any portion of the resources described in paragraph (c)(1) of 
this section that are included in the calculation of the student's 
expected family contribution (EFC); and
    (ii) Earnings from non-need-based employment.
    (3) The institution may treat a Federal Direct PLUS Loan, a Federal 
PLUS Loan, a Federal Direct Unsubsidized Stafford/Ford Loan, a Federal 
Unsubsidized Stafford Loan, or a State-sponsored or private loan as a 
substitute for a student's EFC. However, if the sum of the loan amounts 
received exceeds the student's EFC, the excess is a resource.
    (4) The institution may exclude as a resource any portion of a 
Federal Direct Stafford/Ford Loan (Direct Subsidized Loan) and 
subsidized Federal Stafford Loan that is equal to or less than the 
amount of a student's veterans education benefits paid under Chapter 30 
of title 38 of the United States Code (Montgomery GI Bill) and national 
service education awards or post service benefits paid for the cost of 
attendance under title I of the National and Community Service Act of 
1990 (AmeriCorps).
    (d) Treatment of resources in excess of need--General. An 
institution shall take the following steps if it learns that a student 
has received additional resources not included in the calculation of 
Federal Perkins Loan, FWS, or FSEOG eligibility that would result in the 
student's total resources exceeding his or her financial need by more 
than $300:
    (1) The institution shall decide whether the student has increased 
financial need that was unanticipated when it awarded financial aid to 
the student. If the student demonstrates increased financial need and 
the total resources do not exceed this increased need by more than $300, 
no further action is necessary.
    (2) If the student's total resources still exceed his or her need by 
more than $300, as recalculated pursuant to paragraph (d)(1) of this 
section, the institution shall cancel any undisbursed loan or grant 
(other than a Federal Pell Grant).
    (3) Federal Perkins loan and FSEOG overpayment. If the student's 
total resources still exceed his or her need by more than $300, after 
the institution takes the steps required in paragraphs (d)(1) and (2) of 
this section, the institution shall consider the amount by which the 
resources exceed the student's financial need by more than $300 as an 
overpayment.
    (e) Termination of FWS employment. (1) An institution may fund a 
student's FWS employment with FWS funds only until the amount of the FWS 
award has been earned or until the student's financial need, as 
recalculated under paragraph (d)(1) of this section, is met.
    (2) Notwithstanding the provisions of paragraph (e)(1) of this 
section, an institution may provide additional FWS funding to a student 
whose need has been met until that student's cumulative earnings from 
all need-based employment occurring subsequent to the time his or her 
financial need has been met exceed $300.
    (f) Liability for and recovery of Federal Perkins loans and FSEOG 
overpayments. (1) Except as provided in paragraphs (f)(2) and (f)(3) of 
this section, a student is liable for any Federal Perkins loan or FSEOG 
overpayment made to him or her. An FSEOG overpayment for

[[Page 572]]

purposes of this paragraph does not include the non-Federal share of an 
FSEOG award if an institution meets its FSEOG matching share by the 
individual recipient method or the aggregate method.
    (2) The institution is liable for a Federal Perkins loan or FSEOG 
overpayment if the overpayment occurred because the institution failed 
to follow the procedures in this part or 34 CFR parts 668, 674, or 676. 
The institution shall restore an amount equal to the overpayment and any 
administrative cost allowance claimed on that amount to its loan fund 
for a Federal Perkins loan overpayment or to its FSEOG account for an 
FSEOG overpayment.
    (3) A student is not liable for, and the institution is not required 
to attempt recovery of, a Federal Perkins loan or FSEOG overpayment, nor 
is the institution required to refer an FSEOG overpayment to the 
Secretary, if the overpayment--
    (i) Is less than $25; and
    (ii) Is neither a remaining balance nor a result of the application 
of the overaward threshold in paragraph (d) of this section.
    (4)(i) Except as provided in paragraph (f)(3) of this section, if an 
institution makes a Federal Perkins loan or FSEOG overpayment for which 
it is not liable, it shall promptly send a written notice to the student 
requesting repayment of the overpayment amount. The notice must state 
that failure to make that repayment, or to make arrangements 
satisfactory to the holder of the overpayment debt to pay the 
overpayment, makes the student ineligible for further title IV, HEA 
program funds until final resolution of the overpayment.
    (ii) If a student objects to the institution's Federal Perkins loan 
or FSEOG overpayment determination on the grounds that it is erroneous, 
the institution shall consider any information provided by the student 
and determine whether the objection is warranted.
    (5) Except as provided in paragraph (f)(3) of this section, if a 
student fails to repay an FSEOG overpayment or make arrangements 
satisfactory to the holder of the overpayment debt to repay the FSEOG 
overpayment after the institution has taken the action required by 
paragraph (f)(4) of this section, the institution must refer the FSEOG 
overpayment to the Secretary for collection purposes in accordance with 
procedures required by the Secretary. After referring the FSEOG 
overpayment to the Secretary under this section, the institution need 
make no further effort to recover the overpayment.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1070b-1, 1087dd, and 1087hh, 42 U.S.C. 2753)

[61 FR 60393, Nov. 17, 1996, as amended at 64 FR 58292, Oct. 28, 1999; 
67 FR 67075, Nov. 1, 2002]



Sec. 673.6  Coordination with BIA grants.

    (a) Coordination of BIA grants with Federal Perkins loans, FWS 
awards, or FSEOGs. To determine the amount of a Federal Perkins loan, 
FWS compensation, or an FSEOG for a student who is also eligible for a 
Bureau of Indian Affairs (BIA) education grant, an institution shall 
prepare a package of student aid--
    (1) From resources other than the BIA education grant the student 
has received or is expected to receive; and
    (2) That is consistent in type and amount with packages prepared for 
students in similar circumstances who are not eligible for a BIA 
education grant.
    (b)(1) The BIA education grant, whether received by the student 
before or after the preparation of the student aid package, supplements 
the student aid package specified in paragraph (a) of this section.
    (2) No adjustment may be made to the student aid package as long as 
the total of the package and the BIA education grant is less than the 
institution's determination of that student's financial need.
    (c)(1) If the BIA education grant, when combined with other aid in 
the package, exceeds the student's need, the excess must be deducted 
from the other assistance (except for Federal Pell Grants), not from the 
BIA education grant.
    (2) The institution shall deduct the excess in the following 
sequence: loans, work-study awards, and grants other

[[Page 573]]

than Federal Pell Grants. However, the institution may change the 
sequence if requested to do so by a student and the institution believes 
the change benefits the student.
    (d) To determine the financial need of a student who is also 
eligible for a BIA education grant, a financial aid administrator is 
encouraged to consult with area officials in charge of BIA postsecondary 
financial aid.

(Authority: 20 U.S.C. 1070b-1 and 1087dd; 42 U.S.C. 2753)



Sec. 673.7  Administrative cost allowance.

    (a) An institution participating in the Federal Perkins Loan, FWS, 
or FSEOG programs is entitled to an administrative cost allowance for an 
award year if it advances funds under the Federal Perkins Loan Program, 
provides FWS employment, or awards grants under the FSEOG Program to 
students in that year.
    (b) An institution may charge the administrative cost allowance 
calculated in accordance with paragraph (c) of this section for an award 
year against-(1) The Federal Perkins Loan Fund, if the institution 
advances funds under the Federal Perkins Loan Program to students in 
that award year;
    (2) The FWS allocation, if the institution provides FWS employment 
to students in that award year; and
    (3) The FSEOG allocation, if the institution awards grants to 
students under the FSEOG program in that award year.
    (c) For any award year, the amount of the administrative costs 
allowance equals--
    (1) Five percent of the first $2,750,000 of the institution's total 
expenditures to students in that award year under the FWS, FSEOG, and 
the Federal Perkins Loan programs; plus
    (2) Four percent of its expenditures to students that are greater 
than $2,750,000 but less than $5,500,000; plus
    (3) Three percent of its expenditures to students that are 
$5,500,000 or more.
    (d) The institution shall not include, when calculating the 
allowance in paragraph (c) of this section, the amount of loans made 
under the Federal Perkins Loan Program that it assigns during the award 
year to the Secretary under section 463(a)(6) of the HEA.
    (e) An institution shall use its administrative costs allowance to 
offset its cost of administering the Federal Pell Grant, FWS, FSEOG, and 
Federal Perkins Loan programs. Administrative costs also include the 
expenses incurred for carrying out the student consumer information 
services requirements of subpart D of the Student Assistance General 
Provisions regulations, 34 CFR part 668.
    (f) An institution may use up to 10 percent of the administrative 
costs allowance, as calculated under paragraph (c) of this section, that 
is attributable to the institution's expenditures under the FWS program 
to pay the administrative costs of conducting its program of community 
service. These costs may include the costs of--
    (1) Developing mechanisms to assure the academic quality of a 
student's experience;
    (2) Assuring student access to educational resources, expertise, and 
supervision necessary to achieve community service objectives; and
    (3) Collaborating with public and private nonprofit agencies and 
programs assisted under the National and Community Service Act of 1990 
in the planning, development, and administration of these programs.
    (g) If an institution charges any administrative cost allowance 
against its Federal Perkins Loan Fund, it must charge these costs during 
the same award year in which the expenditures for these costs were made.

(Authority: 20 U.S.C. 1070b-2, 1087cc, and 1096, 42 U.S.C. 2753)



PART 674--FEDERAL PERKINS LOAN PROGRAM--Table of Contents




    Note: An asterisk (*) indicates provisions that are common to parts 
674, 675, and 676. The use of asterisks will assure participating 
institutions that a provision of one regulation is identical to the 
corresponding provisions in the other two.

                      Subpart A--General Provisions

Sec.
674.1  Purpose and identification of common provisions.
674.2  Definitions.

[[Page 574]]

674.3-674.4  [Reserved]
674.5  Federal Perkins Loan program cohort default rate and penalties.
674.6-674.7  [Reserved]
674.8  Program participation agreement.
674.9  Student eligibility.
674.10  Selection of students for loans.
674.11  [Reserved]
674.12  Loan maximums.
674.13  Reimbursement to the Fund.
674.14-674.15  [Reserved]
674.16  Making and disbursing loans.
674.17  Federal interest in allocated funds--transfer of Fund.
674.18  Use of funds.
674.19  Fiscal procedures and records.
674.20  Compliance with equal credit opportunity requirements.

                        Subpart B--Terms of Loans

674.31  Promissory note.
674.32  Special terms: loans to less than half-time student borrowers.
674.33  Repayment.
674.34  Deferment of repayment--Federal Perkins loans, NDSLs and Defense 
          loans.
674.35  Deferment of repayment--Federal Perkins loans made before July 
          1, 1993.
674.36  Deferment of repayment--NDSLs made on or after October 1, 1980, 
          but before July 1, 1993.
674.37  Deferment of repayment--NDSLs made before October 1, 1980 and 
          Defense loans.
674.38  Deferment procedures.
674.39  Loan rehabilitation.
674.40  Treatment of loan repayments where cancellation, loan 
          repayments, and minimum monthly repayments apply.

                        Subpart C--Due Diligence

674.41  Due diligence--general requirements.
674.42  Contact with the borrower.
674.43  Billing procedures.
674.44  Address searches.
674.45  Collection procedures.
674.46  Litigation procedures.
674.47  Costs chargeable to the Fund.
674.48  Use of contractors to perform billing and collection or other 
          program activities.
674.49  Bankruptcy of borrower.
674.50  Assignment of defaulted loans to the United States.

                      Subpart D--Loan Cancellation

674.51  Special definitions.
674.52  Cancellation procedures.
674.53  Teacher cancellation--Federal Perkins, NDSL and Defense loans.
674.54  [Reserved]
674.55  Teacher cancellation--Defense loans.
674.56  Employment cancellation--Federal Perkins, NDSL and Defense 
          loans.
674.57  Cancellation for law enforcement or corrections officer service-
          -Federal Perkins, NDSL and Defense loans.
674.58  Cancellation for service in a Head Start program.
674.59  Cancellation for military service.
674.60  Cancellation for volunteer service--Perkins loans, NDSLs and 
          Defense loans.
674.61  Cancellation for death or disability.
674.62  No cancellation for prior service--no repayment refunded.
674.63  Reimbursement to institutions for loan cancellation.

Appendixes A-D to Part 674 [Reserved]
Appendix E to Part 674--Examples for Computing Maximum Penalty Charges 
          (6 Months Unpaid Overdue Payments) on Direct Loans Made for 
          Periods of Enrollment before January 1, 1986

    Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless 
otherwise noted.

    Editorial Note: Nomenclature changes to part 674 appear at 65 FR 
18002, 18003, Apr. 6, 2000.



                      Subpart A--General Provisions

    Source: 52 FR 45747, Dec. 1, 1987, unless otherwise noted.



Sec. 674.1  Purpose and identification of common provisions.

    (a) The Federal Perkins Loan Program provides low-interest loans to 
financially needy students attending institutions of higher education to 
help them pay their educational costs.
    (b)(1) The Federal Perkins Loan Program, authorized by title IV-E of 
the Higher Education Act of 1965, as amended, and previously named the 
National Direct Student Loan (NDSL) Program, is a continuation of the 
National Defense Loan Program authorized by title II of the National 
Defense Education Act of 1958. All rights, privileges, duties, 
functions, and obligations existing under title II before the enactment 
of title IV-E continue to exist.
    (2) The Secretary considers any student loan fund established under 
title IV-E to include the assets of an institution's student loan fund 
established under title II.
    *(c) Provisions in these regulations that are common to all campus-
based programs are identified with an asterisk.
    (d) Provisions in these regulations that refer to ``loans'' or 
``student loans'' apply to all loans made under

[[Page 575]]

title IV-E of the HEA or title II of the National Defense Education Act.

(Authority: 20 U.S.C. 1087aa-1087hh; Pub. L. 92-318, sec. 137(d)(1))

[52 FR 45747, Dec. 1, 1987, as amended at 57 FR 32344, July 21, 1992; 59 
FR 61415, Nov. 29, 1994; 64 FR 18002, Apr. 6, 2000]



Sec. 674.2  Definitions.

    (a) The definitions of the following terms used in this part are set 
forth in subpart A of the Student Assistance General Provisions, 34 CFR 
part 668:

Academic year
Award year
Defense loan
Enrolled
Federal Family Education Loan (FFEL) programs
Federal Pell Grant
Federal Perkins loan
Federal Perkins Loan Program
Federal PLUS Program
Federal SLS Program
Federal Supplemental Educational Opportunity Grant (FSEOG) Program
Federal Work-Study (FWS) Program
Full-time student
HEA
National Defense Student Loan Program
National Direct Student Loan (NDSL) Program
Payment period
Secretary

    (b) The Secretary defines other terms used in this part as follows:
    Default: The failure of a borrower to make an installment payment 
when due or to comply with other terms of the promissory note or written 
repayment agreement.
    Enter repayment: The day following the expiration of the initial 
grace period or the day the borrower waives the initial grace period. 
This date does not change if a forbearance, deferment, or cancellation 
is granted after the borrower enters repayment.
    *Expected family contribution (EFC): The amount a student and his or 
her spouse and family are expected to pay toward the student's cost of 
attendance.
    Federal capital contribution (FCC): Federal funds allocated or 
reallocated to an institution for deposit into the institution's Fund 
under section 462 of the HEA.
    *Financial need: The difference between a student's cost of 
attendance and his or her EFC.
    Fund (Federal Perkins Loan Fund): A fund established and maintained 
according to Sec. 674.8.
    Graduate or professional student: A student who--
    (1) Is enrolled in a program or course above the baccalaureate level 
at an institution of higher education or is enrolled in a program 
leading to a first professional degree;
    (2) Has completed the equivalent of at least three years of full-
time study at an institution of higher education, either prior to 
entrance into the program or as part of the program itself; and
    (3) Is not receiving title IV aid as an undergraduate student for 
the same period of enrollment.
    Half-time graduate or professional student: An enrolled graduate or 
professional student who is carrying a half-time academic workload as 
determined by the institution according to its own standards and 
practices.
    Half-time undergraduate student: An enrolled undergraduate student 
who is carrying a half-time academic workload, as determined by the 
institution, which amounts to at least half the workload of a full-time 
student. However, the institution's half-time standards must equal or 
exceed the equivalent of one or more of the following minimum 
requirements:
    (1) 6 semester hours or 6 quarter hours per academic term for an 
institution using a standard semester, trimester, or quarter system.
    (2) 12 semester hours or 18 quarter hours per academic year for an 
institution using credit hours to measure progress, but not using a 
standard semester, trimester, or quarter system; or the prorated 
equivalent for a program of less than one year.
    (3) 12 clock hours per week for an institution using clock hours.
    (4) 12 hours of preparation per week for a student enrolled in a 
program of study by correspondence. Regardless of the workload, no 
student enrolled solely in correspondence study is considered more than 
half-time.

[[Page 576]]

    Initial grace period: That period which immediately follows a period 
of enrollment and immediately precedes the date of the first required 
repayment on a loan. This period is generally nine months for Federal 
Perkins loans, Defense loans, and NDSLs made before October 1, 1980, and 
six months for other Direct loans.
    *Institution of higher education (institution): A public or private 
nonprofit institution of higher education, a proprietary institution of 
higher education, or a postsecondary vocational institution.
    Institutional capital contribution (ICC): Institutional funds 
contributed to establish or maintain a Fund.
    Making of a loan: When the institution makes the first disbursement 
of a loan to a student for an award year.
    Master Promissory Note (MPN): A promissory note under which the 
borrower may receive loans for a single award year or multiple award 
years.
    National credit bureau: Any one of the national credit bureaus with 
which the Secretary has an agreement.
    *Need-based employment: Employment provided by an institution itself 
or by another entity to a student who has demonstrated to the 
institution or the entity (through standards or methods it establishes) 
a financial need for the earnings from that employment for the purpose 
of defraying educational costs of attendance for the award year for 
which the employment is provided.
    Post-deferment grace period: That period of six consecutive months 
which immediately follows the end of certain periods of deferment and 
precedes the date on which the borrower is required to resume repayment 
on a loan.
    Satisfactory repayment arrangement: For purposes of regaining 
eligibility for grant, loan, or work assistance under Title IV of the 
HEA, to the extent that the borrower is otherwise eligible, the making 
of six (6) on-time, consecutive, monthly payments on a defaulted loan. A 
borrower may obtain the benefit of this paragraph with respect to 
renewed eligibility once on a defaulted loan.
    Student loan: For this part means an NDSL Loan, Defense Loan, or a 
Federal Perkins Loan.
    Total monthly gross income: The gross amount of income received by 
the borrower from employment (either full-time or part-time) and from 
other sources.
    Undergraduate student: A student enrolled at an institution of 
higher education who is in an undergraduate course of study which 
usually does not exceed four academic years, or is enrolled in a four to 
five academic year program designed to lead to a first degree. A student 
enrolled in a program of any other length is considered an undergraduate 
student for only the first four academic years of that program.

(Authority: 20 U.S.C. 1087aa-1087hh)

[52 FR 45747, Dec. 1, 1987, as amended at 53 FR 52580, Dec. 28, 1988; 57 
FR 32344, July 21, 1992; 59 FR 61404, 61415-61416, Nov. 30, 1994; 60 FR 
61814, Dec. 1, 1995; 61 FR 60608, Nov. 29, 1996; 64 FR 58308, Oct. 28, 
1999; 65 FR 18002, Apr. 6, 2000; 67 FR 67076, Nov. 1, 2002]



Secs. 674.3-674.4  [Reserved]



Sec. 674.5  Federal Perkins Loan program cohort default rate and penalties.

    (a) Default penalty. If an institution's cohort default rate meets 
the following levels, a default penalty is imposed on the institution as 
follows:
    (1) FCC reduction. If the institution's cohort default rate equals 
or exceeds 25 percent, the institution's FCC is reduced to zero.
    (2) Ineligibility. For award year 2000-2001 and succeeding award 
years, an institution with a cohort default rate that equals or exceeds 
50 percent for each of the three most recent years for which cohort 
default rate data are available is ineligible to participate in the 
Federal Perkins Loan Program. Following a review of that data and upon 
notification by the Secretary, an institution is ineligible to 
participate for the award year, or the remainder of the award year, in 
which the determination is made and the two succeeding award years. An 
institution may appeal a notification of ineligibility from the 
Secretary within 30 days of its receipt.
    (i) Appeal procedures.

[[Page 577]]

    (A) Inaccurate calculation. An institution may appeal a notice of 
ineligibility based upon the submission of erroneous data by the 
institution, the correction of which would result in a recalculation 
that reduces the institution's cohort default rate to below 50 percent 
for any of the three award years used to make a determination of 
ineligibility. The Secretary considers the edit process, by which an 
institution adjusts the cohort default rate data that it submits to the 
Secretary on its Fiscal Operations Report, to constitute the procedure 
to appeal a determination of ineligibility based on a claim of erroneous 
data.
    (B) Small number of borrowers entering repayment. An institution may 
appeal a notice of ineligibility if, on average, 10 or fewer borrowers 
enter repayment for the three most recent award years used by the 
Secretary to make a determination of ineligibility.
    (C) Decision of the Secretary. The Secretary issues a decision on an 
appeal within 45 days of the institution's submission of a complete, 
accurate, and timely appeal. An institution may continue to participate 
in the program until the Secretary issues a decision on the 
institution's appeal.
    (ii) Liquidation of an institution's Perkins Loan portfolio. Within 
90 days of receiving a notification of ineligibility or, if the 
institution appeals, within 90 days of the Secretary's decision to deny 
the appeal, the institution must--
    (A) Liquidate its revolving student loan fund by making a capital 
distribution of the liquid assets of the Fund according to section 
466(c) of the HEA; and
    (B) Assign any outstanding loans in the institution's portfolio to 
the Secretary in accordance with Sec. 674.50.
    (iii) Effective date. The provisions of paragraph (a)(2) of this 
section are effective with the cohort default rate calculated as of June 
30, 2001.
    (b) Cohort default rate. (1) The term ``cohort default rate'' means, 
for any award year in which 30 or more current and former students at 
the institution enter repayment on a loan received for attendance at the 
institution, the percentage of those current and former students who 
enter repayment in that award year on the loans received for attendance 
at that institution who default before the end of the following award 
year.
    (2) For any award year in which less than 30 current and former 
students at the institution enter repayment on a loan received for 
attendance at the institution, the ``cohort default rate'' means the 
percentage of those current and former students who entered repayment on 
loans received for attendance at that institution in any of the three 
most recent award years and who defaulted on those loans before the end 
of the award year immediately following the year in which they entered 
repayment.
    (c) Defaulted loans to be included in the cohort default rate. For 
purposes of calculating the cohort default rate under paragraph (b) of 
this section--
    (1) A borrower must be included only if the borrower's default has 
persisted for at least--
    (i) 240 consecutive days for loans repayable in monthly 
installments; or
    (ii) 270 consecutive days for loans repayable in quarterly 
installments;
    (2) A loan is considered to be in default if a payment is made by 
the institution of higher education, its owner, agency, contractor, 
employee, or any other entity or individual affiliated with the 
institution, in order to avoid default by the borrower;
    (3)(i) In determining the number of borrowers who default before the 
end of the following award year, a loan is excluded if the borrower has-
-
    (A) Voluntarily made six consecutive monthly payments;
    (B) Voluntarily made all payments currently due;
    (C) Repaid the full amount due, including any interest, late fees, 
and collection costs that have accrued on the loan;
    (D) Received a deferment or forbearance based on a condition that 
predates the borrower reaching a 240- or 270-day past due status;
    (E) Rehabilitated the loan after becoming 240- or 270-days past due; 
or
    (F) Assigned to the Secretary in accordance with Sec. 674.61(b).
    (ii) A loan is considered canceled and also excluded from an 
institution's cohort default rate calculation if the loan is--

[[Page 578]]

    (A) Discharged due to death or permanent and total disability;
    (B) Discharged in bankruptcy;
    (C) Discharged due to a closed school; or
    (D) Repaid in full in accordance with Sec. 674.33(e) or Sec. 674(h).
    (iii) For the purpose of this section, funds obtained by income tax 
offset, garnishment, income or asset execution, or pursuant to a 
judgment are not considered voluntary.
    (4) In the case of a student who has attended and borrowed at more 
than one institution, the student and his or her subsequent repayment or 
default are attributed to the institution for attendance at which the 
student received the loan that entered repayment in the award year.
    (d) Locations of the institution. (1) A cohort default rate of an 
institution applies to all locations of the institution as it exists on 
the first day of the award year for which the rate is calculated.
    (2) A cohort default rate of an institution applies to all locations 
of the institution from the date the institution is notified of that 
rate until the institution is notified by the Secretary that the rate no 
longer applies.
    (3) For an institution that changes status from a location of one 
institution to a free-standing institution, the Secretary determines the 
cohort default rate based on the institution's status as of July 1 of 
the award year for which a cohort default rate is being calculated.
    (4)(i) For an institution that changes status from a free-standing 
institution to a location of another institution, the Secretary 
determines the cohort default rate based on the combined number of 
students who enter repayment during the applicable award year and the 
combined number of students who default during the applicable award 
years from both the former free-standing institution and the other 
institution. This cohort default rate applies to the new consolidated 
institution and all of its current locations.
    (ii) For free-standing institutions that merge, the Secretary 
determines the cohort default rate based on the combined number of 
students who enter repayment during the applicable award year and the 
combined number of students who default during the applicable award 
years from both of the institutions that are merging. This cohort 
default rate applies to the new, consolidated institution.
    (iii) For an institution that changes status from a location of one 
institution to a location of another institution, the Secretary 
determines the cohort default rate based on the combined number of 
students who enter repayment during the applicable award year and the 
number of students who default during the applicable award years from 
both of the institutions in their entirety, not limited solely to the 
respective locations.
    (5) For an institution that has a change in ownership that results 
in a change in control, the Secretary determines the cohort default rate 
based on the combined number of students who enter repayment during the 
applicable award year and the combined number of students who default 
during the applicable award years from the institution under both the 
old and new control.

(Authority: 20 U.S.C. 1087bb)

[59 FR 61405, Nov. 30, 1994, as amended at 60 FR 61814, Dec. 1, 1995; 64 
FR 58308, Oct. 28, 1999; 65 FR 65690, Nov. 1, 2000]



Secs. 674.6-674.7  [Reserved]



Sec. 674.8  Program participation agreement.

    To participate in the Federal Perkins Loan program, an institution 
shall enter into a participation agreement with the Secretary. The 
agreement provides that the institution shall use the funds it receives 
solely for the purposes specified in this part and shall administer the 
program in accordance with the Act, this part and the Student Assistance 
General Provisions regulations, 34 CFR part 668. The agreement further 
specifically provides, among other things, that--
    (a) The institution shall establish and maintain a Fund and shall 
deposit into the Fund--
    (1) FCC received under this subpart;
    (2) Except as provided in paragraph (a)(1) of Sec. 674.7--
    (i) ICC equal to at least three-seventeenths of the FCC described in

[[Page 579]]

paragraph (a)(1) of this section in award year 1993-94; and
    (ii) ICC equal to at least one-third of the FCC described in 
paragraph (a)(1) of this section in award year 1994-95 and succeeding 
award years;
    (3) ICC equal to the amount of FCC described in paragraph (a)(1) of 
Sec. 674.7 for an institution that has been granted permission by the 
Secretary to participate in the ELO under the Federal Perkins Loan 
program;
    (4) Payments of principal, interest, late charges, penalty charges, 
and collection costs on loans from the Fund;
    (5) Payments to the institution as the result of loan cancellations 
under section 465(b) of the Act;
    (6) Any other earnings on assets of the Fund, including the interest 
earnings of the funds listed in paragraphs (a)(1) through (4) of this 
section net of bank charges incurred with regard to Fund assets 
deposited in interest-bearing accounts; and
    (7) Proceeds of short-term no-interest loans made to the Fund in 
anticipation of collections or receipt of FCC.
    (b) The institution shall use the money in the Fund only for--
    (1) Making loans to students;
    (2) Administrative expenses as provided for in 34 CFR 673.7;
    (3) Capital distributions provided for in section 466 of the Act;
    (4) Litigation costs (see Sec. 674.47);
    (5) Other collection costs, agreed to by the Secretary in connection 
with the collection of principal, interest, and late charges on a loan 
made from the Fund (see Sec. 674.47); and
    (6) Repayment of any short-term, no-interest loans made to the Fund 
by the institution in anticipation of collections or receipt of FCC.
    (c) The institution shall submit an annual report to the Secretary 
containing information that determines its cohort default rate that 
includes--
    (1) For institutions in which 30 or more of its current or former 
students first entered repayment in an award year--
    (i) The total number of borrowers who first entered repayment in the 
award year; and
    (ii) The number of those borrowers in default by the end of the 
following award year; or
    (2) For institutions in which less than 30 of its current or former 
students entered repayment in an award year--
    (i) The total number of borrowers who first entered repayment in any 
of the three most recent award years; and
    (ii) The number of those borrowers in default before the end of the 
award year immediately following the year in which they entered 
repayment.
    (d)(1) If an institution determines not to service or collect a 
loan, the institution may assign its rights to the loan to the United 
States without recompense at the beginning of a repayment period; or
    (2) If a loan is in default despite due diligence on the part of the 
institution in collecting the loan, the institution may assign its 
rights to the loan to the United States without recompense.
    (e) To assist institutions in collecting outstanding loans, the 
Secretary provides to an institution the names and addresses of 
borrowers or other information relevant to collection which is available 
to the Secretary.
    (f) The institution shall provide the loan information required by 
section 463A of the HEA to a borrower.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087cc, 1087cc-1, 1094)

[52 FR 45747, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32344, July 21, 1992; 59 FR 61407, 61415, Nov. 30, 1994; 61 FR 60396, 
Nov. 27, 1996; 64 FR 58315, Oct. 28, 1999]



Sec. 674.9  Student eligibility.

    A student at an institution of higher education is eligible to 
receive a loan under the Federal Perkins Loan program for an award year 
if the student--
    (a) Meets the relevant eligibility requirements contained in 34 CFR 
668.32;
    (b) Is enrolled or accepted for enrollment as an undergraduate, 
graduate, or professional student at the institution, whether or not 
engaged in a program of study abroad approved for credit by the home 
institution;
    (c) Has financial need as determined in accordance with part F of 
title IV of the HEA. A member of a religious order (an order, community, 
society, agency, or organization) who is pursuing a course of study at 
an institution of

[[Page 580]]

higher education is considered to have no financial need if that 
religious order-
    (1) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (2) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (3) Directs the member to pursue the course of study or provides 
subsistence support to its members;
    (d) Has received for that award year, if an undergraduate student--
    (1) A SAR as a result of applying for a grant under the Federal Pell 
Grant Program; or
    (2) A preliminary determination of eligibility or ineligibility for 
a Federal Pell Grant by the institution's financial aid administrator 
after applying for a SAR with a Federal Pell Grant Processor;
    (e) Is willing to repay the loan. Failure to meet payment 
obligations on a previous loan is evidence that the student is unwilling 
to repay the loan;
    (f) Provides to the institution a driver's license number, if any, 
at the time of application for the loan;
    (g)(1) In the case of a borrower whose prior loan under title IV of 
the Act was discharged after a final determination of total and 
permanent disability, obtains a certification from a physician that the 
borrower is able to engage in substantial gainful activity;
    (2) Signs a statement acknowledging that any new Federal Perkins or 
NDSL the borrower received cannot be discharged in the future on the 
basis of any present impairment, unless that condition substantially 
deteriorates; and
    (3) In the case of a borrower whose previous loan under title IV of 
the HEA was discharged due to a total and permanent disability on or 
after July 1, 2001 and before July 1, 2002, meets the requirements of 
(g)(1) and (g)(2) of this section. If the borrower applies for another 
loan within three years from the date the borrower became totally and 
permanently disabled, as certified by the physician, the borrower must 
reaffirm the previously discharged loan before receiving the new loan; 
and
    (h) In the case of a borrower whose previous loan under title IV of 
the HEA was conditionally discharged based on an initial determination 
that the borrower was totally and permanently disabled, the borrower 
must--
    (1) Comply with the requirements of paragraphs (h)(1) and (h)(2) of 
this section; and
    (2) Sign a statement acknowledging that--
    (i) The loan that has been conditionally discharged prior to a final 
determination of total and permanent disability cannot be discharged in 
the future on the basis of any impairment present when the borrower 
applied for a total and permanent disability discharge or when a new 
loan is made, unless that impairment substantially deteriorates; and
    (ii) Collection activity will resume on any loan in a conditional 
discharge period, as described in Sec. 674.61(b)(9).
    (i) Does not have any loans under title IV of the HEA on which 
collection activity has been suspended based on a conditional 
determination that the borrower was totally and permanently disabled. If 
a borrower applies for a loan under title IV of the HEA during the 
conditional discharge period described in Secs. 674.61(b), 682.402(c), 
or 685.213(a), the suspension of collection activity must be ended 
before the borrower becomes eligible to receive any additional loans.
    (j) In the case of a borrower who is in default on a Federal Perkins 
Loan, NDSL or Defense loan, satisfies one of the conditions contained in 
Sec. 674.5(c)(3)(i) or (ii) except that--
    (1) For purposes of this section, voluntary payments made by the 
borrower under paragraph (i) of this section are those payments made 
directly by the borrower; and
    (2) Voluntary payments do not include payments obtained by Federal 
offset, garnishment, or income or asset execution.
    (k) For purposes of this section, reaffirmation means the 
acknowledgment of the loan by the borrower in a legally binding manner. 
The acknowledgement may include, but is not limited to, the borrower--
    (1) Signing a new promissory note or new repayment agreement; or

[[Page 581]]

    (2) Making a payment on the loan.

(Authority: 20 U.S.C. 1087aa, 1087dd, and 1091)

[52 FR 45747, Dec. 1, 1987, as amended at 59 FR 61407, 61415-61416, Nov. 
30, 1994; 60 FR 34167, June 30, 1995; 62 FR 50847, Sept. 26, 1997; 64 FR 
58309, Oct. 28, 1999; 65 FR 65690, Nov. 1, 2000; 66 FR 44006, Aug. 21, 
2001; 67 FR 67076, Nov. 1, 2002]



Sec. 674.10  Selection of students for loans.

    (a)(1) An institution shall make loans under this part reasonably 
available, to the extent of available funds, to all students eligible 
under Sec. 674.9 but shall give priority to those students with 
exceptional financial need.
    (2) The institution shall define exceptional financial need for the 
purpose of the priority described in paragraph (a)(1) of this section 
and shall develop procedures for implementing that priority.
    (b) If an institution's allocation of Federal Capital Contribution 
is directly or indirectly based in part on the financial need 
demonstrated by students attending the institution as less-than-full-
time or independent students, a reasonable portion of the dollar amount 
of loans made under this part must be offered to those students.
    (c) The institution shall establish selection procedures and these 
procedures must be--
    (1) In writing;
    (2) Uniformly applied; and
    (3) Maintained in the institution's files.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087cc and 1087dd)

[52 FR 45747, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61407, Nov. 30, 1994; 64 FR 58292, 58315, Oct. 28, 1999]



Sec. 674.11  [Reserved]



Sec. 674.12  Loan maximums.

    (a) The maximum annual amount of Federal Perkins Loans and NDSLs an 
eligible student may borrow is--
    (1) $4,000 for a student who is enrolled in a program of 
undergraduate education; and
    (2) $6,000 for a graduate or professional student.
    (b) The aggregate unpaid principal amount of all Federal Perkins 
Loans and NDSLs received by an eligible student may not exceed--
    (1) $20,000 for a student who has successfully completed two years 
of a program leading to a bachelor's degree but who has not received the 
degree;
    (2) $40,000 for a graduate or professional student; and
    (3) $8,000 for any other student.
    (c) The maximum annual amounts described in paragraph (a) of this 
section and the aggregate maximum amounts described in paragraph (b) of 
this section may be exceeded by 20 percent if the student is engaged in 
a program of study abroad that is approved for credit by the home 
institution at which the student is enrolled and that has reasonable 
costs in excess of the home institution's cost of attendance.
    (d) For each student, the maximum annual amounts described in 
paragraphs (a) and (c) of this section, and the aggregate maximum 
amounts described in paragraphs (b) and (c) of this section, include any 
amounts borrowed previously by the student under title IV, part E of the 
HEA at any institution.

(Authority: 20 U.S.C. 1087dd)

[59 FR 61407, Nov. 30, 1994, as amended at 64 FR 58309, Oct. 28, 1999]



Sec. 674.13  Reimbursement to the Fund.

    (a) The Secretary may require an institution to reimburse its Fund 
in an amount equal to that portion of the outstanding balance of--
    (1) A loan disbursed by the institution to a borrower in excess of 
the amount that the borrower was eligible to receive, as determined on 
the basis of information the institution had, or should have had, at the 
time of disbursement; or
    (2) Except as provided in paragraph (b) of this section, a defaulted 
loan with regard to which the institution failed--
    (i) To record or retain the loan note in accordance with the 
requirements of this part;
    (ii) To record advances on the loan note in accordance with the 
requirements of this part; or
    (iii) To exercise due diligence in collecting in accordance with the 
requirements of this part.

[[Page 582]]

    (b) The Secretary does not require an institution to reimburse its 
Fund for the portion of the outstanding balance of a defaulted loan 
described in paragraph (a)(2) of this section--
    (1) That the institution--
    (i) Recovers from the borrower or endorser; or
    (ii) Demonstrates, to the Secretary's satisfaction, would not have 
been collected from the borrower even if the institution complied in a 
timely manner with the due diligence requirements of subpart C of this 
part; or
    (2) On which the institution obtains a judgment.
    (c) An institution that is required to reimburse its Fund under 
paragraph (a) of this section shall also reimburse the Fund for the 
amount of the administrative cost allowance claimed by the institution 
for that portion of the loans to be reimbursed.
    (d) An institution that reimburses its Fund under paragraph (a) of 
this section thereby acquires for its own account all the right, title 
and interest of the Fund in the loan for which reimbursement has been 
made.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087dd-1087hh)

[52 FR 45747, Dec. 1, 1987, as amended at 59 FR 61407, Nov. 30, 1994; 64 
FR 58315, Oct. 28, 1999; 65 FR 65614, Nov. 1, 2000]



Secs. 674.14-674.15  [Reserved]



Sec. 674.16  Making and disbursing loans.

    (a)(1) Before an institution makes its first disbursement to a 
student, the student shall sign the promissory note and the institution 
shall provide the student with the following information:
    (i) The name of the institution and the address to which 
communications and payments should be sent.
    (ii) The principal amount of the loan and a statement that the 
institution will report the amount of the loan to a national credit 
bureau at least annually.
    (iii) The stated interest rate on the loan.
    (iv) The yearly and cumulative maximum amounts that may be borrowed.
    (v) An explanation of when repayment of the loan will begin and when 
the borrower will be obligated to pay interest that accrues on the loan.
    (vi) The minimum and maximum repayment terms which the institution 
may impose and the minimum monthly repayment required.
    (vii) A statement of the total cumulative balance owed by the 
student to that institution, and an estimate of the monthly payment 
amount needed to repay that balance.
    (viii) Special options the borrowers may have for loan consolidation 
or other refinancing of the loan.
    (ix) The borrower's right to prepay all or part of the loan, at any 
time, without penalty, and a summary of the circumstances in which 
repayment of the loan or interest that accrues on the loan may be 
deferred or canceled including a brief notice of the Department of 
Defense program for repayment of loans on the basis of specified 
military service.
    (x) A definition of default and the consequences to the borrower, 
including a statement that the institution may report the default to a 
national credit bureau.
    (xi) The effect of accepting the loan on the eligibility of the 
borrower for other forms of student assistance.
    (xii) The amount of any charges collected by the institution at or 
prior to the disbursement of the loan and any deduction of such charges 
from the proceeds of the loan or paid separately by the borrower.
    (xiii) Any cost that may be assessed on the borrower in the 
collection of the loan including late charges and collection and 
litigation costs.
    (2) The institution shall provide the information in paragraph 
(a)(1) of this section to the borrower in writing--
    (i) As part of the written application material;
    (ii) As part of the promissory note; or
    (iii) On a separate written form.
    (b)(1) Except as provided in paragraphs (c) and (f) of this section, 
an institution shall advance in each payment period a portion of a loan 
awarded for a full academic year.
    (2) The institution shall determine the amount advanced each payment 
period by the following fraction:

[[Page 583]]

[GRAPHIC] [TIFF OMITTED] TC15NO91.026


Where Loan Amount = the total loan awarded for an academic year and N = 
the number of payment periods that the institution expects the student 
will attend in that year.
    (3) An institution may advance funds, within each payment period, at 
such time and in such amounts as it determines best meets the student's 
needs.
    (c) If a student incurs uneven costs or resources during an academic 
year and needs additional funds in a particular payment period, the 
institution may advance loan funds to the student for those uneven 
costs.
    (d)(1) The institution shall disburse funds to a student or the 
student's account in accordance with 34 CFR 668.164.
    (2) The institution shall ensure that each loan is supported by a 
legally enforceable promissory note as proof of the borrower's 
indebtedness.
    (3) If the institution uses a Master Promissory Note (MPN), the 
institution's ability to make additional loans based on that MPN will 
automatically expire upon the earliest of--
    (i) The date the institution receives written notification from the 
borrower requesting that the MPN no longer be used as the basis for 
additional loans;
    (ii) Twelve months after the date the borrower signed the MPN if no 
disbursements are made by the institution under that MPN; or
    (iii) Ten years from the date the borrower signed the MPN or the 
date the institution receives the MPN, except that a remaining portion 
of a loan may be disbursed after this date.
    (e) The institution shall advance funds to a student in accordance 
with the provisions of Sec. 668.164.
    (f)(1) The institution shall return to the Fund any amount advanced 
to a student who, before the first day of classes--
    (i) Officially or unofficially withdraws; or
    (ii) Is expelled.
    (2) A student who does not begin class attendance is deemed to have 
withdrawn.
    (g) Only one advance is necessary if the total amount the 
institution awards a student for an academic year under the Federal 
Perkins Loan program is less than $501.
    (h) An institutional official may not, without prior approval from 
the Secretary, obtain a student's power of attorney to endorse any check 
used to disburse loan funds.
    (i)(1) An institution must report to at least one national credit 
bureau--
    (i) The amount and the date of each disbursement;
    (ii) Information concerning the repayment and collection of the loan 
until the loan is paid in full; and
    (iii) The date the loan was repaid, canceled, or discharged for any 
reason.
    (2) An institution must promptly report any changes to information 
previously reported on a loan to the same credit bureaus to which the 
information was previously reported.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1987cc, 1087cc-1, 1087dd, 1091 and 1094)

[52 FR 45747, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61408, Nov. 30, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 34433, June 
30, 1995; 60 FR 61814, Dec. 1, 1995; 61 FR 60608, Nov. 29, 1996; 64 FR 
58309, Oct. 28, 1999; 67 FR 67076, Nov. 1, 2002]



Sec. 674.17  Federal interest in allocated funds--transfer of Fund.

    (a) If an institution responsible for a Federal Perkins Loan fund 
closes or no longer wants to participate in the program, the Secretary 
directs the institution to take one of the following steps to protect 
the outstanding loans and the Federal interest in that Fund:
    (1) A capital distribution of the liquid assets of the Fund 
according to section 466(c) of the Act.
    (2) The assignment of the outstanding loans to the United States.
    (b) An institution that assigns outstanding loans under this 
paragraph relinquishes its interest in those loans.

(Authority: 20 U.S.C. 1087cc, 1087ff), and (1087hh)

[52 FR 45747, Dec. 1, 1987, as amended at 59 FR 61415, Nov. 30, 1994; 60 
FR 61814, Dec. 1, 1995; 67 FR 67076, Nov. 1, 2002]

[[Page 584]]



Sec. 674.18  Use of funds.

    (a) General. An institution shall deposit the funds it receives 
under the Federal Perkins Loan program into its Fund. It may use these 
funds only for making loans and the other activities specified in 
Sec. 674.8(b).
    (b) Transfer of funds. (1) An institution may transfer up to 25 
percent of the sum of its initial and supplemental Federal Perkins Loan 
allocations for an award year to the Federal Work-Study program or 
Federal Supplemental Educational Opportunity Grant program, or to both.
    (2) An institution may transfer up to the total of the sum of its 
initial and supplemental Federal Perkins Loan allocations for an award 
year to the Work-Colleges program.
    (3) An institution shall use transferred funds according to the 
requirements of the program to which they are transferred.
    (4) An institution shall report any transferred funds on the Fiscal 
Operations Report required under Sec. 674.19(d).
    (5) An institution shall transfer back to the Federal Perkins Loan 
program any funds unexpended at the end of the award year that it 
transferred to the FWS program, the FSEOG program, or the Work-Colleges 
program from the Federal Perkins Loan program.

(Authority: 20 U.S.C. 1087cc, 1087dd, and 1096)

[52 FR 45747, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992; 59 
FR 61408, 61415, Nov. 30, 1994; 61 FR 60396, Nov. 27, 1996]



Sec. 674.19  Fiscal procedures and records.

    (a) Fiscal procedures. (1) In administering its Federal Perkins Loan 
program, an institution shall establish and maintain an internal control 
system of checks and balances that ensures that no office can both 
authorize payments and disburse funds to students.
    (2)(i) A separate bank account for Federal funds is not required, 
except as provided in paragraph (b) of this section.
    (ii) An institution shall notify any bank in which it deposits 
Federal funds of the accounts into which those funds are deposited by--
    (A) Ensuring that the name of the account clearly discloses the fact 
that Federal funds are deposited in the account; or
    (B) Notifying the bank, in writing, of the names of the accounts in 
which it deposits Federal funds. The institution shall retain a copy of 
this notice in its files.
    (3)(i) The institution shall ensure that the cash balances of the 
accounts into which it deposits Federal Perkins Loan Fund cash assets do 
not fall below the amount of Fund cash assets deposited in those 
accounts but not yet expended on authorized purposes in accordance with 
applicable title IV HEA program requirements, as determined from the 
records of the institution.
    (ii) If the cash balances of the accounts at any time fall below the 
amount described in paragraph (a)(3)(i) of this section, the institution 
is deemed to make any subsequent deposits into the accounts of funds 
derived from other sources with the intent to restore to that amount 
those Fund assets previously withdrawn from those accounts. To the 
extent that these institutional deposits restore the amount previously 
withdrawn, they are deemed to be Fund assets.
    (b) Account for Perkins Loan Fund. An institution shall maintain the 
funds it receives under this part in accordance with the requirements in 
Sec. 668.163.
    (c) Deposit of ICC into Fund. An institution shall deposit its ICC 
into its Fund prior to or at the same time it deposits any FCC.
    (d) Records and reporting. (1) An institution shall establish and 
maintain program and fiscal records that are reconciled at least 
monthly.
    (2) Each year an institution shall submit a Fiscal Operations Report 
plus other information the Secretary requires. The institution shall 
insure that the information reported is accurate and shall submit it on 
the form and at the time specified by the Secretary.
    (e) Retention of records--(1) Records. An institution shall follow 
the record retention and examination provisions in this part and in 34 
CFR 668.24.
    (2) Loan records. (i) An institution shall maintain a repayment 
history for each borrower. This repayment history must show the date and 
amount of each repayment over the life of the

[[Page 585]]

loan. It must also indicate the amount of each repayment credited to 
principal, interest, collection costs, and either penalty or late 
charges.
    (ii) The history must also show the date, nature, and result of each 
contact with the borrower in the collection of an overdue loan. The 
institution shall include in the repayment history copies of all 
correspondence to or from the borrower, except bills, routine overdue 
notices, and routine form letters.
    (3) Period of retention of repayment records. An institution shall 
retain repayment records, including cancellation and deferment requests, 
for at least three years from the date on which a loan is assigned to 
the Department of Education, canceled, or repaid.
    (4) Manner of retention of promissory notes and repayment schedules. 
An institution shall keep the original promissory notes and repayment 
schedules until the loans are satisfied. If required to release original 
documents in order to enforce the loan, the institution must retain 
certified true copies of those documents.
    (i) An institution shall keep the original paper promissory note or 
original paper Master Promissory Note (MPN) and repayment schedules in a 
locked, fireproof container.
    (ii) If a promissory note was signed electronically, the institution 
must store it electronically and the promissory note must be retrievable 
in a coherent format.
    (iii) After the loan obligation is satisfied, the institution shall 
return the original or a true and exact copy of the note marked ``paid 
in full'' to the borrower, or otherwise notify the borrower in writing 
that the loan is paid in full, and retain a copy for the prescribed 
period.
    (iv) An institution shall maintain separately its records pertaining 
to cancellations of Defense, NDSL, and Federal Perkins Loans.
    (v) Only authorized personnel may have access to the loan documents.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087cc, 1087hh, 1094, and 1232f)

[52 FR 45747, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32345, July 21, 1992; 59 FR 61408, 61415, Nov. 30, 1994; 59 FR 61722, 
Dec. 1, 1994; 60 FR 61814, Dec. 1, 1995; 61 FR 60492, Nov. 27, 1996; 62 
FR 50847, Sept. 26, 1997; 64 FR 58315, Oct. 28, 1999; 67 FR 67076, Nov. 
1, 2002]



Sec. 674.20  Compliance with equal credit opportunity requirements.

    (a) In making a loan, an institution shall comply with the equal 
credit opportunity requirements of Regulation B (12 CFR part 202).
    (b) The Secretary considers the Federal Perkins Loan program to be a 
credit assistance program authorized by Federal law for the benefit of 
an economically disadvantaged class of persons within the meaning of 12 
CFR 202.8(a)(1). Therefore, the institution may request a loan applicant 
to disclose his or her marital status, income from alimony, child 
support, and spouse's income and signature.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087aa-1087hh)

[52 FR 45747, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61415, Nov. 30, 1994; 64 FR 58315, Oct. 28, 1999]



                        Subpart B--Terms of Loans

    Source: 52 FR 45754, Dec. 1, 1987, unless otherwise noted.



Sec. 674.31  Promissory note.

    (a) Promissory note. (1) An institution may use only the promissory 
note that the Secretary provides. The institution may make only 
nonsubstantive changes, such as changes to the type style or font, or 
the addition of items such as the borrower's driver's license number, to 
this note.

[[Page 586]]

    (2)(i) The institution shall print the note on one page, front and 
back; or
    (ii) The institution may print the note on more than one page if--
    (A) The note requires the signature of the borrower on each page; or
    (B) Each page of the note contains both the total number of pages in 
the complete note as well as the number of each page, e.g., page 1 of 4, 
page 2 of 4, etc.
    (iii) The promissory note must state the exact amount of the minimum 
monthly repayment amount if the institution chooses the option under 
Sec. 674.33(b).
    (b) Provisions of the promissory note--(1) Interest. The promissory 
note must state that--
    (i) The rate of interest on the loan is 5 percent per annum on the 
unpaid balance; and
    (ii) No interest shall accrue before the repayment period begins, 
during certain deferment periods as provided by this subpart, or during 
the grace period following those deferments.
    (2) Repayment. (i) Except as otherwise provided in Sec. 674.32, the 
promissory note must state that the repayment period--
    (A) For NDSLs made on or after October 1, 1980, begins 6 months 
after the borrower ceases to be at least a half-time regular student at 
an institution of higher education or a comparable institution outside 
the U.S. approved for this purpose by the Secretary, and normally ends 
10 years later;
    (B) For NDSLs made before October 1, 1980 and Federal Perkins Loans, 
begins 9 months after the borrower ceases to be at least a half-time 
regular student at an institution of higher education or a comparable 
institution outside the U.S. approved for this purpose by the Secretary, 
and normally ends 10 years later;
    (C) For purposes of establishing the beginning of the repayment 
period for NDSL or Perkins loans, the 6- and 9-month grace periods 
referenced in paragraph (b)(2)(i) of this section exclude any period 
during which a borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of Title 10, United States Code is 
called or ordered to active duty for a period of more than 30 days. Any 
single excluded period may not exceed three years and includes the time 
necessary for the borrower to resume enrollment at the next available 
regular enrollment period. Any Direct or Perkins loan borrower who is in 
a grace period when called or ordered to active duty as specified in 
this paragraph is entitled to a new 6- or 9-month grace period upon 
completion of the excluded period.
    (D) May begin earlier at the borrower's request; and
    (E) May vary because of minimum monthly repayments (see 
Sec. 674.33(b)), extensions of repayment (see Sec. 674.33(c)), 
forbearance (see Sec. 674.33(d)), or deferments (see Secs. 674.34, 
674.35, and 674.36);
    (ii) The promissory note must state that the borrower shall repay 
the loan--
    (A) In equal quarterly, bimonthly, or monthly amounts, as the 
institution chooses; or
    (B) In graduated installments if the borrower requests a graduated 
repayment schedule, the institution submits the schedule to the 
Secretary for approval, and the Secretary approves it.
    (3) Cancellation. The promissory note must state that the unpaid 
principal, interest, collection costs, and either penalty or late 
charges on the loan are canceled upon the death or permanent and total 
disability of the borrower.
    (4) Prepayment. The promissory note must state that--
    (i) The borrower may prepay all or part of the loan at any time 
without penalty;
    (ii) The institution shall use amounts repaid during the academic 
year in which the loan was made to reduce the original loan amount and 
not consider these amounts to be prepayments;
    (iii) If the borrower repays amounts during the academic year in 
which the loan was made and the initial grace period ended, only those 
amounts in excess of the amount due for any repayment period shall be 
treated as prepayments; and
    (iv) If, in an academic year other than that described in paragraph 
(b)(4)(iii) of this section, a borrower repays more than the amount due 
for any repayment period, the institution shall use the excess to prepay 
the principal

[[Page 587]]

unless the borrower designates it as an advance payment of the next 
regular installment.
    (5) Late charge. (i) An institution shall state in the promissory 
note that the institution will assess a late charge if the borrower does 
not--
    (A) Repay all or part of a scheduled repayment when due; or
    (B) File a timely request for cancellation or deferment with the 
institution. This request must include sufficient evidence to enable the 
institution to determine whether the borrower is entitled to a 
cancellation or deferment.
    (ii)(A) The amount of the late charge on a Federal Perkins Loan or 
an NDSL Loan made to cover the cost of attendance for a period of 
enrollment that began on or after January 1, 1986 must be determined in 
accordance with Sec. 674.43(b) (2), (3) and (4).
    (B) The amount of the late or penalty charge on an NDSL made for 
periods of enrollment that began before January 1, 1986 may be--
    (1) For each overdue payment on a loan payable in monthly 
installments, a maximum monthly charge of $1 for the first month and $2 
for each additional month.
    (2) For each overdue payment on a loan payable in bimonthly 
installments, a maximum bimonthly charge of $3.
    (3) For each overdue payment on a loan payable in quarterly 
installments, a maximum charge per quarter of $6. (See appendix E of 
this part)
    (iii) The institution may--
    (A) Add either the penalty or late charge to the principal the day 
after the scheduled repayment was due; or
    (B) Include it with the next scheduled repayment after the borrower 
receives notice of the late charge.
    (6) Security and endorsement. The promissory note must state that 
the loan shall be made without security and endorsement.
    (7) Assignment. The promissory note must state that a note may only 
be assigned to--
    (i) The United States or an institution approved by the Secretary; 
or
    (ii) An institution to which the borrower has transferred if that 
institution is participating in the Federal Perkins Loan program.
    (8) Acceleration. The promissory note must state that an institution 
may demand immediate repayment of the entire loan, including any late 
charges, collection costs and accrued interest, if the borrower does 
not--
    (i) Make a scheduled repayment on time; or
    (ii) File cancellation or deferment form(s) with the institution on 
time.
    (9) Cost of collection. The promissory note must state that the 
borrower shall pay all attorney's fees and other loan collection costs 
and charges.
    (10) Disclosure of information. The promissory note must state that-
-
    (i) The institution must disclose to at least one national credit 
bureau the amount of the loan made to the borrower, along with other 
relevant information.
    (ii) If the borrower defaults on the loan, the institution shall 
disclose that the borrower has defaulted on the loan, along with other 
relevant information, to the same national credit bureau to which it 
originally reported the loan; and
    (iii) If the borrower defaults on the loan and the loan is assigned 
to the Secretary for collection, the Secretary may disclose to a 
national credit bureau that the borrower has defaulted on the loan, 
along with other relevant information.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087dd)

[52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32345, July 21, 1992; 59 FR 61408, 61415, Nov. 30, 1994; 60 FR 61814, 
Dec. 1, 1995; 62 FR 50848, Sept. 26, 1997; 64 FR 58309, Oct. 28, 1999]



Sec. 674.32  Special terms: loans to less than half-time student borrowers.

    (a) The promissory note used with regard to loans to borrowers 
enrolled on a less than half-time basis must state that the repayment 
period begins--
    (1) On the date of the next scheduled installment payment on any 
outstanding loan to the borrower; or
    (2) If the borrower has no outstanding loan, at the earlier of--
    (i) Nine months from the date the loan was made, or
    (ii) The end of a nine-month period that includes the date the loan 
was

[[Page 588]]

made and began on the date the borrower ceased to be enrolled as at 
least a half-time regular student at an institution of higher education 
or comparable institution outside the U.S. approved for this purpose by 
the Secretary.
    (b) The note must otherwise conform to the provisions of 
Sec. 674.31.

(Authority: 20 U.S.C. 1087dd)

[52 FR 45754, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992]



Sec. 674.33  Repayment.

    (a) Repayment Plan. (1) The institution shall establish a repayment 
plan before the student ceases to be at least a half-time regular 
student.
    (2) If the last scheduled payment would be $25 or less the 
institution may combine it with the next-to-last repayment.
    (3) If the installment payment for all loans made to a borrower by 
an institution is not a multiple of $5, the institution may round that 
payment to the next highest dollar amount that is a multiple of $5.
    (4) The institution shall apply any payment on a loan in the 
following order:
    (i) Collection costs.
    (ii) Late charges.
    (iii) Accrued interest.
    (iv) Principal.
    (b) Minimum monthly repayment--(1) Minimum monthly repayment option. 
(i) An institution may require a borrower to pay a minimum monthly 
repayment if--
    (A) The promissory note includes a minimum monthly repayment 
provision specifying the amount of the minimum monthly repayment; and
    (B) The monthly repayment of principal and interest for a 10-year 
repayment period is less than the minimum monthly repayment; or
    (ii) An institution may require a borrower to pay a minimum monthly 
repayment if the borrower has received loans with different interest 
rates at the same institution and the total monthly repayment would 
otherwise be less than the minimum monthly repayment.
    (2) Minimum monthly repayment of loans from more than one 
institution. If a borrower has received loans from more than one 
institution and has notified the institution that he or she wants the 
minimum monthly payment determination to be based on payments due to 
other institutions, the following rules apply:
    (i) If the total of the monthly repayments is equal to at least the 
minimum monthly repayment, no institution may exercise a minimum monthly 
repayment option.
    (ii) If only one institution exercises the minimum monthly repayment 
option when the monthly repayment would otherwise be less than the 
minimum repayment option, that institution receives the difference 
between the minimum monthly repayment and the repayment owed to the 
other institution.
    (iii) If each institution exercises the minimum repayment option, 
the minimum monthly repayment must be divided among the institutions in 
proportion to the amount of principal advanced by each institution.
    (3) Minimum monthly repayment of both Defense and NDSL or Federal 
Perkins loans from one or more institutions. If the borrower has 
notified the institution that he or she wants the minimum monthly 
payment determination to be based on payments due to other institutions, 
and if the total monthly repayment is less than $30 and the monthly 
repayment on a Defense loan is less than $15 a month, the amount 
attributed to the Defense loan may not exceed $15 a month.
    (4) Minimum monthly repayment of loans with differing grace periods 
and deferments. If the borrower has received loans with different grace 
periods and deferments, the institution shall treat each note 
separately, and the borrower shall pay the applicable minimum monthly 
payment for a loan that is not in the grace or deferment period.
    (5) Hardship. The institution may reduce the borrower's scheduled 
repayments for a period of not more than one year at a time if--
    (i) It determines that the borrower is unable to make the scheduled 
repayments due to hardship (see Sec. 674.33(c)); and

[[Page 589]]

    (ii) The borrower's scheduled repayment is the minimum monthly 
repayment described in paragraph (b) of this section.
    (6) Minimum monthly repayment rates. For the purposes of this 
section, the minimum monthly repayment rate is--
    (i) $15 for a Defense loan;
    (ii) $30 for an NDSL Loan or for a Federal Perkins loan made before 
October 1, 1992, or for a Federal Perkins loan made on or after October 
1, 1992, to a borrower who, on the date the loan is made, has an 
outstanding balance of principal or interest owing on any loan made 
under this part; or
    (iii) $40 for a Federal Perkins loan made on or after October 1, 
1992, to a borrower who, on the date the loan is made, has no 
outstanding balance of principal or interest owing on any loan made 
under this part.
    (7) The institution shall determine the minimum repayment amount 
under paragraph (b) of this section for loans with repayment installment 
intervals greater than one month by multiplying the amounts in paragraph 
(b) of this section by the number of months in the installment interval.
    (c) Extension of repayment period--(1) Hardship. The institution may 
extend a borrower's repayment period due to prolonged illness or 
unemployment.
    (2) Low-income individual. (i) For Federal Perkins loans and NDSLs 
made on or after October 1, 1980, the institution may extend the 
borrower's repayment period up to 10 additional years beyond the 10-year 
maximum repayment period if the institution determines during the course 
of the repayment period that the borrower is a ``low-income 
individual.'' The borrower qualifies for an extension of the repayment 
period on the basis of low-income status only during the period in which 
the borrower meets the criteria described in paragraph (c)(2)(i) (A) or 
(B) of this section. The term low-income individual means the following:
    (A) For an unmarried borrower without dependents, an individual 
whose total income for the preceding calendar year did not exceed 45 
percent of the Income Protection Allowance for the current award year 
for a family of four with one in college.
    (B) For a borrower with a family that includes the borrower and any 
spouse or legal dependents, an individual whose total family income for 
the preceding calendar year did not exceed 125 percent of the Income 
Protection Allowance for the current award year for a family with one in 
college and equal in size to that of the borrower's family.
    (ii) The institution shall use the Income Protection Allowance 
published annually in accordance with section 478 of the HEA in making 
this determination.
    (iii) The institution shall review the borrower's status annually to 
determine whether the borrower continues to qualify for an extended 
repayment period based on his or her status as a ``low-income 
individual.''
    (iv) Upon determining that a borrower ceases to qualify for an 
extended repayment period under this section, the institution shall 
amend the borrower's repayment schedule. The term of the amended 
repayment schedule may not exceed the number of months remaining on the 
original repayment schedule, provided that the institution may not 
include the time elapsed during any extension of the repayment period 
granted under this section in determining the number of months remaining 
on the original repayment schedule.
    (3) Interest continues to accrue during any extension of a repayment 
period.
    (d) Forbearance. (1) Forbearance means the temporary cessation of 
payments, allowing an extension of time for making payments, or 
temporarily accepting smaller payments than previously were scheduled.
    (2) Upon receipt of a written request and supporting documentation, 
the institution shall grant the borrower forbearance of principal and, 
unless otherwise indicated by the borrower, interest renewable at 
intervals of up to 12 months for periods that collectively do not exceed 
three years.
    (3) The terms of forbearance must be agreed upon, in writing, by the 
borrower and the institution.
    (4) In granting a forbearance under this section, an institution 
shall grant a temporary cessation of payments, unless the borrower 
chooses another form

[[Page 590]]

of forbearance subject to paragraph (d)(1) of this section.
    (5) An institution shall grant forbearance if--
    (i) The amount of the payments the borrower is obligated to make on 
title IV loans each month (or a proportional share if the payments are 
due less frequently than monthly) is collectively equal to or greater 
than 20 percent of the borrower's total monthly gross income;
    (ii) The institution determines that the borrower should qualify for 
the forbearance due to poor health or for other acceptable reasons; or
    (iii) The Secretary authorizes a period of forbearance due to a 
national military mobilization or other national emergency.
    (6) Before granting a forbearance to a borrower under paragraph 
(d)(5)(i) of this section, the institution shall require the borrower to 
submit at least the following documentation:
    (i) Evidence showing the amount of the most recent total monthly 
gross income received by the borrower; and
    (ii) Evidence showing the amount of the monthly payments owed by the 
borrower for the most recent month for the borrower's title IV loans.
    (7) Interest accrues during any period of forbearance.
    (8) The institution may not include the periods of forbearance 
described in this paragraph in determining the 10-year repayment period.
    (e) Compromise of repayment. (1) An institution may compromise on 
the repayment of a defaulted loan if--
    (i) The institution has fully complied with all due diligence 
requirements specified in subpart C of this part; and
    (ii) The student borrower pays in a single lump-sum payment--
    (A) 90 percent of the outstanding principal balance on the loan 
under this part;
    (B) The interest due on the loan; and
    (C) Any collection fees due on the loan.
    (2) The Federal share of the compromise repayment must bear the same 
relation to the institution's share of the compromise repayment as the 
Federal capital contribution to the institution's loan Fund under this 
part bears to the institution's capital contribution to the Fund.
    (f)(1) Incentive repayment program. An institution may establish the 
following repayment incentives:
    (i) A reduction of no more than one percent of the interest rate on 
a loan on which the borrower has made 48 consecutive, monthly 
repayments.
    (ii) A discount of no more than five percent on the balance owed on 
a loan which the borrower pays in full prior to the end of the repayment 
period.
    (iii) With the Secretary's approval, any other incentive the 
institution determines will reduce defaults and replenish its Fund.
    (2) Limitation on the use of funds. (i) The institution must 
reimburse its Fund, on at least a quarterly basis, for money lost to its 
Fund that otherwise would have been paid by the borrower as a result of 
establishing a repayment incentive under paragraphs (f)(1)(i), (ii) and 
(iii) of this section.
    (ii) An institution may not use Federal funds, including Federal 
funds from the student loan fund, or institutional funds from the 
student loan fund to pay for any repayment incentive authorized by this 
section.
    (g) Closed school discharge. (1) General. (i) The holder of an NDSL 
or a Federal Perkins Loan discharges the borrower's (and any endorser's) 
obligation to repay the loan if the borrower did not complete the 
program of study for which the loan was made because the school at which 
the borrower was enrolled closed.
    (ii) For the purposes of this section--
    (A) A school's closure date is the date that the school ceases to 
provide educational instruction in all programs, as determined by the 
Secretary;
    (B) ``School'' means a school's main campus or any location or 
branch of the main campus; and
    (C) The ``holder'' means the Secretary or the school that holds the 
loan.
    (2) Relief pursuant to discharge. (i) Discharge under this section 
relieves the borrower of any past or present obligation to repay the 
loan and any accrued interest or collection costs with respect to the 
loan.

[[Page 591]]

    (ii) The discharge of a loan under this section qualifies the 
borrower for reimbursement of amounts paid voluntarily or through 
enforced collection on the loan.
    (iii) A borrower who has defaulted on a loan discharged under this 
section is not considered to have been in default on the loan after 
discharge, and such a borrower is eligible to receive assistance under 
programs authorized by title IV of the HEA.
    (iv) The Secretary or the school, if the school holds the loan, 
reports the discharge of a loan under this section to all credit bureaus 
to which the status of the loan was previously reported.
    (3) Determination of borrower qualification for discharge by the 
Secretary. The Secretary may discharge the borrower's obligation to 
repay an NDSL or Federal Perkins Loan without an application if the 
Secretary determines that--
    (i) The borrower qualified for and received a discharge on a loan 
pursuant to 34 CFR 682.402(d) (Federal Family Education Loan Program) or 
34 CFR 685.213 (Federal Direct Loan Program), and was unable to receive 
a discharge on an NDSL or Federal Perkins Loan because the Secretary 
lacked the statutory authority to discharge the loan; or
    (ii) Based on information in the Secretary's possession, the 
borrower qualifies for a discharge.
    (4) Borrower qualification for discharge. Except as provided in 
paragraph (g)(3) of this section, in order to qualify for discharge of 
an NDSL or Federal Perkins Loan, a borrower must submit to the holder of 
the loan a written request and sworn statement, and the factual 
assertions in the statement must be true. The statement need not be 
notarized but must be made by the borrower under penalty of perjury. In 
the statement the borrower must--
    (i) State that the borrower--
    (A) Received the proceeds of a loan to attend a school;
    (B) Did not complete the program of study at that school because the 
school closed while the student was enrolled, or the student withdrew 
from the school not more than 90 days before the school closed (or 
longer in exceptional circumstances); and
    (C) Did not complete and is not in the process of completing the 
program of study through a teachout at another school as defined in 34 
CFR 602.2 and administered in accordance with 34 CFR 602.207(b)(6), by 
transferring academic credit earned at the closed school to another 
school, or by any other comparable means;
    (ii) State whether the borrower has made a claim with respect to the 
school's closing with any third party, such as the holder of a 
performance bond or a tuition recovery program, and, if so, the amount 
of any payment received by the borrower or credited to the borrower's 
loan obligation; and
    (iii) State that the borrower--
    (A) Agrees to provide to the holder of the loan upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (B) Agrees to cooperate with the Secretary in enforcement actions in 
accordance with paragraph (g)(6) of this section and to transfer any 
right to recovery against a third party to the Secretary in accordance 
with paragraph (g)(7) of this section.
    (5) Fraudulently obtained loans. A borrower who secured a loan 
through fraudulent means, as determined by the ruling of a court or an 
administrative tribunal of competent jurisdiction, is ineligible for a 
discharge under this section.
    (6) Cooperation by borrower in enforcement actions. (i) In order to 
obtain a discharge under this section, a borrower must cooperate with 
the Secretary in any judicial or administrative proceeding brought by 
the Secretary to recover amounts discharged or to take other enforcement 
action with respect to the conduct on which the discharge was based. At 
the request of the Secretary and upon the Secretary's tendering to the 
borrower the fees and costs that are customarily provided in litigation 
to reimburse witnesses, the borrower must--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge;
    (B) Provide any documents reasonably available to the borrower with 
respect to those representations; and

[[Page 592]]

    (C) If required by the Secretary, provide a sworn statement 
regarding those documents and representations.
    (ii) The holder denies the request for a discharge or revokes the 
discharge of a borrower who--
    (A) Fails to provide the testimony, documents, or a sworn statement 
required under paragraph (g)(6)(i) of this section; or
    (B) Provides testimony, documents, or a sworn statement that does 
not support the material representations made by the borrower to obtain 
the discharge.
    (7) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) In the case of a loan held by the Secretary, 
upon discharge under this section, the borrower is deemed to have 
assigned to and relinquished in favor of the Secretary any right to a 
loan refund (up to the amount discharged) that the borrower may have by 
contract or applicable law with respect to the loan or the enrollment 
agreement for the program for which the loan was received, against the 
school, its principals, its affiliates and their successors, its 
sureties, and any private fund, including the portion of a public fund 
that represents funds received from a private party.
    (ii) The provisions of this section apply notwithstanding any 
provision of State law that would otherwise restrict transfer of those 
rights by the borrower, limit or prevent a transferee from exercising 
those rights, or establish procedures or a scheme of distribution that 
would prejudice the Secretary's ability to recover on those rights.
    (iii) Nothing in this section limits or forecloses the borrower's 
right to pursue legal and equitable relief regarding disputes arising 
from matters unrelated to the discharged NDSL or Federal Perkins Loan.
    (8) Discharge procedures. (i) After confirming the date of a 
school's closure, the holder of the loan identifies any NDSL or Federal 
Perkins Loan borrower who appears to have been enrolled at the school on 
the school closure date or to have withdrawn not more than 90 days prior 
to the closure date.
    (ii) If the borrower's current address is known, the holder of the 
loan mails the borrower a discharge application and an explanation of 
the qualifications and procedures for obtaining a discharge. The holder 
of the loan also promptly suspends any efforts to collect from the 
borrower on any affected loan. The holder of the loan may continue to 
receive borrower payments.
    (iii) In the case of a loan held by the Secretary, if the borrower's 
current address is unknown, the Secretary attempts to locate the 
borrower and determine the borrower's potential eligibility for a 
discharge under this section by consulting with representatives of the 
closed school or representatives of the closed school's third-party 
billing and collection servicers, the school's licensing agency, the 
school accrediting agency, and other appropriate parties. If the 
Secretary learns the new address of a borrower, the Secretary mails to 
the borrower a discharge application and explanation and suspends 
collection, as described in paragraph (g)(8)(ii) of this section.
    (iv) In the case of a loan held by a school, if the borrower's 
current address is unknown, the school attempts to locate the borrower 
and determine the borrower's potential eligibility for a discharge under 
this section by taking steps required to locate the borrower under 
Sec. 674.44.
    (v) If the borrower fails to submit the written request and sworn 
statement described in paragraph (g)(4) of this section within 60 days 
of the holder of the loan's mailing the discharge application, the 
holder of the loan resumes collection and grants forbearance of 
principal and interest for the period during which collection activity 
was suspended.
    (vi) If the holder of the loan determines that a borrower who 
requests a discharge meets the qualifications for a discharge, the 
holder of the loan notifies the borrower in writing of that 
determination.
    (vii) In the case of a loan held by the Secretary, if the Secretary 
determines that a borrower who requests a discharge does not meet the 
qualifications for a discharge, the Secretary notifies

[[Page 593]]

that borrower, in writing, of that determination and the reasons for the 
determination.
    (viii) In the case of a loan held by a school, if the school 
determines that a borrower who requests a discharge does not meet the 
qualifications for discharge, the school submits that determination and 
all supporting materials to the Secretary for approval. The Secretary 
reviews the materials, makes an independent determination, and notifies 
the borrower in writing of the determination and the reasons for the 
determination.
    (ix) In the case of a loan held by a school and discharged by either 
the school or the Secretary, the school must reimburse its Fund for the 
entire amount of any outstanding principal and interest on the loan, and 
any collection costs charged to the Fund as a result of collection 
efforts on a discharged loan. The school must also reimburse the 
borrower for any amount of principal, interest, late charges or 
collection costs the borrower paid on a loan discharged under this 
section.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 425 and 1087dd, sec. 137(d) of Pub. L. 92-318)

[52 FR 45754, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992; 57 
FR 60706, Dec. 21, 1992; 59 FR 61409, Nov. 30, 1994; 60 FR 61814, Dec. 
1, 1995; 62 FR 50848, Sept. 26, 1997; 64 FR 58309, Oct. 28, 1999; 67 FR 
67076, Nov. 1, 2002]



Sec. 674.34  Deferment of repayment--Federal Perkins loans, NDSLs and 
Defense loans.

    (a) The borrower may defer making a scheduled installment repayment 
on a Federal Perkins loan, an NDSL, or a Defense loan, regardless of 
contrary provisions of the borrower's promissory note and regardless of 
the date the loan was made, during periods described in this section.
    (b)(1) The borrower need not repay principal, and interest does not 
accrue, during a period after the commencement or resumption of the 
repayment period on a loan, when the borrower is--
    (i) Enrolled and in attendance as a regular student in at least a 
half-time course of study at an eligible institution;
    (ii) Enrolled and in attendance as a regular student in a course of 
study that is part of a graduate fellowship program approved by the 
Secretary;
    (iii) Engaged in graduate or post-graduate fellowship-supported 
study (such as a Fulbright grant) outside the United States; or
    (iv) Enrolled in a course of study that is part of a rehabilitation 
training program for disabled individuals approved by the Secretary as 
described in paragraph (g) of this section.
    (2) No borrower is eligible for a deferment under paragraph (b)(1) 
of this section while serving in a medical internship or residency 
program, except for a residency program in dentistry.
    (3) The institution of higher education at which the borrower is 
enrolled does not need to be participating in the Federal Perkins Loan 
program for the borrower to qualify for a deferment.
    (4) If a borrower is attending an institution of higher education as 
at least a half-time regular student for a full academic year and 
intends to enroll as at least a half-time regular student in the next 
academic year, the borrower is entitled to a deferment for 12 months.
    (5) If an institution no longer qualifies as an institution of 
higher education, the borrower's deferment ends on the date the 
institution ceases to qualify.
    (c) The borrower of a Federal Perkins loan, an NDSL, or a Defense 
loan need not repay principal, and interest does not accrue, for any 
period during which the borrower is engaged in service described in 
Secs. 674.53, 674.54, 674.55, 674.56, 674.57, 674.58, 674.59, and 
674.60.
    (d) The borrower need not repay principal, and interest does not 
accrue, for any period not to exceed 3 years during which the borrower 
is seeking and unable to find full-time employment.
    (e) The borrower need not repay principal, and interest does not 
accrue, for periods of up to one year at a time (except that a deferment 
under paragraph (e)(6) of this section may be granted for the lesser of 
the borrower's full term of service in the Peace Corps or the borrower's 
remaining period of economic hardship deferment eligibility) that,

[[Page 594]]

collectively, do not exceed 3 years, during which the borrower is 
suffering an economic hardship, if the borrower provides documentation 
satisfactory to the institution showing that the borrower is within any 
of the categories described in paragraphs (e)(1) through (e)(6) of this 
section.
    (1) Has been granted an economic hardship deferment under either the 
FDSL or FFEL programs for the period of time for which the borrower has 
requested an economic hardship deferment for his or her Federal Perkins 
loan.
    (2) Is receiving payment under a Federal or state public assistance 
program, such as Aid to Families with Dependent Children, Supplemental 
Security Income, Food Stamps, or state general public assistance.
    (3) Is working full-time and earning a total monthly gross income 
that does not exceed the greater of--
    (i) The monthly earnings of an individual earning the minimum wage 
described in section 6 of the Fair Labor Standards Act of 1938; or
    (ii) An amount equal to 100 percent of the poverty line for a family 
of two, as determined in accordance with section 673(2) of the Community 
Service Block Grant Act.
    (4) Is not receiving total monthly gross income that exceeds twice 
the amount specified in paragraph (e)(3) of this section and, after 
deducting an amount equal to the borrower's monthly payments on Federal 
postsecondary education loans, as determined under paragraph (e)(10) of 
this section, the remaining amount of that income does not exceed the 
amount specified in paragraph (e)(3) of this section;
    (5) Is working full-time and has a Federal education debt burden as 
determined under paragraph (e)(10) of this section that equals or 
exceeds 20 percent of the borrower's total monthly gross income, and the 
borrower's income minus such burden is less than 220 percent of the 
amount calculated under paragraph (3) of this section.
    (6) Is serving as a volunteer in the Peace Corps.
    (7) For a deferment granted under paragraph (e)(4) or (e)(5) of this 
section, the institution shall require the borrower to submit at least 
the following documentation to qualify for an initial period of 
deferment--
    (i) Evidence showing the amount of the borrower's most recent total 
monthly gross income, as defined in section 674.2; and
    (ii) Evidence that would enable the institution to determine the 
amount of the monthly payments that would have been owed by the borrower 
during the deferment period to other entities for Federal postsecondary 
education loans in accordance with paragraph (e)(9) of this section.
    (8) To qualify for a subsequent period of deferment that begins less 
than one year after the end of a period of deferment under paragraphs 
(e)(3), (e)(4), or (e)(5) of this section, the institution shall require 
the borrower to submit a copy of the borrower's Federal income tax 
return if the borrower filed a tax return within eight months prior to 
the date the deferment is requested.
    (9) For purposes of paragraphs (e)(3) and (e)(5) of this section, a 
borrower is considered to be working full-time if the borrower is 
expected to be employed for at least three consecutive months at 30 
hours per week.
    (10) In determining a borrower's Federal education debt burden under 
paragraphs (e)(4) and (e)(5) of this section, the institution shall--
    (i) If the Federal postsecondary education loan is scheduled to be 
repaid in 10 years or less, use the actual monthly payment amount (or a 
proportional share if the payments are due less frequently than 
monthly); or
    (ii) If the Federal postsecondary education loan is scheduled to be 
repaid in more than 10 years, use a monthly payment amount (or a 
proportional share if the payments are due less frequently than monthly) 
that would have been due on the loan if the loan had been scheduled to 
be repaid in 10 years.
    (f) To qualify for a deferment for study as part of a graduate 
fellowship program pursuant to paragraph (b)(1)(ii) of this section, a 
borrower must provide the institution certification that the borrower 
has been accepted for or is engaged in full-time study in the 
institution's graduate fellowship program.

[[Page 595]]

    (g) To qualify for a deferment for study in a rehabilitation 
training program, pursuant to paragraph (b)(1)(iv) of this section, the 
borrower must be receiving, or be scheduled to receive, services under a 
program designed to rehabilitate disabled individuals and must provide 
the institution with the following documentation:
    (1) A certification from the rehabilitation agency that the borrower 
is either receiving or scheduled to receive rehabilitation training 
services from the agency.
    (2) A certification from the rehabilitation agency that the 
rehabilitation program--
    (i) Is licensed, approved, certified, or otherwise recognized by one 
of the following entities as providing rehabilitation training to 
disabled individuals--
    (A) A State agency with responsibility for vocational rehabilitation 
programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment by 
the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that would normally prevent an individual from engaging in full-
time employment either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation.
    (h) The institution may not include the deferment periods described 
in paragraphs (b), (c), (d), (e), (f), and (g) of this section and the 
period described in paragraph (i) of this section in determining the 10-
year repayment period.
    (i) The borrower need not pay principal and interest does not accrue 
until six months after completion of any period during which the 
borrower is in deferment under paragraphs (b), (c), (d), (e), (f), and 
(g) of this section.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087dd)

[59 FR 61410, Nov. 30, 1994, as amended at 60 FR 61815, Dec. 1, 1995; 62 
FR 50848, Sept. 26, 1997; 64 FR 57531, Oct. 25, 1999; 64 FR 58311, Oct. 
28, 1999; 67 FR 67076, Nov. 1, 2002]



Sec. 674.35  Deferment of repayment--Federal Perkins loans made before July 1, 1993.

    (a) The borrower may defer repayment on a Federal Perkins Loan made 
before July 1, 1993, during the periods described in this section.
    (b)(1) The borrower need not repay principal, and interest does not 
accrue, during a period after the commencement or resumption of the 
repayment period on a loan, when the borrower is at least a half-time 
regular student at--
    (i) An institution of higher education; or
    (ii) A comparable institution outside the U.S. approved by the 
Secretary for this purpose.
    (2) The institution of higher education does not need to be 
participating in the Federal Perkins Loan program for the borrower to 
qualify for a deferment.
    (3) If a borrower is attending as at least a half-time regular 
student for a full academic year and intends to enroll as at least a 
half-time regular student in the next academic year, the borrower is 
entitled to deferment for 12 months.
    (4) If an institution no longer qualifies as an institution of 
higher education, the borrower's deferment ends on the date the 
institution ceases to qualify.
    (c) The borrower need not repay principal, and interest does not 
accrue, for any period not to exceed 3 years during which the borrower 
is--
    (1) A member of the U.S. Army, Navy, Air Force, Marines, or Coast

[[Page 596]]

Guard or an officer in the Commissioned Corps of the U.S. Public Health 
Service (see Sec. 674.59);
    (2) On full-time active duty as a member of the National Oceanic and 
Atmospheric Administration Corps;
    (3) A Peace Corps volunteer (see Sec. 674.60);
    (4) A volunteer under the Domestic Volunteer Service Act of 1973 
(ACTION programs) (see Sec. 674.60);
    (5) A full-time volunteer in service which the Secretary has 
determined is comparable to service in the Peace Corps or under the 
Domestic Volunteer Service Act of 1973 (ACTION programs). The Secretary 
considers that a borrower is providing comparable service if he or she 
satisfies the following five criteria:
    (i) The borrower serves in an organization that is exempt from 
taxation under the provisions of section 501(c)(3) of the Internal 
Revenue Code of 1954.
    (ii) The borrower provides service to low-income persons and their 
communities to assist them in eliminating poverty and poverty-related 
human, social, and environmental conditions.
    (iii) The borrower does not receive compensation that exceeds the 
rate prescribed under section 6 of the Fair Labor Standards Act of 1938 
(the Federal minimum wage), except that the tax-exempt organization may 
provide health, retirement, and other fringe benefits to the volunteer 
that are substantially equivalent to the benefits offered to other 
employees of the organization.
    (iv) The borrower, as part of his or her duties, does not give 
religious instruction, conduct worship service, engage in religious 
proselytizing, or engage in fundraising to support religious activities.
    (v) The borrower has agreed to serve on a full-time basis for a term 
of at least one year.
    (6) Temporarily totally disabled, as established by an affidavit of 
a qualified physician, or unable to secure gainful employment because 
the borrower is providing care, such as continuous nursing or other 
similar services, required by a dependent who is so disabled. As used in 
this paragraph--
    (i) ``Temporarily totally disabled'', with regard to the borrower, 
means the inability by virtue of an injury or illness to attend an 
eligible institution or to be gainfully employed during a reasonable 
period of recovery; and
    (ii) ``Temporarily totally disabled'', with regard to a disabled 
spouse or other dependent of a borrower, means requiring continuous 
nursing or other services from the borrower for a period of at least 
three months because of illness or injury.
    (d)(1) The borrower need not repay principal, and interest does not 
accrue, for a period not to exceed two years during which time the 
borrower is serving an eligible internship.
    (2) An eligible internship is one which--
    (i) Requires the borrower to hold at least a baccalaureate degree 
before beginning the internship; and
    (ii)(A) A State licensing agency requires an individual to complete 
as a prerequisite for certification for professional practice or 
service; or
    (B) Is a part of an internship or residency program leading to a 
degree or certificate awarded by an institution of higher education, a 
hospital, or a health care facility that offers postgraduate training.
    (3) To qualify for an internship deferment as provided in paragraph 
(d)(2)(ii)(A) of this section, the borrower must provide the institution 
with the following certifications:
    (i) A statement from an official of the appropriate State licensing 
agency that successful completion of the internship program is a 
prerequisite for its certification of the individual for professional 
service or practice.
    (ii) A statement from the organization with which the borrower is 
undertaking the internship program certifying--
    (A) That a baccalaureate degree must be attained in order to be 
admitted into the internship program;
    (B) That the borrower has been accepted into its internship program; 
and
    (C) The anticipated dates on which the borrower will begin and 
complete the program.
    (4) To qualify for an internship deferment as provided in paragraph 
(d)(2)(ii)(B) of this section, the borrower must provide the institution 
with a statement from an authorized

[[Page 597]]

official of the internship program certifying that--
    (i) A baccalaureate degree must be attained in order to be admitted 
into the internship program;
    (ii) The borrower has been accepted into its internship program; and
    (iii) The internship or residency program in which the borrower has 
been accepted leads to a degree or certificate awarded by an institution 
of higher education, a hospital or a health-care facility that offers 
postgraduate training.
    (e) The borrower need not repay principal, and interest does not 
accrue, for a period not in excess of six months--
    (1) During which the borrower is--
    (i) Pregnant, caring for a newborn baby, or caring for a child 
immediately after placement of the child through adoption; and
    (ii) Not attending an eligible institution of higher education or 
gainfully employed; and
    (2) That begins not later than six months after a period in which 
the borrower was at least a half-time regular student at an eligible 
institution.
    (f) The borrower need not repay principal, and interest does not 
accrue, for a period not in excess of one year during which the 
borrower--
    (1) Is a mother of preschool age children;
    (2) Has just entered or reentered the work force; and
    (3) Is being compensated at a rate which is not more than $1.00 over 
the minimum hourly wage established by section 6 of the Fair Labor 
Standards Act of 1938.
    (g) An institution may defer payments of principal and interest, but 
interest shall continue to accrue, if the institution determines this is 
necessary to avoid hardship to the borrower (see Sec. 674.33(c)).
    (h) The institution may not include the deferment periods described 
in paragraphs (b), (c), (d), (e), (f), and (g) of this section and the 
period described in paragraph (i) of this section when determining the 
10-year repayment period.
    (i) The borrower need not repay principal, and interest does not 
accrue, until six months after completion of any period during which the 
borrower is in deferment under paragraphs (b), (c), (d), (e), and (f) of 
this section.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087dd)

[52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32345, July 21, 1992; 59 FR 1652, Jan. 12, 1994. Redesignated and 
amended at 59 FR 61410, 61411, Nov. 30, 1994; 62 FR 50848, Sept. 26, 
1997; 64 FR 58315, Oct. 28, 1999]



Sec. 674.36  Deferment of repayment--NDSLs made on or after October 1, 
1980, but before July 1, 1993.

    (a) The borrower may defer repayment on an NDSL Loan made on or 
after October 1, 1980, but before July 1, 1993, during the periods 
described in this section.
    (b)(1) The borrower need not repay principal, and interest does not 
accrue, during a period after the commencement or resumption of the 
repayment period on a loan, when the borrower is at least a half-time 
regular student at--
    (i) An institution of higher education; or
    (ii) A comparable institution outside the U.S. approved by the 
Secretary for this purpose.
    (2) The institution of higher education does not need to be 
participating in the Federal Perkins Loan program for the borrower to 
qualify for a deferment.
    (3) If a borrower is attending as at least a half-time regular 
student for a full academic year and intends to enroll as at least a 
half-time regular student in the next academic year, the borrower is 
entitled to deferment for 12 months.
    (4) If an institution no longer qualifies as an institution of 
higher education, the borrower's deferment ends on the date the 
institution ceases to qualify.
    (c) The borrower need not repay principal, and interest does not 
accrue, for a period of up to 3 years during which time the borrower is-
-
    (1) A member of the U.S. Army, Navy, Air Force, Marines, or Coast 
Guard or an officer in the Commissioned Corps of the U.S. Public Health 
Service (see Sec. 674.59);

[[Page 598]]

    (2) A Peace Corps volunteer (see Sec. 674.60);
    (3) A volunteer under the Domestic Volunteer Service Act of 1973 
(ACTION programs) (see Sec. 674.60).
    (4) A full-time volunteer in service which the Secretary has 
determined is comparable to service in the Peace Corps or under the 
Domestic Volunteer Service Act of 1973 (ACTION programs). The Secretary 
considers that a borrower is providing comparable service if he or she 
satisfies the following five criteria:
    (i) The borrower serves in an organization that is exempt from 
taxation under the provisions of section 501(c)(3) of the Internal 
Revenue Code of 1954.
    (ii) The borrower provides service to low-income persons and their 
communities to assist them in eliminating proverty and poverty-related 
human, social, and environmental conditions.
    (iii) The borrower does not receive compensation that exceeds the 
rate prescribed under section 6 of the Fair Labor Standards Act of 1938 
(the Federal minimum wage), except that the tax-exempt organization may 
provide health, retirement, and other fringe benefits to the volunteer 
that are substantially equivalent to the benefits offered to other 
employees of the organization.
    (iv) The borrower, as part of his or her duties, does not give 
religious instruction, conduct worship service, engage in religious 
proselytizing, or engage in fundraising to support religious activities.
    (v) The borrower has agreed to serve on a full-time basis for a term 
of at least one year.
    (5)(i) Temporarily totally disabled, as established by an affidavit 
of a qualified physician, or unable to secure gainful employment because 
the borrower is providing care, such as continuous nursing or other 
similar services, required by a spouse who is so disabled.
    (ii) ``Temporarily totally disabled'' with regard to the borrower, 
means the inability by virtue of an injury or illness to attend an 
eligible institution or to be gainfully employed during a reasonable 
period of recovery; and
    (iii) ``Temporarily totally disabled'' with regard to a disabled 
spouse, means requiring continuous nursing or other services from the 
borrower for a period of at least three months because of illness or 
injury.
    (d)(1) The borrower need not repay principal, and interest does not 
accrue, for a period not to exceed two years during which time the 
borrower is serving an eligible internship.
    (2) An eligible internship is an internship--
    (i) That requires the borrower to hold at least a bachelor's degree 
before beginning the internship program; and
    (ii) That the State licensing agency requires the borrower to 
complete before certifying the individual for professional practice or 
service.
    (3) To qualify for an internship deferment, the borrower shall 
provide to the institution the following certifications:
    (i) A statement from an official of the appropriate State licensing 
agency that the internship program meets the provisions of paragraph 
(d)(2) of this section; and
    (ii) A statement from the organization with which the borrower is 
undertaking the internship program certifying--
    (A) The acceptance of the borrower into its internship program; and
    (B) The anticipated dates on which the borrower will begin and 
complete the program.
    (e) An institution may defer payments of principal and interest, but 
interest shall continue to accrue, if the institution determines this is 
necessary to avoid hardship to the borrower (see Sec. 674.33)(c)).
    (f) The institution shall not include the deferment periods 
described in paragraphs (b), (c), (d), and (e) of this section and the 
period described in paragraph (g) of this section when determining the 
10-year repayment period.
    (g) No repayment of principal or interest begins until six months 
after completion of any period during which the borrower is in deferment 
under

[[Page 599]]

paragraphs (b), (c), and (d) of this section.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1087dd)

[52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32345, July 21, 1992; 59 FR 1652, Jan. 12, 1994. Redesignated and 
amended at 59 FR 61410, 61411, Nov. 30, 1994; 62 FR 50848, Sept. 26, 
1997; 64 FR 58315, Oct. 28, 1999]



Sec. 674.37  Deferment of repayment--NDSLs made before October 1, 1980 
and Defense loans.

    (a) A borrower may defer repayment--
    (1) On an NDSL made before October 1, 1980 during the periods 
described in paragraphs (b) through (e) of this section; and
    (2) On a Defense loan, during the periods described in paragraphs 
(b) through (f) of this section.
    (b)(1) A borrower need not repay principal, and interest does not 
accrue, during a period after the commencement or resumption of the 
repayment period on a loan, when the borrower is at least a half-time 
regular student at--
    (i) An institution of higher education; or
    (ii) A comparable institution outside the U.S. approved by the 
Secretary for this purpose.
    (2) The institution of higher education does not need to be 
participating in the Perkins Loan program for the borrower to qualify 
for a deferment.
    (3) If a borrower is attending as at least a half-time regular 
student for a full academic year and intends to enroll as at least half-
time regular student in the next academic year, the borrower is entitled 
to deferment for 12 months.
    (4) If an institution no longer qualifies as an institution of 
higher education, the borrower's deferment ends on the date the 
institution ceases to qualify.
    (c) A borrower need not repay principal, and interest does not 
accrue for a period of up to 3 years during which time the borrower is--
    (1) A member of the U.S. Army, Navy, Air Force, Marines or Coast 
Guard (see Sec. 674.59);
    (2) A Peace Corps volunteer (see Sec. 674.60); or
    (3) A volunteer under the Domestic Volunteer Service Act of 1973 
(ACTION programs) (see Sec. 674.60).
    (d) The institution shall exclude the deferment periods described in 
paragraphs (b), (c), and (e) of this section when determining the 10-
year repayment period.
    (e) An institution may permit the borrower to defer payments of 
principal and interest, but interest shall continue to accrue, if the 
institution determines this is necessary to avoid hardship to the 
borrower (see Sec. 674.33(c)).
    (f) The institution may permit the borrower to defer payment of 
principal and interest, but interest shall continue to accrue, on a 
Defense loan for a total of 3 years after the commencement or resumption 
of the repayment period on a loan, during which he or she is attending 
an institution of higher education as a less-than-half-time regular 
student.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 425, 1087dd)

[52 FR 45754, Dec. 1, 1987, as amended at 57 FR 32345, July 21, 1992; 59 
FR 1652, Jan. 12, 1994. Redesignated at 59 FR 61410, Nov. 30, 1994, as 
amended at 62 FR 50848, Sept. 26, 1997; 64 FR 58315, Oct. 28, 1999]



Sec. 674.38  Deferment procedures.

    (a)(1) Except as provided in paragraph (a)(2) of this section, a 
borrower must request the deferment and provide the institution with all 
information and documents required by the institution by the date that 
the institution establishes.
    (2) In the case of an in school deferment, the institution may grant 
the deferment based on student enrollment information showing that a 
borrower is enrolled as a regular student on at least a half-time basis, 
if the institution notifies the borrower of the deferment and of the 
borrower's option to cancel the deferment and continue paying on the 
loan.
    (3) If the borrower fails to meet the requirements of paragraph (a) 
(1) of

[[Page 600]]

this section, the institution may declare the loan to be in default, and 
may accelerate the loan.
    (b)(1) The institution may grant a deferment to a borrower after it 
has declared a loan to be a default.
    (2) As a condition for a deferment under this paragraph, the 
institution--
    (i) Shall require the borrower to execute a written repayment 
agreement on the loan; and
    (ii) May require the borrower to pay immediately some or all of the 
amounts previously scheduled to be repaid before the date on which the 
institution determined that the borrower had demonstrated that grounds 
for a deferment existed, plus late charges and collection costs.
    (c) If the information supplied by the borrower demonstrates that 
for some or all of the period for which a deferment is requested, the 
borrower had retained in-school status or was within the initial grace 
period on the loan, the institution shall--
    (1) Redetermine the date on which the borrower was required to 
commence repayment on the loan;
    (2) Deduct from the loan balance any interest accrued and late 
charges added before the date on which the repayment period commenced, 
as determined in paragraph (c)(1) of this section; and
    (3) Treat in accordance with paragraph (b) of this section, the 
request for deferment for any remaining portion of the period for which 
deferment was requested.
    (d) The institution must determine the continued eligibility of a 
borrower for a deferment at least annually, except that a borrower 
engaged in service described in Secs. 674.34(e)(6), 674.35(c)(3), 
674.36(c)(2), 674.37(c)(2), and Sec. 674.60(a)(1) must be granted a 
deferment for the lesser of the borrower's full term of service in the 
Peace Corps, or the borrower's remaining period of eligibility for a 
deferment under Sec. 674.34(e), not to exceed 3 years.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 425, 1087dd)

[52 FR 45754, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988. 
Redesignated and amended at 59 FR 61410, 61411, Nov. 30, 1994; 64 FR 
57531, Oct. 25, 1999; 64 FR 58315, Oct. 28, 1999]



Sec. 674.39  Loan rehabilitation.

    (a) Each institution must establish a loan rehabilitation program 
for all borrowers for the purpose of rehabilitating defaulted loans made 
under this part, except for loans for which a judgment has been secured. 
The institution's loan rehabilitation program must provide that--
    (1) A defaulted borrower is notified of the option and consequences 
of rehabilitating a loan; and
    (2) A loan is rehabilitated if the borrower makes an on-time, 
monthly payment, as determined by the institution, each month for twelve 
consecutive months and the borrower requests rehabilitation.
    (b) Within 30 days of receiving the borrower's last on-time, 
consecutive, monthly payment, the institution must--
    (1) Return the borrower to regular repayment status;
    (2) Treat the first payment made under the 12 consecutive payments 
as the first payment under the 10-year repayment maximum; and
    (3) Instruct any credit bureau to which the default was reported to 
remove the default from the borrower's credit history.
    (c) Collection costs on a rehabilitated loan--
    (1) If charged to the borrower, may not exceed 24 percent of the 
unpaid principal and accrued interest as of the date following 
application of the twelfth payment;
    (2) That exceed the amounts specified in paragraph (c)(1) of this 
section, may be charged to an institution's Fund until July 1, 2002 in 
accordance with Sec. 674.47(e)(5); and
    (3) Are not restricted to 24 percent in the event the borrower 
defaults on the rehabilitated loan.
    (d) After rehabilitating a defaulted loan and returning to regular 
repayment status, the borrower regains the balance of the benefits and 
privileges of the promissory note as applied prior to the borrower's 
default on the loan. Nothing in this paragraph prohibits an institution 
from offering the borrower flexible repayment options following the 
borrower's return to regular repayment status on a rehabilitated loan.

[[Page 601]]

    (e) The borrower may rehabilitate a defaulted loan only one time.

(Approved by the Office of Management and Budget under control number 
1845-0023)

[64 FR 58311, Oct. 28, 1999, as amended at 65 FR 65614, Nov. 1, 2000; 67 
FR 67077, Nov. 1, 2002]



Sec. 674.40  Treatment of loan repayments where cancellation, loan 
repayments, and minimum monthly repayments apply.

    (a) An institution may not exercise the minimum monthly repayment 
provisions on a note when the borrower has received a partial 
cancellation for the period covered by a postponement.
    (b) If a borrower has received Defense, NDSL, and Perkins loans and 
only one can be cancelled, the amount due on the uncancelled loan is the 
amount established in Sec. 674.31(b) (2), loan repayment terms; 
Sec. 674.33(b), minimum repayment rates; or Sec. 674.33(c), extension of 
repayment period.

(Authority: 20 U.S.C. 425 and 1087dd, 1087ee)

[52 FR 45754, Dec. 1, 1987. Redesignated at 59 FR 61410, Nov. 30, 1994]



                        Subpart C--Due Diligence

    Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.



Sec. 674.41  Due diligence--general requirements.

    (a) General. Each institution shall exercise due diligence in 
collecting loans by complying with the provisions in this subpart. In 
exercising this responsibility, each institution shall, in addition to 
complying with the specific provisions of this subpart--
    (1) Keep the borrower informed, on a timely basis, of all changes in 
the program that affect his or her rights or responsibilities; and
    (2) Respond promptly to all inquiries from the borrower.
    (3) Provide the borrower with information on the availability of the 
Student Loan Ombudsman's office if the borrower disputes the terms of 
the loan in writing and the institution does not resolve the dispute.
    (b) Coordination of information. An institution shall ensure that 
information available in its offices (including the admissions, 
business, alumni, placement, financial aid and registrar's offices) is 
provided to those offices responsible for billing and collecting loans, 
in a timely manner, as needed to determine--
    (1) The enrollment status of the borrower;
    (2) The expected graduation or termination date of the borrower;
    (3) The date the borrower withdraws, is expelled or ceases 
enrollment on at least a half-time basis; and
    (4) The current name, address, telephone number and Social Security 
number of the borrower.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61411, Nov. 30, 1994; 
64 FR 58312, Oct. 28, 1999]



Sec. 674.42  Contact with the borrower.

    (a) Disclosure of repayment information. The institution must 
disclose the following information in a written statement provided to 
the borrower either shortly before the borrower ceases at least half-
time study at the institution or during the exit interview. If the 
borrower enters the repayment period without the institution's 
knowledge, the institution must provide the required disclosures to the 
borrower in writing immediately upon discovering that the borrower has 
entered the repayment period. The institution must disclose the 
following information:
    (1) The name and address of the institution to which the debt is 
owed and the name and address of the official or servicing agent to whom 
communications should be sent.
    (2) The name and address of the party to which payments should be 
sent.
    (3) The estimated balance owed by the borrower on the date on which 
the repayment period is scheduled to begin.
    (4) The stated interest rate on the loan.
    (5) The repayment schedule for all loans covered by the disclosure 
including the date the first installment payment is due, and the number, 
amount, and frequency of required payments.
    (6) An explanation of any special options the borrower may have for 
loan

[[Page 602]]

consolidation or other refinancing of the loan, and a statement that the 
borrower has the right to prepay all or part of the loan at any time 
without penalty.
    (7) A description of the charges imposed for failure of the borrower 
to pay all or part of an installment when due.
    (8) A description of any charges that may be imposed as a 
consequence of default, such as liability for expenses reasonably 
incurred in attempts by the Secretary or the institution to collect on 
the loan.
    (9) The total interest charges which the borrower will pay on the 
loan pursuant to the projected repayment schedule.
    (10) The contact information of a party who, upon request of the 
borrower, will provide the borrower with a copy of his or her signed 
promissory note.
    (11) An explanation that if a borrower is required to make minimum 
monthly repayments, and the borrower has received loans from more than 
one institution, the borrower must notify the institution if he or she 
wants the minimum monthly payment determination to be based on payments 
due to other institutions.
    (b) Exit interview. (1) An institution must ensure that exit 
counseling is conducted with each borrower either in person, by 
audiovisual presentation, or by interactive electronic means. The 
institution must ensure that exit counseling is conducted shortly before 
the borrower ceases at least half-time study at the institution. As an 
alternative, in the case of a student enrolled in a correspondence 
program or a study-abroad program that the institution approves for 
credit, the borrower may be provided with written counseling material by 
mail within 30 days after the borrower completes the program. If a 
borrower withdraws from the institution without the institution's prior 
knowledge or fails to complete an exit counseling session as required, 
the institution must ensure that exit counseling is provided through 
either interactive electronic means or by mailing counseling materials 
to the borrower at the borrower's last known address within 30 days 
after learning that the borrower has withdrawn from the institution or 
failed to complete exit counseling as required.
    (2) The exit counseling must--
    (i) Inform the student as to the average anticipated monthly 
repayment amount based on the student's indebtedness or on the average 
indebtedness of students who have obtained Perkins loans for attendance 
at the institution or in the borrower's program of study;
    (ii) Review for the borrower available repayment options (e.g. loan 
consolidation and refinancing, including the consequences of 
consolidating a Federal Perkins Loan);
    (iii) Suggest to the borrower debt-management strategies that would 
facilitate repayment;
    (iv) Emphasize to the borrower the seriousness and importance of the 
repayment obligation the borrower is assuming;
    (v) Describe the likely consequences of default, including adverse 
credit reports and litigation;
    (vi) Emphasize that the borrower is obligated to repay the full 
amount of the loan even if the borrower has not completed the program, 
is unable to obtain employment upon completion, or is otherwise 
dissatisfied with or does not receive the educational or other services 
that the borrower purchased from the institution;
    (vii) Review for the borrower the conditions under which the 
borrower may defer repayment or obtain partial cancellation of a loan;
    (viii) Require the borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number, the borrower's expected permanent address, the 
address of the borrower's next of kin, as well as the name and address 
of the borrower's expected employer;
    (ix) Review for the borrower information on the availability of the 
Student Loan Ombudsman's office; and
    (x) Inform the borrower of the availability of title IV loan 
information in the National Student Loan Data System (NSLDS).
    (3) If exit counseling is conducted through interactive electronic 
means, the institution must take reasonable

[[Page 603]]

steps to ensure that each student borrower receives the counseling 
materials, and participates in and completes the exit counseling.
    (4) The institution must maintain documentation substantiating the 
institution's compliance with this section for each borrower.
    (c) Contact with the borrower during the initial and post deferment 
grace periods. (1)(i) For loans with a nine-month initial grace period 
(NDSLs made before October 1, 1980 and Federal Perkins loans), the 
institution shall contact the borrower three times within the initial 
grace period.
    (ii) For loans with a six-month initial or post deferment grace 
period (loans not described in paragraph (b)(1)(i) of this section), the 
institution shall contact the borrower twice during the grace period.
    (2)(i) The institution shall contact the borrower for the first time 
90 days after the commencement of any grace period. The institution 
shall at this time remind the borrower of his or her responsibility to 
comply with the terms of the loan and shall send the borrower the 
following information:
    (A) The total amount remaining outstanding on the loan account, 
including principal and interest accruing over the remaining life of the 
loan.
    (B) The date and amount of the next required payment.
    (ii) The institution shall contact the borrower the second time 150 
days after the commencement of any grace period. The institution shall 
at this time notify the borrower of the date and amount of the first 
required payment.
    (iii) The institution shall contact a borrower with a nine-month 
initial grace period a third time 240 days after the commencement of the 
grace period, and shall then inform him or her of the date and amount of 
the first required payment.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: U.S.C. 424, 1087cc, 1087cc-1)

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32346, July 21, 1992; 59 FR 61411, 61415, Nov. 30, 1994; 64 FR 58312, 
Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002]



Sec. 674.43  Billing procedures.

    (a) The term billing procedures, as used in this subpart, includes 
that series of actions routinely performed to notify borrowers of 
payments due on their accounts, to remind borrowers when payments are 
overdue, and to demand payment of overdue amounts. An institution shall 
use billing procedures that include at least the following steps:
    (1) If the institution uses a coupon payment system, it shall send 
the coupons to the borrower at least 30 days before the first payment is 
due.
    (2) If the institution does not use a coupon system, it shall send 
to the borrower--
    (i) A written notice giving the name and address of the party to 
which payments are to be sent and a statement of account at least 30 
days before the first payment is due; and
    (ii) A statement of account at least 15 days before the due date of 
each subsequent payment.
    (3) Notwithstanding paragraph (a)(2)(ii) of this section, if the 
borrower elects to make payment by means of an electronic transfer of 
funds from the borrower's bank account, the institution shall send to 
the borrower an annual statement of account.
    (b)(1) An institution shall send a first overdue notice within 15 
days after the due date for a payment if the institution has not 
received--
    (i) A payment:
    (ii) A request for deferment; or
    (iii) A request for postponement or for cancellation.
    (2) Subject to Sec. 674.47(a), the institution may assess a late 
charge for loans made for periods of enrollment beginning on or after 
January 1, 1986, during the period in which the institution takes any 
steps described in this section to secure--
    (i) Any part of an installment payment not made when due, or
    (ii) A request for deferment, cancellation, or postponement of 
repayment on the loan that contains sufficient information to enable the 
institution to determine whether the borrower is entitled to the relief 
requested.
    (3) The institution shall determine the amount of the late charge 
imposed

[[Page 604]]

for loans described in paragraph (b)(2) of this section based on either-
-
    (i) Actual costs incurred for actions required under this section to 
secure the required payment or information from the borrower; or
    (ii) The average cost incurred for similar attempts to secure 
payments or information from other borrowers.
    (4) The institution may not require a borrower to pay late charges 
imposed under paragraph (b)(3) of this section in an amount, for each 
late payment or request, exceeding 20 percent of the installment payment 
most recently due.
    (5) The institution--
    (i) Shall determine the amount of the late or penalty charge imposed 
on loans not described in paragraph (b)(2) of this section in accordance 
with Sec. 674.31(b)(5) (See appendix E); and
    (ii) May assess this charge only during the period described in 
paragraph (b)(2) of this section.
    (6) The institution shall notify the borrower of the amount of the 
charge it has imposed, and whether the institution--
    (i) Has added that amount to the principal amount of the loan as of 
the first day on which the installment was due; or
    (ii) Demands payment for that amount in full no later than the due 
date of the next installment.
    (c) If the borrower does not satisfactorily respond to the first 
overdue notice, the institution shall continue to contact the borrower 
as follows, until the borrower makes satisfactory repayment arrangements 
or demonstrates entitlement to deferment, postponement, or cancellation:
    (1) The institution shall send a second overdue notice within 30 
days after the first overdue notice is sent.
    (2) The institution shall send a final demand letter within 15 days 
after the second overdue notice. This letter must inform the borrower 
that unless the institution receives a payment or a request for 
deferment, postponement, or cancellation within 30 days of the date of 
the letter, it will refer the account for collection or litigation, and 
will report the default to a credit bureau.
    (d) Notwithstanding paragraphs (b) and (c) of this section, an 
institution may send a borrower a final demand letter if the institution 
has not within 15 days after the due date received a payment, or a 
request for deferment. postponement, or cancellation, and if--
    (1) The borrower's repayment history has been unsatisfactory, e.g., 
the borrower has previously failed to make payment(s) when due or to 
request deferment, postponement, or cancellation in a timely manner, or 
has previously received a final demand letter; or
    (2) The institution reasonably concludes that the borrower neither 
intends to repay the loan nor intends to seek deferment, postponement, 
or cancellation of the loan.
    (e)(1) An institution that accelerates a loan as provided in 
Sec. 674.31 (i.e., makes the entire outstanding balance of the loan, 
including accrued interest and any applicable late charges, payable 
immediately) shall--
    (i) Provide the borrower, at least 30 days before the effective date 
of the acceleration, written notice of its intention to accelerate; and
    (ii) Provide the borrower on or after the effective date of 
acceleration, written notice of the date on which it accelerated the 
loan and the total amount due on the loan.
    (2) The institution may provide these notices by including them in 
other written notices to the borrower, including the final demand 
letter.
    (f) If the borrower does not respond to the final demand letter 
within 30 days from the date it was sent, the institution shall attempt 
to contact the borrower by telephone before beginning collection 
procedures.
    (g)(1) An institution shall ensure that any funds collected as a 
result of billing the borrower are--
    (i) Deposited in interest-bearing bank accounts that are--
    (A) Insured by an agency of the Federal Government; or
    (B) Secured by collateral of reasonably equivalent value; or
    (ii) Invested in low-risk income-producing securities, such as 
obligations issued or guaranteed by the United States.
    (2) An institution shall exercise the level of care required of a 
fiduciary

[[Page 605]]

with regard to these deposits and investments.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32346, July 21, 1992; 59 FR 61412, Nov. 30, 1994; 64 FR 58315, Oct. 
28, 1999; 67 FR 67077, Nov. 1, 2002]



Sec. 674.44  Address searches.

    (a) If mail, other than unclaimed mail, sent to a borrower is 
returned undelivered, an institution shall take steps to locate the 
borrower. These steps must include--
    (1) Reviews of records in all appropriate institutional offices;
    (2) Reviews of telephone directories or inquiries of information 
operators in the locale of the borrower's last known address; and
    (3) If, after following the procedures in paragraph (a) of this 
section, an institution is still unable to locate a borrower, the 
institution may use the Internal Revenue Service skip-tracing service.
    (b) If an institution is unable to locate a borrower by the means 
described in paragraph (a) of this section, it shall--
    (1) Use its own personnel to attempt to locate the borrower, 
employing and documenting efforts comparable to commonly accepted 
commercial skip-tracing practices; or
    (2) Refer the account to a firm that provides commercial skip-
tracing services.
    (c) If the institution acquires the borrower's address or telephone 
number through the efforts described in this section, it shall use that 
new information to continue its efforts to collect on that borrower's 
account in accordance with the requirements of this subpart.
    (d) If the institution is unable to locate the borrower after 
following the procedures in paragraphs (a) and (b) of this section, the 
institution shall make reasonable attempts to locate the borrower at 
least twice a year until--
    (1) The loan is recovered through litigation;
    (2) The account is assigned to the United States; or
    (3) The account is written off under Sec. 674.47(g).

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, Nov. 30, 1994]



Sec. 674.45  Collection procedures.

    (a) The term ``collection procedures,'' as used in this subpart, 
includes that series of more intensive efforts, including litigation as 
described in Sec. 674.46, to recover amounts owed from defaulted 
borrowers who do not respond satisfactorily to the demands routinely 
made as part of the institution's billing procedures. If a borrower does 
not satisfactorily respond to the final demand letter or the following 
telephone contact made in accordance with Sec. 674.43(f), the 
institution shall--
    (1) Report the account as being in default to any one national 
credit bureau; and
    (2)(i) Use its own personnel to collect the amount due; or
    (ii) Engage a collection firm to collect the account.
    (b)(1) An institution must report to any national credit bureau to 
which it reported the default, according to the reporting procedures of 
the national credit bureau, any changes to the account status of the 
loan.
    (2) The institution must resolve, within 30 days of its receipt, any 
inquiry from any credit bureau that disputes the completeness or 
accuracy of information reported on the loan.
    (c)(1) If the institution, or the firm it engages, pursues 
collection activity for up to 12 months and does not succeed in 
converting the account to regular repayment status, or the borrower does 
not qualify for deferment, postponement, or cancellation on the loan, 
the institution shall--
    (i) Litigate in accordance with the procedures in Sec. 674.46;
    (ii) Make a second effort to collect the account as follows:
    (A) If the institution first attempted to collect the account using 
its own personnel, it shall refer the account to a collection firm.
    (B) If the institution first attempted to collect the account by 
using a collection firm, it shall either attempt to collect the account 
using institutional

[[Page 606]]

personnel, or place the account with a different collection firm; or
    (iii) Submit the account for assignment to the Secretary in 
accordance with the procedures set forth in Sec. 674.50.
    (2) If the collection firm retained by the institution does not 
succeed in placing an account into a repayment status described in 
paragraph (c)(1) of this section after 12 months of collection activity, 
the institution shall require the collection firm to return the account 
to the institution.
    (d) If the institution is unable to place the loan in repayment as 
described in paragraph (c)(1) of this section after following the 
procedures in paragraphs (a), (b), and (c) of this section, the 
institution shall continue to make annual attempts to collect from the 
borrower until--
    (1) The loan is recovered through litigation;
    (2) The account is assigned to the United States; or
    (3) The account is written off under Sec. 674.47(g).
    (e)(1) Subject to Sec. 674.47(d), the institution shall assess 
against the borrower all reasonable costs incurred by the institution 
with regard to a loan obligation.
    (2) The institution shall determine the amount of collection costs 
that shall be charged to the borrower for actions required under this 
section, and Secs. 674.44, 674.46, 674. 48, and 674.49, based on either-
-
    (i) Actual costs incurred for these actions with regard to the 
individual borrower's loan; or
    (ii) Average costs incurred for similar actions taken to collect 
loans in similar stages of delinquency.
    (3) The Fund must be reimbursed for collection costs initially 
charged to the Fund and subsequently paid by the borrower.
    (f)(1) An institution shall ensure that any funds collected from the 
borrower are--
    (i) Deposited in interest-bearing bank accounts that are--
    (A) Insured by an agency of the Federal Government; or
    (B) Secured by collateral of reasonably equivalent value; or
    (ii) Invested in low-risk income-producing securities, such as 
obligations issued or guaranteed by the United States.
    (2) An institution shall exercise the level of care required of a 
fiduciary with regard to these deposits and investments.
    (g) Preemption of State law. The provisions of this section preempt 
any State law, including State statutes, regulations, or rules, that 
would conflict with or hinder satisfaction of the requirements or 
frustrate the purposes of this section.
    (h) As part of the collection activities provided for in this 
section, the institution must provide the borrower with information on 
the availability of the Student Loan Ombudsman's office.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: 20 U.S.C. 424, 1087cc, 1091a)

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32346, July 21, 1992; 59 FR 61412, Nov. 30, 1994; 62 FR 50848, Sept. 
26, 1997; 64 FR 58312, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002]



Sec. 674.46  Litigation procedures.

    (a)(1) If the collection efforts described in Sec. 674.45 do not 
result in the repayment of a loan, the institution shall determine at 
least once every two years whether--
    (i) The total amount owing on the borrower's account, including 
outstanding principal, accrued interest, collection costs and late 
charges on all of the borrower's Federal Perkins, NDSL and National 
Defense Student Loans held by that institution, is more than $500;
    (ii) The borrower can be located and served with process;
    (iii)(A) The borrower has sufficient assets attachable under State 
law to satisfy a major portion of the oustanding debt; or
    (B) The borrower has income from wages or salary which may be 
garnished under applicable State law sufficient to satisfy a major 
portion of the debt over a reasonable period of time;
    (iv) The borrower does not have a defense that will bar judgment for 
the institution; and
    (v) The expected cost of litigation, including attorney's fees, does 
not exceed the amount which can be recovered from the borrower.

[[Page 607]]

    (2) The institution shall sue the borrower if it determines that the 
conditions in paragraph (a)(1) of this section are met.
    (3) The institution may sue a borrower in default, even if the 
conditions in paragraph (a)(1) of this section are not met.
    (b) The institution shall assess against and attempt to recover from 
the borrower--
    (1) All litigation costs, including attorney's fees, court costs and 
other related costs, to the extent permitted under applicable law; and
    (2) All prior collection costs incurred and not yet paid by the 
borrower.
    (c)(1) An institution shall ensure that any funds collected as a 
result of litigation procedures are--
    (i) Deposited in interest-bearing bank accounts that are--
    (A) Insured by an agency of the Federal Government; or
    (B) Secured by collateral of reasonably equivalent value; or
    (ii) Invested in low-risk income-producing securities, such as 
obligations issued or guaranteed by the United States.
    (2) An institution shall exercise the level of care required of a 
fiduciary with regard to these deposits and investments.
    (d) If the institution is unable to collect the full amount owing on 
the loan after following the procedures set forth in Secs. 674.41 
through 674.46, the institution may--
    (1) Submit the account to the Secretary for assignment in accordance 
with the procedures in Sec. 674.50; or
    (2) With the Secretary's approval, refer the account to the 
Department for collection.

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, 61415, Nov. 30, 
1994; 67 FR 67077, Nov. 1, 2002]



Sec. 674.47  Costs chargeable to the Fund.

    (a) General: Billing costs. (1) Except as provided in paragraph (c) 
of this section, the institution shall assess against the borrower, in 
accordance with Sec. 674.43(b)(2) the cost of actions taken with regard 
to past-due payments on the loan.
    (2) If the amount recovered from the borrower does not suffice to 
pay the amount of the past-due payments and the penalty or late charges, 
the institution may charge the Fund for only that unpaid portion of the 
cost of telephone calls to the borrower made pursuant to Sec. 674.43 to 
demand payment of overdue amounts on the loan.
    (b) General: Collection costs. (1) Except as provided in paragraph 
(d) of this section, the institution shall assess against the borrower, 
in accordance with Secs. 674.45(e) and 674.46(b), the costs of actions 
taken on the loan obligation pursuant to Secs. 674.44, 674.45, 674.46, 
674.48 and 674.49.
    (2) If the amount recovered from the borrower does not suffice to 
pay the amount on the past-due payments late charges, and these 
collection costs, the institution may charge and Fund the unpaid 
collection costs in accordance with paragraph (e) of this section.
    (c) Waiver: Late charges. The institution may waive late charges 
assessed against a borrower who repays the full amount of the past-due 
payments on a loan.
    (d) Waiver: collection costs. Before filing suit on a loan, the 
institution may waive collection costs as follows:
    (1) The institution may waive the percentage of collection costs 
applicable to the amount then past-due on a loan equal to the percentage 
of that past-due balance that the borrower pays within 30 days after the 
date on which the borrower and the institution enter into a written 
repayment agreement on the loan.
    (2) The institution may waive all collection costs in return for a 
lump-sum payment of the full amount of principal and interest 
outstanding on a loan.
    (e) Limitations on costs charged to the Fund. The institution may 
charge to the Fund the following collection costs waived under paragraph 
(d) of this section or not paid by the borrower:
    (1) A reasonable amount for the cost of a successful address search 
required in Sec. 674.44(b).
    (2) Costs related to the use of credit bureaus as provided in 
Sec. 674.45(b)(1).
    (3) For first collection efforts pursuant to Sec. 674.45(a)(2), an 
amount that does not exceed 30 percent of the

[[Page 608]]

amount of principal, interest and late charges collected.
    (4) For second collection efforts pursuant to Sec. 674.45(c)(1)(ii), 
an amount that does not exceed 40 percent of the amount of principal, 
interest and late charges collected.
    (5) Until July 1, 2002 on loans rehabilitated pursuant to 
Sec. 674.39, amounts that exceed the amounts specified in 
Sec. 674.39(c)(1) but are less than--
    (i) 30 percent if the loan was rehabilitated while in a first 
collection effort; or
    (ii) 40 percent if the loan was rehabilitated while in a second 
collection effort.
    (6) For collection costs resulting from litigation, including 
attorney's fees, an amount that does not exceed the sum of--
    (i) Court costs specified in 28 U.S.C. 1920;
    (ii) Other costs incurred in bankruptcy proceedings in taking 
actions required or authorized under Sec. 674.49;
    (iii) Costs of other actions in bankruptcy proceedings to the extent 
that those costs, together with costs described in paragraph (e)(5)(ii) 
of this section, do not exceed 40 percent of the total amount of 
judgment obtained on the loan; and
    (iv) 40 percent of the total amount recovered from the borrower in 
any other proceeding.
    (7) If a collection firm agrees to perform or obtain the performance 
of both collection and litigation services on a loan, an amount for both 
functions that does not exceed the sum of 40 percent of the amount of 
principal, interest and late charges collected on the loan, plus court 
costs specified in 28 U.S.C. 1920.
    (f) Records. For audit purposes, an institution shall support the 
amount of collection costs charged to the Fund with appropriate 
documentation, including telephone bills and receipts from collection 
firms. The documentation must be maintained in the institution's files 
as provided in Sec. 674.19.
    (g) Cessation of collection activity of defaulted accounts. An 
institution may cease collection activity on a defaulted account with a 
balance of less than $200, including outstanding principal, accrued 
interest, collection costs, and late charges, if--
    (1) The institution has carried out the due diligence procedures 
described in subpart C of this part with regard to this account; and
    (2) For a period of at least 4 years, the borrower has not made a 
payment on the account, converted the account to regular repayment 
status, or applied for a deferment, postponement, or cancellation on the 
account.
    (h) Write-offs of accounts.
    (1) Notwithstanding any other provision of this subpart, an 
institution may write off an account, including outstanding principal, 
accrued interest, collection costs, and late charges, with a balance of-
-
    (i) Less than $25; or
    (ii) Less than $50 if, for a period of at least 2 years, the 
borrower has been billed for this balance in accordance with 
Sec. 674.43(a).
    (2) An institution that writes off an account under this paragraph 
may no longer include the amount of the account as an asset of the Fund.
    (3) When the institution writes off an account, the borrower is 
relieved of all repayment obligations.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 57 FR 32346, July 21, 1992; 
57 FR 60706, Dec. 21, 1992; 59 FR 61412, Nov. 30, 1994; 60 FR 61815, 
Dec. 1, 1995; 64 FR 58313, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002]



Sec. 674.48  Use of contractors to perform billing and collection or other 
program activities.

    (a) The institution is responsible for ensuring compliance with the 
billing and collection procedures set forth in this subpart. The 
institution may use employees to perform these duties or may contract 
with other parties to perform them.
    (b) An institution that contracts for performance of any duties 
under this subpart remains responsible for compliance with the 
requirements of this subpart in performing these duties, including 
decisions regarding cancellation, postponement, or deferment of 
repayment, extension of the repayment period, other billing and 
collection

[[Page 609]]

matters, and the safeguarding of all funds collected by its employees 
and contractors.
    (c) If an institution uses a billing service to carry out billing 
procedures under Sec. 674.43, the institution shall ensure that the 
service--
    (1) Provides at least quarterly, a statement to the institution 
which shows--
    (i) Its activities with regard to each borrower;
    (ii) Any changes in the borrower's name, address, telephone number, 
and, if known, any changes to the borrower's Social Security number; and
    (iii) Amounts collected from the borrower;
    (2) Provides at least quarterly, a statement to the institution with 
a listing of its charges for skip-tracing activities and telephone 
calls;
    (3) Does not deduct its fees from the amount is receives from 
borrowers;
    (4)(i) Instructs the borrower to remit payment directly to the 
institution;
    (ii) Instructs the borrower to remit payment to a lock-box 
maintained for the institution; or
    (iii) Deposits those funds received directly from the borrower 
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days; and
    (5) Maintains a fidelity bond or comparable insurance in accordance 
with the requirements in paragraph (f) of this section.
    (d) If the institution uses a collection firm, the institution shall 
ensure that the firm--
    (1)(i) Instructs the borrower to remit payment directly to the 
institution;
    (ii) Instructs the borrower to remit payment to a lockbox maintained 
for the institution; or
    (iii) Deposits those funds received directly from the borrower 
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days, 
after deducting its fees if authorized to do so by the institution; and
    (2) Provides at least quarterly, a statement to the institution 
which shows--
    (i) Its activities with regard to each borrower;
    (ii) Any changes in the borrower's name, address, telephone number 
and, if known, any changes to the borrower's Social Security number;
    (iii) Amounts collected from the borrower; and
    (3) Maintains a fidelity bond or comparable insurance in accordance 
with the requirements in paragraph (f) of this section.
    (e) If an institution uses a billing service to carry out 
Sec. 674.43 (billing procedures), it may not use a collection firm that-
-
    (1) Owns or controls the billing service;
    (2) Is owned or controlled by the billing service; or
    (3) Is owned or controlled by the same corporation, partnership, 
association, or individual that owns or controls the billing service.
    (f)(1) An institution that employs a third party to perform billing 
or collection services required under this subpart shall ensure that the 
party has and maintains in effect a fidelity bond or comparable 
insurance in accordance with the requirements of this paragraph.
    (2) If the institution does not authorize the third party to deduct 
its fees from payments from borrowers, the institution shall ensure that 
the party is bonded or insured in an amount not less than the amount of 
funds that the institution reasonably expects to be repaid over a two-
month period on accounts it refers to the party.
    (3) In the institution authorizes the third party performing 
collection services to deduct its fees from payments from borrowers, the 
institution shall ensure that--
    (i) If the amount of funds that the institution reasonably expects 
to be paid over a two-month period on accounts it refers to the party is 
less than $100,000, the party is bonded or insured in an amount equal to 
the lesser of--
    (A) Ten times the amount of funds that the institution reasonably 
expects to be repaid over a two-month period on accounts it refers to 
the party; or
    (B) The total amount of funds that the party demonstrates will be 
repaid

[[Page 610]]

over a two-month period on all accounts of any kind on which it performs 
billing and collection services; and
    (ii) If the amount of funds that the institution reasonably expects 
to be repaid over a two-month period on accounts it refers to the party 
is more than $100,000, the institution shall ensure that the party has 
and maintains in effect a fidelity bond or comparable insurance--
    (A) Naming the institution as beneficiary; and
    (B) In an amount not less than the amount of funds reasonably 
expected to be repaid on accounts referred by the institution to the 
party during a two-month period.
    (4) The institution shall review annually the amount of repayments 
expected to be made on accounts it refers to a third party for billing 
or collection services, and shall ensure that the amount of the fidelity 
bond or insurance coverage maintained continues to meet the requirements 
of this paragraph.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61412, Nov. 30, 1994; 64 FR 58315, Oct. 28, 1999]



Sec. 674.49  Bankruptcy of borrower.

    (a) General. If an institution receives notice that a borrower has 
filed a petition for relief in bankruptcy, usually by receiving a notice 
of meeting of creditors, the institution and its agents shall 
immediately suspend any collection efforts outside the bankruptcy 
proceeding against the borrower.
    (b) Proof of claim. The institution must file a proof of claim in 
the bankruptcy proceeding unless--
    (1) In the case of a proceeding under chapter 7 of the Bankruptcy 
Code, the notice of meeting of creditors states that the borrower has no 
assets, or
    (2) In the case of a bankruptcy proceeding under either Chapter 7 or 
Chapter 13 of the Bankruptcy Code in which the repayment plan proposes 
that the borrower repay less than the full amount owed on the loan, the 
institution has an authoritative determination by an appropriate State 
official that in the opinion of the State official, the institution is 
an agency of the State and is, on that basis, under applicable State 
law, immune from suit.
    (c) Borrower's request for determination of dischargeability. (1) 
The institution must use due diligence and may assert any defense 
consistent with its status under applicable law to avoid discharge of 
the loan. The institution must follow the procedures in this paragraph 
to respond to a complaint for a determination of dischargeability under 
11 U.S.C. 523(a)(8) on the ground that repayment of the loan would 
impose an undue hardship on the borrower and his or her dependents, 
unless discharge would be more effectively opposed by avoiding that 
action.
    (2) If the petition for relief in bankruptcy was filed before 
October 8, 1998 and more than seven years of the repayment period on the 
loan (excluding any applicable suspension of the repayment period 
defined in 34 CFR 682.402(m)) have passed before the borrower filed the 
petition, the institution may not oppose a determination of 
dischargeability requested under 11 U.S.C. 523(a)(8)(B) on the ground of 
undue hardship.
    (3) In any other case, the institution must determine, on the basis 
of reasonably available information, whether repayment of the loan under 
either the current repayment schedule or any adjusted schedule 
authorized under subpart B or D of this part would impose an undue 
hardship on the borrower and his or her dependents.
    (4) If the institution concludes that repayment would not impose an 
undue hardship, the institution shall determine whether the costs 
reasonably expected to be incurred to oppose discharge will exceed one-
third of the total amount owed on the loan, including principal, 
interest, late charges and collection costs.
    (5) If the expected costs of opposing discharge of such a loan do 
not exceed one-third of the total amount owed on the loan, the 
institution shall--
    (i) Oppose the borrower's request for a determination of 
dischargeability; and

[[Page 611]]

    (ii) If the borrower is in default on the loan, seek a judgment for 
the amount owed on the loan.
    (6) In opposing a request for a determination of dischargeability, 
the institution may compromise a portion of the amount owed on the loan 
if it reasonably determines that the compromise is necessary in order to 
obtain a judgment on the loan.
    (d) Request for determination of non-dischargeability. The 
institution may file a complaint for a determination that a loan 
obligation is not dischargeable and for judgment on the loan if the 
institution would have been required under paragraph (c) of this section 
to oppose a request for a determination of dischargeability with regard 
to that loan.
    (e) Chapter 13 repayment plan. (1) The institution shall follow the 
procedures in this paragraph in response to a repayment plan proposed by 
a borrower who has filed for relief under chapter 13 of the Bankruptcy 
Code.
    (2) The institution is not required to respond to a proposed 
repayment plan, if--
    (i) The borrower proposes under the repayment plan to repay all 
principal, interest, late charges and collection costs on the loan; or
    (ii) The repayment plan makes no provision with regard either to the 
loan obligation or to general unsecured claims.
    (3)(i) If the borrower proposes under the repayment plan to repay 
less than the total amount owed on the loan, the institution shall 
determine from its own records and court documents--
    (A) The amount of the loan obligation dischargeable under the plan 
by deducting the total payments on the loan proposed under the plan from 
the total amount owed;
    (B) Whether the plan or the classification of the loan obligation 
under the proposed plan meets the requirements of section 1325 of the 
Code; and
    (C) Whether grounds exist under 11 U.S.C. 1307 to move for 
conversion or dismissal of the chapter 13 case.
    (ii) If the institution reasonably expects that costs of the 
appropriate actions will not exceed one-third of the dischargeable loan 
debt, the institution shall--
    (A) Object to confirmation of a proposed plan that does not meet the 
requirements of 11 U.S.C. 1325; and
    (B) Move to dismiss or convert a case where grounds can be 
established under 11 U.S.C. 1307.
    (4)(i) The institution must monitor the borrower's compliance with 
the requirements of the plan confirmed by the court. If the institution 
determines that the debtor has not made the payments required under the 
plan, or has filed a request for a ``hardship discharge'' under 11 
U.S.C. 1328(b), the institution must determine from its own records and 
information derived from documents filed with the court--
    (A) Whether grounds exist under 11 U.S.C. 1307 to convert or dismiss 
the case; and
    (B) Whether the borrower has demonstrated entitlement to the 
``hardship discharge'' by meeting the requirements of 11 U.S.C. 1328(b).
    (ii) If the institution reasonably expects that costs of the 
appropriate actions, when added to the costs already incurred in taking 
actions authorized under this section, will not exceed one-third of the 
dischargeable loan debt, the institution shall--
    (A) Move to dismiss or convert a case where grounds can be 
established under 11 U.S.C. 1307; or
    (B) Oppose the requested discharge where the debtor has not 
demonstrated that the requirements of 11 U.S.C. 1328(b) are met.
    (f) Resumption of collection from the borrower. The institution 
shall resume billing and collection action prescribed in this subpart 
after--
    (1) The borrower's petition for relief in bankruptcy has been 
dismissed;
    (2) The borrower has received a discharge under 11 U.S.C. 727, 11 
U.S.C. 1141, or 11 U.S.C. 1228, unless--
    (i) The court has found that repayment of the loan would impose an 
undue hardship on the borrower and the dependents of the borrower; or
    (ii)(A) The petition for relief was filed before October 8, 1998;
    (B) The loan entered the repayment period more than seven years 
(excluding any applicable suspension of the repayment period as defined 
by 34 CFR 682.402(m), and

[[Page 612]]

    (C) The loan is not excepted from discharge under other applicable 
provisions of the Code; or
    (3) The borrower has received a discharge under 11 U.S.C. 1328(a) or 
1328(b), unless--
    (i) The court has found that repayment of the loan would impose an 
undue hardship on the borrower and the dependents of the borrower; or
    (ii)(A) The petition for relief was filed before October 8, 1998;
    (B) The loan entered the repayment period more than seven years 
(excluding any application suspension of the repayment period as defined 
by 34 CFR 682.402(m) before the filing of the petition; and
    (C) The borrower's plan approved in the bankruptcy proceeding made 
some provision with regard to either the loan obligation or unsecured 
debts in general.
    (g) Termination of collection and write-off. (1) An institution must 
terminate all collection action and write off a loan if it receives a 
general order of discharge--
    (i) In a bankruptcy in which the borrower filed for relief before 
October 8, 1998, if the loan entered the repayment period more than 
seven years (exclusive of any applicable suspension of the repayment 
period defined by 34 CFR 682.402(m)) from the date on which a petition 
for relief was filed; or
    (ii) In any other case, a judgment that repayment of the debt would 
constitute an undue hardship and that the debt is therefore 
dischargeable.
    (2) If an institution receives a repayment from a borrower after a 
loan has been discharged, it must deposit that payment in its Fund.

(Approved by the Office of Management and Budget under control number 
1845-0023)

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32346, July 21, 1992; 59 FR 1652, Jan. 12, 1994; 59 FR 61412, Nov. 
30, 1994; 64 FR 58313, Oct. 28, 1999; 65 FR 65614, Nov. 1, 2000]



Sec. 674.50  Assignment of defaulted loans to the United States.

    (a) An institution may submit a defaulted loan note to the Secretary 
for assignment to the United States if--
    (1) The institution has been unable to collect on the loan despite 
complying with the diligence procedures, including at least a first 
level collection effort as described in Sec. 674.45(a) and litigation, 
if required under Sec. 674.46(a), to the extent these actions were 
required by regulations in effect on the date the loan entered default;
    (2) The amount of the borrower's account to be assigned, including 
outstanding principal, accrued interest, collection costs and late 
charges is $25.00 or greater; and
    (3) The loan has been accelerated.
    (b) An institution may submit a defaulted note for assignment only 
during the submission period established by the Secretary.
    (c) The Secretary may require an institution to submit the following 
documents for any loan it proposes to assign--
    (1) An assignment form provided by the Secretary and executed by the 
institution, which must include a certification by the institution that 
it has complied with the requirements of this subpart, including at 
least a first level collection effort as described in Sec. 674.45(a) in 
attempting collection on the loan.
    (2) The original promissory note or a certified copy of the original 
note.
    (3) A copy of the repayment schedule.
    (4) A certified copy of any judgment order entered on the loan.
    (5) A complete statement of the payment history.
    (6) Copies of all approved requests for deferment and cancellation.
    (7) A copy of the notice to the borrower of the effective date of 
acceleration and the total amount due on the loan.
    (8) Documentation that the institution has withdrawn the loan from 
any firm that it employed for address search, billing, collection or 
litigation services, and has notified that firm to cease collection 
activity on the loans.
    (9) Copies of all pleadings filed or received by the institution on 
behalf of a borrower who has filed a petition in bankruptcy and whose 
loan obligation is determined to be nondischargeable.
    (10) Documentation that the institution has complied with all of the 
due diligence requirements described in

[[Page 613]]

paragraph (a)(1) of this section if the institution has a cohort default 
rate that is equal to or greater than 20 percent as of June 30 of the 
second year preceding the submission period.
    (d) Except as provided in paragraph (e) of this section, and subject 
to paragraph (g) of this section, the Secretary accepts an assignment of 
a note described in paragraph (a) of this section and submitted in 
accordance with paragraph (c) of this section.
    (e) The Secretary does not accept assignment of a loan if--
    (1) The institution has not provided the Social Security number of 
the borrower;
    (2) The borrower has received a discharge in bankruptcy, unless--
    (i) The bankruptcy court has determined that the loan obligation is 
nondischargeable and has entered judgment against the borrower; or
    (ii) A court of competent jurisdiction has entered judgment against 
the borrower on the loan after the entry of the discharge order; or
    (3) The institution has initiated litigation against the borrower, 
unless the judgment has been entered against the borrower and assigned 
to the United States.
    (f)(1) The Secretary provides an institution written notice of the 
acceptance of the assignment of the note. By accepting assignment, the 
Secretary acquires all rights, title, and interest of the institution in 
that loan.
    (2) The institution shall endorse and forward to the Secretary any 
payment received from the borrower after the date on which the Secretary 
accepted the assignment, as noted in the written notice of acceptance.
    (g)(1) The Secretary may determine that a loan assigned to the 
United States is unenforceable in whole or in part because of the acts 
or omissions of the institution or its agent. The Secretary may make 
this determination with or without a judicial determination regarding 
the enforceability of the loan.
    (2) The Secretary may require the institution to reimburse the Fund 
for that portion of the outstanding balance on a loan assigned to the 
United States which the Secretary determines to be unenforceable because 
of an act or omission of that institution or its agent.
    (3) Upon reimbursement to the Fund by the institution, the Secretary 
shall transfer all rights, title and interest of the United States in 
the loan to the institution for its own account.
    (h) An institution shall consider a borrower whose loan has been 
assigned to the United States for collection to be in default on that 
loan for the purpose of eligibility for title IV financial assistance, 
until the borrower provides the institution confirmation from the 
Secretary that he or she has made satisfactory arrangements to repay the 
loan.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 424, 1087cc)

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32347, July 21, 1992; 57 FR 60707, Dec. 21, 1992; 59 FR 61412, Nov. 
30, 1994; 64 FR 58315, Oct. 28, 1999; 65 FR 65614, Nov. 1, 2000; 67 FR 
67077, Nov. 1, 2002]



                      Subpart D--Loan Cancellation

    Source: 52 FR 45758, Dec. 1, 1987, unless otherwise noted.



Sec. 674.51  Special definitions.

    The following definitions apply to this subpart:
    (a) Academic year or its equivalent for elementary and secondary 
schools and special education: (1) One complete school year, or two half 
years from different school years, excluding summer sessions, that are 
complete and consecutive and generally fall within a 12-month period.
    (2) If such a school has a year-round program of instruction, the 
Secretary considers a minimum of nine consecutive months to be the 
equivalent of an academic year.
    (b) Academic year or its equivalent for institutions of higher 
education: A period of time in which a full-time student is expected to 
complete--
    (1) The equivalent of 2 semesters, 2 trimesters, or 3 quarters at an 
institution using credit hours; or
    (2) At least 900 clock hours of training for each program at an 
institution using clock hours.

[[Page 614]]

    (c) Title I Children: Children of ages 5 through 17 who are counted 
under section 1124(c)(1) of the Elementary and Secondary Education Act 
of 1965, as amended.
    (d) Children and youth with disabilities: Children and youth from 
ages 3 through 21, inclusive, who require special education and related 
services because they have disabilities as defined in section 602(a)(1) 
of the Individuals with Disabilities Education Act.
    (e) Early intervention services: Those services defined in section 
672(2) of the Individuals with Disabilities Education Act that are 
provided to infants and toddlers with disabilities.
    (f) Elementary school: A school that provides elementary education, 
including education below grade 1, as determined by--
    (1) State law; or
    (2) The Secretary, if the school is not in a State.
    (g) Handicapped children: Children of ages 3 through 21 inclusive 
who require special education and related services because they are--
    (1) Mentally retarded;
    (2) Hard of hearing;
    (3) Deaf;
    (4) Speech and language impaired;
    (5) Visually handicapped;
    (6) Seriously emotionally disturbed;
    (7) Orthopedically impaired;
    (8) Specific learning disabled; or
    (9) Otherwise health impaired.
    (h) High-risk children: Individuals under the age of 21 who are low-
income or at risk of abuse or neglect, have been abused or neglected, 
have serious emotional, mental, or behavioral disturbances, reside in 
placements outside their homes, or are involved in the juvenile justice 
system.
    (i) Infants and toddlers with disabilities: Infants and toddlers 
from birth to age 2, inclusive, who need early intervention services for 
specified reasons, as defined in section 672(1) of the Individuals with 
Disabilities Education Act.
    (j) Local educational agency: (1) A public board of education or 
other public authority legally constituted within a State to administer, 
direct, or perform a service function for public elementary or secondary 
schools in a city, county, township, school district, other political 
subdivision of a State; or such combination of school districts of 
counties as are recognized in a State as an administrative agency for 
its public elementary or secondary schools.
    (2) Any other public institution or agency having administrative 
control and direction of a public elementary or secondary school.
    (k) Low-income communities: Communities in which there is a high 
concentration of children eligible to be counted under title I of the 
Elementary and Secondary Education Act of 1965, as amended.
    (l) Medical technician: An allied health professional (working in 
fields such as therapy, dental hygiene, medical technology, or 
nutrition) who is certified, registered, or licensed by the appropriate 
State agency in the State in which he or she provides health care 
services. An allied health professional is someone who assists, 
facilitates, or complements the work of physicians and other specialists 
in the health care system.
    (m) Nurse: A licensed practical nurse, a registered nurse, or other 
individual who is licensed by the appropriate State agency to provide 
nursing services.
    (n) Qualified professional provider of early intervention services: 
A provider of services as defined in section 672(2) of the Individuals 
with Disabilities Education Act.
    (o) Secondary school: (1) A school that provides secondary 
education, as determined by--
    (i) State law; or
    (ii) The Secretary, if the school is not in a State.
    (2) However, State laws notwithstanding, secondary education does 
not include any education beyond grade 12.
    (p) State education agency: (1) The State board of education; or
    (2) An agency or official designated by the Governor or by State law 
as being primarily responsible for the State supervision of public 
elementary and secondary schools.
    (q) Teacher: (1) A teacher is a person who provides--
    (i) Direct classroom teaching;
    (ii) Classroom-type teaching in a non-classroom setting; or

[[Page 615]]

    (iii) Educational services to students directly related to classroom 
teaching such as school librarians or school guidance counselors.
    (2) A supervisor, administrator, researcher, or curriculum 
specialist is not a teacher unless he or she primarily provides direct 
and personal educational services to students.
    (3) An individual who provides one of the following services does 
not qualify as a teacher unless that individual is licensed, certified, 
or registered by the appropriate State education agency for that area in 
which he or she is providing related special educational services, and 
the services provided by the individual are part of the educational 
curriculum for handicapped children:
    (i) Speech and language pathology and audiology;
    (ii) Physical therapy;
    (iii) Occupational therapy;
    (iv) Psychological and counseling services; or
    (v) Recreational therapy.
    (r) Teaching in a field of expertise: The majority of classes taught 
are in the borrower's field of expertise.
    (s) Total and permanent disability: The condition of an individual 
who is unable to work and earn money because of an injury or illness 
that is expected to continue indefinitely or result in death.

(Authority: 20 U.S.C. 425, 1087ee, 1141, and 1401(1))

[52 FR 45758, Dec. 1, 1987, as amended at 59 FR 61412, Nov. 30, 1994; 65 
FR 65690, Nov. 1, 2000]



Sec. 674.52  Cancellation procedures.

    (a) Application for cancellation. To qualify for cancellation of a 
loan, a borrower shall submit to the institution to which the loan is 
owed, by the date that the institution establishes, both a written 
request for cancellation and any documentation required by the 
institution to demonstrate that the borrower meets the conditions for 
the cancellation requested.
    (b) Part-time employment. (1)(i) An institution may refuse a request 
for cancellation based on a claim of simultaneously teaching in two or 
more schools or institutions if it cannot determine easily from the 
documentation supplied by the borrower that the teaching is full-time. 
However, it shall grant the cancellation if one school official 
certifies that a teacher worked full-time for a full academic year.
    (ii) An institution may refuse a request for cancellation based on a 
claim of simultaneous employment as a nurse or medical technician in two 
or more facilities if it cannot determine easily from the documentation 
supplied by the borrower that the combined employment is full-time. 
However, it shall grant the cancellation if one facility official 
certifies that a nurse or medical technician worked full-time for a full 
year.
    (2) If the borrower is unable due to illness or pregnancy to 
complete the academic year, the borrower still qualifies for the 
cancellation if--
    (i) The borrower completes the first half of the academic year, and 
has begun teaching the second half; and
    (ii) The borrower's employer considers the borrower to have 
fulfilled his or her contract for the academic year for purposes of 
salary increment, tenure, and retirement.
    (c) Cancellation of a defaulted loan. (1) Except with regard to 
cancellation on account of the death or disability of the borrower, a 
borrower whose defaulted loan has not been accelerated may qualify for a 
cancellation by complying with the requirements of paragraph (a) of this 
section.
    (2) A borrower whose defaulted loan has been accelerated--
    (i) May qualify for a loan cancellation for services performed 
before the date of acceleration; and
    (ii) Cannot qualify for a cancellation for services performed on or 
after the date of acceleration.
    (3) An institution shall grant a request for cancellation on account 
of the death or disability of the borrower without regard to the 
repayment status of the loan.
    (d) Concurrent deferment period. The Secretary considers a Perkins 
Loan, NDSL or Defense Loan borrower's loan deferment under 
Sec. 674.34(c) to run concurrently with any period for which 
cancellation under Secs. 674.53, 674.54, 674.55, 674.56, 674.57, 674.58, 
674.59, and 674.60 is granted.

[[Page 616]]

    (2) For loans made on or after July 1, 1993, the Secretary considers 
a borrower's loan deferment under Sec. 674.34 to run concurrently with 
any period for which a cancellation under Secs. 674.53, 674.56, 674.57, 
or 674.58 is granted.
    (e) National community service. No borrower who has received a 
benefit under subtitle D of title I of the National and Community 
Service Act of 1990 may receive a cancellation under this subpart.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 425, 1087ee)

[52 FR 45758, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61413, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997; 64 FR 58313, Oct. 
28, 1999]



Sec. 674.53  Teacher cancellation--Federal Perkins, NDSL and Defense loans.

    (a) Cancellation for full-time teaching in an elementary or 
secondary school serving low-income students.
    (1)(i) An institution must cancel up to 100 percent of the 
outstanding loan balance on a Federal Perkins loan or an NDSL made on or 
after July 23, 1992, for full-time teaching in a public or other 
nonprofit elementary or secondary school.
    (ii) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL or Defense loan made prior to 
July 23, 1992, for teaching service performed on or after October 7, 
1998, if the cancellation benefits provided under this section are not 
included in the terms of the borrower's promissory note.
    (2) The borrower must be teaching full-time in a public or other 
nonprofit elementary or secondary school that--
    (i) Is in a school district that qualified for funds, in that year, 
under title I of the Elementary and Secondary Education Act of 1965, as 
amended; and
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's total enrollment is made up of 
title I children.
    (3) For each academic year, the Secretary notifies participating 
institutions of the schools selected under paragraph (a) of this 
section.
    (4) (i) The Secretary selects schools under paragraph (a)(1) of this 
section based on a ranking by the State education agency.
    (ii) The State education agency shall base its ranking of the 
schools on objective standards and methods. These standards must take 
into account the numbers and percentages of title I children attending 
those schools.
    (iii) For each academic year, the Secretary notifies participating 
institutions of the schools selected under paragraph (a) of this 
section.
    (5) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Affairs (BIA) or operated on Indian 
reservations by Indian tribal groups under contract with BIA to qualify 
as schools serving low-income students.
    (6) A teacher, who performs service in a school that meets the 
requirement of paragraph (a)(1) of this section in any year and in a 
subsequent year fails to meet these requirements, may continue to teach 
in that school and will be eligible for loan cancellation pursuant to 
paragraph (a) of this section in subsequent years.
    (7) If a list of eligible institutions in which a teacher performs 
services under paragraph (a)(1) of this section is not available before 
May 1 of any year, the Secretary may use the list for the year preceding 
the year for which the determination is made to make the service 
determination.
    (b) Cancellation for full-time teaching in special education. (1) An 
institution must cancel up to 100 percent of the outstanding balance on 
a borrower's Federal Perkins loan or NDSL loan made on or after July 23, 
1992, for the borrower's service as a full-time special education 
teacher of infants, toddlers, children, or youth with disabilities, in a 
public or other nonprofit elementary or secondary school system.
    (2) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL or Defense loan made prior to 
July 23, 1992, for teaching service performed on or after October 7, 
1998, if the cancellation benefits provided under this section are not 
included in the terms of the borrower's promissory note.
    (c) Cancellation for full-time teaching in fields of expertise. (1) 
An institution must cancel up to 100 percent of the

[[Page 617]]

outstanding balance on a borrower's Federal Perkins loan or NDSL made on 
or after July 23, 1992, for full-time teaching in mathematics, science, 
foreign languages, bilingual education, or any other field of expertise 
where the State education agency determines that there is a shortage of 
qualified teachers.
    (2) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL or Defense loan made prior to 
July 23, 1992, for teaching service performed on or after October 7, 
1998, if the cancellation benefits provided under this section are not 
included in the terms of the borrower's promissory note.
    (d) Cancellation rates. (1) To qualify for cancellation under 
paragraph (a), (b), or (c) of this section, a borrower shall teach full-
time for a complete academic year or its equivalent.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time teaching;
    (ii) 20 percent of the original principal loan amount, plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time teaching; 
and
    (iii) 30 percent of the original principal loan amount, plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time teaching.
    (e) Teaching in a school system. The Secretary considers a borrower 
to be teaching in a public or other nonprofit elementary or secondary 
school system only if the borrower is directly employed by the school 
system.
    (f) Teaching children and adults. A borrower who teaches both adults 
and children qualifies for cancellation for this service only if a 
majority of the students whom the borrower teaches are children.

(Authority: 20 U.S.C 1087ee)

[59 FR 61413, Nov. 30, 1994, as amended at 64 FR 58313, Oct. 28, 1999]



Sec. 674.54  [Reserved]



Sec. 674.55  Teacher cancellation--Defense loans.

    (a) Cancellation for full-time teaching. (1) An institution shall 
cancel up to 50 percent of the outstanding balance on a borrower's 
Defense loan for full-time teaching in--
    (i) A public or other nonprofit elementary or secondary school;
    (ii) An institution of higher education; or
    (iii) An overseas Department of Defense elementary or secondary 
school.
    (2) The cancellation rate is 10 percent of the original principal 
loan amount, plus the interest on the unpaid balance accruing during the 
year of qualifying service, for each complete year, or its equivalent, 
of teaching.
    (b) Cancellation for full-time teaching in an elementary or 
secondary school serving low-income students. (1) The institution shall 
cancel up to 100 percent of the outstanding balance on a borrower's 
Defense loan for full-time teaching in a public or other nonprofit 
elementary or secondary school that--
    (i) Is in a school district that qualifies for funds in that year 
under title I of the Elementary and Secondary Education Act of 1965, as 
amended; and
    (ii) Has been selected by the Secretary based on a determination 
that a high concentration of students enrolled at the school are from 
low-income families.
    (2)(i) The Secretary selects schools under paragraph (b)(1) of this 
section based on a ranking by the State education agency.
    (ii) The State education agency shall base its ranking of the 
schools on objective standards and methods. These standards must take 
into account the numbers and percentages of title I children attending 
those schools.
    (3) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Affairs (BIA) or operated on Indian 
reservations by Indian tribal groups under contract with BIA to qualify 
as schools serving low-income students.
    (4) For each academic year, the Secretary notifies participating 
institutions of the schools selected under paragraph (b) of this 
section.

[[Page 618]]

    (5) The cancellation rate is 15 percent of the original principal 
loan amount, plus the interest on the unpaid balance accruing during the 
year of qualifying service, for each complete academic year, or its 
equivalent, of full-time teaching.
    (6) [Reserved]
    (7) Cancellation for full-time teaching under paragraph (b) of this 
section is available only for teaching beginning with academic year 
1966-67.
    (c) Cancellation for full-time teaching of the handicapped. (1) An 
institution shall cancel up to 100 percent of the outstanding balance on 
a borrower's Defense loan, plus interest, for full-time teaching of 
handicapped children in a public or other nonprofit elementary or 
secondary school system.
    (2) The cancellation rate is 15 percent of the original principal 
loan amount, plus the interest on the unpaid balance accruing during the 
year of qualifying service, for each complete academic year, or its 
equivalent, of full-time teaching.
    (3) A borrower qualifies for cancellation under this paragraph only 
if a majority of the students whom the borrower teaches are handicapped 
children.
    (4) Cancellation for full-time teaching under paragraph (c) of this 
section is available only for teaching beginning with the academic year 
1967-68.
    (d) Teaching in a school system. The Secretary considers a borrower 
to be teaching in a public or other nonprofit elementary or secondary 
school system only if the borrower is directly employed by the school 
system.
    (e) Teaching children and adults. A borrower who teaches both adults 
and children qualifies for cancellation for this service only if a 
majority of the students whom the borrower teaches are children.

(Authority: 20 U.S.C. 425(b)(3))

[52 FR 45758, Dec. 1, 1987. Redesignated and amended at 59 FR 61413, 
61414, Nov. 30, 1994]



Sec. 674.56  Employment cancellation--Federal Perkins, NDSL and Defense loans.

    (a) Cancellation for full-time employment as a nurse or medical 
technician. (1) An institution must cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins or NDSL made on or 
after July 23, 1992, for full-time employment as a nurse or medical 
technician providing health care services.
    (2) An institution must cancel up to 100 percent of the outstanding 
balance on a Federal Perkins, NDSL or Defense loan made prior to July 
23, 1992, for full-time service as a nurse or medical technician 
performed on or after October 7, 1998, if the cancellation benefits 
provided under this section are not included in the borrower's 
promissory note.
    (b) Cancellation for full-time employment in a public or private 
nonprofit child or family service agency. (1) An institution must cancel 
up to 100 percent of the outstanding balance on a borrower's Federal 
Perkins or NDSL made on or after July 23, 1992, for service as a full-
time employee in a public or private nonprofit child or family service 
agency who is providing, or supervising the provision of, services to 
high-risk children who are from low-income communities and the families 
of these children.
    (2) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL or Defense loan made prior to 
July 23, 1992, for employment in a child or family service agency on or 
after October 7, 1998, if the cancellation benefits provided under this 
section are not included in the terms of the borrower's promissory note.
    (c) Cancellation for service as a qualified professional provider of 
early intervention services. (1) An institution must cancel up to 100 
percent of the outstanding balance on a borrower's Federal Perkins or 
NDSL made on or after July 23, 1992, for the borrower's service as a 
full-time qualified professional provider of early intervention services 
in a public or other nonprofit program under public supervision by the 
lead agency as authorized in section 676(b)(9) of the Individual with 
Disabilities Act.
    (2) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL or Defense loan made prior to 
July 23, 1992 for early intervention service performed on or after 
October 7, 1998, if

[[Page 619]]

the cancellation benefits provided under this section are not included 
in the terms of the borrower's promissory note.
    (d) Cancellation rates. (1) To qualify for cancellation under 
paragraphs (a), (b), and (c) of this section, a borrower must work full-
time for 12 consecutive months.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time employment;
    (ii) 20 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time employment; 
and
    (iii) 30 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time employment.

(Authority: 20 U.S.C. 1087ee)

[59 FR 61414, Nov. 30, 1994, as amended at 64 FR 58314, Oct. 28, 1999]



Sec. 674.57  Cancellation for law enforcement or corrections officer 
service--Federal Perkins, NDSL and Defense loans.

    (a)(1) An institution must cancel up to 100 percent of the 
outstanding balance on a borrower's Federal Perkins or NDSL made on or 
after November 29, 1990, for full-time service as a law enforcement or 
corrections officer for an eligible employing agency.
    (2) An institution must cancel up to 100 percent of the outstanding 
loan balance on a Federal Perkins, NDSL or Defense loan made prior to 
November 29, 1990, for law enforcement or correction officer service 
performed on or after October 7, 1998, if the cancellation benefits 
provided under this section are not included in the terms of the 
borrower's promissory note.
    (3) An eligible employing agency is an agency--
    (i) That is a local, State, or Federal law enforcement or 
corrections agency;
    (ii) That is public-funded; and
    (iii) The principal activities of which pertain to crime prevention, 
control, or reduction or the enforcement of the criminal law.
    (4) Agencies that are primarily responsible for enforcement of 
civil, regulatory, or administrative laws are ineligible employing 
agencies.
    (5) A borrower qualifies for cancellation under this section only if 
the borrower is--
    (i) A sworn law enforcement or corrections officer; or
    (ii) A person whose principal responsibilities are unique to the 
criminal justice system.
    (6) To qualify for a cancellation under this section, the borrower's 
service must be essential in the performance of the eligible employing 
agency's primary mission.
    (7) The agency must be able to document the employee's functions.
    (8) A borrower whose principal official responsibilities are 
administrative or supportive does not qualify for cancellation under 
this section.
    (b)(1) To qualify for cancellation under paragraph (a) of this 
section, a borrower shall work full-time for 12 consecutive months.
    (2) Cancellation rates are--
    (i) 15 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second years of full-time employment;
    (ii) 20 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth years of full-time employment; 
and
    (iii) 30 percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for the fifth year of full-time employment.

(Authority: 20 U.S.C. 465)

[59 FR 61414, Nov. 30, 1994, as amended at 64 FR 58314, Oct. 28, 1999]



Sec. 674.58  Cancellation for service in a Head Start program.

    (a)(1) An institution must cancel up to 100 percent of the 
outstanding balance on a borrower's NDSL or Federal Perkins loan, for 
service as a full-time staff member in a Head Start program.

[[Page 620]]

    (2) An institution must cancel up to 100 percent of the outstanding 
balance on a Defense loan for service as a full-time staff member in a 
Head Start program performed on or after October 7, 1998, if the 
cancellation benefits provided under this section are not included in 
the terms of the borrower's promissory note.
    (3) The Head Start program in which the borrower serves must operate 
for a complete academic year, or its equivalent.
    (4) In order to qualify for cancellation, the borrower's salary may 
not exceed the salary of a comparable employee working in the local 
educational agency of the area served by the local Head Start program.
    (b) The cancellation rate is 15 percent of the original loan 
principal, plus the interest on the unpaid balance accruing during the 
year of qualifying service, for each complete academic year, or its 
equivalent, of full-time teaching service.
    (c)(1) ``Head Start'' is a preschool program carried out under the 
Head Start Act (subchapter B, chapter 8 of title VI of Pub. L. 97-35, 
the Budget Reconciliation Act of 1981, as amended; formerly authorized 
under section 222(a)(1) of the Economic Opportunity Act of 1964). (42 
U.S.C. 2809 (a) (1))
    (2) ``Full-time staff member'' is a person regularly employed in a 
full-time professional capacity to carry out the educational part of a 
Head Start program.

(Authority: 20 U.S.C. 425)

[52 FR 45758, Dec. 1, 1987. Redesignated and amended at 59 FR 61413, 
61415, Nov. 30, 1994; 64 FR 58314, Oct. 28, 1999]



Sec. 674.59  Cancellation for military service.

    (a) Cancellation on a Defense loan. (1) An institution shall cancel 
up to 50 percent of a Defense loan made after April 13, 1970, for the 
borrower's full-time active service starting after June 30, 1970, in the 
U.S. Army, Navy, Air Force, Marine Corps, or Coast Guard.
    (2) The cancellation rate is 12\1/2\ percent of the original loan 
principal, plus the interest on the unpaid balance accruing during the 
year of qualifying service, for the first complete year of qualifying 
service, and for each consecutive year of qualifying service.
    (3) Service for less than a complete year, including any fraction of 
a year beyond a complete year of service, does not qualify for military 
cancellation.
    (b) Cancellation of an NDSL or Perkins loan. (1) An institution 
shall cancel up to 50 percent of an NDSL or Perkins loan for service as 
a member of the U.S. Army, Navy, Air Force, Marine Corps, or Coast Guard 
in an area of hostilities that qualifies for special pay under section 
310 of title 37 of the United States Code.
    (2) The cancellation rate is 12\1/2\ percent of the original loan 
principal, plus the interest on the unpaid balance accruing during the 
year of qualifying service, for each complete year of qualifying 
service.
    (3) Service for less than a complete year, including any fraction of 
a year beyond a complete year of service, does not qualify for military 
cancellation.

(Authority: 20 U.S.C. 425(b)(3) and 1087ee)

[52 FR 45758, Dec. 1, 1987. Redesignated at 59 FR 61413, Nov. 30, 1994]



Sec. 674.60  Cancellation for volunteer service--Perkins loans, NDSLs and 
Defense loans.

    (a)(1) An institution must cancel up to 70 percent of the 
outstanding balance on a Perkins loan, and 70 percent of the outstanding 
balance of an NDSL made on or after October 7, 1998, for service as a 
volunteer under The Peace Corps Act or The Domestic Volunteer Service 
Act of 1973 (ACTION programs).
    (2) An institution must cancel up to 70 percent of the outstanding 
balance on an NDSL or Defense loan for service as a volunteer under The 
Peace Corps Act or The Domestic Volunteer Service Act of 1973 (ACTION 
programs) performed on or after October 7, 1998, if the cancellation 
benefits provided under this section are not included in the terms of 
the borrower's promissory note.
    (b) Cancellation rates are--
    (1) Fifteen percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the first and second twelve-month periods of 
service;

[[Page 621]]

    (2) Twenty percent of the original principal loan amount plus the 
interest on the unpaid balance accruing during the year of qualifying 
service, for each of the third and fourth twelve-month periods of 
service.

(Authority: 20 U.S.C. 1087ee)

[52 FR 45758, Dec. 1, 1987, as amended at 57 FR 32347, July 21, 1992. 
Redesignated at 59 FR 61413, Nov. 30, 1994, as amended at 64 FR 58314, 
Oct. 28, 1999]



Sec. 674.61  Cancellation for death or disability.

    (a) Death. An institution must discharge the unpaid balance of a 
borrower's Defense, NDSL, or Perkins loan, including interest, if the 
borrower dies. The institution must discharge the loan on the basis of 
an original or certified copy of the death certificate. Under 
exceptional circumstances and on a case-by-case basis, the chief 
financial officer of the institution may approve a discharge based upon 
other reliable documentation supporting the discharge request.
    (b) Total and permanent disability. (1) If the Secretary has made an 
initial determination that the borrower is totally and permanently 
disabled, as defined in Sec. 674.51(s), the loan is conditionally 
discharged for up to three years from the date that the borrower became 
totally and permanently disabled, as certified by a physician. The 
Secretary suspends collection activity on the loan from the date of the 
initial determination of total and permanent disability until the end of 
the three-year conditional period. If the borrower satisfies the 
criteria for a total and permanent disability discharge during and at 
the end of the conditional discharge period, the balance of the loan is 
discharged at the end of the conditional discharge period and any 
payments received after the date the borrower became totally and 
permanently disabled as certified under Sec. 674.61(b)(3) are returned 
to the sender.
    (2) A borrower satisfies the criteria for a discharge of a loan 
based on a total and permanent disability if, during and at the end of 
the three-year conditional discharge period described in paragraph 
(b)(1) of this section--
    (i) The borrower's annual earnings from employment do not exceed 100 
percent of the poverty line for a family of two, as determined in 
accordance with the Community Service Block Grant Act; and
    (ii) The borrower does not receive a new loan under the Perkins, 
FFEL or Direct Loan programs, except for a FFEL or Direct Consolidation 
Loan that does not include any loans that are in a conditional discharge 
status.
    (3) If a borrower becomes totally and permanently disabled after 
receiving a Defense, NDSL, or Perkins loan, the institution must assign 
the loan to the Secretary if the borrower submits a certification by a 
physician and the institution reviewed the application and determined 
that it is complete and that it supports the conclusion that the 
borrower has a total and permanent disability as defined in 
Sec. 674.51(s).
    (4) At the time the loan is assigned to the Secretary the 
institution must notify the borrower that the loan has been assigned to 
the Secretary for determination of eligibility for a total and permanent 
disability discharge.
    (5) If the Secretary determines that the certification provided by 
the borrower does not support the conclusion that the borrower meets the 
criteria for a total and permanent disability discharge, the Secretary 
notifies the borrower that the application for a disability discharge 
has been denied, and that the loan is due and payable under the terms of 
the promissory note.
    (6) If the Secretary makes an initial determination that the 
borrower is totally and permanently disabled, the Secretary notifies the 
borrower that the loan will be in a conditional discharge status for a 
period of up to three years after the date the borrower became totally 
and permanently disabled as certified under Sec. 674.61(b)(3). This 
notification identifies the conditions of the conditional discharge 
period specified in paragraphs (b)(6) through (b)(9) of this section and 
specifies that all or part of the three-year period may predate the 
Secretary's initial determination.
    (7) During the conditional discharge period, the borrower--
    (i) Is not required to make any payments on the loan;
    (ii) Is not considered past due or in default on the loan, unless 
the loan was

[[Page 622]]

past due or in default at the time the conditional discharge was 
granted;
    (iii) Must promptly notify the Secretary of any changes in address 
or phone number;
    (iv) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(2)(i) of this section; and
    (v) Must provide the Secretary, upon request, with additional 
documentation or information related to the borrower's eligibility for 
discharge under this section.
    (8) If, during and at the end of the conditional discharge period, 
the borrower continues to satisfy the eligibility criteria for a total 
and permanent disability discharge, as described in paragraph (b)(2) of 
this section, the balance of the loan is discharged.
    (9) If, at any time during or at the end of the three-year 
conditional discharge period, the borrower does not continue to meet the 
eligibility requirements for total and permanent disability discharge, 
the Secretary resumes collection activity on the loan. The Secretary 
does not require the borrower to pay any interest that accrued on the 
loan from the date of the initial determination described in paragraph 
(b)(6) of this section through the end of the conditional discharge 
period.
    (10) If the institution receives any payments from or on behalf of 
the borrower on or attributable to a loan that has been assigned to the 
Secretary for determination of eligibility for a total and permanent 
disability discharge, the institution must forward those payments to the 
Secretary for crediting to the borrower's account. At the same time that 
the institution forwards the payment, it must notify the borrower that 
there is no obligation to make payments on the loan while it is 
conditionally discharged prior to a final determination of eligibility 
for a total and permanent disability discharge, unless the Secretary 
directs the borrower otherwise.
    (11) When the Secretary makes a final determination to discharge the 
loan, the Secretary returns to the sender any payments received on the 
loan after the date the borrower became totally and permanently 
disabled.
    (c) No Federal reimbursement. No Federal reimbursement is made to an 
institution for cancellation of loans due to death or disability.
    (d) Retroactive. Cancellation for death or disability applies 
retroactively to all Defense, NDSL or Perkins loans.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 425 and 1087dd and sec. 130(g)(2) of the Education 
Amendments of 1976, Pub. L. 94-482)

[52 FR 45758, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988. 
Redesignated and amended at 59 FR 61413, 61415, Nov. 30, 1994; 64 FR 
58315, Oct. 28, 1999; 65 FR 65690, Nov. 1, 2000; 66 FR 44007, Aug. 21, 
2001]



Sec. 674.62  No cancellation for prior service--no repayment refunded.

    (a) No portion of a loan may be cancelled for teaching. Head Start, 
volunteer or military service if the borrower's service is performed--
    (1) During the same period that he or she received the loan; or
    (2) Before the date the loan was disbursed to the borrower.
    (b) The institution shall not refund a repayment made during a 
period for which the borrower qualified for a cancellation unless the 
borrower made the payment due to an institutional error.

(Authority: 20 U.S.C. 425 and 1067ee)

[52 FR 45758, Dec. 1, 1987. Redesignated at 59 FR 61413, Nov. 30, 1994]



Sec. 674.63  Reimbursement to institutions for loan cancellation.

    (a) Reimbursement for Defense loan cancellation. (1) The Secretary 
pays an institution each award year its share of the principal and 
interest canceled under Secs. 674.55 and 674.59(a).
    (2) The institution's share of cancelled principal and interest is 
computed by the following ratio:
[GRAPHIC] [TIFF OMITTED] TC15NO91.027


Where I is the institution's capital contribution to the Fund, and F is 
the Federal capital contribution to the Fund.

[[Page 623]]

    (b) Reimbursement for NDSL and Federal Perkins loan cancellation. 
The Secretary pays an institution each award year the principal and 
interest canceled from its student loan fund under Secs. 674.53, 674.54, 
674.56, 674.57, 674.58, 674.59(b), and 674.60. The institution shall 
deposit this amount in its Fund.

(Authority: 20 U.S.C. 428 and 1087ee)

[52 FR 45758, Dec. 1, 1987. Redesignated and amended at 59 FR 61413, 
61415, Nov. 30, 1994]

                  Appendixes A-D to Part 674 [Reserved]

 Appendix E to Part 674--Examples for Computing Maximum Penalty Charges 
 (6 Months Unpaid Overdue Payments) on Direct Loans Made for Periods of 
                    Enrollment Before January 1, 1986

----------------------------------------------------------------------------------------------------------------
                                                Installment due dates--Missed payments                 Separate
                                  ------------------------------------------------------------------   monthly
    Monthly repayment schedule                                                                         maximum
                                     Jan. 2     Feb. 2     Mar. 2     Apr. 2     May 2      June 2     penalty
                                                                                                       charges
----------------------------------------------------------------------------------------------------------------
1st Past due installment.........         $1  .........  .........  .........  .........  .........           $1
2nd Past due installment.........  .........      $1+$2  .........  .........  .........  .........            3
3rd Past due installment.........  .........  .........      $3+$2  .........  .........  .........            5
4th Past due installment.........  .........  .........  .........      $5+$2  .........  .........            7
5th Past due installment.........  .........  .........  .........  .........      $7+$2  .........            9
6th Past due installment.........  .........  .........  .........  .........  .........      $9+$2           11
                                  ------------------------------------------------------------------------------
    Cumulative maximum subtotals.          1          4          9         16         25         36  ...........
----------------------------------------------------------------------------------------------------------------


----------------------------------------------------------------------------------------------------------------
                                                                     Installment due dates--Missed     Separate
                                                                                payments              bimonthly
                   Bimonthly repayment schedule                    ---------------------------------   maximum
                                                                                                       penalty
                                                                      Jan. 2     Mar. 2     May 2      charges
----------------------------------------------------------------------------------------------------------------
1st Past due installment..........................................         $3  .........  .........           $3
2nd Past due installment..........................................  .........      $3+$3  .........            6
3rd Past due installment..........................................  .........  .........      $6+$3            9
                                                                   ---------------------------------------------
    Cumulative maximum subtotals..................................          3          9         18  ...........
----------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------
                                    Installment due dates--    Separate
                                        Missed payments       quarterly
   Quarterly repayment schedule   --------------------------   maximum
                                                               penalty
                                      Jan. 2       Apr. 2      charges
------------------------------------------------------------------------
1st Past due installment.........           $6  ...........           $6
2nd Past due installment.........  ...........        $6+$6           12
                                  --------------------------------------
    Cumulative maximum subtotals.            6           18  ...........
------------------------------------------------------------------------
Note. In the above table of examples, the Cumulative Maximum Subtotal
  line contains the maximum penalty charges that can be assessed on an
  NDSL borrower for any given installment that was missed on its due
  date. For example, if three borrowers, all on different repayment
  schedules, owed and missed their first installment payment on January
  2 and all three made their next payment on April 10, the maximum
  penalty charges that could be assessed each individual borrower would
  be as follows: $16 to the monthly repayment schedule borrower; $9 to
  the bimonthly repayment schedule borrower; and $18 to the quarterly
  repayment schedule borrower.


[46 FR 5241, Jan. 19, 1981]



PART 675--FEDERAL WORK-STUDY PROGRAMS--Table of Contents




    Note: An asterisk (*) indicates provisions that are common to parts 
674, 675, and 676. The use of asterisks will assure participating 
institutions that a provision of one regulation is identical to the 
corresponding provisions in the other two.

                  Subpart A--Federal Work-Study Program

Sec.
675.1  Purpose and identification of common provisions.
675.2  Definitions.

[[Page 624]]

675.3-675.7  [Reserved]
675.8  Program participation agreement.
675.9  Student eligibility.
675.10  Selection of students for FWS employment.
675.11-675.15  [Reserved]
675.16  Payments to students.
675.17  [Reserved]
675.18  Use of funds.
675.19  Fiscal procedures and records.
675.20  Eligible employers and general conditions and limitation on 
          employment.
675.21  Institutional employment.
675.22  Employment provided by a Federal, State, or local public agency, 
          or a private nonprofit organization.
675.23  Employment provided by a private for-profit organization.
675.24  Establishment of wage rate under FWS.
675.25  Earnings applied to cost of attendance.
675.26  FWS Federal share limitations.
675.27  Nature and source of institutional share.

             Subpart B--Job Location and Development Program

675.31  Purpose.
675.32  Program description.
675.33  Allowable costs.
675.34  Multi-Institutional job location and development programs.
675.35  Agreement.
675.36  Procedures and records.
675.37  Termination and suspension.

                    Subpart C--Work-Colleges Program

675.41  Special definitions.
675.42  Allocation and reallocation.
675.43  Purpose.
675.44  Program description.
675.45  Allowable costs, Federal share, and institutional share.
675.46  Unallowable costs.
675.47  Multi-institutional work-colleges arrangements.
675.48  Agreement.
675.49  Procedures and records.
675.50  Termination and suspension.

Appendix A to Part 675 [Reserved]

    Authority: 42 U.S.C. 2751-2756b, unless otherwise noted.

    Source: 52 FR 45770, Dec. 1, 1987, unless otherwise noted.



                  Subpart A--Federal Work-Study Program



Sec. 675.1  Purpose and identification of common provisions.

    (a) The Federal Work-Study (FWS) program provides part-time 
employment to students attending institutions of higher education who 
need the earnings to help meet their costs of postsecondary education 
and encourages students receiving FWS assistance to participate in 
community service activities.
    *(b) Provisions in these regulations that are common to all campus-
based programs are identified with an asterisk.

(Authority: 42 U.S.C. 2751-2756b)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61416, Nov. 30, 1994]



Sec. 675.2  Definitions.

    (a) The definitions of the following terms used in this part are set 
forth in subpart A of the Student Assistance General Provisions, 34 CFR 
668:

Academic year
Award year
Clock hour
Enrolled
Federal Family Education Loan (FFEL)
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal SLS Program
Federal Supplemental Educational Opportunity Grant (FSEOG) Program
Full-time student
HEA
Secretary

    (b) The Secretary defines other terms used in this part as follows:
    Community services: Services which are identified by an institution 
of higher education, through formal or informal consultation with local 
nonprofit, governmental, and community-based organizations, as designed 
to improve the quality of life for community residents, particularly 
low-income individuals, or to solve particular problems related to their 
needs. These services include--
    (1) Such fields as health care, child care (including child care 
services provided on campus that are open and accessible to the 
community), literacy training, education (including tutorial services), 
welfare, social services, transportation, housing and neighborhood 
improvement, public safety, crime prevention and control, recreation, 
rural development, and community improvement;

[[Page 625]]

    (2) Work in service opportunities or youth corps as defined in 
section 101 of the National and Community Service Act of 1990, and 
service in the agencies, institutions and activities designated in 
section 124(a) of that Act;
    (3) Support services to students with disabilities, including 
students with disabilities who are enrolled at the institution; and
    (4) Activities in which a student serves as a mentor for such 
purposes as--
    (i) Tutoring;
    (ii) Supporting educational and recreational activities; and
    (iii) Counseling, including career counseling.
    *Expected family contribution (EFC): The amount a student and his or 
her spouse and family are expected to pay toward the student's cost of 
attendance.
    *Financial need: The difference between a student's cost of 
attendance and his or her EFC.
    Graduate or professional student: A student who--
    (1) Is enrolled in a program or course above the baccalaureate level 
at an institution of higher education or is enrolled in a program 
leading to a first professional degree;
    (2) Has completed the equivalent of at least three years of full-
time study at an institution of higher education, either prior to 
entrance into the program or as part of the program itself; and
    (3) Is not receiving title IV aid as an undergraduate student for 
the same period of enrollment.
    *Institution of higher education (institution). A public or private 
nonprofit institution of higher education, a proprietary institution of 
higher education, or a postsecondary vocational institution.
    * Need-based employment: Employment provided by an institution 
itself or by another entity to a student who has demonstrated to the 
institution or the entity (through standards or methods it establishes) 
a financial need for the earnings from that employment for the purpose 
of defraying educational costs of attendance for the award year for 
which the employment is provided.
    Nonprofit organization: An organization owned and operated by one or 
more nonprofit corporations or associations where no part of the 
organization's net earnings benefits, or may lawfully benefit, any 
private shareholder or entity. An organization may show that it is 
nonprofit by meeting the provisions of Sec. 75.51 of the Education 
Department General Administrative Regulations (EDGAR), 34 CFR 75.51.


(Authority: 20 U.S.C. 1141(c))

    Student services: Services that are offered to students that may 
include, but are not limited to, financial aid, library, peer guidance 
counseling, job placement, assisting an instructor with curriculum-
related activities, security, and social, health, and tutorial services. 
Student services do not have to be direct or involve personal 
interaction with students. For purposes of this definition, facility 
maintenance, cleaning, purchasing, and public relations are never 
considered student services.
    Undergraduate student: A student enrolled at an institution of 
higher education who is in an undergraduate course of study which 
usually does not exceed four academic years, or is enrolled in a four to 
five academic year program designed to lead to a first degree. A student 
enrolled in a program of any other length is considered an undergraduate 
student for only the first four academic years of that program.

(Authority: 20 U.S.C. 1087aa-1087ii)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 52581, Dec. 28, 1988; 57 
FR 32356, July 21, 1992; 57 FR 60707, Dec. 21, 1992; 59 FR 61416, 61419-
61420, Nov. 30, 1994; 60 FR 61815, Dec. 1, 1995; 61 FR 60608, Nov. 29, 
1996; 64 FR 58292, Oct. 28, 1999; 67 FR 67078, Nov. 1, 2002]



Secs. 675.3-675.7  [Reserved]



Sec. 675.8  Program participation agreement.

    To participate in the FWS program, an institution of higher 
education shall enter into a participation agreement with the Secretary. 
The agreement provides that, among other things, the institution shall--
    (a) Use the funds it receives solely for the purposes specified in 
this part;

[[Page 626]]

    (b) Administer the FWS program in accordance with the HEA, the 
provisions of this part, and the Student Assistance General Provisions 
regulations, 34 CFR part 668;
    (c) Make employment under the FWS program reasonably available, to 
the extent of available funds, to all eligible students;
    (d) Award FWS employment, to the maximum extent practicable, that 
will complement and reinforce each recipient's educational program or 
career goals;
    (e) Assure that employment under this part may be used to support 
programs for supportive services to students with disabilities; and
    (f) Inform all eligible students of the opportunity to perform 
community services and consult with local nonprofit, governmental, and 
community-based organizations to identify those opportunities.

(Authority: 20 U.S.C. 1094, 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61416, 61419, Nov. 30, 
1994; 64 FR 58292, Oct. 28, 1999]



Sec. 675.9  Student eligibility.

    A student at an institution of higher education is eligible to 
receive part-time employment under the FWS program for an award year if 
the student--
    (a) Meets the relevant eligibility requirements contained in 34 CFR 
668.32;
    (b) Is enrolled or accepted for enrollment as an undergraduate, 
graduate or professional student at the institution; and
    (c) Has financial need as determined in accordance with part F of 
title IV of the HEA. A member of a religious order (an order, community, 
society, agency, or organization) who is pursuing a course of study at 
an institution of higher education is considered to have no financial 
need if that religious order--
    (1) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (2) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (3) Directs the member to pursue the course of study or provides 
subsistence support to its members.

(Authority: 20 U.S.C. 1091; 42 U.S.C. 2752-2753)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61419, Nov. 30, 1994; 62 
FR 50848, Sept. 26, 1997]



Sec. 675.10  Selection of students for FWS employment.

    (a) An institution shall make employment under FWS reasonably 
available, to the extent of available funds, to all eligible students.
    (b) An institution shall establish selection procedures and those 
procedures must be--
    (1) Uniformly applied;
    (2) In writing; and
    (3) Maintained in the institution's files.
    (c) Part-time and independent students. If an institution's 
allocation of FWS funds is directly or indirectly based in part on the 
financial need demonstrated by students attending the institution as 
less-than-full-time or independent students, a reasonable portion of the 
allocation must be offered to those students.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1091, 42 U.S.C. 2752-2753)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61416, 61419, Nov. 30, 1994; 64 FR 58292, Oct. 28, 1999]



Secs. 675.11-675.15  [Reserved]



Sec. 675.16  Payments to students.

    (a)(1) An institution must pay a student FWS compensation at least 
once a month.
    (2) Before an institution makes an initial disbursement of FWS 
compensation to a student for an award period, the institution must 
notify the student of the amount of funds the student is authorized to 
earn, and how and when the FWS compensation will be paid.
    (3) An institution must pay FWS compensation to a student by--
    (i) Check or similar instrument that the student can cash on his or 
her own endorsement;
    (ii) Initiating an electronic funds transfer (EFT) to a bank account 
designated by the student after obtaining

[[Page 627]]

the authorization described in paragraph (a)(4)(i) of this section;
    (iii) Crediting the student's account at the institution after 
obtaining the authorization described in paragraph (a)(4)(i) of this 
section. The institution may only credit the student's account at the 
institution to satisfy current award year charges for--
    (A) Tuition and fees;
    (B) Board, if the student contracts with the institution for board;
    (C) Room, if the student contracts with the institution for room; 
and
    (D) Other institutionally provided educationally related goods and 
services; or
    (iv) Crediting the student's account at the institution to satisfy 
minor prior award year authorized charges if these charges are less than 
$100 or if the payment of these charges does not, and will not, prevent 
the student from paying his or her current educational costs after 
obtaining the authorization described in paragraph (a)(4)(i) of this 
section.
    (4)(i) Except for the noncash contributions allowed under paragraphs 
(b)(2) and (b)(3) of this section, an institution must obtain a separate 
written authorization from the student if the student is paid FWS 
compensation by--
    (A) Crediting the student's account at the institution; or (B) 
Initiating an EFT to a bank account designated by the student.
    (ii) If an institution obtains a written authorization from the 
student, the institution may hold excess FWS funds under paragraph 
(a)(8) of this section.
    (iii) The institution must obtain and use the written authorization 
in accordance with the requirements of paragraphs (a)(5) and (a)(6) of 
this section.
    (5) In obtaining the student's written authorization described in 
paragraph (a)(4) of this section, an institution--
    (i) May not require or coerce the student to provide that 
authorization;
    (ii) Must allow the student to cancel or modify that authorization 
at any time; and
    (iii) Must clearly explain to the student how it will carry out that 
activity.
    (6)(i) If a student modifies the written authorization described in 
paragraph (a)(4) of this section, the modification takes effect on the 
date the institution receives the modification notice.
    (ii) If a student cancels the written authorization described in 
paragraph (a)(4)(i)(A) of this section, the institution may use the FWS 
compensation to pay only those authorized charges incurred by the 
student before the institution received the notice.
    (7) If an institution pays a student FWS compensation by crediting 
the student's account, and the result is a credit balance, the 
institution must pay the credit balance directly to the student as soon 
as possible but no later than 14 days after the balance occurred on the 
account.
    (8) Except if prohibited by the Secretary under the reimbursement 
payment method, an institution may hold, on behalf of the student, FWS 
funds that would otherwise be paid directly to the student under 
paragraph (a)(7) of this section, if the institution obtains the 
authorization described in paragraph (a)(4)(ii) of this section. If an 
institution holds excess FWS funds, the institution must--
    (i) Identify the amount of FWS funds the institution holds for each 
student in a subsidiary ledger account designated for that purpose;
    (ii) Maintain, at all times, cash in its bank account in an amount 
at least equal to the amount of FWS funds the institution holds for the 
student; and
    (iii) Pay any remaining balance by the end of the institution's 
final FWS payroll period for an award period.
    (9) If a student cancels the written authorization as described in 
paragraph (a)(4)(ii) of this section to hold excess FWS funds, the 
institution must pay those funds directly to the student as soon as 
possible but no later than 14 days after the institution receives that 
cancellation notice.
    (10) Regardless of who employs the student, the institution is 
responsible for ensuring that the student is paid for work performed.
    (11) A student's FWS compensation is earned when the student 
performs the work.
    (12) An institution may pay a student after the student's last day 
of attendance for FWS compensation earned

[[Page 628]]

while he or she was in attendance at the institution.
    (b)(1) Except for the noncash contributions allowed under paragraph 
(b)(2) or (b)(3) of this section, an institution must pay the student 
its share of his or her FWS compensation at the same time it pays the 
Federal share.
    (2) If an institution pays a student its FWS share for an award 
period in the form of tuition, fees, services, or equipment, it must pay 
that share before the student's final payroll period.
    (3) If an institution pays its FWS share in the form of prepaid 
tuition, fees, services, or equipment for a forthcoming academic period, 
it must give the student a statement before the close of his or her 
final payroll period listing the amount of tuition, fees, services, or 
equipment earned.
    (c) A correspondence student must submit his or her first completed 
lesson before receiving a payment.
    (d) The institution may not obtain a student's power of attorney to 
authorize any disbursement of funds without prior approval from the 
Secretary.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 20 U.S.C. 1091, 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32356, July 21, 1992; 59 FR 61419, Nov. 30, 1994; 64 FR 58292, Oct. 
28, 1999]



Sec. 675.17  [Reserved]



Sec. 675.18  Use of funds.

    (a) General. An institution may use its FWS allocation only for--
    (1) Paying the Federal share of FWS wages;
    (2) Paying administrative expenses as provided for in 34 CFR 673.7;
    (3) Meeting the cost of a Work-Colleges program under subpart C;
    (4) Meeting the cost of a Job Location and Development program under 
subpart B; and
    (5) Transferring a portion of its FWS allocation to its FSEOG 
program as described in paragraph (f) of this section.
    (b) Carry forward funds. (1) An institution may carry forward and 
expend in the next award year up to 10 percent of the sum of its initial 
and supplemental FWS allocations for the current award year.
    (2) Before an institution may spend its current year FWS allocation, 
it shall spend any funds carried forward from the previous year.
    (c) Carry back funds. An institution may carry back and expend in 
the previous award year up to 10 percent of the sum of its initial and 
supplemental FWS allocations for the current award year. The 
institution's official allocation letter represents the Secretary's 
approval to carry back funds.
    (d) The institution may use the funds carried forward or carried 
back under paragraphs (c) and (d) of this section, respectively, for 
activities described in paragraph (a) of this section.
    (e) Transfer funds to SEOG. (1) Beginning with the 1993-94 award 
year, an institution may transfer up to 25 percent of the sum of its 
initial and supplemental FWS allocations for an award year to its FSEOG 
program.
    (2) An institution shall use transferred funds according to the 
requirements of the program to which they are transferred.
    (3) An institution shall report any transferred funds on the Fiscal 
Operations Report required under Sec. 675.19(b).
    (f) Carry back funds for summer employment. An institution may carry 
back and expend in the previous award year any portion of its initial 
and supplemental FWS allocations for the current award year to pay 
student wages earned on or after May 1 of the previous award year but 
prior to the beginning of the current award year.
    (g) Community service. (1) For the 2000-2001 award year and 
subsequent award years, an institution must use at least seven percent 
of the sum of its initial and supplemental FWS allocations for an award 
year to compensate students employed in community service activities. In 
meeting this community service requirement, an institution must include 
at least one--
    (i) Reading tutoring project that employs one or more FWS students 
as reading tutors for children who are preschool age or are in 
elementary school; or
    (ii) Family literacy project that employs one or more FWS students 
in family literacy activities.
    (2) The Secretary may waive the requirements in paragraph (g)(1) of 
this

[[Page 629]]

section if the Secretary determines that an institution has demonstrated 
that enforcing the requirements in paragraph (g)(1) of this section 
would cause a hardship for students at the institution.
    (3) To the extent practicable, in providing reading tutors for 
children under paragraph (g)(1)(i), an institution must--
    (i) Give priority to the employment of students to tutor in reading 
in schools that are participating in a reading reform project that--
    (A) Is designed to train teachers how to teach reading on the basis 
of scientifically-based research on reading; and
    (B) Is funded under the Elementary and Secondary Education Act of 
1965; and
    (ii) Ensure that any student who is employed in a school 
participating in a reading reform project described in paragraph 
(g)(3)(i) of this section receives training from the employing school in 
the instructional practices used by the school.
    (h) Payment for time spent in training and travel. (1) For any award 
year, an institution may pay students for a reasonable amount of time 
spent for training that is directly related to FWS employment.
    (2) Beginning with the 1999-2000 award year, an institution may pay 
students for a reasonable amount of time spent for travel that is 
directly related to employment in community service activities 
(including tutoring in reading and family literacy activities).

(Authority: 20 U.S.C. 1095, 1096; 42 U.S.C. 2753, 2756, 2756b)

[52 FR 45770, Dec. 1, 1987, as amended at 57 FR 32356, July 21, 1992; 59 
FR 61417, 61419, Nov. 30, 1994; 61 FR 60396, Nov. 27, 1996; 64 FR 58293, 
Oct. 28, 1999]



Sec. 675.19  Fiscal procedures and records.

    (a) Fiscal procedures. (1) In administering its FWS program, an 
institution shall establish and maintain an internal control system of 
checks and balances that insures that no office can both authorize 
payments and disburse funds to students.
    (2) If an institution uses a fiscal agent, that agent may perform 
only ministerial acts.
    (3) An institution shall maintain funds received under this part in 
accordance with the requirements in Sec. 668.163.
    (b) Records and reporting. (1) An institution must follow the record 
retention and examination provisions in this part and in 34 CFR 668.24.
    (2) The institution must also establish and maintain program and 
fiscal records that--
    (i) Include a certification by the student's supervisor, an official 
of the institution or off-campus agency, that each student has worked 
and earned the amount being paid. The certification must include or be 
supported by, for students paid on an hourly basis, a time record 
showing the hours each student worked in clock time sequence, or the 
total hours worked per day;
    (ii) Include a payroll voucher containing sufficient information to 
support all payroll disbursements;
    (iii) Include a noncash contribution record to document any payment 
of the institution's share of the student's earnings in the form of 
services and equipment (see Sec. 675.27(a)); and
    (iv) Are reconciled at least monthly.
    (3) Each year an institution shall submit a Fiscal Operations Report 
plus other information the Secretary requires. The institution shall 
insure that the information reported is accurate and shall submit it on 
the form and at the time specified by the Secretary.

(Approved by the Office of Management and Budget under control number 
1845-0535)

(Authority: 42 U.S.C. 2753 and 20 U.S.C. 1094 and 1232f)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 30183, Aug. 10, 1988; 53 
FR 49147, Dec. 6, 1988; 59 FR 61419, Nov. 30, 1994; 59 FR 61722, Dec. 1, 
1994; 60 FR 61815, Dec. 1, 1995; 61 FR 60492, Nov. 27, 1996; 62 FR 
50848, Sept. 26, 1997; 65 FR 65676, Nov. 1, 2000]



Sec. 675.20  Eligible employers and general conditions and limitation on 
employment.

    (a) Eligible FWS employers. A student may be employed under the FWS 
program by--
    (1) The institution in which the student is enrolled;
    (2) A Federal, State, or local public agency;

[[Page 630]]

    (3) A private nonprofit organization; or
    (4) A private for-profit organization.
    (b) Agreement between institution and organization. (1) If an 
institution wishes to have its students employed under this part by a 
Federal, State or local public agency, or a private nonprofit or for-
profit organization, it shall enter into a written agreement with that 
agency or organization. The agreement must set forth the FWS work 
conditions. The agreement must indicate whether the institution or the 
agency or organization shall pay the students employed, except that the 
agreement between an institution and a for-profit organization must 
require the employer to pay the non-Federal share of the student 
earnings.
    (2) The institution may enter into an agreement with an agency or 
organization that has professional direction and staff.
    (3) The institution is responsible for ensuring that--
    (i) Payment for work performed under each agreement is properly 
documented; and
    (ii) Each student's work is properly supervised.
    (4) The agreement between the institution and the employing agency 
or nonprofit organization may require the employer to pay--
    (i) The non-Federal share of the student earnings; and
    (ii) Required employer costs such as the employer's share of social 
security or workers' compensation.
    (c) FWS general employment conditions and limitation. (1) Regardless 
of the student's employer, the student's work must be governed by 
employment conditions, including pay, that are appropriate and 
reasonable in terms of--
    (i) Type of work;
    (ii) Geographical region;
    (iii) Employee proficiency; and
    (iv) Any applicable Federal, State, or local law.
    (2) FWS employment may not--
    (i) Impair existing service contracts;
    (ii) Displace employees;
    (iii) Fill jobs that are vacant because the employer's regular 
employees are on strike;
    (iv) Involve the construction, operation, or maintenance of any part 
of a facility used or to be used for religious worship or sectarian 
instruction; or
    (v) Include employment for the U.S. Department of Education.
    (d) Academic credit and work-study. (1) A student may be employed 
under the FWS program and also receive academic credit for the work 
performed. Those jobs include, but are not limited to, work performed 
when the student is--
    (i) Enrolled in an internship;
    (ii) Enrolled in a practicum; or
    (iii) Employed in a research, teaching, or other assistantship.
    (2) A student employed in an FWS job and receiving academic credit 
for that job may not be--
    (i) Paid less than he or she would be if no academic credit were 
received;
    (ii) Paid for receiving instruction in a classroom, laboratory, or 
other academic setting; and
    (iii) Paid unless the employer would normally pay the person for the 
same position.

(Approved by the Office of Management and Budget under control number 
1845-0019)

(Authority: 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61419, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997; 64 FR 58293, Oct. 
28, 1999]



Sec. 675.21  Institutional employment.

    (a) An institution, other than a proprietary institution, may employ 
a student to work for the institution itself, including those 
operations, such as food service, cleaning, maintenance, or security, 
for which the institution contracts, if the contract specifies--
    (1) The number of students to be employed; and
    (2) That the institution selects the students to be employed and 
determines each student's pay rate.
    (b) A proprietary institution may employ a student to work for the 
institution, but only in jobs that--
    (1) Are in community services as defined in Sec. 675.2; or
    (2) Are on campus and that--
    (i) Involve the provision of student services as defined in 
Sec. 675.2(b) that are directly related to the work-study student's 
training or education;

[[Page 631]]

    (ii) To the maximum extent possible, complement and reinforce the 
educational program or vocational goals of the student; and
    (iii) Do not involve the solicitation of potential students to 
enroll at the proprietary institution.

(Authority: 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61417, Nov. 30, 1994; 67 
FR 67078, Nov. 1, 2002]



Sec. 675.22  Employment provided by a Federal, State, or local public 
agency, or a private nonprofit organization.

    (a) If a student is employed by a Federal, State, or local public 
agency, or a private nonprofit organization, the work that the student 
performs must be in the public interest.
    (b) FWS employment in the public interest. The Secretary considers 
work in the public interest to be work performed for the national or 
community welfare rather than work performed to benefit a particular 
interest or group. Work is not in the public interest if--
    (1) It primarily benefits the members of a limited membership 
organization such as a credit union, a fraternal or religious order, or 
a cooperative;
    (2) It is for an elected official who is not responsible for the 
regular administration of Federal, State, or local government;
    (3) It is work as a political aide for any elected official;
    (4) A student's political support or party affiliation is taken into 
account in hiring him or her;
    (5) It involves any partisan or nonpartisan political activity or is 
associated with a faction in an election for public or party office; or
    (6) It involves lobbying on the Federal, State, or local level.

(Authority: 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 57 FR 32356, July 21, 1992; 59 
FR 61419, Nov. 30, 1994]



Sec. 675.23  Employment provided by a private for-profit organization.

    (a) An institution may use up to 25 percent of its FWS allocation 
and reallocation for an award year to pay the compensation of FWS 
students employed by a private for-profit organization.
    (b) If a student is employed by a private, for-profit organization--
    (1) The work that the student performs must be academically relevant 
to the student's educational program, to the maximum extent practicable; 
and
    (2) The private for-profit organization--
    (i) Must provide the non-Federal share of the student's 
compensation; and
    (ii) May not use any FWS funds to pay an employee who would 
otherwise be employed by that organization.

(Authority: 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 57 FR 32356, July 21, 1992; 59 
FR 61419, Nov. 30, 1994; 64 FR 58294, Oct. 28, 1999]



Sec. 675.24  Establishment of wage rate under FWS.

    (a) Wage rates. (1) Except as provided in paragraph (a)(3) of this 
section, an institution shall compute FWS compensation on an hourly wage 
basis for actual time on the job. An institution may not pay a student a 
salary, commission, or fee.
    (2) An institution may not count fringe benefits as part of the wage 
rate.
    (3) An institution may pay a graduate student it employs a salary or 
an hourly wage, in accordance with its usual practices.
    (b) Minimum wage rate. The minimum wage rate for a student employee 
under the FWS program is the minimum wage rate required under section 
6(a) of the Fair Labor Standards Act of 1938.

(Authority: 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61419, Nov. 30, 1994]



Sec. 675.25  Earnings applied to cost of attendance.

    (a)(1) The institution shall determine the amount of earnings from a 
FWS job to be applied to a student's cost of attendance (attributed 
earnings) by subtracting taxes and job related costs from the student's 
gross earnings.
    (2) Job related costs are costs the student incurs because of his or 
her job. Examples are uniforms and transportation to and from work. Room 
and

[[Page 632]]

board during a vacation period may also be considered a job related cost 
if they would not otherwise be incurred except for the FWS employment.
    (b) If a student is employed under FWS during a vacation or other 
period when he or she is not attending classes, the institution shall 
apply the attributed earnings (earnings minus taxes and job related 
costs) to the cost of attendance for the next period of enrollment.

(Authority: 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61419, Nov. 30, 1994]



Sec. 675.26  FWS Federal share limitations.

    (a)(1) The Federal share of FWS compensation paid to a student 
employed other than by a private for-profit organization, as described 
in Sec. 675.23, may not exceed 75 percent unless the Secretary approves 
a higher share under paragraph (a)(2) or (d) of this section.
    (2) The Federal share of the compensation paid to a student may 
exceed 75 percent, but may not exceed 90 percent, if--
    (i) The student is employed at a private nonprofit organization or a 
Federal, State, or local public agency that--
    (A) Is not a part of, and is not owned, operated, or controlled by, 
or under common ownership, operation, or control with, the institution;
    (B) Is selected by the institution on an individual case-by-case 
basis;
    (C) Would otherwise be unable to afford the costs of this 
employment; and
    (ii) The number of students compensated under paragraph (a)(2)(i) of 
this section is not more than 10 percent of the total number of students 
paid under the FWS Program at the institution.
    (3) The Federal share of the compensation paid to a student employed 
by a private for-profit organization may not exceed 50 percent.
    (4) An institution may not use FWS funds to pay a student after he 
or she has, in addition to other resources, earned $300 or more over his 
or her financial need.
    (b) The institution may not include the following when determining 
the Federal share:
    (1) Fringe benefits such as paid sick days, paid vacations, or paid 
holidays.
    (2) The employer's share of social security, workers' compensation, 
retirement, or any other welfare or insurance program that the employer 
must pay on account of the student employee.
    (c) If an institution receives more money under an employment 
agreement from an off-campus employer than required employer costs, its 
not-Federal share, and any share of administrative costs that the 
employer agreed to pay, the excess funds must be--
    (1) Used to reduce the Federal share on a dollar-for-dollar basis;
    (2) Held in trust for off-campus student employment next year; or
    (3) Refunded to the off-campus employer.
    (d) For each award year, the Secretary authorizes a Federal share of 
100 percent of the compensation earned by a student under this part if--
    (1) The work performed by the student is for the institution itself, 
for a Federal, State, or local public agency, or for a private nonprofit 
organization; and
    (2)(i) The institution in which the student is enrolled--
    (A) Is designated as an eligible institution under--
    (1) The Developing Hispanic-Serving Institutions Program (34 CFR 
part 606);
    (2) The Strengthening Institutions Program, American Indian Tribally 
Controlled Colleges and Universities Program, or Alaska Native and 
Native Hawaiian-Serving Institutions Program (34 CFR part 607);
    (3) The Strengthening Historically Black Colleges and Universities 
Program (34 CFR part 608); or
    (4) The Strengthening Historically Black Graduate Institutions 
Program (34 CFR part 609); and
    (B) Requests that increased Federal share as part of its regular FWS 
funding application for that year;
    (ii) The student is employed as a reading tutor for preschool age 
children or children who are in elementary school;
    (iii) The student is performing family literacy activities in a 
family literacy

[[Page 633]]

project that provides services to families with preschool age children 
or children who are in elementary school; or
    (iv) The student is employed as a mathematics tutor for children who 
are in elementary school through the ninth grade.

(Authority: 20 U.S.C. 1068d and 1103d; 42 U.S.C. 2753)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61417, 61419, Nov. 30, 
1994; 61 FR 60396, Nov. 27, 1996; 62 FR 63439, Nov. 28, 1997; 63 FR 
52855, Oct. 1, 1998; 64 FR 58294, Oct. 28, 1999; 66 FR 34039, June 26, 
2001]



Sec. 675.27  Nature and source of institutional share.

    (a)(1) An institution may use any resource available to it, except 
funds allocated under the FWS program, to pay the institutional share of 
FWS compensation to its students. The institutional share may be paid in 
the form of services and equipment, e.g., tuition, room, board, and 
books.
    (2) The institution shall document all amounts claimed as non-cash 
contributions.
    (3) Non-cash compensation may not include forgiveness of a charge 
assessed solely because of a student's employment under the FWS program.
    (b) An institution may not solicit or accept fees, commission, 
contributions, or gifts as a condition for FWS employment, nor permit 
any organization with which it has an employment agreement to do so.

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 42 U.S.C. 2754)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61419, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997]



             Subpart B--Job Location and Development Program



Sec. 675.31  Purpose.

    The purpose of the Job Location and Development program is to expand 
off-campus job opportunities for students who are enrolled in eligible 
institutions of higher education and want jobs, regardless of their 
financial need, and to encourage students to participate in community 
service activities.

(Authority: 42 U.S.C. 2756)

[59 FR 61417, Nov. 30, 1994]



Sec. 675.32  Program description.

    An institution may expend up to the lesser of $50,000 or 10 percent 
of its FWS allocation and reallocation for an award year to establish or 
expand a program under which the institution, separately or in 
combination with other eligible institutions, locates and develops jobs, 
including community service jobs, for currently enrolled students.

(Authority: 42 U.S.C. 2756)

[59 FR 61417, Nov. 30, 1994]



Sec. 675.33  Allowable costs.

    (a)(1) Allowable and unallowable costs. Except as provided in 
paragraph (a)(2) of this section, costs reasonably related to carrying 
out the programs described in Sec. 675.32 are allowable.
    (2) Costs related to the purchase, construction, or alteration of 
physical facilities or indirect administrative costs are not allowable.
    (b) Federal share of allowable costs. An institution may use FWS 
funds, as provided in Sec. 675.32, to pay up to 80 percent of allowable 
costs.
    (c) Institutional share of allowable costs. An institution's share 
of allowable costs may be in cash or in the form of services. The 
institution shall keep records documenting the amount and source of its 
share.

(Authority: 42 U.S.C. 2756)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61419, Nov. 30, 1994]



Sec. 675.34  Multi-Institutional job location and development programs.

    (a) An institution participating in the FWS program may enter into a 
written agreement to establish and operate job location programs for its 
students with other participating institutions.
    (b) The agreement described in paragraph (a) of this section must--
    (1) Designate the administrator of the program; and
    (2) Specify the terms, conditions, and performance standards of the 
program.

[[Page 634]]

    (c) Each institution shall retain responsibility for the proper 
disbursement of the Federal funds it contributes under an agreement with 
other eligible institutions.

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 42 U.S.C. 2756)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61417, Nov. 30, 1994]



Sec. 675.35  Agreement.

    (a) A FWS participating institution, to establish or expand these 
programs, shall enter into an agreement with the Secretary.
    (b) The agreement must provide--
    (1) That the institution will administer the programs in accordance 
with the HEA and the provisions of this part;
    (2) That the institution will submit to the Secretary an annual 
report on the use of the funds and an evaluation of the effectiveness of 
the programs in benefiting the institution's students; and
    (3) Satisfactory assurances that--
    (i) The institution will not use program funds to locate and develop 
jobs at an eligible institution;
    (ii) The institution will use program funds to locate and develop 
jobs for students during and between periods of attendance at the 
institution, not upon graduation;
    (iii) The program will not displace employees or impair existing 
service contracts;
    (iv) Program funds can realistically be expected to generate total 
student wages exceeding the total amount of the Federal funds spent 
under this subpart; and
    (v) If the institution uses Federal funds to contract with another 
institution, suitable performance standards will be part of that 
contract.

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 42 U.S.C. 2756)

[52 FR 45770, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61417, 61419, Nov. 30, 1994]



Sec. 675.36  Procedures and records.

    Procedures and records concerning the administration of a JLD 
project established and operated under this subpart are governed by 
applicable provisions of Sec. 675.19.

(Authority: 42 U.S.C. 2756a)



Sec. 675.37  Termination and suspension.

    (a) If the Secretary terminates or suspends an institution's 
eligibility to participate in the FWS program, the action also applies 
to the institution's job location and development programs.
    (b) The Secretary pays an institution's financial obligations 
incurred and allowable before the termination but not incurred--
    (1) During a suspension; or
    (2) In anticipation of a suspension.
    (c) However, the institution must cancel as many outstanding 
obligations as possible.

(Authority: 42 U.S.C. 2756a)

[52 FR 45770, Dec. 1, 1987, as amended at 59 FR 61419, Nov. 30, 1994]



                    Subpart C--Work-Colleges Program

    Source: 59 FR 61418, Nov. 30, 1994, unless otherwise noted.



Sec. 675.41  Special definitions.

    The following definitions apply to this subpart:
    (a) Work-college: The term ``work-college'' means an eligible 
institution that--
    (1) Is a public or private nonprofit institution with a commitment 
to community service;
    (2) Has operated a comprehensive work-learning program for at least 
two years;
    (3) Requires--
    (i) All resident students who reside on campus to participate in a 
comprehensive work-learning program; and
    (ii) The provision of services as an integral part of the 
institution's educational program and as part of the institution's 
educational philosophy; and

[[Page 635]]

    (4) Provides students participating in the comprehensive work-
learning program with the opportunity to contribute to their education 
and to the welfare of the community as a whole.
    (b) Comprehensive student work-learning program: A student work/
service program that--
    (1) Is an integral and stated part of the institution's educational 
philosophy and program;
    (2) Requires participation of all resident students for enrollment, 
participation, and graduation;
    (3) Includes learning objectives, evaluation, and a record of work 
performance as part of the student's college record;
    (4) Provides programmatic leadership by college personnel at levels 
comparable to traditional academic programs;
    (5) Recognizes the educational role of work-learning supervisors; 
and
    (6) Includes consequences for nonperformance or failure in the work-
learning program similar to the consequences for failure in the regular 
academic program.

(Authority: 42 U.S.C. 2756b)



Sec. 675.42  Allocation and reallocation.

    The Secretary allocates and reallocates funds based on each 
institution's approved request for Federal funds for the Work-Colleges 
program as a percent of the total of such approved requests for all 
applicant institutions.

(Authority: 42 U.S.C. 2756b)



Sec. 675.43  Purpose.

    The purpose of the Work-Colleges program is to recognize, encourage, 
and promote the use of comprehensive work-learning programs as a 
valuable educational approach when it is an integral part of the 
institution's educational program and a part of a financial plan that 
decreases reliance on grants and loans and to encourage students to 
participate in community service activities.

(Authority: 42 U.S.C. 2756b)



Sec. 675.44  Program description.

    (a) An institution that satisfies the definition of ``work-college'' 
in Sec. 675.41(a) and wishes to participate in the Work-Colleges program 
must apply to the Secretary at the time and in the manner prescribed by 
the Secretary.
    (b) An institution may expend funds separately, or in combination 
with other eligible institutions, to provide work-learning opportunities 
for currently enrolled students.
    (c) For any given award year, Federal funds allocated and 
reallocated for that award year under sections 442 and 462 of the HEA 
may be transferred for the purpose of carrying out the Work-Colleges 
program to provide flexibility in strengthening the self-help-through-
work element in financial aid packaging.

(Authority: 42 U.S.C. 2756b)



Sec. 675.45  Allowable costs, Federal share, and institutional share.

    (a) Allowable costs. An institution participating in the Work-
Colleges program may use its allocated and reallocated program funds to 
carry out the following activities:
    (1) Support the educational costs of qualified students through 
self-help payments or credits provided under the work-learning program 
within the limits of part F of title IV of the HEA.
    (2) Promote the work-learning-service experience as a tool of 
postsecondary education, financial self-help, and community service-
learning opportunities.
    (3) Carry out activities in sections 443 or 446 of the HEA.
    (4) Administer, develop, and assess comprehensive work-learning 
programs including--
    (i) Community-based work-learning alternatives that expand 
opportunities for community service and career-related work; and
    (ii) Alternatives that develop sound citizenship, encourage student 
persistence, and make optimum use of assistance under the Work-Colleges 
program in education and student development.
    (5) Coordinate and carry out joint projects and activities to 
promote work service learning.
    (6) Carry out a comprehensive, longitudinal study of student 
academic progress and academic and career outcomes, relative to student 
self-sufficiency in financing their higher education, repayment of 
student loans,

[[Page 636]]

continued community service, kind and quality of service performed, and 
career choice and community service selected after graduation.
    (b) Federal share of allowable costs. An institution, in addition to 
the funds allocated and reallocated for this program, may use 
transferred funds provided under its Federal Perkins Loan or its FWS 
program to pay allowable costs.
    (c) Institutional share of allowable costs. An institution must 
match Federal funds made available for this program on a dollar-for-
dollar basis from non-Federal sources. The institution shall keep 
records documenting the amount and source of its share.

(Authority: 42 U.S.C. 2756b)

[59 FR 61418, Nov. 30, 1994, as amended at 64 FR 58294, Oct. 28, 1999]



Sec. 675.46  Unallowable costs.

    An institution participating in the Work-Colleges program may not 
use its allocated and reallocated program funds and transferred funds 
provided under its Federal Perkins Loan or its FWS program to pay costs 
related to the purchase, construction, or alteration of physical 
facilities or indirect administrative costs.

(Authority: 42 U.S.C. 2756b)



Sec. 675.47  Multi-institutional work-colleges arrangements.

    (a) An institution participating in the Work-Colleges program may 
enter into a written agreement with another participating institution to 
promote the work-learning-service experience.
    (b) The agreement described in paragraph (a) of this section must--
    (1) Designate the administrator of the program; and
    (2) Specify the terms, conditions, and performance standards of the 
program.
    (c) Each institution shall retain responsibility for the proper 
disbursement of the Federal funds it contributes under an agreement with 
other eligible institutions.

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 42 U.S.C. 2756b)



Sec. 675.48  Agreement.

    To participate in the Work-Colleges program, an institution shall 
enter into an agreement with the Secretary. The agreement provides that, 
among other things, the institution shall--
    (a) Assure that it will comply with all the appropriate provisions 
of the HEA and the appropriate provisions of the regulations;
    (b) Assure that it satisfies the definition of ``work-college'' in 
Sec. 675.41(a);
    (c) Assure that it will match the Federal funds according to the 
requirements in Sec. 675.45(c); and
    (d) Assure that it will use funds only to carry out the activities 
in Sec. 675.45(a).

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 42 U.S.C. 2756b)



Sec. 675.49  Procedures and records.

    In administering a Work-Colleges program under this subpart, an 
institution shall comply with the applicable provisions of 34 CFR part 
673 and this part 675.

(Authority: 42 U.S.C. 2756b)

[59 FR 61418, Nov. 30, 1994, as amended at 61 FR 60396, Nov. 27, 1996]



Sec. 675.50  Termination and suspension.

    Procedures for termination and suspension under this subpart are 
governed by applicable provisions found in 34 CFR part 668, subpart G of 
the Student Assistance General Provisions regulations.

(Authority: 42 U.S.C. 2756b)

                    Appendix A to Part 675 [Reserved]



PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT PROGRAM--Table 
of Contents




    Note: An asterisk (*) indicates provisions that are common to parts 
674, 675, and 676. The use of asterisks will assure participating 
institutions that a provision of one regulation is identical to the 
corresponding provisions in the other two.
Sec.
676.1  Purpose and identification of common provisions.
676.2  Definitions.
676.3-676.7  [Reserved]
676.8  Program participation agreement.

[[Page 637]]

676.9  Student eligibility.
676.10  Selection of students for FSEOG awards.
676.11-676.15  [Reserved]
676.16  Payment of an FSEOG.
676.17  [Reserved]
676.18  Use of funds.
676.19  Fiscal procedures and records.
676.20  Minimum and maximum FSEOG awards.
676.21  FSEOG Federal share limitations.

    Authority: 20 U.S.C. 1070b--1070b-3, unless otherwise noted.

    Source: 52 FR 45778, Dec. 1, 1987, unless otherwise noted.



Sec. 676.1  Purpose and identification of common provisions.

    (a) The Federal Supplemental Educational Opportunity Grant (FSEOG) 
Program awards grants to financially needy students attending 
institutions of higher education to help them pay their educational 
costs.
    *(b) Provisions in these regulations that are common to all campus-
based programs are identified with an asterisk.

(Authority: 20 U.S.C. 1070b)

[52 FR 45778, Dec. 1, 1987, as amended at 59 FR 61420, Nov. 30, 1994]



Sec. 676.2  Definitions.

    (a) The definitions of the following terms used in this part are set 
forth in subpart A of the Student Assistance General Provisions, 34 CFR 
part 668:

Academic year
Award year
Clock hour
Enrolled
Federal Family Education Loan (FFEL)
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal SLS Program
Federal Work-Study (FWS) Program
Full-time student
HEA
Payment period
Secretary

    (b) The Secretary defines other terms used in this part as follows:
    *Expected family contribution (EFC): The amount a student and his or 
her spouse and family are expected to pay toward the student's cost of 
attendance.
    *Financial need: The difference between a student's cost of 
attendance and his or her EFC.
    *Institution of higher education (institution): A public or private 
nonprofit institution of higher education, a proprietary institution of 
higher education, or a postsecondary vocational institution.
    * Need-based employment: Employment provided by an institution 
itself or by another entity to a student who has demonstrated to the 
institution or the entity (through standards or methods it establishes) 
a financial need for the earnings from that employment for the purpose 
of defraying educational costs of attendance for the award year for 
which the employment is provided.
    Undergraduate student: A student enrolled in an undergraduate course 
of study at an institution of higher education who--
    (1) Has not earned a baccalaureate or first professional degree; and
    (2) Is in an undergraduate course of study which usually does not 
exceed 4 academic years, or is enrolled in a 4 to 5 academic year 
program designed to lead to a first degree. A student enrolled in a 
program of any other length is considered an undergraduate student for 
only the first 4 academic years of that program.

(Authority: 20 U.S.C. 1087aa-1087ii)

[52 FR 45778, Dec. 1, 1987, as amended at 53 FR 52582, Dec. 28, 1988; 57 
FR 32357, July 21, 1992; 59 FR 61421, Nov. 30, 1994; 60 FR 61815, Dec. 
1, 1995; 61 FR 60608, Nov. 29, 1996]



Secs. 676.3-676.7  [Reserved]



Sec. 676.8  Program participation agreement.

    To participate in the FSEOG program, an institution shall enter into 
a participation agreement with the Secretary. The participation 
agreement provides, among other things, that the institution shall--
    (a) Use the funds it receives solely for the purposes specified in 
this part; and

[[Page 638]]

    (b) Administer the FSEOG program in accordance with the HEA, the 
provisions of this part, and the Student Assistance General Provisions 
regulations, 34 CFR part 668.

(Authority: 20 U.S.C. 1070b et seq., and 1094)

[52 FR 45778, Dec. 1, 1987, as amended at 59 FR 61421, Nov. 30, 1994]



Sec. 676.9  Student eligibility.

    A student at an institution of higher education is eligible to 
receive an FSEOG for an award year if the student--
    (a) Meets the relevant eligibility requirements contained in 34 CFR 
668.32;
    (b) Is enrolled or accepted for enrollment as an undergraduate 
student at the institution; and
    (c) Has financial need as determined in accordance with part F of 
title IV of the HEA. A member of a religious order (an order, community, 
society, agency, or organization) who is pursuing a course of study at 
an institution of higher education is considered to have no financial 
need if that religious order--
    (1) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (2) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (3) Directs the member to pursue the course of study or provides 
subsistence support to its members.

(Authority: 20 U.S.C. 1070b-1, 1070b-2 and 1091)

[52 FR 45778, Dec. 1, 1987, as amended at 59 FR 61421, Nov. 30, 1994; 62 
FR 50848, Sept. 26, 1997]



Sec. 676.10  Selection of students for FSEOG awards.

    (a)(1) In selecting among eligible students for FSEOG awards in each 
award year, an institution shall select those students with the lowest 
expected family contributions who will also receive Federal Pell Grants 
in that year.
    (2) If the institution has FSEOG funds remaining after giving FSEOG 
awards to all the Federal Pell Grant recipients at the institution, the 
institution shall award the remaining FSEOG funds to those eligible 
students with the lowest expected family contributions who will not 
receive Federal Pell Grants.
    (b) Part-time and independent students. If an institution's 
allocation of FSEOG funds is directly or indirectly based in part on the 
financial need demonstrated by students attending the institution as 
less-than-full-time or independent students, a reasonable portion of the 
allocation must be offered to those students.

(Authority: 20 U.S.C. 1070b-2)

[52 FR 45778, Dec. 1, 1987, as amended at 59 FR 61420, 61421, Nov. 30, 
1994; 64 FR 58294, Oct. 28, 1999]



Secs. 676.11-676.15  [Reserved]



Sec. 676.16  Payment of an FSEOG.

    (a)(1) Except as provided in paragraphs (b) and (e) of this section, 
an institution shall pay in each payment period a portion of an FSEOG 
awarded for a full academic year.
    (2) The institution shall determine the amount paid each payment 
period by the following fraction:

                  FSEOG
                  ------
                    N

where:

FSEOG=the total FSEOG awarded for an academic year and N=the number of 
payment periods that the institution expects the student will attend in 
that year.

    (3) An institution may pay the student, within each payment period, 
at such times and in such amounts as it determines best meets the 
student's needs.
    (b) If a student incurs uneven cost or resources during an academic 
year and needs additional funds in a particular payment period, the 
institution may pay FSEOG funds to the student for those uneven costs.
    (c) An institution shall disburse funds to a student or the 
student's account in accordance with the provisions in Sec. 668.164.
    (d)(1) The institution shall return to the FSEOG account any funds 
paid to a student who, before the first day of classes--
    (i) Officially or unofficially withdraws; or
    (ii) Is expelled.

[[Page 639]]

    (2) A student who does not begin class attendance is deemed to have 
withdrawn.
    (e) Only one payment is necessary if the total amount the 
institution awards a student for an academic year under the FSEOG 
program is less than $501.
    (f) A correspondence student shall submit his or her first completed 
lesson before receiving an FSEOG payment.

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 20 U.S.C. 1070b. 1091)

[52 FR 45778, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 
FR 32357, July 21, 1992; 59 FR 61420, 61421, Nov. 30, 1994; 59 FR 61722, 
Dec. 1, 1994; 61 FR 60396, Nov. 27, 1996; 61 FR 60608, Nov. 29, 1996]



Sec. 676.17  [Reserved]



Sec. 676.18  Use of funds.

    (a) General. An institution may use its FSEOG allocation and 
reallocation only for--
    (1) Making grants to eligible students; and
    (2) Paying administrative expenses as provided for in 34 CFR 673.7.
    (b) Transfer back of funds to FWS. An institution shall transfer 
back to the FWS program any funds unexpended at the end of the award 
year that it transferred to the FSEOG program from the FWS program.
    (c) Carry forward funds. (1) An institution may carry forward and 
expend in the next award year up to 10 percent of the sum of its initial 
and supplemental FSEOG allocations for the current award year.
    (2) Before an institution may spend its current year FSEOG 
allocation, it must spend any funds carried forward from the previous 
year.
    (d) Carry back funds. An institution may carry back and expend in 
the previous award year up to 10 percent of the sum of its initial and 
supplemental FSEOG allocations for the current award year. The 
institution's official allocation letter represents the Secretary's 
approval to carry back funds.
    (e) Use of funds carried forward and carried back. An institution 
may use the funds carried forward or carried back under paragraphs (c) 
and (d) of this section, respectively, for activities described in 
paragraph (a) of this section.
    (f) Carry back funds for summer FSEOG awards. An institution may 
carry back and expend in the previous award year any portion of its 
initial and supplemental FSEOG allocations for the current award year to 
make awards to eligible students for payment periods that begin on or 
after May 1 of the previous award year but end prior to the beginning of 
the current award year.

(Authority: 20 U.S.C. 1070b et seq., 1095 and 1096)

[52 FR 45778, Dec. 1, 1987, as amended at 57 FR 32357, July 21, 1992; 59 
FR 61420, 61421, Nov. 30, 1994; 61 FR 60396, Nov. 27, 1996; 64 FR 58294, 
Oct. 28, 1999]



Sec. 676.19  Fiscal procedures and records.

    (a) Fiscal Procedures. (1) In administering its FSEOG program, an 
institution shall establish and maintain an internal control system of 
checks and balances that insures that no office can both authorize 
payments and disburse funds to students.
    (2) An institution shall maintain funds received under this part in 
accordance with the requirements in Sec. 668.163.
    (b) Records and reporting. (1) An institution shall follow the 
record retention and examination provisions in this part and in 34 CFR 
668.24.
    (2) An institution shall establish and maintain program and fiscal 
records that are reconciled at least monthly.
    (3) Each year an institution shall submit a Fiscal Operations Report 
plus other information the Secretary requires. The institution shall 
insure that the information reported is accurate and shall submit it on 
the form and at the time specified by the Secretary.

(Approved by the Office of Management and Budget under control number 
1840-0535)

(Authority: 20 U.S.C. 1070b, 1094, and 1232f)

[52 FR 45778, Dec. 1, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 61421, Nov. 30, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 61815, Dec. 1, 
1995; 61 FR 60493, Nov. 27, 1996; 62 FR 50848, Sept. 26, 1997]

[[Page 640]]



Sec. 676.20  Minimum and maximum FSEOG awards.

    (a) An institution may award an FSEOG for an academic year in an 
amount it determines a student needs to continue his or her studies. 
However, except as provided in paragraph (c) of this section, an FSEOG 
may not be awarded for a full academic year that is--
    (1) Less than $100; or
    (2) More than $4,000.
    (b) For a student enrolled for less than a full academic year, the 
minimum allowable FSEOG may be proportionately reduced.
    (c) The maximum amount of the FSEOG may be increased from $4,000 to 
as much as $4,400 for a student participating in a program of study 
abroad that is approved for credit by the home institution, if 
reasonable costs for the study abroad program exceed the cost of 
attendance at the home institution.

(Authority: 20 U.S.C. 1070, 1070b-1)

[52 FR 45778, Dec. 1, 1987, as amended at 59 FR 61421, Nov. 30, 1994]



Sec. 676.21  FSEOG Federal share limitations.

    (a) Except as provided in paragraph (b) of this section, for the 
1993-94 award year and subsequent award years, the Federal share of the 
FSEOG awards made by an institution may not exceed 75 percent of the 
amount of FSEOG awards made by that institution.
    (b) The Secretary authorizes, for each award year, a Federal share 
of 100 percent of the FSEOGs awarded to students by an institution that-
-
    (1) Is designated as an eligible institution under--
    (i) The Developing Hispanic-Serving Institutions Program (34 CFR 
part 606);
    (ii) The Strengthening Institutions Program, American Indian 
Tribally Controlled Colleges and Universities Program, or Alaska Native 
and Native Hawaiian-Serving Institutions Program (34 CFR part 607); or
    (iii) The Strengthening Historically Black Colleges and Universities 
Program (34 CFR part 608); and
    (2) Requests that increased Federal share as part of its regular 
SEOG funding application for that year.
    (c) The non-Federal share of SEOG awards must be made from the 
institution's own resources, which include for this purpose--
    (1) Institutional grants and scholarships;
    (2) Tuition or fee waivers;
    (3) State scholarships; and
    (4) Foundation or other charitable organization funds.

(Authority: 20 U.S.C. 1068d, 1103d, and 1070b-2)

[52 FR 45778, Dec. 1, 1987, as amended at 59 FR 61421, Nov. 30, 1994; 66 
FR 34039, June 26, 2001]



PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents




                      Subpart A--Purpose and Scope

Sec.
682.100  The Federal Family Education Loan programs.
682.101  Participation in the FFEL programs.
682.102  Obtaining and repaying a loan.
682.103  Applicability of subparts.

                      Subpart B--General Provisions

682.200  Definitions.
682.201  Eligible borrowers.
682.202  Permissible charges by lenders to borrowers.
682.203  Responsible parties.
682.204  Maximum loan amounts.
682.205  Disclosure requirements for lenders.
682.206  Due diligence in making a loan.
682.207  Due diligence in disbursing a loan.
682.208  Due diligence in servicing a loan.
682.209  Repayment of a loan.
682.210  Deferment.
682.211  Forbearance.
682.212  Prohibited transactions.
682.213  Prohibition against the use of the Rule of 78s.
682.214  Compliance with equal credit opportunity requirements.
682.215  Teacher loan forgiveness program.

      Subpart C--Federal Payments of Interest and Special Allowance

682.300  Payment of interest benefits on Stafford and Consolidation 
          loans.
682.301  Eligibility of borrowers for interest benefits on Stafford and 
          Consolidation loans.
682.302  Payment of special allowance on FFEL loans.
682.303  [Reserved]
682.304  Methods for computing interest benefits and special allowance.

[[Page 641]]

682.305  Procedures for payment of interest benefits and special 
          allowance and collection of origination and loan fees.

Subpart D--Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency

682.400  Agreements between a guaranty agency and the Secretary.
682.401  Basic program agreement.
682.402  Death, disability, closed school, false certification, unpaid 
          refunds, and bankruptcy payments.
682.403  Federal advances for claim payments.
682.404  Federal reinsurance agreement.
682.405  Loan rehabilitation agreement.
682.406  Conditions for claim payments from the Federal Fund and for 
          reinsurance coverage.
682.407  [Reserved]
682.408  Loan disbursement through an escrow agent.
682.409  Mandatory assignment by guaranty agencies of defaulted loans to 
          the Secretary.
682.410  Fiscal, administrative, and enforcement requirements.
682.411  Lender due diligence in collecting guaranty agency loans.
682.412  Consequences of the failure of a borrower or student to 
          establish eligibility.
682.413  Remedial actions.
682.414  Records, reports, and inspection requirements for guaranty 
          agency programs.
682.415  Special insurance and reinsurance rules.
682.416  Requirements for third-party servicers and lenders contracting 
          with third-party servicers.
682.417  Determination of Federal funds or assets to be returned.
682.418  Prohibited uses of the assets of the Operating Fund during 
          periods in which the Operating Fund contains transferred funds 
          owed to the Federal Fund.
682.419  Guaranty agency Federal Fund.
682.420  Federal nonliquid assets.
682.421  Funds transferred from the Federal Fund to the Operating Fund 
          by a guaranty agency.
682.422  Guaranty agency repayment of funds transferred from the Federal 
          Fund.
682.423  Guaranty agency Operating Fund.

           Subpart E--Federal Guaranteed Student Loan Programs

682.500  Circumstances under which loans may be guaranteed by the 
          Secretary.
682.501  Extent of Federal guarantee under the Federal GSL programs.
682.502  The application to be a lender.
682.503  The guarantee agreement.
682.504  Issuance of Federal loan guarantees.
682.505  Insurance premium.
682.506  Limitations on maximum loan amounts.
682.507  Due diligence in collecting a loan.
682.508  Assignment of a loan.
682.509  Special conditions for filing a claim.
682.510  Determination of the borrower's death, total and permanent 
          disability, or bankruptcy.
682.511  Procedures for filing a claim.
682.512  Determination of amount payable on a claim.
682.513  Factors affecting coverage of a loan under the loan guarantee.
682.514  Procedures for receipt or retention of payments where the 
          lender has violated program requirements for Federal GSL 
          loans.
682.515  Records, reports, and inspection requirements for Federal GSL 
          program lenders.

   Subpart F--Requirements, Standards, and Payments for Participating 
                                 Schools

682.600  [Reserved]
682.601  Rules for a school that makes or originates loans.
682.602  [Reserved]
682.603  Certification by a participating school in connection with a 
          loan application.
682.604  Processing the borrower's loan proceeds and counseling 
          borrowers.
682.605  Determining the date of a student's withdrawal.
682.606  [Reserved]
682.607  Payment of a refund or a return of title IV, HEA program funds 
          to a lender upon a student's withdrawal.
682.608  Termination of a school's lending eligibility.
682.609  Remedial actions.
682.610  Administrative and fiscal requirements for participating 
          schools.
682.611  Foreign schools.

  Subpart G--Limitation, Suspension, or Termination of Lender or Third-
 party Servicer Eligibility and Disqualification of Lenders and Schools

682.700  Purpose and scope.
682.701  Definitions of terms used in this subpart.
682.702  Effect on participation.
682.703  Informal compliance procedure.
682.704  Emergency action.
682.705  Suspension proceedings.
682.706  Limitation or termination proceedings.
682.707  Appeals in a limitation or termination proceeding.
682.708  Evidence of mailing and receipt dates.
682.709  Reimbursements, refunds, and offsets.

[[Page 642]]

682.710  Removal of limitation.
682.711  Reinstatement after termination.
682.712  Disqualification review of limitation, suspension, and 
          termination actions taken by guarantee agencies against 
          lenders.
682.713  Disqualification review of limitation, suspension, and 
          termination actions taken by guarantee agencies against a 
          school.

 Subpart H--Special Allowance Payments on Loans Made or Purchased With 
                   Proceeds of Tax-Exempt Obligations

682.800  Prohibition against discrimination as a condition for receiving 
          special allowance payments.

Appendixes A-B to Part 682 [Reserved]
Appendix C to Part 682--Procedures for Curing Violations of the Due 
          Diligence in Collection and Timely Filing of Claims 
          Requirements Applicable to FISLP and Federal PLUS Program 
          Loans and for Repayment of Interest and Special Allowance 
          Overbillings [Bulletin L-77a]
Appendix D to Part 682--Policy for Waiving the Secretary's Right To 
          Recover or Refuse To Pay Interest Benefits, Special Allowance, 
          and Reinsurance on Stafford, Plus, Supplemental Loans for 
          Students, and Consolidation Program Loans Involving Lenders' 
          Violations of Federal Regulations Pertaining to Due Diligence 
          in Collection or Timely Filing of Claims [Bulletin 88-G-138]

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

    Source: 57 FR 60323, Dec. 18, 1992, unless otherwise noted.



                      Subpart A--Purpose and Scope



Sec. 682.100  The Federal Family Education Loan programs.

    (a) This part governs the following four programs collectively 
referred to in these regulations as ``the Federal Family Education Loan 
(FFEL) programs,'' in which lenders use their own funds to make loans to 
enable a student or his or her parents to pay the costs of the student's 
attendance at postsecondary schools:
    (1) The Federal Stafford Loan (Stafford) Program, which encourages 
making loans to undergraduate, graduate, and professional students.
    (2) The Federal Supplemental Loans for Students (SLS) Program, as in 
effect for periods of enrollment that began prior to July 1, 1994, which 
encouraged making loans to graduate, professional, independent 
undergraduate, and certain dependent undergraduate students.
    (3) The Federal PLUS (PLUS) Program, which encourages making loans 
to parents of dependent undergraduate students. Before October 17, 1986, 
the PLUS Program also provided for making loans to graduate, 
professional, and independent undergraduate students. Before July 1, 
1993, the PLUS Program also provided for making loans to parents of 
dependent graduate students.
    (4) The Federal Consolidation Loan Program (Consolidation Loan 
Program), which encourages making loans to borrowers for the purpose of 
consolidating loans: under the Federal Insured Student Loan (FISL), 
Stafford loan, SLS, ALAS (as in effect before October 17, 1986), PLUS, 
Perkins Loan programs, the Health Professions Student Loan (HPSL) 
including Loans for Disadvantaged Students (LDS) Program authorized by 
subpart II of part A of Title VII of the Public Health Services Act, 
Health Education Assistance Loans (HEAL) authorized by subpart I of Part 
A of Title VII of the Health Services Act, Nursing Student Loan Program 
loans authorized by subpart II of part B of title VIII of the Public 
Health Service Act, and existing loans obtained under the Consolidation 
Loan Program, and William D. Ford Direct Loan (Direct Loan) program 
loans, if the application for the Consolidation loan was received on or 
after November 13, 1997.
    (b)(1) Except for the loans guaranteed directly by the Secretary 
described in paragraph (b)(2) of this section, a guaranty agency 
guarantees a lender against losses due to default by the borrower on a 
FFEL loan. If the guaranty agency meets certain Federal requirements, 
the guaranty agency is reimbursed by the Secretary for all or part of 
the amount of default claims it pays to lenders.
    (2)(i) The Secretary guarantees lenders against losses--
    (A) Within the Stafford Loan Program, on loans made under Federal 
Insured Student Loan (FISL) Program;

[[Page 643]]

    (B) Within the PLUS Program, on loans made under the Federal PLUS 
Program;
    (C) Within the SLS Program, on loans made under the Federal SLS 
Program as in effect for periods of enrollment that began prior to July 
1, 1994; and
    (D) Within the Consolidation Loan Program, on loans made under the 
Federal Consolidation Loan Program.
    (ii) The loan programs listed in paragraph (b)(2)(i) of this section 
collectively are referred to in these regulations as the ``Federal 
Guaranteed Student Loan (GSL) programs.''
    (iii) The Federal GSL programs are authorized to operate in States 
not served by a guaranty agency program. In addition, the FISL and 
Federal SLS (as in effect for periods of enrollment that began prior to 
July 1, 1994) programs are authorized, under limited circumstances, to 
operate in States in which a guaranty agency program does not serve all 
eligible students.

(Authority: 20 U.S.C. 1701 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33348, June 28, 1994; 
59 FR 61215, Nov. 29, 1994; 64 FR 18974, 18975, Apr. 16, 1999; 64 FR 
58952, Nov. 1, 1999; 66 FR 34762, June 29, 2001]



Sec. 682.101  Participation in the FFEL programs.

    (a) Eligible banks, savings and loan associations, credit unions, 
pension funds, insurance companies, schools, and State and private 
nonprofit agencies may make loans.
    (b) Institutions of higher education, including most colleges, 
universities, graduate and professional schools, and many vocational, 
technical schools may participate as schools, enabling an eligible 
student or his or her parents to obtain a loan to pay for the student's 
cost of education.
    (c) Students who meet certain requirements, including enrollment at 
a participating school, may borrow under the Stafford Loan and, for 
periods of enrollment that began prior to July 1, 1994, the SLS program. 
Parents of eligible dependent undergraduate students may borrow under 
the PLUS Program. Borrowers with outstanding Stafford, SLS, FISL, 
Perkins, HPSL, HEAL, ALAS, PLUS, or Nursing Student Loan Program loans, 
or married couples each of whom have eligible loans under these programs 
may borrow under the Consolidation Loan Program.

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 61215, Nov. 29, 1994; 
64 FR 18975, Apr. 16, 1999; 66 FR 34762, June 29, 2001]



Sec. 682.102  Obtaining and repaying a loan.

    (a) Stafford loan application. Generally, to obtain a Stafford loan 
a student requests a loan by completing the Free Application for Federal 
Student Aid (FAFSA), or contacting the school, lender or guarantor. The 
school determines and certifies the student's eligibility for the loan. 
Prior to loan disbursement, the lender obtains a loan guarantee from a 
guaranty agency or the Secretary and the student completes a promissory 
note, unless the student has previously completed a Master Promissory 
Note (MPN) that the lender may use for the new loan.
    (b) [Reserved]
    (c) PLUS loan application. Generally, to obtain a PLUS loan, both 
the student and the parent complete an application and submit it to the 
school for certification. After the school certifies the application, 
the application is submitted to a participating lender. If the lender 
decides to make the loan, the lender obtains a loan guarantee from a 
guaranty agency or the Secretary.
    (d) Consolidation loan application. To obtain a Consolidation loan, 
a borrower completes an application and submits it to the lender holding 
the borrower's FFEL Program loan or loans. If the borrower has multiple 
holders of FFEL Program loans, or if the borrower's single loan holder 
declines to make a Consolidation loan, or declines to make one with 
income-sensitive repayment terms, the borrower may submit the 
application to any lender participating in the Consolidation Loan 
Program. In the case of a married couple seeking a Consolidation loan, 
if at least one of the applicants has multiple holders, the applicants 
may submit the application to any lender participating in the 
Consolidation Loan Program. If both applicants have a single holder, 
only the holder for one of the applicants must be contacted for 
consolidation. If a lender decides to make the loan, the

[[Page 644]]

lender obtains a loan guarantee from a guaranty agency or the Secretary.
    (e) Repaying a loan--(1) General. Generally, the borrower is 
obligated to repay the full amount of the loan, late fees, collection 
costs chargeable to the borrower, and any interest not payable by the 
Secretary. The borrower's obligation to repay is cancelled if the 
borrower dies, becomes totally and permanently disabled, or has that 
obligation discharged in bankruptcy. The borrower's obligation to repay 
a PLUS loan is cancelled if the student, on whose behalf the parent 
borrowed, dies. The borrower's or student's obligation to repay all or a 
portion of his or her loan may be cancelled if the student is unable to 
complete his or her program of study because the school closed or the 
borrower's or student's eligibility to borrow was falsely certified by 
the school. The obligation to repay all or a portion of a loan may be 
forgiven for Stafford loan borrowers who enter certain areas of the 
teaching or nursing professions or perform certain kinds of national or 
community service.
    (2) Stafford loan repayment. In the case of a subsidized Stafford 
loan, a borrower is not required to make any principal payments on a 
Stafford loan during the time the borrower is in school. The Secretary 
pays the interest on the borrower's behalf during the time the borrower 
is in school. When the borrower ceases to be enrolled on at least a 
half-time basis, a grace period begins during which no principal 
payments are required, and the Secretary continues to make interest 
payments on the borrower's behalf. In the case of an unsubsidized 
Stafford loan, the borrower is responsible for interest during these 
periods. At the end of the grace period, the repayment period begins. 
During the repayment period, for the subsidized and unsubsidized 
Stafford loan, the borrower pays both the principal and the interest 
accruing on the loan.
    (3) SLS loan repayment. Generally, the repayment period for an SLS 
loan begins immediately on the day of the last disbursement of the loan 
proceeds by the lender. The first payment of principal and interest on 
an SLS loan is due from the borrower within 60 days after the loan is 
fully disbursed unless a borrower who is also a Stafford loan borrower, 
but who has not yet entered repayment on the Stafford loan, requests 
that commencement of repayment on the SLS loan be deferred until the 
borrower's grace period on the Stafford loan expires.
    (4) PLUS loan repayment. Generally, the repayment period for a PLUS 
loan begins on the day the loan is fully disbursed by the lender. The 
first payment of principal and interest on a PLUS loan is due from the 
borrower within 60 days after the loan is fully disbursed.
    (5) Consolidation loan repayment. Generally, the repayment period 
for a Consolidation loan begins on the day the loan is disbursed. The 
first payment of principal and interest on a Consolidation loan is due 
from the borrower within 60 days after the borrower's liability on all 
loans being consolidated has been discharged.
    (6) Deferment of repayment. Repayment of principal on a FFEL program 
loan may be deferred under the circumstances described in Sec. 682.210.
    (7) Default. If a borrower defaults on a loan, the guarantor 
reimburses the lender for the amount of its loss. The guarantor then 
collects the amount owed from the borrower.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25744, May 17, 1994; 59 
FR 33348, June 28, 1994; 64 FR 18975, Apr. 16, 1999; 64 FR 58952, Nov. 
1, 1999]



Sec. 682.103  Applicability of subparts.

    (a) Subpart B of this part contains general provisions that are 
applicable to all participants in the FFEL and Federal GSL programs.
    (b) The administration of the FFEL programs by a guaranty agency is 
subject to subparts C, D, F, and G of this part.
    (c) The Federal FFEL and Federal GSL programs are subject to 
subparts C, E, F, and G of this part.

[[Page 645]]

    (d) Certain requirements applicable to schools under all the FFEL 
and Federal GSL programs are set forth in subpart F of this part.

(Authority: 20 U.S.C. 1071 to 1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18975, Apr. 16, 1999; 
64 FR 58952, Nov. 1, 1999]



                      Subpart B--General Provisions



Sec. 682.200  Definitions.

    (a)(1) The definitions of the following terms used in this part are 
set forth in subpart A of the Student Assistance General Provisions, 34 
CFR part 668:

Academic year
Campus-based programs
Dependent student
Eligible program
Eligible student
Enrolled
Federal Consolidation Loan Program
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Work-Study (FWS) Program
Full-time student
Independent student
Leveraging Educational Assistance Partnership (LEAP) Program
National of the United States (Referred to as U.S. Citizen or National 
in 34 CFR 668.2)
Payment period
Supplemental Educational Opportunity Grant (SEOG) Program
Supplemental Loans for Students (SLS) Program

    (2) The following definitions are set forth in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Clock hour
Correspondence course
Educational program
Federal Family Education Loan Program (formerly known as the Guaranteed 
Student Loan (GSL) Program)
Institution of higher education (Sec. 600.4)
Nationally recognized accrediting agency
Postsecondary Vocational Institution
Preaccredited
Secretary
State

    (3) The definition for cost of attendance is set forth in section 
472 of the Act, as amended.
    (b) The following definitions also apply to this part:
    Act. The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 et 
seq.
    Actual interest rate. The annual interest rate a lender charges on a 
loan, which may be equal to or less than the applicable interest rate on 
that loan.
    Applicable interest rate. The maximum annual interest rate that a 
lender may charge under the Act on a loan.
    Authority. Any private non-profit or public entity that may issue 
tax-exempt obligations to obtain funds to be used for the making or 
purchasing of FFEL loans. The term ``Authority'' also includes any 
agency, including a State postsecondary institution or any other 
instrumentality of a State or local governmental unit, regardless of the 
designation or primary purpose of that agency, that may issue tax-exempt 
obligations, any party authorized to issue those obligations on behalf 
of a governmental agency, and any non-profit organization authorized by 
law to issue tax-exempt obligations.
    Borrower. An individual to whom a FFEL Program loan is made.
    Co-Maker: One of two married individuals who jointly borrow a 
Consolidation loan, each of whom are eligible and who are jointly and 
severally liable for repayment of the loan. The term co-maker also 
includes one of two parents who are joint borrowers as previously 
authorized in the PLUS Program.
    Default. The failure of a borrower and endorser, if any, or joint 
borrowers on a PLUS or Consolidation loan, to make an installment 
payment when due, or to meet other terms of the promissory note, the 
Act, or regulations as applicable, if the Secretary or guaranty agency 
finds it reasonable to conclude that the borrower and endorser, if any, 
no longer intend to honor the obligation to repay, provided that this 
failure persists for--
    (1) 270 days for a loan repayable in monthly installments; or
    (2) 330 days for a loan repayable in less frequent installments.
    Disbursement. The transfer of loan proceeds by a lender to a holder, 
in the case of a Consolidation loan, or to a borrower, a school, or an 
escrow agent by issuance of an individual check, a master check or by 
electronic funds

[[Page 646]]

transfer that may represent loan amounts for borrowers.
    Disposable income. That part of an individual's compensation from an 
employer and other income from any source, including spousal income, 
that remains after the deduction of any amounts required by law to be 
withheld, or any child support or alimony payments that are made under a 
court order or legally enforceable written agreement. Amounts required 
by law to be withheld include, but are not limited, to Federal, State, 
and local taxes, Social Security contributions, and wage garnishment 
payments.
    Endorser. An individual who signs a promissory note and agrees to 
repay the loan in the event that the borrower does not.
    Escrow agent. Any guaranty agency or other eligible lender that 
receives the proceeds of a FFEL program loan as an agent of an eligible 
lender for the purpose of transmitting those proceeds to the borrower or 
the borrower's school.
    Estimated financial assistance. (1) The estimated amount of 
assistance for a period of enrollment that a student (or a parent on 
behalf of a student) will receive from Federal, State, institutional, or 
other sources, such as, scholarships, grants, financial need-based 
employment, or loans, including but not limited to--
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990 and veterans' 
educational benefits paid under chapters 30, 31, 32, and 35 of title 38 
of the United States Code;
    (ii) Educational benefits paid under Chapters 106 and 107 of Title 
10 of the United States Code (Selected Reserve Educational Assistance 
Program);
    (iii) Reserve Officer Training Corps (ROTC) scholarships and 
subsistence allowances awarded under Chapter 2 of Title 10 and Chapter 2 
of Title 37 of the United States Code;
    (iv) Benefits paid under Pub. L. 97-376, section 156: Restored 
Entitlement Program for Survivors (or Quayle benefits);
    (v) Benefits paid under Pub. L. 96-342, section 903: Educational 
Assistance Pilot Program;
    (vi) Any educational benefits paid because of enrollment in a 
postsecondary education institution;
    (vii) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, and 
the gross amount (including fees) of a Federal Stafford, Unsubsidized 
Stafford and Federal PLUS loan.
    (2) The estimated amount of assistance does not include--(i) Those 
amounts used to replace the expected family contribution, including--
    (A) Unsubsidized and nonsubsidized Stafford loan amounts for which 
interest benefits are not payable.
    (B) PLUS loan amounts; and
    (C) Private and state-sponsored loan programs;
    (ii) Federal Perkins loan and Federal Work-Study funds that the 
school determines the student has declined; and
    (iii) For the purpose of determining eligibility for a subsidized 
Stafford loan, veterans' educational benefits paid under chapter 30 of 
title 38 of the United States Code (Montgomery GI Bill--Active Duty) and 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990.
    Expected family contribution. The amount a student and his or her 
spouse and family are expected to pay toward the student's cost of 
attendance.
    Federal GSL programs. The Federal Insured Student Loan Program, the 
Federal Supplemental Loans for Students Program, the Federal PLUS 
Program, and the Federal Consolidation Loan Program.
    Federal Insured Student Loan Program. The loan program authorized by 
title IV-B of the Act under which the Secretary directly insures lenders 
against losses.
    Foreign school. A school not located in a State.
    Grace period. The period that begins on the day after a Stafford 
loan borrower ceases to be enrolled as at least a half-time student at 
an institution of higher education and ends on the day before the 
repayment period begins.

[[Page 647]]

See also ``Post-deferment grace period.'' For an SLS borrower who also 
has a Federal Stafford loan on which the borrower has not yet entered 
repayment, the grace period is an equivalent period after the borrower 
ceases to be enrolled as at least a half-time student at an institution 
of higher education.
    Graduate or professional student. A student who, for a period of 
enrollment--
    (1) Is enrolled in a program above the baccalaureate level at an 
institution of higher education or is enrolled in a program leading to a 
first professional degree;
    (2) Has completed the equivalent of at least three academic years of 
full-time study at an institution of higher education, either before 
entrance into the program or as part of the program itself; and
    (3) Is not receiving aid under title IV of the Act as an 
undergraduate student for the same period of enrollment.
    Guaranty agency. A State or private nonprofit organization that has 
an agreement with the Secretary under which it will administer a loan 
guarantee program under the Act.
    Half-time student. A student who is enrolled in an institution of 
higher education, and is carrying an academic workload that amounts to 
at least one-half the workload of a full-time student, as determined by 
the school, and is not a full-time student. A student enrolled solely in 
an eligible correspondence course, as defined in 34 CFR 668.8 is 
considered a half-time student as defined in 34 CFR 668.2.
    Holder. An eligible lender owning an FFEL Program loan including a 
Federal or State agency or an organization or corporation acting on 
behalf of such an agency and acting as a conservator, liquidator, or 
receiver of an eligible lender.
    Legal guardian. An individual appointed by a court to be a 
``guardian'' of a person and specifically required by the court to use 
his or her financial resources for the support of that person.
    Lender. (1) The term ``eligible lender'' is defined in section 
435(d) of the Act, and in paragraphs (2)-(5) of this definition.
    (2) With respect to a National or State chartered bank, a mutual 
savings bank, a savings and loan association, a stock savings bank, or a 
credit union--
    (i) The phrase ``subject to examination and supervision'' in section 
435(d) of the Act means ``subject to examination and supervision in its 
capacity as a lender'';
    (ii) The phrase ``does not have as its primary consumer credit 
function the making or holding of loans made to students under this 
part'' in section 435(d) of the Act means that the lender does not, or 
in the case of a bank holding company, the company's wholly-owned 
subsidiaries as a group do not at any time, hold FFEL Program loans that 
total more than one-half of the lender's or subsidiaries' combined 
consumer credit loan portfolio, including home mortgages held by the 
lender or its subsidiaries. For purposes of this paragraph, loans held 
in trust by a trustee lender are not considered part of the trustee 
lender's consumer credit function.
    (3) A bank that is subject to examination and supervision by an 
agency of the United States, making student loans as a trustee, may be 
an eligible lender if it makes loans under an express trust, operated as 
a lender in the FFEL programs prior to January 1, 1975, and met the 
requirements of this paragraph prior to July 23, 1992.
    (4) The corporate parent or other owner of a school that qualifies 
as an eligible lender under section 435(d) of the Act is not an eligible 
lender unless the corporate parent or owner itself qualifies as an 
eligible lender under section 435(d) of the Act.
    (5) The term ``eligible lender'' does not include any lender that 
the Secretary determines, after notice and opportunity for a hearing 
before a designated Department official, has--
    (i) Offered, directly or indirectly, points, premiums, payments, or 
other inducements, to any school or other party to secure applicants for 
FFEL loans, except that a lender is not prohibited from providing 
assistance to schools comparable to the kinds of assistance provided by 
the Secretary to schools under, or in furtherance of, the Federal Direct 
Loan Program.

[[Page 648]]

    (ii) Conducted unsolicited mailings to a student or a student's 
parents of FFEL loan application forms, except to a student who 
previously has received a FFEL loan from the lender or to a student's 
parent who previously has received a FFEL loan from the lender;
    (iii) Offered, directly or indirectly, a FFEL loan to a prospective 
borrower to induce the purchase of a policy of insurance or other 
product or service by the borrower or other person; or
    (iv) Engaged in fraudulent or misleading advertising with respect to 
its FFEL program loan activities.
    (6) The term eligible lender does not include any lender that--
    (i) Is debarred or suspended, or any of whose principals or 
affiliates (as those terms are defined in 34 CFR part 85) is debarred or 
suspended under Executive Order (E.O.) 12549 (3 CFR, 1986 Comp., p. 189) 
or the Federal Acquisition Regulation (FAR), 48 CFR part 9, subpart 9.4;
    (ii) Is an affiliate, as defined in 34 CFR part 85, of any person 
who is debarred or suspended under E.O. 12549 (3 CFR, 1986 Comp., p. 
189) or the FAR, 48 CFR part 9, subpart 9.4; or
    (iii) Employs a person who is debarred or suspended under E.O. 12549 
(3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, subpart 9.4, in a 
capacity that involves the administration or receipt of FFEL Program 
funds.
    Master Promissory Note (MPN). A promissory note under which the 
borrower may receive loans for a single period of enrollment or multiple 
periods of enrollment.
    National credit bureau. A credit bureau with a service area that 
encompasses more than a single region of the country.
    Nonsubsidized Stafford loan. A Stafford loan made prior to October 
1, 1992 that does not qualify for interest benefits under 
Sec. 682.301(b) or special allowance payments under Sec. 682.302.
    Origination relationship. A special business relationship between a 
school and a lender in which the lender delegates to the school, or to 
an entity or individual affiliated with the school, substantial 
functions or responsibilities normally performed by lenders before 
making FFEL program loans. In this situation, the school is considered 
to have ``originated'' a loan made by the lender.
    Origination fee. A fee that the lender is required to pay the 
Secretary to help defray the Secretary's costs of subsidizing the loan. 
The lender may pass this fee on to the Stafford loan borrower. The 
lender must pass this fee on to the SLS or PLUS borrower.
    Participating school. A school that has in effect a current 
agreement with the Secretary under Sec. 682.600.
    Period of enrollment. The period for which a Stafford, SLS, or PLUS 
loan is intended. The period of enrollment must coincide with a bona 
fide academic term established by the school for which institutional 
charges are generally assessed (e.g. semester, trimester, quarter, 
length of the student's program or academic year). The period of 
enrollment is also referred to as the loan period.
    Post-deferment grace period. For a loan made prior to October 1, 
1981, a single period of six consecutive months beginning on the day 
following the last day of an authorized deferment period.
    Repayment period. (1) For a Stafford loan, the period beginning on 
the date following the expiration of the grace period and ending no 
later than 10 years, or 25 years under an extended repayment schedule, 
from the date the first payment of principal is due from the borrower, 
exclusive of any period of deferment or forbearance.
    (2) For unsubsidized Stafford loans, the period that begins on the 
day after the expiration of the applicable grace period that follows 
after the student ceases to be enrolled on at least a half-time basis 
and ending no later than 10 years or 25 years under an extended 
repayment schedule, from that date, exclusive of any period of deferment 
or forbearance. However, payments of interest are the responsibility of 
the borrower during the in-school and grace period, but may be 
capitalized by the lender.
    (3) For SLS loans, the period that begins on the date the loan is 
disbursed, or if the loan is disbursed in more than one installment, on 
the date the last disbursement is made and ending no later than 10 years 
from that date, exclusive of any period of deferment or

[[Page 649]]

forbearance. The first payment of principal is due within 60 days after 
the loan is fully disbursed unless a borrower who is also a Stafford 
loan borrower but who, has not yet entered repayment on the Stafford 
loan requests that commencement of repayment on the SLS loan be delayed 
until the borrower's grace period on the Stafford loan expires. Interest 
on the loan accrues and is due and payable from the date of the first 
disbursement of the loan. The borrower is responsible for paying 
interest on the loan during the grace period and periods of deferment, 
but the interest may be capitalized by the lender.
    (4) For Federal PLUS loans, the period that begins on the date the 
loan is disbursed, or if the loan is disbursed in more than one 
installment, on the date the last disbursement is made and ending no 
later than 10 years, or 25 years under an extended repayment schedule, 
from that date, exclusive of any period of deferment or forbearance. 
Interest on the loan accrues and is due and payable from the date of the 
first disbursement of the loan.
    (5) For Federal Consolidation loans, the period that begins on the 
date the loan is disbursed and ends no later than 10, 12, 15, 20, 25, or 
30 years from that date depending upon the sum of the amount of the 
Consolidation loan, and the unpaid balance on other student loans, 
exclusive of any period of deferment or forbearance.
    Satisfactory repayment arrangement. (1) For purposes of regaining 
eligibility under Sec. 682.401(b)(4), the making of six (6) consecutive, 
on-time, voluntary full monthly payments on a defaulted loan. A borrower 
may only obtain the benefit of this paragraph with respect to renewed 
eligibility once.
    (2) For purposes of consolidating a defaulted loan under 34 CFR 
682.201(c)(1)(iii)(C), the making of three (3) consecutive, on-time 
voluntary full monthly payments on a defaulted loan.
    (3) The required full monthly payment amount may not be more than is 
reasonable and affordable based on the borrower's total financial 
circumstances. Voluntary payments are those payments made directly by 
the borrower, and do not include payments obtained by income tax off-
set, garnishment, or income or asset execution. On-time means a payment 
received by the Secretary or a guaranty agency or its agent within 15 
days of the scheduled due date.
    School. (1) An ``institution of higher education'' as that term is 
defined in 34 CFR 600.4.
    (2) For purposes of an in-school deferment, the term includes an 
institution of higher education, whether or not it participates in any 
title IV program or has lost its eligibility to participate in the FFEL 
program because of a high default rate.
    School lender. A school, other than a correspondence school, that 
has entered into a contract of guarantee under this part with the 
Secretary or, a similar agreement with a guaranty agency.
    Stafford Loan Program. The loan program authorized by Title IV-B of 
the Act which encourages the making of subsidized and unsubsidized loans 
to undergraduate, graduate, and professional students and is one of the 
Federal Family Education Loan programs.
    State lender. In any State, a single State agency or private 
nonprofit agency designated by the State that has entered into a 
contract of guarantee under this part with the Secretary, or a similar 
agreement with a guaranty agency.
    Subsidized Stafford Loan: A Stafford loan that qualifies for 
interest benefits under Sec. 682.301(b) and special allowance under 
Sec. 682.302.
    Temporarily totally disabled. The condition of an individual who, 
though not totally and permanently disabled, is unable to work and earn 
money or attend school, during a period of at least 60 days needed to 
recover from injury or illness. With regard to a disabled dependent of a 
borrower, this term means a spouse or other dependent who, during a 
period of injury or illness, requires continuous nursing or similar 
services for a period of at least 90 days.
    Third-party servicer. Any State or private, profit or nonprofit 
organization or any individual that enters into a contract with a lender 
or guaranty agency to administer, through either manual or automated 
processing, any aspect of the lender's or guaranty agency's FFEL 
programs required by

[[Page 650]]

any statutory provision of or applicable to Title IV of the HEA, any 
regulatory provision prescribed under that statutory authority, or any 
applicable special arrangement, agreement, or limitation entered into 
under the authority of statutes applicable to Title IV of the HEA that 
governs the FFEL programs, including, any applicable function described 
in the definition of third-party servicer in 34 CFR part 668; 
originating, guaranteeing, monitoring, processing, servicing, or 
collecting loans; claims submission; or billing for interest benefits 
and special allowance.
    Totally and permanently disabled. The condition of an individual who 
is unable to work and earn money because of an injury or illness that is 
expected to continue indefinitely or result in death.
    Undergraduate student. A student who is enrolled at a school in a 
program of study, at or below the baccalaureate level, that usually does 
not exceed four academic years, or is up to five academic years in 
length, and is designed to lead to a degree or certificate at or below 
the baccalaureate level.
    Unsubsidized Stafford loan. A loan made after October 1, 1992, 
authorized under section 428H of the Act for borrowers who do not 
qualify for interest benefits under Sec. 682.301(b) but do qualify for 
special allowance under Sec. 682.302.
    Write-off. Cessation of collection activity on a defaulted FFEL loan 
due to a determination in accordance with applicable standards that no 
further collection activity is warranted.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 8 U.S.C. 1101; 20 U.S.C. 1070 to 1087-2, 1088-1098, 1141; 
E.O. 12549 (3 CFR, 1986 Comp., p. 189), E.O. 12689 (3 CFR, 1989 Comp., 
p. 235))

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22454, Apr. 29, 1994; 
59 FR 25745, May 17, 1994; 59 FR 33348, June 28, 1994; 59 FR 61215, Nov. 
29, 1994; 60 FR 61756, Dec. 1, 1995; 61 FR 60608, Nov. 29, 1996; 64 FR 
18975, Apr. 16, 1999; 64 FR 58952, Nov. 1, 1999; 65 FR 38729, June 22, 
2000; 66 FR 65691, Nov. 1, 2000; 67 FR 67078, Nov. 1, 2002]



Sec. 682.201  Eligible borrowers.

    (a) Student borrower. Except for a refinanced SLS/PLUS loan made 
under Sec. 682.209 (e) or (f), a student is eligible to receive a 
Stafford loan, and an independent undergraduate student, a graduate or 
professional student, or, subject to paragraph (a)(3) of this section, a 
dependent undergraduate student, is eligible to receive an unsubsidized 
Stafford loan, if the student who is enrolled or accepted for enrollment 
on at least a half-time basis at a participating school meets the 
requirements for an eligible student under 34 CFR part 668, and--
    (1) In the case of an undergraduate student who seeks a Stafford 
loan or unsubsidized Stafford loan for the cost of attendance at a 
school that participates in the Pell Grant Program, has received a final 
determination, or, in the case of a student who has filed an application 
with the school for a Pell Grant, a preliminary determination, from the 
school of the student's eligibility or ineligibility for a Pell Grant 
and, if eligible, has applied for the period of enrollment for which the 
loan is sought;
    (2) In the case of any student who seeks an unsubsidized Stafford 
loan for the cost of attendance at a school that participates in the 
Stafford Loan Program, the student must--
    (i) Receive a determination of need for a subsidized Stafford loan; 
and
    (ii) If the determination of need is in excess of $200, have made a 
request to a lender for a subsidized Stafford loan;
    (3) For purposes of a dependent undergraduate student's eligibility 
for an additional unsubsidized Stafford loan amount, as described at 
Sec. 682.204(d), is a dependent undergraduate student for whom the 
financial aid administrator determines and documents in the school's 
file, after review of the family financial information provided by the 
student and consideration of the student's debt burden, that the 
student's parents likely will be precluded by exceptional circumstances 
(e.g., denial of a PLUS loan to a parent based on adverse credit, the 
student's parent receives only public assistance or disability benefits, 
is incarcerated, or his or her whereabouts are unknown) from borrowing 
under the PLUS Program and the student's family is otherwise unable to 
provide the student's expected family contribution. A parent's refusal 
to borrow a PLUS loan does not

[[Page 651]]

constitute an exceptional circumstance;
    (4)(i) Reaffirms any FFEL loan amount on which there has been a 
total cessation of collection activity, including all principal, 
interest, collection costs, legal costs, and late charges that have 
accrued on that amount up to the date of reaffirmation.
    (ii) For purposes of this section, reaffirmation means the 
acknowledgement of the loan by the borrower in a legally binding manner. 
The acknowledgement may include, but is not limited to, the borrower--
    (A) Signing a new promissory note that includes the same terms and 
conditions as the original note signed by the borrower or repayment 
schedule; or
    (B) Making a payment on the loan.
    (5) The suspension of collection activity has been lifted from any 
loan on which collection activity had been suspended based on a 
conditional determination that the borrower was totally and permanently 
disabled under Sec. 682.402(c).
    (6) In the case of a borrower whose prior loan under title IV of the 
Act was discharged after a final determination of total and permanent 
disability, the student must--
    (i) Obtain certification from a physician that the borrower is able 
to engage in substantial gainful activity;
    (ii) Sign a statement acknowledging that the FFEL loan the borrower 
receives cannot be discharged in the future on the basis of any 
impairment present when the new loan is made, unless that impairment 
substantially deteriorates; and
    (iii) In the case of a borrower whose previous loan under title IV 
of the Act was discharged due to a total and permanent disability on or 
after July 1, 2001 and before July 1, 2002, meets the requirements of 
paragraphs (a)(6)(i) and (a)(6)(ii) of this section. If the borrower 
applies for another loan within three years from the date that the 
borrower became totally and permanently disabled, as certified by the 
physician, the borrower must reaffirm the previously discharged loan 
before receiving the new loan.
    (7) In the case of a borrower whose prior loan under title IV of the 
HEA was conditionally discharged based on an initial determination that 
the borrower was totally and permanently disabled, the borrower must--
    (i) Comply with the requirements of paragraphs (a)(6)(i) and 
(a)(6)(ii) of this section; and
    (ii) Sign a statement acknowledging that--
    (A) The loan that has been conditionally discharged prior to a final 
determination of total and permanent disability cannot be discharged in 
the future on the basis of any impairment present when the borrower 
applied for a total and permanent disability discharge or when the new 
loan is made unless that impairment substantially deteriorates; and
    (B) Collection activity will resume on any loans in a conditional 
discharge period, as described in paragraph 682.402(c)(16).
    (8) In the case of any student who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education or 
the recognized equivalent of such a certificate, the student meets the 
requirements under 34 CFR part 668.32(e).
    (9) Is not serving in a medical internship or residency program, 
except for an internship in dentistry.
    (b) Parent borrower. (1) A parent borrower, is eligible to receive a 
PLUS Program loan, other than a loan made under Sec. 682.209(e), if the 
parent--
    (i) Is borrowing to pay for the educational costs of a dependent 
undergraduate student who meets the requirements for an eligible student 
set forth in 34 CFR part 668;
    (ii) Provides his or her and the student's social security number;
    (iii) Meets the requirements pertaining to citizenship and residency 
that apply to the student in 34 CFR 668.33;
    (iv) Meets the requirements concerning defaults and overpayments 
that apply to the student in 34 CFR 668.35 and meets the requirements of 
judgment liens that apply to the student under 34 CFR 668.32(g)(3);
    (v) Except for the completion of a Statement of Selective Service 
Registration Status, complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student in 34 CFR 
part 668;

[[Page 652]]

    (vi) Meets the requirement of paragraphs (a)(4) and (a)(6), as 
applicable of this section;
    (vii)(A) In the case of a Federal PLUS loan made on or after July 1, 
1993, does not have an adverse credit history.
    (B) For purposes of this section, the lender must obtain a credit 
report on each applicant from at least one national credit bureau. The 
credit report must be secured within a timeframe that would ensure the 
most accurate, current representation of the borrower's credit history 
before the first day of the period of enrollment for which the loan is 
intended.
    (C) Unless the lender determines that extenuating circumstances 
existed, the lender must consider each applicant to have an adverse 
credit history based on the credit report if--
    (1) The applicant is considered 90 or more days delinquent on the 
repayment of a debt;
    (2) The applicant has been the subject of a default determination, 
bankruptcy discharge, foreclosure, repossession, tax lien, wage 
garnishment, or write-off of a Title IV debt, during the five years 
preceding the date of the credit report.
    (D) Nothing in this paragraph precludes the lender from establishing 
more restrictive credit standards to determine whether the applicant has 
an adverse credit history.
    (E) The absence of any credit history is not an indication that the 
applicant has an adverse credit history and is not to be used as a 
reason to deny a PLUS loan to that applicant.
    (F) The lender must retain a record of its basis for determining 
that extenuating circumstances existed. This record may include, but is 
not limited to, an updated credit report, a statement from the creditor 
that the borrower has made satisfactory arrangements to repay the debt, 
or a satisfactory statement from the borrower explaining any 
delinquencies with outstanding balances of less than $500.
    (viii) Obtains an endorser who has been determined not to have an 
adverse credit history as provided in paragraph (b)(1)(vii)(C) of this 
section.
    (2) For purposes of paragraph (b)(1) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 34 
CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
    (c) Consolidation program borrower. (1) An individual is eligible to 
receive a Consolidation loan if the individual--
    (i) On the loans being consolidated--
    (A) Is, at the time of application for a Consolidation loan--
    (1) In a grace period preceding repayment;
    (2) In repayment status;
    (3) In a default status and has either made satisfactory repayment 
arrangements as defined in applicable program regulations or has agreed 
to repay the consolidation loan under the income-sensitive repayment 
plan described in Sec. 682.209(a)(7)(viii);
    (B) Not subject to a judgment secured through litigation, unless the 
judgment has been vacated; or
    (C) Not subject to an order for wage garnishment under section 488A 
of the Act, unless the order has been lifted;
    (ii) Certifies that no other application for a Consolidation loan is 
pending;
    (iii) Agrees to notify the holder of any changes in address; and
    (iv)(A) Certifies that the lender holds at least one outstanding 
loan that is being consolidated; or
    (B) Applies to any eligible consolidation lender if the borrower--
    (1) Has multiple holders of FFEL loans; or
    (2) Has been unable to receive from the holder of the borrower's 
outstanding loans, a Consolidation loan or a Consolidation loan with 
income-sensitive repayment.
    (2) A married couple is eligible to receive a Consolidation loan in 
accordance with this section if each--
    (i) Agrees to be held jointly and severally liable for the repayment 
of the total amount of the Consolidation loan;
    (ii) Agrees to repay the debt regardless of any change in marital 
status; and
    (iii) Meets the requirements of paragraph (c)(1) of this section, 
and only one must have met the requirements of paragraph (c)(1)(iv) of 
this section.

[[Page 653]]

    (d) A borrower's eligibility to receive a Consolidation loan 
terminates upon receipt of a Consolidation loan except that--
    (1) Eligible loans received prior to the date a Consolidation loan 
was made and loans received during the 180-day period following the date 
a Consolidation loan was made, may be added to the Consolidation loan 
based on the borrower's request received by the lender during the 180-
day period after the date the Consolidation loan was made;
    (2) A borrower who receives an eligible loan after the date a 
Consolidation loan is made may receive a subsequent Consolidation loan; 
and
    (3) A Consolidation loan borrower may consolidate an existing 
Consolidation loan only if the borrower has at least one other eligible 
loan made before or after the existing Consolidation loan that will be 
consolidated.
    (e) In the case of a married couple, the loans of a spouse that are 
to be included in a Consolidation loan are considered eligible loans for 
the other spouse.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, and 
1091)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25745, May 17, 1994; 59 
FR 33349, June 28, 1994; 59 FR 61215, Nov. 29, 1994; 60 FR 61756, 61815, 
Dec. 1, 1995; 60 FR 65021, Dec. 18, 1995; 62 FR 63433, Nov. 28, 1997; 64 
FR 18975, Apr. 16, 1999; 64 FR 58952, Nov. 1, 1999; 65 FR 65619, 65691, 
Nov. 1, 2000; 66 FR 44007, Aug. 21, 2001]



Sec. 682.202  Permissible charges by lenders to borrowers.

    The charges that lenders may impose on borrowers, either directly or 
indirectly, are limited to the following:
    (a) Interest. The applicable interest rates for FFEL Program loans 
are given in paragraphs (a)(1) through (a)(4) of this section.
    (1) Stafford Loan Program. (i) For loans made prior to July 1, 1994, 
if, the borrower, on the date the promissory note evidencing the loan is 
signed, has an outstanding balance of principal or interest on a 
previous Stafford loan, the interest rate is the applicable interest 
rate on that previous Stafford loan.
    (ii) If the borrower, on the date the promissory note evidencing the 
loan is signed, has no outstanding balance on any FFEL Program loan, and 
the first disbursement is made--
    (A) Prior to October 1, 1992, for a loan covering a period of 
instruction beginning on or after July 1, 1988, the interest rate is 8 
percent until 48 months elapse after the repayment period begins, and 10 
percent thereafter; or
    (B) On or after October 1, 1992, and prior to July 1, 1994, the 
interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
    (1) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (2) 9 percent.
    (iii) For a Stafford loan for which the first disbursement is made 
before October 1, 1992--
    (A) If the borrower, on the date the promissory note is signed, has 
no outstanding balance on a Stafford loan but has an outstanding balance 
of principal or interest on a PLUS or SLS loan made for a period of 
enrollment beginning before July 1, 1988, or on a Consolidation loan 
that repaid a loan made for a period of enrollment beginning before July 
1, 1988, the interest rate is 8 percent; or
    (B) If the borrower, on the date the promissory note evidencing the 
loan is signed, has an outstanding balance of principal or interest on a 
PLUS or SLS loan made for a period of enrollment beginning on or after 
July 1, 1988, or on a Consolidation loan that repaid a loan made for a 
period of enrollment beginning on or after July 1, 1988, the interest 
rate is 8 percent until 48 months elapse after the repayment period 
begins, and 10 percent thereafter.
    (iv) For a Stafford loan for which the first disbursement is made on 
or after October 1, 1992, but before December 20, 1993, if the borrower, 
on the date the promissory note evidencing the loan is signed, has no 
outstanding balance on a Stafford loan but has an outstanding balance of 
principal or interest on a PLUS, SLS, or Consolidation loan, the 
interest rate is 8 percent.
    (v) For a Stafford loan for which the first disbursement is made on 
or after December 20, 1993 and prior to July 1,

[[Page 654]]

1994, if the borrower, on the date the promissory note is signed, has no 
outstanding balance on a Stafford loan but has an outstanding balance of 
principal or interest on a PLUS, SLS, or Consolidation loan, the 
interest rate is the rate provided in paragraph (a)(1)(ii)(B) of this 
section.
    (vi) For a Stafford loan for which the first disbursement is made on 
or after July 1, 1994 and prior to July 1, 1995, for a period of 
enrollment that includes or begins on or after July 1, 1994, the 
interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10; or
    (B) 8.25 percent.
    (vii) For a Stafford loan for which the first disbursement is made 
on or after July 1, 1995 and prior to July 1, 1998 the interest rate is 
a variable rate applicable to each July 1-June 30 period, that equals 
the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 2.5 percent during the in-school, grace and 
deferment period and 3.10 percent during repayment; or
    (B) 8.25 percent.
    (viii) For a Stafford loan for which the first disbursement is made 
on or after July 1, 1998, the interest rate is a variable rate, 
applicable to each July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period plus 1.7 percent during the in-school, grace and 
deferment periods and 2.3 percent during repayment; or
    (B) 8.25 percent.
    (2) PLUS Program. (i) For a combined repayment schedule under 
Sec. 682.209(d), the interest rate is the weighted average of the rates 
of all loans included under that schedule.
    (ii) For a loan disbursed on or after July 1, 1987 but prior to 
October 1, 1992, and for any loan made under Sec. 682.209 (e) or (f), 
the interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.25 percent; or
    (B) 12 percent.
    (iii) For a loan disbursed on or after October 1, 1992 and prior to 
July 1, 1994, the interest rate is a variable rate, applicable to each 
July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 10 percent.
    (iv) For a loan for which the first disbursement is made on or after 
July 1, 1994 and prior to July 1, 1998, the interest rate is a variable 
rate applicable to each July 1-June 30 period, that equals the lesser 
of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 9 percent.
    (v) For a loan for which the first disbursement is made on or after 
July 1, 1998, the interest rate is a variable rate, applicable to each 
July 1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 9 percent.
    (vi)(A) Beginning on July 1, 2001, the interest rate on the loans 
described in paragraphs (a)(2)(ii) through (iv) of this section is a 
variable rate applicable to each July 1-June 30, as determined on the 
preceding June 26, and is equal to the weekly average 1-year constant 
maturity Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the last calendar week ending on or before 
such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(2)(ii) of this 
section; or
    (2) 3.1 percent for loans described in paragraphs (a)(2)(iii) and 
(iv) of this section.

[[Page 655]]

    (B) The interest rates calculated under paragraph (a)(2)(vi)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(2)(ii)(B), (a)(2)(iii)(B), and (a)(2)(iv)(B) of this section, as 
applicable.
    (3) SLS Program. (i) For a combined repayment schedule under 
Sec. 682.209(d), the interest rate is the weighted average of the rates 
of all loans included under that schedule.
    (ii) For a loan disbursed on or after July 1, 1987 but prior to 
October 1, 1992, and for any loan made under Sec. 682.209 (e) or (f), 
the interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.25 percent; or
    (B) 12 percent.
    (iii) For a loan disbursed on or after October 1, 1992, the interest 
rate is a variable rate, applicable to each July 1-June 30 period, that 
equals the lesser of--
    (A) The bond equivalent rate of the 52-week Treasury bills auctioned 
at the final auction prior to the June 1 immediately preceding the July 
1-June 30 period, plus 3.10 percent; or
    (B) 11 percent.
    (iv)(A) Beginning on July 1, 2001, the interest rate on the loans 
described in paragraphs (a)(3)(ii) and (iii) of this section is a 
variable rate applicable to each July 1-June 30, as determined on the 
preceding June 26, and is equal to the weekly average 1-year constant 
maturity Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the last calendar week ending on or before 
such June 26; plus--
    (1) 3.25 percent for loans described in paragraph (a)(3)(ii) of this 
section; or
    (2) 3.1 percent for loans described in paragraph (a)(3)(iii) of this 
section.
    (B) The interest rates calculated under paragraph (a)(3)(iv)(A) of 
this section shall not exceed the limits specified in paragraphs 
(a)(3)(ii)(B) and (a)(3)(iii)(B) of this section, as applicable.
    (4) Consolidation Program. (i) A Consolidation Program loan made 
before July 1, 1994 bears interest at the rate that is the greater of--
    (A) The weighted average of interest rates on the loans 
consolidated, rounded to the nearest whole percent; or
    (B) 9 percent.
    (ii) A Consolidation loan made on or after July 1, 1994, for which 
the loan application was received by the lender before November 13, 
1997, bears interest at the rate that is equal to the weighted average 
of interest rates on the loans consolidated, rounded upward to the 
nearest whole percent.
    (iii) For a Consolidation loan for which the loan application was 
received by the lender on or after November 13, 1997 and before October 
1, 1998, the interest rate for the portion of the loan that consolidated 
loans other than HEAL loans is a variable rate, applicable to each July 
1-June 30 period, that equals the lesser of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction held prior to June 1 of each year plus 3.10 
percent; or
    (B) 8.25 percent.
    (iv) For a Consolidation loan for which the application was received 
by the lender on or after October 1, 1998, the interest rate for the 
portion of the loan that consolidated loans other than HEAL loans is a 
fixed rate that is the lesser of--
    (A) The weighted average of interest rates on the loans 
consolidated, rounded to the nearest higher one-eighth of one percent; 
or
    (B) 8.25 percent.
    (v) For a Consolidation loan for which the application was received 
by the lender on or after November 13, 1997, the annual interest rate 
applicable to the portion of each consolidation loan that repaid HEAL 
loans is a variable rate adjusted annually on July 1 and must be equal 
to the average of the bond equivalent rates of the 91-day Treasury bills 
auctioned for the quarter ending June 30, plus 3 percent. There is no 
maximum rate on this portion of the loan.
    (5) Actual interest rates under the Stafford loan, SLS, PLUS, and 
Consolidation Programs. A lender may charge a borrower an actual rate of 
interest that is less than the applicable interest rate

[[Page 656]]

specified in paragraphs (a)(1)-(4) of this section.
    (6) Refund of excess interest paid on Stafford loans.
    (i) For a loan with an applicable interest rate of 10 percent made 
prior to July 23, 1992, and for a loan with an applicable interest rate 
of 10 percent made from July 23, 1992 through September 30, 1992, to a 
borrower with no outstanding FFEL Program loans--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.25 percent, is less than 10 percent, the lender shall 
calculate an adjustment and credit the adjustment as specified under 
paragraph (a)(6)(i)(B) of this section if the borrower's account is not 
more than 30 days delinquent on December 31. The amount of the 
adjustment for a calendar quarter is equal to--
    (1) 10 percent minus the sum of the average of the bond equivalent 
rates of the 91-day Treasury bills auctioned for the applicable quarter 
plus 3.25 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) No later than 30 calendar days after the end of the calendar 
year, the holder of the loan shall credit any amounts computed under 
paragraph (a)(6)(i)(A) of this section to--
    (1) The Secretary, for amounts paid during any period in which the 
borrower is eligible for interest benefits;
    (2) The borrower's account to reduce the outstanding principal 
balance as of the date the holder adjusts the borrower's account, 
provided that the borrower's account was not more than 30 days 
delinquent on that December 31; or
    (3) The Secretary, for a borrower who on the last day of the 
calendar year is delinquent for more than 30 days.
    (ii) For a fixed interest rate loan made on or after July 23, 1992 
to a borrower with an outstanding FFEL Program loan--
    (A) If during any calendar quarter, the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for that 
quarter, plus 3.10 percent, is less than the applicable interest rate, 
the lender shall calculate an adjustment and credit the adjustment to 
reduce the outstanding principal balance of the loan as specified under 
paragraph (a)(6)(ii)(C) of this section if the borrower's account is not 
more than 30 days delinquent on December 31. The amount of an adjustment 
for a calendar quarter is equal to--
    (1) The applicable interest rate minus the sum of the average of the 
bond equivalent rates of the 91-day Treasury bills auctioned for the 
applicable quarter plus 3.10 percent;
    (2) Multiplied by the average daily principal balance of the loan 
(not including unearned interest added to principal); and
    (3) Divided by 4;
    (B) For any quarter or portion thereof that the Secretary was 
obligated to pay interest subsidy on behalf of the borrower, the holder 
of the loan shall refund to the Secretary, no later than the end of the 
following quarter, any excess interest calculated in accordance with 
paragraph (a)(6)(ii)(A) of this section;
    (C) For any other quarter, the holder of the loan shall, within 30 
days of the end of the calendar year, reduce the borrower's outstanding 
principal by the amount of excess interest calculated under paragraph 
(a)(6)(ii)(A) of this section, provided that the borrower's account was 
not more than 30 days delinquent as of December 31;
    (D) For a borrower who on the last day of the calendar year is 
delinquent for more than 30 days, any excess interest calculated shall 
be refunded to the Secretary; and
    (E) Notwithstanding paragraphs (a)(6)(ii)(B), (C) and (D) of this 
section, if the loan was disbursed during a quarter, the amount of any 
adjustment refunded to the Secretary or credited to the borrower for 
that quarter shall be prorated accordingly.
    (7) Conversion to Variable Rate.
    (i) A lender or holder shall convert the interest rate on a loan 
under paragraphs (a)(6)(i) or (ii) of this section to a variable rate.
    (ii) The applicable interest rate for each 12-month period beginning 
on

[[Page 657]]

July 1 and ending on June 30 preceding each 12-month period is equal to 
the sum of--
    (A) The bond equivalent rate of the 91-day Treasury bills auctioned 
at the final auction prior to June 1; and
    (B) 3.25 percent in the case of a loan described in paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of a loan 
described in paragraph (a)(6)(ii) of this section.
    (iii)(A) In connection with the conversion specified in paragraph 
(a)(6)(ii) of this section for any period prior to the conversion for 
which a rebate has not been provided under paragraph (a)(6) of this 
section, a lender or holder shall convert the interest rate to a 
variable rate.
    (B) The interest rate for each period shall be reset quarterly and 
the applicable interest rate for the quarter or portion shall equal the 
sum of--
    (1) The average of the bond equivalent rates of 91-day Treasury 
bills auctioned for the preceding 3-month period; and
    (2) 3.25 percent in the case of loans as specified under paragraph 
(a)(6)(i) of this section or 3.10 percent in the case of loans as 
specified under paragraph (a)(6)(ii) of this section.
    (iv)(A) The holder of a loan being converted under paragraph 
(a)(7)(iii)(A) of this section shall complete such conversion on or 
before January 1, 1995.
    (B) The holder shall, not later than 30 days prior to the 
conversion, provide the borrower with--
    (1) A notice informing the borrower that the loan is being converted 
to a variable interest rate;
    (2) A description of the rate to the borrower;
    (3) The current interest rate; and
    (4) An explanation that the variable rate will provide a 
substantially equivalent benefit as the adjustment otherwise provided 
under paragraph (a)(6) of this section.
    (v) The notice may be provided as part of the disclosure requirement 
as specified under Sec. 682.205.
    (vi) The interest rate as calculated under this paragraph may not 
exceed the maximum interest rate applicable to the loan prior to the 
conversion.
    (b) Capitalization. (1) A lender may add accrued interest and unpaid 
insurance premiums to the borrower's unpaid principal balance in 
accordance with this section. This increase in the principal balance of 
a loan is called ``capitalization.''
    (2) Except as provided in paragraph (b)(4) of this section, a lender 
may capitalize interest payable by the borrower that has accrued--
    (i) For the period from the date the first disbursement was made to 
the beginning date of the in-school period;
    (ii) For the in-school or grace periods, or for a period needed to 
align repayment of an SLS with a Stafford loan, if capitalization is 
expressly authorized by the promissory note (or with the written consent 
of the borrower);
    (iii) For a period of authorized deferment;
    (iv) For a period of authorized forbearance; or
    (v) For the period from the date the first installment payment was 
due until it was made.
    (3) A lender may capitalize accrued interest under paragraphs 
(b)(2)(ii) through (iv) of this section no more frequently than 
quarterly. Capitalization is again permitted when repayment is required 
to begin or resume. A lender may capitalize accrued interest under 
paragraph (b)(2) (i) and (v) of this section only on the date repayment 
of principal is scheduled to begin.
    (4)(i) For unsubsidized Stafford loans disbursed on or after October 
7, 1998 and prior to July 1, 2000, the lender may capitalize the unpaid 
interest that accrues on the loan according to the requirements of 
section 428H(e)(2) of the Act.
    (ii) For Stafford loans first disbursed on or after July 1, 2000, 
the lender may capitalize the unpaid interest--
    (A) When the loan enters repayment;
    (B) At the expiration of a period of authorized deferment;
    (C) At the expiration of a period of authorized forbearance; and
    (D) When the borrower defaults.
    (5) For any borrower in an in-school or grace period or the period 
needed to align repayment, deferment, or forbearance status, during 
which the Secretary does not pay interest benefits and for which the 
borrower has agreed to make payments of interest, the

[[Page 658]]

lender may capitalize past due interest provided that the lender has 
notified the borrower that the borrower's failure to resolve any 
delinquency constitutes the borrower's consent to capitalization of 
delinquent interest and all interest that will accrue through the 
remainder of that period.
    (c) Fees for FFEL Program loans. (1) A lender may charge a borrower 
an origination fee on a Stafford loan not to exceed 3 percent of the 
principal amount of the loan. Except as provided in paragraph (c)(2) of 
this section, a lender must charge all borrowers the same origination 
fee.
    (2)(i) A lender may charge a lower origination fee than the amount 
specified in paragraph (c)(1) of this section to a borrower whose 
expected family contribution (EFC), used to determine eligibility for 
the loan, is equal to or less than the maximum qualifying EFC for a 
Federal Pell Grant at the time the loan is certified or to a borrower 
who qualifies for a subsidized Stafford loan. A lender must charge all 
such borrowers the same origination fee.
    (ii) With the approval of the Secretary, a lender may use a standard 
comparable to that defined in paragraph (c)(2)(i) of this section.
    (3) If a lender charges a lower origination fee on unsubsidized 
loans under paragraph (c)(1) or (c)(2) of this section, the lender must 
charge the same fee on subsidized loans.
    (4)(i) For purposes of this paragraph (c), a lender is defined as:
    (A) All entities under common ownership, including ownership by a 
common holding company, that make loans to borrowers in a particular 
state; and
    (B) Any beneficial owner of loans that provides funds to an eligible 
lender trustee to make loans on the beneficial owner's behalf in a 
particular state.
    (ii) If a lender as defined in paragraph(c)(4)(i) charges a lower 
origination fee to any borrower in a particular state under paragraphs 
(c)(1) or (c)(2) of this section, the lender must charge all such 
borrowers who reside in that state or attend school in that state the 
same origination fee.
    (5) Shall charge a borrower an origination fee on a PLUS loan of 3 
percent of the principal amount of the loan;
    (6) Shall deduct a pro rata portion of the fee (if charged) from 
each disbursement; and
    (7) Shall refund by a credit against the borrower's loan balance the 
portion of the origination fee previously deducted from the loan that is 
attributable to any portion of the loan--
    (i) That is returned by a school to a lender in order to comply with 
the Act or with applicable regulations;
    (ii) That is repaid or returned within 120 days of disbursement, 
unless--
    (A) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (B) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec. 682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (iii) For which a loan check has not been negotiated within 120 days 
of disbursement; or
    (iv) For which loan proceeds disbursed by electronic funds transfer 
or master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) 
have not been released from the restricted account maintained by the 
school within 120 days of disbursement.
    (d) Insurance Premium. A lender may charge the borrower the amount 
of the insurance premium paid by the lender to the guarantor up to 1 
percent of the principal amount of the loan, if that charge is provided 
for in the promissory note.
    (e) Administrative charge for a refinanced PLUS or SLS Loan. A 
lender may charge a borrower up to $100 to cover the administrative 
costs of making a loan to a borrower under Sec. 682.209(e) for the 
purpose of refinancing a PLUS or SLS loan to secure a variable interest 
rate.
    (f) Late charge. (1) If authorized by the borrower's promissory 
note, the lender may require the borrower to pay a late charge under the 
circumstances described in paragraph (f)(2) of this section. This charge 
may not exceed six cents for each dollar of each late installment.

[[Page 659]]

    (2) The lender may require the borrower to pay a late charge if the 
borrower fails to pay all or a portion of a required installment payment 
within 15 days after it is due.
    (g) Collection charges. (1) If provided for in the borrower's 
promissory note, and notwithstanding any provisions of State law, the 
lender may require that the borrower or any endorser pay costs incurred 
by the lender or its agents in collecting installments not paid when 
due, including, but not limited to--
    (i) Attorney's fees;
    (ii) Court costs; and
    (iii) Telegrams.
    (2) The costs referred to in paragraph (g)(1) of this section may 
not include routine collection costs associated with preparing letters 
or notices or with making personal contacts with the borrower (e.g., 
local and long-distance telephone calls).
    (h) Special allowance. Pursuant to Sec. 682.412(c), a lender may 
charge a borrower the amount of special allowance paid by the Secretary 
on behalf of the borrower.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082, 
1087-1, 1091a)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22475, Apr. 29, 1994; 
59 FR 61427, Nov. 30, 1994; 61 FR 60486, Nov. 27, 1996; 62 FR 63434, 
Nov. 28, 1997; 64 FR 18976, Apr. 16, 1999; 64 FR 58953, Nov. 1, 1999; 66 
FR 34762, June 29, 2001]



Sec. 682.203  Responsible parties.

    (a) Delegation of functions. A school, lender, or guaranty agency 
may contract or otherwise delegate the performance of its functions 
under the Act and this part to a servicing agency or other party. This 
contracting or other delegation of functions does not relieve the 
school, lender, or guaranty agency of its duty to comply with the 
requirements of the Act and this part.
    (b) Trustee responsibility. A lender that holds a loan in its 
capacity as a trustee assumes responsibility for complying with all 
statutory and regulatory requirements imposed on any other holders of a 
loan.

(Authority: 20 U.S.C. 1082)



Sec. 682.204  Maximum loan amounts.

    (a) Stafford Loan Program annual limits. (1) In the case of an 
undergraduate student who has not successfully completed the first year 
of a program of undergraduate education, the total amount the student 
may borrow for any academic year of study under the Stafford Loan 
Program in combination with the Federal Direct Stafford/Ford Loan 
Program may not exceed the following:
    (i) $2,625 for a program of study of at least a full academic year 
in length.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $2,625 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.009

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,625 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.010


[[Page 660]]


    (2) In the case of a student who has successfully completed the 
first year of an undergraduate program but has not successfully 
completed the second year of an undergraduate program, the total amount 
the student may borrow for any academic year of study under the Stafford 
Loan Program in combination with the Federal Direct Stafford/Ford Loan 
Program may not exceed the following:
    (i) $3,500 for a program whose length is at least a full academic 
year in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.011

    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the remainder 
of the program, the total amount the student may borrow for any academic 
year of study under the Stafford Loan Program in combination with the 
Federal Direct Stafford/Ford Loan Program may not exceed the following:
    (i) $5,500 for a program whose length is at least an academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.012

    (4) In the case of a student who has an associate or baccalaureate 
degree that is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (a)(3) of this section.
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for any academic year of study under the 
Stafford Loan Program, in combination with any amount borrowed under the 
Federal Direct Stafford/Ford Loan Program, may not exceed $8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or certificate, the total 
amount the student may borrow for any academic year of study under the 
Stafford Loan Program in combination with the Federal Direct Stafford/
Ford Loan Program may not exceed the following:
    (i) $2,625 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,500 for coursework necessary for enrollment in a graduate or 
professional degree or certificate program for a student who has 
obtained a baccalaureate degree.
    (7) In the case of a student who has obtained a baccalaureate degree 
and is enrolled or accepted for enrollment in coursework necessary for a 
professional credential or certification from a State that is required 
for employment as a teacher in an elementary or secondary school in that 
State, the total amount the student may borrow for any academic year of 
study under the Stafford Loan Program in combination with the Federal 
Direct Stafford/Ford Loan Program may not exceed $5,500.
    (8) Except as provided in paragraph (a)(4) of this section, an 
undergraduate

[[Page 661]]

student who is enrolled in a program that is one academic year or less 
in length may not borrow an amount for any academic year of study that 
exceeds the amounts in paragraph (a)(1) of this section.
    (9) Except as provided in paragraph (a)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (a)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (a)(2) of this 
section.
    (b) Stafford Loan Program aggregate limits. The aggregate unpaid 
principal amount of all Stafford Loan Program loans in combination with 
loans received by the student under the Federal Direct Stafford/Ford 
Loan Program, but excluding the amount of capitalized interest may not 
exceed the following:
    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level.
    (2) $65,500, in the case of a graduate or professional student, 
including loans for undergraduate study.
    (c) Unsubsidized Stafford Loan Program. (1) In the case of a 
dependent undergraduate student, the total amount the student may borrow 
for any period of study under the Unsubsidized Stafford Loan Program in 
combination with the Federal Direct Unsubsidized Stafford/Ford Loan 
Program is the same as the amount determined under paragraph (a) of this 
section, less any amount received under the Stafford Loan Program or the 
Federal Direct Stafford/Ford Loan Program.
    (2) In the case of an independent undergraduate student, a graduate 
or professional student, or certain dependent undergraduate students 
under the conditions specified in Sec. 682.201(a)(3), the total amount 
the student may borrow for any period of enrollment under the 
Unsubsidized Stafford Loan and Federal Direct Unsubsidized Stafford/Ford 
Loan programs may not exceed the amounts determined under paragraph (a) 
of this section less any amount received under the Federal Stafford Loan 
Program or the Federal Direct Stafford/Ford Loan Program, in combination 
with the amounts determined under paragraph (d) of this section.
    (d) Additional eligibility under the Unsubsidized Stafford Loan 
Program. In addition to any amount borrowed under paragraphs (a) and (c) 
of this section, an independent undergraduate student, graduate or 
professional student, and certain dependent undergraduate students under 
the conditions specified in Sec. 682.201(a)(3) may borrow additional 
amounts under the Unsubsidized Stafford Loan Program. The additional 
amount that such a student may borrow under the Unsubsidized Stafford 
Loan Program in combination with the Federal Direct Unsubsidized 
Stafford/Ford Loan Program, in addition to the amounts allowed under 
paragraphs (b) and (c) of this section for any academic year of study--
    (1) In the case of a student who has not successfully completed the 
first year of a program of undergraduate education, may not exceed the 
following:
    (i) $4,000 for a program of study of at least a full academic year.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.013


[[Page 662]]


    (iii) For a program of study that is less than a full academic year 
in length, an amount that is the same ratio to $4,000 as the lesser of--
[GRAPHIC] [TIFF OMITTED] TR01NO99.014

    (2) In the case of a student who has completed the first year of a 
program of undergraduate education but has not successfully completed 
the second year of a program of undergraduate education may not exceed 
the following:
    (i) $4,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.015

    (3) In the case of a student who has successfully completed the 
second year of a program of undergraduate education, but has not 
completed the remainder of the program, may not exceed the following:
    (i) $5,000 for a program of study of at least a full academic year.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.016

    (4) In the case of a student who has an associate or baccalaureate 
degree that is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (d)(3) of this section.
    (5) In the case of a graduate or professional student, may not 
exceed $10,000.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate may not 
exceed the following:
    (i) $4,000 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,000 for coursework necessary for enrollment in a graduate or 
professional degree or certificate program for a student who has 
obtained a baccalaureate degree.
    (iii) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in a program necessary 
for a professional credential or a certification from a State that is 
required for employment as a teacher in an elementary or secondary 
school in that State, $5,000.

[[Page 663]]

    (7) Except as provided in paragraph (d)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (d)(1) of this section.
    (8) Except as provided in paragraph (d)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (d)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (d)(2) of this 
section.
    (e) Combined Federal Stafford, SLS and Federal Unsubsidized Stafford 
Loan Program aggregate limits. The aggregate unpaid principal amount of 
Stafford Loans, Federal Direct Stafford/Ford Loans, Unsubsidized 
Stafford Loans, Federal Direct Unsubsidized Stafford/Ford Loans and SLS 
Loans, but excluding the amount of capitalized interest, may not exceed 
the following:
    (1) $46,000 for an undergraduate student.
    (2) $138,500 for a graduate or professional student.
    (f) SLS Program annual limit. (1) In the case of a loan for which 
the first disbursement is made prior to July 1, 1993, the total amount 
of all SLS loans that a student may borrow for any academic year may not 
exceed $4,000 or, if the student is entering or is enrolled in a program 
of undergraduate education that is less than one academic year in length 
and the student's SLS loan application is certified pursuant to 
Sec. 682.603 by the school on or after January 1, 1990--
    (i) $2,500 for a student enrolled in a program whose length is at 
least two-thirds of an academic year but less than a full academic year 
in length;
    (ii) $1,500 for a student enrolled in a program whose length is less 
than two-thirds of an academic year in length; and
    (iii) $0 for a student enrolled in a program whose length is less 
than one-third of an academic year in length.
    (2) In the case of a loan for which a first disbursement is made on 
or after July 1, 1993, the total amount a student may borrow for an 
academic year under the SLS program--
    (i) In the case of a student who has not successfully completed the 
first and second year of a program of undergraduate education, may not 
exceed the following--
    (A) $4,000 for enrollment in a program whose length is at least a 
full academic year in length;
    (B) $2,500 for enrollment in a program whose length is at least two-
thirds but less than a full academic year in length;
    (C) $1,500 for enrollment in a program whose length is at least one-
third but less than two-thirds of an academic year in length;
    (ii) Except as provided in paragraph (f)(3) of this section, in the 
case of a student who successfully completed the first and second year 
of an undergraduate program, but has not completed the remainder of the 
program, may not exceed the following--
    (A) $5,000 for enrollment in a program whose length is at least a 
full academic year;
    (B) $3,325 for enrollment in a program whose length is at least two-
thirds of an academic year but less than a full academic year in length; 
or
    (C) $1,675 for enrollment in a program whose length is at least one-
third of an academic year but less than two-thirds of an academic year; 
and
    (iii) In the case of a graduate or professional student, may not 
exceed $10,000.
    (3) For a period of enrollment beginning after October 1, 1993, but 
prior to July 1, 1994 for which the first disbursement is made prior to 
July 1, 1994, in the case of a student who has successfully completed 
the first and second years of a program but has not successfully 
completed the remainder of a program of undergraduate education--
    (i) $5,000; or

[[Page 664]]

    (ii) If the student is enrolled in a program, the remainder of which 
is less than a full academic year, the maximum annual amount that the 
student may receive may not exceed the amount that bears the same ratio 
to the amount in paragraph (f)(3)(i) of this section as the remainder 
measured in semester, trimester, quarter, or clock hours bears to one 
academic year.
    (g) SLS Program aggregate limit. The total unpaid principal amount 
of SLS Program loans made to--
    (1) An undergraduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $23,000, for loans for which the first disbursement was made on 
or after July 1, 1993; and
    (2) A graduate student may not exceed--
    (i) $20,000, for loans for which the first disbursement is made 
prior to July 1, 1993; or
    (ii) $73,000, for loans for which the first disbursement was made on 
or after July 1, 1993 including loans for undergraduate study.
    (h) PLUS Program annual limit. The total amount of all PLUS Program 
loans that parents may borrow on behalf of each dependent student for 
any academic year of study may not exceed the student's cost of 
education minus other estimated financial assistance for that student.
    (i) Minimum loan interval. The annual loan limits applicable to a 
student apply to the length of the school's academic year.
    (j) Treatment of Consolidation loans for purposes of determining 
loan limits. The percentage of the outstanding balance on a 
Consolidation loan counted against a borrower's aggregate loan limits 
under the Stafford loan, Unsubsidized Stafford loan, Direct Stafford 
loan, Direct Unsubsidized loan, SLS, PLUS, Perkins Loan, or HEAL program 
must equal the percentage of the original amount of the Consolidation 
loan attributable to loans made to the borrower under that program.
    (k) Maximum loan amounts. In no case may a Stafford, PLUS, or SLS 
loan amount exceed the student's estimated cost of attendance for the 
period of enrollment for which the loan is intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) The borrower's expected family contribution for that period, in 
the case of a Stafford loan that is eligible for interest benefits.
    (l) In determining a Stafford loan amount in accordance with 
Sec. 682.204 (a), (c) and (d), the school must use the definition of 
academic year in 34 CFR 668.3.

[59 FR 33350, June 28, 1994, as amended at 64 FR 18976, Apr. 16, 1999; 
64 FR 58954, Nov. 1, 1999; 66 FR 34763, June 29, 2001; 67 FR 67078, Nov. 
1, 2002]



Sec. 682.205  Disclosure requirements for lenders.

    (a) Initial disclosure statement. (1) A lender must disclose the 
information described in paragraph (a)(2) of this section to a borrower, 
in simple and understandable terms, before or at the time of the first 
disbursement on a Federal Stafford or Federal PLUS loan. The information 
given to the borrower must prominently and clearly display, in bold 
type, a clear and concise statement that the borrower is receiving a 
loan that must be repaid.
    (2) The lender shall provide the borrower with--
    (i) The lender's name;
    (ii) A toll-free telephone number accessible from within the United 
States that the borrower can use to obtain additional loan information;
    (iii) The address to which correspondence with the lender and 
payments should be sent;
    (iv) Notice that the lender may sell or transfer the loan to another 
party and, if it does, that the address and identity of the party to 
which correspondence and payments should be sent may change;
    (v) The principal amount of the loan;
    (vi) The amount of any charges, including the origination fee if 
applicable, and the insurance premium, to be collected by the lender 
before or at the time of each disbursement on the loan, and an 
explanation of whether those charges are to be deducted from the 
proceeds of the loan or paid separately by the borrower;
    (vii) The actual interest rate;

[[Page 665]]

    (viii) The annual and aggregate maximum amounts that may be 
borrowed;
    (ix) A statement that information concerning the loan, including the 
date of disbursement and the amount of the loan, will be reported to a 
national credit bureau;
    (x) An explanation of when repayment of the loan is required and 
when the borrower is required to pay the interest that accrues on the 
loan;
    (xi) The minimum and maximum number of years in which the loan must 
be repaid and the minimum amount of required annual payments;
    (xii) An explanation of any special options the borrower may have 
for consolidating or refinancing the loan;
    (xiii) A statement that the borrower has the right to prepay all or 
part of the loan at any time, without penalty;
    (xiv) A statement describing the circumstances under which repayment 
of the loan or interest that accrues on the loan may be deferred;
    (xv) A statement of availability of the Department of Defense 
program for repayment of loans on the basis of military service, as 
provided for in 10 U.S.C. 2171;
    (xvi) The definition of ``default'' found in Sec. 682.200, and the 
consequences to the borrower of a default, including a statement 
concerning likely litigation, a statement that the default will be 
reported to a national credit bureau, and statements that the borrower 
will be liable for substantial collection costs, that the borrower's 
Federal and State income tax refund may be withheld to pay the debt, 
that the borrower's wages may be garnished or offset, and that the 
borrower will be ineligible for additional Federal student financial 
aid, as well as for assistance under most Federal benefit programs;
    (xvii) An explanation of the possible effects of accepting the loan 
on the student's eligibility for other forms of student financial 
assistance;
    (xviii) An explanation of any costs the borrower may incur in the 
making or collection of the loan; and
    (xix) In the case of a Stafford or SLS loan, other than an SLS loan 
made under Sec. 682.209 (e) or (f) or a loan made to a borrower 
attending a school that is not in a State, a statement that the loan 
proceeds will be transmitted to the school for delivery to the borrower; 
and
    (xx) A statement of the total cumulative balance, including the loan 
applied for, owed to that lender, and an estimate of, or information 
that will allow the borrower to estimate, the projected monthly payment 
amount based on that cumulative outstanding balance.
    (3) With the exception of paragraphs (a)(2)(i) through (a)(2)(iii), 
(a)(2)(v) through (a)(2)(vii), and (a)(2)(xx) of this section, a 
lender's disclosure requirements are met if it provides the borrower 
with either--
    (i) The borrower's rights and responsibilities statement approved by 
the Secretary under paragraph (b) of this section; or
    (ii) The plain language disclosure approved by the Secretary under 
paragraph (g) of this section for subsequent loans made under a Master 
Promissory Note.
    (b) Separate statement of borrower rights and responsibilities. In 
addition to the disclosures required by paragraph (a) of this section, 
the lender must provide the borrower with a separate written statement, 
using simple and understandable terms, at or prior to the time of the 
first disbursement, that summarizes the rights and responsibilities of 
the borrower with respect to the loan. The statement must also warn the 
borrower about the consequences described in paragraph (a)(2)(xvi) of 
this section if the borrower defaults on the loan. The Borrower's Rights 
and Responsibilities statement approved by the Secretary satisfies this 
requirement.
    (c) Disclosure of repayment information. (1) The lender must 
disclose the information described in paragraph (c)(2) of this section, 
in simple and understandable terms, in a statement provided to the 
borrower at or prior to the beginning of the repayment period. In the 
case of a Federal Stafford or Federal SLS loan, the disclosures required 
by this paragraph must be made not less than 30 days nor more than 240 
days before the first payment on the loan is due from the borrower. If 
the borrower enters the repayment period without the lender's knowledge, 
the

[[Page 666]]

lender must provide the required disclosures to the borrower immediately 
upon discovering that the borrower has entered the repayment period.
    (2) The lender shall provide the borrower with--
    (i) The lender's name, a toll-free telephone number accessible from 
within the United States that the borrower can use to obtain additional 
loan information, and the address to which correspondence with the 
lender and payments should be sent;
    (ii) The scheduled date the repayment period is to begin;
    (iii) The estimated balance, including the estimated amount of 
interest to be capitalized, owed by the borrower as of the date upon 
which the repayment period is to begin, or the date of the disclosure, 
whichever is later;
    (iv) The actual interest rate on the loan;
    (v) An explanation of any fees that may accrue or be charged to the 
borrower during the repayment period;
    (vi) The borrower's repayment schedule, including the due date of 
the first installment and the number, amount, and frequency of payments;
    (vii) Except in the case of a Consolidation loan, an explanation of 
any special options the borrower may have for consolidating or 
refinancing the loan and of the availability and terms of such other 
options;
    (viii) The estimated total amount of interest to be paid on the 
loan, assuming that payments are made in accordance with the repayment 
schedule; and
    (ix) A statement that the borrower has the right to prepay all or 
part of the loan at any time, without penalty.
    (d) Exception to disclosure requirement. In the case of a Federal 
PLUS loan, the lender is not required to provide the information in 
paragraph (c)(2)(viii) of this section if the lender, instead of that 
disclosure, provides the borrower with sample projections of the monthly 
repayment amounts assuming different levels of borrowing and interest 
accruals resulting from capitalization of interest while the student is 
in school. Sample projections must disclose the cost to the borrower of 
principal and interest, interest only, and capitalized interest. The 
lender may rely on the PLUS promissory note and associated materials 
approved by the Secretary for purposes of complying with this section.
    (e) Borrower may not be charged for disclosures. The lender must 
provide the information required by this section at no cost to the 
borrower.
    (f) Method of disclosure. Any disclosure of information by a lender 
under this section may be through written or electronic means.
    (g) Plain language disclosure. The plain language disclosure text, 
as approved by the Secretary, must be provided to a borrower in 
conjunction with subsequent loans taken under a previously signed Master 
Promissory Note. The requirements of paragraphs (a) and (b) of this 
section are satisfied for subsequent loans if the borrower is sent the 
plain language disclosure text and an initial disclosure containing the 
information required by paragraphs (a)(2)(i) through (iii), (a)(2)(v), 
(a)(2)(vi), (a)(2)(vii), and (a)(2)(xx) of this section.
    (h) Notice of availability of income-sensitive repayment option. (1) 
At the time of offering a borrower a loan and at the time of offering a 
borrower repayment options, the lender must provide the borrower with a 
notice that informs the borrower of the availability of income-sensitive 
repayment. This information may be provided in a separate notice or as 
part of the other disclosures required by this section. The notice must 
inform the borrower--
    (i) That the borrower is eligible for income-sensitive repayment, 
including through loan consolidation;
    (ii) Of the procedures by which the borrower can elect income-
sensitive repayment; and
    (iii) Of where and how the borrower may obtain more information 
concerning income-sensitive repayment.

[[Page 667]]

    (2) The promissory note and associated materials approved by the 
Secretary satisfy the loan origination notice requirements provided for 
in paragraph (h)(1) of this section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1083(a))

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25745, May 17, 1994; 60 FR 30788, June 12, 1995; 64 FR 18976, Apr. 
16, 1999; 64 FR 58625, Oct. 29, 1999; 64 FR 58965, Nov. 1, 1999]



Sec. 682.206  Due diligence in making a loan.

    (a) General. (1) Loan-making duties include determining the 
borrower's loan amount, approving the borrower for a loan, explaining to 
the borrower his or her rights and responsibilities under the loan, and 
completing and having the borrower sign the promissory note (except with 
respect to subsequent loans made under an MPN).
    (2) A lender that delegates substantial loan-making duties to a 
school on a loan thereby enters into a loan origination relationship 
with the school in regard to that loan. If that relationship exists, the 
lender may rely in good faith upon statements of the borrower made in 
the loan application process, but may not rely upon statements made by 
the school in that process. A non-school lender that does not have an 
origination relationship with a school with respect to a loan may rely 
in good faith upon statements of both the borrower and the school in the 
loan application process. Except as provided in 34 CFR part 668, subpart 
E, a school lender may rely in good faith upon statements made by the 
borrower in the loan application process.
    (b) Processing forms. Before disbursing a loan, a lender must 
determine that all required forms have been accurately completed by the 
borrower, the student, the school, and the lender. A lender may not ask 
the borrower to sign any form before the borrower has provided on the 
form all information requested from the borrower.
    (c) Approval of borrower and determination of loan amount. (1) A 
lender may make a loan only to an eligible borrower. To the extent 
authorized by paragraph (a)(2) of this section, the lender may rely on 
the information provided by the school, the borrower, and, if the 
borrower is a parent, the student on whose behalf the loan is sought, in 
determining the borrower's eligibility for a loan.
    (2) Except in the case of a Consolidation loan, in determining the 
amount of the loan to be made, in no case may the loan amount exceed the 
lesser of the amount the borrower requests, the amount certified by the 
school under Sec. 682.603, or the loan limits under Sec. 682.204.
    (d)(1) The lender must ensure that each loan is supported by an 
executed legally-enforceable promissory note as proof of the borrower's 
indebtedness.
    (e) Security, endorsement, and co-makers. (1) A FISL, SLS or Federal 
PLUS loan must be made without security or endorsement.
    (2) A Federal PLUS Program Loan may be made to an eligible borrower 
with an endorser who is secondarily liable for repayment of the loan.
    (3) A Federal Consolidation loan may be made to two eligible spouses 
provided both borrowers agree to be jointly and severally liable for 
repayment of the loan as co-makers.
    (f) Additional requirement for Consolidation loans. (1) Prior to 
disbursement of a Consolidation loan, the lender shall obtain from the 
holder of each loan to be consolidated a certification with respect to 
the loan held by the holder that--
    (i) The loan is a legal, valid, and binding obligation of the 
borrower;
    (ii) The loan was made and serviced in compliance with applicable 
laws and regulations; and
    (iii) In the case of a FFEL loan, that the guarantee on the loan is 
in full force and effect.
    (2) The Consolidation loan lender may rely in good faith on the 
certification provided under paragraph (f)(1)

[[Page 668]]

of this section by the holder of a loan to be consolidated.

(Approved by the Office of Management and Budget under control number 
1840-0538)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080, 
1082, 1083, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33352, June 28, 1994; 64 FR 18976, Apr. 
16, 1999; 64 FR 58957, Nov. 1, 1999; 66 FR 34763, June 29, 2001]



Sec. 682.207  Due diligence in disbursing a loan.

    (a)(1) This section prescribes procedures for lenders to follow in 
disbursing Stafford and PLUS loans. This section does not prescribe 
procedures for a refinanced SLS or PLUS Program loan made under 
Sec. 682.209 (e) or (f). With respect to FISL and Federal PLUS loans, 
references to the ``guaranty agency'' in this section shall be 
understood to refer to the ``Secretary.''
    (2) The requirements of paragraphs (b)(1) (ii) and (v) of this 
section must be satisfied either by the lender or by an escrow agent 
with which the lender has an agreement pursuant to Sec. 682.408. The 
lender shall comply with paragraph (b)(1)(iii) of this section whether 
or not it disburses to an escrow agent.
    (b)(1) In disbursing a loan, a lender--
    (i)(A) May not disburse loan proceeds prior to the issuance of the 
guarantee commitment for the loan by the guaranty agency, except with 
the agency's prior approval; and
    (B) Must disburse a Stafford or PLUS loan in accordance with the 
disbursement schedule provided by the school or any request made by the 
school modifying that schedule.
    (ii) Shall disburse loan proceeds by--
    (A) A check that is made payable to the borrower, or that is made 
co-payable to the borrower and the school for attendance at which the 
loan is intended, and requires the personal endorsement or other written 
certification of the borrower in order to be cashed or deposited in an 
account of the borrower at a financial institution;
    (B) If authorized by the guarantor, electronic funds transfer to an 
account maintained in accordance with Sec. 668.163 by the school as 
trustee for the lender, the guaranty agency, the Secretary, and the 
borrower, that requires the approval of the borrower. A disbursement 
made by electronic funds transfer must be accompanied by a list of the 
names, social security numbers, and loan amounts of the borrowers who 
are receiving a portion of the disbursement; or
    (C) If the school and the lender agree, a master check from the 
lender to the institution of higher education to a account maintained in 
accordance with Sec. 688.163 by the school as trustee for the lender. A 
disbursement made by a master check must be accompanied by a list of the 
names, social security numbers, and loan amounts of the borrowers who 
are receiving a portion of the disbursement;
    (iii) May not disburse loan proceeds earlier than is reasonably 
necessary to meet the student's cost of attendance for the period for 
which the loan is made, and, in no case without the Secretary's prior 
approval, disburse loan proceeds earlier than 30 days prior to the date 
on which the student is scheduled to enroll;
    (vi) Except as provided in paragraph (f) of this section, may not 
disburse a second or subsequent disbursement of a Federal Stafford loan 
to a student who has ceased to be enrolled; and
    (v) Shall disburse--
    (A) Except as provided in paragraph (b)(1)(v) (C)(1) and (D) of this 
section, directly to the school;
    (B) In the case of a Federal PLUS loan--
    (1) By electronic funds transfer or master check from the lender in 
accordance with the disbursement schedule provided by the school to a 
account maintained in accordance with Sec. 688.163 by the school as 
trustee for the lender. A disbursement made by electronic funds transfer 
or master check must be accompanied by a list of the names, social 
security numbers, and loan amounts of the borrowers who are receiving a 
portion of the disbursement and the names and social security numbers of 
the students on whose behalf the parents are borrowing.
    (2) By a check from the lender that is made co-payable to the 
institution and the parent borrower directly to the institution of 
higher education.
    (3) In the case of a student enrolled in a foreign institution, a 
check from

[[Page 669]]

the lender that is made co-payable to the institution and sent directly 
to either the parent or the institution of higher education.
    (C) In the case of a student enrolled in a study-abroad program 
approved for credit at the home institution in which the student is 
enrolled, if the student requests--
    (1) Directly to the student; or
    (2) To the home institution if the borrower provides a power-of-
attorney to an individual not affiliated with the institution to endorse 
the check or complete an electronic funds transfer authorization.
    (D) In the case of a student enrolled in an eligible foreign school, 
if the student requests--
    (1) Directly to the student; or
    (2) To the institution if the borrower provides a power-of-attorney 
to an individual not affiliated with the institution to endorse the 
check or complete an electronic funds transfer authorization.
    (E) If a lender disburses a loan directly to the borrower for 
attendance at an eligible foreign school, as provided in paragraph 
(b)(1)(v)(D)(1) of this section, the lender must, at the time of 
disbursement, notify the school of--
    (1) The name and social security number of the student;
    (2) The name and social security number of the parent borrower, if 
the loan disbursed is a PLUS loan;
    (3) The type of loan;
    (4) The amount of the disbursement, including the amount of any fees 
assessed the borrower;
    (5) The date of the disbursement; and
    (6) The name, address, telephone and fax number or electronic 
address of the lender, servicer, or guaranty agency to which any 
inquiries should be addressed.
    (vi) Except as provided in paragraph (f)(1) of this section, may not 
disburse a second or subsequent disbursement of a Federal Stafford loan 
to a student who has ceased to be enrolled; and
    (vii) May disburse a second or subsequent disbursement of an FFEL 
loan, at the request of the school, even if the borrower or the school 
returned the prior disbursement, unless the lender has information that 
the student is no longer enrolled.
    (c) Except as provided in paragraph (e) of this section, a lender 
must disburse any Stafford or PLUS loan in accordance with the 
disbursement schedule provided by the school as follows:
    (1) Disbursement must be in two or more installments.
    (2) No installment may exceed one-half of the loan.
    (3) Disbursement must be made on a payment period basis in 
accordance with the disbursement schedule provided by the school or any 
request made by the school modifying that schedule.
    (d) If one or more scheduled disbursements have elapsed before a 
lender makes a disbursement and the student is still enrolled, the 
lender may include in the disbursement loan proceeds for previously 
scheduled, but unmade, disbursements.
    (e) A lender must disburse the loan in one installment if the school 
submits a schedule for disbursement of loan proceeds in one installment 
as authorized by Sec. 682.604(c)(10).
    (f) A lender may disburse loan proceeds after the student has ceased 
to be enrolled on at least a half-time basis only if--
    (1) The school certified the borrower's loan eligibility before the 
date the student became ineligible and the loan funds will be used to 
pay educational costs that the school determines the student incurred 
for the period in which the student was enrolled and eligible;
    (2) The student completed the first 30 days of his or her program of 
study if the student was a first-year, first-time borrower as described 
in Sec. 682.604(c)(5); and

[[Page 670]]

    (3) In the case of a second or subsequent disbursement, the student 
graduated or successfully completed the period of enrollment for which 
the loan was intended.

(Approved by the Office of Management and Budget under control number 
1845-0022)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080, 
1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33352, June 28, 1994; 59 FR 61215, Nov. 29, 1994; 59 FR 61427, Nov. 
30, 1994; 60 FR 61756, Dec. 1, 1995; 61 FR 16718, Apr. 17, 1996; 61 FR 
60609, Nov. 29, 1996; 64 FR 18976, Apr. 16, 1999; 64 FR 58626, Oct. 29, 
1999; 64 FR 58957, 59043, Nov. 1, 1999; 65 FR 65619, Nov. 1, 2000; 66 FR 
34763, June 29, 2001]



Sec. 682.208  Due diligence in servicing a loan.

    (a) The loan servicing process includes reporting to national credit 
bureaus, responding to borrower inquiries, and establishing the terms of 
repayment.
    (b)(1) An eligible lender of a FFEL loan shall report to at least 
one national credit bureau--
    (i) The total amount of FFEL loans the lender has made to the 
borrower, within 90 days of each disbursement;
    (ii) The outstanding balance of the loans;
    (iii) Information concerning the repayment status of the loan, no 
less frequently than every 90 days or quarterly after a change in that 
status from current to delinquent;
    (iv) The date the loan is fully repaid by, or on behalf of, the 
borrower, or discharged by reason of the borrower's death, bankruptcy, 
or total and permanent disability, within 90 days after that date;
    (v) Other information required by law to be reported.
    (2) An eligible lender that has acquired a FFEL loan shall report to 
at least one national credit bureau the information required by 
paragraph (b)(1)(ii)-(v) of this section within 90 days of its 
acquisition of the loan.
    (c)(1) A lender shall respond within 30 days after receipt to any 
inquiry from a borrower or any endorser on a loan.
    (2) When a lender learns that a Stafford loan borrower is no longer 
enrolled at an institution of higher education on at least a half-time 
basis, the lender shall promptly contact the borrower in order to 
establish the terms of repayment.
    (3)(i) If the borrower disputes the terms of the loan in writing and 
the lender does not resolve the dispute, the lender's response must 
provide the borrower with an appropriate contact at the guaranty agency 
for the resolution of the dispute.
    (ii) If the guaranty agency does not resolve the dispute, the 
agency's response must provide the borrower with information on the 
availability of the Student Loan Ombudsman's office.
    (d) Subject to the rules regarding maximum duration of a repayment 
period and minimum annual payment described in Sec. 682.209(a)(7), (c), 
and (h), nothing in this part is intended to limit a lender's discretion 
in establishing, or, with the borrower's consent, revising a borrower's 
repayment schedule--
    (1) To provide for graduated or income-sensitive repayment terms. 
The Secretary strongly encourages lenders to provide a graduated or 
income-sensitive repayment schedule to a borrower providing for at least 
the payment of interest charges, unless the borrower requests otherwise, 
in order to make the borrower's repayment burden commensurate with his 
or her projected ability to pay; or
    (2) To provide a single repayment schedule for all FFEL program 
loans to the borrower held by the lender.
    (e)(1) If the assignment of a Stafford, PLUS, SLS, or Consolidation 
loan is to result in a change in the identity of the party to whom the 
borrower must send subsequent payments, the assignor and assignee of the 
loan shall, no later than 45 days from the date the assignee acquires a 
legally enforceable right to receive payment from the borrower on the 
assigned loan, provide, either jointly or separately, a notice to the 
borrower of--
    (i) The assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party to whom subsequent payments 
or communications must be sent; and
    (iv) The telephone numbers of both the assignor and the assignee.
    (2) If the assignor and assignee separately provide the notice 
required by

[[Page 671]]

paragraph (e)(1) of this section, each notice must indicate that a 
corresponding notice will be sent by the other party to the assignment.
    (3) For purposes of this paragraph, the term ``assigned'' is defined 
in Sec. 682.401(b)(17)(ii).
    (4) The assignee, or the assignor on behalf of the assignee, shall 
notify the guaranty agency that guaranteed the loan within 45 days of 
the date the assignee acquires a legally enforceable right to receive 
payment from the borrower on the loan of--
    (i) The assignment; and
    (ii) The name and address of the assignee, and the telephone number 
of the assignee that can be used to obtain information about the 
repayment of the loan.
    (5) The requirements of this paragraph (e), as to borrower 
notification, apply if the borrower is in a grace period or has entered 
the repayment period.
    (f)(1) Notwithstanding an error by the school or lender, a lender 
shall follow the procedures in Sec. 682.412 whenever it receives 
information that can be substantiated that the borrower, or the student 
on whose behalf a parent has borrowed, provided false or erroneous 
information or took actions that caused the student or borrower--
    (i) To be ineligible for all or a portion of a loan made under this 
part;
    (ii) To receive a Stafford loan subject to payment of Federal 
interest benefits as provided under Sec. 682.301, for which he or she 
was ineligible; or
    (iii) To receive loan proceeds that were not paid to the school or 
repaid to the lender by or on behalf of a registered student who--
    (A) The school notifies the lender under Sec. 682.604(d)(4) has 
withdrawn or been expelled prior to the first day of classes for the 
period of enrollment for which the loan was intended; or
    (B) Failed to attend school during that period.
    (2) For purposes of this section, the term ``guaranty agency'' in 
Sec. 682.412(e) refers to the Secretary in the case of a Federal GSL 
loan.
    (g) If, during a period when the borrower is not delinquent, a 
lender receives information indicating it does not know the borrower's 
address, it may commence the skip-tracing activities specified in 
Sec. 682.411(g).
    (h) Notifying the borrower about a servicing change. If an FFEL 
Program loan has not been assigned, but there is a change in the 
identity of the party to whom the borrower must send subsequent payments 
or direct any communications concerning the loan, the holder of the loan 
shall, no later than 45 days after the date of the change, provide 
notice to the borrower of the name, telephone number, and address of the 
party to whom subsequent payments or communications must be sent. The 
requirements of this paragraph apply if the borrower is in a grace 
period or has entered the repayment period.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1080, 
1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22476, Apr. 29, 1994; 64 FR 18976, Apr. 16, 1999; 64 FR 58626, Oct. 
29, 1999; 64 FR 58965, Nov. 1, 1999]



Sec. 682.209  Repayment of a loan.

    (a) Conversion of a loan to repayment status. (1) For a 
Consolidation loan, the repayment period begins on the date the loan is 
disbursed. The first payment is due within 60 days after the date the 
loan is disbursed.
    (2)(i) For a PLUS loan, the repayment period begins on the date of 
the last disbursement made on the loan. Interest accrues and is due and 
payable from the date of the first disbursement of the loan. The first 
payment is due within 60 days after the date the loan is fully 
disbursed.
    (ii) For an SLS loan, the repayment period begins on the date the 
loan is disbursed, or, if the loan is disbursed in multiple 
installments, on the date of the last disbursement of the loan. Interest 
accrues and is due and payable from the date of the first disbursement 
of the loan. Except as provided in paragraph (a)(2)(iii), (a)(2)(iv), 
and (a)(2)(v) of this section the first payment is due within 60 days 
after the date the loan is fully disbursed.
    (iii) For an SLS borrower who has not yet entered repayment on a 
Stafford loan, the borrower may postpone

[[Page 672]]

payment, consistent with the grace period on the borrower's Stafford 
loan.
    (iv) If the lender first learns after the fact that an SLS borrower 
has entered the repayment period, the repayment begins no later than 75 
days after the date the lender learns that the borrower has entered the 
repayment period.
    (v) The lender may establish a first payment due date that is no 
more than an additional 30 days beyond the period specified in 
paragraphs (a)(2)(i)--(a)(2)(iv) of this section in order for the lender 
to comply with the required deadline contained in Sec. 682.205(c)(1).
    (3)(i) Except as provided in paragraphs (a)(4) and (5) of this 
section, for a Stafford loan the repayment period begins--
    (A) For a borrower with a loan for which the applicable interest 
rate is 7 percent per year, not less than 9 nor more than 12 months 
following the date on which the borrower is no longer enrolled on at 
least a half-time basis at an eligible school. The length of this grace 
period is determined by the lender for loans made under the FISL 
Program, and by the guaranty agency for loans guaranteed by the agency;
    (B) For a borrower with a loan for which the initial applicable 
interest rate is 8 or 9 percent per year, the day after 6 months 
following the date on which the borrower is no longer enrolled on at 
least a half-time basis at an institution of higher education; and
    (C) For a borrower with a loan with a variable interest rate, the 
day after 6 months following the date on which the borrower is no longer 
enrolled on at least a half-time basis at an institution of higher 
education.
    (ii) The first payment on a Stafford loan is due on a date 
established by the lender that is no more than--
    (A) 60 days following the first day that the repayment period 
begins;
    (B) 60 days from the expiration of a deferment or forbearance period 
unless the borrower during this period has submitted payments with 
instructions that those payments are intended for future installment 
payments;
    (C) 60 days following the end of the post deferment grace period;
    (D) If the lender first learns after the fact that the borrower has 
entered the repayment period, no later than 75 days after the date the 
lender learns that the borrower has entered the repayment period; or
    (E) An additional 30 days beyond the periods specified in paragraphs 
(a)(3)(ii)(A)-(a)(3)(ii)(D) of this section in order for the lender to 
comply with the required deadlines contained in Sec. 682.205(c)(1).
    (iii) When determining the date that the student was no longer 
enrolled on at least a half-time basis, the lender must use a new date 
it receives from a school, unless the lender has already disclosed 
repayment terms to the borrower and the new date is within the same 
month and year as the most recent date reported to the lender.
    (4) For a borrower of a Stafford loan who is a correspondence 
student, the grace period specified in paragraph (a)(3)(i) of this 
section begins on the earliest of--
    (i) The day after the borrower completes the program;
    (ii) The day after withdrawal as determined pursuant to 34 CFR 
668.22; or
    (iii) 60 days following the last day for completing the program as 
established by the school.
    (5) For a Stafford loan, the repayment period begins prior to the 
end of the grace period if the borrower requests in writing and is 
granted a repayment schedule that so provides. In this event, a borrower 
waives the remainder of the grace period.
    (6) For purposes of establishing the beginning of the repayment 
period for Stafford and SLS loans, the grace periods referenced in 
paragraphs (a)(2)(iii) and (a)(3)(i) of this section exclude any period 
during which a borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code is 
called or ordered to active duty for a period of more than 30 days. Any 
single excluded period may not exceed three years and includes the time 
necessary for the borrower to resume enrollment at the next available 
regular enrollment period. Any Stafford or SLS borrower who is in a 
grace period when called or ordered to active duty as specified in this 
paragraph is entitled

[[Page 673]]

to a full grace period upon completion of the excluded period.
    (7)(i) The repayment schedule may provide for substantially equal 
installment payments or for installment payments that increase or 
decrease in amount during the repayment period. If the loan has a 
variable interest rate that changes annually, the lender may establish a 
repayment schedule that--
    (A) Provides for adjustments of the amount of the installment 
payment to reflect annual changes in the variable interest rate; or
    (B) Contains no provision for an adjustment of the amount of the 
installment payment to reflect annual changes in the variable interest 
rate, but requires the lender to grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 3 years of payments in 
accordance with Sec. 682.211(i)(5) in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan not being repaid within the maximum repayment 
term.
    (ii) If a graduated or income-sensitive repayment schedule is 
established, it may not provide for any single installment that is more 
than three times greater than any other installment. An agreement as 
specified in paragraph (c)(1)(ii) of this section is not required if the 
schedule provides for less than the minimum annual payment amount 
specified in paragraph (c)(1)(i) of this section.
    (iii) Not more than six months prior to the date that the borrower's 
first payment is due, the lender must offer the borrower a choice of a 
standard, income-sensitive, graduated, or, if applicable, an extended 
repayment schedule.
    (iv) The repayment schedule must require that each payment equal at 
least the interest that accrues during the interval between scheduled 
payments.
    (v) The lender shall require the borrower to repay the loan under a 
standard repayment schedule described in paragraph (a)(7)(vi) of this 
section if the borrower--
    (A) Does not select an income-sensitive, a graduated, or if 
applicable, an extended repayment schedule within 45 days after being 
notified by the lender to choose a repayment schedule; or
    (B) Chooses an income-sensitive repayment schedule, but does not 
provide the documentation requested by the lender under paragraph 
(a)(7)(viii)(C) of this section within the time period specified by the 
lender.
    (vi) Under a standard repayment schedule, the borrower is scheduled 
to pay either--
    (A) The same amount for each installment payment made during the 
repayment period, except that the borrower's final payment may be 
slightly more or less than the other payments; or
    (B) An installment amount that will be adjusted to reflect annual 
changes in the loan's variable interest rate.
    (vii) Under a graduated repayment schedule--
    (A)(1) The amount of the borrower's installment payment is scheduled 
to change (usually by increasing) during the course of the repayment 
period; or
    (2) If the loan has a variable interest rate that changes annually, 
the lender may establish a repayment schedule that may have adjustments 
in the payment amount as provided under paragraph (a)(7)(i) of this 
section; and
    (B) An agreement as specified in paragraph (c)(1)(ii) of this 
section is not required if the schedule provides for less than the 
minimum annual payment amount specified in paragraph (c)(1)(i) of this 
section.
    (viii) Under an income-sensitive repayment schedule--
    (A)(1) The amount of the borrower's installment payment is adjusted 
annually, based on the borrower's expected total monthly gross income 
received by the borrower from employment and from other sources during 
the course of the repayment period; or
    (2) If the loan has a variable interest rate that changes annually, 
the lender may establish a repayment schedule that may have adjustments 
in the payment amount as provided under paragraph (a)(7)(i) of this 
section; and
    (B) In general, the lender shall request the borrower to inform the 
lender of his or her income no earlier than 90 days prior to the due 
date of the borrower's initial installment payment

[[Page 674]]

and subsequent annual payment adjustment under an income-sensitive 
repayment schedule. The income information must be sufficient for the 
lender to make a reasonable determination of what the borrower's payment 
amount should be. If the lender receives late notification that the 
borrower has dropped below half-time enrollment status at a school, the 
lender may request that income information earlier than 90 days prior to 
the due date of the borrower's initial installment payment;
    (C) If the borrower reports income to the lender that the lender 
considers to be insufficient for establishing monthly installment 
payments that would repay the loan within the applicable maximum 
repayment period, the lender shall require the borrower to submit 
evidence showing the amount of the most recent total monthly gross 
income received by the borrower from employment and from other sources 
including, if applicable, pay statements from employers and 
documentation of any income received by the borrower from other parties;
    (D) The lender shall grant a forbearance to the borrower (or 
endorser, if applicable) for a period of up to 5 years of payments in 
accordance with Sec. 682.211(i)(5) in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in a loan not being repaid within the maximum 
repayment term; and
    (E) The lender shall inform the borrower that the loan must be 
repaid within the time limits specified under paragraph (a)(8) of this 
section.
    (ix) Under an extended repayment schedule, a new borrower whose 
total outstanding principal and interest in FFEL loans exceed $30,000 
may repay the loan on a fixed annual repayment amount or a graduated 
repayment amount for a period that may not exceed 25 years. For purposes 
of this section, a ``new borrower'' is an individual who has no 
outstanding principal or interest balance on an FFEL Program loan as of 
October 7, 1998, or on the date he or she obtains an FFEL Program loan 
after October 7, 1998.
    (x) A borrower may request a change in the repayment schedule on a 
loan. The lender must permit the borrower to change the repayment 
schedule no less frequently than annually.
    (xi) For purposes of this section, a lender shall, to the extent 
practicable require that all FFEL loans owed by a borrower to the lender 
be combined into one account and repaid under one repayment schedule. In 
that event, the word ``loan'' in this section shall mean all of the 
borrower's loans that were combined by the lender into that account.
    (8)(i) Subject to paragraphs (a)(8)(ii) through (iv) of this 
section, and except as provided in paragraph (a)(7)(ix) a lender shall 
allow a borrower at least 5 years, but not more than 10 years, or 25 
years under an extended repayment plan to repay a Stafford, SLS, or PLUS 
loan, calculated from the beginning of the repayment period. Except in 
the case of a FISL loan for a period of enrollment beginning on or after 
July 1, 1986, the lender shall require a borrower to fully repay a FISL 
loan within 15 years after it is made.
    (ii) If the borrower receives an authorized deferment or is granted 
forbearance, as described in Sec. 682.210 or Sec. 682.211 respectively, 
the periods of deferment or forbearance are excluded from determinations 
of the 5-, 10-, and 15- and 25-year periods, and from the 10-, 12-, 15-, 
20-, 25-, and 30-year periods for repayment of a Consolidation loan 
pursuant to Sec. 682.209(h).
    (iii) If the minimum annual repayment required in paragraph (c) of 
this section would result in complete repayment of the loan in less than 
5 years, the borrower is not entitled to the full 5-year period.
    (iv) The borrower may, prior to the beginning of the repayment 
period, request and be granted by the lender a repayment period of less 
than 5 years. Subject to paragraph (a)(8)(iii) of this section, a 
borrower who makes such a request may notify the lender at any time to 
extend the repayment period to a minimum of 5 years.
    (9) If, with respect to the aggregate of all loans held by a lender, 
the total payment made by a borrower for a monthly or similar payment 
period would not otherwise be a multiple of five dollars, the lender may 
round that periodic payment to the next highest whole dollar amount that 
is a multiple of five dollars.

[[Page 675]]

    (b) Payment application and prepayment. (1) The lender may credit 
the entire payment amount first to any late charges accrued or 
collection costs and then to any outstanding interest and then to 
outstanding principal.
    (2)(i) The borrower may prepay the whole or any part of a loan at 
any time without penalty.
    (ii) If the prepayment amount equals or exceeds the monthly payment 
amount under the repayment schedule established for the loan, the lender 
shall apply the prepayment to future installments by advancing the next 
payment due date, unless the borrower requests otherwise. The lender 
must either inform the borrower in advance using a prominent statement 
in the borrower coupon book or billing statement that any additional 
full payment amounts submitted without instructions to the lender as to 
their handling will be applied to future scheduled payments with the 
borrower's next scheduled payment due date advanced consistent with the 
number of additional payments received, or provide a notification to the 
borrower after the payments are received informing the borrower that the 
payments have been so applied and the date of the borrower's next 
scheduled payment due date. Information related to next scheduled 
payment due date need not be provided to borrower's making such 
prepayments while in an in-school, grace, deferment, or forbearance 
period when payments are not due.
    (c) Minimum annual payment. (1)(i) Subject to paragraph (c)(1)(ii) 
of this section and except as otherwise provided by a graduated, income-
sensitive, or extended repayment plan selected by the borrower, during 
each year of the repayment period, a borrower's total payments to all 
holders of the borrower's FFEL Program loans must total at least $600 or 
the unpaid balance of all loans, including interest, whichever amount is 
less.
    (ii) If the borrower and the lender agree, the amount paid may be 
less.
    (2) The provisions of paragraphs (c)(1) (i) and (ii) of this section 
may not result in an extension of the maximum repayment period unless 
forbearance as described in Sec. 682.211, or deferment described in 
Sec. 682.210, has been approved.
    (d) Combined repayment of a borrower's student PLUS and SLS loans 
held by a lender. (1) A lender may, at the request of a student 
borrower, combine the borrower's, student PLUS and SLS loans held by it 
into a single repayment schedule.
    (2) The repayment period on the loans included in the combined 
repayment schedule must be calculated based on the beginning of 
repayment of the most recent included loan.
    (3) The interest rate on the loans included in the new combined 
repayment schedule must be the weighted average of the rates of all 
included loans.
    (e) Refinancing a fixed-rate PLUS or SLS Program loan to secure a 
variable interest rate. (1) Subject to paragraph (g) of this section, a 
lender may, at the request of a borrower, refinance a PLUS or SLS loan 
with a fixed interest rate in order to permit the borrower to obtain a 
variable interest rate.
    (2) A loan made under paragraph (e)(1) of this section--
    (i) Must bear interest at the variable rate described in 
Sec. 682.202(a)(2)(ii) and (3)(ii) as appropriate; and
    (ii) May not extend the repayment period provided for in paragraph 
(a)(8)(i) of this section.
    (3) The lender may not charge an additional insurance premium on the 
loan, but may charge the borrower an administrative fee pursuant to 
Sec. 682.202(e).
    (f) Refinancing of a fixed-rate PLUS or SLS Program loan to secure a 
variable interest rate by discharge of previous loan. (1) Subject to 
paragraph (g) of this section, a borrower who has applied for, but been 
denied, a refinanced loan authorized under paragraph (e) of this section 
by the holder of the borrower's fixed-rate PLUS or SLS loan, may obtain 
a loan from another lender for the purpose of discharging the fixed-rate 
loan and obtaining a variable interest rate.
    (2) A loan made under paragraph (f)(1) of this section--
    (i) Must bear interest at the variable interest rate described in 
Sec. 682.202(a)(2)(ii) and (3)(ii) as appropriate;
    (ii) May not operate to extend the repayment period provided for in 
paragraph (a)(8)(i) of this section; and

[[Page 676]]

    (iii) Must be disbursed to the holder of the fixed-rate loan to 
discharge the borrower's obligation thereon.
    (3) Upon receipt of the proceeds of a loan made under paragraph 
(f)(1) of this section, the holder of the fixed-rate loan shall, within 
five business days, apply the proceeds to discharge the borrower's 
obligation on the fixed-rate loan, and provide the refinancing lender 
with either a copy of the borrower's original promissory note evidencing 
the fixed-rate loan or the holder's written certification that the 
borrower's obligation on the fixed-rate loan has been fully discharged.
    (4) The refinancing lender may charge the borrower an insurance 
premium on a loan made under paragraph (f)(1) of this section, but may 
not charge a fee to cover administrative costs.
    (5) For purposes of deferments under Sec. 682.210, the refinancing 
loan--
    (i) Is considered a PLUS loan if any of the included loans is a PLUS 
loan made to a parent;
    (ii) Is considered an SLS loan if the combined loan does not include 
a PLUS loan made to a parent; or
    (iii) Is considered a loan to a ``new borrower'' as defined in 
Sec. 682.210(b)(7), if all the loans that were refinanced were made on 
or after July 1, 1987, for a period of enrollment beginning on or after 
that date.
    (g) Conditions for refinancing certain loans. (1) A lender may not 
refinance a loan under paragraphs (e) or (f) of this section if that 
loan is in default, involves a violation of a condition of reinsurance 
described in Sec. 682.406, or, in the case of a Federal SLS or Federal 
PLUS loan, is uninsured by the Secretary.
    (2)(i) Prior to refinancing a fixed-rate loan under paragraph (f) of 
this section, the lender shall obtain a written statement from the 
holder of the loan certifying that--
    (A) The holder has refused to refinance the fixed-rate loan under 
paragraph (e) of this section; and
    (B) The fixed-rate loan is eligible for insurance or reinsurance 
under paragraph (g)(1) of this section.
    (ii) The holder of the fixed-rate loan shall, within 10 business 
days of receiving a lender's written request to provide a certification 
under paragraph (g)(2)(i) of this section, provide the lender with that 
certification, or provide the lender and the guarantor on the loan with 
a written explanation of the reasons for its inability to provide the 
certification to the requesting lender.
    (iii) The refinancing lender may rely in good faith on the 
certification provided by the holder of the fixed-rate loan under 
paragraph (g)(2)(ii) of this section.
    (h) Consolidation loans. (1) For a Consolidation loan, the repayment 
period begins on the day of disbursement, with the first payment due 
within 60 days after the date of disbursement.
    (2) If the sum of the amount of the Consolidation loan and the 
unpaid balance on other student loans to the applicant--
    (i) Is less than $7,500, the borrower shall repay the Consolidation 
loan in not more than 10 years;
    (ii) Is equal to or greater than $7,500 but less than $10,000, the 
borrower shall repay the Consolidation loan in not more than 12 years;
    (iii) Is equal to or greater than $10,000 but less than $20,000, the 
borrower shall repay the Consolidation loan in not more than 15 years;
    (iv) Is equal to or greater than $20,000 but less than $40,000, the 
borrower shall repay the Consolidation loan in not more than 20 years;
    (v) Is equal to or greater than $40,000 but less than $60,000, the 
borrower shall repay the Consolidation loan in not more than 25 years; 
or
    (vi) Is equal to or greater than $60,000, the borrower shall repay 
the Consolidation loan in not more than 30 years.
    (3) For the purpose of paragraph (h)(2) of this section, the unpaid 
balance on other student loans--
    (i) May not exceed the amount of the Consolidation loan; and
    (ii) With the exception of the defaulted title IV loans on which the 
borrower has made satisfactory repayment arrangements with the holder of 
the loan, does not include the unpaid balance on any defaulted loans.
    (4) A repayment schedule for a Consolidation loan--
    (i) Must be established by the lender;

[[Page 677]]

    (ii) Must require that each payment equal at least the interest that 
accrues during the interval between scheduled payments.
    (5) Upon receipt of the proceeds of a loan made under paragraph 
(h)(2) of this section, the holder of the underlying loan shall promptly 
apply the proceeds to discharge fully the borrower's obligation on the 
underlying loan, and provide the consolidating lender with the holder's 
written certification that the borrower's obligation on the underlying 
loan has been fully discharged.
    (i) Treatment by a lender of borrowers' title IV, HEA program funds 
received from schools if the borrower withdraws. (1) A lender shall 
treat a refund or a return of title IV, HEA program funds under 
Sec. 668.22 when a student withdraws received by the lender from a 
school as a credit against the principal amount owed by the borrower on 
the borrower's loan.
    (2)(i) If a lender receives a refund or a return of title IV, HEA 
program funds under Sec. 668.22 when a student withdraws from a school 
on a loan that is no longer held by that lender, or that has been 
discharged by another lender by refinancing under Sec. 682.209(f) or by 
a Consolidation loan, the lender must transmit the amount of the 
payment, within 30 days of its receipt, to the lender to whom it 
assigned the loan, or to the lender that discharged the prior loan, with 
an explanation of the source of the payment.
    (ii) Upon receipt of a refund or a return of title IV, HEA program 
funds transmitted under paragraph (i)(2)(i) of this section, the holder 
of the loan promptly must provide written notice to the borrower that 
the holder has received the return of title IV, HEA program funds.
    (j) Certification on loans to be repaid through consolidation. 
Within 10 business days after receiving a written request for a 
certification from a lender under Sec. 682.206(f), a holder shall either 
provide the requesting lender the certification or, if it is unable to 
certify to the matters described in that paragraph, provide the 
requesting lender and the guarantor on the loan at issue with a written 
explanation of the reasons for its inability to provide the 
certification.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079, 1082, 
1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33352, 33593, June 28, 1994; 60 FR 30788, 
June 12, 1995; 60 FR 61756, Dec. 1, 1995; 62 FR 63434, Nov. 28, 1997; 64 
FR 18977, Apr. 16, 1999; 64 FR 58957, 59043, Nov. 1, 1999; 66 FR 34763, 
June 29, 2001; 67 FR 67078, Nov. 1, 2002]



Sec. 682.210  Deferment.

    (a) General. (1)(i) A borrower is entitled to have periodic 
installment payments of principal deferred during authorized periods 
after the beginning of the repayment period, pursuant to paragraph (b) 
of this section.
    (ii) With the exception of a deferment authorized under paragraph 
(o) of this section, a borrower may continue to receive a specific type 
of deferment that is limited to a maximum period of time only if the 
total amount of time that the borrower has received the deferment does 
not exceed the maximum time period allowed for the deferment.
    (2)(i) For a loan made before October 1, 1981, the borrower is also 
entitled to have periodic installments of principal deferred during the 
six-month period (post-deferment grace period) that begins after the 
completion of each deferment period or combination of those periods, 
except as provided in paragraph (a)(2)(ii) of this section.
    (ii) Once a borrower receives a post-deferment grace period 
following an unemployment deferment, as described in paragraph (b)(1)(v) 
of this section, the borrower does not qualify for additional post-
deferment grace periods following subsequent unemployment deferments.
    (3) Interest accrues and is paid by the borrower during the 
deferment period and the post-deferment grace period, if applicable, 
unless interest accrues and is paid by the Secretary for a Stafford loan 
and for all or a portion of a qualifying Consolidation loan that meets 
the requirements under Sec. 682.301.
    (4) As a condition for receiving a deferment, except for purposes of 
paragraphs (c)(1)(ii) and (iii) of this section,

[[Page 678]]

the borrower must request the deferment, and provide the lender with all 
information and documents required to establish eligibility for a 
specific type of deferment.
    (5) An authorized deferment period begins on the date that the 
holder determines is the date that the condition entitling the borrower 
to the deferment first existed, except that an initial unemployment 
deferment as described in paragraph (h)(2) of this section cannot begin 
more than 6 months before the date the holder receives a request and 
documentation required for the deferment.
    (6) An authorized deferment period ends on the earlier of--
    (i) The date when the condition establishing the borrower's 
eligibility for the deferment ends;
    (ii) Except as provided in paragraph (a)(6)(iv) of this section, the 
date on which, as certified by an authorized official, the borrower's 
eligibility for the deferment is expected to end;
    (iii) Except as provided in paragraph (a)(6)(iv) of this section, 
the expiration date of the period covered by any certification required 
by this section to be obtained for the deferment;
    (iv) In the case of an in-school deferment, the student's 
anticipated graduation date as certified by an authorized official of 
the school; or
    (v) The date when the condition providing the basis for the 
borrower's eligibility for the deferment has continued to exist for the 
maximum amount of time allowed for that type of deferment.
    (7) A lender may not deny a borrower a deferment to which the 
borrower is entitled, even though the borrower may be delinquent, but 
not in default, in making required installment payments. The 270- or 
330-day period required to establish default does not run during the 
deferment and post-deferment grace periods. Unless the lender has 
granted the borrower forbearance under Sec. 682.211, when the deferment 
and, if applicable, the post-deferment grace period expire, a borrower 
resumes any delinquency status that existed when the deferment period 
began.
    (8) A borrower whose loan is in default is not eligible for a 
deferment on that loan, unless the borrower has made payment 
arrangements acceptable to the lender prior to the payment of a default 
claim by a guaranty agency.
    (9) The borrower promptly must inform the lender when the condition 
entitling the borrower to a deferment no longer exists.
    (10) Authorized deferments are described in paragraph (b) of this 
section. Specific requirements for each deferment are set forth in 
paragraphs (c) through (s) of this section.
    (11) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender shall grant a request for 
deferment if both individuals simultaneously meet the requirements of 
this section for receiving the same, or different deferments.
    (b) Authorized deferments. (1) Deferment is authorized for a FFEL 
borrower during any period when the borrower is--
    (i) Except as provided in paragraph (c)(5) of this section, engaged 
in full-time study at a school, or at a school that is operated by the 
Federal Government (e.g., the service academies), unless the borrower is 
not a national of the United States and is pursuing a course of study at 
a school not located in a State;
    (ii) Engaged in a course of study under an eligible graduate 
fellowship program;
    (iii) Engaged in a rehabilitation training program for disabled 
individuals;
    (iv) Temporarily totally disabled, or unable to secure employment 
because the borrower is caring for a spouse or other dependent who is 
disabled and requires continuous nursing or similar services for up to 
three years; or
    (v) Conscientiously seeking, but unable to find, full-time 
employment in the United States, for up to two years.
    (2) For a borrower of a Stafford or SLS loan, and for a parent 
borrower of a PLUS loan made before August 15, 1983, deferment is 
authorized during any period when the borrower is--
    (i) On active duty status in the United States Armed Forces, or an 
officer in the Commissioned Corps of the United States Public Health 
Service,

[[Page 679]]

for up to three years (including any period during which the borrower 
received a deferment authorized under paragraph (b)(5)(i) of this 
section);
    (ii) A full-time volunteer under the Peace Corps Act, for up to 
three years;
    (iii) A full-time volunteer under title I of the Domestic Volunteer 
Service Act of 1973 (ACTION programs), for up to three years;
    (iv) A full-time volunteer for a tax-exempt organization, for up to 
three years; or
    (v) Engaged in an internship of residency program, for up to two 
years (including any period during which the borrower received a 
deferment authorized under paragraph (b)(5)(iii) of this section).
    (3) For a borrower of a Stafford or SLS loan who has been enrolled 
on at least a half-time basis at an institution of higher education 
during the six months preceding the beginning of this deferment, 
deferment is authorized during a period of up to six months during which 
the borrower is--
    (i) (A) Pregnant;
    (B) Caring for his or her newborn child; or
    (C) Caring for a child immediately following the placement of the 
child with the borrower before or immediately following adoption; and
    (ii) Not attending a school or gainfully employed.
    (4) For a ``new borrower,'' as defined in paragraph (b)(7) of this 
section, deferment is authorized during periods when the borrower is 
engaged in at least half-time study at a school, unless the borrower is 
not a national of the United States and is pursuing a course of study at 
a school not located in a State.
    (5) For a new borrower, as defined in paragraph (b)(7) of this 
section, of a Stafford or SLS loan, deferment is authorized during any 
period when the borrower is--
    (i) On active duty status in the National Oceanic and Atmospheric 
Administration Corps, for up to three years (including any period during 
which the borrower received a deferment authorized under paragraph 
(b)(2)(i) of this section);
    (ii) Up to three years of service as a full-time teacher in a public 
or non-profit private elementary or secondary school in a teacher 
shortage area designated by the Secretary under paragraph (q) of this 
section.
    (iii) Engaged in an internship or residency program, for up to two 
years (including any period during which the borrower received a 
deferment authorized under paragraph (b)(2)(v) of this section); or
    (iv) A mother who has preschool-age children (i.e., children who 
have not enrolled in first grade) and who is earning not more than $1 
per hour above the Federal minimum wage, for up to 12 months of 
employment, and who began that full-time employment within one year of 
entering or re-entering the work force. Full-time employment involves at 
least 30 hours of work a week and it expected to last at least 3 months.
    (6) For a parent borrower of a PLUS loan, deferment is authorized 
during any period when a student on whose behalf the parent borrower 
received the loan--
    (i) Is not independent as defined in section 480(d) of the Act; and
    (ii) Meets the conditions and provides the required documentation, 
for any of the deferments described in paragraphs (b)(1)(i)-(iii) and 
(b)(4) of this section.
    (7) For purposes of paragraph (b)(5) of this section, a ``new 
borrower'' with respect to a loan is a borrower who, on the date he or 
she signs the promissory note, has no outstanding balance on--
    (i) A Stafford, SLS, or PLUS loan made prior to July 1, 1987 for a 
period of enrollment beginning prior to July 1, 1987; or
    (ii) A Consolidation loan that repaid a loan made prior to July 1, 
1987 and for a period of enrollment beginning prior to July 1, 1987.
    (c) In-school deferment. (1) Except as provided in paragraph (c)(5) 
of this section, the lender processes a deferment for full-time study or 
half-time study at a school, when--
    (i) The borrower submits a request and supporting documentation for 
a deferment;
    (ii) The lender receives information from the borrower's school 
about the borrower's eligibility in connection with a new loan; or

[[Page 680]]

    (iii) The lender receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower's enrollment status supports eligibility for a deferment.
    (2) The lender must notify the borrower that a deferment has been 
granted based on paragraph (c)(1)(ii) or (iii) of this section and that 
the borrower has the option to pay interest that accrues on an 
unsubsidized FFEL Program loan or to cancel the deferment and continue 
paying on the loan. The lender must include in the notice an explanation 
of the consequences of these options.
    (3) The lender must consider a deferment granted on the basis of a 
certified loan application or other information certified by the school 
to cover the period lasting until the anticipated graduation date 
appearing on the application, and as updated by notice or SSCR update to 
the lender from the school or guaranty agency, unless and until it 
receives notice that the borrower has ceased the level of study (i.e., 
full-time or half-time) required for the deferment.
    (4) In the case of a FFEL borrower, the lender shall treat a 
certified loan application or other form certified by the school or for 
multiple holders of a borrower's loans, shared data from the Student 
Status Confirmation Report, as sufficient documentation for an in-school 
student deferment for any outstanding FFEL loan previously made to the 
borrower that is held by the lender.
    (5) A borrower serving in a medical internship residency program, 
except for an internship in dentistry, is prohibited from receiving or 
continuing a deferment on a Stafford, or a PLUS (unless based on the 
dependent's status) SLS, or Consolidation loan under paragraph (c) of 
this section.
    (d) Graduate fellowship deferment. (1) To qualify for a deferment 
for study in a graduate fellowship program, a borrower shall provide the 
lender with a statement from an authorized official of the borrower's 
fellowship program certifying--
    (i) That the borrower holds at least a baccalaureate degree 
conferred by an institution of higher education;
    (ii) That the borrower has been accepted or recommended by an 
institution of higher education for acceptance on a full-time basis into 
an eligible graduate fellowship program; and
    (iii) The borrower's anticipated completion date in the program.
    (2) For purposes of paragraph (d)(1) of this section, an eligible 
graduate fellowship program is a fellowship program that--
    (i) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (ii) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (iii) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (iv) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) To qualify for a 
rehabilitation training program deferment, a borrower shall provide the 
lender with a statement from an authorized official of the borrower's 
rehabilitation training program certifying that the borrower is either 
receiving, or is scheduled to receive, services under an eligible 
rehabilitation training program for disabled individuals.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational rehabilitation 
programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
program;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and

[[Page 681]]

    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;
    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment by 
the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Temporary total disability deferment. (1) To qualify for a 
temporary total disability deferment, a borrower shall provide the 
lender with a statement from a physician, who is a doctor of medicine or 
osteopathy and is legally authorized to practice, certifying that the 
borrower is temporarily totally disabled as defined in Sec. 682.200(b).
    (2) A borrower is not considered temporarily totally disabled on the 
basis of a condition that existed before he or she applied for the loan, 
unless the condition has substantially deteriorated so as to render the 
borrower temporarily totally disabled, as substantiated by the statement 
required under paragraph (f)(1) of this section, after the borrower 
submitted the loan application.
    (3) A lender may not grant a deferment based on a single 
certification under paragraph (f)(1) of this section beyond the date 
that is six months after the date of certification.
    (g) Dependent's disability deferment. (1) To qualify for a deferment 
given to a borrower whose spouse or other dependent requires continuous 
nursing or similar services for a period of at least 90 days, the 
borrower shall provide the lender with a statement--
    (i) From a physician, who is a doctor of medicine or osteopathy and 
is legally authorized to practice, certifying that the borrower's spouse 
or dependent requires continuous nursing or similar services for a 
period of at least 90 days; and
    (ii) From the borrower, certifying that the borrower is unable to 
secure full-time employment because he or she is providing continuous 
nursing or similar services to the borrower's spouse or other dependent. 
For the purpose of this paragraph, full-time employment involves at 
least 30 hours of work per week and is expected to last at least three 
months.
    (2) A lender may not grant a deferment based on a single 
certification under paragraph (g)(1) of this section beyond the date 
that is six months after the date of the certification.
    (h) Unemployment deferment. (1) A borrower qualifies for an 
unemployment deferment by providing evidence of eligibility for 
unemployment benefits to the lender.
    (2) A borrower also qualifies for an unemployment deferment by 
providing to the lender a written certification, or an equivalent as 
approved by the Secretary, that--
    (i) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (ii) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding 6-month period 
to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (h)(2) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least three months.

[[Page 682]]

    (iv) The initial period of unemployment deferment may be granted for 
a period of unemployment beginning up to 6 months before the date the 
lender receives the borrower's request, and may be granted for up to 6 
months after that date.
    (4) A lender may not grant an unemployment deferment beyond the date 
that is 6 months after the date the borrower provides evidence of the 
borrower's eligibility for unemployment insurance benefits under 
paragraph (h)(1) of this section or the date the borrower provides the 
written certification, or an approved equivalent, under paragraph (h)(2) 
of this section.
    (i) Military deferment. (1) To qualify for a military deferment, a 
borrower shall provide the lender with--
    (i) A written statement from the borrower's commanding or personnel 
officer certifying--
    (A) That the borrower is on active duty in the Armed Forces of the 
United States;
    (B) The date on which the borrower's service began; and
    (C) The date on which the borrower's service is expected to end; or
    (ii)(A) A copy of the borrower's official military orders; and
    (B) A copy of the borrower's military identification.
    (2) For the purpose of this section, the Armed Forces means the 
Army, Navy, Air Force, Marine Corps, and the Coast Guard.
    (3) A borrower enlisted in a reserve component of the Armed Forces 
may qualify for a military deferment only for service on a full-time 
basis that is expected to last for a period of at least one year in 
length, as evidenced by official military orders, unless an order for 
national mobilization of reservists is issued.
    (4) A borrower enlisted in the National Guard qualifies for a 
military deferment only while the borrower is on active duty status as a 
member of the U.S. Army or Air Force Reserves, and meets the 
requirements of paragraph (i)(3) of this section.
    (j) Public Health Service deferment. To qualify for a Public Health 
Service deferment, the borrower shall provide the lender with a 
statement from an authorized official of the United States Public Health 
Service (USPHS) certifying--
    (1) That the borrower is engaged in full-time service as an officer 
in the Commissioned Corps of the USPHS;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (k) Peace Corps deferment. (1) To qualify for a deferment for 
service under the Peace Corps Act, the borrower shall provide the lender 
with a statement from an authorized official of the Peace Corps 
certifying--
    (i) That the borrower has agreed to serve for a term of at least one 
year;
    (ii) The date on which the borrower's service began; and
    (iii) The date on which the borrower's service is expected to end.
    (2) The lender must grant a deferment for the borrower's full term 
of service in the Peace Corps, not to exceed three years.
    (l) Full-time volunteer service in the ACTION programs. To qualify 
for a deferment as a full-time paid volunteer in an ACTION program, the 
borrower shall provide the lender with a statement from an authorized 
official of the program certifying--
    (1) That the borrower has agreed to serve for a term of at least one 
year;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (m) Deferment for full-time volunteer service for a tax-exempt 
organization. To qualify for a deferment as a full-time paid volunteer 
for a tax-exempt organization, a borrower shall provide the lender with 
a statement from an authorized official of the volunteer program 
certifying--
    (1) That the borrower--
    (i) Serves in an organization that has obtained an exemption from 
taxation under section 501(c)(3) of the Internal Revenue Code of 1986;
    (ii) Provides service to low-income persons and their communities to 
assist them in eliminating poverty and poverty-related human, social, 
and environmental conditions;
    (iii) Does not receive compensation that exceeds the rate prescribed 
under section 6 of the Fair Labor Standards

[[Page 683]]

Act of 1938 (the Federal minimum wage), except that the tax-exempt 
organization may provide health, retirement, and other fringe benefits 
to the volunteer that are substantially equivalent to the benefits 
offered to other employees of the organization;
    (iv) Does not, as part of his or her duties, give religious 
instruction, conduct worship services, engage in religious 
proselytizing, or engage in fund-raising to support religious 
activities; and
    (v) Has agreed to serve on a full-time basis for a term of at least 
one year;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (n) Internship or residency deferment. (1) To qualify for an 
internship or residency deferment under paragraphs (b)(2)(v) or 
(b)(5)(iii) of this section, the borrower shall provide the lender with 
a statement from an authorized official of the organization with which 
the borrower is undertaking the internship or residency program 
certifying--
    (i) That the internship or residency program is a supervised 
training program that requires the borrower to hold at least a 
baccalaureate degree prior to acceptance into the program;
    (ii) That, except for a borrower that provides the statement from a 
State official described in paragraph (n)(2) of this section, the 
internship or residency program leads to a degree or certificate awarded 
by an institution of higher education, a hospital, or a health care 
facility that offers postgraduate training;
    (iii) That the borrower has been accepted into the internship or 
residency program; and
    (iv) The anticipated dates on which the borrower will begin and 
complete the internship or residency program, or, in the case of a 
borrower providing the statement described in paragraph (n)(2) of this 
section, the anticipated date on which the borrower will begin and 
complete the minimum period of participation in the internship program 
that the State requires be completed before an individual may be 
certified for professional practice or service.
    (2) For a borrower who does not provide a statement certifying to 
the matters set forth in paragraph (n)(1)(ii) of this section to qualify 
for an internship deferment under paragraph (b)(2)(v) of this section, 
the borrower shall provide the lender with a statement from an official 
of the appropriate State licensing agency certifying that the internship 
or residency program, or a portion thereof, is required to be completed 
before the borrower may be certified for professional practice or 
service.
    (o) Parental-leave deferment. (1) To qualify for the parental-leave 
deferment described in paragraph (b)(3) of this section, the borrower 
shall provide the lender with--
    (i) A statement from an authorized official of a participating 
school certifying that the borrower was enrolled on at least a half-time 
basis during the six months preceding the beginning of the deferment 
period;
    (ii) A statement from the borrower certifying that the borrower--
    (A) Is pregnant, caring for his or her newborn child, or caring for 
a child immediately following the placement of the child with the 
borrower in connection with an adoption;
    (B) Is not, and will not be, attending school during the deferment 
period; and
    (C) Is not, and will not be, engaged in full-time employment during 
the deferment period; and
    (iii) A physician's statement demonstrating the existence of the 
pregnancy, a birth certificate, or a statement from the adoption agency 
official evidencing a pre-adoption placement.
    (2) For purposes of paragraph (o)(1)(ii)(C) of this section, full-
time employment involves at least 30 hours of work per week and is 
expected to last at least three months.
    (p) NOAA deferment. To qualify for a National Oceanic and 
Atmospheric Administration (NOAA) deferment, the borrower shall provide 
the lender with a statement from an authorized official of the NOAA 
corps, certifying--
    (1) That the borrower is on active duty service in the NOAA corps;
    (2) The date on which the borrower's service began; and
    (3) The date on which the borrower's service is expected to end.
    (q) Targeted teacher deferment. (1) To qualify for a targeted 
teacher

[[Page 684]]

deferment under paragraph (b)(5)(ii) of this section, the borrower, for 
each school year of service for which a deferment is requested, must 
provide to the lender--
    (i) A statement by the chief administrative officer of the public or 
nonprofit private elementary or secondary school in which the borrower 
is teaching, certifying that the borrower is employed as a full-time 
teacher; and
    (ii) A certification that he or she is teaching in a teacher 
shortage area designated by the Secretary as provided in paragraphs (q) 
(5) through (7) of this section, as described in paragraph (q)(2) of 
this section.
    (2) In order to satisfy the requirement for certification that a 
borrower is teaching in a teacher shortage area designated by the 
Secretary, a borrower must do one of the following:
    (i) If the borrower is teaching in a State in which the Chief State 
School Officer has complied with paragraph (q)(3) of this section and 
provides an annual listing of designated teacher shortage areas to the 
State's chief administrative officers whose schools are affected by the 
Secretary's designations, the borrower may obtain a certification that 
he or she is teaching in a teacher shortage area from his or her 
school's chief administrative officer.
    (ii) If a borrower is teaching in a State in which the Chief State 
School Officer has not complied with paragraph (q)(3) of this section or 
does not provide an annual listing of designated teacher shortage areas 
to the State's chief administrative officers whose schools are affected 
by the Secretary's designations, the borrower must obtain certification 
that he or she is teaching in a teacher shortage area from the Chief 
State School Officer for the State in which the borrower is teaching.
    (3) In the case of a State in which borrowers wish to obtain 
certifications as provided for in paragraph (q)(2)(i) of this section, 
the State's Chief State School Officer must first have notified the 
Secretary, by means of a one-time written assurance, that he or she 
provides annually to the State's chief administrative officers whose 
schools are affected by the Secretary's designations and the guaranty 
agency for that State, a listing of the teacher shortage areas 
designated by the Secretary as provided for in paragraphs (q) (5) 
through (7) of this section.
    (4) If a borrower who receives a deferment continues to teach in the 
same teacher shortage area as that in which he or she was teaching when 
the deferment was originally granted, the borrower shall, at the 
borrower's request, continue to receive the deferment for those 
subsequent years, up to the three-year maximum deferment period, even if 
his or her position does not continue to be within an area designated by 
the Secretary as a teacher shortage area in those subsequent years. To 
continue to receive the deferment in a subsequent year under this 
paragraph, the borrower shall provide the lender with a statement by the 
chief administrative officer of the public or nonprofit private 
elementary or secondary school that employs the borrower, certifying 
that the borrower continues to be employed as a full-time teacher in the 
same teacher shortage area for which the deferment was received for the 
previous year.
    (5) For purposes of this section a teacher shortage area is--
    (i)(A) A geographic region of the State in which there is a shortage 
of elementary or secondary school teachers; or
    (B) A specific grade level or academic, instructional, subject-
matter, or discipline classification in which there is a statewide 
shortage of elementary or secondary school teachers; and
    (ii) Designated by the Secretary under paragraphs (q)(6) or (q)(7) 
of this section.
    (6)(i) In order for the Secretary to designate one or more teacher 
shortage areas in a State for a school year, the Chief State School 
Officer shall by January 1 of the calendar year in which the school year 
begins, and in accordance with objective written standards, propose 
teacher shortage areas to the Secretary for designation. With respect to 
private nonprofit schools included in the recommendation, the Chief 
State School Officer shall consult with appropriate officials of the 
private nonprofit schools in the State prior to submitting the 
recommendation.

[[Page 685]]

    (ii) In identifying teacher shortage areas to propose for 
designation under paragraph (q)(6)(i) of this section, the Chief State 
School Officer shall consider data from the school year in which the 
recommendation is to be made, unless that data is not yet available, in 
which case he or she may use data from the immediately preceding school 
year, with respect to--
    (A) Teaching positions that are unfilled;
    (B) Teaching positions that are filled by teachers who are certified 
by irregular, provisional, temporary, or emergency certification; and
    (C) Teaching positions that are filled by teachers who are 
certified, but who are teaching in academic subject areas other than 
their area of preparation.
    (iii) If the total number of unduplicated full-time equivalent (FTE) 
elementary or secondary teaching positions identified under paragraph 
(q)(6)(ii) of this section in the shortage areas proposed by the State 
for designation does not exceed 5 percent of the total number of FTE 
elementary and secondary teaching positions in the State, the Secretary 
designates those areas as teacher shortage areas.
    (iv) If the total number of unduplicated FTE elementary and 
secondary teaching positions identified under paragraph (q)(6)(ii) of 
this section in the shortage areas proposed by the State for designation 
exceeds 5 percent of the total number of elementary and secondary FTE 
teaching positions in the State, the Chief State School Officer shall 
submit, with the list of proposed areas, supporting documentation 
showing the methods used for identifying shortage areas, and an 
explanation of the reasons why the Secretary should nevertheless 
designate all of the proposed areas as teacher shortage areas. The 
explanation must include a ranking of the proposed shortage areas 
according to priority, to assist the Secretary in determining which 
areas should be designated. The Secretary, after considering the 
explanation, determines which shortage areas to designate as teacher 
shortage areas.
    (7) A Chief State School Officer may submit to the Secretary for 
approval an alternative written procedure to the one described in 
paragraph (q)(6) of this section, for the Chief State School Officer to 
use to select the teacher shortage areas recommended to the Secretary 
for designation, and for the Secretary to use to choose the areas to be 
designated. If the Secretary approves the proposed alternative 
procedure, in writing, that procedure, once approved, may be used 
instead of the procedure described in paragraph (q)(6) of this section 
for designation of teacher shortage areas in that State.
    (8) For purposes of paragraphs (q)(1) through (7) of this section--
    (i) The definition of the term school in Sec. 682.200(b) does not 
apply;
    (ii) Elementary school means a day or residential school that 
provides elementary education, as determined under State law;
    (iii) Secondary school means a day or residential school that 
provides secondary education, as determined under State law. In the 
absence of applicable State law, the Secretary may determine, with 
respect to that State, whether the term ``secondary school'' includes 
education beyond the twelfth grade;
    (iv) Teacher means a professional who provides direct and personal 
services to students for their educational development through classroom 
teaching;
    (v) Chief State School Officer means the highest ranking educational 
official for elementary and secondary education for the State;
    (vi) School year means the period from July 1 of a calendar year 
through June 30 of the following calendar year;
    (vii) Teacher shortage area means an area of specific grade, subject 
matter, or discipline classification, or a geographic area in which the 
Secretary determines that there is an inadequate supply of elementary or 
secondary school teachers; and
    (viii) Full-time equivalent means the standard used by a State in 
defining full-time employment, but not less than 30 hours per week. For 
purposes of counting full-time equivalent teacher positions, a teacher 
working part of his or her total hours in a position that is designated 
as a teacher shortage area is counted on a pro rata basis corresponding 
to the percentage of his or

[[Page 686]]

her working hours spent in such a position.
    (r) Working-mother deferment. (1) To qualify for the working-mother 
deferment described in paragraph (b)(5)(iv) of this section, the 
borrower shall provide the lender with a statement certifying that she--
    (i) Is the mother of a preschool-age child;
    (ii) Entered or reentered the workforce not more than one year 
before the beginning date of the period for which the deferment is being 
sought;
    (iii) Is currently engaged in full-time employment; and
    (iv) Does not receive compensation that exceeds $1 per hour above 
the rate prescribed under section 6 of the Fair Labor Standards Act of 
1938 (the Federal minimum wage).
    (2) In addition to the certification required under paragraph (r)(1) 
of this section, the borrower shall provide to the lender documents 
demonstrating the age of her child (e.g., a birth certificate) and the 
rate of her compensation (e.g., a pay stub showing her hourly rate of 
pay).
    (3) For purposes of this paragraph--
    (i) A preschool-age child is one who has not yet enrolled in first 
grade or a higher grade in elementary school; and
    (ii) Full-time employment involves at least 30 hours of work a week 
and is expected to last at least 3 months.
    (s) Deferments for new borrowers on or after July 1, 1993--(1) 
General. A new borrower who receives an FFEL Program loan first 
disbursed on or after July 1, 1993 is entitled to receive deferments 
under paragraphs (s)(2) through (s)(6) of this section. For purposes of 
paragraphs (s)(2) through (s)(6) of this section, a ``new borrower'' is 
an individual who has no outstanding principal or interest balance on an 
FFEL Program loan as of July 1, 1993 or on the date he or she obtains a 
loan on or after July 1, 1993. This term also includes a borrower who 
obtains a Federal Consolidation Loan on or after July 1, 1993 if the 
borrower has no other outstanding FFEL Program loan when the 
Consolidation Loan was made.
    (2) In-school deferment. An eligible borrower is entitled to a 
deferment based on the borrower's at least half-time study in accordance 
with the rules prescribed in Sec. 682.210(c), except that the borrower 
is not required to obtain a Stafford or SLS loan for the period of 
enrollment covered by the deferment.
    (3) Graduate fellowship deferment. An eligible borrower is entitled 
to a graduate fellowship deferment in accordance with the rules 
prescribed in Sec. 682.210(d).
    (4) Rehabilitation training program deferment. An eligible borrower 
is entitled to a rehabilitation training program deferment in accordance 
with the rules prescribed in Sec. 682.210(e).
    (5) Unemployment deferment. An eligible borrower is entitled to an 
unemployment deferment in accordance with the rules prescribed in 
Sec. 682.210(h) for periods that, collectively, do not exceed 3 years.
    (6) Economic hardship deferment. An eligible borrower is entitled to 
an economic hardship deferment for periods of up to one year at a time 
that, collectively, do not exceed 3 years (except that a borrower who 
receives a deferment under paragraph (s)(6)(vi) of this section is 
entitled to an economic hardship deferment for the lesser of the 
borrower's full term of service in the Peace Corps or the borrower's 
remaining period of economic hardship deferment eligibility under the 3-
year maximum), if the borrower provides documentation satisfactory to 
the lender showing that the borrower is within any of the categories 
described in paragraphs (s)(6)(i) through (s)(6)(vi) of this section.
    (i) Has been granted an economic hardship deferment under either the 
Direct Loan or Federal Perkins Loan Programs for the period of time for 
which the borrower has requested an economic hardship deferment for his 
or her FFEL loan.
    (ii) Is receiving payment under a Federal or State public assistance 
program, such as Aid to Families with Dependent Children, Supplemental 
Security Income, Food Stamps, or State general public assistance.
    (iii) Is working full-time and has a monthly income that does not 
exceed the greater of (as calculated on a monthly basis)--

[[Page 687]]

    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 100 percent of the poverty line for a family 
of two, as determined in accordance with section 673(2) of the Community 
Services Block Grant Act.
    (iv) Is working full-time and has a Federal education debt burden 
that equals or exceeds 20 percent of the borrower's monthly income, and 
that income, minus the borrower's Federal education debt burden, is less 
than 220 percent of the amount described in paragraph (s)(6)(iii) of 
this section.
    (v) Is not working full-time and has a monthly income that--
    (A) Does not exceed twice the amount described in paragraph 
(s)(6)(iii) of this section; and
    (B) After deducting an amount equal to the borrower's Federal 
education debt burden, the remaining amount of the borrower's income 
does not exceed the amount described in paragraph (s)(6)(iii) of this 
section.
    (vi) Is serving as a volunteer in the Peace Corps.
    (vii) In determining a borrower's Federal education debt burden for 
purposes of an economic hardship deferment under paragraphs (s)(6)(iv) 
and (v) of this section, the lender shall--
    (A) If the Federal postsecondary education loan is scheduled to be 
repaid in 10 years or less, use the actual monthly payment amount (or a 
proportional share if the payments are due less frequently than 
monthly);
    (B) If the Federal postsecondary education loan is scheduled to be 
repaid in more than 10 years, use a monthly payment amount (or a 
proportional share if the payments are due less frequently than monthly) 
that would have been due on the loan if the loan had been scheduled to 
be repaid in 10 years; and
    (C) Require the borrower to provide evidence that would enable the 
lender to determine the amount of the monthly payments that would have 
been owed by the borrower during the deferment period.
    (viii) For an initial period of deferment granted under paragraphs 
(s)(6)(iii) through (v) of this section, the lender must require the 
borrower to submit evidence showing the amount of the borrower's monthly 
income.
    (ix) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraphs (s)(6)(iii) through (v) of this section, the lender must 
require the borrower to submit evidence showing the amount of the 
borrower's monthly income or a copy of the borrower's most recently 
filed Federal income tax return.
    (x) For purposes of paragraph (s)(6) of this section, a borrower's 
monthly income is the gross amount of income received by the borrower 
from employment and from other sources, or one-twelfth of the borrower's 
adjusted gross income, as recorded on the borrower's most recently filed 
Federal income tax return.
    (xi) For purposes of paragraph (s)(6) of this section, a borrower is 
considered to be working full-time if the borrower is expected to be 
employed for at least three consecutive months at 30 hours per week.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33594, June 29, 1994; 59 FR 61215, Nov. 
29, 1994; 60 FR 30788, June 12, 1995; 60 FR 61756, Dec. 1, 1995; 64 FR 
18977, Apr. 16, 1999; 64 FR 57531, Oct. 25, 1999; 64 FR 58626, Oct. 29, 
1999; 64 FR 58958, Nov. 1, 1999; 65 FR 65619, Nov. 1, 2000; 66 FR 34763, 
June 29, 2001; 67 FR 67078, Nov. 1, 2002]



Sec. 682.211  Forbearance.

    (a)(1) The Secretary encourages a lender to grant forbearance for 
the benefit of a borrower or endorser in order to prevent the borrower 
or endorser from defaulting on the borrower's or endorser's repayment 
obligation, or to permit the borrower or endorser to resume honoring 
that obligation after default. Forbearance means permitting the 
temporary cessation of payments, allowing an extension of time for 
making payments, or temporarily accepting smaller payments than 
previously were scheduled.

[[Page 688]]

    (2) Subject to paragraph (g) of this section, a lender may grant 
forbearance of payments of principal and interest under paragraphs (b), 
(c), and (d) of this section only if--
    (i) The lender reasonably believes, and documents in the borrower's 
file, that the borrower or endorser intends to repay the loan but, due 
to poor health or other acceptable reasons, is currently unable to make 
scheduled payments; or
    (ii) The borrower's payments of principal are deferred under 
Sec. 682.210 and the Secretary does not pay interest benefits on behalf 
of the borrower under Sec. 682.301.
    (3) If two individuals are jointly liable for repayment of a PLUS 
loan or a Consolidation loan, the lender may grant forbearance on 
repayment of the loan only if the ability of both individuals to make 
scheduled payments has been impaired based on the same or differing 
conditions.
    (4) Except as provided in paragraph (f)(9) of this section, if 
payments of interest are forborne, they may be capitalized as provided 
in Sec. 682.202(b).
    (b) A lender may grant forbearance if--
    (1) The lender and the borrower or endorser agree to the terms of 
the forbearance and, unless the agreement was in writing, the lender 
sends, within 30 days, a notice to the borrower or endorser confirming 
the terms of the forbearance; or
    (2) In the case of forbearance of interest during a period of 
deferment, if the lender informs the borrower at the time the deferment 
is granted that interest payments are to be forborne.
    (c) A lender may grant forbearance for a period of up to one year at 
a time if both the borrower or endorser and an authorized official of 
the lender agree to the terms of the forbearance. If the lender and the 
borrower or endorser agree to the terms orally, the lender must notify 
the borrower or endorser of the terms within 30 days of that agreement.
    (d) A guaranty agency may authorize a lender to grant forbearance to 
permit a borrower or endorser to resume honoring the agreement to repay 
the debt after default but prior to claim payment. The terms of the 
forbearance agreement in this situation must include a new signed 
agreement to repay the debt.
    (e) Except in the case of forbearance of interest payments during a 
deferment period, if a forbearance involves the postponement of all 
payments, the lender must contact the borrower or endorser at least once 
every six months during the period of forbearance to inform the borrower 
or endorser of--
    (1) The outstanding obligation to repay;
    (2) The amount of the unpaid principal balance and any unpaid 
interest that has accrued on the loan;
    (3) The fact that interest will accrue on the loan for the full term 
of the forbearance; and
    (4) The borrower's or endorser's option to discontinue the 
forbearance at any time.
    (f) A lender may grant forbearance, upon notice to the borrower or 
if applicable, the endorser, with respect to payments of interest and 
principal that are overdue or would be due--
    (1) For a properly granted period of deferment for which the lender 
learns the borrower did not qualify;
    (2) Upon the beginning of an authorized deferment period under 
Sec. 682.210, or an administrative forbearance period as specified under 
paragraph (f)(11) or (i)(2) of this section;
    (3) For the period beginning when the borrower entered repayment 
until the first payment due date was established;
    (4) For the period prior to the borrower's filing of a bankruptcy 
petition as provided in Sec. 682.402(f).
    (5) For the periods described in Sec. 682.402(c) in regard to the 
borrower's total and permanent disability;
    (6) For a period not to exceed an additional 60 days after the 
lender has suspended collection activity for the initial 60-day period 
required pursuant to Sec. 682.211(i)(6) and Sec. 682.402(b)(3), when the 
lender receives reliable information that the borrower (or student in 
the case of a PLUS loan) has died;
    (7) For periods necessary for the Secretary or guaranty agency to 
determine the borrower's eligibility for discharge of the loan because 
of an unpaid refund, attendance at a closed school or false 
certification of loan eligibility,

[[Page 689]]

pursuant to Sec. 682.402(d) or (e), or the borrower's or, if applicable, 
endorser's bankruptcy, pursuant to Sec. 682.402(f); or
    (8) For a period of delinquency at the time a loan is sold or 
transferred, if the borrower or endorser is less than 60 days delinquent 
on the loan at the time of sale or transfer.
    (9) For a period of delinquency that may remain after a borrower 
ends a period of deferment or mandatory forbearance until the next due 
date, which can be no later than 45 days after the period ends.
    (10) For a period not to exceed 60 days necessary for the lender to 
collect and process documentation supporting the borrower's request for 
a deferment, forbearance, change in repayment plan, or consolidation 
loan. Interest that accrues during this period is not capitalized.
    (11) For a period not to exceed 3 months when the lender determines 
that a borrower's ability to make payments has been adversely affected 
by a natural disaster, a local or national emergency as declared by the 
appropriate government agency, or a military mobilization.
    (g) In granting a forbearance under this section, except for a 
forbearance under paragraph (i)(5) of this section, a lender shall grant 
a temporary cessation of payments, unless the borrower chooses another 
form of forbearance subject to paragraph (a)(1) of this section.
    (h) Mandatory forbearance. (1) Medical or dental interns or 
residents. Upon receipt of a request and sufficient supporting 
documentation, as described in Sec. 682.210(n), from a borrower serving 
in a medical or dental internship or residency program, a lender shall 
grant forbearance to the borrower in yearly increments (or a lesser 
period equal to the actual period during which the borrower is eligible) 
if the borrower has exhausted his or her eligibility for a deferment 
under Sec. 682.210(n), or the borrower's promissory note does not 
provide for such a deferment--
    (i) For the length of time remaining in the borrower's medical or 
dental internship or residency that must be successfully completed 
before the borrower may begin professional practice or service; or
    (ii) For the length of time that the borrower is serving in a 
medical or dental internship or residency program leading to a degree or 
certificate awarded by an institution of higher education, a hospital, 
or a health care facility that offers postgraduate training.
    (2) Borrowers who are not medical or dental interns or residents, 
and endorsers. Upon receipt of a request and sufficient supporting 
documentation from an endorser (if applicable), or from a borrower 
(other than a borrower who is serving in a medical or dental internship 
or residency described in paragraph (h)(1) of this section), a lender 
shall grant forbearance--
    (i) In increments up to one year, for periods that collectively do 
not exceed three years, if--
    (A) The borrower or endorser is currently obligated to make payments 
on Title IV loans; and
    (B) The amount of those payments each month (or a proportional share 
if the payments are due less frequently than monthly) is collectively 
equal to or greater than 20 percent of the borrower's or endorser's 
total monthly income;
    (ii) In yearly increments (or a lesser period equal to the actual 
period during which the borrower is eligible) for as long as a borrower-
-
    (A) Is serving in a national service position for which the borrower 
receives a national service educational award under the National and 
Community Service Trust Act of 1993;
    (B) Is performing the type of service that would qualify the 
borrower for a partial repayment of his or her loan under the Student 
Loan Repayment Programs administered by the Department of Defense under 
10 U.S.C. 2171; or
    (C) Is performing the type of service that would qualify the 
borrower for loan forgiveness and associated forbearance under the 
requirements of the teacher loan forgiveness program in Sec. 682.215.
    (3) Written agreement. The terms of the forbearance must be agreed 
to in writing--
    (i) By the lender and the borrower for a forbearance under 
paragraphs (h)(1) or (h)(2)(ii)(A) of this section; or

[[Page 690]]

    (ii) By the lender and the borrower or endorser for a forbearance 
under paragraph (h)(2)(i) of this section.
    (4) Documentation. (i) Before granting a forbearance to a borrower 
or endorser under paragraph (h)(2)(i) of this section, the lender shall 
require the borrower or endorser to submit at least the following 
documentation:
    (A) Evidence showing the amount of the most recent total monthly 
gross income received by the borrower or endorser from employment and 
from other sources; and
    (B) Evidence showing the amount of the monthly payments owed by the 
borrower or endorser to other entities for the most recent month for the 
borrower's or endorser's Title IV loans.
    (ii) Before granting a forbearance to a borrower or endorser under 
paragraph (h)(2)(ii)(B) of this section, the lender shall require the 
borrower or endorser to submit documentation showing the beginning and 
ending dates that the Department of Defense considers the borrower to be 
eligible for a partial repayment of his or her loan under the Student 
Loan Repayment Programs.
    (iii) Before granting a forbearance to a borrower under paragraph 
(h)(2)(ii)(C) of this section, the lender must require the borrower to--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and anticipated ending dates that the 
borrower is expected to perform, for that year, the type of service 
described in Sec. 682.215(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec. 682.215(c).
    (i) Mandatory administrative forbearance. (1) The lender shall grant 
a mandatory administrative forbearance for the periods specified in 
paragraph (i)(2) of this section until the lender is notified by the 
Secretary or a guaranty agency that the forbearance period no longer 
applies. The lender may not require a borrower who is eligible for a 
forbearance under paragraph (i)(2)(ii) of this section to submit a 
request or supporting documentation, but shall require a borrower (or 
endorser, if applicable) who requests forbearance because of a military 
mobilization to provide documentation showing that he or she is subject 
to a military mobilization as described in paragraph (i)(4) of this 
section.
    (2) The lender is not required to notify the borrower (or endorser, 
if applicable) at the time the forbearance is granted, but shall grant a 
forbearance to a borrower or endorser during a period, and the 30 days 
following the period, when the lender is notified by the Secretary that-
-
    (i) Exceptional circumstances exist, such as a local or national 
emergency or military mobilization; or
    (ii) The geographical area in which the borrower or endorser resides 
has been designated a disaster area by the president of the United 
States or Mexico, the Prime Minister of Canada, or by a Governor of a 
State.
    (3) As soon as feasible, or by the date specified by the Secretary, 
the lender shall notify the borrower (or endorser, if applicable) that 
the lender has granted a forbearance and the date that payments should 
resume. The lender's notification shall state that the borrower or 
endorser--
    (i) May decline the forbearance and continue to be obligated to make 
scheduled payments; or
    (ii) Consents to making payments in accordance with the lender's 
notification if the forbearance is not declined.
    (4) For purposes of paragraph (i)(2)(i) of this section, the term 
``military mobilization'' shall mean a situation in which the Department 
of Defense orders members of the National Guard or Reserves to active 
duty under sections 688, 12301(a), 12301(g), 12302, 12304, and 12306 of 
title 10, United States Code. This term also includes the assignment of 
other members of the Armed Forces to duty stations at locations other 
than the locations at which they were normally assigned, only if the 
military mobilization involved the activation of the National Guard or 
Reserves.
    (5) The lender shall grant a mandatory administrative forbearance to 
a borrower (or endorser, if applicable) during a period when the 
borrower (or endorser, if applicable) is making payments for a period 
of--
    (i) Up to 3 years of payments in cases where the effect of a 
variable interest rate on a standard or graduated repayment schedule 
would result in a loan

[[Page 691]]

not being repaid within the maximum repayment term; or
    (ii) Up to 5 years of payments in cases where the effect of 
decreased installment amounts paid under an income-sensitive repayment 
schedule would result in the loan not being repaid within the maximum 
repayment term.
    (6) The lender shall grant a mandatory administrative forbearance to 
a borrower for a period not to exceed 60 days after the lender receives 
reliable information indicating that the borrower (or student in the 
case of a PLUS loan) has died, until the lender receives documentation 
of death pursuant to Sec. 682.402(b)(3).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1080, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33595, June 29, 1994; 60 FR 30788, June 
12, 1995; 60 FR 61756, Dec. 1, 1995; 64 FR 18977, Apr. 16, 1999; 64 FR 
58626, Oct. 29, 1999; 64 FR 58959, Nov. 1, 1999; 65 FR 65627, Nov. 1, 
2000; 66 FR 34763, June 29, 2001; 66 FR 44007, Aug. 21, 2001; 67 FR 
67079, Nov. 1, 2002]



Sec. 682.212  Prohibited transactions.

    (a) No points, premiums, payments, or additional interest of any 
kind may be paid or otherwise extended to any eligible lender or other 
party in order to--
    (1) Secure funds for making loans; or
    (2) Induce a lender to make loans to either the students or the 
parents of students of a particular school or particular category of 
students or their parents.
    (b) The following are examples of transactions that, if entered into 
for the purposes described in paragraph (a) of this section, are 
prohibited:
    (1) Cash payments by or on behalf of a school made to a lender or 
other party.
    (2) The maintaining of a compensating balance by or on behalf of a 
school with a lender.
    (3) Payments by or on behalf of a school to a lender of servicing 
costs on loans that the school does not own.
    (4) Payments by or on behalf of a school to a lender of unreasonably 
high servicing costs on loans that the school does own.
    (5) Purchase by or on behalf of a school of stock of the lender.
    (6) Payments ostensibly made for other purposes.
    (c) Except when purchased by the Student Loan Marketing Association, 
an agency of any State functioning as a secondary market or in any other 
circumstances approved by the Secretary, notes, or any interest in 
notes, may not be sold or otherwise transferred at discount if the 
underlying loans were made--
    (1) By a school; or
    (2) To students or parents of students attending a school by a 
lender having common ownership with that school.
    (d) Except to secure a loan from the Student Loan Marketing 
Association or an agency of a State functioning as a secondary market or 
in other circumstances approved by the Secretary, a school or lender 
(with respect to a loan made to a student, or a parent of a student, 
attending a school having common ownership with that lender), may not 
use a loan made under the FFEL programs as collateral for any loan 
bearing aggregate interest and other charges in excess of the sum of the 
interest rate applicable to the loan plus the rate of the most recently 
prescribed special allowance under Sec. 682.302.
    (e) The prohibitions described in paragraphs (a), (b), (c), and (d) 
of this section apply to any school, lender, or other party that would 
participate in a proscribed transaction.
    (f) This section does not preclude a buyer of loans made by a school 
from obtaining from the loan seller a warranty that--
    (1) Covers future reductions by the Secretary or a guaranty agency 
in computing the amount of loss payable on default claims filed on the 
loans, if the reductions are attributable to an act, or failure to act, 
on the part of the seller or previous holder; and
    (2) Does not cover matters for which a purchaser is charged with 
responsibility under this part, such as due diligence in collecting 
loans.
    (g) Section 490(c) of the Act provides that any person who knowingly 
and willfully makes an unlawful payment

[[Page 692]]

to an eligible lender as an inducement to make, or to acquire by 
assignment, a FFEL loan shall, upon conviction thereof, be fined not 
more than $10,000 or imprisoned not more than one year, or both.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1097)



Sec. 682.213  Prohibition against the use of the Rule of 78s.

    For purposes of the calculations required by this part, a lender may 
not use the Rule of 78s to calculate the outstanding principle balance 
of a loan, except for a loan made to a borrower who entered repayment 
before June 26, 1987 and who was informed in the promissory note that 
interest on the loan would be calculated using the Rule of 78s. For 
those loans, the Rule of 78s must be used for the life of the loan.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082)



Sec. 682.214  Compliance with equal credit opportunity requirements.

    In making a Stafford loan on which interest benefits are to be paid, 
a lender shall comply with the equal credit opportunity requirements of 
Regulation B (12 CFR part 202). With regard to Regulation B, the 
Secretary considers the Stafford loan program to be a credit-assistance 
program authorized by Federal law for the benefit of an economically 
disadvantaged class of persons within the meaning of 12 CFR 202.8(a)(1). 
Therefore, under 12 CFR 202.8(d), the lender may request a loan 
applicant to disclose his or her marital status, income from alimony, 
child support, and separate maintenance income, and spouse's financial 
resources.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1071-1087-2)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999]



Sec. 682.215  Teacher loan forgiveness program.

    (a) General. The teacher loan forgiveness program is intended to 
encourage individuals to enter and continue in the teaching profession. 
For new borrowers, the Secretary repays up to a combined total of $5,000 
of subsidized and unsubsidized Federal Stafford Loans, Direct Subsidized 
Loans, Direct Unsubsidized Loans, and in certain cases, Federal 
Consolidation Loans or Direct Consolidation Loans. The forgiveness 
program is only available to a borrower who has no outstanding loan 
balance under the FFEL Program or the Direct Loan Program on October 1, 
1998 or who has no outstanding loan balance on the date he or she 
obtains a loan after October 1, 1998. In addition, the borrower must 
have been employed as a full-time teacher for five consecutive complete 
academic years, at least one of which was after the 1997-1998 academic 
year, in certain eligible elementary or secondary schools that serve 
low-income families. The loan for which forgiveness is sought must have 
been made prior to the end of the borrower's fifth year of qualifying 
teaching service.
    (b) Definitions. The following definitions apply to this section:
    Academic year means one complete school year at the same school, or 
two complete and consecutive half years at different schools, or two 
complete and consecutive half years from different school years at 
either the same school or different schools. Half years exclude summer 
sessions and generally fall within a twelve-month period. For schools 
that have a year-round program of instruction, a minimum of nine months 
is considered an academic year.
    Elementary school means a public or nonprofit private school that 
provides elementary education as determined by State law or the 
Secretary if that school is not in a State.
    Full-time means the standard used by a State in defining full-time 
employment as a teacher. For a borrower teaching in more than one 
school, the determination of full-time is based on the combination of 
all qualifying employment.
    Secondary school means a public or nonprofit private school that 
provides secondary education as determined by State law or the Secretary 
if the school is not in a State.
    Teacher means a person who provides direct classroom teaching or 
classroom-type teaching in a non-classroom

[[Page 693]]

setting, including Special Education teachers.
    (c) Borrower eligibility. (1) A borrower may obtain loan forgiveness 
under this program if he or she has been employed as a full-time teacher 
for five consecutive complete academic years, at least one of which was 
after the 1997-1998 academic year, in an elementary or secondary school 
that--
    (i) Is in a school district that qualifies for funds under title I 
of the Elementary and Secondary Education Act of 1965, as amended;
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's total enrollment is made up of 
children who qualify for services provided under title I; and
    (iii) Is listed in the Annual Directory of Designated Low-Income 
Schools for Teacher Cancellation Benefits. If this directory is not 
available before May 1 of any year, the previous year's directory may be 
used.
    (2) If the school at which the borrower is employed meets the 
requirements specified in paragraph (c)(1) of this section for at least 
one year of the borrower's five consecutive complete academic years of 
teaching and the school fails to meet those requirements in subsequent 
years, those subsequent years of teaching qualify for purposes of this 
section for that borrower.
    (3) A borrower who is employed as an elementary school teacher must 
demonstrate knowledge and teaching skills in reading, writing, 
mathematics, and other areas of the elementary school curriculum, as 
certified by the chief administrative officer of the school in which the 
borrower was employed.
    (4) A borrower who is employed as a secondary school teacher must 
teach in a subject area that is relevant to the borrower's academic 
major as certified by the chief administrative officer of the school in 
which the borrower was employed.
    (5) The academic year may be counted as one of the borrower's five 
consecutive complete academic years if the borrower completes at least 
one-half of the academic year and the borrower's employer considers the 
borrower to have fulfilled his or her contract requirements for the 
academic year for the purposes of salary increases, tenure, and 
retirement if the borrower is unable to complete an academic year due 
to--
    (i) A return to postsecondary education, on at least a half-time 
basis, that is directly related to the performance of the service 
described in this section;
    (ii) A condition that is covered under the Family and Medical Leave 
Act of 1993 (FMLA) (19 U.S.C. 2654); or
    (iii) A call or order to active duty status for more than 30 days as 
a member of a reserve component of the Armed Forces named in section 
10101 of title 10, United States Code.
    (6) A borrower's period of postsecondary education, qualifying FMLA 
condition, or military active duty as described in paragraph (c)(5) of 
this section, including the time necessary for the borrower to resume 
qualifying teaching no later than the beginning of the next regularly 
scheduled academic year, does not constitute a break in the required 
five consecutive years of qualifying teaching service.
    (7) A borrower who taught in more than one qualifying school during 
an academic year and demonstrates that the combined teaching was the 
equivalent of full-time, as supported by the certification of one or 
more of the chief administrative officers of the schools involved, is 
considered to have completed one academic year of qualifying teaching.
    (8) A borrower is not eligible for teacher loan forgiveness on a 
defaulted loan unless the borrower has made satisfactory repayment 
arrangements to re-establish title IV eligibility, as defined in 
Sec. 682.200.
    (9) A borrower may not receive loan forgiveness for qualifying 
teaching service under this section if the borrower receives a benefit 
for the same teaching service under subtitle D of title I of the 
National and Community Service Act of 1990.
    (d) Forgiveness amount. (1) A qualified borrower is eligible for 
forgiveness of up to $5,000 of the aggregate amount of a borrower's 
subsidized or unsubsidized Federal Stafford or Federal Consolidation 
Loan obligation that is outstanding after the borrower completes his or 
her fifth consecutive complete

[[Page 694]]

academic year of teaching as described in paragraph (c) of this section. 
Only the outstanding portion of the consolidation loan that was used to 
repay an eligible subsidized or unsubsidized Federal Stafford loan, an 
eligible Direct Subsidized Loan, or an eligible Direct Unsubsidized Loan 
qualifies for loan forgiveness under this section.
    (2) A borrower may not receive more than a total of $5,000 in loan 
forgiveness for outstanding principal and accrued interest under both 
this section and under section 34 CFR 685.217.
    (3) The holder does not refund payments that were received from or 
on behalf of a borrower who qualifies for loan forgiveness under this 
section.
    (e) Authorized forbearance during qualifying teaching service and 
discharge processing. (1) A holder grants a forbearance--
    (i) Under Sec. 682.211(h)(2)(ii)(C) and (h)(3)(iii), in annual 
increments for each of the years of qualifying teaching service, if the 
holder believes, at the time of the borrower's annual request, that the 
expected cancellation amount will satisfy the anticipated remaining 
outstanding balance on the loan at the time of the expected 
cancellation;
    (ii) For a period not to exceed 60 days while the holder is awaiting 
a completed teacher loan forgiveness application from the borrower; and
    (iii) For the period beginning on the date the holder receives a 
completed loan forgiveness application to the date the holder receives 
either a denial of the request or the loan discharge amount from the 
guaranty agency, in accordance with paragraph (f) of this section.
    (2) At the conclusion of a forbearance authorized under paragraph 
(e)(1) of this section, the holder must resume collection activities and 
may capitalize any interest accrued and not paid during the forbearance 
period in accordance with Sec. 682.202(b).
    (3) Nothing in paragraph (e) of this section restricts holders from 
offering other forbearance options to borrowers who do not meet the 
requirements of paragraph (e)(1)(i) of this section.
    (f) Application and processing. (1) A borrower, after completing the 
qualifying teaching service, requests loan forgiveness from the holder 
of the loan on a form approved by the Secretary.
    (2)(i) The holder must file a request for payment with the guaranty 
agency on a teacher forgiveness discharge no later than 60 days after 
the receipt, from the borrower, of a completed teacher loan forgiveness 
application.
    (ii) When filing a request for payment on a teacher forgiveness 
discharge, the holder must provide the guaranty agency with the 
completed loan forgiveness application submitted by the borrower and any 
required supporting documentation.
    (iii) If the holder files a request for payment later than 60 days 
after the receipt of the completed teacher loan forgiveness application 
form, interest that accrued on the discharged amount after the 
expiration of the 60-day filing period is ineligible for reimbursement 
by the Secretary, and the holder must repay all interest and special 
allowance received on the discharged amount for periods after the 
expiration of the 60-day filing period. The holder cannot collect from 
the borrower any interest that is not paid by the Secretary under this 
paragraph.
    (3)(i) Within 45 days of receiving the holder's request for payment, 
the guaranty agency must determine if the borrower meets the eligibility 
requirements for loan forgiveness under this section and must notify the 
holder of its determination of the borrower's eligibility for loan 
forgiveness under this section.
    (ii) If the guaranty agency approves the discharge, it must, within 
the same 45-day period, pay the holder the amount of the discharge, up 
to $5,000, subject to paragraphs (c)(9), (d)(1), (d)(2) and (f)(2)(iii) 
of this section.
    (4) After being notified by the guaranty agency of its determination 
of the eligibility of the borrower for the discharge, the holder must, 
within 30 days, inform the borrower of the determination. If the 
discharge is approved, the holder must also provide the borrower with 
information regarding any new repayment terms of remaining loan 
balances.
    (5) Unless otherwise instructed by the borrower, the holder must 
apply the proceeds of the teacher forgiveness

[[Page 695]]

discharge first to any outstanding unsubsidized Federal Stafford loan 
balances, next to any outstanding subsidized Federal Stafford loan 
balances, then to any eligible outstanding Federal Consolidation loan 
balances.
    (g) Claims for reimbursement from the Secretary on loans held by 
guaranty agencies. In the case of a teacher loan forgiveness discharge 
applied to a defaulted loan held by the guaranty agency, the Secretary 
pays the guaranty agency a percentage of the amount discharged that is 
equal to the complement of the reinsurance percentage paid on the loan. 
The payment of up to $5,000 may also include interest that accrues on 
the discharged amount during the period from the date on which the 
guaranty agency received payment from the Secretary on a default claim 
to the date on which the guaranty agency determines that the borrower is 
eligible for the teacher loan forgiveness discharge.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-10)

[65 FR 65627, Nov. 1, 2000, as amended by 66 FR 34763, June 29, 2001]



      Subpart C--Federal Payments of Interest and Special Allowance



Sec. 682.300  Payment of interest benefits on Stafford and Consolidation loans.

    (a) General. The Secretary pays a lender, on behalf of a borrower, a 
portion of the interest on a subsidized Stafford loan and on all or a 
portion of a qualifying Consolidation loan that meets the requirements 
under Sec. 682.301. This payment is known as interest benefits.
    (b) Covered interest. (1) The Secretary pays a lender the interest 
that accrues on an eligible Stafford loan--
    (i) During all periods prior to the beginning of the repayment 
period, except as provided in paragraphs (b)(2) and (c) of this section.
    (ii) During any period when the borrower has an authorized 
deferment, and, if applicable, a post-deferment grace period; and
    (iii) During the repayment period for loans described in paragraph 
(d)(2) of this section.
    (2) The Secretary's obligation to pay interest benefits on an 
otherwise eligible loan terminates on the earliest of--
    (i) The date the borrower's loan is repaid;
    (ii) The date the disbursement check is returned uncashed to the 
lender, or the 120th day after the date of that disbursement, except as 
provided in paragraph (c)(4) of this section if--
    (A) The check for the disbursement has not been cashed on or before 
that date; or
    (B) The proceeds of the disbursement made by electronic funds 
transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) 
and (C) have not been released from the account maintained by the school 
on or before that date;
    (iii) The date of default by the borrower;
    (iv) The date the lender receives payment of a claim for loss on the 
loan;
    (v) The date the borrower's loan is discharged in bankruptcy;
    (vi) The date the lender determines that the borrower has died or 
has become totally and permanently disabled;
    (vii) The date the loan ceases to be guaranteed or ceases to be 
eligible for reinsurance under this part, with respect to that portion 
of the loan that ceases to be guaranteed or reinsured, regardless of 
whether the lender has filed a claim for loss on the loan with the 
guarantor; or
    (viii) The date the lender determines that the borrower is eligible 
for loan discharge under Sec. 682.402(d), (e), or (l).
    (3) Section 682.412 sets forth circumstances under which a lender 
may be required to repay interest benefits received on a loan guaranteed 
by a guaranty agency.
    (c) Interest not covered. The Secretary does not pay--
    (1) Interest for which the borrower is not otherwise liable;
    (2) Interest paid on behalf of the borrower by a guaranty agency;
    (3) Interest that accrues on the first disbursement of a loan for 
any period that is earlier than--

[[Page 696]]

    (i) In the case of a subsidized Stafford loan disbursed by a check, 
10 days prior to the first day of the period of enrollment for which the 
loan is intended or, if the loan is disbursed after the first day of the 
period of enrollment, 3 days after the disbursement date on the check; 
or
    (ii) In the case of a loan disbursed by electronic funds transfer or 
master check, 3 days prior to the first day of the period of enrollment 
or, if the loan is disbursed after the first day of the period of 
enrollment, 3 days after disbursement.
    (4) In the case of a loan disbursed on or after October 1, 1992, 
interest on a loan if--
    (i) The disbursement check is returned uncashed to the lender or the 
lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the restricted 
account maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
restricted account maintained by the school before that date.
    (d) Rate. (1) Except as provided in paragraph (d)(2) of this 
section, the Secretary pays the lender at the actual interest rate on a 
loan provided that the actual interest rate does not exceed the 
applicable interest rate.
    (2) For a loan disbursed prior to December 15, 1968, or subject to a 
binding commitment made prior to that date, the Secretary pays an amount 
during the repayment period equivalent to 3 percent per year of the 
unpaid principal amount of the loan.

(Authority: 20 U.S.C. 1078, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33352, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr. 
16, 1999; 64 FR 58959, Nov. 1, 1999; 66 FR 34763, June 29, 2001]



Sec. 682.301  Eligibility of borrowers for interest benefits on Stafford 
and Consolidation loans.

    (a) General. (1) To qualify for benefits on a Stafford loan, a 
borrower must demonstrate financial need in accordance with Part F of 
the Act.
    (2) The Secretary considers a member of a religious order, group, 
community, society, agency, or other organization who is pursuing a 
course of study at an institution of higher education to have no 
financial need if that organization--
    (i) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (ii) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (iii) (A) Directs the member to pursue the course of study; or
    (B) Provides subsistence support to its members.
    (3) A Consolidation loan borrower qualifies for interest benefits 
during authorized periods of deferment on the portion of the loan that 
does not represent HEAL loans if the loan application was received by 
the lender--
    (i) On or after January 1, 1993 but prior to August 10, 1993;
    (ii) On or after August 10, 1993, but prior to November 13, 1997 if 
the loan consolidates only subsidized Stafford loans; and
    (iii) On or after November 13, 1997, for the portion of the loan 
that repaid subsidized FFEL loans and Direct Subsidized Loans.
    (b) Application for interest benefits. To apply for interest 
benefits on a Stafford loan, the student, or the school at the direction 
of the student, must submit a statement to the lender pursuant to 
Sec. 682.603. The student must qualify for interest benefits if the 
eligible institution has determined and documented the student's amount 
of need for a loan based on the student's estimated cost of attendance, 
estimated financial assistance, and expected family contribution as 
determined under part F of the Act.
    (c) Use of loan proceeds to replace expected family contribution. A 
borrower may use the amount of a PLUS, unsubsidized Stafford loan, State 
sponsored loan, or private program loan obtained for a period of 
enrollment to replace

[[Page 697]]

the expected family contribution for that period of enrollment.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33352, June 28, 1994; 64 FR 18978, Apr. 16, 1999; 64 FR 58959, Nov. 
1, 1999]



Sec. 682.302  Payment of special allowance on FFEL loans.

    (a) General. The Secretary pays a special allowance to a lender on 
an eligible FFEL loan. The special allowance is a percentage of the 
average unpaid principal balance of a loan, including capitalized 
interest, computed in accordance with paragraph (c) of this section.
    (b) Eligible loans. (1) Except for non-subsidized Federal Stafford 
loans disbursed on or after October 1, 1981, for periods of enrollment 
beginning prior to October 1, 1992, or as provided in paragraphs (b)(2) 
through (b)(4), or (e) of this section, FFEL loans that otherwise meet 
program requirements are eligible for special allowance payments.
    (2) For a loan made under the Federal SLS or Federal PLUS Program on 
or after July 1, 1987 and prior to July 1, 1994, and for any Federal 
PLUS loan made on or after July 1, 1998 or under Sec. 682.209(e) or (f), 
no special allowance is paid for any period for which the interest rate 
calculated prior to applying the interest rate maximum for that loan 
does not exceed--
    (i) 12 percent in the case of a Federal SLS or PLUS loan made prior 
to October 1, 1992;
    (ii) 11 percent in the case of a Federal SLS loan made on or after 
October 1, 1992;
    (iii) 10 percent in the case of a Federal PLUS loan made on or after 
October 1, 1992; or
    (iv) 9 percent in the case of a Federal PLUS loan made on or after 
July 1, 1998.
    (3) In the case of a subsidized Stafford loan disbursed on or after 
October 1, 1992, the Secretary does not pay special allowance on a 
disbursement if--
    (i) The disbursement check is returned uncashed to the lender or the 
lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the restricted 
account maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
restricted account maintained by the school before that date.
    (c) Rate. (1) Except as provided in paragraph (c)(2) of this 
section, the special allowance rate for an eligible loan during a 3-
month period is calculated by--
    (i) Determining the average of the bond equivalent rates of the 91-
day Treasury bills auctioned during the 3-month period;
    (ii) Subtracting the applicable interest rate for that loan;
    (iii) Adding--
    (A)(1) 2.8 percent to the resulting percentage for a Federal 
Stafford loan for which the first disbursement is made on or after July 
1, 1998; or
    (2) 2.2 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1998 
during the borrower's in-school, grace, and authorized period of 
deferment;
    (B) 2.5 percent to the resulting percentage for a Federal Stafford 
loan for which the first disbursement is made on or after July 1, 1995 
for interest that accrues during the borrower's in-school, grace, and 
authorized period of deferment;
    (C) Except as provided in paragraph (c)(1)(iii)(B) of this section, 
3.1 percent to the resulting percentage for a Federal Stafford Loan made 
on or after October 1, 1992 and prior to July 1, 1998, and for any 
Federal SLS, Federal PLUS, or Federal Consolidation Loan made on or 
after October 1, 1992;
    (D) 3.25 percent to the resulting percentage, for a loan made on or 
after November 16, 1986, but before October 1, 1992;
    (E) 3.25 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but before November 16, 1986, for a period of 
enrollment beginning on or after November 16, 1986;

[[Page 698]]

    (F) 3.5 percent to the resulting percentage, for a loan made prior 
to October 17, 1986, or a loan described in paragraph (c)(2) of this 
section; or
    (G) 3.5 percent to the resulting percentage, for a loan made on or 
after October 17, 1986 but before November 16, 1986, for a period of 
enrollment beginning prior to November 16, 1986;
    (iv) Rounding the result upward to the nearest one-eighth of 1 
percent, for a loan made prior to October 1, 1981; and
    (v) Dividing the resulting percentage by 4.
    (2) The special allowance rate determined under paragraph 
(c)(1)(iii)(F) of this section applies to loans made or purchased from 
funds obtained from the issuance of an obligation of the--
    (i) Maine Educational Loan Marketing Corporation to the Student Loan 
Marketing Association pursuant to an agreement entered into on January 
31, 1984; or
    (ii) South Carolina Student Loan Corporation to the South Carolina 
National Bank pursuant to an agreement entered into on July 30, 1986.
    (3)(i) Subject to paragraphs (c)(3) (ii) and (iii) of this section, 
the special allowance rate is one-half of the rate calculated under 
paragraph (c)(1)(iii)(F) of this section for a loan made or guaranteed 
on or after October 1, 1980 that was made or purchased with funds 
obtained by the holder from--
    (A) The proceeds of tax-exempt obligations originally issued prior 
to October 1, 1993, the income from which is exempt from taxation under 
the Internal Revenue Code of 1986 (26 U.S.C.);
    (B) Collections or payments by a guarantor on a loan that was made 
or purchased with funds obtained by the holder from obligations 
described in paragraph (c)(3)(i)(A) of this section;
    (C) Interest benefits or special allowance payments on a loan that 
was made or purchased with funds obtained by the holder from obligations 
described in paragraph (c)(3)(i)(A) of this section;
    (D) The sale of a loan that was made or purchased with funds 
obtained by the holders from obligations described in paragraph 
(c)(3)(i)(A) of this section; or
    (E) The investment of the proceeds of obligations described in 
paragraph (c)(3)(i)(A) of this section.
    (ii) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made prior to October 1, 
1992, may not be less than--
    (A) 2.5 percent per year on eligible loans for which the applicable 
interest rate is 7 percent;
    (B) 1.5 percent per year on eligible loans for which the applicable 
interest rate is 8 percent; or
    (C) One-half of 1 percent per year on eligible loans for which the 
applicable rate is 9 percent.
    (iii) The special allowance rate applicable to loans described in 
paragraph (c)(3)(i) of this section that are made on or after October 1, 
1992, may not be less than 9\1/2\ percent minus the applicable interest 
rate.
    (4) Loans made or purchased with funds obtained by the holder from 
the issuance of tax-exempt obligations originally issued on or after 
October 1, 1993, and loans made with funds derived from default 
reimbursement collections, interest, or other income related to eligible 
loans made or purchased with those tax-exempt funds, do not qualify for 
the minimum special allowance rate specified in paragraph (c)(3)(iii) of 
this section, and are not subject to the 50 percent limitation on the 
maximum rate otherwise applicable to loans made with tax-exempt funds.
    (d) Termination of special allowance payments on a loan. (1) The 
Secretary's obligation to pay special allowance on a loan terminates on 
the earliest of--
    (i) The date a borrower's loan is repaid;
    (ii) The date a borrower's loan check is returned uncashed to the 
lender;
    (iii) The date a lender receives payment on a claim for loss on the 
loan;
    (iv) The date a loan ceases to be guaranteed or ceases to be 
eligible for reinsurance under this part, with respect to that portion 
of the loan that ceases to be guaranteed or reinsured, regardless of 
whether the lender has filed a claim for loss on the loan with the 
guarantor;
    (v) The 60th day after the borrower's default on the loan, unless 
the lender

[[Page 699]]

files a claim for loss on the loan with the guarantor together with all 
required documentation, on or before the 60th day;
    (vi) The 120th day after the date of disbursement, if--
    (A) The loan check has not been cashed on or before that date; or
    (B) the loan proceeds disbursed by electronic funds transfer or 
master check in accordance with Sec. 682.207(b)(1)(ii) (B) and (C) have 
not been released from the restricted account maintained by the school 
on or before that date; or
    (vii) The 30th day after the date the lender received a returned 
claim from the guaranty agency on a loan submitted by the deadline 
specified in (d)(1)(v) of this section for loss on the loan to the 
lender due solely to inadequate documentation unless the lender files a 
claim for loss on the loan with the guarantor, together with all 
required documentation, prior to the 30th day.
    (2) In the case of a loan disbursed on or after October 1, 1992, the 
Secretary does not pay special allowance on a loan if--
    (i) The disbursement check is returned uncashed to the lender or the 
lender is notified that the disbursement made by electronic funds 
transfer or master check will not be released from the account 
maintained by the school; or
    (ii) The check for the disbursement has not been negotiated before 
the 120th day after the date of disbursement or the disbursement made by 
electronic funds transfer or master check has not been released from the 
account maintained by the school before that date.
    (3) Section 682.413 sets forth the circumstances under which a 
lender may be required to repay the special allowance received on a loan 
guaranteed by a guaranty agency.
    (e) Special allowance payments for loans financed by proceeds of 
tax-exempt obligations. (1) The Secretary pays a special allowance on a 
loan described in paragraph (c)(3)(i) of this section that is held by or 
on behalf of an Authority only if the loan meets the requirements of 
Sec. 682.800.
    (2) The Secretary pays a special allowance to an Authority at the 
rate prescribed in paragraph (c)(1) of this section on a loan described 
in paragraph (c)(3)(i) of this section--
    (i) After the loan is pledged or otherwise transferred in 
consideration of funds derived from sources other than those described 
in paragraph (c)(3)(i) of this section; and
    (ii) If the authority retains a legal or equitable interest in the 
loan--
    (A) The prior tax-exempt obligation is retired; or
    (B) The prior tax-exempt obligation is defeased by means of 
obligations that the Authority certifies in writing to the Secretary 
bear a yield that does not exceed the yield permitted under Internal 
Revenue Service regulations, 26 CFR 1.103-14, with regard to investments 
of proceeds of a tax-exempt refunding obligation.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 25746, May 17, 1994; 59 
FR 33353, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 64 FR 18978, Apr. 
16, 1999; 64 FR 58626, Oct. 29, 1999; 66 FR 34763, June 29, 2001]



Sec. 682.303  [Reserved]



Sec. 682.304  Methods for computing interest benefits and special allowance.

    (a) General. The Secretary pays a lender interest benefits and 
special allowance on eligible loans on a quarterly basis. These calendar 
quarters end on March 31, June 30, September 30, and December 31 of each 
year. A lender may use either the average daily balance method or the 
actual accrual method to determine the amount of interest benefits 
payable on a lender's loans. A lender shall use the average daily 
balance method to determine the balance on which the Secretary computes 
the amount of special allowance payable on its loans.
    (b) Average daily balance method for interest benefits. (1) Under 
this method, the lender adds the unpaid principal balance outstanding on 
all loans qualifying for interest benefits at each actual interest rate 
for each day of the quarter, divides the sum by the number of days in 
the quarter, and rounds the result to the nearest whole dollar. The

[[Page 700]]

resulting figure is the average daily balance for qualified loans 
outstanding at each actual interest rate.
    (2) The Secretary computes the interest benefits due on all 
qualified loans at each actual interest rate by multiplying the average 
daily balance thereof by the actual interest rate, multiplying this 
result by the number of days in the quarter, and then dividing this 
result by the actual number of days in the year.
    (c) Actual accrual method for interest benefits. (1) Under this 
method, the lender computes the total unpaid principal balance 
outstanding on all qualified loans at each actual interest rate on each 
day of the quarter, multiplies this result by the actual interest rate, 
and divides this result by the actual number of days in the year, or, 
alternatively, 365.25 days. A lender who chooses to divide by 365.25 
days must do so for four consecutive years.
    (2) The interest benefits due for a quarter equal the sum of the 
daily interest benefits due, computed under paragraph (c)(1) of this 
section, for each day of the quarter.
    (d) Average daily balance method for special allowance. (1) To 
compute the average daily balance outstanding for purposes of special 
allowance, the lender adds the unpaid principal balance outstanding on 
all qualified loans at each applicable interest rate for each day of the 
quarter, divides this sum by the number of days in the quarter, and 
rounds the result to the nearest whole dollar. The resulting figure is 
the average daily balance for the quarter for qualifying loans at each 
applicable interest rate.
    (2) The Secretary computes the special allowance payable to a lender 
based upon the average daily balance computed by the lender under 
paragraph (d)(1) of this section.

(Authority: 20 U.S.C. 1082, 1087-1)



Sec. 682.305  Procedures for payment of interest benefits and special 
allowance and collection of origination and loan fees.

    (a) General. (1) If a lender owes origination fees or loan fees 
under paragraph (a) of this section, it must submit quarterly reports to 
the Secretary on a form provided or prescribed by the Secretary, even if 
the lender is not owed, or does not wish to receive, interest benefits 
or special allowance from the Secretary.
    (2) The lender shall report, on the quarterly report required by 
paragraph (a)(1) of this section, the amount of origination fees it was 
authorized to collect and the amount of those fees refunded to borrowers 
during the quarter covered by the report.
    (3)(i)(A) The Secretary reduces the amount of interest benefits and 
special allowance payable to the lender by--
    (1) The amount of origination fees the lender was authorized to 
collect during the quarter under Sec. 682.202(c), whether or not the 
lender actually collected that amount; and
    (2) The amount of lender fees payable under paragraph (a)(3)(ii) of 
this section.
    (B) The Secretary increases the amount of interest benefits and 
special allowance payable to the lender by the amount of origination 
fees refunded to borrowers during the quarter under Sec. 682.202(c).
    (ii) For any FFEL loan made on or after October 1, 1993, a lender 
shall pay the Secretary a loan fee equal to 0.50% of the principal 
amount of the loan.
    (iii) The Secretary collects from an originating lender the amount 
of origination fees the originating lender was authorized to collect 
from borrowers during the quarter whether or not the originating lender 
actually collected those fees. The Secretary also collects the fees the 
originating lender is required to pay under paragraph (a)(3)(ii) of this 
section. Generally, the Secretary collects the fees from the originating 
lender by offsetting the amount of interest benefits and special 
allowance payable to the originating lender in a quarter, and, if 
necessary, the amount of interest benefits and special allowance payable 
in subsequent quarters may be offset until the total amount of fees has 
been recovered.
    (iv) If the full amount of the fees cannot be collected within two 
quarters by reducing interest and special allowance payable to the 
originating lender, the Secretary may collect the unpaid amount directly 
from the originating lender.

[[Page 701]]

    (v) If the full amount of the fees cannot be collected within two 
quarters from the originating lender in accordance with paragraphs 
(a)(3)(iii) and (iv) of this section and if the originating lender has 
transferred the loan to a subsequent holder, the Secretary may, 
following written notice, collect the unpaid amount from the holder by 
using the same steps described in paragraphs (a)(3)(iii) and (iv) of 
this section, with the term ``holder'' substituting for the term 
``originating lender''.
    (4) If an originating lender sells or otherwise transfers a loan to 
a new holder, the originating lender remains liable to the Secretary for 
payment of the origination fees. The Secretary will not pay interest 
benefits or special allowance to the new holder or pay reinsurance to 
the guaranty agency until the origination fees are paid to the 
Secretary.
    (b) Penalty interest. (1)(i) If the Secretary does not pay interest 
benefits or the special allowance within 30 days after the Secretary 
receives an accurate, timely, and complete request for payment from a 
lender, the Secretary pays the lender penalty interest.
    (ii) The payment of interest benefits or special allowance is deemed 
to occur, for purposes of this paragraph, when the Secretary--
    (A) Authorizes the Treasury Department to pay the lender;
    (B) Credits the payment due the lender against a debt that the 
Secretary determines is owed the Secretary by the lender; or
    (C) Authorizes the Treasury Department to pay the amount due by the 
lender to another Federal agency for credit against a debt that the 
Federal agency has determined the lender owes.
    (2) Penalty interest is an amount that accrues daily on interest 
benefits and special allowance due to the lender. The penalty interest 
is computed by--
    (i) Multiplying the daily interest rate applicable to loans on which 
payment for interest benefits was requested, by the amount of interest 
benefits due on those loans for each interest rate;
    (ii) Multiplying the daily special allowance rate applicable to 
loans on which special allowance was requested by the amount of special 
allowance due on those loans for each interest rate and special 
allowance category;
    (iii) Adding the results of paragraphs (b)(2)(i) and (ii) of this 
section to determine the gross penalty interest to be paid for each day 
that penalty interest is due;
    (iv) Dividing the results of paragraph (b)(2)(iii) of this section 
by the gross amount of interest benefits and special allowance due to 
obtain the average penalty interest rate;
    (v) Multiplying the rate obtained in paragraph (b)(2)(iv) of this 
section by the total amount of reduction to gross interest benefits and 
special allowance due (e.g., origination fees or other debts owed to the 
Federal Government);
    (vi) Subtracting the amount calculated in paragraph (b)(2)(v) of 
this section from the amount calculated under paragraph (b)(2)(iii) of 
this section to obtain the net amount of penalty interest due per day; 
and
    (vii) Multiplying the amount calculated in paragraph (b)(2)(vi) of 
this section by the number of days calculated under paragraph (b)(3) of 
this section.
    (3) The Secretary pays penalty interest for the period--
    (i) Beginning on the later of--
    (A) The 31st day after the final day of the quarter covered by the 
request for payment; or
    (B) The 31st day after the Secretary's receipt of an accurate, 
timely, and complete request for payment from the lender; and
    (ii) Ending on the day the Secretary pays the interest benefits and 
the special allowance at issue, in accordance with paragraph (b)(1)(ii) 
of this section.
    (4) A request for interest benefits and special allowance is 
considered timely only if it is received by the Secretary within 90 days 
following the end of the quarter to which the request pertains.
    (5) A request for interest benefits and special allowance is not 
considered accurate and complete if it--
    (i) Requests payments to which the lender is not entitled under 
Secs. 682.300 through 682.302;
    (ii) Includes loans that the Secretary, in writing, has directed 
that the lender exclude from the request;

[[Page 702]]

    (iii) Does not contain all information required by the Secretary or 
contains conflicting information; or
    (iv) Is not provided and certified on the form and in the manner 
prescribed by the Secretary.
    (c) Independent audits. (1) If a lender originates or holds more 
than $5 million in FFEL loans during its fiscal year, it must submit an 
independent annual compliance audit for that year, conducted by a 
qualified independent organization or person. The Secretary may, 
following written notice, suspend the payment of interest benefits and 
special allowance to a lender that does not submit its audit within the 
time period prescribed in paragraph (c)(2) of this section.
    (2) The audit required under paragraph (c)(1) of this section must--
    (i) Examine the lender's compliance with the Act and applicable 
regulations;
    (ii) Examine the lender's financial management of its FFEL program 
activities;
    (iii) Be conducted in accordance with the standards for audits 
issued by the United States General Accounting Office's (GAO's) 
Government Auditing Standards. Procedures for audits are contained in an 
audit guide developed by and available from the Office of the Inspector 
General of the Department;
    (iv) Be conducted at least annually and be submitted to the 
Secretary within six months of the end of the audit period. The initial 
audit must be of the lender's first fiscal year that begins after July 
23, 1992, and must be submitted within six months of the end of the 
audit period. Each subsequent audit must cover the lender's activities 
for the period beginning no later than the end of the period covered by 
the preceding audit;
    (v) With regard to a lender that is a governmental entity, the audit 
required by this paragraph must be conducted in accordance with 31 
U.S.C. 7502 and 34 CFR part 80, appendix G; and
    (vi) With regard to a lender that is a nonprofit organization, the 
audit required by this paragraph must be conducted in accordance with 
OMB Circular A-133, Audit of Institutions of Higher Education and Other 
Nonprofit Institutions, as incorporated in 34 CFR 74.61(h)(3). If a 
nonprofit lender meets the criteria in Circular A-133 for choosing the 
option for a program-specific audit, and so chooses, the program-
specific audit must meet the requirements in paragraphs (c)(1) through 
(c)(2)(iv) of this section.
    (vii) The Secretary may determine that a lender has met the 
requirements of paragraph (c) of this section if the lender has been 
audited in accordance with 31 U.S.C. 7502 for other purposes, the lender 
submits the results of the audit to the Office of Inspector General, and 
the Secretary determines that the audit meets the requirements of this 
paragraph.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 61428, Nov. 30, 1994; 60 FR 31411, June 15, 1995; 64 FR 18978, Apr. 
16, 1999; 64 FR 58627, Oct. 29, 1999]



Subpart D--Administration of the Federal Family Education Loan Programs 
                          by a Guaranty Agency



Sec. 682.400  Agreements between a guaranty agency and the Secretary.

    (a) The Secretary enters into agreements with a guaranty agency 
whose loan guarantee program meets the requirements of this subpart. The 
agreements enable the guaranty agency to participate in the FFEL 
programs and to receive the various payments and benefits related to 
that participation.
    (b) There are four agreements:
    (1) Basic program agreement. In order to participate in the FFEL 
programs, a guaranty agency must have a basic program agreement. Under 
this agreement--
    (i) Borrowers whose Stafford and Consolidation loans that 
consolidate only subsidized Stafford loans are guaranteed by the agency 
may qualify for interest benefits that are paid to the lender on the 
borrower's behalf; and
    (ii) Lenders under the guaranty agency program may receive special 
allowance payments from the Secretary and have death, disability, 
bankruptcy,

[[Page 703]]

 closed school and false certification discharge claims paid by the 
Secretary through the guaranty agency.
    (2) Federal advances for claim payments agreement. A guaranty agency 
must have an agreement for Federal advances for claim payments to 
receive and use Federal advances to pay default claims.
    (3) Reinsurance agreement. A guaranty agency must have a reinsurance 
agreement to receive reimbursement from the Secretary for its losses on 
default claims.
    (4) Loan Rehabilitation Agreement. A guaranty agency must have an 
agreement for rehabilitating a loan for which the Secretary has made a 
reinsurance payment under section 428(c)(1) of the Act.
    (c) The Secretary's execution of an agreement does not indicate 
acceptance of any current or past standards or procedures used by the 
agency.
    (d) All of the agreements are subject to subsequent changes in the 
Act, in other applicable Federal statutes, and in regulations that apply 
to the FFEL programs.

(Authority: 20 U.S.C. 1072, 1078-1, 1078-2, 1078-3, 1082, 1087, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 33353, June 28, 1994; 
64 FR 18978, Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999]



Sec. 682.401  Basic program agreement.

    (a) General. In order to participate in the FFEL programs, a 
guaranty agency shall enter into a basic agreement with the Secretary.
    (b) Terms of agreement. In the basic agreement, the guaranty agency 
shall agree to ensure that its loan guarantee program meets the 
following requirements at all times:
    (1) Aggregate loan limits. The aggregate guaranteed unpaid principal 
amount for all Stafford and SLS, loans made to a borrower may not exceed 
the amounts set forth in Sec. 682.204 (b), (e), and (g).
    (2) Annual loan limits. (i) The annual loan maximum amount for a 
borrower that may be guaranteed for an academic year may not exceed the 
amounts set forth in Sec. 682.204 (a), (c), (d), (f), and (h).
    (ii) A guaranty agency may make the loan amounts authorized under 
paragraph (b)(2)(i) of this section applicable for either--
    (A) A period of not less than that attributable to the academic 
year;
    (B) A period attributable to the academic year in which the student 
earns the amount of credit in the student's program of study required by 
the student's school as the amount necessary for the student to advance 
in academic standing as normally measured on an academic year basis (for 
example, from freshman to sophomore or, in the case of schools using 
clock hours, completion of at least 900 clock hours; or
    (C) A period that does not exceed 12 months.
    (iii) The amount of a loan guaranteed may not exceed the amount set 
forth in Sec. 682.204(k).
    (3) Duration of borrower eligibility. (i) A student borrower under 
the Stafford Loan Program or the SLS Program and a parent borrower under 
the PLUS Program are eligible to receive a guaranteed loan for any year 
of the student's study at a participating school.
    (ii) Loans must be available to or on behalf of any student for at 
least six academic years of study.
    (4) Reinstatement of borrower eligibility. Except as provided in 
Sec. 668.35(b) for a borrower with a defaulted loan on which a judgment 
has been obtained, reinstatement of Title IV eligibility for a borrower 
with a defaulted loan must be in accordance with this paragraph (b)(4). 
For a borrower's loans held by a guaranty agency on which a reinsurance 
claim has been paid by the Secretary, the guaranty agency must afford a 
defaulted borrower, upon the borrower's request, renewed eligibility for 
Title IV assistance once the borrower has made satisfactory repayment 
arrangements as that term is defined in Sec. 682.200.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--
    (A) Include consideration of the borrower's and spouse's disposable 
income and necessary expenses including, but not limited to, housing, 
utilities, food, medical costs, dependent care costs, work-related 
expenses and other Title IV repayment;

[[Page 704]]

    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination, if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater.
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not limited to--
    (1) Evidence of current income (e.g. proof of welfare benefits, 
Social Security benefits, Supplemental Security Income, Workers' 
Compensation, child support, veterans' benefits, two most recent pay 
stubs, most recent copy of U.S. income tax return, State Department of 
Labor reports);
    (2) Evidence of current expenses (e.g. a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
upon providing the documentation specified in paragraph (b)(4)(i)(C) of 
this section.
    (iii) A guaranty agency must provide the borrower with a written 
statement of the reasonable and affordable payment amount required for 
the reinstatement of the borrower's eligibility for Title IV student 
assistance, and provide the borrower with an opportunity to object to 
those terms.
    (iv) A guaranty agency must provide the borrower with written 
information regarding the possibility of loan rehabilitation if the 
borrower makes six additional reasonable and affordable monthly payments 
after making payments to regain eligibility for Title IV assistance and 
the consequences of loan rehabilitation.
    (v) A guaranty agency must inform the borrower that he or she may 
only obtain reinstatement of borrower eligibility under this section 
once.
    (5) Borrower responsibilities. (i) The borrower must indicate his or 
her preferred lender on the promissory note or other written or 
electronic documentation submitted during the loan origination process 
if he or she has such a preference.
    (ii) The borrower must give the lender, as part of the promissory 
note or application process for a PLUS loan--
    (A) A statement, as described in 34 CFR part 668, that the loan will 
be used for the cost of the student's attendance;
    (B) A statement from the student authorizing the school to release 
information relevant to the student's eligibility to have a parent 
borrow on the student's behalf (e.g., the student's enrollment status, 
financial assistance, and employment records); and
    (C) Information from the school providing the maximum amount that 
may be borrowed on behalf of the student.
    (iii) The borrower shall give the lender, as part of the application 
process for a Consolidation loan--
    (A) Information demonstrating that the borrower is eligible for the 
loan under Sec. 682.201(c); and
    (B) A statement that the borrower does not currently have another 
application for a Consolidation loan pending.
    (iv) The borrower shall promptly notify--
    (A) The current holder or the guaranty agency of any change of name, 
address, student status to less than half-time, employer, or employer's 
address; and
    (B) The school of any change in local address during enrollment.
    (6) School eligibility. (i) General. A school that has a program 
participation agreement in effect with the Secretary under Sec. 682.600 
is eligible to participate in the program of the agency under reasonable 
criteria established by the guaranty agency, and approved by the 
Secretary, under paragraph (d)(2) of this section, except to the extent 
that--
    (A) The school's eligibility is limited, suspended, or terminated by 
the Secretary under 34 CFR part 668 or by the guaranty agency under 
standards and procedures that are substantially the same as those in 34 
CFR part 668;

[[Page 705]]

    (B) The Secretary upholds the limitation, suspension, or termination 
of a school by a guaranty agency and extends that sanction to all 
guaranty agency programs under section 432(h)(3) of the Act or 
Sec. 682.713;
    (C) The school is ineligible under section 435(a)(2) of the Act;
    (D) There is a State constitutional prohibition affecting the 
school's eligibility;
    (E) The school's programs consist of study solely by correspondence;
    (F) The agency determines, subject to the agreement of the 
Secretary, that the school does not satisfy the standards of 
administrative capability and financial responsibility as defined in 34 
CFR part 668;
    (G) The school fails to make timely refunds to students as required 
in Sec. 682.607(c);
    (H) The school has not satisfied, within 30 days of issuance, a 
final judgment obtained by a student seeking a refund;
    (I) The school or an owner, director, or officer of the school is 
found guilty or liable in any criminal, civil, or administrative 
proceeding regarding the obtaining, maintenance, or disbursement of 
State or Federal student grant, loan, or work assistance funds; or
    (J) The school or an owner, director, or officer of the school has 
unpaid financial liabilities involving the improper acquisition, 
expenditure, or refund of State or Federal student financial assistance 
funds.
    (ii) Limitation by a guaranty agency of a school's participation. 
For purposes of this paragraph, a school that is subject to limitation 
of participation in the guaranty agency's program may be either a school 
that is applying to participate in the agency's program for the first 
time, or a school that is renewing its application to continue 
participation in the agency's program. A guaranty agency may limit the 
total number of loans or the volume of loans made to students attending 
a particular school, or otherwise establish appropriate limitations on 
the school's participation, if the agency makes a determination that the 
school does not satisfy--
    (A) The standards of financial responsibility defined in 34 CFR 
668.5; or
    (B) The standards of administrative capability defined in 34 CFR 
668.16.
    (iii) Limitation, suspension, or termination of school eligibility. 
A guaranty agency may limit, suspend, or terminate the participation of 
an eligible school. If a guaranty agency limits, suspends, or terminates 
the participation of a school from the agency's program, the Secretary 
applies that limitation, suspension, or termination to all locations of 
the school.
    (iv) Condition for guaranteeing loans for students attending a 
school. The guaranty agency may require the school to execute a 
participation agreement with the agency and to submit documentation that 
establishes the school's eligibility to participate in the agency's 
program.
    (7) Lender eligibility. (i) An eligible lender may participate in 
the program of the agency under reasonable criteria established by the 
guaranty agency except to the extent that--
    (A) The lender's eligibility has been limited, suspended, or 
terminated by the Secretary under subpart G of this part or by the 
agency under standards and procedures that are substantially the same as 
those in subpart G of this part; or
    (B) The lender is disqualified by the Secretary under sections 
432(h)(1), 432(h)(2), 435(d)(3), or 435(d)(5) of the Act or 
Sec. 682.712; or
    (C) There is a State constitutional prohibition affecting the 
lender's eligibility.
    (ii) The agency may not guarantee a loan made by a school lender 
that is not located in the geographical area that the agency serves.
    (iii) The guaranty agency may refuse to guarantee loans made by a 
school on behalf of students not attending that school.
    (iv) The guaranty agency may, in determining whether to enter into a 
guarantee agreement with a lender, consider whether the lender has had 
prior experience in a similar Federal, State, or private nonprofit 
student loan program and the amount and percentage of loans that are 
currently delinquent or in default under that program.

[[Page 706]]

    (8) Out-of-State schools. The agency shall guarantee Stafford, SLS, 
and PLUS loans for students who are legal residents of any State served 
by the agency under Sec. 682.404(h)(2) but who attend schools out of 
that State and for parents who are legal residents of that State and are 
borrowing on behalf of students attending schools out of that State. In 
guaranteeing these loans, the agency may not impose any restrictions 
that it does not apply to borrowers who are legal residents of the State 
attending in-State schools or to parent borrowers who are legal 
residents of the State and are borrowing for students attending in-State 
schools.
    (9) Out-of-State residents. The agency shall guarantee Stafford, 
SLS, and PLUS loans for students who are not legal residents of any 
State served by the agency under Sec. 682.404(h)(2) but who attend 
schools in that State, and for parents who are not legal residents of 
that State and who are borrowing on behalf of students attending schools 
in that State. In guaranteeing these loans, the agency may not impose 
any restrictions that it does not apply to borrowers who are legal 
residents of the State attending in-State schools, or to parent 
borrowers who are legal residents of the State and who are borrowing for 
students attending in-State schools.
    (10) Insurance premiums. (i) Except for a SLS or PLUS loan 
refinanced under Sec. 682.209 (e) or (f), the guaranty agency may charge 
the lender an insurance premium on each Stafford, SLS, or PLUS loan it 
guarantees.
    (ii) The guaranty agency may use the proceeds of this charge only to 
guarantee loans and to cover costs incurred by the guaranty agency in 
the administration of its loan guarantee program.
    (iii) The lender may deduct the amount of the premium from the 
borrower's loan proceeds. For a loan disbursed in more than one 
installment, the insurance premium must be deducted proportionately from 
each disbursement of the loan proceeds.
    (iv) The amount of the insurance premium may not exceed--
    (A) For a loan disbursed on or before June 30, 1994, 3 percent of 
the principal balance of the loan; or
    (B) For a loan disbursed on or after July 1, 1994, 1 percent of the 
principal balance of the loan.
    (v) The guaranty agency shall refund to the lender any insurance 
premium received for a loan under the circumstances specified in 
Sec. 682.401(b)(10)(vi) (A) and (B).
    (vi) The lender shall refund to the borrower by a credit against the 
borrower's loan balance the insurance premium paid by the borrower on a 
loan under the following circumstances:
    (A) The premium attributable to each disbursement of a loan must be 
refunded if the loan check is returned uncashed to the lender.
    (B) The premium or an appropriate prorated amount of the premium 
must be refunded by application to the borrower's loan balance if--
    (1) The loan or a portion of the loan is returned by the school to 
the lender in order to comply with the Act or with applicable 
regulations;
    (2) Within 120 days of disbursement, the loan or a portion of the 
loan is repaid or returned, unless--
    (i) The borrower has no FFEL Program loans in repayment status and 
has requested, in writing, that the repaid or returned funds be used for 
a different purpose; or
    (ii) The borrower has a FFEL Program loan in repayment status, in 
which case the payment is applied in accordance with Sec. 682.209(b) 
unless the borrower has requested, in writing, that the repaid or 
returned funds be applied as a cancellation of all or part of the loan;
    (3) Within 120 days of disbursement, the loan check has not been 
negotiated; or
    (4) Within 120 days of disbursement, the loan proceeds disbursed by 
electronic funds transfer or master check in accordance with 
Sec. 682.207(b)(1)(ii) (B) and (C) have not been released from the 
restricted account maintained by the school.
    (11) Inquiries. The agency must be able to receive and respond to 
written, electronic, and telephone inquiries.
    (12) Administrative fee for Consolidation loans. The guaranty agency 
may charge

[[Page 707]]

a lender a fee, not to exceed $50, reasonably calculated to cover the 
agency's cost of increased or extended liability incurred in 
guaranteeing a Consolidation loan. The lender may not pass the fee on to 
the borrower. If it charges the fee, the agency must charge it for all 
loans made under the agency's Consolidation Loan program.
    (13) Administrative fee for refinancing fixed-rate PLUS or SLS 
loans. The guaranty agency may require a lender to pay to the guaranty 
agency up to 50 percent of the fee the lender charges a borrower under 
Sec. 682.202(e) for the purpose of defraying the agency's administrative 
costs incident to the guarantee of a lender's reissuance of a fixed-rate 
PLUS or SLS loan at a variable interest rate. If it charges the fee, the 
agency must charge the same fee to all lenders that refinance under this 
paragraph.
    (14) Guaranty liability. The guaranty agency shall guarantee--
    (i) 100 percent of the unpaid principal balance of each loan 
guaranteed for loans disbursed before October 1, 1993; and
    (ii) Not more than 98 percent of the unpaid principal balance of 
each loan guaranteed for loans first disbursed on or after October 1, 
1993.
    (15) Guaranty agency verification of default data. A guaranty agency 
must meet the requirements and deadlines provided for it in subpart M of 
34 CFR part 668 for the cohort default rate process.
    (16) Guaranty agency administration. In the case of a State loan 
guarantee program administered by a State government, the program must 
be administered by a single State agency, or by one or more private 
nonprofit institutions or organizations under the supervision of a 
single State agency. For this purpose, ``supervision'' includes, but is 
not limited to, setting policies and procedures, and having full 
responsibility for the operation of the program.
    (17) Loan assignment. (i) Except as provided in paragraph 
(b)(17)(iii) of this section, the guaranty agency must allow a loan to 
be assigned only if the loan is fully disbursed and is assigned to--
    (A) An eligible lender;
    (B) A guaranty agency, in the case of a borrower's default, death, 
total and permanent disability, or filing of a bankruptcy petition, or 
for other circumstances approved by the Secretary, such as a loan made 
for attendance at a school that closed or a false certification claim;
    (C) An educational institution, whether or not it is an eligible 
lender, in connection with the institution's repayment to the agency or 
to the Secretary of a guarantee or a reinsurance claim payment made on a 
loan that was ineligible for the payment;
    (D) A Federal or State agency or an organization or corporation 
acting on behalf of such an agency and acting as a conservator, 
liquidator, or receiver of an eligible lender; or
    (E) The Secretary.
    (ii) For the purpose of this paragraph, ``assigned'' means any kind 
of transfer of an interest in the loan, including a pledge of such an 
interest as security.
    (iii) The guaranty agency must allow a loan to be assigned under 
paragraph (b)(17)(i) of this section, following the first disbursement 
of the loan if the assignment does not result in a change in the 
identity of the party to whom payments must be made.
    (18) Transfer of guarantees. Except in the case of a transfer of 
guarantee requested by a borrower seeking a transfer to secure a single 
guarantor, the guaranty agency may transfer its guarantee obligation on 
a loan to another guaranty agency, only with the approval of the 
Secretary, the transferee agency, and the holder of the loan.
    (19) Standards and procedures. (i) The guaranty agency shall 
establish, disseminate to concerned parties, and enforce standards and 
procedures for--
    (A) Ensuring that all lenders in its program meet the definition of 
``eligible lender'' in section 435(d) of the Act and have a written 
lender agreement with the agency;
    (B) School and lender participation in its program;
    (C) Limitation, suspension, termination of school and lender 
participation;
    (D) Emergency action against a participating school or lender;

[[Page 708]]

    (E) The exercise of due diligence by lenders in making, servicing, 
and collecting loans; and
    (F) The timely filing by lenders of default, death, disability, 
bankruptcy, closed school, false certification, and ineligible loan 
claims.
    (ii) The guaranty agency shall ensure that its program and all 
participants in its program at all times meet the requirements of 
subparts B, C, D, and F of this part.
    (20) Monitoring student enrollment. The guaranty agency shall 
monitor the enrollment status of a FFEL program borrower or student on 
whose behalf a parent has borrowed that includes, at a minimum, 
reporting to the current holder of the loan within 60 days any change in 
the student's enrollment status reported that triggers--
    (i) The beginning of the borrower's grace period; or
    (ii) The beginning or resumption of the borrower's immediate 
obligation to make scheduled payments.
    (21) Submission of interest and special allowance information. Upon 
the Secretary's request, the guaranty agency shall submit, or require 
its lenders to submit, information that the Secretary deems necessary 
for determining the amount of interest benefits and special allowance 
payable on the agency's guaranteed loans.
    (22) Submission of information for reports. The guaranty agency 
shall require lenders to submit to the agency the information necessary 
for the agency to complete the reports required by Sec. 682.414(b).
    (23) Guaranty agency transfer of information. (i) A guaranty agency 
from which another guaranty agency requests information regarding 
Stafford and SLS loans made after January 1, 1987, to students who are 
residents of the State for which the requesting agency is the principal 
guaranty agency shall provide--
    (A) The name and social security number of the student; and
    (B) The annual loan amount and the cumulative amount borrowed by the 
student in loans under the Stafford and SLS programs guaranteed by the 
responding agency.
    (ii) The reasonable costs incurred by an agency in fulfilling a 
request for information made under paragraph (b)(23)(i) of this section 
must be paid by the guaranty agency making the request.
    (24) Information on defaults. The guaranty agency shall, upon the 
request of a school, furnish information with respect to students, 
including the names and addresses of such students, who were enrolled at 
that school and who are in default on the repayment of any loan 
guaranteed by that agency.
    (25) Information on loan sales or transfers. The guaranty agency 
must, upon the request of a school, furnish to the school last attended 
by the student, information with respect to the sale or transfer of a 
borrower's loan prior to the beginning of the repayment period, 
including--
    (i) Notice of assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party by which contact may be made 
with the holder concerning repayment of the loan; and
    (iv) The telephone number of the assignee or, if the assignee uses a 
lender servicer, another appropriate number for borrower inquiries.
    (26) Third-party servicers. The guaranty agency may not enter into a 
contract with a third-party servicer that the Secretary has determined 
does not meet the financial and compliance standards under Sec. 682.416. 
The guaranty agency shall provide the Secretary with the name and 
address of any third-party servicer with which the agency enters into a 
contract and, upon request by the Secretary, a copy of that contract.
    (27) Collection charges and late fees on defaulted FFEL loans being 
consolidated. (i) A guaranty agency may add collection costs in an 
amount not to exceed 18.5 percent of the outstanding principal and 
interest to a defaulted FFEL Program loan that is included in a Federal 
Consolidation loan.
    (ii) When returning the proceeds from the consolidation of a 
defaulted loan to the Secretary, a guaranty agency may only retain the 
amount added to the borrower's balance pursuant to paragraph (b)(27)(i) 
of this section.
    (28) Change in agency's records system. The agency shall provide 
written notification to the Secretary at least 30

[[Page 709]]

days prior to placing its new guarantees or converting the records 
relating to its existing guaranty portfolio to an information or 
computer system that is owned by, or otherwise under the control of, an 
entity that is different than the party that owns or controls the 
agency's existing information or computer system. If the agency is 
soliciting bids from third parties with respect to a proposed 
conversion, the agency shall provide written notice to the Secretary as 
soon as the solicitation begins. The notification described in this 
paragraph must include a concise description of the agency's conversion 
project and the actual or estimated cost of the project.
    (c) Lender-of-last-resort. (1) The guaranty agency must ensure that 
it, or an eligible lender described in section 435(d)(1)(D) of the Act, 
serves as a lender-of-last-resort in the State in which the guaranty 
agency is the designated guaranty agency. The guaranty agency or an 
eligible lender described in section 435(d)(1)(D) of the Act may arrange 
for a loan required to be made under paragraph (c)(2) of this section to 
be made by another eligible lender. As used in this paragraph, the term 
``designated guaranty agency'' means the guaranty agency in the State 
for which the Secretary has signed a Basic Program Agreement under this 
section.
    (2) The lender-of-last-resort must make subsidized Federal Stafford 
loans and unsubsidized Federal Stafford loans to any eligible student 
who--
    (i) Qualifies for interest benefits pursuant to Sec. 682.301;
    (ii) Qualifies for a combined loan amount of at least $200; and
    (iii) Has been otherwise unable to obtain loans from another 
eligible lender for the same period of enrollment.
    (3) The lender-of-last resort may make unsubsidized Federal Stafford 
and Federal PLUS loans to borrowers who have been otherwise unable to 
obtain those loans from another eligible lender.
    (4) The guaranty agency must develop policies and operating 
procedures for its lender-of-last-resort program that provide for the 
accessibility of lender-of-last-resort loans. These policies and 
procedures must be submitted to the Secretary for approval as required 
under paragraph (d)(2) of this section. The policies and procedures for 
the agency's lender-of-last-resort program must ensure that--
    (i) The guaranty agency will serve eligible students attending any 
eligible school;
    (ii) The program establishes operating hours and methods of 
application designed to facilitate application by students; and
    (iii) Information about the availability of loans under the program 
is made available to schools in the State;
    (iv) Appropriate steps are taken to ensure that borrowers receiving 
loans under the program are appropriately counseled on their loan 
obligation;
    (v) The guaranty agency will respond to a student within 60 days 
after the student submits an original complete application; and
    (vi) Borrowers are not required to obtain more than two objections 
from eligible lenders prior to requesting assistance under the lender-
of-last-resort program.
    (5)(i) Upon request of the guaranty agency, the Secretary may 
advance Federal funds to the agency, on terms and conditions agreed to 
by the Secretary and the agency, to ensure the availability of loan 
capital for subsidized and unsubsidized Federal Stafford and Federal 
PLUS loans to borrowers who are otherwise unable to obtain those loans 
if the Secretary determines that--
    (A) Eligible borrowers in a State who qualify for subsidized Federal 
Stafford loans are seeking and are unable to obtain subsidized Federal 
Stafford loans;
    (B) The guaranty agency designated for that State has the capability 
for providing lender-of-last-resort loans in a timely manner, either 
directly or indirectly using a third party, in accordance with the 
guaranty agency's obligations under the Act, but cannot do so without 
advances provided by the Secretary; and
    (C) It would be cost-effective to advance Federal funds to the 
agency.
    (ii) If the Secretary determines that the designated guaranty agency 
does not have the capability to provide lender-of-last-resort loans, in 
accordance with paragraph (c)(5)(i) of this section, the Secretary may 
provide Federal

[[Page 710]]

funds to another guaranty agency, under terms and conditions agreed to 
by the Secretary and the agency, to make lender-of-last-resort loans in 
that State.
    (d) Review of forms and procedures. (1) The guaranty agency shall 
submit to the Secretary its write-off criteria and procedures. The 
agency may not use these materials until the Secretary approves them.
    (2) The guaranty agency shall promptly submit to the Secretary its 
regulations, statements of procedures and standards, agreements, and 
other materials that substantially affect the operation of the agency's 
program, and any proposed changes to those materials. Except as provided 
in paragraph (d)(1) of this section, the agency may use these materials 
unless and until the Secretary disapproves them.
    (3) The guaranty agency must use common application forms, 
promissory notes, Master Promissory Notes (MPN), and other common forms 
approved by the Secretary.
    (4)(i) The Secretary authorizes the use of the multi-year feature of 
the MPN--
    (A) For students and parents for attendance at four-year or 
graduate/professional schools; and
    (B) For students and parents for attendance at other institutions 
meeting criteria or otherwise designated at the sole discretion of the 
Secretary.
    (ii) The Secretary may prohibit use of the multi-year feature of the 
MPN at specific schools described under paragraph (4)(i) of this section 
under circumstances including, but not limited to, the school being 
subject to an emergency action or a limitation, suspension, or 
termination action, or not meeting other performance criteria determined 
by the Secretary.
    (iii) A student or parent borrower who is borrowing funds for 
attendance at a school for which the multi-year feature of the MPN has 
not been authorized must complete a new promissory note for each 
academic year.
    (iv) Each loan made under an MPN is enforceable in accordance with 
the terms of the MPN and is eligible for claim payment based on a true 
and exact copy of such MPN.
    (v) A lender's ability to make additional loans under an MPN will 
automatically expire upon the earliest of--
    (A) The date the lender receives written notification from the 
borrower requesting that the MPN no longer be used as the basis for 
additional loans;
    (B) Twelve months after the date the borrower signed the MPN if no 
disbursements are issued by the lender under that MPN; or
    (C) Ten years from the date the borrower signed the MPN or the date 
the lender receives the MPN. However, if a portion of a loan is made on 
or before 10 years from the signature date, remaining disbursements of 
that loan may be made.
    (vi) The lender and school must develop and document a confirmation 
process in accordance with guidelines established by the Secretary for 
loans made under the multi-year feature of the MPN.
    (5) The guaranty agency must develop and implement appropriate 
procedures that provide for the granting of a student deferment as 
specified in Sec. 682.210(a)(6)(iv) and (c)(3) and require their lenders 
to use these procedures.
    (6) The guaranty agency shall ensure that all program materials meet 
the requirements of Federal and State law, including, but not limited 
to, the Act and the regulations in this part and part 668.
    (e) Prohibited inducements. A guaranty agency may be--
    (1) Offer directly or indirectly any premium, payment, or other 
inducement to an employee or student of a school, or an entity or 
individual affiliated with a school, to secure applicants for FFEL 
loans, except that a guaranty agency is not prohibited from providing 
assistance to schools comparable to the kinds of assistance provided by 
the Secretary to schools under, or in furtherance of, the Federal Direct 
Loan Program;
    (2)(i) Offer, directly or indirectly, any premium, incentive 
payment, or other inducement to any lender, or any person acting as an 
agent, employee, or independent contractor of any lender or other 
guaranty agency to administer or market FFEL loans, other than 
unsubsidized Stafford loans or subsidized Stafford loans made under a

[[Page 711]]

guaranty agency's lender-of-last-resort program, in an effort to secure 
the guaranty agency as an insurer of FFEL loans. Examples of prohibited 
inducements include, but are not limited to--
    (A) Compensating lenders or their representatives for the purpose of 
securing loan applications for guarantee;
    (B) Performing functions normally performed by lenders without 
appropriate compensation;
    (C) Providing equipment or supplies to lenders at below market cost 
or rental; or
    (D) Offering to pay a lender, that does not hold loans guaranteed by 
the agency, a fee for each application forwarded for the agency's 
guarantee.
    (ii) For the purposes of this section, the terms ``premium'', 
``inducement'', and ``incentive'' do not include services directly 
related to the enhancement of the administration of the FFEL Program the 
guaranty agency generally provides to lenders that participate in its 
program. However, the terms ``premium'', ``inducement'', and 
``incentive'' do apply to other activities specifically intended to 
secure a lender's participation in the agency's program.
    (3) Mail or otherwise distribute unsolicited loan applications to 
students enrolled in a secondary school or a postsecondary institution, 
or to parents of those students, unless the potential borrower has 
previously received loans insured by the guaranty agency;
    (4) Conduct fraudulent or misleading advertising concerning loan 
availability.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 22454, Apr. 29, 1994; 59 FR 25746, May 17, 1994; 59 FR 32923, June 
27, 1994; 59 FR 33353, June 28, 1994; 59 FR 61428, Nov. 30, 1994; 60 FR 
30788, June 12, 1995; 60 FR 31411, June 15, 1995; 60 FR 61757, Dec. 1, 
1995; 61 FR 60436, 60486, Nov. 27, 1996; 62 FR 63434, Nov. 28, 1997; 64 
FR 18978, Apr. 16, 1999; 64 FR 58627, Oct. 29, 1999; 64 FR 58959, Nov. 
1, 1999; 65 FR 65650, Nov. 1, 2000; 66 FR 34763, June 29, 2001; 67 FR 
67079, Nov. 1, 2002]



Sec. 682.402  Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.

    (a) General. (1) Rules governing the payment of claims based on 
filing for relief in bankruptcy, and discharge of loans due to death, 
total and permanent disability, attendance at a school that closes, 
false certification by a school of a borrower's eligibility for a loan, 
and unpaid refunds by a school are set forth in this section.
    (2) If a Consolidation loan was obtained jointly by a married 
couple, the amount of the Consolidation loan that is discharged if one 
of the borrowers dies or becomes totally and permanently disabled is 
equal to the portion of the outstanding balance of the Consolidation 
loan, as of the date the borrower died or became totally and permanently 
disabled, attributable to any of that borrower's loans that would have 
been eligible for discharge.
    (3) If a PLUS loan was obtained by two parents as co-makers, and 
only one of the borrowers dies, becomes totally and permanently 
disabled, has collection of his or her loan obligation stayed by a 
bankruptcy filing, or has that obligation discharged in bankruptcy, the 
other borrower remains obligated to repay the loan unless that borrower 
would qualify for discharge of the loan under these regulations.
    (4) Except for a borrower's loan obligation discharged by the 
Secretary under the false certification discharge provision of 
paragraphs (e)(1)(ii) of this section, a loan qualifies for payment 
under this section and as provided in paragraph (h)(1)(iv) of this 
section, only to the extent that the loan is legally enforceable under 
applicable law by the holder of the loan.
    (5) For purposes of this section--
    (i) The legal enforceability of a loan is conclusively determined on 
the basis of a ruling by a court or administrative tribunal of competent 
jurisdiction with respect to that loan, or a ruling with respect to 
another loan in a judgment that collaterally estops the holder from 
contesting the enforceability of the loan;
    (ii) A loan is conclusively determined to be legally unenforceable 
to the extent that the guarantor determines, pursuant to an objection 
presented in a

[[Page 712]]

proceeding conducted in connection with credit bureau reporting, tax 
refund offset, wage garnishment, or in any other administrative 
proceeding, that the loan is not legally enforceable; and
    (iii) If an objection has been raised by the borrower or another 
party about the legal enforceability of the loan and no determination 
has been made under paragraph (a)(5) (i) or (ii) of this section, the 
Secretary may authorize the payment of a claim under this section under 
conditions the Secretary considers appropriate. If the Secretary 
determines in that or any other case that a claim was paid under this 
section with respect to a loan that was not a legally enforceable 
obligation of the borrower, the recipient of that payment must refund 
that amount of the payment to the Secretary.
    (b) Death. (1) If an individual borrower dies, or the student for 
whom a parent received a PLUS loan dies, the obligation of the borrower 
and any endorser to make any further payments on the loan is discharged.
    (2) A discharge of a loan based on the death of the borrower (or 
student in the case of a PLUS loan) must be based on an original or 
certified copy of the death certificate. Under exceptional circumstances 
and on a case-by-case basis, the chief executive officer of the guaranty 
agency may approve a discharge based upon other reliable documentation 
supporting the discharge request.
    (3) After receiving reliable information indicating that the 
borrower (or student) has died, the lender must suspend any collection 
activity against the borrower and any endorser for up to 60 days and 
promptly request the documentation described in paragraph (b)(2) of this 
section. If additional time is required to obtain the documentation, the 
period of suspension of collection activity may be extended up to an 
additional 60 days. If the lender is not able to obtain an original or 
certified copy of the death certificate or other documentation 
acceptable to the guaranty agency, under the provisions of paragraph 
(b)(2) of this section, during the period of suspension, the lender must 
resume collection activity from the point that it had been discontinued. 
The lender is deemed to have exercised forbearance as to repayment of 
the loan during the period when collection activity was suspended.
    (4) Once the lender has determined under paragraph (b)(2) of this 
section that the borrower (or student) has died, the lender may not 
attempt to collect on the loan from the borrower's estate or from any 
endorser.
    (5) The lender shall return to the sender any payments received from 
the estate or paid on behalf of the borrower after the date of the 
borrower's (or student's) death.
    (6) In the case of a Federal Consolidation Loan that includes a 
Federal PLUS or Direct PLUS loan borrowed for a dependent who has died, 
the obligation of the borrower or any endorser to make any further 
payments on the portion of the outstanding balance of the Consolidation 
Loan attributable to the Federal PLUS or Direct PLUS loan is discharged 
as of the date of the dependent's death.
    (c) Total and permanent disability. (1)(i) If the Secretary has made 
an initial determination that the borrower is totally and permanently 
disabled, as defined in Sec. 682.200(b), the loan is conditionally 
discharged for up to three years from the date that the borrower became 
totally and permanently disabled, as certified by a physician. The 
Secretary suspends collection activity on the loan from the date of the 
initial determination of total and permanent disability until the end of 
the conditional period. If the borrower satisfies the criteria for a 
total and permanent disability discharge during and at the end of the 
conditional discharge period, the balance of the loan is discharged at 
the end of the conditional discharge period and any payments received 
after the date the borrower became totally and permanently disabled as 
certified under Sec. 682.402(c)(2), are returned to the sender.
    (ii) A borrower satisfies the criteria for a discharge of a loan 
based on a total and permanent disability if, during and at the end of 
the three-year period described in paragraph (c)(1)(i) of this section--
    (A) The borrower's annual earnings from employment do not exceed 100 
percent of the poverty line for a family

[[Page 713]]

of two, as determined in accordance with the Community Service Block 
Grant Act; and
    (B) The borrower does not receive a new loan under the Perkins, 
FFEL, or Direct Loan programs, except for a FFEL or Direct Consolidation 
loan that does not include any loans that are in a conditional discharge 
status.
    (iii) Except as provided in paragraph (c)(1)(iv)(A) of this section, 
a borrower is not considered totally and permanently disabled based on a 
condition that existed at the time the loan was made unless the 
borrower's condition substantially deteriorated.
    (iv)(A) For a Consolidation Loan, a borrower is considered totally 
and permanently disabled if he or she would be considered totally and 
permanently disabled under paragraphs (c)(1) (i) through (iii) of this 
section for all of the loans that were included in the Consolidation 
Loan if those loans had not been consolidated.
    (B) For the purposes of discharging a loan under paragraph 
(c)(1)(iv)(A) of this section, provisions in paragraphs (c)(1) (i) 
through (iii) of this section apply to each loan included in the 
Consolidation Loan, even if the loan is not a FFEL Program loan.
    (C) If requested, a borrower seeking to discharge a loan obligation 
under paragraph (c)(1)(iv)(A) of this section must provide the lender 
with the disbursement dates of the underlying loans if the lender does 
not possess that information.
    (2) After being notified by the borrower or the borrower's 
representative that the borrower claims to be totally and permanently 
disabled, the lender promptly requests that the borrower or the 
borrower's representative submit, on a form approved by the Secretary, a 
certification by a physician, who is a doctor of medicine or osteopathy 
and legally authorized to practice in a State, that the borrower is 
totally and permanently disabled as defined in Sec. 682.200(b).
    (3) The lender must continue collection activities until it receives 
either the certification of total and permanent disability from a 
physician or a letter from a physician stating that the certification 
has been requested and that additional time is needed to determine if 
the borrower is totally and permanently disabled. Except as provided in 
paragraph (c)(5) or (c)(7) of this section, after receiving the 
physician's certification or letter the lender may not attempt to 
collect from the borrower or any endorser.
    (4) The lender must submit a disability claim to the guaranty agency 
if the borrower submits a certification by a physician and the lender 
makes a determination that the certification supports the conclusion 
that the borrower meets the criteria for a total and permanent 
disability discharge, as defined in Sec. 682.200(b).
    (5) If the lender determines that a borrower who claims to be 
totally and permanently disabled is not totally and permanently 
disabled, or if the lender does not receive the physician's 
certification of total and permanent disability within 60 days of the 
receipt of the physician's letter requesting additional time, as 
described in paragraph (c)(3) of this section, the lender must resume 
collection and is deemed to have exercised forbearance of payment of 
both principal and interest from the date collection activity was 
suspended. The lender may capitalize, in accordance with 
Sec. 682.202(b), any interest accrued and not paid during that period.
    (6) The guaranty agency must pay a claim submitted by the lender if 
the guaranty agency has reviewed the application and determined that it 
is complete and that it supports the conclusion that the borrower meets 
the criteria for a total and permanent disability discharge, as defined 
in Sec. 682.200(b).
    (7) If the guaranty agency does not pay the disability claim, the 
guaranty agency must return the claim to the lender with an explanation 
of the basis for the agency's denial of the claim. Upon receipt of the 
returned claim, the lender must notify the borrower that the application 
for a disability discharge has been denied, provide the basis for the 
denial, and inform the borrower that the lender will resume collection 
on the loan. The lender is deemed to have exercised forbearance of both 
principal and interest from the date collection activity was suspended 
until the first payment due date. The lender may capitalize, in 
accordance

[[Page 714]]

with Sec. 682.202(b), any interest accrued and not paid during that 
period.
    (8) If the guaranty agency pays the disability claim, the lender 
must notify the borrower that the loan will be assigned to the Secretary 
for determination of eligibility for a total and permanent disability 
discharge.
    (9) After receiving a claim payment from the guaranty agency, the 
lender must forward to the guaranty agency any payments subsequently 
received from or on behalf of the borrower.
    (10) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender.
    (11) The guaranty agency must assign the loan to the Secretary after 
the guaranty agency pays the disability claim.
    (12) If the Secretary determines that the certification and 
information provided by the borrower do not support the conclusion that 
the borrower meets the criteria for a total and permanent disability 
discharge, the Secretary notifies the borrower that the application for 
a disability discharge has been denied, and that the loan is due and 
payable under the terms of the promissory note.
    (13) If the Secretary makes an initial determination that the 
borrower is totally and permanently disabled, the Secretary notifies the 
borrower that the loan is conditionally discharged and that the 
conditional discharge period will last for up to three years after the 
date the borrower became totally and permanently disabled as certified 
under Sec. 682.402(c)(2). The notification identifies the conditions of 
the conditional discharge period specified in paragraphs (c)(13) through 
(c)(16) of this section and specifies that all or part of the three-year 
period may predate the Secretary's initial determination.
    (14) During the conditional discharge period, the borrower--
    (i) Is not required to make any payments on the loan;
    (ii) Is not considered delinquent or in default on the loan, unless 
the borrower was delinquent or in default at the time the conditional 
discharge was granted;
    (iii) Must promptly notify the Secretary of any changes in address 
or phone number;
    (iv) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(c)(1)(ii)(A) of this section; and
    (v) Must provide the Secretary, upon request, with additional 
documentation or information related to the borrower's eligibility for 
discharge under this section.
    (15) If, during and at the end of the conditional discharge period, 
the borrower continues to satisfy the eligibility criteria for a total 
and permanent disability discharge, as described in 
Sec. 682.402(c)(1)(ii), the balance of the loan is discharged.
    (16) If, at any time during the three-year conditional discharge 
period, the borrower does not continue to meet the eligibility 
requirements for a total and permanent disability discharge, the 
Secretary resumes collection activity on the loan. The Secretary does 
not require the borrower to pay any interest that accrued on the loan 
from the date of the initial determination described in paragraph 
(c)(13) of this section through the end of the conditional discharge 
period.
    (d) Closed school--(1) General. (i) The Secretary reimburses the 
holder of a loan received by a borrower on or after January 1, 1986, and 
discharges the borrower's obligation with respect to the loan in 
accordance with the provisions of paragraph (d) of this section, if the 
borrower (or the student for whom a parent received a PLUS loan) could 
not complete the program of study for which the loan was intended 
because the school at which the borrower (or student) was enrolled, 
closed, or the borrower (or student) withdrew from the school not more 
than 90 days prior to the date the school closed. This 90-day period may 
be extended if the Secretary determines that exceptional circumstances 
related to a school's closing would justify an extension.
    (ii) For purposes of the closed school discharge authorized by this 
section--
    (A) A school's closure date is the date that the school ceases to 
provide educational instruction in all programs, as determined by the 
Secretary;

[[Page 715]]

    (B) The term ``borrower'' includes all endorsers on a loan; and
    (C) A ``school'' means a school's main campus or any location or 
branch of the main campus, regardless of whether the school or its 
location or branch is considered eligible.
    (2) Relief available pursuant to discharge. (i) Discharge under 
paragraph (d) of this section relieves the borrower of an existing or 
past obligation to repay the loan and any charges imposed or costs 
incurred by the holder with respect to the loan that the borrower is, or 
was otherwise obligated to pay.
    (ii) A discharge of a loan under paragraph (d) of this section 
qualifies the borrower for reimbursement of amounts paid voluntarily or 
through enforced collection on a loan obligation discharged under 
paragraph (d) of this section.
    (iii) A borrower who has defaulted on a loan discharged under 
paragraph (d) of this section is not regarded as in default on the loan 
after discharge, and is eligible to receive assistance under the Title 
IV, HEA programs.
    (iv) A discharge of a loan under paragraph (d) of this section must 
be reported by the loan holder to all credit reporting agencies to which 
the holder previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan.
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (d)(8) of this section, in order to qualify for a discharge of 
a loan under paragraph (d) of this section, a borrower must submit a 
written request and sworn statement to the holder of the loan. The 
statement need not be notarized, but must be made by the borrower under 
the penalty of perjury, and, in the statement, the borrower must state--
    (i) Whether the student has made a claim with respect to the 
school's closing with any third party, such as the holder of a 
performance bond or a tuition recovery program, and if so, the amount of 
any payment received by the borrower (or student) or credited to the 
borrower's loan obligation;
    (ii) That the borrower (or the student for whom a parent received a 
PLUS loan)--
    (A) Received, on or after January 1, 1986, the proceeds of any 
disbursement of a loan disbursed, in whole or in part, on or after 
January 1, 1986 to attend a school;
    (B) Did not complete the educational program at that school because 
the school closed while the student was enrolled or on an approved leave 
of absence in accordance with Sec. 682.605(c), or the student withdrew 
from the school not more than 90 days before the school closed; and
    (C) Did not complete the program of study through a teach-out at 
another school or by transferring academic credits or hours earned at 
the closed school to another school;
    (iii) That the borrower agrees to provide, upon request by the 
Secretary or the Secretary's designee, other documentation reasonably 
available to the borrower that demonstrates, to the satisfaction of the 
Secretary or the Secretary's designee, that the student meets the 
qualifications in paragraph (d) of this section; and
    (iv) That the borrower agrees to cooperate with the Secretary or the 
Secretary's designee in enforcement actions in accordance with paragraph 
(d)(4) of this section, and to transfer any right to recovery against a 
third party in accordance with paragraph (d)(5) of this section.
    (4) Cooperation by borrower in enforcement actions. (i) In any 
judicial or administrative proceeding brought by the Secretary or the 
Secretary's designee to recover for amounts discharged under paragraph 
(d) of this section or to take other enforcement action with respect to 
the conduct on which those claims were based, a borrower who requests or 
receives a discharge under paragraph (d) of this section must cooperate 
with the Secretary or the Secretary's designee. At the request of the 
Secretary or the Secretary's designee, and upon the Secretary's or the 
Secretary's designee's tendering to the borrower the fees and costs as 
are customarily provided in litigation to reimburse witnesses, the 
borrower shall--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge; and
    (B) Produce any documentation reasonably available to the borrower 
with

[[Page 716]]

respect to those representations and any sworn statement required by the 
Secretary with respect to those representations and documents.
    (ii) The Secretary revokes the discharge, or denies the request for 
discharge, of a borrower who--
    (A) Fails to provide testimony, sworn statements, or documentation 
to support material representations made by the borrower to obtain the 
discharge; or
    (B) Provides testimony, a sworn statement, or documentation that 
does not support the material representations made by the borrower to 
obtain the discharge.
    (5) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) Upon discharge under paragraph (d) of this 
section, the borrower is deemed to have assigned to and relinquished in 
favor of the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower (or student) may have by contract or 
applicable law with respect to the loan or the enrollment agreement for 
the program for which the loan was received, against the school, its 
principals, affiliates and their successors, its sureties, and any 
private fund, including the portion of a public fund that represents 
funds received from a private party.
    (ii) The provisions of paragraph (d) of this section apply 
notwithstanding any provision of State law that would otherwise restrict 
transfer of such rights by the borrower (or student), limit or prevent a 
transferee from exercising those rights, or establish procedures or a 
scheme of distribution that would prejudice the Secretary's ability to 
recover on those rights.
    (iii) Nothing in this section shall be construed as limiting or 
foreclosing the borrower's (or student's) right to pursue legal and 
equitable relief regarding disputes arising from matters otherwise 
unrelated to the loan discharged.
    (6) Guaranty agency responsibilities--(i) Procedures applicable if a 
school closed on or after January 1, 1986, but prior to June 13, 1994. 
(A) If a borrower received a loan for attendance at a school with a 
closure date on or after January 1, 1986, but prior to June 13, 1994, 
the loan may be discharged in accordance with the procedures specified 
in paragraph (d)(6)(i) of this section.
    (B) If a loan subject to paragraph (d) of this section was 
discharged in part in accordance with the Secretary's ``Closed School 
Policy'' as authorized by section IV of Bulletin 89-G-159, the guaranty 
agency shall initiate the discharge of the remaining balance of the loan 
not later than August 13, 1994.
    (C) A guaranty agency shall review its records and identify all 
schools that appear to have closed on or after January 1, 1986 and prior 
to June 13, 1994, and shall identify the loans made to any borrower (or 
student) who appears to have been enrolled at the school on the school 
closure date or who withdrew not more than 90 days prior to the closure 
date.
    (D) A guaranty agency shall notify the Secretary immediately if it 
determines that a school not previously known to have closed appears to 
have closed, and, within 30 days of making that determination, notify 
all lenders participating in its program to suspend collection efforts 
against individuals with respect to loans made for attendance at the 
closed school, if the student to whom (or on whose behalf) a loan was 
made, appears to have been enrolled at the school on the closing date, 
or withdrew not more than 90 days prior to the date the school appears 
to have closed. Within 30 days after receiving confirmation of the date 
of a school's closure from the Secretary, the agency shall--
    (1) Notify all lenders participating in its program to mail a 
discharge application explaining the procedures and eligibility criteria 
for obtaining a discharge and an explanation of the information that 
must be included in the sworn statement (which may be combined) to all 
borrowers who may be eligible for a closed school discharge; and
    (2) Review the records of loans that it holds, identify the loans 
made to any borrower (or student) who appears to have been enrolled at 
the school on the school closure date or who withdrew not more than 90 
days prior to the closure date, and mail a discharge application and an 
explanation of the information that must be included in the sworn 
statement (which may be combined) to the borrower. The application

[[Page 717]]

shall inform the borrower of the procedures and eligibility criteria for 
obtaining a discharge.
    (E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is known, the guaranty agency shall 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments), and notify the borrower that the 
agency will provide additional information about the procedures for 
requesting a discharge after the agency has received confirmation from 
the Secretary that the school had closed.
    (F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is unknown, the agency shall, by June 13, 
1995, further refine the list of borrowers whose loans are potentially 
subject to discharge under paragraph (d) of this section by consulting 
with representatives of the closed school, the school's licensing 
agency, accrediting agency, and other appropriate parties. Upon learning 
the new address of a borrower who would still be considered potentially 
eligible for a discharge, the guaranty agency shall, within 30 days 
after learning the borrower's new address, mail to the borrower a 
discharge application that meets the requirements of paragraph 
(d)(6)(i)(E) of this section.
    (G) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(i)(E) or (F) of this section has satisfied all of the 
conditions required for a discharge, the agency shall notify the 
borrower in writing of that determination within 30 days after making 
that determination.
    (H) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(i)(E) or (F) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the reasons for it within 30 days after the date the 
agency--
    (1) Made that determination based on information available to the 
guaranty agency;
    (2) Was notified by the Secretary that the school had not closed;
    (3) Was notified by the Secretary that the school had closed on a 
date that was more than 90 days after the borrower (or student) withdrew 
from the school;
    (4) Was notified by the Secretary that the borrower (or student) was 
ineligible for a closed school discharge for other reasons; or
    (5) Received the borrower's completed application and sworn 
statement.
    (I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of this 
section fails to submit the written request and sworn statement 
described in paragraph (d)(3) of this section within 60 days of being 
notified of that option, the guaranty agency shall resume collection and 
shall be deemed to have exercised forbearance of payment of principal 
and interest from the date it suspended collection activity. The agency 
may capitalize, in accordance with Sec. 682.202(b), any interest accrued 
and not paid during that period.
    (J) A borrower's request for discharge may not be denied solely on 
the basis of failing to meet any time limits set by the lender, guaranty 
agency, or the Secretary.
    (ii) Procedures applicable if a school closed on or after June 13, 
1994. (A) A guaranty agency shall notify the Secretary immediately 
whenever it becomes aware of reliable information indicating a school 
may have closed. The designated guaranty agency in the state in which 
the school is located shall promptly investigate whether the school has 
closed and, within 30 days after receiving information indicating that 
the school may have closed, report the results of its investigation to 
the Secretary concerning the date of the school's closure and whether a 
teach-out of the closed school's program was made available to students.
    (B) If a guaranty agency determines that a school appears to have 
closed, it shall, within 30 days of making that determination, notify 
all lenders participating in its program to suspend collection efforts 
against individuals with respect to loans made for attendance at the 
closed school, if the student to whom (or on whose behalf) a loan was

[[Page 718]]

made, appears to have been enrolled at the school on the closing date, 
or withdrew not more than 90 days prior to the date the school appears 
to have closed. Within 30 days after receiving confirmation of the date 
of a school's closure from the Secretary, the agency shall--
    (1) Notify all lenders participating in its program to mail a 
discharge application explaining the procedures and eligibility criteria 
for obtaining a discharge and an explanation of the information that 
must be included in the sworn statement (which may be combined) to all 
borrowers who may be eligible for a closed school discharge; and
    (2) Review the records of loans that it holds, identify the loans 
made to any borrower (or student) who appears to have been enrolled at 
the school on the school closure date or who withdrew not more than 90 
days prior to the closure date, and mail a discharge application and an 
explanation of the information that must be included in the sworn 
statement (which may be combined) to the borrower. The application shall 
inform the borrower of the procedures and eligibility criteria for 
obtaining a discharge.
    (C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is known, the guaranty agency shall 
immediately suspend any efforts to collect from the borrower on any loan 
received for the program of study for which the loan was made (but may 
continue to receive borrower payments), and notify the borrower that the 
agency will provide additional information about the procedures for 
requesting a discharge after the agency has received confirmation from 
the Secretary that the school had closed.
    (D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this 
section is held by the guaranty agency as a defaulted loan and the 
borrower's current address is unknown, the agency shall, within one year 
after identifying the borrower, attempt to locate the borrower and 
further determine the borrower's potential eligibility for a discharge 
under paragraph (d) of this section by consulting with representatives 
of the closed school, the school's licensing agency, accrediting agency, 
and other appropriate parties. Upon learning the new address of a 
borrower who would still be considered potentially eligible for a 
discharge, the guaranty agency shall, within 30 days after learning the 
borrower's new address, mail to the borrower a discharge application 
that meets the requirements of paragraph (d)(6)(ii)(B) of this section.
    (E) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section has satisfied all of the 
conditions required for a discharge, the agency shall notify the 
borrower in writing of that determination within 30 days after making 
that determination.
    (F) If the guaranty agency determines that a borrower identified in 
paragraph (d)(6)(ii)(C) or (D) of this section does not qualify for a 
discharge, the agency shall notify the borrower in writing of that 
determination and the reasons for it within 30 days after the date the 
agency--
    (1) Made that determination based on information available to the 
guaranty agency;
    (2) Was notified by the Secretary that the school had not closed;
    (3) Was notified by the Secretary that the school had closed on a 
date that was more than 90 days after the borrower (or student) withdrew 
from the school;
    (4) Was notified by the Secretary that the borrower (or student) was 
ineligible for a closed school discharge for other reasons; or
    (5) Received the borrower's completed application and sworn 
statement.
    (G) Upon receipt of a closed school discharge claim filed by a 
lender, the agency shall review the borrower's request and supporting 
sworn statement in light of information available from the records of 
the agency and from other sources, including other guaranty agencies, 
state authorities, and cognizant accrediting associations, and shall 
take the following actions--
    (1) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (d) of this section, it shall 
pay the claim in accordance with Sec. 682.402(h) not later than

[[Page 719]]

90 days after the agency received the claim; or
    (2) If the agency determines that the borrower does not qualify for 
a discharge, the agency shall, not later than 90 days after the agency 
received the claim, return the claim to the lender with an explanation 
of the reasons for its determination.
    (H) If a borrower fails to submit the written request and sworn 
statement described in paragraph (d)(3) of this section within 60 days 
of being notified of that option, the lender or guaranty agency shall 
resume collection and shall be deemed to have exercised forbearance of 
payment of principal and interest from the date it suspended collection 
activity. The lender or guaranty agency may capitalize, in accordance 
with Sec. 682.202(b), any interest accrued and not paid during that 
period.
    (I) A borrower's request for discharge may not be denied solely on 
the basis of failing to meet any time limits set by the lender, guaranty 
agency, or the Secretary.
    (7) Lender responsibilities. (i) A lender shall comply with the 
requirements prescribed in paragraph (d) of this section. In the absence 
of specific instructions from a guaranty agency or the Secretary, if a 
lender receives information from a source it believes to be reliable 
indicating that an existing or former borrower may be eligible for a 
loan discharge under paragraph (d) of this section, the lender shall 
immediately notify the guaranty agency, and suspend any efforts to 
collect from the borrower on any loan received for the program of study 
for which the loan was made (but may continue to receive borrower 
payments).
    (ii) If the borrower fails to submit the written request and sworn 
statement described in paragraph (d)(3) of this section within 60 days 
after being notified of that option, the lender shall resume collection 
and shall be deemed to have exercised forbearance of payment of 
principal and interest from the date the lender suspended collection 
activity. The lender may capitalize, in accordance with Sec. 682.202(b), 
any interest accrued and not paid during that period.
    (iii) The lender shall file a closed school claim with the guaranty 
agency in accordance with Sec. 682.402(g) no later than 60 days after 
the lender receives the borrower's written request and sworn statement 
described in paragraph (d)(3) of this section. If a lender receives a 
payment made by or on behalf of the borrower on the loan after the 
lender files a claim on the loan with the guaranty agency, the lender 
shall forward the payment to the guaranty agency within 30 days of its 
receipt. The lender shall assist the guaranty agency and the borrower in 
determining whether the borrower is eligible for discharge of the loan.
    (iv) Within 30 days after receiving reimbursement from the guaranty 
agency for a closed school claim, the lender shall notify the borrower 
that the loan obligation has been discharged, and request that all 
credit bureaus to which it previously reported the status of the loan 
delete all adverse credit history assigned to the loan.
    (v) Within 30 days after being notified by the guaranty agency that 
the borrower's request for a closed school discharge has been denied, 
the lender shall resume collection and notify the borrower of the 
reasons for the denial. The lender shall be deemed to have exercised 
forbearance of payment of principal and interest from the date the 
lender suspended collection activity, and may capitalize, in accordance 
with Sec. 682.202(b), any interest accrued and not paid during that 
period.
    (8) Discharge without an application. A borrower's obligation to 
repay an FFEL Program loan may be discharged without an application from 
the borrower if the--
    (i) Borrower received a discharge on a loan pursuant to 34 CFR 
674.33(g) under the Federal Perkins Loan Program, or 34 CFR 685.213 
under the William D. Ford Federal Direct Loan Program; or
    (ii) The Secretary or the guaranty agency, with the Secretary's 
permission, determines that the borrower qualifies for a discharge based 
on information in the Secretary or guaranty agency's possession.
    (e) False certification by a school of a student's eligibility to 
borrow and unauthorized disbursements--(1) General. (i) The Secretary 
reimburses the holder of a loan received by a borrower on or after 
January 1, 1986, and discharges a

[[Page 720]]

current or former borrower's obligation with respect to the loan in 
accordance with the provisions of paragraph (e) of this section, if the 
borrower's (or the student for whom a parent received a PLUS loan) 
eligibility to receive the loan was falsely certified by an eligible 
school. For purposes of a false certification discharge, the term 
``borrower'' includes all endorsers on a loan. A student's eligibility 
to borrow shall be considered to have been falsely certified by the 
school if the school--
    (A) Certified the student's eligibility for a FFEL Program loan on 
the basis of ability to benefit from its training and the student did 
not meet the applicable requirements described in 34 CFR part 668 and 
section 484(d) of the Act, as applicable and as described in paragraph 
(e)(13) of this section; or
    (B) Signed the borrower's name without authorization by the borrower 
on the loan application or promissory note.
    (ii) The Secretary discharges the obligation of a borrower with 
respect to a loan disbursement for which the school, without the 
borrower's authorization, endorsed the borrower's loan check or 
authorization for electronic funds transfer, unless the student for whom 
the loan was made received the proceeds of the loan either by actual 
delivery of the loan funds or by a credit in the amount of the contested 
disbursement applied to charges owed to the school for that portion of 
the educational program completed by the student. However, the Secretary 
does not reimburse the lender with respect to any amount disbursed by 
means of a check bearing an unauthorized endorsement unless the school 
also executed the application or promissory note for that loan for the 
named borrower without that individual's consent.
    (2) Relief available pursuant to discharge. (i) Discharge under 
paragraph (e)(1)(i) of this section relieves the borrower of an existing 
or past obligation to repay the loan certified by the school, and any 
charges imposed or costs incurred by the holder with respect to the loan 
that the borrower is, or was, otherwise obligated to pay.
    (ii) A discharge of a loan under paragraph (e) of this section 
qualifies the borrower for reimbursement of amounts paid voluntarily or 
through enforced collection on a loan obligation discharged under 
paragraph (e) of this section.
    (iii) A borrower who has defaulted on a loan discharged under 
paragraph (e) of this section is not regarded as in default on the loan 
after discharge, and is eligible to receive assistance under the Title 
IV, HEA programs.
    (iv) A discharge of a loan under paragraph (e) of this section is 
reported by the loan holder to all credit reporting agencies to which 
the holder previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan.
    (v) Discharge under paragraph (e)(1)(ii) of this section qualifies 
the borrower for relief only with respect to the amount of the 
disbursement discharged.
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (e)(14) of this section, to qualify for a discharge of a loan 
under paragraph (e) of this section, the borrower must submit to the 
holder of the loan a written request and a sworn statement. The 
statement need not be notarized, but must be made by the borrower under 
penalty of perjury, and, in the statement, the borrower must--
    (i) State whether the student has made a claim with respect to the 
school's false certification with any third party, such as the holder of 
a performance bond or a tuition recovery program, and if so, the amount 
of any payment received by the borrower (or student) or credited to the 
borrower's loan obligation;
    (ii) In the case of a borrower requesting a discharge based on 
defective testing of the student's ability to benefit, state that the 
borrower (or the student for whom a parent received a PLUS loan)--
    (A) Received, on or after January 1, 1986, the proceeds of any 
disbursement of a loan disbursed, in whole or in part, on or after 
January 1, 1986 to attend a school; and
    (B) Was admitted to that school on the basis of ability to benefit 
from its training and did not meet the applicable requirements for 
admission on the

[[Page 721]]

basis of ability to benefit as described in paragraph (e)(13) of this 
section;
    (iii) In the case of a borrower requesting a discharge because the 
school signed the borrower's name on the loan application or promissory 
note--
    (A) State that the signature on either of those documents was not 
the signature of the borrower; and
    (B) Provide five different specimens of his or her signature, two of 
which must be not earlier or later than one year before or after the 
date of the contested signature;
    (iv) In the case of a borrower requesting a discharge because the 
school, without authorization of the borrower, endorsed the borrower's 
name on the loan check or signed the authorization for electronic funds 
transfer or master check, the borrower shall--
    (A) Certify that he or she did not endorse the loan check or sign 
the authorization for electronic funds transfer or master check, or 
authorize the school to do so;
    (B) Provide five different specimens of his or her signature, two of 
which must be not earlier or later than one year before or after the 
date of the contested signature; and
    (C) State that the proceeds of the contested disbursement were not 
received either through actual delivery of the loan funds or by a credit 
in the amount of the contested disbursement applied to charges owed to 
the school for that portion of the educational program completed by the 
student;
    (v) That the borrower agrees to provide upon request by the 
Secretary or the Secretary's designee, other documentation reasonably 
available to the borrower, that demonstrates, to the satisfaction of the 
Secretary or the Secretary's designee, that the student meets the 
qualifications in paragraph (e) of this section; and
    (vi) That the borrower agrees to cooperate with the Secretary or the 
Secretary's designee in enforcement actions in accordance with paragraph 
(e)(4) of this section, and to transfer any right to recovery against a 
third party in accordance with paragraph (e)(5) of this section.
    (4) Cooperation by borrower in enforcement actions. (i) In any 
judicial or administrative proceeding brought by the Secretary or the 
Secretary's designee to recover for amounts discharged under paragraph 
(e) of this section or to take other enforcement action with respect to 
the conduct on which those claims were based, a borrower who requests or 
receives a discharge under paragraph (e) of this section must cooperate 
with the Secretary or the Secretary's designee. At the request of the 
Secretary or the Secretary's designee, and upon the Secretary's or the 
Secretary's designee's tendering to the borrower the fees and costs as 
are customarily provided in litigation to reimburse witnesses, the 
borrower shall--
    (A) Provide testimony regarding any representation made by the 
borrower to support a request for discharge; and
    (B) Produce any documentation reasonably available to the borrower 
with respect to those representations and any sworn statement required 
by the Secretary with respect to those representations and documents.
    (ii) The Secretary revokes the discharge, or denies the request for 
discharge, of a borrower who--
    (A) Fails to provide testimony, sworn statements, or documentation 
to support material representations made by the borrower to obtain the 
discharge; or
    (B) Provides testimony, a sworn statement, or documentation that 
does not support the material representations made by the borrower to 
obtain the discharge.
    (5) Transfer to the Secretary of borrower's right of recovery 
against third parties. (i) Upon discharge under paragraph (e) of this 
section, the borrower is deemed to have assigned to and relinquished in 
favor of the Secretary any right to a loan refund (up to the amount 
discharged) that the borrower (or student) may have by contract or 
applicable law with respect to the loan or the enrollment agreement for 
the program for which the loan was received, against the school, its 
principals, affiliates and their successors, its sureties, and any 
private fund, including the portion of a public fund that represents 
funds received from a private party.
    (ii) The provisions of paragraph (e) of this section apply 
notwithstanding any

[[Page 722]]

provision of state law that would otherwise restrict transfer of such 
rights by the borrower (or student), limit or prevent a transferee from 
exercising those rights, or establish procedures or a scheme of 
distribution that would prejudice the Secretary's ability to recover on 
those rights.
    (iii) Nothing in this section shall be construed as limiting or 
foreclosing the borrower's (or student's) right to pursue legal and 
equitable relief regarding disputes arising from matters otherwise 
unrelated to the loan discharged.
    (6) Guaranty agency responsibilities--general. (i) A guaranty agency 
shall notify the Secretary immediately whenever it becomes aware of 
reliable information indicating that a school may have falsely certified 
a student's eligibility or caused an unauthorized disbursement of loan 
proceeds, as described in paragraph (e)(3) of this section. The 
designated guaranty agency in the state in which the school is located 
shall promptly investigate whether the school has falsely certified a 
student's eligibility and, within 30 days after receiving information 
indicating that the school may have done so, report the results of its 
preliminary investigation to the Secretary.
    (ii) If the guaranty agency receives information it believes to be 
reliable indicating that a borrower whose loan is held by the agency may 
be eligible for a discharge under paragraph (e) of this section, the 
agency shall immediately suspend any efforts to collect from the 
borrower on any loan received for the program of study for which the 
loan was made (but may continue to receive borrower payments), and 
inform the borrower of the procedures for requesting a discharge.
    (iii) If the borrower fails to submit the written request and sworn 
statement described in paragraph (e)(3) of this section within 60 days 
of being notified of that option, the guaranty agency shall resume 
collection and shall be deemed to have exercised forbearance of payment 
of principal and interest from the date it suspended collection 
activity. The agency may capitalize, in accordance with Sec. 682.202(b), 
any interest accrued and not paid during that period.
    (iv) Upon receipt of a discharge claim filed by a lender or a 
request submitted by a borrower with respect to a loan held by the 
guaranty agency, the agency shall have up to 90 days to determine 
whether the discharge should be granted. The agency shall review the 
borrower's request and supporting sworn statement in light of 
information available from the records of the agency and from other 
sources, including other guaranty agencies, state authorities, and 
cognizant accrediting associations.
    (v) A borrower's request for discharge and sworn statement may not 
be denied solely on the basis of failing to meet any time limits set by 
the lender, the Secretary or the guaranty agency.
    (7) Guaranty agency responsibilities with respect to a claim filed 
by a lender based on the borrower's assertion that he or she did not 
sign the loan application or the promissory note, or that the school 
failed to test, or improperly tested, the student's ability to benefit. 
(i) The agency shall evaluate the borrower's request and consider 
relevant information it possesses and information available from other 
sources, and follow the procedures described in paragraph (e)(7) of this 
section.
    (ii) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (e) of this section, it 
shall, not later than 30 days after the agency makes that determination, 
pay the claim in accordance with Sec. 682.402(h) and--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the loan has been discharged, and that the lender has been 
informed of the actions required under paragraph (e)(7)(ii)(C) of this 
section;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Notify the lender that the borrower's liability with respect to 
the amount of the loan has been discharged, and that the lender must--
    (1) Immediately terminate any collection efforts against the 
borrower with respect to the discharged loan

[[Page 723]]

amount and any charges imposed or costs incurred by the lender related 
to the discharged loan amount that the borrower is, or was, otherwise 
obligated to pay; and
    (2) Within 30 days, report to all credit reporting agencies to which 
the lender previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan.
    (iii) If the agency determines that the borrower does not qualify 
for a discharge, it shall, within 30 days after making that 
determination--
    (A) Notify the lender that the borrower's liability on the loan is 
not discharged and that, depending on the borrower's decision under 
paragraph (e)(7)(iii)(B) of this section, the loan shall either be 
returned to the lender or paid as a default claim; and
    (B) Notify the borrower that the borrower does not qualify for 
discharge, and state the reasons for that conclusion. The agency shall 
advise the borrower that he or she remains obligated to repay the loan 
and warn the borrower of the consequences of default, and explain that 
the borrower will be considered to be in default on the loan unless the 
borrower submits a written statement to the agency within 30 days 
stating that the borrower--
    (1) Acknowledges the debt and, if payments are due, will begin or 
resume making those payments to the lender; or
    (2) Requests the Secretary to review the agency's decision.
    (iv) Within 30 days after receiving the borrower's written statement 
described in paragraph (e)(7)(iii)(B)(1) of this section, the agency 
shall return the claim file to the lender and notify the lender to 
resume collection efforts if payments are due.
    (v) Within 30 days after receiving the borrower's request for review 
by the Secretary, the agency shall forward the claim file to the 
Secretary for his review and take the actions required under paragraph 
(e)(11) of this section.
    (vi) The agency shall pay a default claim to the lender within 30 
days after the borrower fails to return either of the written statements 
described in paragraph (e)(7)(iii)(B) of this section.
    (8) Guaranty agency responsibilities with respect to a claim filed 
by a lender based only on the borrower's assertion that he or she did 
not sign the loan check or the authorization for the release of loan 
funds via electronic funds transfer or master check. (i) The agency 
shall evaluate the borrower's request and consider relevant information 
it possesses and information available from other sources, and follow 
the procedures described in paragraph (e)(8) of this section.
    (ii) If the agency determines that a borrower who asserts that he or 
she did not endorse the loan check satisfies the requirements for 
discharge under paragraph (e)(3)(iv) of this section, it shall, within 
30 days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged, and that the lender has been informed of the actions 
required under paragraph (e)(8)(ii)(B) of this section;
    (B) Notify the lender that the borrower's liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged, and that the lender must--
    (1) Immediately terminate any collection efforts against the 
borrower with respect to the discharged loan amount and any charges 
imposed or costs incurred by the lender related to the discharged loan 
amount that the borrower is, or was, otherwise obligated to pay;
    (2) Within 30 days, report to all credit reporting agencies to which 
the lender previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan;
    (3) Refund to the borrower, within 30 days, all amounts paid by the 
borrower with respect to the loan disbursement that was discharged, 
including any charges imposed or costs incurred by the lender related to 
the discharged loan amount; and
    (4) Refund to the Secretary, within 30 days, all interest benefits 
and special allowance payments received from the Secretary with respect 
to the loan disbursement that was discharged; and
    (C) Transfer to the lender the borrower's written assignment of any 
rights the borrower may have against

[[Page 724]]

third parties with respect to a loan disbursement that was discharged 
because the borrower did not sign the loan check.
    (iii) If the agency determines that a borrower who asserts that he 
or she did not sign the electronic funds transfer or master check 
authorization satisfies the requirements for discharge under paragraph 
(e)(3)(iv) of this section, it shall, within 30 days after making that 
determination, pay the claim in accordance with Sec. 682.402(h) and--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged, and that the lender has been informed of the actions 
required under paragraph (e)(8)(iii)(C) of this section;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Notify the lender that the borrower's liability with respect to 
the contested disbursement of the loan has been discharged, and that the 
lender must--
    (1) Immediately terminate any collection efforts against the 
borrower with respect to the discharged loan amount and any charges 
imposed or costs incurred by the lender related to the discharged loan 
amount that the borrower is, or was, otherwise obligated to pay; and
    (2) Within 30 days, report to all credit reporting agencies to which 
the lender previously reported the status of the loan, so as to delete 
all adverse credit history assigned to the loan.
    (iv) If the agency determines that the borrower does not qualify for 
a discharge, it shall, within 30 days after making that determination--
    (A) Notify the lender that the borrower's liability on the loan is 
not discharged and that, depending on the borrower's decision under 
paragraph (e)(8)(iv)(B) of this section, the loan shall either be 
returned to the lender or paid as a default claim; and
    (B) Notify the borrower that the borrower does not qualify for 
discharge, and state the reasons for that conclusion. The agency shall 
advise the borrower that he or she remains obligated to repay the loan 
and warn the borrower of the consequences of default, and explain that 
the borrower will be considered to be in default on the loan unless the 
borrower submits a written statement to the agency within 30 days 
stating that the borrower--
    (1) Acknowledges the debt and, if payments are due, will begin or 
resume making those payments to the lender; or
    (2) Requests the Secretary to review the agency's decision.
    (v) Within 30 days after receiving the borrower's written statement 
described in paragraph (e)(8)(iv)(B)(1) of this section, the agency 
shall return the claim file to the lender and notify the lender to 
resume collection efforts if payments are due.
    (vi) Within 30 days after receiving the borrower's request for 
review by the Secretary, the agency shall forward the claim file to the 
Secretary for his review and take the actions required under paragraph 
(e)(11) of this section.
    (vii) The agency shall pay a default claim to the lender within 30 
days after the borrower fails to return either of the written statements 
described in paragraph (e)(8)(iv)(B) of this section.
    (9) Guaranty agency responsibilities in the case of a loan held by 
the agency for which a discharge request is submitted by a borrower 
based on the borrower's assertion that he or she did not sign the loan 
application or the promissory note, or that the school failed to test, 
or improperly tested, the student's ability to benefit. (i) The agency 
shall evaluate the borrower's request and consider relevant information 
it possesses and information available from other sources, and follow 
the procedures described in paragraph (e)(9) of this section.
    (ii) If the agency determines that the borrower satisfies the 
requirements for discharge under paragraph (e)(3) of this section, it 
shall immediately terminate any collection efforts against the borrower 
with respect to the discharged loan amount and any charges imposed or 
costs incurred by the agency related to the discharged loan amount that 
the borrower is, or was otherwise obligated to pay and, not later than 
30 days after the agency makes the determination

[[Page 725]]

that the borrower satisfies the requirements for discharge--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the loan has been discharged;
    (B) Report to all credit reporting agencies to which the agency 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan; and
    (C) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount.
    (iii) If the agency determines that the borrower does not qualify 
for a discharge, it shall, within 30 days after making that 
determination, notify the borrower that the borrower's liability with 
respect to the amount of the loan is not discharged, state the reasons 
for that conclusion, and if the borrower is not then making payments in 
accordance with a repayment arrangement with the agency on the loan, 
advise the borrower of the consequences of continued failure to reach 
such an arrangement, and that collection action will resume on the loan 
unless within 30 days the borrower--
    (A) Acknowledges the debt and, if payments are due, reaches a 
satisfactory arrangement to repay the loan or resumes making payments 
under such an arrangement to the agency; or
    (B) Requests the Secretary to review the agency's decision.
    (iv) Within 30 days after receiving the borrower's request for 
review by the Secretary, the agency shall forward the borrower's 
discharge request and all relevant documentation to the Secretary for 
his review and take the actions required under paragraph (e)(11) of this 
section.
    (v) The agency shall resume collection action if within 30 days of 
giving notice of its determination the borrower fails to seek review by 
the Secretary or agree to repay the loan.
    (10) Guaranty agency responsibilities in the case of a loan held by 
the agency for which a discharge request is submitted by a borrower 
based only on the borrower's assertion that he or she did not sign the 
loan check or the authorization for the release of loan proceeds via 
electronic funds transfer or master check. (i) The agency shall evaluate 
the borrower's request and consider relevant information it possesses 
and information available from other sources, and follow the procedures 
described in paragraph (e)(10) of this section.
    (ii) If the agency determines that a borrower who asserts that he or 
she did not endorse the loan check satisfies the requirements for 
discharge under paragraph (e)(3)(iv) of this section, it shall refund to 
the Secretary the amount of reinsurance payment received with respect to 
the amount discharged on that loan less any repayments made by the 
lender under paragraph (e)(10)(ii)(D)(2) of this section, and within 30 
days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged;
    (B) Report to all credit reporting agencies to which the agency 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan;
    (C) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount;
    (D) Notify the lender to whom a claim payment was made that the 
lender must refund to the Secretary, within 30 days--
    (1) All interest benefits and special allowance payments received 
from the Secretary with respect to the loan disbursement that was 
discharged; and
    (2) The amount of the borrower's payments that were refunded to the 
borrower by the guaranty agency under paragraph (e)(10)(ii)(C) of this 
section that represent borrower payments previously paid to the lender 
with respect to the loan disbursement that was discharged;
    (E) Notify the lender to whom a claim payment was made that the 
lender must, within 30 days, reimburse the agency for the amount of the 
loan that was discharged, minus the amount of borrower payments made to 
the lender

[[Page 726]]

that were refunded to the borrower by the guaranty agency under 
paragraph (e)(10)(ii)(C) of this section; and
    (F) Transfer to the lender the borrower's written assignment of any 
rights the borrower may have against third parties with respect to the 
loan disbursement that was discharged.
    (iii) In the case of a borrower who requests a discharge because he 
or she did not sign the electronic funds transfer or master check 
authorization, if the agency determines that the borrower meets the 
conditions for discharge, it shall immediately terminate any collection 
efforts against the borrower with respect to the discharged loan amount 
and any charges imposed or costs incurred by the agency related to the 
discharged loan amount that the borrower is, or was, otherwise obligated 
to pay, and within 30 days after making that determination--
    (A) Notify the borrower that his or her liability with respect to 
the amount of the contested disbursement of the loan has been 
discharged;
    (B) Refund to the borrower all amounts paid by the borrower to the 
lender or the agency with respect to the discharged loan amount, 
including any late fees or collection charges imposed by the lender or 
agency related to the discharged loan amount; and
    (C) Report to all credit reporting agencies to which the lender 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan.
    (iv) The agency shall take the actions required under paragraphs 
(e)(9) (iii) through (v) if the agency determines that the borrower does 
not qualify for a discharge.
    (11) Guaranty agency responsibilities if a borrower requests a 
review by the Secretary. (i) Within 30 days after receiving the 
borrower's request for review under paragraph (e)(7)(iii)(B)(2), 
(e)(8)(iv)(B)(2), (e)(9)(iii)(B), or (e)(10)(iv) of this section, the 
agency shall forward the borrower's discharge request and all relevant 
documentation to the Secretary for his review.
    (ii) The Secretary notifies the agency and the borrower of a 
determination on review. If the Secretary determines that the borrower 
is not eligible for a discharge under paragraph (e) of this section, 
within 30 days after being so informed, the agency shall take the 
actions described in paragraphs (e)(8) (iv) through (vii) or (e)(9)(iii) 
through (v) of this section, as applicable.
    (iii) If the Secretary determines that the borrower meets the 
requirements for a discharge under paragraph (e) of this section, the 
agency shall, within 30 days after being so informed, take the actions 
required under paragraph (e)(7)(ii), (e)(8)(ii), (e)(8)(iii), 
(e)(9)(ii), (e)(10)(ii), or (e)(10)(iii) of this section, as applicable.
    (12) Lender Responsibilities. (i) If the lender is notified by a 
guaranty agency or the Secretary, or receives information it believes to 
be reliable from another source indicating that a current or former 
borrower may be eligible for a discharge under paragraph (e) of this 
section, the lender shall immediately suspend any efforts to collect 
from the borrower on any loan received for the program of study for 
which the loan was made (but may continue to receive borrower payments) 
and, within 30 days of receiving the information or notification, inform 
the borrower of the procedures for requesting a discharge.
    (ii) If the borrower fails to submit the written request and sworn 
statement described in paragraph (e)(3) of this section within 60 days 
of being notified of that option, the lender shall resume collection and 
shall be deemed to have exercised forbearance of payment of principal 
and interest from the date the lender suspended collection activity. The 
lender may capitalize, in accordance with Sec. 682.202(b), any interest 
accrued and not paid during that period.
    (iii) The lender shall file a claim with the guaranty agency in 
accordance with Sec. 682.402(g) no later than 60 days after the lender 
receives the borrower's written request and sworn statement described in 
paragraph (e)(3) of this section. If a lender receives a payment made by 
or on behalf of the borrower on the loan after the lender files a claim 
on the loan with the guaranty agency, the lender shall forward the 
payment to the guaranty agency within 30 days of its receipt. The lender 
shall assist the guaranty agency and the borrower in determining whether

[[Page 727]]

the borrower is eligible for discharge of the loan.
    (iv) The lender shall comply with all instructions received from the 
Secretary or a guaranty agency with respect to loan discharges under 
paragraph (e) of this section.
    (v) The lender shall review a claim that the borrower did not 
endorse and did not receive the proceeds of a loan check. The lender 
shall take the actions required under paragraphs (e)(8)(ii)(A) and (B) 
of this section if it determines that the borrower did not endorse the 
loan check, unless the lender secures persuasive evidence that the 
proceeds of the loan were received by the borrower or the student for 
whom the loan was made, as provided in paragraph (e)(1)(ii). If the 
lender determines that the loan check was properly endorsed or the 
proceeds were received by the borrower or student, the lender may 
consider the borrower's objection to repayment as a statement of 
intention not to repay the loan, and may file a claim with the guaranty 
agency for reimbursement on that ground, but shall not report the loan 
to credit bureaus as in default until the guaranty agency, or, as 
applicable, the Secretary, reviews the claim for relief. By filing such 
a claim, the lender shall be deemed to have agreed to the following--
    (A) If the guarantor or the Secretary determines that the borrower 
endorsed the loan check or the proceeds of the loan were received by the 
borrower or the student, any failure to satisfy due diligence 
requirements by the lender prior to the filing of the claim that would 
have resulted in the loss of reinsurance on the loan in the event of 
default will be waived by the Secretary; and
    (B) If the guarantor or the Secretary determines that the borrower 
did not endorse the loan check and that the proceeds of the loan were 
not received by the borrower or the student, the lender will comply with 
the requirements specified in paragraph (e)(8)(ii)(B) of this section.
    (vi) Within 30 days after being notified by the guaranty agency that 
the borrower's request for a discharge has been denied, the lender shall 
notify the borrower of the reasons for the denial and, if payments are 
due, resume collection against the borrower. The lender shall be deemed 
to have exercised forbearance of payment of principal and interest from 
the date the lender suspended collection activity, and may capitalize, 
in accordance with Sec. 682.202(b), any interest accrued and not paid 
during that period.
    (13) Requirements for certifying a borrower's eligibility for a 
loan. (i) For periods of enrollment beginning between July 1, 1987 and 
June 30, 1991, a student who had a general education diploma or received 
one before the scheduled completion of the program of instruction is 
deemed to have the ability to benefit from the training offered by the 
school.
    (ii) A student not described in paragraph (e)(13)(i) of this section 
is considered to have the ability to benefit from training offered by 
the school if the student--
    (A) For periods of enrollment beginning prior to July 1, 1987, was 
determined to have the ability to benefit from the school's training in 
accordance with the requirements of 34 CFR 668.6, as in existence at the 
time the determination was made;
    (B) For periods of enrollment beginning between July 1, 1987 and 
June 30, 1996, achieved a passing grade on a test--
    (1) Approved by the Secretary, for periods of enrollment beginning 
on or after July 1, 1991, or by the accrediting agency for other 
periods; and
    (2) Administered substantially in accordance with the requirements 
for use of the test;
    (C) Successfully completed a program of developmental or remedial 
education provided by the school; or
    (D) For periods of enrollment beginning on or after July 1, 1996 
through June 30, 2000--
    (1) Obtained, within 12 months before the date the student initially 
receives title IV, HEA program assistance, a passing score specified by 
the Secretary on an independently administered test in accordance with 
subpart J of 34 CFR part 668; or
    (2) Enrolled in an eligible institution that participates in a State 
process approved by the Secretary under subpart J of 34 CFR part 668.

[[Page 728]]

    (E) For periods of enrollment beginning on or after July 1, 2000--
    (1) Met either of the conditions described in paragraph 
(e)(13)(ii)(D) of this section; or
    (2) Was home schooled and met the requirements of 34 CFR 
668.32(e)(4).
    (iii) Notwithstanding paragraphs (e)(13)(i) and (ii) of this 
section, a student did not have the ability to benefit from training 
offered by the school if--
    (A) The school certified the eligibility of the student for a FFEL 
Program loan; and
    (B) At the time of certification, the student would not meet the 
requirements for employment (in the student's State of residence) in the 
occupation for which the training program supported by the loan was 
intended because of a physical or mental condition, age, or criminal 
record or other reason accepted by the Secretary.
    (iv) Notwithstanding paragraphs (e)(13)(i) and (ii) of this section, 
a student has the ability to benefit from the training offered by the 
school if the student received a high school diploma or its recognized 
equivalent prior to enrollment at the school.
    (14) Discharge without an application. A borrower's obligation to 
repay all or a portion of an FFEL Program loan may be discharged without 
an application from the borrower if the Secretary, or the guaranty 
agency with the Secretary's permission, determines that the borrower 
qualifies for a discharge based on information in the Secretary or 
guaranty agency's possession.
    (f) Bankruptcy--(1) General. If a borrower files a petition for 
relief under the Bankruptcy Code, the Secretary reimburses the holder of 
the loan for unpaid principal and interest on the loan in accordance 
with paragraphs (h) through (k) of this section.
    (2) Suspension of collection activity. (i) If the lender is notified 
that a borrower has filed a petition for relief in bankruptcy, the 
lender must immediately suspend any collection efforts outside the 
bankruptcy proceeding against the borrower and--
    (A) Must suspend any collection efforts against any co-maker or 
endorser if the borrower has filed for relief under Chapters 12 or 13 of 
the Bankruptcy Code; or
    (B) May suspend any collection efforts against any co-maker or 
endorser if the borrower has filed for relief under Chapters 7 or 11 of 
the Bankruptcy Code.
    (ii) If the lender is notified that a co-maker or endorser has filed 
a petition for relief in bankruptcy, the lender must immediately suspend 
any collection efforts outside the bankruptcy proceeding against the co-
maker or endorser and--
    (A) Must suspend collection efforts against the borrower and any 
other parties to the note if the co-maker or endorser has filed for 
relief under Chapters 12 or 13 of the Bankruptcy Code; or
    (B) May suspend any collection efforts against the borrower and any 
other parties to the note if the co-maker or endorser has filed for 
relief under Chapters 7 or 11 of the Bankruptcy Code.
    (3) Determination of filing. The lender must determine that a 
borrower has filed a petition for relief in bankruptcy on the basis of 
receiving a notice of the first meeting of creditors or other proof of 
filing provided by the debtor's attorney or the bankruptcy court.
    (4) Proof of claim. (i) Except as provided in paragraph (f)(4)(ii) 
of this section, the holder of the loan shall file a proof of claim with 
the bankruptcy court within--
    (A) 30 days after the holder receives a notice of first meeting of 
creditors unless, in the case of a proceeding under chapter 7, the 
notice states that the borrower has no assets; or
    (B) 30 days after the holder receives a notice from the court 
stating that a chapter 7 no-asset case has been converted to an asset 
case.
    (ii) A guaranty agency that is a state guaranty agency, and on that 
basis may assert immunity from suit in bankruptcy court, and that does 
not assign any loans affected by a bankruptcy filing to another guaranty 
agency--
    (A) Is not required to file a proof of claim on a loan already held 
by the guaranty agency; and
    (B) May direct lenders not to file proofs of claim on loans 
guaranteed by that agency.

[[Page 729]]

    (5) Filing of bankruptcy claim with the guaranty agency. (i) The 
lender shall file a bankruptcy claim on the loan with the guaranty 
agency in accordance with paragraph (g) of this section, if--
    (A) The borrower has filed a petition for relief under chapters 12 
or 13 of the Bankruptcy Code; or
    (B) The borrower has filed a petition for relief under chapters 7 or 
11 of the Bankruptcy Code before October 8, 1998 and the loan has been 
in repayment for more than seven years (exclusive of any applicable 
suspension of the repayment period) from the due date of the first 
payment until the date of the filing of the petition for relief; or
    (C) The borrower has begun an action to have the loan obligation 
determined to be dischargeable on grounds of undue hardship.
    (ii) In cases not described in paragraph (f)(5)(i) of this section, 
the lender shall continue to hold the loan notwithstanding the 
bankruptcy proceeding. Once the bankruptcy proceeding is completed or 
dismissed, the lender shall treat the loan as if the lender had 
exercised forbearance as to repayment of principal and interest accrued 
from the date of the borrower's filing of the bankruptcy petition until 
the date the lender is notified that the bankruptcy proceeding is 
completed or dismissed.
    (g) Claim procedures for a loan held by a lender--(1) Documentation. 
A lender shall provide the guaranty agency with the following 
documentation when filing a death, disability, closed school, false 
certification, or bankruptcy claim:
    (i) The original or a true and exact copy of the promissory note.
    (ii) The loan application, if a separate loan application was 
provided to the lender.
    (iii) In the case of a death claim, an original or certified death 
certificate, or other documentation supporting the discharge request 
that formed the basis for the determination of death.
    (iv) In the case of a disability claim, a copy of the certification 
of disability described in paragraph (c)(2) of this section.
    (v) In the case of a bankruptcy claim--
    (A) Evidence that a bankruptcy petition has been filed, all 
pertinent documents sent to or received from the bankruptcy court by the 
lender, and an assignment to the guaranty agency of any proof of claim 
filed by the lender regarding the loan; and
    (B) A statement of any facts of which the lender is aware that may 
form the basis for an objection or exception to the discharge of the 
borrower's loan obligation in bankruptcy and all documents supporting 
those facts.
    (vi) In the case of a closed school claim, the documentation 
described in paragraph (d)(3) of this section, or any other 
documentation as the Secretary may require;
    (vii) In the case of a false certification claim, the documentation 
described in paragraph (e)(3) of this section.
    (2) Filing deadlines. A lender shall file a death, disability, 
closed school, false certification, or bankruptcy claim within the 
following periods:
    (i) Within 60 days of the date on which the lender determines that a 
borrower (or the student on whose behalf a parent obtained a PLUS loan) 
has died, or the lender determines that the borrower is totally and 
permanently disabled.
    (ii) In the case of a closed school claim, the lender shall file a 
claim with the guaranty agency no later than 60 days after the borrower 
submits to the lender the written request and sworn statement described 
in paragraph (d)(3) of this section or after the lender is notified by 
the Secretary or the Secretary's designee or by the guaranty agency to 
do so.
    (iii) In the case of a false certification claim, the lender shall 
file a claim with the guaranty agency no later than 60 days after the 
borrower submits to the lender the written request and sworn statement 
described in paragraph (e)(3) of this section or after the lender is 
notified by the Secretary or the Secretary's designee or by the guaranty 
agency to do so.
    (iv) A lender shall file a bankruptcy claim with the guaranty agency 
by the earlier of--
    (A) 30 days after the date on which the lender receives notice of 
the first

[[Page 730]]

meeting of creditors or other information described in paragraph (f)(3) 
of this section; or
    (B) 15 days after the lender is served with a complaint or motion to 
have the loan determined to be dischargeable on grounds of undue 
hardship, or, if the lender secures an extension of time within which an 
answer may be filed, 25 days before the expiration of that extended 
period, whichever is later.
    (h) Payment of death, disability, closed school, false 
certification, and bankruptcy claims by the guaranty agency--(1) 
General. (i) The guaranty agency shall review a death, disability, 
bankruptcy, closed school, or false certification claim promptly and 
shall pay the lender on an approved claim the amount of loss in 
accordance with paragraphs (h)(2) and (h)(3) of this section--
    (A) Not later than 45 days after the claim was filed by the lender 
for death and bankruptcy claims; and
    (B) Not later than 90 days after the claim was filed by the lender 
for disability, closed school, or false certification claims.
    (ii) In the case of a bankruptcy claim, the guaranty agency shall, 
upon receipt of the claim from the lender, immediately take those 
actions required under paragraph (i) of this section to oppose the 
discharge of the loan by the bankruptcy court.
    (iii) In the case of a closed school claim or a false certification 
claim based on the determination that the borrower did not sign the loan 
application, the promissory note, or the authorization for the 
electronic transfer of loan funds, or that the school failed to test, or 
improperly tested, the student's ability to benefit, the guaranty agency 
shall document its determination that the borrower is eligible for 
discharge under paragraphs (d) or (e) of this section and pay the 
borrower or the holder the amount determined under paragraph (h)(2) of 
this section.
    (iv) In reviewing a claim under this section, the issue of 
confirmation of subsequent loans under an MPN will not be reviewed and a 
claim will not be denied based on the absence of any evidence relating 
to confirmation in a particular loan file. However, if a court rules 
that a loan is unenforceable solely because of the lack of evidence of 
the confirmation process or processes, insurance benefits must be 
repaid.
    (2)(i) The amount of loss payable--
    (A) On a death or disability claim is equal to the sum of the 
remaining principal balance and interest accrued on the loan, collection 
costs incurred by the lender and applied to the borrower's account 
within 30 days of the date those costs were actually incurred, and 
unpaid interest up to the date the lender should have filed the claim.
    (B) On a bankruptcy claim is equal to the unpaid balance of 
principal and interest determined in accordance with paragraph (h)(3) of 
this section.
    (ii) The amount of loss payable to a lender on a closed school claim 
or on a false certification claim is equal to the sum of the remaining 
principal balance and interest accrued on the loan, collection costs 
incurred by the lender and applied to the borrower's account within 30 
days of the date those costs were actually incurred, and unpaid interest 
determined in accordance with paragraph (h)(3) of this section.
    (iii) In the case of a closed school or false certification claim 
filed by a lender on an outstanding loan owed by the borrower, on the 
same date that the agency pays a claim to the lender, the agency shall 
pay the borrower an amount equal to the amount paid on the loan by or on 
behalf of the borrower, less any school tuition refunds or payments 
received by the holder or the borrower from a tuition recovery fund, 
performance bond, or other third-party source.
    (iv) In the case of a claim filed by a lender based on a request 
received from a borrower whose loan had been repaid in full by, or on 
behalf of the borrower to the lender, on the same date that the agency 
notifies the lender that the borrower is eligible for a closed school or 
false certification discharge, the agency shall pay the borrower an 
amount equal to the amount paid on the loan by or on behalf of the 
borrower, less any school tuition refunds or payments received by the 
holder or the borrower from a tuition recovery fund, performance bond, 
or other third-party source.
    (v) In the case of a loan that has been included in a Consolidation 
Loan, the

[[Page 731]]

agency shall pay to the holder of the borrower's Consolidation Loan, an 
amount equal to--
    (A) The amount paid on the loan by or on behalf of the borrower at 
the time the loan was paid through consolidation;
    (B) The amount paid by the consolidating lender to the holder of the 
loan when it was repaid through consolidation; minus
    (C) Any school tuition refunds or payments received by the holder or 
the borrower from a tuition recovery fund, performance bond, or other 
third-party source if those refunds or payments were--
    (1) Received by the borrower or received by the holder and applied 
to the borrower's loan balance before the date the loan was repaid 
through consolidation; or
    (2) Received by the borrower or received by the Consolidation Loan 
holder on or after the date the consolidating lender made a payment to 
the former holder to discharge the borrower's obligation to that former 
holder.
    (3) Payment of interest. If the guarantee covers unpaid interest, 
the amount payable on an approved claim includes the unpaid interest 
that accrues during the following periods:
    (i) During the period before the claim is filed, not to exceed the 
period provided for in paragraph (g)(2) of this section for filing the 
claim.
    (ii) During a period not to exceed 30 days following the receipt 
date by the lender of a claim returned by the guaranty agency for 
additional documentation necessary for the claim to be approved by the 
guaranty agency.
    (iii) During the period required by the guaranty agency to approve 
the claim and to authorize payment or to return the claim to the lender 
for additional documentation not to exceed--
    (A) 45 days for death or bankruptcy claims; or
    (B) 90 days for disability, closed school, or false certification 
claims.
    (i) Guaranty agency participation in bankruptcy proceedings--(1) 
Undue hardship claims. (i) In response to a petition filed prior to 
October 8, 1998 with regard to any bankruptcy proceeding by the borrower 
for discharge under 11 U.S.C. 523(a)(8) on the grounds of undue 
hardship, the guaranty agency must, on the basis of reasonably available 
information, determine whether the first payment on the loan was due 
more than 7 years (exclusive of any applicable suspension of the 
repayment period) before the filing of that petition and, if so, process 
the claim.
    (ii) In all other cases, the guaranty agency must determine whether 
repayment under either the current repayment schedule or any adjusted 
schedule authorized under this part would impose an undue hardship on 
the borrower and his or her dependents.
    (iii) If the guaranty agency determines that repayment would not 
constitute an undue hardship, the guaranty agency must then determine 
whether the expected costs of opposing the discharge petition would 
exceed one-third of the total amount owed on the loan, including 
principal, interest, late charges, and collection costs. If the guaranty 
agency has determined that the expected costs of opposing the discharge 
petition will exceed one-third of the total amount of the loan, it may, 
but is not required to, engage in the activities described in paragraph 
(i)(1)(iv) of this section.
    (iv) The guaranty agency must use diligence and may assert any 
defense consistent with its status under applicable law to avoid 
discharge of the loan. Unless discharge would be more effectively 
opposed by not taking the following actions, the agency must--
    (A) Oppose the borrower's petition for a determination of 
dischargeability; and
    (B) If the borrower is in default on the loan, seek a judgment for 
the amount owed on the loan.
    (v) In opposing a petition for a determination of dischargeability 
on the grounds of undue hardship, a guaranty agency may agree to 
discharge of a portion of the amount owed on a loan if it reasonably 
determines that the agreement is necessary in order to obtain a judgment 
on the remainder of the loan.
    (2) Response by a guaranty agency to plans proposed under Chapters 
11, 12, and 13. The guaranty agency shall take the following actions 
when a petition for

[[Page 732]]

relief in bankruptcy under Chapters 11, 12, or 13 is filed:
    (i) The agency is not required to respond to a proposed plan that--
    (A) Provides for repayment of the full outstanding balance of the 
loan;
    (B) Makes no provision with regard to the loan or to general 
unsecured claims.
    (ii) In any other case, the agency shall determine, based on a 
review of its own records and documents filed by the debtor in the 
bankruptcy proceeding--
    (A) What part of the loan obligation will be discharged under the 
plan as proposed;
    (B) Whether the plan itself or the classification of the loan under 
the plan meets the requirements of 11 U.S.C. 1129, 1225, or 1325, as 
applicable; and
    (C) Whether grounds exist under 11 U.S.C. 1112, 1208, or 1307, as 
applicable, to move for conversion or dismissal of the case.
    (iii) If the agency determines that grounds exist to challenge the 
proposed plan, the agency shall, as appropriate, object to the plan or 
move to dismiss the case, if--
    (A) The costs of litigation of these actions are not reasonably 
expected to exceed one-third of the amount of the loan to be discharged 
under the plan; and
    (B) With respect to an objection under 11 U.S.C. 1325, the 
additional amount that may be recovered under the plan if an objection 
is successful can reasonably be expected to equal or exceed the cost of 
litigating the objection.
    (iv) The agency shall monitor the debtor's performance under a 
confirmed plan. If the debtor fails to make payments required under the 
plan or seeks but does not demonstrate entitlement to discharge under 11 
U.S.C. 1328(b), the agency shall oppose any requested discharge or move 
to dismiss the case if the costs of litigation together with the costs 
incurred for objections to the plan are not reasonably expected to 
exceed one-third of the amount of the loan to be discharged under the 
plan.
    (j) Mandatory purchase by a lender of a loan subject to a bankruptcy 
claim. (1) The lender shall repurchase from the guaranty agency a loan 
held by the agency pursuant to a bankruptcy claim paid to that lender, 
unless the guaranty agency sells the loan to another lender, promptly 
after the earliest of the following events:
    (i) The entry of an order denying or revoking discharge or 
dismissing a proceeding under any chapter.
    (ii) A ruling in a proceeding under chapter 7 or 11 that the loan is 
not dischargeable under 11 U.S.C. 523(a)(8) or other applicable law.
    (iii) The entry of an order granting discharge under chapter 12 or 
13, or confirming a plan of arrangement under chapter 11, unless the 
court determined that the loan is dischargeable under 11 U.S.C. 
523(a)(8) on grounds of undue hardship.
    (2) The lender may capitalize all outstanding interest accrued on a 
loan purchased under paragraph (j) of this section to cover any periods 
of delinquency prior to the bankruptcy action through the date the 
lender purchases the loan and receives the supporting loan documentation 
from the guaranty agency.
    (k) Claims for reimbursement from the Secretary on loans held by 
guarantee agencies. (1)(i) The Secretary reimburses the guaranty agency 
for its losses on bankruptcy claims paid to lenders after--
    (A) A determination by the court that the loan is dischargeable 
under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under 
chapter 7 or chapter 11; or
    (B) With respect to any other loan, after the agency pays the claim 
to the lender.
    (ii) The guaranty agency shall refund to the Secretary the full 
amount of reimbursement received from the Secretary on a loan that a 
lender repurchases under this section.
    (2) The Secretary pays a death, disability, bankruptcy, closed 
school, or false certification claim in an amount determined under 
Sec. 682.402(k)(5) on a loan held by a guaranty agency after the agency 
has paid a default claim to the lender thereon and received payment 
under its reinsurance agreement. The Secretary reimburses the guaranty 
agency only if--

[[Page 733]]

    (i) The guaranty agency determines that the borrower (or the student 
for whom a parent obtained a PLUS loan or each of the co-makers of a 
PLUS loan) has died, or the borrower (or each of the co-makers of a PLUS 
loan) has become totally and permanently disabled since applying for the 
loan, or has filed for relief in bankruptcy, in accordance with the 
procedures in paragraphs (b), (c), or (f) of this section, or the 
student was unable to complete an educational program because the school 
closed, or the borrower's eligibility to borrow (or the student's 
eligibility in the case of a PLUS loan) was falsely certified by an 
eligible school. For purposes of this paragraph, references to the 
``lender'' and ``guaranty agency'' in paragraphs (b) through (f) of this 
section mean the guaranty agency and the Secretary respectively;
    (ii) In the case of a Stafford, SLS, or PLUS loan, the guaranty 
agency determines that the borrower (or the student for whom a parent 
obtained a PLUS loan, or each of the co-makers of a PLUS loan) has died, 
or the borrower (or each of the co-makers of a PLUS loan) has become 
totally and permanently disabled since applying for the loan, or has 
filed the petition for relief in bankruptcy within 10 years of the date 
the borrower entered repayment, exclusive of periods of deferment or 
periods of forbearance granted by the lender that extended the 10-year 
maximum repayment period, or the borrower (or the student for whom a 
parent received a PLUS loan) was unable to complete an educational 
program because the school closed, or the borrower's eligibility to 
borrow (or the student's eligibility in the case of a PLUS loan) was 
falsely certified by an eligible school;
    (iii) In the case of a Consolidation loan, the borrower (or one of 
the co-makers) has died, is determined to be totally and permanently 
disabled under Sec. 682.402(c), or has filed the petition for relief in 
bankruptcy within the maximum repayment period described in 
Sec. 682.209(h)(2), exclusive of periods of deferment or periods of 
forbearance granted by the lender that extended the maximum repayment 
period;
    (iv) The guaranty agency has not written off the loan in accordance 
with the procedures established by the agency under 
Sec. 682.410(b)(6)(x), except for closed school and false certification 
discharges; and
    (v) The guaranty agency has exercised due diligence in the 
collection of the loan in accordance with the procedures established by 
the agency under Sec. 682.410(b)(6)(x), until the borrower (or the 
student for whom a parent obtained a PLUS loan, or each of the co-makers 
of a PLUS loan) has died, or the borrower (or each of the co-makers of a 
PLUS loan) has become totally and permanently disabled or filed a 
Chapter 12 or Chapter 13 petition, or had the loan discharged in 
bankruptcy, or for closed school and false certification claims, the 
guaranty agency receives a request for discharge from the borrower or 
another party.
    (3) [Reserved]
    (4) Within 30 days of receiving reimbursement for a closed school or 
false certification claim, the guaranty agency shall pay--
    (i) The borrower an amount equal to the amount paid on the loan by 
or on behalf of the borrower, less any school tuition refunds or 
payments received by the holder, guaranty agency, or the borrower from a 
tuition recovery fund, performance bond, or other third-party source; or
    (ii) The amount determined under paragraph (h)(2)(iv) of this 
section to the holder of the borrower's Consolidation Loan.
    (5) The Secretary pays the guaranty agency a percentage of the 
outstanding principal and interest that is equal to the complement of 
the reinsurance percentage paid on the loan. This interest includes 
interest that accrues during--
    (i) For death or bankruptcy claims, the shorter of 60 days or the 
period from the date the guaranty agency determines that the borrower 
(or the student for whom a parent obtained a PLUS loan, or each of the 
co-makers of a PLUS loan) dies, or filed a petition for relief in 
bankruptcy until the Secretary authorizes payment;
    (ii) For disability claims, the shorter of 60 days or the period 
from the date the guaranty agency makes a preliminary determination that 
the borrower

[[Page 734]]

became totally and permanently disabled until the Secretary authorizes 
payment; or
    (iii) For closed school or false certification claims, the period 
from the date on which the guaranty agency received payment from the 
Secretary on a default claim to the date on which the Secretary 
authorizes payment of the closed school or false certification claim.
    (l) Unpaid refund discharge. (1) Unpaid refunds in closed school 
situations. In the case of a school that has closed, the Secretary 
reimburses the guarantor of a loan and discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of an 
FFEL Program loan (disbursed, in whole or in part on or after January 1, 
1986) equal to the refund that should have been made by the school under 
applicable Federal law and regulations, including this section. Any 
accrued interest and other charges (late charges, collection costs, 
origination fees, and insurance premiums) associated with the unpaid 
refund are also discharged.
    (2) Unpaid refunds in open school situations. In the case of a 
school that is open, the guarantor discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of an 
FFEL loan (disbursed, in whole or in part, on or after January 1, 1986) 
equal to the amount of the refund that should have been made by the 
school under applicable Federal law and regulations, including this 
section, if--
    (i) The borrower (or the student on whose behalf a parent borrowed) 
is not attending the school that owes the refund; and
    (ii) The guarantor receives documentation regarding the refund and 
the borrower and guarantor have been unable to resolve the unpaid refund 
within 120 days from the date the guarantor receivesa complete 
application in accordance with paragraph (l)(4) of this section. Any 
accrued interest and other charges (late charges, collection costs, 
origination fees, and insurance premiums) associated with the amount of 
the unpaid refund amount are also discharged.
    (3) Relief to borrower (and any endorser) following discharge. (i) 
If a borrower receives a discharge of a portion of a loan under this 
section, the borrower is reimbursed for any amounts paid in excess of 
the remaining balance of the loan (including accrued interest, late 
charges, collection costs, origination fees, and insurance premiums) 
owed by the borrower at the time of discharge.
    (ii) The holder of the loan reports the discharge of a portion of a 
loan under this section to all credit reporting agencies to which the 
holder of the loan previously reported the status of the loan.
    (4) Borrower qualification for discharge. To receive a discharge of 
a portion of a loan under this section, a borrower must submit a written 
application to the holder or guaranty agency except as provided in 
paragraph (l)(5)(iv) of this section. The application requests the 
information required to calculate the amount of the discharge and 
requires the borrower to sign a statement swearing to the accuracy of 
the information in the application. The statement need not be notarized 
but must be made by the borrower under penalty of perjury. In the 
statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not attend, withdrew, or was terminated from the school 
within a timeframe that entitled the borrower to a refund; and
    (C) Did not receive the benefit of a refund to which the borrower 
was entitled either from the school or from a third party, such as a 
holder of a performance bond or a tuition recovery program.
    (ii) State whether the borrower has any other application for 
discharge pending for this loan; and
    (iii) State that the borrower--
    (A) Agrees to provide upon request by the Secretary or the 
Secretary's designee other documentation reasonably available to the 
borrower that demonstrates that the borrower meets the qualifications 
for an unpaid refund discharge under this section; and

[[Page 735]]

    (B) Agrees to cooperate with the Secretary or the Secretary's 
designee in enforcement actions in accordance with paragraph (e) of this 
section and to transfer any right to recovery against a third party to 
the Secretary in accordance with paragraph (d) of this section.
    (5) Unpaid refund discharge procedures. (i) Except for the 
requirements of paragraph (l)(5)(iv) of this section related to an open 
school, if the holder or guaranty agency learns that a school did not 
pay a refund of loan proceeds owed under applicable law and regulations, 
the holder or the guaranty agency sends the borrower a discharge 
application and an explanation of the qualifications and procedures for 
obtaining a discharge. The holder of the loan also promptly suspends any 
efforts to collect from the borrower on any affected loan.
    (ii) If the borrower returns the application, specified in paragraph 
(l)(4) of this section, the holder or the guaranty agency must review 
the application to determine whether the application appears to be 
complete. In the case of a loan held by a lender, once the lender 
determines that the application appears complete, it must provide the 
application and all pertinent information to the guaranty agency 
including, if available, the borrower's last date of attendance. If the 
borrower returns the application within 60 days, the lender must extend 
the period during which efforts to collect on the affected loan are 
suspended to the date the lender receives either a denial of the request 
or the unpaid refund amount from the guaranty agency. At the conclusion 
of the period during which the collection activity was suspended, the 
lender may capitalize any interest accrued and not paid during that 
period in accordance with Sec. 682.202(b).
    (iii) If the borrower fails to return the application within 60 
days, the holder of the loan resumes collection efforts and grants 
forbearance of principal and interest for the period during which the 
collection activity was suspended. The holder may capitalize any 
interest accrued and not paid during that period in accordance with 
Sec. 682.202(b).
    (iv) The guaranty agency may, with the approval of the Secretary, 
discharge a portion of a loan under this section without an application 
if the guaranty agency determines, based on information in the guaranty 
agency's possession, that the borrower qualifies for a discharge.
    (v) If the holder of the loan or the guaranty agency determines that 
the information contained in its files conflicts with the information 
provided by the borrower, the guaranty agency must use the most reliable 
information available to it to determine eligibility for and the 
appropriate payment of the refund amount.
    (vi) If the holder of the loan is the guaranty agency and the agency 
determines that the borrower qualifies for a discharge of an unpaid 
refund, the guaranty agency must suspend any efforts to collect on the 
affected loan and, within 30 days of its determination, discharge the 
appropriate amount and inform the borrower of its determination. Absent 
documentation of the exact amount of refund due the borrower, the 
guaranty agency must calculate the amount of the unpaid refund using the 
unpaid refund calculation defined in paragraph (o) of this section.
    (vii) If the guaranty agency determines that a borrower does not 
qualify for an unpaid refund discharge, (or, if the holder is the lender 
and is informed by the guarantor that the borrower does not qualify for 
a discharge)--
    (A) Within 30 days of the guarantor's determination, the agency must 
notify the borrower in writing of the reason for the determination and 
of the borrower's right to request a review of the agency's 
determination. The guaranty agency must make a determination within 30 
days of the borrower's submission of additional documentation supporting 
the borrower's eligibility that was not considered in any prior 
determination. During the review period, collection activities must be 
suspended; and
    (B) The holder must resume collection if the determination remains 
unchanged and grant forbearance of principal and interest for any period 
during which collection activity was suspended under this section. The 
holder may capitalize any interest accrued

[[Page 736]]

and not paid during these periods in accordance with Sec. 682.202(b).
    (viii) If the guaranty agency determines that a current or former 
borrower at an open school may be eligible for a discharge under this 
section, the guaranty agency must notify the lender and the school of 
the unpaid refund allegation. The notice to the school must include all 
pertinent facts available to the guaranty agency regarding the alleged 
unpaid refund. The school must, no later than 60 days after receiving 
the notice, provide the guaranty agency with documentation 
demonstrating, to the satisfaction of the guarantor, that the alleged 
unpaid refund was either paid or not required to be paid.
    (ix) In the case of a school that does not make a refund or provide 
sufficient documentation demonstrating the refund was either paid or was 
not required, within 60 days of its receipt of the allegation notice 
from the guaranty agency, relief is provided to the borrower (and any 
endorser) if the guaranty agency determines the relief is appropriate. 
The agency must forward documentation of the school's failure to pay the 
unpaid refund to the Secretary.
    (m) Unpaid refund discharge procedures for a loan held by a lender. 
In the case of an unpaid refund discharge request, the lender must 
provide the guaranty agency with documentation related to the borrower's 
qualification for discharge as specified in paragraph (l)(4) of this 
section.
    (n) Payment of an unpaid refund discharge request by a guaranty 
agency. (1) General. The guaranty agency must review an unpaid refund 
discharge request promptly and must pay the lender the amount of loss as 
defined in paragraphs (l)(1) and (l)(2) of this section, related to the 
unpaid refund not later than 45 days after a properly filed request is 
made.
    (2) Determination of the unpaid refund discharge amount to the 
lender. The amount of loss payable to a lender on an unpaid refund 
includes that portion of an FFEL Program loan equal to the amount of the 
refund required under applicable Federal law and regulations, including 
this section, and including any accrued interest and other charges (late 
charges, collection costs, origination fees, and insurance premiums) 
associated with the unpaid refund.
    (o)(1) Determination of amount eligible for discharge. The guaranty 
agency determines the amount eligible for discharge based on information 
showing the refund amount or by applying the appropriate refund formula 
to information that the borrower provides or that is otherwise available 
to the guaranty agency. For purposes of this section, all unpaid refunds 
are considered to be attributed to loan proceeds.
    (2) If the information in paragraph (o)(1) of this section is not 
available, the guaranty agency uses the following formulas to determine 
the amount eligible for discharge:
    (i) In the case of a student who fails to attend or whose withdrawal 
or termination date is before October 7, 2000 and who completes less 
than 60 percent of the loan period, the guaranty agency discharges the 
lesser of the institutional charges unearned or the loan amount. The 
guaranty agency determines the amount of the institutional charges 
unearned by--
    (A) Calculating the ratio of the amount of time in the loan period 
after the student's last day of attendance to the actual length of the 
loan period; and
    (B) Multiplying the resulting factor by the institutional charges 
assessed the student for the loan period.
    (ii) In the case of a student who fails to attend or whose 
withdrawal or termination date is on or after October 7, 2000 and who 
completes less than 60 percent of the loan period, the guaranty agency 
discharges the loan amount unearned. The guaranty agency determines the 
loan amount unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan period after the student's last day of attendance to the actual 
length of the loan period; and
    (B) Multiplying the resulting factor by the total amount of title IV 
grants and loans received by the student, or if unknown, the loan 
amount.
    (iii) In the case of a student who completes 60 percent or more of 
the loan period, the guaranty agency does not discharge any amount 
because a

[[Page 737]]

student who completes 60 percent or more of the loan period is not 
entitled to a refund.
    (p) Requests for reimbursement from the Secretary on loans held by 
guaranty agencies. The Secretary reimburses the guaranty agency for its 
losses on unpaid refund request payments to lenders or borrowers in an 
amount that is equal to the amount specified in paragraph (n)(2) of this 
section.
    (q) Payments received after the guaranty agency's payment of an 
unpaid refund request. (1) The holder must promptly return to the sender 
any payment on a fully discharged loan, received after the guaranty 
agency pays an unpaid refund request unless the sender is required to 
pay (as in the case of a tuition recovery fund) in which case, the 
payment amount must be forwarded to the Secretary. At the same time that 
the holder returns the payment, it must notify the borrower that there 
is no obligation to repay a loan fully discharged.
    (2) If the holder has returned a payment to the borrower, or the 
borrower's representative, with the notice described in paragraph (q)(1) 
of this section, and the borrower (or representative) continues to send 
payments to the holder, the holder must remit all of those payments to 
the Secretary.
    (3) If the loan has not been fully discharged, payments must be 
applied to the remaining debt.
    (r) Payments received after the Secretary's payment of a death, 
disability, closed school, false certification, or bankruptcy claim.
    (1) If the guaranty agency receives any payments from or on behalf 
of the borrower on or attributable to a loan that as been discharged in 
bankruptcy on which the Secretary previously paid a bankruptcy claim, 
the guaranty agency must return 100 percent of these payments to the 
sender. The guaranty agency must promptly return, to the sender, any 
payment on a cancelled or discharged loan made by the sender and 
received after the Secretary pays a closed school or false certification 
claim. At the same time that the agency returns the payment, it must 
notify the borrower that there is no obligation to repay a loan 
discharged on the basis of death, bankruptcy, false certification, or 
closing of the school.
    (2) If the guaranty agency receives any payments from or on behalf 
of the borrower on or attributable to a loan that has been assigned to 
the Secretary for determination of eligibility for a total and permanent 
disability discharge, the guaranty agency must forward those payments to 
the Secretary for crediting to the borrower's account. At the same time 
that the agency forwards the payments, it must notify the borrower that 
there is no obligation to make payments on the loan while it is 
conditionally discharged prior to a final determination of eligibility 
for a total and permanent disability discharge, unless the Secretary 
directs the borrower otherwise.
    (3) When the Secretary makes a final determination to discharge the 
loan, the Secretary returns to the sender any payments received on the 
loan after the date the borrower became totally and permanently 
disabled.
    (4) The guaranty agency shall remit to the Secretary all payments 
received from a tuition recovery fund, performance bond, or other third 
party with respect to a loan on which the Secretary previously paid a 
closed school or false certification claim.
    (5) If the guaranty agency has returned a payment to the borrower, 
or the borrower's representative, with the notice described in 
paragraphs (r)(1) or (r)(2) of this section, and the borrower (or 
representative) continues to send payments to the guaranty agency, the 
agency must remit all of those payments to the Secretary.
    (s) Applicable suspension of the repayment period. For purposes of 
this section and 11 U.S.C. 523(a)(8)(A) with respect to loans guaranteed 
under the FFEL Program, an applicable suspension of the repayment 
period--
    (1) Includes any period during which the lender does not require the 
borrower to make a payment on the loan.
    (2) Begins on the date on which the borrower qualifies for the 
requested deferment as provided in Sec. 682.210(a)(5) or the lender 
grants the requested forbearance;
    (3) Closes on the later of the date on which--

[[Page 738]]

    (i) The condition for which the requested deferment or forbearance 
was received ends; or
    (ii) The lender receives notice of the end of the condition for 
which the requested deferment or forbearance was received, if the 
condition ended earlier than represented by the borrower at the time of 
the request and the borrower did not notify timely the lender of the 
date on which the condition actually ended;
    (4) Includes the period between the end of the borrower's grace 
period and the first payment due date established by the lender in the 
case of a borrower who entered repayment without the knowledge of the 
lender;
    (5) Includes the period between the filing of the petition for 
relief and the date on which the proceeding is completed or dismissed, 
unless payments have been made during that period in amounts sufficient 
to meet the amount owed under the repayment schedule in effect when the 
petition was filed.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 22477, Apr. 29, 1994; 59 FR 29543, June 8, 1994; 59 FR 61216, Nov. 
29, 1994; 59 FR 61428, Nov. 30, 1994; 60 FR 61757, Dec. 1, 1995; 62 FR 
63434, Nov. 28, 1997; 64 FR 18979, Apr. 16, 1999; 64 FR 56828, Oct. 29, 
1999; 64 FR 58960, Nov. 1, 1999; 65 FR 65620, 65691, Nov. 1, 2000; 66 FR 
34763, June 29, 2001; 67 FR 67079, Nov. 1, 2002]



Sec. 682.403  Federal advances for claim payments.

    (a) The Secretary makes an advance to a guaranty agency that has a 
reinsurance agreement. The advance may be used only to pay guarantee 
claims. The Secretary makes an advance to--
    (1) A State guaranty agency; or
    (2) 1 or more private nonprofit guarantee agencies in a State if, 
during a fiscal year--
    (i) The State does not have a guaranty agency program;
    (ii) The Secretary consults the chief executive officer of the State 
and finds it unlikely that the State will have a program for that year; 
and
    (iii) Each private nonprofit guaranty agency--
    (A) Agrees to establish at least 1 office in the State with 
sufficient staff to handle written and telephone inquiries from 
students, eligible lenders, and other persons in the State;
    (B) Agrees to encourage maximum commercial lender participation 
within the State and to conduct periodic visits to at least the major 
lenders within the State;
    (C) Agrees that the benefit of its loan guarantees will not be 
denied to students because of their choice of schools or lack of need; 
and
    (D) Certifies that it is not an institution of higher education and 
that it does not have any substantial affiliation with an institution of 
higher education.
    (b) A guaranty agency shall apply to the Secretary in order to 
receive an initial advance.
    (c)(1) An advance may be made to a new guaranty agency for each of 
five consecutive calendar years. A new agency is an agency that entered 
into a basic agreement on or after October 12, 1976, or that was not 
actively carrying on a loan guarantee program on or before October 12, 
1976.
    (2)(i) A guaranty agency may request that the initial advance be 
made on a specified date. The Secretary pays subsequent advances on the 
same day that the initial advance was made for each of the four 
succeeding calendar years.
    (ii) An additional advance may be made to a private nonprofit 
guaranty agency only if the agency continues to qualify under paragraph 
(a) of this section.
    (d) The Secretary makes an advance to a guaranty agency--
    (1) On terms and conditions specified in an agreement between the 
Secretary and the guaranty agency;
    (2) To ensure that the agency will fulfill its lender-of-last resort 
obligation; and
    (3) To meet the agency's immediate cash needs and to ensure the 
uninterrupted payment of claims when the Secretary has terminated the 
agency's agreement and assumed its functions.
    (e) In the case of a private nonprofit guaranty agency, the 
repayment of advances is determined separately for each State for which 
the agency has received in advance under this section, in

[[Page 739]]

accordance with section 422(c)(4) of the Act.
    (f) A guaranty agency shall return advances provided under this 
section in accordance with the provisions of section 422 of the Act.

(Authority: 20 U.S.C. 1072, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18980, Apr. 16, 1999]



Sec. 682.404  Federal reinsurance agreement.

    (a) General. (1) The Secretary may enter into a reinsurance 
agreement with a guaranty agency that has a basic program agreement. 
Except as provided in paragraph (b) of this section, under a reinsurance 
agreement, the Secretary reimburses the guaranty agency for--
    (i) 95 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made on or after October 1, 
1998;
    (ii) 98 percent of its losses on default claim payments to lenders 
for loans for which the first disbursement is made on or after October 
1, 1993, and before October 1, 1998; or
    (iii) 100 percent of its losses on default claim payments to 
lenders--
    (A) For loans for which the first disbursement is made prior to 
October 1, 1993;
    (B) For loans made under an approved lender-of-last-resort program;
    (C) For loans transferred under a plan approved by the Secretary 
from an insolvent guaranty agency or a guaranty agency that withdraws 
its participation in the FFEL Program;
    (D) For a guaranty agency that entered into a basic program 
agreement under section 428(b) of the Act after September 30, 1976, or 
was not actively carrying on a loan guarantee program covered by a basic 
program agreement on October 1, 1976 for five consecutive fiscal years 
beginning with the first year of its operation.
    (2) For purposes of this section--
    (i) Losses means the amount of unpaid principal and accrued interest 
the agency paid on a default claim filed by a lender on a reinsured 
loan, minus payments made by or on behalf of the borrower after default 
but before the Secretary reimburses the agency;
    (ii) Default aversion assistance means the activities of a guaranty 
agency that are designed to prevent a default by a borrower who is at 
least 60 days delinquent and that are directly related to providing 
collection assistance to the lender.
    (3) A guaranty agency's loss on a loan that was outstanding when a 
reinsurance agreement was executed is covered by the reinsurance 
agreement only if the default on the loan occurs after the effective 
date of the agreement.
    (4) If a lender has requested default aversion assistance as 
described in paragraph (a)(2)(ii) of this section, the agency must, upon 
request of the school at which the borrower received the loan, notify 
the school of the lender's request. The guaranty agency may not charge 
the school or the school's agent for providing this notification and 
must accept a blanket request from the school to be notified whenever 
any of the school's current or former students are the subject of a 
default aversion assistance request. The agency must notify schools 
annually of the option to make this blanket request.
    (b) Reduction in reinsurance rate. (1) If the total of reinsurance 
claims paid by the Secretary to a guaranty agency during any fiscal year 
reaches 5 percent of the amount of loans in repayment at the end of the 
preceding fiscal year, the Secretary's reinsurance payment on a default 
claim subsequently paid by the guaranty agency during that fiscal year 
equals--
    (i) 90 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made before October 1, 1993 or 
transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation in 
the FFEL Program;
    (ii) 88 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1993, and before October 1, 1998; or
    (iii) 85 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1998.
    (2) If the total of reinsurance claims paid by the Secretary to a 
guaranty

[[Page 740]]

agency during any fiscal year reaches 9 percent of the amount of loans 
in repayment at the end of the preceding fiscal year, the Secretary's 
reinsurance payment on a default claim subsequently paid by the guaranty 
agency during that fiscal year equals--
    (i) 80 percent of its losses on default claim payments to lenders on 
loans for which the first disbursement is made before October 1, 1993 or 
transferred under a plan approved by the Secretary from an insolvent 
guaranty agency or a guaranty agency that withdraws its participation in 
the FFEL Program;
    (ii) 78 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1993, and before October 1, 1998; or
    (iii) 75 percent of its losses on default claim payments to lenders 
on loans for which the first disbursement is made on or after October 1, 
1998.
    (3) For purposes of this section, the total of reinsurance claims 
paid by the Secretary to a guaranty agency during any fiscal year does 
not include amounts paid on claims by the guaranty agency--
    (i) On loans considered in default under Sec. 682.412(e);
    (ii) Under a policy established by the agency that is consistent 
with Sec. 682.509(a)(1); or
    (iii) That were filed by lenders at the direction of the Secretary;
    (iv) On loans made under a guaranty agency's approved lender-of-
last-resort program.
    (4) For purposes of this section, amount of loans in repayment 
means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was canceled;
    (B) The loan guarantee was transferred to another agency;
    (C) The borrower has not yet reached the repayment period;
    (D) Payment in full has been made by the borrower;
    (E) The borrower was in deferment status at the time repayment was 
scheduled to begin and remains in deferment status;
    (F) Reinsurance coverage has been lost and cannot be regained; and
    (G) The agency paid claims, excluding the amount of those claims--
    (1) Paid under Sec. 682.412(e);
    (2) Paid under a policy established by the agency that is consistent 
with Sec. 682.509(a)(1); or
    (3) Paid at the direction of the Secretary.
    (c) Submission of reinsurance rate base data. The guaranty agency 
shall submit to the Secretary the quarterly report required by the 
Secretary for the previous quarter ending September 30 containing 
complete and accurate data in order for the Secretary to calculate the 
amount of loans in repayment at the end of the preceding fiscal year. 
The Secretary does not pay a reinsurance claim to the guaranty agency 
after the date the guarterly report is due until the quaranty agency 
submits a complete and accurate report.
    (d) Reinsurance fee. (1) Except for loans made under 
Sec. 682.209(e), (f) and (h), and all loans guaranteed on or after 
October 1, 1993, a guaranty agency shall pay to the Secretary during 
each fiscal year in quarterly installments a reinsurance fee equal to--
    (i) 0.25 percent of the total principal amount of the Stafford, SLS, 
and PLUS loans on which guarantees were issued by that agency during 
that fiscal year; or
    (ii) 0.5 percent of the total principal amount of the Stafford, SLS, 
and PLUS loans on which guarantees were issued by that agency during 
that fiscal year if the agency's reinsurance claims paid reach the 
amount described in paragraph (b)(1) of this section at any time during 
that fiscal year.
    (2) The agency that is the original guarantor of a loan shall pay 
the reinsurance fee to the Secretary even if the guaranty agency 
transfers its guarantee obligation on the loan to another guaranty 
agency.
    (3) The guaranty agency shall pay the reinsurance fee required by 
paragraph (d)(1) of this section due the Secretary for each calendar 
quarter ending

[[Page 741]]

March 31, June 30, September 30, and December 31, within 90 days after 
the end of the applicable quarter or within 30 days after receiving 
written notice from the Secretary that the fees are due, whichever is 
earlier.
    (e) Initiation or extension of agreements. In deciding whether to 
enter into or extend a reinsurance agreement, or, if an agreement has 
been terminated, whether to enter into a new agreement, the Secretary 
considers the adequacy of--
    (1) Efforts by the guaranty agency and the lenders to which it 
provides guarantees to collect outstanding loans as required by 
Sec. 682.410(b) (6) or (7), and Sec. 682.411;
    (2) Efforts by the guaranty agency to make FFEL loans available to 
all eligible borrowers; and
    (3) Other relevant aspects of the guaranty agency's program 
operations.
    (f) Application of borrower payments. A payment made to a guaranty 
agency by a borrower on a defaulted loan must be applied first to the 
collection costs incurred to collect that amount and then to other 
incidental charges, such as late charges, then to accrued interest and 
then to principal.
    (g) Share of borrower payments returned to the Secretary. (1) After 
an agency pays a default claim to a holder using assets of the Federal 
Fund, the agency must pay to the Secretary the portion of payments 
received on those defaulted loans remaining after--
    (i) The agency deposits into the Federal Fund the amount of those 
payments equal to the applicable complement of the reinsurance 
percentage that was in effect at the time the claim was paid; and
    (ii) The agency has deducted an amount equal to--
    (A) 30 percent of borrower payments received before October 1, 1993;
    (B) 27 percent of borrower payments received on or after October 1, 
1993, and before October 1, 1998;
    (C) 24 percent of borrower payments received on or after October 1, 
1998, and before October 1, 2003; and
    (D) 23 percent of borrower payments received on or after October 1, 
2003.
    (2) Unless the Secretary approves otherwise, the guaranty agency 
must pay to the Secretary the Secretary's share of borrower payments 
within 45 days of its receipt of the payments.
    (h) Nondiscrimination. (1) A guaranty agency may not engage in any 
pattern or practice that results in a denial of a borrower's access to 
FFEL loans because of the borrower's race, sex, color, religion, 
national origin, age, handicapped status, income, attendance at a 
particular participating school within any State served by the guaranty 
agency, length of the borrower's educational program, or the borrower's 
academic year in school.
    (2) For purposes of this section a guaranty agency is deemed to be 
serving a State if it guarantees a loan that is--
    (i) Made by a lender located in a State not served by the agency;
    (ii) Made to a borrower who is a resident of a State not served by 
the agency; and
    (iii) Made for attendance at a school located in the State.
    (i) Account maintenance fee. A guaranty agency is paid an account 
maintenance fee based on the original principal amount of outstanding 
FFEL Program loans insured by the agency. For fiscal years 1999 and 
2000, the fee is 0.12 percent of the original principal amount of 
outstanding loans. After fiscal year 2000, the fee is 0.10 percent of 
the original principal amount of outstanding loans.
    (j) Loan processing and issuance fee. A guaranty agency is paid a 
loan processing and issuance fee based on the principal amount of FFEL 
Program loans originated during a fiscal year that are insured by the 
agency. The fee is paid quarterly. No payment is made for loans for 
which the disbursement checks have not been cashed or for which 
electronic funds transfers have not been completed. For fiscal years 
1999 through 2003, the fee is 0.65 percent of the principal amount of 
loans originated. Beginning October 1, 2003, the fee is 0.40 percent.
    (k) Default aversion fee--(1) General. If a guaranty agency performs 
default aversion activities on a delinquent loan in response to a 
lender's request for default aversion assistance on that loan, the 
agency receives a default aversion fee. The fee may not be paid more 
than once on any loan. The lender's request

[[Page 742]]

for assistance must be submitted to the guaranty agency no earlier than 
the 60th day and no later than the 120th day of the borrower's 
delinquency. A guaranty agency may not restrict a lender's choice of the 
date during this period on which the lender submits a request for 
default aversion assistance.
    (2) Amount of fees transferred. No more frequently than monthly, a 
guaranty agency may transfer default aversion fees from the Federal Fund 
to its Operating Fund. The amount of the fees that may be transferred is 
equal to--
    (i) One percent of the unpaid principal and accrued interest owed on 
loans that were submitted by lenders to the agency for default aversion 
assistance; minus
    (ii) One percent of the unpaid principal and accrued interest owed 
by borrowers on default claims that--
    (A) Were paid by the agency for the same time period for which the 
agency transferred default aversion fees from its Federal Fund; and
    (B) For which default aversion fees have been received by the 
agency.
    (3) Calculation of fee. (i) For purposes of calculating the one 
percent default aversion fee described in paragraph (k)(2)(i) of this 
section, the agency must use the total unpaid principal and accrued 
interest owed by the borrower as of the date the default aversion 
assistance request is submitted by the lender.
    (ii) For purposes of paragraph (k)(2)(ii) of this section, the 
agency must use the total unpaid principal and accrued interest owed by 
the borrower as of the date the agency paid the default claim.
    (4) Prohibition against conflicts. If a guaranty agency contracts 
with an outside entity to perform any default aversion activities, that 
outside entity may not--
    (i) Hold or service the loan; or
    (ii) Perform collection activities on the loan in the event of 
default within 3 years of the claim payment date.
    (l) Other terms. The reinsurance agreement contains other terms and 
conditions that the Secretary finds necessary to--
    (1) Promote the purposes of the FFEL programs and to protect the 
United States from unreasonable risks of loss;
    (2) Ensure proper and efficient administration of the loan guarantee 
program; and
    (3) Ensure that due diligence will be exercised in the collection of 
loans.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 61429, Nov. 30, 1994; 60 FR 31411, June 
15, 1995; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR 
58628, Oct. 29, 1999]



Sec. 682.405  Loan rehabilitation agreement.

    (a) General. (1) A guaranty agency that has a basic program 
agreement must enter into a loan rehabilitation agreement with the 
Secretary. The guaranty agency must establish a loan rehabilitation 
program for all borrowers with an enforceable promissory note for the 
purpose of rehabilitating defaulted loans, except for loans for which a 
judgment has been obtained, so that the loan may be purchased, if 
practicable, by an eligible lender and removed from default status.
    (2) A loan is considered to be rehabilitated only after the borrower 
has made one voluntary reasonable and affordable full payment each month 
and the payment is received by a guaranty agency or its agent within 15 
days of the scheduled due date for 12 consecutive months in accordance 
with this section, and the loan has been sold to an eligible lender.
    (3) After the loan has been rehabilitated, the borrower regains all 
benefits of the program, including any remaining deferment eligibility 
under section 428(b)(1)(M) of the Act, from the date of the 
rehabilitation.
    (b) Terms of agreement. In the loan rehabilitation agreement, the 
guaranty agency agrees to ensure that its loan rehabilitation program 
meets the following requirements at all times:
    (1) A borrower may request the rehabilitation of the borrower's 
defaulted FFEL loan held by the guaranty agency. The borrower must make 
one on-time voluntary full payment each month for 12 consecutive months 
to be

[[Page 743]]

eligible to have the defaulted loans rehabilitated. For purposes of this 
section, ``full payment'' means a reasonable and affordable payment 
agreed to by the borrower and the agency. The required amount of such 
monthly payment may be no more than is reasonable and affordable based 
upon the borrower's total financial circumstances. Voluntary payments 
are those made directly by the borrower, and do not include payments 
obtained by Federal offset, garnishment, income or asset execution, or 
after a judgment has been entered on a loan. A guaranty agency must 
attempt to secure a lender to purchase the loan at the end of the 
twelve-(12-)month payment period.
    (i) For purposes of this section, the determination of reasonable 
and affordable must--
    (A) Include a consideration of the borrower's and spouse's 
disposable income and reasonable and necessary expenses including, but 
not limited to, housing, utilities, food, medical costs, work-related 
expenses, dependent care costs and other Title IV repayment;
    (B) Not be a required minimum payment amount, e.g. $50, if the 
agency determines that a smaller amount is reasonable and affordable 
based on the borrower's total financial circumstances. The agency must 
include documentation in the borrower's file of the basis for the 
determination if the monthly reasonable and affordable payment 
established under this section is less than $50.00 or the monthly 
accrued interest on the loan, whichever is greater. However, $50.00 may 
not be the minimum payment for a borrower if the agency determines that 
a smaller amount is reasonable and affordable; and
    (C) Be based on the documentation provided by the borrower or other 
sources including, but not be limited to--
    (1) Evidence of current income (e.g., proof of welfare benefits, 
Social Security benefits, child support, veterans' benefits, 
Supplemental Security Income, Workmen's Compensation, two most recent 
pay stubs, most recent copy of U.S. income tax return, State Department 
of Labor reports);
    (2) Evidence of current expenses (e.g., a copy of the borrower's 
monthly household budget, on a form provided by the guaranty agency); 
and
    (3) A statement of the unpaid balance on all FFEL loans held by 
other holders.
    (ii) The agency must include any payment made under 
Sec. 682.401(b)(4) in determining whether the 12 consecutive payments 
required under paragraph (b)(1) of this section have been made.
    (iii) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial circumstances 
only upon providing the documentation specified in paragraph 
(b)(1)(i)(C) of this section.
    (iv) A guaranty agency must provide the borrower with a written 
statement confirming the borrower's reasonable and affordable payment 
amount, as determined by the agency, and explaining any other terms and 
conditions applicable to the required series of payments that must be 
made before a borrower's account can be considered for repurchase by an 
eligible lender. The statement must inform borrowers of the effects of 
having their loans rehabilitated (e.g. credit clearing, possibility of 
increased monthly payments). The statement must inform the borrower of 
the amount of the collection costs to be added to the unpaid principal 
at the time of the sale. The collection costs may not exceed 18.5 
percent of the unpaid principal and accrued interest at the time of the 
sale.
    (v) A guaranty agency must provide the borrower with an opportunity 
to object to terms of the rehabilitation of the borrower's defaulted 
loan.
    (2) The guaranty agency must report to all national credit bureaus 
within 90 days of the date the loan was rehabilitated that the loan is 
no longer in a default status and that the default is to be removed from 
the borrower's credit history.
    (3) An eligible lender purchasing a rehabilitated loan must 
establish a repayment schedule that meets the same requirements that are 
applicable to other FFEL Program loans made under the same loan type and 
provides for the borrower to make monthly payments at least as great as 
the average of the 12 consecutive monthly payments received by the 
guaranty agency. For the

[[Page 744]]

purposes of the maximum loan repayment period, the lender must treat the 
first payment made under the 12 consecutive payments as the first 
payment under the applicable maximum repayment term, as defined under 
sections 682.209(a) or (h).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-6)

[59 FR 33355, June 28, 1994, as amended at 60 FR 30788, June 12, 1995; 
64 FR 18980, Apr. 16, 1999; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June 
29, 2001; 67 FR 67080, Nov. 1, 2002]



Sec. 682.406  Conditions for claim payments from the Federal Fund and for 
reinsurance coverage.

    (a) A guaranty agency may make a claim payment from the Federal Fund 
and receive a reinsurance payment on a loan only if--
    (1) The lender exercised due diligence in making, disbursing, and 
servicing the loan as prescribed by the rules of the agency;
    (2) With respect to the reinsurance payment on the portion of a loan 
represented by a single disbursement of loan proceeds--
    (i) The check for the disbursement was cashed within 120 days after 
disbursement; or
    (ii) The proceeds of the disbursement made by electronic funds 
transfer or master check in accordance with Sec. 682.207(b)(1)(ii) (B) 
and (C) have been released from the restricted account maintained by the 
school within 120 days after disbursement;
    (3) The lender provided an accurate collection history and an 
accurate payment history to the guaranty agency with the default claim 
filed on the loan showing that the lender exercised due diligence in 
collecting the loan through collection efforts meeting the requirements 
of Sec. 682.411, including collection efforts against each endorser;
    (4) The loan was in default before the agency paid a default claim 
filed thereon;
    (5) The lender filed a default claim thereon with the guaranty 
agency within 90 days of default;
    (6) The lender resubmitted a properly documented default claim to 
the guaranty agency not later than 60 days from the date the agency had 
returned that claim due solely to inadequate documentation, except that 
interest accruing beyond the 30th day after the date the guaranty agency 
returned the claim is not reinsured unless the lender files a claim for 
loss on the loan with the guarantor together with all required 
documentation, prior to the 30th day;
    (7) The lender satisfied all conditions of guarantee coverage set by 
the agency, unless the agency reinstated guarantee coverage on the loan 
following the lender's failure to satisfy such a condition pursuant to 
written policies and procedures established by the agency;
    (8) The agency paid or returned to the lender for additional 
documentation a default claim thereon filed by the lender within 90 days 
of the date the lender filed the claim or, if applicable, the additional 
documentation, except that interest accruing beyond the 60th day after 
the date the lender originally filed the claim is not reinsured;
    (9) The agency submitted a request for the payment on a form 
required by the Secretary no later than 45 days following payment of a 
default claim to the lender;
    (10) The loan was legally enforceable by the lender when the agency 
paid a claim on the loan to the lender;
    (11) The agency exercised due diligence in collection of the loan in 
accordance with Sec. 682.410(b)(6);
    (12) The agency and lender, if applicable, complied with all other 
Federal requirements with respect to the loan including--
    (i) Payment of origination fees;
    (ii) For Consolidation loans disbursed on or after October 1, 1993, 
and prior to October 1, 1998, payment on a monthly basis, of an interest 
payment rebate fee calculated on an annual basis and equal to 1.05 
percent of the unpaid principal and accrued interest on the loan;
    (iii) For Consolidation loans for which the application was received 
by the lender on or after October 1, 1998 and prior to February 1, 1999, 
payment on a monthly basis, of an interest payment rebate fee calculated 
on an annual basis and equal to 0.62 percent of the unpaid principal and 
accrued interest on the loan;

[[Page 745]]

    (iv) For Consolidation loans disbursed on or after February 1, 1999, 
payment of an interest payment rebate fee in accordance with paragraph 
(a)(12)(ii) of this section; and
    (v) Compliance with all default aversion assistance requirements in 
Sec. 682.404(a)(2)(ii).
    (13) The agency assigns the loan to the Secretary, if so directed, 
in accordance with the requirements of Sec. 682.409; and
    (14) The guaranty agency certifies to the Secretary that diligent 
attempts have been made by the lender and the guaranty agency under 
Sec. 682.411(h) to locate the borrower through the use of effective 
skip-tracing techniques, including contact with the schools the student 
attended.
    (b) Notwithstanding paragraph (a) of this section, the Secretary may 
waive his right to refuse to make or require repayment of a reinsurance 
payment if, in the Secretary's judgment, the best interests of the 
United States so require. The Secretary's waiver policy for violations 
of paragraph (a)(3) or (a)(5) of this section is set forth in appendix D 
to this part.
    (c) In evaluating a claim for insurance or reinsurance, the issue of 
confirmation of subsequent loans under an MPN will not be reviewed and a 
claim will not be denied based on the absence of any evidence relating 
to confirmation in a particular loan file. However, if a court rules 
that a loan is unenforceable solely because of the lack of evidence of a 
confirmation process or processes, insurance and reinsurance benefits 
must be repaid.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25746, May 17, 1994; 59 FR 33356, June 28, 1994; 59 FR 61429, Nov. 
30, 1994; 61 FR 60486, Nov. 27, 1996; 64 FR 18980, Apr. 16, 1999; 64 FR 
58629, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999; 65 FR 65620, Nov. 1, 
2000; 66 FR 34764, June 29, 2001]



Sec. 682.407  [Reserved]



Sec. 682.408  Loan disbursement through an escrow agent.

    (a) General. (1) A guaranty agency or an eligible lender may act as 
an escrow agent for the purpose of receiving Stafford and PLUS loan 
proceeds disbursed by an eligible lender other than a school, State 
lender, or a State agency or instrumentality, and transmitting those 
proceeds to the borrower's school if the lender and the escrow agent 
have entered into a written agreement for this purpose.
    (2) The agreement must provide that--
    (i) The lender may make payments into an escrow account that is 
administered by the escrow agent in accordance with the requirements of 
paragraph (c) of this section and Sec. 682.207(b)(1)(iv);
    (ii) The lender shall promptly notify the borrower's school when 
funds are escrowed for the borrower; and
    (iii) The escrow agent is authorized to--
    (A) Transmit the proceeds according to the note evidencing the loan;
    (B) Commingle the proceeds of the loans paid to it pursuant to an 
escrow agreement;
    (C) Invest the loan proceeds only in obligations of the Federal 
Government or obligations that are insured or guaranteed by the Federal 
Government; and
    (D) Retain for its own use interest or other earnings on those 
investments.
    (b) Disbursement by the lender. Subject to Sec. 682.207(b)(1)(iii), 
the lender may disburse the loan proceeds to the escrow agent using any 
method agreed to by the escrow agent and the lender.
    (c) Transmittal of FFEL loan proceeds by the escrow agent. (1) The 
escrow agent shall transmit Stafford and SLS loan proceeds received from 
a lender under this section to a school in accordance with the 
requirements of Sec. 682.207(b)(1) (ii) and (iv) not later than 21 days 
after the agent receives the funds from the lender.
    (2) The escrow agent shall transmit PLUS loan proceeds received from 
a lender under this section to a borrower

[[Page 746]]

in accordance with the requirements of Sec. 682.207(b)(1) (ii) and (iv) 
not later than 21 days after the agent receives the funds from the 
lender.
    (d) Return of untransmitted proceeds. The escrow agent shall return 
any untransmitted proceeds of a loan to the lender within 15 working 
days after receiving information indicating that the student has not 
enrolled, or has ceased to be enrolled on at least a half-time basis, 
for the period of enrollment for which the loan was intended.

(Authority: 20 U.S.C. 1078, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18980, Apr. 16, 1999]



Sec. 682.409  Mandatory assignment by guaranty agencies of defaulted loans 
to the Secretary.

    (a)(1) If the Secretary determines that action is necessary to 
protect the Federal fiscal interest, the Secretary directs a guaranty 
agency to promptly assign to the Secretary any loans held by the agency 
on which the agency has received payment under Sec. 682.402(f), 
682.402(k), or 682.404. The collection of unpaid loans owed by Federal 
employees by Federal salary offset is, among other things, deemed to be 
in the Federal fiscal interest. Unless the Secretary notifies an agency, 
in writing, that other loans must be assigned to the Secretary, an 
agency must assign any loan that meets all of the following criteria as 
of April 15 of each year:
    (i) The unpaid principal balance is at least $100.
    (ii) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the loan, and any other loans 
held by the agency for that borrower, have been held by the agency for 
at least four years; for any subsequent fiscal year such loan must have 
been held by the agency for at least five years.
    (iii) A payment has not been received on the loan in the last year.
    (iv) A judgment has not been entered on the loan against the 
borrower.
    (2) If the agency fails to meet a fiscal year recovery rate standard 
under paragraph (a)(2)(ii) of this section for a loan type, and the 
Secretary determines that additional assignments are necessary to 
protect the Federal fiscal interest, the Secretary may require the 
agency to assign in addition to those loans described in paragraph 
(a)(1) of this section, loans in amounts needed to satisfy the 
requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.
    (i) Calculation of fiscal year loan type recovery rate. A fiscal 
year loan type recovery rate for an agency is determined by dividing the 
amount collected on defaulted loans, including collections by Federal 
Income Tax Refund Offset, for each loan program (i.e., the Stafford, 
PLUS, SLS, and Consolidation loan programs) by the agency for loans of 
that program (including payments received by the agency on loans under 
Sec. 682.401(b)(4) and Sec. 682.409 and the amounts of any loans 
purchased from the guaranty agency by an eligible lender) during the 
most recent fiscal year for which data are available by the total of 
principal and interest owed to an agency on defaulted loans for each 
loan program at the beginning of the same fiscal year, less accounts 
permanently assigned to the Secretary through the most recent fiscal 
year.
    (ii) Fiscal year loan type recovery rates standards. (A) If, in each 
of the two fiscal years following the fiscal year in which these 
regulations are effective, the fiscal year loan type recovery rate for a 
loan program for an agency is below 80 percent of the average recovery 
rate of all active guaranty agencies in each of the same two fiscal 
years for that program type, and the Secretary determines that 
additional assignments are necessary to protect the Federal fiscal 
interest, the Secretary may require the agency to make additional 
assignments in accordance with paragraph (a)(2)(iii) of this section.
    (B) In any subsequent fiscal year the loan type recovery rate 
standard for a loan program must be 90 percent of the average recovery 
rate of all active guaranty agencies.
    (iii) Non-achievement of loan type recovery rate standards.
    (A) Unless the Secretary determines under paragraph (a)(2)(iv) of 
this section that protection of the Federal fiscal interest requires 
that a lesser amount be assigned, upon notice from the Secretary, an 
agency with a fiscal year loan type recovery rate described

[[Page 747]]

in paragraph (a)(2)(ii) of this section must promptly assign to the 
Secretary a sufficient amount of defaulted loans, in addition to loans 
to be assigned in accordance with paragraph (a)(1) of this section, to 
cause the fiscal year loan type recovery rate of the agency that fiscal 
year to equal or exceed the average rate of all agencies described in 
paragraph (a)(2)(ii) of this section when recalculated to exclude from 
the denominator of the agency's fiscal year loan type recovery rate the 
amount of these additional loans.
    (B) The Secretary, in consultation with the guaranty agency, may 
require the amount of loans to be assigned under paragraph (a)(2) of 
this section to include particular categories of loans that share 
characteristics that make the performance of the agency fall below the 
appropriate percentage of the loan type recovery rate as described in 
paragraph (a)(2)(ii) of this section.
    (iv) Calculation of loan type recovery rate standards. The 
Secretary, within 30 days after the date for submission of the second 
quarterly report from all agencies, makes available to all agencies a 
mid-year report, showing the recovery rate for each agency and the 
average recovery rate of all active guaranty agencies for each loan 
type. In addition, the Secretary, within 120 days after the beginning of 
each fiscal year, makes available a final report showing those rates and 
the average rate for each loan type for the preceding fiscal year.
    (3)(i) Determination that the protection of the Federal fiscal 
interest requires assignments. Upon petition by an agency submitted 
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of 
this section, the Secretary may determine that protection of the Federal 
fiscal interest does not require assignment of all loans described in 
paragraph (a)(1) of this section or of loans in the full amount 
described in paragraph (a)(2)(iii) of this section only after review of 
the agency's petition. In making this determination, the Secretary 
considers all relevant information available to him (including any 
information and documentation obtained by the Secretary in reviews of 
the agency or submitted to the Secretary by the agency) as follows:
    (A) For each of the two fiscal years following the fiscal year in 
which these regulations are effective, the Secretary considers 
information presented by an agency with a fiscal year loan type recovery 
rate above the average rate of all active agencies to demonstrate that 
the protection of the Federal fiscal interest will be served if any 
amounts of loans of the loan type required to be assigned to the 
Secretary under paragraph (a)(1) of this section are retained by that 
agency. For any subsequent fiscal year, the Secretary considers 
information presented by an agency with a fiscal year recovery rate 10 
percent above the average rate of all active agencies.
    (B) The Secretary considers information presented by an agency that 
is required to assign loans under paragraph (a)(2) of this section to 
demonstrate that the protection of the Federal fiscal interest will be 
served if the agency demonstrates that its compliance with 
Sec. 682.401(b)(4) and Sec. 682.405 has reduced substantially its fiscal 
year loan type recovery rate or rates or if the agency is not required 
to assign amounts of loans that would otherwise have to be assigned.
    (C) The information provided by an agency pursuant to paragraphs 
(a)(3)(i)(A) and (B) of this section may include, but is not limited to 
the following:
    (1) The fiscal year loan type recovery rate within such school 
sectors as the Secretary may designate for the agency, and for all 
agencies.
    (2) The fiscal year loan type recovery rate for loans for the agency 
and for all agencies categorized by age of the loans as the Secretary 
may determine.
    (3) The performance of the agency, and all agencies, in default 
aversion.
    (4) The agency's performance on judgment enforcement.
    (5) The existence and use of any state or guaranty agency-specific 
collection tools.
    (6) The agency's level of compliance with Secs. 682.409 and 
682.410(b)(6).
    (7) Other factors that may affect loan repayment such as State or 
regional unemployment and natural disasters.

[[Page 748]]

    (ii) Denial of an agency's petition. If the Secretary does not 
accept the agency's petition, the Secretary provides, in writing, to the 
agency the Secretary's reasons for concluding that the Federal fiscal 
interest is best protected by requiring the assignment.
    (b)(1) A guaranty agency that assigns a defaulted loan to the 
Secretary under this section thereby releases all rights and title to 
that loan. The Secretary does not pay the guaranty agency any 
compensation for a loan assigned under this section.
    (2) The guaranty agency does not share in any amounts received by 
the Secretary on a loan assigned under this section, regardless of the 
reinsurance percentage paid on the loan or the agency's previous 
collection costs.
    (c)(1) A guaranty agency must assign a loan to the Secretary under 
this section at the time, in the manner, and with the information and 
documentation that the Secretary requires. The agency must submit this 
information and documentation in the form (including magnetic media) and 
format specified by the Secretary.
    (2) The guaranty agency must execute an assignment to the United 
States of America of all right, title, and interest in the promissory 
note or judgment evidencing a loan assigned under this section. If more 
than one loan is made under an MPN, the assignment of the note only 
applies to the loan or loans being assigned to the Secretary.
    (3) If the agency does not provide the required information and 
documentation in the form and format required by the Secretary, the 
Secretary may, at his option--
    (i) Allow the agency to revise the agency's submission to include 
the required information and documentation in the specified form and 
format;
    (ii) In the case of an improperly formatted computer tape, reformat 
the tape and assess the cost of the activity against the agency;
    (iii) Reorganize the material submitted and assess the cost of that 
activity against the agency; or
    (iv) Obtain from other agency records and add to the agency's 
submission any information from the original submission, and assess the 
cost of that activity against the agency.
    (4) For each loan assigned, the agency shall submit to the Secretary 
the following documents associated for each loan, assembled in the order 
listed below:
    (i) The original or a true and exact copy of the promissory note.
    (ii) Any documentation of a judgment entered on the loan.
    (iii) A written assignment of the loan or judgment, unless this 
assignment is affixed to the promissory note.
    (iv) The loan application, if a separate application was provided to 
the lender.
    (v) A payment history for the loan, as described in 
Sec. 682.414(a)(1)(ii)(C).
    (vi) A collection history for the loan, as described in 
Sec. 682.414(a)(1)(ii)(D).
    (5) The agency may submit copies of required documents in lieu of 
originals.
    (6) The Secretary may accept the assignment of a loan without all of 
the documents listed in paragraph (c)(4) of this section. If directed to 
do so, the agency must retain these documents for submission to the 
Secretary at some future date.
    (d)(1) If the Secretary determines that the agency has not submitted 
a document or record required by paragraph (c) of this section, and the 
Secretary decides to allow the agency an additional opportunity to 
submit the omitted document under paragraph (c)(3)(i) of this section, 
the Secretary notifies the agency and provides a reasonable period of 
time for the agency to submit the omitted record or document.
    (2) If the omitted document is not submitted within the time 
specified by the Secretary, the Secretary determines whether that 
omission impairs the Secretary's ability to collect the loan.
    (3) If the Secretary determines that the ability to collect the loan 
has been impaired under paragraph (d)(2) of this section, the Secretary 
assesses the agency the amount paid to the agency under the reinsurance 
agreement and accrued interest at the rate applicable to the borrower 
under Sec. 682.410(b)(3).

[[Page 749]]

    (4) The Secretary reassigns to the agency that portion of the loan 
determined to be unenforceable by the Department.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33356, June 28, 1994; 60 FR 30788, June 12, 1995; 64 FR 18980, Apr. 
16, 1999; 64 FR 58630, Oct. 29, 1999; 64 FR 58963, Nov. 1, 1999]



Sec. 682.410  Fiscal, administrative, and enforcement requirements.

    (a) Fiscal requirements--(1) Reserve fund assets. A guaranty agency 
shall establish and maintain a reserve fund to be used solely for its 
activities as a guaranty agency under the FFEL Program (``guaranty 
activities''). The guaranty agency shall credit to the reserve fund--
    (i) The total amount of insurance premiums collected;
    (ii) Funds received from a State for the agency's guaranty 
activities, including matching funds under section 422(a) of the Act;
    (iii) Federal advances obtained under sections 422(a) and (c) of the 
Act;
    (iv) Federal payments for default, bankruptcy, death, disability, 
closed schools, and false certification claims;
    (v) Supplemental preclaims assistance payments;
    (vi) Transitional support payments received under section 458(a) of 
the Act;
    (vii) Funds collected by the guaranty agency on FFEL Program loans 
on which a claim has been paid;
    (viii) Investment earnings on the reserve fund; and
    (ix) Other funds received by the guaranty agency from any source for 
the agency's guaranty activities.
    (2) Uses of reserve fund assets. A guaranty agency may not use the 
assets of the reserve fund established under paragraph (a)(1) of this 
section to pay costs prohibited under Sec. 682.418, but shall use the 
assets of the reserve fund to pay only--
    (i) Insurance claims;
    (ii) Costs that are reasonable, as defined under 
Sec. 682.410(a)(11)(iii), and that are ordinary and necessary for the 
agency to fulfill its responsibilities under the HEA, including costs of 
collecting loans, providing preclaims assistance, monitoring enrollment 
and repayment status, and carrying out any other guaranty activities. 
Those costs must be--
    (A) Allocable to the FFEL Program;
    (B) Not higher than the agency would incur under established 
policies, regulations, and procedures that apply to any comparable non-
Federal activities of the guaranty agency;
    (C) Not included as a cost or used to meet cost sharing or matching 
requirements of any other federally supported activity, except as 
specifically provided by Federal law;
    (D) Net of all applicable credits; and
    (E) Documented in accordance with applicable legal and accounting 
standards;
    (iii) The Secretary's equitable share of collections;
    (iv) Federal advances and other funds owed to the Secretary;
    (v) Reinsurance fees;
    (vi) Insurance premiums related to cancelled loans;
    (vii) Borrower refunds, including those arising out of student or 
other borrower claims and defenses;
    (viii) (A) The repayment, on or after December 29, 1993, of amounts 
credited under paragraphs (a)(1)(ii) or (a)(1)(ix) of this section, if 
the agency provides the Secretary 30 days prior notice of the repayment 
and demonstrates that--
    (1) These amounts were originally received by the agency under 
appropriate contemporaneous documentation specifying that receipt was on 
a temporary basis only;
    (2) The objective for which these amounts were originally received 
by the agency has been fully achieved; and
    (3) Repayment of these amounts would not cause the agency to fail to 
comply with the minimum reserve levels provided by paragraph (a)(10) of 
this section, except that the Secretary may, for good cause, provide 
written permission for a payment that meets the other requirements of 
this paragraph (a)(2)(ix)(A).
    (B) The repayment, prior to December 29, 1993, of amounts credited 
under paragraphs (a)(1)(ii) or (a)(1)(ix) of this

[[Page 750]]

section, if the agency demonstrates that--
    (1) These amounts were originally received by the agency under 
appropriate contemporaneous documentation that receipt was on a 
temporary basis only; and
    (2) The objective for which these amounts were originally received 
by the agency has been fully achieved.
    (ix) Any other costs or payments ordinary and necessary to perform 
functions directly related to the agency's responsibilities under the 
HEA and for their proper and efficient administration;
    (x) Notwithstanding any other provision of this section, any other 
payment that was allowed by law or regulation at the time it was made, 
if the agency acted in good faith when it made the payment or the agency 
would otherwise be unfairly prejudiced by the nonallowability of the 
payment at a later time; and
    (xi) Any other amounts authorized or directed by the Secretary.
    (3) Accounting basis. Except as approved by the Secretary, a 
guaranty agency shall credit the items listed in paragraph (a)(1) of 
this section to its reserve fund upon their receipt, without any 
deferral for accounting purposes, and shall deduct the items listed in 
paragraph (a)(2) of this section from its reserve fund upon their 
payment, without any accrual for accounting purposes.
    (4) Accounting records. (i) The accounting records of a guaranty 
agency must reflect the correct amount of sources and uses of funds 
under paragraph (a) of this section.
    (ii) A guaranty agency may reverse prior credits to its reserve fund 
if--
    (A) The agency gives the Secretary prior notice setting forth a 
detailed justification for the action;
    (B) The Secretary determines that such credits were made erroneously 
and in good faith; and
    (C) The Secretary determines that the action would not unfairly 
prejudice other parties.
    (iii) A guaranty agency shall correct any other errors in its 
accounting or reporting as soon as practicable after the errors become 
known to the agency.
    (iv) If a general reconstruction of a guaranty agency's historical 
accounting records is necessary to make a change under paragraphs 
(a)(4)(ii) and (a)(4)(iii) of this section or any other retroactive 
change to its accounting records, the agency may make this 
reconstruction only upon prior approval by the Secretary and without any 
deduction from its reserve fund for the cost of the reconstruction.
    (5) Investments. The guaranty agency shall exercise the level of 
care required of a fiduciary charged with the duty of investing the 
money of others when it invests the assets of the reserve fund described 
in paragraph (a)(1) of this section. It may invest these assets only in 
low-risk securities, such as obligations issued or guaranteed by the 
United States or a State.
    (6) Development of assets. (i) If the guaranty agency uses in a 
substantial way for purposes other than the agency's guaranty activities 
any funds required to be credited to the reserve fund under paragraph 
(a)(1) of this section or any assets derived from the reserve fund to 
develop an asset of any kind and does not in good faith allocate a 
portion of the cost of developing and maintaining the developed asset to 
funds other than the reserve fund, the Secretary may require the agency 
to--
    (A) Correct this allocation under paragraph (a)(4)(iii) of this 
section; or
    (B) Correct the recorded ownership of the asset under paragraph 
(a)(4)(iii) of this section so that--
    (1) If, in a transaction with an unrelated third party, the agency 
sells or otherwise derives revenue from uses of the asset that are 
unrelated to the agency's guaranty activities, the agency promptly shall 
deposit into the reserve fund described in paragraph (a)(1) of this 
section a percentage of the sale proceeds or revenue equal to the fair 
percentage of the total development cost of the asset paid with the 
reserve fund monies or provided by assets derived from the reserve fund; 
or
    (2) If the agency otherwise converts the asset, in whole or in part, 
to a use unrelated to its guaranty activities, the agency promptly shall 
deposit into the reserve fund described in paragraph (a)(1) of this 
section a fair percentage of the fair market value or, in the case

[[Page 751]]

of a temporary conversion, the rental value of the portion of the asset 
employed for the unrelated use.
    (ii) If the agency uses funds or assets described in paragraph 
(a)(6)(i) of this section in the manner described in that paragraph and 
makes a cost and maintenance allocation erroneously and in good faith, 
it shall correct the allocation under paragraph (a)(4)(iii) of this 
section.
    (7) Third-party claims. If the guaranty agency has any claim against 
any other party to recover funds or other assets for the reserve fund, 
the claim is the property of the United States.
    (8) Related-party transactions. All transactions between a guaranty 
agency and a related organization or other person that involve funds 
required to be credited to the agency's reserve fund under paragraph 
(a)(1) of this section or assets derived from the reserve fund must be 
on terms that are not less advantageous to the reserve fund than would 
have been negotiated on an arm's-length basis by unrelated parties.
    (9) Scope of definition. The provisions of this Sec. 682.410(a) 
define reserve funds and assets for purposes of sections 422 and 428 of 
the Act. These provisions do not, however, affect the Secretary's 
authority to use all funds and assets of the agency pursuant to section 
428(c)(9)(F)(vi) of the Act.
    (10) Minimum reserve fund level. The guaranty agency must maintain a 
current minimum reserve level of not less than--
    (i) .5 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1993;
    (ii) .7 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1994;
    (iii) .9 percent of the amount of loans outstanding, for the fiscal 
year of the agency that begins in calendar year 1995; and
    (iv) 1.1 percent of the amount of loans outstanding, for each fiscal 
year of the agency that begins on or after January 1, 1996.
    (11) Definitions. For purposes of this section--
    (i) Reserve fund level means--
    (A) The total of reserve fund assets as defined in paragraph (a)(1) 
of this section;
    (B) Minus the total amount of the reserve fund assets used in 
accordance with paragraphs (a)(2) and (a)(3) of this section; and
    (ii) Amount of loans outstanding means--
    (A) The sum of--
    (1) The original principal amount of all loans guaranteed by the 
agency; and
    (2) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (B) Minus the original principal amount of all loans on which--
    (1) The loan guarantee was cancelled;
    (2) The loan guarantee was transferred to another agency;
    (3) Payment in full has been made by the borrower;
    (4) Reinsurance coverage has been lost and cannot be regained; and
    (5) The agency paid claims.
    (iii) Reasonable cost means a cost that, in its nature and amount, 
does not exceed that which would be incurred by a prudent person under 
the circumstances prevailing at the time the decision was made to incur 
the cost. The burden of proof is upon the guaranty agency, as a 
fiduciary under its agreements with the Secretary, to establish that 
costs are reasonable. In determining reasonableness of a given cost, 
consideration must be given to--
    (A) Whether the cost is of a type generally recognized as ordinary 
and necessary for the proper and efficient performance and 
administration of the guaranty agency's responsibilities under the HEA;
    (B) The restraints or requirements imposed by factors such as sound 
business practices, arms-length bargaining, Federal, State, and other 
laws and regulations, and the terms and conditions of the guaranty 
agency's agreements with the Secretary; and
    (C) Market prices of comparable goods or services.

[[Page 752]]

    (b) Administrative requirements--(1) Independent audits. The 
guaranty agency shall arrange for an independent financial and 
compliance audit of the agency's FFEL program as follows:
    (i) With regard to a guaranty agency that is an agency of a State 
government, an audit must be conducted in accordance with 31 U.S.C. 7502 
and 34 CFR part 80, appendix G.
    (ii) With regard to a guaranty agency that is a nonprofit 
organization, an audit must be conducted in accordance with OMB Circular 
A-133, Audits of Institutions of Higher Education and Other Nonprofit 
Organizations and 34 CFR 74.61(h)(3). If a nonprofit guaranty agency 
meets the criteria in Circular A-133 to have a program specific audit, 
and chooses that option, the program specific audit must meet the 
following requirements:
    (A) The audit must examine the agency's compliance with the Act, 
applicable regulations, and agreements entered into under this part.
    (B) The audit must examine the agency's financial management of its 
FFEL program activities.
    (C) The audit must be conducted in accordance with the standards for 
audits issued by the United States General Accounting Office's (GAO) 
Government Auditing Standards. Procedures for audits are contained in an 
audit guide developed by, and available from, the Office of the 
Inspector General of the Department.
    (D) The audit must be conducted annually and must be submitted to 
the Secretary within six months of the end of the audit period. The 
first audit must cover the agency's activities for a period that 
includes July 23, 1992, unless the agency is currently submitting audits 
on a biennial basis, and the second year of its biennial cycle starts on 
or before July 23, 1992. Under these circumstances, the agency shall 
submit a biennial audit that includes July 23, 1992 and submit its next 
audit as an annual audit.
    (2) Collection charges. Whether or not provided for in the 
borrower's promissory note and subject to any limitation on the amount 
of those costs in that note, the guaranty agency shall charge a borrower 
an amount equal to reasonable costs incurred by the agency in collecting 
a loan on which the agency has paid a default or bankruptcy claim. These 
costs may include, but are not limited to, all attorney's fees, 
collection agency charges, and court costs. Except as provided in 
Secs. 682.401(b)(27) and 682.405(b)(1)(iv), the amount charged a 
borrower must equal the lesser of--
    (i) The amount the same borrower would be charged for the cost of 
collection under the formula in 34 CFR 30.60; or
    (ii) The amount the same borrower would be charged for the cost of 
collection if the loan was held by the U.S. Department of Education.
    (3) Interest charged by guaranty agencies. The guaranty agency shall 
charge the borrower interest on the amount owed by the borrower after 
the capitalization required under paragraph (b)(4) of this section has 
occurred at a rate that is the greater of--
    (i) The rate established by the terms of the borrower's original 
promissory note;
    (ii) In the case of a loan for which a judgment has been obtained, 
the rate provided for by State law.
    (4) Capitalization of unpaid interest. The guaranty agency shall 
capitalize any unpaid interest due the lender from the borrower at the 
time the agency pays a default claim to the lender.
    (5) Credit bureau reports. (i) After the completion of the 
procedures in paragraph (b)(5)(ii) of this section, the guaranty agency 
shall, after it has paid a default claim, report promptly, but not less 
than sixty days after completion of the procedures in paragraph 
(b)(6)(v) of this section, and on a regular basis, to all national 
credit bureaus--
    (A) The total amount of loans made to the borrower and the remaining 
balance of those loans;
    (B) The date of default;
    (C) Information concerning collection of the loan, including the 
repayment status of the loan;
    (D) Any changes or corrections in the information reported by the 
agency that result from information received after the initial report; 
and

[[Page 753]]

    (E) The date the loan is fully repaid by or on behalf of the 
borrower or discharged by reason of the borrower's death, bankruptcy, 
total and permanent disability, or closed school or false certification.
    (ii) The guaranty agency, after it pays a default claim on a loan 
but before it reports the default to a credit bureau or assesses 
collection costs against a borrower, shall, within the timeframe 
specified in paragraph (b)(6)(v) of this section, provide the borrower 
with--
    (A) Written notice that meets the requirements of paragraph 
(b)(5)(vi) of this section regarding the proposed actions;
    (B) An opportunity to inspect and copy agency records pertaining to 
the loan obligation;
    (C) An opportunity for an administrative review of the legal 
enforceability or past-due status of the loan obligation; and
    (D) An opportunity to enter into a repayment agreement on terms 
satisfactory to the agency.
    (iii) The procedures set forth in 34 CFR 30.20-30.33 (administrative 
offset) satisfy the requirements of paragraph (b)(5)(ii) of this 
section.
    (iv)(A) In response to a request submitted by a borrower, after the 
deadlines established under agency rules, for access to records, an 
administrative review, or for an opportunity to enter into a repayment 
agreement, the agency shall provide the requested relief but may 
continue reporting the debt to credit bureaus until it determines that 
the borrower has demonstrated that the loan obligation is not legally 
enforceable or that alternative repayment arrangements satisfactory to 
the agency have been made with the borrower.
    (B) The deadline established by the agency for requesting 
administrative review under paragraph (b)(5)(ii)(C) of this section must 
allow the borrower at least 60 days from the date the notice described 
in paragraph (b)(5)(ii)(A) of this section is sent to request that 
review.
    (v) An agency may not permit an employee, official, or agent to 
conduct the administrative review required under this paragraph if that 
individual is--
    (A) Employed in an organizational component of the agency or its 
agent that is charged with collection of loan obligations; or
    (B) Compensated on the basis of collections on loan obligations.
    (vi) The notice sent by the agency under paragraph (b)(5)(ii)(A) of 
this section must--
    (A) Advise the borrower that the agency has paid a default claim 
filed by the lender and has taken assignment of the loan;
    (B) Identify the lender that made the loan and the school for 
attendance at which the loan was made;
    (C) State the outstanding principal, accrued interest, and any other 
charges then owing on the loan;
    (D) Demand that the borrower immediately begin repayment of the 
loan;
    (E) Explain the rate of interest that will accrue on the loan, that 
all costs incurred to collect the loan will be charged to the borrower, 
the authority for assessing these costs, and the manner in which the 
agency will calculate the amount of these costs;
    (F) Notify the borrower that the agency will report the default to 
all national credit bureaus to the detriment of the borrower's credit 
rating;
    (G) Explain the opportunities available to the borrower under agency 
rules to request access to the agency's records on the loan, to request 
an administrative review of the legal enforceability or past-due status 
of the loan, and to reach an agreement on repayment terms satisfactory 
to the agency to prevent the agency from reporting the loan as defaulted 
to credit bureaus and provide deadlines and method for requesting this 
relief;
    (H) Unless the agency uses a separate notice to advise the borrower 
regarding other proposed enforcement actions, describe specifically any 
other enforcement action, such as offset against Federal or state income 
tax refunds or wage garnishment that the agency intends to use to 
collect the debt, and explain the procedures available to the borrower 
prior to those other enforcement actions for access to records, for an 
administrative review, or for agreement to alternative repayment terms;

[[Page 754]]

    (I) Describe the grounds on which the borrower may object that the 
loan obligation as stated in the notice is not a legally enforceable 
debt owed by the borrower;
    (J) Describe any appeal rights available to the borrower from an 
adverse decision on administrative review of the loan obligation;
    (K) Describe any right to judicial review of an adverse decision by 
the agency regarding the legal enforceability or past-due status of the 
loan obligation; and
    (L) Describe the collection actions that the agency may take in the 
future if those presently proposed do not result in repayment of the 
loan obligation, including the filing of a lawsuit against the borrower 
by the agency and assignment of the loan to the Secretary for the filing 
of a lawsuit against the borrower by the Federal Government.
    (vii) As part of the guaranty agency's response to a borrower who 
appeals an adverse decision resulting from the agency's administrative 
review of the loan obligation, the agency must provide the borrower with 
information on the availability of the Student Loan Ombudsman's office.
    (6) Collection efforts on defaulted loans. (i) A guaranty agency 
must engage in reasonable and documented collection activities on a loan 
on which it pays a default claim filed by a lender. For a non-paying 
borrower, the agency must perform at least one activity every 180 days 
to collect the debt, locate the borrower (if necessary), or determine if 
the borrower has the means to repay the debt.
    (ii) A guaranty agency must attempt an annual Federal offset against 
all eligible borrowers. If an agency initiates proceedings to offset a 
borrower's State or Federal income tax refunds and other payments made 
by the Federal Government to the borrower, it may not initiate those 
proceedings sooner than 60 days after sending the notice described in 
paragraph (b)(5)(ii)(A) of this section.
    (iii) A guaranty agency must initiate administrative wage 
garnishment proceedings against all eligible borrowers, except as 
provided in paragraph (b)(6)(iv) of this section, by following the 
procedures described in paragraph (b)(9) of this section.
    (iv) A guaranty agency may file a civil suit against a borrower to 
compel repayment only if the borrower has no wages that can be garnished 
under paragraph (b)(9) of this section, or the agency determines that 
the borrower has sufficient attachable assets or income that is not 
subject to administrative wage garnishment that can be used to repay the 
debt, and the use of litigation would be more effective in collection of 
the debt.
    (v) Within 45 days after paying a lender's default claim, the agency 
must send a notice to the borrower that contains the information 
described in paragraph (b)(5)(ii) of this section. During this time 
period, the agency also must notify the borrower, either in the notice 
containing the information described in paragraph (b)(5)(ii) of this 
section, or in a separate notice, that if he or she does not make 
repayment arrangements acceptable to the agency, the agency will 
promptly initiate procedures to collect the debt. The agency's 
notification to the borrower must state that the agency may 
administratively garnish the borrower's wages, file a civil suit to 
compel repayment, offset the borrower's State and Federal income tax 
refunds and other payments made by the Federal Government to the 
borrower, assign the loan to the Secretary in accordance with 
Sec. 682.409, and take other lawful collection means to collect the 
debt, at the discretion of the agency. The agency's notification must 
include a statement that borrowers may have certain legal rights in the 
collection of debts, and that borrowers may wish to contact counselors 
or lawyers regarding those rights.
    (vi) Within a reasonable time after all of the information described 
in paragraph (b)(6)(v) of this section has been sent, the agency must 
send at least one notice informing the borrower that the default has 
been reported to all national credit bureaus (if that is the case) and 
that the borrower's credit rating may thereby have been damaged.
    (7) Special conditions for agency payment of a claim. (i) A guaranty 
agency may adopt a policy under which it pays

[[Page 755]]

a claim to a lender on a loan under the conditions described in 
Sec. 682.509(a)(1).
    (ii) Upon the payment of a claim under a policy described in 
paragraph (b)(7)(i) of this section, the guaranty agency shall--
    (A) Perform the loan servicing functions required of a lender under 
Sec. 682.208, except that the agency is not required to follow the 
credit bureau reporting requirements of that section;
    (B) Perform the functions of the lender during the repayment period 
of the loan, as required under Sec. 682.209;
    (C) If the borrower is delinquent in repaying the loan at the time 
the agency pays a claim thereon to the lender or becomes delinquent 
while the agency holds the loan, exercise due diligence in accordance 
with Sec. 682.411 in attempting to collect the loan from the borrower 
and any endorser or co-maker; and
    (D) After the date of default on the loan, if any, comply with 
paragraph (b)(6) of this section with respect to collection activities 
on the loan, with the date of default treated as the claim payment date 
for purposes of those paragraphs.
    (8) Preemption of State law. The provisions of paragraphs (b)(2), 
(5), and (6) of this section preempt any State law, including State 
statutes, regulations, or rules, that would conflict with or hinder 
satisfaction of the requirements of these provisions.
    (9) Administrative Garnishment. (i) If a guaranty agency decides to 
garnish the disposable pay of a borrower who is not making payments on a 
loan held by the agency, on which the Secretary has paid a reinsurance 
claim, it shall do so in accordance with the following procedures:
    (A) The employer shall deduct and pay to the agency from a 
borrower's wages an amount that does not exceed the lesser of 10 percent 
of the borrower's disposable pay for each pay period or the amount 
permitted by 15 U.S.C. 1673, unless the borrower provides the agency 
with written consent to deduct a greater amount. For this purpose, the 
term ``disposable pay'' means that part of the borrower's compensation 
from an employer remaining after the deduction of any amounts required 
by law to be withheld.
    (B) At least 30 days before the initiation of garnishment 
proceedings, the guaranty agency shall mail to the borrower's last known 
address, a written notice of the nature and amount of the debt, the 
intention of the agency to initiate proceedings to collect the debt 
through deductions from pay, and an explanation of the borrower's 
rights.
    (C) The guaranty agency shall offer the borrower an opportunity to 
inspect and copy agency records related to the debt.
    (D) The guaranty agency shall offer the borrower an opportunity to 
enter into a written repayment agreement with the agency under terms 
agreeable to the agency.
    (E) The guaranty agency shall offer the borrower an opportunity for 
a hearing in accordance with paragraph (b)(9)(i)(J) of this section 
concerning the existence or the amount of the debt and, in the case of a 
borrower whose proposed repayment schedule under the garnishment order 
is established other than by a written agreement under paragraph 
(b)(9)(i)(D) of this section, the terms of the repayment schedule.
    (F) The guaranty agency shall sue any employer for any amount that 
the employer, after receipt of the garnishment notice provided by the 
agency under paragraph (b)(9)(i)(H) of this section, fails to withhold 
from wages owed and payable to an employee under the employer's normal 
pay and disbursement cycle.
    (G) The guaranty agency may not garnish the wages of a borrower whom 
it knows has been involuntarily separated from employment until the 
borrower has been reemployed continuously for at least 12 months.
    (H) Unless the guaranty agency receives information that the agency 
believes justifies a delay or cancellation of the withholding order, it 
shall send a withholding order to the employer within 20 days after the 
borrower fails to make a timely request for a hearing, or, if a timely 
request for a hearing is made by the borrower, within 20 days after a 
final decision is made by the agency to proceed with garnishment.
    (I) The notice given to the employer under paragraph (b)(9)(i)(H) of 
this section must contain only the information

[[Page 756]]

as may be necessary for the employer to comply with the withholding 
order.
    (J) The guaranty agency shall provide a hearing, which, at the 
borrower's option, may be oral or written, if the borrower submits a 
written request for a hearing on the existence or amount of the debt or 
the terms of the repayment schedule. The time and location of the 
hearing shall be established by the agency. An oral hearing may, at the 
borrower's option, be conducted either in-person or by telephone 
conference. All telephonic charges must be the responsibility of the 
guaranty agency.
    (K) If the borrower's written request is received by the guaranty 
agency on or before the 15th day following the borrower's receipt of the 
notice described in paragraph (b)(9)(i)(B) of this section, the guaranty 
agency may not issue a withholding order until the borrower has been 
provided the requested hearing. For purposes of this paragraph, in the 
absence of evidence to the contrary, a borrower shall be considered to 
have received the notice described in paragraph (b)(9)(i)(B) of this 
section 5 days after it was mailed by the agency. The guaranty agency 
shall provide a hearing to the borrower in sufficient time to permit a 
decision, in accordance with the procedures that the agency may 
prescribe, to be rendered within 60 days.
    (L) If the borrower's written request is received by the guaranty 
agency after the 15th day following the borrower's receipt of the notice 
described in paragraph (b)(9)(i)(B) of this section, the guaranty agency 
shall provide a hearing to the borrower in sufficient time that a 
decision, in accordance with the procedures that the agency may 
prescribe, may be rendered within 60 days, but may not delay issuance of 
a withholding order unless the agency determines that the delay in 
filing the request was caused by factors over which the borrower had no 
control, or the agency receives information that the agency believes 
justifies a delay or cancellation of the withholding order. For purposes 
of this paragraph, in the absence of evidence to the contrary, a 
borrower shall be considered to have received the notice described in 
paragraph (b)(9)(i)(B) of this section 5 days after it was mailed by the 
agency.
    (M) The hearing official appointed by the agency to conduct the 
hearing may be any qualified individual, including an administrative law 
judge, not under the supervision or control of the head of the guaranty 
agency.
    (N) The hearing official shall issue a final written decision at the 
earliest practicable date, but not later than 60 days after the guaranty 
agency's receipt of the borrower's hearing request.
    (O) As specified in section 488A(a)(8) of the HEA, the borrower may 
seek judicial relief, including punitive damages, if the employer 
discharges, refuses to employ, or takes disciplinary action against the 
borrower due to the issuance of a withholding order.
    (ii) References to ``the borrower'' in this paragraph include all 
endorsers on a loan.
    (10) Conflicts of interest. (i) A guaranty agency shall maintain and 
enforce written standards of conduct governing the performance of its 
employees, officers, directors, trustees, and agents engaged in the 
selection, award, and administration of contracts or agreements. The 
standards of conduct must, at a minimum, require disclosure of financial 
or other interests and must mandate disinterested decision-making. The 
standards must provide for appropriate disciplinary actions to be 
applied for violations of the standards by employees, officers, 
directors, trustees, or agents of the guaranty agency, and must include 
provisions to--
    (A) Prohibit any employee, officer, director, trustee, or agent from 
participating in the selection, award, or decision-making related to the 
administration of a contract or agreement supported by the reserve fund 
described in paragraph (a) of this section, if that participation would 
create a conflict of interest. Such a conflict would arise if the 
employee, officer, director, trustee, or agent, or any member of his or 
her immediate family, his or her partner, or an organization that 
employs or is about to employ any of those parties has a financial or 
ownership interest in the organization selected for an award or would 
benefit from the decision made in the administration of the contract or 
agreement. The prohibitions

[[Page 757]]

described in this paragraph do not apply to employees of a State agency 
covered by codes of conduct established under State law;
    (B) Ensure sufficient separation of responsibility and authority 
between its lender claims processing as a guaranty agency and its 
lending or loan servicing activities, or both, within the guaranty 
agency or between that agency and one or more affiliates, including 
independence in direct reporting requirements and such management and 
systems controls as may be necessary to demonstrate, in the independent 
audit required under Sec. 682.410(b)(1), that claims filed by another 
arm of the guaranty agency or by an affiliate of that agency receive no 
more favorable treatment than that accorded the claims filed by a lender 
or servicer that is not an affiliate or part of the guaranty agency; and
    (C) Prohibit the employees, officers, directors, trustees, and 
agents of the guaranty agency, his or her partner, or any member of his 
or her immediate family, from soliciting or accepting gratuities, 
favors, or anything of monetary value from contractors or parties to 
agreements, except that nominal and unsolicited gratuities, favors, or 
items may be accepted.
    (ii) Guaranty agency restructuring. If the Secretary determines that 
action is necessary to protect the Federal fiscal interest because of an 
agency's failure to meet the requirements of Sec. 682.410(b)(10)(i), the 
Secretary may require the agency to comply with any additional measures 
that the Secretary believes are appropriate, including the total 
divestiture of the agency's non-FFEL functions and the agency's 
interests in any affiliated organization.
    (c) Enforcement requirements. A guaranty agency shall take such 
measures and establish such controls as are necessary to ensure its 
vigorous enforcement of all Federal, State, and guaranty agency 
requirements, including agreements, applicable to its loan guarantee 
program, including, at a minimum, the following:
    (1) Conducting comprehensive biennial on-site program reviews, using 
statistically valid techniques to calculate liabilities to the Secretary 
that each review indicates may exist, of at least--
    (i)(A) Each participating lender whose dollar volume of FFEL loans 
made or held by the lender and guaranteed by the agency in the preceding 
year--
    (1) Equaled or exceeded two percent of the total of all loans 
guaranteed in that year by the agency;
    (2) Was one of the ten largest lenders whose loans were guaranteed 
in that year by the agency; or
    (3) Equaled or exceeded $10 million in the most recent fiscal year;
    (B) Each lender described in section 435(d)(1)(D) or (J) of the Act 
that is located in any State in which the agency is the principal 
guarantor as defined in Sec. 682.800(d), and, at the option of each 
guaranty agency, the Student Loan Marketing Association; and
    (C) Each participating school, located in a State for which the 
guaranty agency is the principal guaranty agency, that has a cohort 
default rate, as described in subpart M of 34 CFR part 668, for either 
of the 2 immediately preceding fiscal years, as defined in 34 CFR 
668.182, that exceeds 20 percent, unless the school is under a mandate 
from the Secretary under subpart M of 34 CFR part 668 to take specific 
default reduction measures or if the total dollar amount of loans 
entering repayment in each fiscal year on which the cohort default rate 
over 20 percent is based does not exceed $100,000; or
    (ii) The schools and lenders selected by the agency as an 
alternative to the reviews required by paragraphs (c)(1)(A)-(C) of this 
section if the Secretary approves the agency's proposed alternative 
selection methodology.
    (2) Demanding prompt repayment by the responsible parties to 
lenders, borrowers, the agency, or the Secretary, as appropriate, of all 
funds found in those reviews to be owed by the participants with regard 
to loans guaranteed by the agency, whether or not the agency holds the 
loans, and monitoring the implementation by participants of corrective 
actions, including these repayments, required by the agency as a result 
of those reviews.
    (3) Referring to the Secretary for further enforcement action any 
case in

[[Page 758]]

which repayment of funds to the Secretary is not made in full within 60 
days of the date of the agency's written demand to the school, lender, 
or other party for payment, together with all supporting documentation, 
any correspondence, and any other documentation submitted by that party 
regarding the repayment.
    (4) Adopting procedures for identifying fraudulent loan 
applications.
    (5) Undertaking or arranging with State or local law enforcement 
agencies for the prompt and thorough investigation of all allegations 
and indications of criminal or other programmatic misconduct by its 
program participants, including violations of Federal law or 
regulations.
    (6) Promptly referring to appropriate State and local regulatory 
agencies and to nationally recognized accrediting agencies and 
associations for investigation information received by the guaranty 
agency that may affect the retention or renewal of the license or 
accreditation of a program participant.
    (7) Promptly reporting all of the allegations and indications of 
misconduct having a substantial basis in fact, and the scope, progress, 
and results of the agency's investigations thereof to the Secretary.
    (8) Referring appropriate cases to State or local authorities for 
criminal prosecution or civil litigation.
    (9) Promptly notifying the Secretary of--
    (i) Any action it takes affecting the FFEL program eligibility of a 
participating lender or school;
    (ii) Information it receives regarding an action affecting the FFEL 
program eligibility of a participating lender or school taken by a 
nationally recognized accrediting agency, association, or a State 
licensing agency;
    (iii) Any judicial or administrative proceeding relating to the 
enforceability of FFEL loans guaranteed by the agency or in which 
tuition obligations of a school's students are directly at issue, other 
than a proceeding relating to a single borrower or student; and
    (iv) Any petition for relief in bankruptcy, application for 
receivership, or corporate dissolution proceeding brought by or against 
a school or lender participating in its loan guarantee program.
    (10) Cooperating with all program reviews, investigations, and 
audits conducted by the Secretary relating to the agency's loan 
guarantee program.
    (11) Taking prompt action to protect the rights of borrowers and the 
Federal fiscal interest respecting loans that the agency has guaranteed 
when the agency learns that a participating school or holder of loans is 
experiencing problems that threaten the solvency of the school or 
holder, including--
    (i) Conducting on-site program reviews;
    (ii) Providing training and technical assistance, if appropriate;
    (iii) Filing a proof of claim with a bankruptcy court for recovery 
of any funds due the agency and any refunds due to borrowers on FFEL 
loans that it has guaranteed when the agency learns that a school has 
filed a bankruptcy petition;
    (iv) Promptly notifying the Secretary that the agency has determined 
that a school or holder of loans is experiencing potential solvency 
problems; and
    (v) Promptly notifying the Secretary of the results of any actions 
taken by the agency to protect Federal funds involving such a school or 
holder.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087, 
1091a, and 1099)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22487, Apr. 29, 1994; 59 FR 25747, May 17, 1994; 59 FR 35625, July 
13, 1994; 59 FR 60691, Nov. 25, 1994; 61 FR 60436, 60486, Nov. 27, 1996; 
64 FR 18981, Apr. 16, 1999; 64 FR 58630, Oct. 29, 1999; 64 FR 58965, 
Nov. 1, 1999; 65 FR 65621, 65650, Nov. 1, 2000; 66 FR 34764, June 29, 
2001]



Sec. 682.411  Lender due diligence in collecting guaranty agency loans.

    (a) General. In the event of delinquency on an FFEL Program loan, 
the lender must engage in at least the collection efforts described in 
paragraphs (c) through (n) of this section, except that in the case of a 
loan made to a borrower who is incarcerated, residing outside a State, 
Mexico, or Canada, or whose telephone number is unknown,

[[Page 759]]

the lender may send a forceful collection letter instead of each 
telephone effort required by this section.
    (b) Delinquency. (1) For purposes of this section, delinquency on a 
loan begins on the first day after the due date of the first missed 
payment that is not later made. The due date of the first payment is 
established by the lender but must occur by the deadlines specified in 
Sec. 682.209(a) or, if the lender first learns after the fact that the 
borrower has entered the repayment period, no later than 75 days after 
the day the lender so learns, except as provided in 
Sec. 682.209(a)(2)(v) and (a)(3)(ii)(E). If a payment is made late, the 
first day of delinquency is the day after the due date of the next 
missed payment that is not later made. A payment that is within five 
dollars of the amount normally required to advance the due date may 
nevertheless advance the due date if the lender's procedures allow for 
that advancement.
    (2) At no point during the periods specified in paragraphs (c), (d), 
and (e) of this section may the lender permit the occurrence of a gap in 
collection activity, as defined in paragraph (j) of this section, of 
more than 45 days (60 days in the case of a transfer).
    (3) As part of one of the collection activities provided for in this 
section, the lender must provide the borrower with information on the 
availability of the Student Loan Ombudsman's office.
    (c) 1-15 days delinquent. Except in the case in which a loan is 
brought into this period by a payment on the loan, expiration of an 
authorized deferment or forbearance period, or the lender's receipt from 
the drawee of a dishonored check submitted as a payment on the loan, the 
lender during this period must send at least one written notice or 
collection letter to the borrower informing the borrower of the 
delinquency and urging the borrower to make payments sufficient to 
eliminate the delinquency. The notice or collection letter sent during 
this period must include, at a minimum, a lender or servicer contact, a 
telephone number, and a prominent statement informing the borrower that 
assistance may be available if he or she is experiencing difficulty in 
making a scheduled repayment.
    (d) 16-180 days delinquent (16-240 days delinquent for a loan 
repayable in installments less frequently than monthly). (1) Unless 
exempted under paragraph (d)(4) of this section, during this period the 
lender must engage in at least four diligent efforts to contact the 
borrower by telephone and send at least four collection letters urging 
the borrower to make the required payments on the loan. At least one of 
the diligent efforts to contact the borrower by telephone must occur on 
or before, and another one must occur after, the 90th day of 
delinquency. Collection letters sent during this period must include, at 
a minimum, information for the borrower regarding deferment, 
forbearance, income-sensitive repayment and loan consolidation, and 
other available options to avoid default.
    (2) At least two of the collection letters required under paragraph 
(d)(1) of this section must warn the borrower that, if the loan is not 
paid, the lender will assign the loan to the guaranty agency that, in 
turn, will report the default to all national credit bureaus, and that 
the agency may institute proceedings to offset the borrower's State and 
Federal income tax refunds and other payments made by the Federal 
Government to the borrower or to garnish the borrower's wages, or to 
assign the loan to the Federal Government for litigation against the 
borrower.
    (3) Following the lender's receipt of a payment on the loan or a 
correct address for the borrower, the lender's receipt from the drawee 
of a dishonored check received as a payment on the loan, the lender's 
receipt of a correct telephone number for the borrower, or the 
expiration of an authorized deferment or forbearance period, the lender 
is required to engage in only--
    (i) Two diligent efforts to contact the borrower by telephone during 
this period, if the loan is less than 91 days delinquent (121 days 
delinquent for a loan repayable in installments less frequently than 
monthly) upon receipt of the payment, correct address, correct telephone 
number, or returned check, or expiration of the deferment or 
forbearance; or

[[Page 760]]

    (ii) One diligent effort to contact the borrower by telephone during 
this period if the loan is 91-120 days delinquent (121-180 days 
delinquent for a loan repayable in installments less frequently than 
monthly) upon receipt of the payment, correct address, correct telephone 
number, or returned check, or expiration of the deferment or 
forbearance.
    (4) A lender need not attempt to contact by telephone any borrower 
who is more than 120 days delinquent (180 days delinquent for a loan 
repayable in installments less frequent than monthly) following the 
lender's receipt of--
    (i) A payment on the loan;
    (ii) A correct address or correct telephone number for the borrower;
    (iii) A dishonored check received from the drawee as a payment on 
the loan; or
    (iv) The expiration of an authorized deferment or forbearance.
    (e) 181-270 days delinquent (241-330 days delinquent for a loan 
repayable in installments less frequently than monthly). During this 
period the lender must engage in efforts to urge the borrower to make 
the required payments on the loan. These efforts must, at a minimum, 
provide information to the borrower regarding options to avoid default 
and the consequences of defaulting on the loan.
    (f) Final demand. On or after the 241st day of delinquency (the 
301st day for loans payable in less frequent installments than monthly) 
the lender must send a final demand letter to the borrower requiring 
repayment of the loan in full and notifying the borrower that a default 
will be reported to a national credit bureau. The lender must allow the 
borrower at least 30 days after the date the letter is mailed to respond 
to the final demand letter and to bring the loan out of default before 
filing a default claim on the loan.
    (g) Collection procedures when borrower's telephone number is not 
available. Upon completion of a diligent but unsuccessful effort to 
ascertain the correct telephone number of a borrower as required by 
paragraph (m) of this section, the lender is excused from any further 
efforts to contact the borrower by telephone, unless the borrower's 
number is obtained before the 211th day of delinquency (the 271st day 
for loans repayable in installments less frequently than monthly).
    (h) Skip-tracing. (1) Unless the letter specified under paragraph 
(f) of this section has already been sent, within 10 days of its receipt 
of information indicating that it does not know the borrower's current 
address, the lender must begin to diligently attempt to locate the 
borrower through the use of effective commercial skip-tracing 
techniques. These efforts must include, but are not limited to, sending 
a letter to or making a diligent effort to contact each endorser, 
relative, reference, individual, and entity, identified in the 
borrower's loan file, including the schools the student attended. For 
this purpose, a lender's contact with a school official who might 
reasonably be expected to know the borrower's address may be with 
someone other than the financial aid administrator, and may be in 
writing or by phone calls. These efforts must be completed by the date 
of default with no gap of more than 45 days between attempts to contact 
those individuals or entities.
    (2) Upon receipt of information indicating that it does not know the 
borrower's current address, the lender must discontinue the collection 
efforts described in paragraphs (c) through (f) of this section.
    (3) If the lender is unable to ascertain the borrower's current 
address despite its performance of the activities described in paragraph 
(h)(1) of this section, the lender is excused thereafter from 
performance of the collection activities described in paragraphs (c) 
through (f) and (l)(1) through (l)(3) and (l)(5) of this section unless 
it receives communication indicating the borrower's address before the 
241st day of delinquency (the 301st day for loans payable in less 
frequent installments than monthly).
    (4) The activities specified by paragraph (m)(1)(i) or (ii) of this 
section (with references to the ``borrower'' understood to mean 
endorser, reference, relative, individual, or entity as appropriate) 
meet the requirement that the lender make a diligent effort to contact 
each individual identified in the borrower's loan file.

[[Page 761]]

    (i) Default aversion assistance. Not earlier than the 60th day and 
no later than the 120th day of delinquency, a lender must request 
default aversion assistance from the guaranty agency that guarantees the 
loan.
    (j) Gap in collection activity. For purposes of this section, the 
term gap in collection activity means, with respect to a loan, any 
period--
    (1) Beginning on the date that is the day after--
    (i) The due date of a payment unless the lender does not know the 
borrower's address on that date;
    (ii) The day on which the lender receives a payment on a loan that 
remains delinquent notwithstanding the payment;
    (iii) The day on which the lender receives the correct address for a 
delinquent borrower;
    (iv) The day on which the lender completes a collection activity;
    (v) The day on which the lender receives a dishonored check 
submitted as a payment on the loan;
    (vi) The expiration of an authorized deferment or forbearance period 
on a delinquent loan; or
    (vii) The day the lender receives information indicating it does not 
know the borrower's current address; and
    (2) Ending on the date of the earliest of--
    (i) The day on which the lender receives the first subsequent 
payment or completed deferment request or forbearance agreement;
    (ii) The day on which the lender begins the first subsequent 
collection activity;
    (iii) The day on which the lender receives written communication 
from the borrower relating to his or her account; or
    (iv) Default.
    (k) Transfer. For purposes of this section, the term transfer with 
respect to a loan means any action, including, but not limited to, the 
sale of the loan, that results in a change in the system used to monitor 
or conduct collection activity on a loan from one system to another.
    (l) Collection activity. For purposes of this section, the term 
collection activity with respect to a loan means--
    (1) Mailing or otherwise transmitting to the borrower at an address 
that the lender reasonably believes to be the borrower's current address 
a collection letter or final demand letter that satisfies the timing and 
content requirements of paragraph (c), (d), (e), or (f) of this section;
    (2) Making an attempt to contact the borrower by telephone to urge 
the borrower to begin or resume repayment;
    (3) Conducting skip-tracing efforts, in accordance with paragraph 
(h)(1) or (m)(1)(iii) of this section, to locate a borrower whose 
correct address or telephone number is unknown to the lender;
    (4) Mailing or otherwise transmitting to the guaranty agency a 
request for default aversion assistance available from the agency on the 
loan at the time the request is transmitted; or
    (5) Any telephone discussion or personal contact with the borrower 
so long as the borrower is apprised of the account's past-due status.
    (m) Diligent effort for telephone contact. (1) For purposes of this 
section, the term diligent effort with respect to telephone contact 
means--
    (i) A successful effort to contact the borrower by telephone;
    (ii) At least two unsuccessful attempts to contact the borrower by 
telephone at a number that the lender reasonably believes to be the 
borrower's correct telephone number; or
    (iii) An unsuccessful effort to ascertain the correct telephone 
number of a borrower, including, but not limited to, a directory 
assistance inquiry as to the borrower's telephone number, and sending a 
letter to or making a diligent effort to contact each reference, 
relative, and individual identified in the most recent loan application 
or most recent school certification for that borrower held by the 
lender. The lender may contact a school official other than the 
financial aid administrator who reasonably may be expected to know the 
borrower's address or telephone number.
    (2) If the lender is unable to ascertain the borrower's correct 
telephone number despite its performance of the activities described in 
paragraph (m)(1)(iii) of this section, the lender is excused thereafter 
from attempting to

[[Page 762]]

contact the borrower by telephone unless it receives a communication 
indicating the borrower's current telephone number before the 211th day 
of delinquency (the 271st day for loans repayable in installments less 
frequently than monthly).
    (3) The activities specified by paragraph (m)(1) (i) or (ii) of this 
section (with references to ``the borrower'' understood to mean 
endorser, reference, relative, or individual as appropriate), meet the 
requirement that the lender make a diligent effort to contact each 
endorser or each reference, relative, or individual identified on the 
borrower's most recent loan application or most recent school 
certification.
    (n) Due diligence for endorsers. (1) Before filing a default claim 
on a loan with an endorser, the lender must--
    (i) Make a diligent effort to contact the endorser by telephone; and
    (ii) Send the endorser on the loan two letters advising the endorser 
of the delinquent status of the loan and urging the endorser to make the 
required payments on the loan with at least one letter containing the 
information described in paragraph (d)(2) of this section (with 
references to ``the borrower'' understood to mean the endorser).
    (2) On or after the 241st day of delinquency (the 301st day for 
loans payable in less frequent installments than monthly) the lender 
must send a final demand letter to the endorser requiring repayment of 
the loan in full and notifying the endorser that a default will be 
reported to a national credit bureau. The lender must allow the endorser 
at least 30 days after the date the letter is mailed to respond to the 
final demand letter and to bring the loan out of default before filing a 
default claim on the loan.
    (3) Unless the letter specified under paragraph (n)(2) of this 
section has already been sent, upon receipt of information indicating 
that it does not know the endorser's current address or telephone 
number, the lender must diligently attempt to locate the endorser 
through the use of effective commercial skip-tracing techniques. This 
effort must include an inquiry to directory assistance.
    (o) Preemption of State law. The provisions of this section preempt 
any State law, including State statutes, regulations, or rules, that 
would conflict with or hinder satisfaction of the requirements or 
frustrate the purposes of this section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1080a, 1082, 1087)

[64 FR 58630, Oct. 29, 1999, as amended at 64 FR 58965, Nov. 1, 1999]



Sec. 682.412  Consequences of the failure of a borrower or student to 
establish eligibility.

    (a) The lender shall immediately send to the borrower a final demand 
letter meeting the requirements of Sec. 682.411(f) when it learns and 
can substantiate that the borrower or the student on whose behalf a 
parent has borrowed, without the lender or school's knowledge at the 
time the loan was made, provided false or erroneous information or took 
actions that caused the student or borrower--
    (1) To be ineligible for all or a portion of a loan made under this 
part;
    (2) To receive a Stafford loan subject to payment of Federal 
interest benefits as provided under Sec. 682.301 for which he or she was 
ineligible; or
    (3) To receive loan proceeds for a period of enrollment from which 
he or she has withdrawn or been expelled prior to the first day of 
classes or during which he or she failed to attend school and has not 
paid those funds to the school or repaid them to the lender.
    (b) The lender shall neither bill the Secretary for nor be entitled 
to interest benefits on a loan after it learns that one of the 
conditions described in paragraph (a) of this section exists with 
respect to the loan.
    (c) In the final demand letter transmitted under paragraph (a) of 
this section, the lender shall demand that within 30 days from the date 
the letter is mailed the borrower repay in full any principal amount for 
which the borrower is ineligible and any accrued interest, including 
interest and all special allowance paid by the Secretary.
    (d) If the borrower repays the amounts described in paragraph (c) of 
this section within the 30-day period, the lender shall--

[[Page 763]]

    (1) On its next quarterly interest billing submitted under 
Sec. 682.305, refund to the Secretary the interest benefits and special 
allowance repaid by the borrower and all other interest benefits and 
special allowance previously paid by the Secretary on the ineligible 
portion of the loan; and
    (2) Treat that payment of the principal amount of the ineligible 
portion of the loan as a prepayment of principal.
    (e) If a borrower fails to comply with the terms of a final demand 
letter described in paragraph (a) of this section, the lender shall 
treat the entire loan as in default, and--
    (1) With its next quarterly interest billing submitted under 
Sec. 682.305, refund to the Secretary the amount of the interest 
benefits received from the Secretary on the ineligible portion of the 
loan, whether or not repaid by the borrower; and
    (2) Within the time specified in Sec. 682.406(a)(5), file a default 
claim thereon with the guaranty agency for the entire unpaid balance of 
principal and accrued interest.

(Approved by the Office of Management and Budget under control number 
1840-0538)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 60 
FR 61757, Dec. 1, 1995; 64 FR 58632, Oct. 29, 1999]



Sec. 682.413  Remedial actions.

    (a)(1) The Secretary requires a lender and its third-party servicer 
administering any aspect of the FFEL programs under a contract with the 
lender to repay interest benefits and special allowance or other 
compensation received on a loan guaranteed by a guaranty agency, 
pursuant to paragraph (a)(2) of this section--
    (i) For any period beginning on the date of a failure by the lender 
or servicer, with respect to the loan, to comply with any of the 
requirements set forth in Sec. 682.406(a)(1)-(a)(6), (a)(9), and 
(a)(12);
    (ii) For any period beginning on the date of a failure by the lender 
or servicer, with respect to the loan, to meet a condition of guarantee 
coverage established by the guaranty agency, to the date, if any, on 
which the guaranty agency reinstated the guarantee coverage pursuant to 
policies and procedures established by the agency;
    (iii) For any period in which the lender or servicer, with respect 
to the loan, violates the requirements of subpart C of this part; and
    (iv) For any period beginning on the day after the Secretary's 
obligation to pay special allowance on the loan terminates under 
Sec. 682.302(d).
    (2) For purposes of this section, a lender and any applicable third-
party servicer shall be considered jointly and severally liable for the 
repayment of any interest benefits and special allowance paid as a 
result of a violation of applicable requirements by the servicer in 
administering the lender's FFEL programs.
    (3) For purposes of paragraph (a)(2) of this section, the relevant 
third-party servicer shall repay any outstanding liabilities under 
paragraph (a)(2) of this section only if--
    (i) The Secretary has determined that the servicer is jointly and 
severally liable for the liabilities; and
    (ii) (A) The lender has not repaid in full the amount of the 
liability within 30 days from the date the lender receives notice from 
the Secretary of the liability;
    (B) The lender has not made other satisfactory arrangements to pay 
the amount of the liability within 30 days from the date the lender 
receives notice from the Secretary of the liability; or
    (C) The Secretary is unable to collect the liability from the lender 
by offsetting the lender's bill to the Secretary for interest benefits 
or special allowance, if--
    (1) The bill is submitted after the 30 day period specified in 
paragraph (a)(3)(ii)(A) of this section has passed; and
    (2) The lender has not paid, or made satisfactory arrangements to 
pay, the liability.
    (b)(1) The Secretary requires a guaranty agency to repay reinsurance 
payments received on a loan if the lender, third-party servicer, if 
applicable, or the agency failed to meet the requirements of 
Sec. 682.406(a).

[[Page 764]]

    (2) The Secretary may require a guaranty agency to repay reinsurance 
payments received on a loan or to assign FFEL loans to the Department if 
the agency fails to meet the requirements of Sec. 682.410.
    (c)(1) In addition to requiring repayment of reinsurance payments 
pursuant to paragraph (b) of this section, the Secretary may take one or 
more of the following remedial actions against a guaranty agency or 
third-party servicer administering any aspect of the FFEL programs under 
a contract with the guaranty agency, that makes an incomplete or 
incorrect statement in connection with any agreement entered into under 
this part or violates any applicable Federal requirement:
    (i) Require the agency to return payments made by the Secretary to 
the agency.
    (ii) Withhold payments to the agency.
    (iii) Limit the terms and conditions of the agency's continued 
participation in the FFEL programs.
    (iv) Suspend or terminate agreements with the agency.
    (v) Impose a fine on the agency or servicer. For purposes of 
assessing a fine on a third-party servicer, a repeated mechanical 
systemic unintentional error shall be counted as one violation, unless 
the servicer has been cited for a similar violation previously and had 
failed to make the appropriate corrections to the system.
    (vi) Require repayment from the agency and servicer pursuant to 
paragraph (c)(2) of this section, of interest, special allowance, and 
reinsurance paid on Consolidation loan amounts attributed to 
Consolidation loans for which the certification required under 
Sec. 682.206(f)(1) is not available.
    (vii) Require repayment from the agency or servicer, pursuant to 
paragraph (c)(2) of this section, of any related payments that the 
Secretary became obligated to make to others as a result of an 
incomplete or incorrect statement or a violation of an applicable 
Federal requirement.
    (2) For purposes of this section, a guaranty agency and any 
applicable third-party servicer shall be considered jointly and 
severally liable for the repayment of any interest benefits, special 
allowance, reinsurance paid, or other compensation on Consolidation loan 
amounts attributed to Consolidation loans as specified in 
Sec. 682.413(c)(1)(vi) as a result of a violation by the servicer 
administering any aspect of the FFEL programs under a contract with that 
guaranty agency.
    (3) For purposes of paragraph (c)(2) of this section, the relevant 
third-party servicer shall repay any outstanding liabilities under 
paragraph (c)(2) of this section only if--
    (i) The Secretary has determined that the servicer is jointly and 
severally liable for the liabilities; and
    (ii) (A) The guaranty agency has not repaid in full the amount of 
the liability within 30 days from the date the guaranty agency receives 
notice from the Secretary of the liability;
    (B) The guaranty agency has not made other satisfactory arrangements 
to pay the amount of the liability within 30 days from the date the 
guaranty agency receives notice from the Secretary of the liability; or
    (C) The Secretary is unable to collect the liability from the 
guaranty agency by offsetting the guaranty agency's first reinsurance 
claim to the Secretary, if--
    (1) The claim is submitted after the 30-day period specified in 
paragraph (c)(3)(ii)(A) of this section has passed; and
    (2) The guaranty agency has not paid, or made satisfactory 
arrangements to pay, the liability.
    (d)(1) The Secretary follows the procedures described in 34 CFR part 
668, subpart G, applicable to fine proceedings against schools, in 
imposing a fine against a lender, guaranty agency, or third-party 
servicer. References to ``the institution'' in those regulations shall 
be understood to mean the lender, guaranty agency, or third-party 
servicer, as applicable, for this purpose.
    (2) The Secretary also follows the provisions of section 432(g) of 
the Act in imposing a fine against a guaranty agency or lender.
    (e)(1)(i) The Secretary's decision to require repayment of funds, 
withhold funds, or to limit or suspend a lender, guaranty agency, or 
third party servicer from participation in the

[[Page 765]]

FFEL Program or to terminate a lender or third party from participation 
in the FFEL Program does not become final until the Secretary provides 
the lender, agency, or servicer with written notice of the intended 
action and an opportunity to be heard. The hearing is at a time and in a 
manner the Secretary determines to be appropriate to the resolution of 
the issues on which the lender, agency, or servicer requests the 
hearing.
    (ii) The Secretary's decision to terminate a guaranty agency's 
participation in the FFEL Program after September 24, 1998 does not 
become final until the Secretary provides the agency with written notice 
of the intended action and provides an opportunity for a hearing on the 
record.
    (2)(i) The Secretary may withhold payments from an agency or suspend 
an agreement with an agency prior to giving notice and an opportunity to 
be heard if the Secretary finds that emergency action is necessary to 
prevent substantial harm to Federal interests.
    (ii) The Secretary follows the notice and show cause procedures 
described in Sec. 682.704 applicable to emergency actions against 
lenders in taking an emergency action against a guaranty agency.
    (3) The Secretary follows the procedures in 34 CFR 30.20-30.32 in 
collecting a debt by offset against payments otherwise due a guaranty 
agency or lender.
    (f) Notwithstanding paragraphs (a)-(e) of this section, the 
Secretary may waive the right to require repayment of funds by a lender 
or agency if in the Secretary's judgment the best interests of the 
United States so require. The Secretary's waiver policy for violations 
of Sec. 682.406(a)(3) or (a)(5) is set forth in appendix D to this part.
    (g) The Secretary's final decision to require repayment of funds or 
to take other remedial action, other than a fine, against a lender or 
guaranty agency under this section is conclusive and binding on the 
lender or agency.
    Note: A decision by the Secretary under this section is subject to 
judicial review under 5 U.S.C. 706 and 41 U.S.C. 321-322.

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1, 1097)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22454, Apr. 29, 1994; 
59 FR 61190, Nov. 29, 1994; 61 FR 60487, Nov. 27, 1996; 64 FR 18981, 
Apr. 16, 1999; 64 FR 58632, Oct. 29, 1999]



Sec. 682.414  Records, reports, and inspection requirements for guaranty 
agency programs.

    (a) Records. (1)(i) The guaranty agency shall maintain current, 
complete, and accurate records of each loan that it holds, including, 
but not limited to, the records described in paragraph (a)(1)(ii) of 
this section. The records must be maintained in a system that allows 
ready identification of each loan's current status, updated at least 
once every 10 business days. Any reference to a guaranty agency under 
this section includes a third-party servicer that administers any aspect 
of the FFEL programs under a contract with the guaranty agency, if 
applicable.
    (ii) The agency shall maintain--
    (A) All documentation supporting the claim filed by the lender;
    (B) Notices of changes in a borrower's address;
    (C) A payment history showing the date and amount of each payment 
received from or on behalf of the borrower by the guaranty agency, and 
the amount of each payment that was attributed to principal, accrued 
interest, and collection costs and other charges, such as late charges;
    (D) A collection history showing the date and subject of each 
communication between the agency and the borrower or endorser relating 
to collection of a defaulted loan, each communication between the agency 
and a credit bureau regarding the loan, each effort to locate a borrower 
whose address was unknown at any time, and each request by the lender 
for default aversion assistance on the loan;
    (E) Documentation regarding any wage garnishment actions initiated 
by the agency on the loan;

[[Page 766]]

    (F) Documentation of any matters relating to the collection of the 
loan by tax-refund offset; and
    (G) Any additional records that are necessary to document its right 
to receive or retain payments made by the Secretary under this part and 
the accuracy of reports it submits to the Secretary.
    (2) A guaranty agency must retain the records required for each loan 
for not less than 3 years following the date the loan is repaid in full 
by the borrower, or for not less than 5 years following the date the 
agency receives payment in full from any other source. However, in 
particular cases, the Secretary may require the retention of records 
beyond these minimum periods.
    (3) A guaranty agency shall retain a copy of the audit report 
required under Sec. 682.410(b) for not less than five years after the 
report is issued.
    (4)(i) The guaranty agency shall require a participating lender to 
maintain current, complete, and accurate records of each loan that it 
holds, including, but not limited to, the records described in paragraph 
(a)(4)(ii) of this section. The records must be maintained in a system 
that allows ready identification of each loan's current status.
    (ii) The lender shall keep--
    (A) A copy of the loan application if a separate application was 
provided to the lender;
    (B) A copy of the signed promissory note;
    (C) The repayment schedule;
    (D) A record of each disbursement of loan proceeds;
    (E) Notices of changes in a borrower's address and status as at 
least a half-time student;
    (F) Evidence of the borrower's eligibility for a deferment;
    (G) The documents required for the exercise of forbearance;
    (H) Documentation of the assignment of the loan;
    (I) A payment history showing the date and amount of each payment 
received from or on behalf of the borrower, and the amount of each 
payment that was attributed to principal, interest, late charges, and 
other costs;
    (J) A collection history showing the date and subject of each 
communication between the lender and the borrower or endorser relating 
to collection of a delinquent loan, each communication other than 
regular reports by the lender showing that an account is current, 
between the lender and a credit bureau regarding the loan, each effort 
to locate a borrower whose address is unknown at any time, and each 
request by the lender for default aversion assistance on the loan;
    (K) Documentation of any MPN confirmation process or processes; and
    (L) Any additional records that are necessary to document the 
validity of a claim against the guarantee or the accuracy of reports 
submitted under this part.
    (iii) Except as provided in paragraph (a)(4)(iv) of this section, a 
lender must retain the records required for each loan for not less than 
3 years following the date the loan is repaid in full by the borrower, 
or for not less than five years following the date the lender receives 
payment in full from any other source. However, in particular cases, the 
Secretary or the guaranty agency may require the retention of records 
beyond this minimum period.
    (iv) A lender shall retain a copy of the audit report required under 
Sec. 682.305(c) for not less than five years after the report is issued.
    (5)(i) A guaranty agency or lender may store the records specified 
in paragraphs (a)(4)(ii)(C)-(L) of this section in accordance with 34 
CFR 668.24(d)(3)(i) through (iv).
    (ii) If a promissory note was signed electronically, the guaranty 
agency or lender must store it electronically and it must be retrievable 
in a coherent format.
    (iii) A lender or guaranty agency holding a promissory note must 
retain the original or a true and exact copy of the promissory note 
until the loan is paid in full or assigned to the Secretary. When a loan 
is paid in full by the borrower, the lender or guaranty agency must 
return either the original or a true and exact copy of the note to the 
borrower or notify the borrower that the loan is paid in full, and 
retain a copy for the prescribed period.
    (b) Reports. A guaranty agency shall accurately complete and submit 
to the Secretary the following reports:

[[Page 767]]

    (1) A report concerning the status of the agency's reserve fund and 
the operation of the agency's loan guarantee program at the time and in 
the manner that the Secretary may reasonably require. The Secretary does 
not pay the agency any funds, the amount of which are determined by 
reference to data in the report, until a complete and accurate report is 
received.
    (2) Annually, for each State in which it operates, a report of the 
total guaranteed loan volume, default volume, and default rate for each 
of the following categories of originating lenders on all loans 
guaranteed after December 31, 1980:
    (i) Schools.
    (ii) State or private nonprofit lenders.
    (iii) Commercial financial institutions (banks, savings and loan 
associations, and credit unions).
    (iv) All other types of lenders.
    (3) By July 1 of each year, a report on--
    (i) Its eligibility criteria for schools and lenders;
    (ii) Its procedures for the limitation, suspension, and termination 
of schools and lenders;
    (iii) Any actions taken in the preceding 12 months to limit, 
suspend, or terminate the participation of a school or lender in the 
agency's program; and
    (iv) The steps the agency has taken to ensure its compliance with 
Sec. 682.410(c), including the identity of any law enforcement agency 
with which the agency has made arrangements for that purpose.
    (4) Information consisting of those extracts from its computer data 
base, and supplied in the medium and the format, prescribed in the 
Stafford, SLS, and PLUS Loan Tape Dump Procedures (ED Forms 1070 and 
1071).
    (5) Any other information concerning its loan insurance program 
requested by the Secretary.
    (c) Inspection requirements. (1) For purposes of examination of 
records, references to an institution in 34 CFR 668.24(f) (1) through 
(3) shall mean a guaranty agency or its agent.
    (2) A guaranty agency shall require in its agreement with a lender 
or in its published rules or procedures that the lender or its agent 
give the Secretary or the Secretary's designee and the guaranty agency 
access to the lender's records for inspection and copying in order to 
verify the accuracy of the information provided by the lender pursuant 
to Sec. 682.401(b) (21) and (22), and the right of the lender to receive 
or retain payments made under this part, or to permit the Secretary or 
the agency to enforce any right acquired by the Secretary or the agency 
under this part.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 22455, 22489, Apr. 29, 1994; 59 FR 33358, June 28, 1994; 59 FR 34964, 
July 7, 1994; 61 FR 60493, Nov. 27, 1996; 64 FR 58632, Oct. 29, 1999; 64 
FR 58963, Nov. 1, 1999; 65 FR 65621, Nov. 1, 2000; 66 FR 34764, June 29, 
2001; 67 FR 67080, Nov. 1, 2002]



Sec. 682.415  Special insurance and reinsurance rules.

    (a)(1) A lender or lender servicer (as an agent for an eligible 
lender) designated for exceptional performance under paragraph (b) of 
this section shall receive 100 percent reimbursement on all claims 
submitted for insurance during the 12-month period following the date 
the lender or lender servicer and appropriate guaranty agencies receive 
notification of the designation of the eligible lender or lender 
servicer under paragraph (b) of this section. A guaranty agency or a 
guaranty agency servicer (as an agent for a guaranty agency) designated 
for exceptional performance under paragraph (c) of this section shall 
receive the applicable reinsurance rate under section 428(c)(1) of the 
Act on all claims submitted for payments by the guaranty agency or 
guaranty agency servicer during the 12-month period following the date 
the guaranty agency receives notification of its designation, or its 
servicer's designation, under paragraph (c) of this section. A notice of 
designation for exceptional performance under this section is deemed to 
have been received by the lender, servicer, or guaranty agency no later 
than 3 days after the date the notice is mailed, unless the lender, 
servicer, or

[[Page 768]]

guaranty agency is able to prove otherwise.
    (2) To receive a designation for exceptional performance under 
paragraph (a)(1) of this section, a lender, servicer, and guaranty 
agency must submit to the Secretary--
    (i) A written request for designation for exceptional performance 
that includes--
    (A) The applicant's name and address;
    (B) A contact person;
    (C) Its ED identification number, if applicable;
    (D) The name and address of applicable guarantors; and
    (E) A copy of an annual financial audit performed in accordance with 
the Audit Guide developed by the U.S. Department of Education, Office of 
Inspector General, or one of the following as appropriate:
    (1) A lender may submit a copy of an annual audit required under 
Sec. 682.305(c), if the audit period ends no more than 90 days prior to 
the date the lender submits its request for designation.
    (2) A servicer may submit a copy of the annual financial audit, as 
defined, completed and submitted under 34 CFR 682.416(e), if the audit 
period ends no more than 90 days prior to the date the servicer submits 
its request for designation.
    (3) A guaranty agency may submit a copy of the annual audit required 
under section 428(b)(2)(D) of the Higher Education Act of 1965, as 
amended, if the audit period ends no more than 90 days prior to the date 
the guaranty agency submits its request for designation;
    (ii) If the applicant is a servicer, a statement signed by the owner 
or chief executive officer of the applicant certifying that the 
applicant meets the definition of a servicer contained in paragraph 
(d)(3) of this section; and
    (iii)(A) A compliance audit of its loan portfolio, conducted by a 
qualified independent organization meeting the criteria in paragraph 
(b)(9) of this section, that yields a compliance performance rating of 
97 percent or higher of all due diligence requirements applicable to 
each loan, on average, with respect to the collection of delinquent or 
defaulted loans and satisfying the requirements in paragraph (b)(1)(iv) 
of this section or, if applicable, paragraph (c)(2)(i) of this section. 
The audit period may end no more than 90 days prior to the date the 
lender, servicer or guaranty agency submits its request for designation.
    (B) To satisfy the requirement of paragraph (a)(2)(iii)(A) of this 
section, a servicer may submit its annual compliance audit under 34 CFR 
682.416(e), if the servicer includes in its report a measure of its 
compliance performance rating required under paragraph (a)(2)(iii)(A) of 
this section, if this audit is performed in accordance with an audit 
guide developed by the U.S. Department of Education, Office of Inspector 
General.
    (3) The cost of audits for determining eligibility and continued 
compliance under this section is the responsibility of the lender, 
servicer, or guaranty agency.
    (4) A lender or servicer shall also submit the information in 
paragraph (a)(2) (i), (ii), or (iii) of this section to each appropriate 
guaranty agency.
    (5) A lender may be designated for exceptional performance for loans 
that it services itself. A lender servicer may be designated for 
exceptional performance only for all loans it services.
    (6)(i) To prevent a lapse of a lender's, servicer's, or guaranty 
agency's exceptional performance status after the end of the 12-month 
period, the lender, servicer, or guaranty agency shall submit updated 
information required under paragraph (a)(2) of this section to the 
Secretary no later than 90 days after the end of the annual audit 
period.
    (ii) Upon the Secretary's determination that the lender, servicer, 
or guaranty agency maintained at least a 97 percent compliance 
performance rate and satisfies the other requirements for designation, 
the Secretary notifies the lender, servicer, or guaranty agency that its 
redesignation for exceptional performance begins on the date following 
the last day of the previous 12-month period for which it received 
designation for exceptional performance. However, a lender's, 
servicer's, or guaranty agency's designation for exceptional performance 
continues until

[[Page 769]]

it receives notification from the Secretary that its request for 
redesignation is approved, or that its designation is revoked, under the 
provisions of paragraph (b)(8)(iii) of this section.
    (iii) The Secretary notifies the lender or lender servicer and the 
appropriate guaranty agency within 60 days after the date the Secretary 
receives the information, listed in paragraph (a)(2) of this section, 
from the eligible lender or lender servicer, that the lender's or lender 
servicer's reapplication for designation for exceptional performance has 
been approved or denied. A notice under paragraph (a)(6)(ii) of this 
section is determined to have been received by the lender, servicer, or 
guaranty agency no later than 3 days after the notice is mailed, unless 
the lender, servicer, or guaranty agency is able to prove otherwise.
    (b) Determination of eligibility. (1) The Secretary determines 
whether to designate a lender or lender servicer for exceptional 
performance based upon--
    (i) The annual compliance audit of collection activities required 
for FFEL Program loans under Sec. 682.411(c) through (h), and (m), if 
applicable, serviced during the audit period;
    (ii) Information from any guaranty agency regarding an eligible 
lender or lender servicer desiring designation, including, but not 
limited to, any information suggesting that the lender's or lender 
servicer's request for designation should not be approved;
    (iii) Any other information in the possession of the Secretary, or 
submitted to the Secretary by any other agency or office of the Federal 
Government; and
    (iv) Evidence indicating that the lender or lender servicer has 
complied with the requirements for converting FFEL Program loans to 
repayment under Sec. 682.209(a), and the timely filing requirements 
under Secs. 682.402(g)(2) and 682.406(a)(5), in accordance with the 
audit guide as published by the U.S. Department of Education, Office of 
Inspector General. The audit submitted under paragraph (b)(1)(i) of this 
section may satisfy this requirement, if a separate sample of loans is 
used.
    (2) The Secretary informs the eligible lender or lender servicer, 
and the appropriate guaranty agency, that the lender's or lender 
servicer's request for designation as an exceptional lender or lender 
servicer has been approved, unless the results of the audit are 
persuasively rebutted by information under paragraphs (b) (1)(ii) or 
(iii) of this section. If the request for designation is not approved, 
the Secretary informs the lender or lender servicer and the appropriate 
guaranty agency or agencies of the reason the application is not 
approved.
    (3) In calculating a lender's or lender servicer's compliance 
rating, as referenced in paragraph (a)(2)(iii) of this section, the 
universe for the audit must include all loans in the lender's or lender 
servicer's FFEL Program portfolio that are serviced during the audit 
period performed under the Department's regulations in Secs. 682.411, 
682.209(a), 682.402(g)(2), and 682.406(a)(5). The calculation may 
consider only due diligence activities applicable to the audit period. 
The numerator must include the total number of collection activities 
successfully completed, in accordance with program regulations, that are 
serviced during the audit period. The denominator must include the total 
number of collection activities required to be performed, in compliance 
with program regulations, that are serviced during the audit period. 
Using statistical sampling and evaluation techniques identified in an 
audit guide prepared by the Department's Office of Inspector General, a 
random sample of loans must be selected and evaluated.
    (4) The Secretary notifies the lender or lender servicer and the 
appropriate guaranty agency within 60 days after the date the Secretary 
receives the information, listed in paragraph (a)(2) of this section, 
from the eligible lender or lender servicer, that the lender's or lender 
servicer's application for designation for exceptional performance has 
been approved or denied.
    (5)(i) Except as provided under paragraph (b)(8) of this section, a 
guaranty agency may not refuse, solely on the basis of a violation of 
repayment conversion, due diligence requirements, or timely filing 
requirements, to pay an eligible lender or lender servicer, designated 
for exceptional performance, 100 percent of the unpaid principal and

[[Page 770]]

interest of all loans for which eligible claims are submitted for 
insurance payment by that eligible lender or lender servicer. The 
designation of a lender or lender servicer for exceptional performance 
applies to loans that have been serviced by the lender or lender 
servicer for the last 180 days prior to a borrower's default or earlier 
in the case of death, disability, bankruptcy, or closed school and false 
certification discharges.
    (ii) A guaranty agency or the Secretary may require the lender or 
lender servicer to repurchase a loan if the agency determines the loan 
should not have been submitted as a claim. A guaranty agency may not 
require repurchase of a loan based solely on the lender's violation of 
the requirement relating to repayment conversion, due diligence, or 
timely filing. The guaranty agency must pay claims to a lender or lender 
servicer designated for exceptional performance in accordance with this 
paragraph for the one-year period following the date the guaranty agency 
receives notification of the lender's or lender servicer's designation 
under paragraph (b)(2) of this section, unless the Secretary notifies 
the guaranty agency that the lender's or lender servicer's designation 
for exceptional performance has been revoked.
    (6)(i) To maintain its designation for exceptional performance, the 
lender or lender servicer must have a quarterly compliance audit of the 
due diligence in collection activities required for FFEL Program loans 
under Sec. 682.411(c)-(h), and (m), if applicable, and for converting 
FFEL Program loans to repayment under Sec. 682.209(a) and timely filing 
requirements under Secs. 682.402(g)(2) and 682.406(a)(5) conducted by a 
qualified independent organization meeting the criteria in paragraph 
(b)(9) of this section that results in a compliance rating for the 
quarter of not less than 97 percent. The audit must indicate a 
compliance performance rating of not less than 97 percent for two 
consecutive months or 90 percent for any month. The quarterly audit may 
not include any period covered by the annual financial and compliance 
audit under paragraph (a)(2) of this section. The results of the 
quarterly compliance audit must be submitted to the Secretary and to the 
appropriate guaranty agencies within 90 days following the end of each 
quarter.
    (ii) If a lender or lender servicer has been designated for 
exceptional performance for at least 15 months, a lender or lender 
servicer may petition the Secretary for permission to have its internal 
auditors perform the subsequent quarterly compliance audits required by 
paragraph (b)(6)(i) of this section. If the Secretary approves the 
request, the lender's or lender servicer's annual audit must assess the 
reliability of the procedures used by the lender's or lender servicer's 
internal auditor in performing the quarterly audits.
    (iii) The lender or lender servicer shall perform three quarterly 
audits and one annual audit that includes a representative sample of 
fourth quarter collection activities to satisfy the requirements of this 
paragraph.
    (7)(i) Insurance payments made on eligible claims submitted by a 
lender or lender servicer designated for exceptional performance are not 
subject to additional review of repayment conversion, due diligence, and 
timely filing requirements, or to required repurchase by the lender or 
lender servicer, unless the Secretary determines that the eligible 
lender or lender servicer engaged in fraud or other purposeful 
misconduct in obtaining designation for exceptional performance. 
Notwithstanding the payment requirements in this paragraph, nothing 
prohibits the guaranty agency or the Secretary from reviewing the 
lender's or lender servicer's activities in regard to the loans paid 
under this paragraph as part of program oversight responsibilities, or 
for requiring the lender to repurchase a loan if the agency determines 
the loan should not have been submitted as a claim. The lender shall 
file, and the guaranty agency shall maintain, the documentation the 
guaranty agency normally requires its lenders to file with respect to 
the collection history of each loan.
    (ii) A lender or lender servicer designated under this section that 
fails to service loans or otherwise comply with applicable program 
regulations is considered in violation of 31 U.S.C. 3729.

[[Page 771]]

    (8)(i) The Secretary revokes the designation of a lender or lender 
servicer for exceptional performance if--
    (A) The quarterly compliance audit required under paragraph (b)(6) 
of this section is submitted to the Secretary and indicates that the 
lender or lender servicer failed to maintain not less than 97 percent 
compliance with due diligence standards for the quarter, or not less 
than 97 percent compliance for 2 consecutive months, or 90 percent for 
any month; or
    (B) Any quarterly audit required in paragraph (b)(6) of this section 
is not received by the Secretary within 90 days following the end of 
each quarter.
    (ii) The Secretary may revoke the designation of an exceptional 
lender or lender servicer if--
    (A) The Secretary determines the eligible lender or lender servicer 
failed to maintain an overall level of regulatory compliance consistent 
with the audit submitted by the lender or lender servicer;
    (B) The Secretary has reason to believe the lender or lender 
servicer may have engaged in fraud in securing its designation for 
exceptional performance; or
    (C) The lender or lender servicer fails to service loans in 
accordance with program regulations. For purposes of this paragraph, a 
lender or lender servicer fails to service loans in accordance with 
program regulations if the Secretary determines that the lender or 
lender servicer has committed serious and material violations of the 
regulations.
    (iii) The date on which the event or condition occurred is the 
effective date of the revocation, except for revocation under paragraph 
(a)(6) of this section, which is effective at the close of the 12-month 
period for which the lender or lender servicer received designation for 
exceptional performance.
    (9) Public accountants, public accounting firms, and external 
government audit organizations that meet the qualification and 
independence standards contained in Government Auditing Standards 
published by the Comptroller General of the United States are acceptable 
entities to perform the audits required under paragraphs (a)(2)(iii)(A) 
and (b)(6) of this section.
    (c)(1)(i) Except as provided under paragraph (c)(8) of this section, 
the Secretary pays the applicable reinsurance rate under section 
428(b)(1)(G) of the Act on all claims submitted by a guaranty agency or 
guaranty agency servicer that has been designated for exceptional 
performance.
    (ii) A guaranty agency may be designated for exceptional performance 
for loans that it services itself.
    (iii) A guaranty agency servicer may be designated for exceptional 
performance for loans it services.
    (iv) A guaranty agency or guaranty agency servicer is designated for 
exceptional performance for a 12-month period following the receipt, by 
the guaranty agency or guaranty agency servicer, of the Secretary's 
notification of designation.
    (v) A notice under this paragraph is determined to have been 
received no later than 3 days after the date the notice is mailed, 
unless the guaranty agency or guaranty agency servicer is able to prove 
otherwise.
    (2) The Secretary determines whether to designate a guaranty agency 
or guaranty agency servicer for exceptional performance based upon--
    (i) The annual financial audit and a compliance audit of collection 
activities, including timely claim payment and timely reinsurance filing 
required for FFEL Program loans under Secs. 682.410(b)(6)(i) through 
(xii), and 682.406 (a)(8) and (a)(9); and
    (ii) Any other information in the possession of the Secretary.
    (3) The Secretary informs the guaranty agency or guaranty agency 
servicer that its request for designation for exceptional performance 
has been approved, unless the results of the audit are persuasively 
rebutted by other information received by the Secretary. If the 
Secretary does not approve the guaranty agency's or guaranty agency 
servicer's request for designation, the Secretary informs the guaranty 
agency or guaranty agency servicer of the reason the application was not 
approved.

[[Page 772]]

    (4) In calculating a guaranty agency's or guaranty agency servicer's 
compliance rating, as referenced in paragraph (a)(2)(iii) of this 
section, the Secretary requires that the universe of loans in the audit 
sample must consist of all loans in the guaranty agency's or guaranty 
agency servicer's FFEL Program portfolio that are serviced during the 
audit period performed under the Department's regulations in 
Secs. 682.410(b)(6)(i) through (xii) and 682.406 (a)(8) and (a)(9). The 
calculation may consider only the due diligence activities that were or 
should have been conducted during the audit period. The numerator must 
include the total number of collection activities successfully completed 
in accordance with program regulations on loans that were serviced 
during the audit period. The denominator must include the total number 
of collection activities required to be performed in compliance with 
program regulations on loans that were serviced during the audit period. 
Using statistical sampling and evaluation techniques identified in an 
audit guide prepared by the Department's Office of Inspector General, a 
random sample of loans must be selected and evaluated.
    (5) The Secretary notifies a guaranty agency or guaranty agency 
servicer, within 60 days after the date the Secretary receives the 
information listed in paragraph (a)(2) of this section whether the 
guaranty agency's or guaranty agency servicer's application for 
designation for exceptional performance has been approved or denied.
    (6)(i) To maintain its status as an exceptional guaranty agency or 
guaranty agency servicer, the guaranty agency or guaranty agency 
servicer must have a quarterly compliance audit of the due diligence in 
collection activities of defaulted FFEL Program loans under 
Secs. 682.410(b)(6)(i) through (xii) and 682.406(a)(8) and (a)(9) 
conducted by a qualified independent organization meeting the criteria 
in paragraph (c)(9) of this section. The audit must yield a compliance 
performance rating of not less than 97 percent. The quarterly audit may 
not include any period covered by the annual financial and compliance 
audit required under paragraph (a)(2) of this section. The results of 
the quarterly compliance audit must be submitted to the Secretary within 
90 days following the end of each quarter.
    (ii) If the guaranty agency or guaranty agency servicer has been 
designated for exceptional performance for at least 15 months, the 
guaranty agency or a guaranty agency servicer may petition the Secretary 
for permission to have its internal auditors perform subsequent 
quarterly compliance audits required by paragraph (c)(6)(i) of this 
section. If the Secretary approves the request, the guaranty agency's or 
guaranty agency servicer's annual audit must assess the reliability of 
the procedures used by the guaranty agency's or the guaranty agency 
servicer's internal auditor in performing the quarterly audits.
    (7)(i) Payments of reinsurance made on claims, under the FFEL 
Program, submitted by a guaranty agency or guaranty agency servicer 
designated for exceptional performance are not subject to repayment 
based on additional review of due diligence activities, including timely 
claim payment, or timely filing for reinsurance covering a period during 
which the guaranty agency or guaranty agency servicer was designated for 
any reason other than a determination by the Secretary that the eligible 
guaranty agency or guaranty agency servicer engaged in fraud or other 
purposeful misconduct in obtaining designation for exceptional 
performance.
    (ii) A guaranty agency designated under this section that fails to 
service loans or otherwise comply with applicable program regulations is 
considered in violation of 31 U.S.C. 3729.
    (8)(i) The Secretary may revoke the designation of a guaranty agency 
or guaranty agency servicer for exceptional performance if the Secretary 
has reason to believe the guaranty agency or guaranty agency servicer 
fraudulently obtained its designation for exceptional performance.
    (ii) The Secretary may revoke the designation for exceptional 
performance upon 30 days' notice, and an opportunity for a hearing 
before the Secretary, if the Secretary finds that the guaranty agency or 
guaranty agency servicer failed to maintain an acceptable overall level 
of regulatory compliance.

[[Page 773]]

    (9) A qualified independent organization is an organization that 
meets the criteria in paragraph (b)(9) of this section.
    (d) Definitions. For purposes of this section--
    (1) Due diligence requirements means the activities required to be 
performed by lenders or guaranty agencies on delinquent or defaulted 
loans pursuant to Sec. 682.411 (c) through (h), and (m), if applicable 
and Secs. 682.410(b)(6)(i) through (xii) and 682.406(a)(8) and (a)(9);
    (2) Eligible loan means a loan made, insured, or guaranteed under 
part B of title IV of the Act; and
    (3) Servicer means an entity that services and collects student 
loans and that--
    (i) Has substantial experience in servicing and collecting consumer 
loans or student loans;
    (ii) Has an annual independent financial audit that is furnished to 
the Secretary and any other parties designated by the Secretary;
    (iii) Has business systems capable of meeting the requirements of 
part B of title IV of the Act and applicable regulations;
    (iv) Has adequate personnel knowledgeable about the student loan 
programs authorized by part B of title IV of the Act; and
    (v) Does not knowingly have any owner, majority shareholder, 
director, or officer of the entity who has been convicted of a felony.

(Approved by the Office of Management and Budget under control number 
1840-0538)

(Authority: 20 U.S.C. 1078-9)

[59 FR 32866, June 24, 1994, as amended at 60 FR 30788, June 12, 1995; 
64 FR 18981, Apr. 16, 1999; 66 FR 34764, June 29, 2001]



Sec. 682.416  Requirements for third-party servicers and lenders contracting 
with third-party servicers.

    (a) Standards for administrative capability. A third-party servicer 
is considered administratively responsible if it--
    (1) Provides the services and administrative resources necessary to 
fulfill its contract with a lender or guaranty agency, and conducts all 
of its contractual obligations that apply to the FFEL programs in 
accordance with FFEL programs regulations;
    (2) Has business systems including combined automated and manual 
systems, that are capable of meeting the requirements of part B of Title 
IV of the Act and with the FFEL programs regulations; and
    (3) Has adequate personnel who are knowledgeable about the FFEL 
programs.
    (b) Standards of financial responsibility. The Secretary applies the 
provisions of 34 CFR 668.15(b) (1)-(4) and (6)-(9) to determine that a 
third-party servicer is financially responsible under this part. 
References to ``the institution'' in those provisions shall be 
understood to mean the third-party servicer, for this purpose.
    (c) Special review of third-party servicer. (1) The Secretary may 
review a third-party servicer to determine that it meets the 
administrative capability and financial responsibility standards in this 
section.
    (2) In response to a request from the Secretary, the servicer shall 
provide evidence to demonstrate that it meets the administrative 
capability and financial responsibility standards in this section.
    (3) The servicer may also provide evidence of why administrative 
action is unwarranted if it is unable to demonstrate that it meets the 
standards of this section.
    (4) Based on the review of the materials provided by the servicer, 
the Secretary determines if the servicer meets the standards in this 
part. If the servicer does not, the Secretary may initiate an 
administrative proceeding under subpart G.
    (d) Past performance of third-party servicer or persons affiliated 
with servicer. Notwithstanding paragraphs (b) and (c) of this section, a 
third-party servicer is not financially responsible if--
    (1)(i) The servicer; its owner, majority shareholder, or chief 
executive officer; any person employed by the servicer in a capacity 
that involves the administration of a Title IV, HEA program or the 
receipt of Title IV, HEA program funds; any person, entity, or officer 
or employee of an entity with which the servicer contracts where that 
person, entity, or officer or employee of the entity acts in a capacity 
that involves the administration of a

[[Page 774]]

Title IV, HEA program or the receipt of Title IV, HEA program funds has 
been convicted of, or has pled nolo contendere or guilty to, a crime 
involving the acquisition, use, or expenditure of Federal, State, or 
local government funds, or has been administratively or judicially 
determined to have committed fraud or any other material violation of 
law involving such funds, unless--
    (A) The funds that were fraudulently obtained, or criminally 
acquired, used, or expended have been repaid to the United States, and 
any related financial penalty has been paid;
    (B) The persons who were convicted of, or pled nolo contendere or 
guilty to, a crime involving the acquisition, use, or expenditure of the 
funds are no longer incarcerated for that crime; and
    (C) At least five years have elapsed from the date of the 
conviction, nolo contendere plea, guilty plea, or administrative or 
judicial determination; or
    (ii) The servicer, or any principal or affiliate of the servicer (as 
those terms are defined in 34 CFR part 85), is--
    (A) Debarred or suspended under Executive Order (E.O.) 12549 (3 CFR, 
1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR), 48 CFR 
part 9, subpart 9.4; or
    (B) Engaging in any activity that is a cause under 34 CFR 85.305 or 
85.405 for debarment or suspension under E.O. 12549 (3 CFR, 1986 Comp., 
p. 189) or the FAR, 48 CFR part 9, subpart 9.4; and
    (2) Upon learning of a conviction, plea, or administrative or 
judicial determination described in paragraph (d)(1) of this section, 
the servicer does not promptly remove the person, agency, or 
organization from any involvement in the administration of the 
servicer's participation in Title IV, HEA programs, including, as 
applicable, the removal or elimination of any substantial control, as 
determined under 34 CFR 668.15, over the servicer.
    (e) Independent audits. (1) A third-party servicer shall arrange for 
an independent audit of its administration of the FFELP loan portfolio 
unless--
    (i) The servicer contracts with only one lender or guaranty agency; 
and
    (ii) The audit of that lender's or guaranty agency's FFEL programs 
involves every aspect of the servicer's administration of those FFEL 
programs.
    (2) The audit must--
    (i) Examine the servicer's compliance with the Act and applicable 
regulations;
    (ii) Examine the servicer's financial management of its FFEL program 
activities;
    (iii) Be conducted in accordance with the standards for audits 
issued by the United States General Accounting Office's (GAO's) 
Standards for Audit of Governmental Organizations, Programs, Activities, 
and Functions. (This publication is available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402.) 
Procedures for audits are contained in an audit guide developed by and 
available from the Office of Inspector General of the Department of 
Education; and
    (iv) Except for the initial audit, be conducted at least annually 
and be submitted to the Secretary within six months of the end of the 
audit period. The initial audit must be an annual audit of the 
servicer's first full fiscal year beginning on or after July 1, 1994, 
and include any period from the beginning of the first full fiscal year. 
The audit report must be submitted to the Secretary within six months of 
the end of the audit period. Each subsequent audit must cover the 
servicer's activities for the one-year period beginning no later than 
the end of the period covered by the preceding audit.
    (3) With regard to a third-party servicer that is a governmental 
entity, the audit required by this paragraph must be conducted in 
accordance with 31 U.S.C. 7502 and 34 CFR part 80, appendix G.
    (4) With regard to a third-party servicer that is a nonprofit 
organization, the audit required by this paragraph must be conducted in 
accordance with Office of Management and Budget (OMB) Circular A-133, 
``Audit of Institutions of Higher Education and Other Nonprofit 
Institutions,'' as incorporated in 34 CFR 74.61(h)(3).
    (f) Contract responsibilities. A lender that participates in the 
FFEL programs may not enter into a contract with a third-party servicer 
that the Secretary has determined does not

[[Page 775]]

meet the requirements of this section. The lender must provide the 
Secretary with the name and address of any third-party servicer with 
which the lender enters into a contract and, upon request by the 
Secretary, a copy of that contract. A third-party servicer that is under 
contract with a lender to perform any activity for which the records in 
Sec. 682.414(a)(4)(ii) are relevant to perform the services for which 
the servicer has contracted shall maintain current, complete, and 
accurate records pertaining to each loan that the servicer is under 
contract to administer on behalf of the lender. The records must be 
maintained in a system that allows ready identification of each loan's 
current status.

(Approved by the Office of Management and Budget under control number 
1840-0537)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082; E.O. 12549 (3 
CFR, 1986 Comp., p. 189), 12689 (3 CFR, 1989 Comp., p. 235))

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22455, Apr. 29, 1994; 
59 FR 34964, July 7, 1994; 66 FR 34764, June 29, 2001]



Sec. 682.417  Determination of Federal funds or assets to be returned.

    (a) General. The procedures described in this section apply to a 
determination by the Secretary that--
    (1) A guaranty agency must return to the Secretary a portion of its 
Federal Fund that the Secretary has determined is unnecessary to pay the 
program expenses and contingent liabilities of the agency; and
    (2) A guaranty agency must require the return to the agency or the 
Secretary of Federal funds or assets within the meaning of section 
422(g)(1) of the Act held by or under the control of any other entity 
that the Secretary determines are necessary to pay the program expenses 
and contingent liabilities of the agency or that are required for the 
orderly termination of the guaranty agency's operations and the 
liquidation of its assets.
    (b) Return of unnecessary Federal funds. (1) The Secretary may 
initiate a process to recover unnecessary Federal funds under paragraph 
(a)(1) of this section if the Secretary determines that a guaranty 
agency's Federal Fund ratio under Sec. 682.410(a)(10) for each of the 
two preceding Federal fiscal years exceeded 2.0 percent.
    (2) If the Secretary initiates a process to recover unnecessary 
Federal funds, the Secretary requires the return of a portion of the 
Federal funds that the Secretary determines will permit the agency to--
    (i) Have a Federal Fund ratio of at least 2.0 percent under 
Sec. 682.410(a)(10) at the time of the determination; and
    (ii) Meet the minimum Federal Fund requirements under 
Sec. 682.410(a)(10) and retain sufficient additional Federal funds to 
perform its responsibilities as a guaranty agency during the current 
Federal fiscal year and the four succeeding Federal fiscal years.
    (3)(i) The Secretary makes a determination of the amount of Federal 
funds needed by the guaranty agency under paragraph (b)(2) of this 
section on the basis of financial projections for the period described 
in that paragraph. If the agency provides projections for a period 
longer than the period referred to in that paragraph, the Secretary may 
consider those projections.
    (ii) The Secretary may require a guaranty agency to provide 
financial projections in a form and on the basis of assumptions 
prescribed by the Secretary. If the Secretary requests the agency to 
provide financial projections, the agency must provide the projections 
within 60 days of the Secretary's request. If the agency does not 
provide the projections within the specified time period, the Secretary 
determines the amount of Federal funds needed by the agency on the basis 
of other information.
    (c) Notice. (1) The Secretary or an authorized Departmental official 
begins a proceeding to order a guaranty agency to return a portion of 
its Federal funds, or to direct the return of Federal funds or assets 
subject to return, by sending the guaranty agency a notice by certified 
mail, return receipt requested.
    (2) The notice--
    (i) Informs the guaranty agency of the Secretary's determination 
that Federal funds or assets must be returned;
    (ii) Describes the basis for the Secretary's determination and 
contains sufficient information to allow the

[[Page 776]]

guaranty agency to prepare and present an appeal;
    (iii) States the date by which the return of Federal funds or assets 
must be completed;
    (iv) Describes the process for appealing the determination, 
including the time for filing an appeal and the procedure for doing so; 
and
    (v) Identifies any actions that the guaranty agency must take to 
ensure that the Federal funds or assets that are the subject of the 
notice are maintained and protected against use, expenditure, transfer, 
or other disbursement after the date of the Secretary's determination, 
and the basis for requiring those actions. The actions may include, but 
are not limited to, directing the agency to place the Federal funds in 
an escrow account. If the Secretary has directed the guaranty agency to 
require the return of Federal funds or assets held by or under the 
control of another entity, the guaranty agency must ensure that the 
agency's claims to those funds or assets and the collectability of the 
agency's claims will not be compromised or jeopardized during an appeal. 
The guaranty agency must also comply with all other applicable 
regulations relating to the use of Federal funds and assets.
    (d) Appeal. (1) A guaranty agency may appeal the Secretary's 
determination that Federal funds or assets must be returned by filing a 
written notice of appeal within 20 days of the date of the guaranty 
agency's receipt of the notice of the Secretary's determination. If the 
agency files a notice of appeal, the requirement that the return of 
Federal funds or assets be completed by a particular date is suspended 
pending completion of the appeal process. If the agency does not file a 
notice of appeal within the period specified in this paragraph, the 
Secretary's determination is final.
    (2) A guaranty agency must submit the information described in 
paragraph (d)(4) of this section within 45 days of the date of the 
guaranty agency's receipt of the notice of the Secretary's determination 
unless the Secretary agrees to extend the period at the agency's 
request. If the agency does not submit that information within the 
prescribed period, the Secretary's determination is final.
    (3) A guaranty agency's appeal of a determination that Federal funds 
or assets must be returned is considered and decided by a Departmental 
official other than the official who issued the determination or a 
subordinate of that official.
    (4) In an appeal of the Secretary's determination, the guaranty 
agency must--
    (i) State the reasons the guaranty agency believes the Federal funds 
or assets need not be returned;
    (ii) Identify any evidence on which the guaranty agency bases its 
position that Federal funds or assets need not be returned;
    (iii) Include copies of the documents that contain this evidence;
    (iv) Include any arguments that the guaranty agency believes support 
its position that Federal funds or assets need not be returned; and
    (v) Identify the steps taken by the guaranty agency to comply with 
the requirements referred to in paragraph (c)(2)(v) of this section.
    (5)(i) In its appeal, the guaranty agency may request the 
opportunity to make an oral argument to the deciding official for the 
purpose of clarifying any issues raised by the appeal. The deciding 
official provides this opportunity promptly after the expiration of the 
period referred to in paragraph (d)(2) of this section.
    (ii) The agency may not submit new evidence at or after the oral 
argument unless the deciding official determines otherwise. A transcript 
of the oral argument is made a part of the record of the appeal and is 
promptly provided to the agency.
    (6) The guaranty agency has the burden of production and the burden 
of persuading the deciding official that the Secretary's determination 
should be modified or withdrawn.
    (e) Third-party participation. (1) If the Secretary issues a 
determination under paragraph (a)(1) of this section, the Secretary 
promptly publishes a notice in the Federal Register announcing the 
portion of the Federal Fund to be returned by the agency and providing 
interested persons an opportunity to submit written information relating 
to

[[Page 777]]

the determination within 30 days after the date of publication. The 
Secretary publishes the notice no earlier than five days after the 
agency receives a copy of the determination.
    (2) If the guaranty agency to which the determination relates files 
a notice of appeal of the determination, the deciding official may 
consider any information submitted in response to the Federal Register 
notice. All information submitted by a third party is available for 
inspection and copying at the offices of the Department of Education in 
Washington, D.C., during normal business hours.
    (f) Adverse information. If the deciding official considers 
information in addition to the evidence described in the notice of the 
Secretary's determination that is adverse to the guaranty agency's 
position on appeal, the deciding official informs the agency and 
provides it a reasonable opportunity to respond to the information 
without regard to the period referred to in paragraph (d)(2) of this 
section.
    (g) Decision. (1) The deciding official issues a written decision on 
the guaranty agency's appeal within 45 days of the date on which the 
information described in paragraphs (d)(4) and (d)(5)(ii) of this 
section is received, or the oral argument referred to in paragraph 
(d)(5) of this section is held, whichever is later. The deciding 
official mails the decision to the guaranty agency by certified mail, 
return receipt requested. The decision of the deciding official becomes 
the final decision of the Secretary 30 days after the deciding official 
issues it. In the case of a determination that a guaranty agency must 
return Federal funds, if the deciding official does not issue a decision 
within the prescribed period, the agency is no longer required to take 
the actions described in paragraph (c)(2)(v) of this section.
    (2) A guaranty agency may not seek judicial review of the 
Secretary's determination to require the return of Federal funds or 
assets until the deciding official issues a decision.
    (3) The deciding official's written decision includes the basis for 
the decision. The deciding official bases the decision only on evidence 
described in the notice of the Secretary's determination and on 
information properly submitted and considered by the deciding official 
under this section. The deciding official is bound by all applicable 
statutes and regulations and may neither waive them nor rule them 
invalid.
    (h) Collection of Federal funds or assets. (1) If the deciding 
official's final decision requires the guaranty agency to return Federal 
funds, or requires the guaranty agency to require the return of Federal 
funds or assets to the agency or to the Secretary, the decision states a 
new date for compliance with the decision. The new date is no earlier 
than the date on which the decision becomes the final decision of the 
Secretary.
    (2) If the guaranty agency fails to comply with the decision, the 
Secretary may recover the Federal funds from any funds due the agency 
from the Department without any further notice or procedure and may take 
any other action permitted or authorized by law to compel compliance.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[64 FR 58632, Oct. 29, 1999]



Sec. 682.418  Prohibited uses of the assets of the Operating Fund during 
periods in which the Operating Fund contains transferred funds owed to 
the Federal 
          Fund.

    (a) General. (1) During periods in which the Operating Fund contains 
transferred funds owed to the Federal Fund, a guaranty agency may not 
use the assets of the Operating Fund to pay costs prohibited under 
paragraph (b) of this section and may not use the assets of the 
Operating Fund to pay for goods, property, or services provided by an 
affiliated organization unless the agency applies and demonstrates to 
the Secretary, and receives the Secretary's approval, that the payment 
would be in the Federal fiscal interest and would not exceed the 
affiliated organization's actual and reasonable cost of providing those 
goods, property, or services.
    (2) All guaranty agency contracts with respect to its Operating Fund 
or assets must include a provision stating that the contract is 
terminable by the Secretary upon 30 days notice to the

[[Page 778]]

contracting parties if the Secretary determines that the contract 
includes an impermissible transfer of the Operating Fund or assets or is 
otherwise inconsistent with the terms and purposes of section 422 of the 
HEA.
    (b) Prohibited uses of Operating Fund assets. A guaranty agency may 
use the assets of the Operating Fund established under 
Sec. 682.410(a)(1) only as prescribed in Sec. 682.410(a)(2). Uses of the 
Operating Fund that are not allowable under Sec. 682.410(a)(2) include, 
but are not limited to--
    (1) Compensation for personnel services, including wages, salaries, 
pension plan costs, post-retirement health benefits, employee life 
insurance, unemployment benefit plans, severance pay, costs of leave, 
and other benefits, to the extent that total compensation to an 
employee, officer, director, trustee, or agent of the guaranty agency is 
not reasonable for the services rendered. Compensation is considered 
reasonable to the extent that it is comparable to that paid in the labor 
market in which the guaranty agency competes for the kind of employees 
involved. Costs that are otherwise unallowable may not be considered 
allowable solely on the basis that they constitute personnel 
compensation. In no case may the Operating Fund be used to pay any 
compensation, whether calculated on an hourly basis or otherwise, that 
would be proportionately greater than 118.05 percent of the total salary 
paid (as calculated on an hourly basis) under section 5312 of title 5, 
United States Code (relating to Level I of the Executive Schedule).
    (2) Contributions and donations, including cash, property, and 
services, by the guaranty agency to others, regardless of the recipient 
or purpose, unless pursuant to written authorization from the Secretary;
    (3) Entertainment, including amusement, diversion, hospitality 
suites, and social activities, and any costs associated with those 
activities, such as tickets to shows or sports events, meals, alcoholic 
beverages, lodging, rentals, transportation, and gratuities;
    (4) Fines, penalties, damages, and other settlements resulting from 
violations or alleged violations of the guaranty agency's failure to 
comply with Federal, State, or local laws and regulations that are 
unrelated to the FFEL Program, unless specifically approved by the 
Secretary. This prohibition does not apply if a non-criminal violation 
or alleged violation has been assessed against the guaranty agency, the 
payment does not reimburse an agency employee, and the payment does not 
exceed $1,000, or if it occurred as a result of compliance with specific 
requirements of the FFEL Program or in accordance with written 
instructions from the Secretary. The use of the Operating Fund in any 
other case must be requested by the agency and specifically approved in 
advance by the Secretary;
    (5) Legal expenses for prosecution of claims against the Federal 
Government, unless the guaranty agency substantially prevails on those 
claims. In that event, the Secretary approves the reimbursement of 
reasonable legal expenses incurred by the guaranty agency;
    (6) Lobbying activities, as defined in section 501(h) of the 
Internal Revenue Code, including dues to membership organizations to the 
extent that those dues are used for lobbying;
    (7) Major expenditures, including those for land, buildings, 
equipment, or information systems, whether singly or as a related group 
of expenditures, that exceed 5 percent of the guaranty agency's 
Operating Fund balance at the time the expenditures are made, unless the 
agency has provided written notice of the intended expenditure to the 
Secretary 30 days before the agency makes or commits itself to the 
expenditure. For those expenditures involving the purchase of an asset, 
the term ``major expenditure'' applies to costs such as the cost of 
purchasing the asset and making improvements to it, the cost to put it 
in place, the net invoice price of the asset, ancillary charges, such as 
taxes, duty, protective in-transit insurance, freight, and installation 
costs, and the costs of any modifications, attachments, accessories, or 
auxiliary apparatus necessary to make the asset usable for the purpose 
for which it was acquired, whether the expenditures are classified as 
capital or operating expenses;

[[Page 779]]

    (8) Public relations, and all associated costs, paid directly or 
through a third party, to the extent that those costs are used to 
promote or maintain a favorable image of the guaranty agency. The term 
``public relations'' does not include any activity that is ordinary and 
necessary for the fulfillment of the agency's FFEL guaranty 
responsibilities under the HEA, including appropriate and reasonable 
advertising designed specifically to communicate with the public and 
program participants for the purpose of facilitating the agency's 
ability to fulfill its FFEL guaranty responsibilities under the HEA. 
Ordinary and necessary public relations activities include training of 
program participants and secondary school personnel and customer service 
functions that disseminate FFEL-related information and materials to 
schools, loan holders, prospective loan applicants, and their parents. 
In providing that training at workshops, conferences, or other ordinary 
and necessary forums customarily used by the agency to fulfill its 
responsibilities under the HEA, the agency may provide light meals and 
refreshments of a reasonable nature and amount to the participants;
    (9) Relocation of employees in excess of an employee's actual or 
reasonably estimated expenses or for purposes that do not benefit the 
administration of the guaranty agency's FFEL program. Except as approved 
by the Secretary, reimbursement must be in accordance with an 
established written policy; and
    (10) Travel expenses that are not in accordance with a written 
policy approved by the Secretary or a State policy. If the guaranty 
agency does not have such a policy, it may not use the assets of the 
Operating Fund to pay for travel expenses that exceed those allowed for 
lodging and subsistence under subchapter I of Chapter 57 of title 5, 
United States Code, or in excess of commercial airfare costs for 
standard coach airfare, unless those accommodations would require 
circuitous routing, travel during unreasonable hours, excessively 
prolonged travel, would result in increased cost that would offset 
transportation savings, or would offer accommodations not reasonably 
adequate for the medical needs of the traveler.
    (c) Cost allocation. Each guaranty agency that shares costs with any 
other program, agency, or organization shall develop a cost allocation 
plan consistent with the requirements described in OMB Circular A-87 and 
maintain the plan and related supporting documentation for audit. A 
guaranty agency is required to submit its cost allocation plans for the 
Secretary's approval if it is specifically requested to do so by the 
Secretary.

(Approved by the Office of Management and Budget under control number 
1840-0726)

(Authority: 20 U.S.C. 1078)

[61 FR 60437, Nov. 27, 1996, as amended at 62 FR 13539, Mar. 21, 1997; 
64 FR 58634, Oct. 29, 1999]



Sec. 682.419  Guaranty agency Federal Fund.

    (a) Establishment and control. A guaranty agency must establish and 
maintain a Federal Student Loan Reserve Fund (referred to as the 
``Federal Fund'') to be used only as permitted under paragraph (c) of 
this section. The assets of the Federal Fund and the earnings on those 
assets are, at all times, the property of the United States. The 
guaranty agency must exercise the level of care required of a fiduciary 
charged with the duty of protecting, investing, and administering the 
money of others.
    (b) Deposits. The agency must deposit into the Federal Fund--
    (1) All funds, securities, and other liquid assets of the reserve 
fund that existed under Sec. 682.410;
    (2) The total amount of insurance premiums collected;
    (3) Federal payments for default, bankruptcy, death, disability, 
closed school, false certification, and other claims;
    (4) Federal payments for supplemental preclaims assistance 
activities performed before October 1, 1998;
    (5) 70 percent of administrative cost allowances received on or 
after October 1, 1998 for loans upon which insurance was issued before 
October 1, 1998;
    (6) All funds received by the guaranty agency from any source on 
FFEL Program loans on which a claim has been paid, within 48 hours of 
receipt of those

[[Page 780]]

funds, minus the portion the agency is authorized to deposit in its 
Operating Fund;
    (7) Investment earnings on the Federal Fund;
    (8) Revenue derived from the Federal portion of a nonliquid asset, 
in accordance with Sec. 682.420; and
    (9) Other funds received by the guaranty agency from any source that 
are specifically designated for deposit in the Federal Fund.
    (c) Uses. A guaranty agency may use the assets of the Federal Fund 
only--
    (1) To pay insurance claims;
    (2) To transfer default aversion fees to the agency's Operating 
Fund;
    (3) To transfer account maintenance fees to the agency's Operating 
Fund, if directed by the Secretary;
    (4) To refund payments made by or on behalf of a borrower on a loan 
that has been discharged in accordance with Sec. 682.402;
    (5) To pay the Secretary's share of borrower payments, in accordance 
with Sec. 682.404(g);
    (6) For transfers to the agency's Operating Fund, pursuant to 
Sec. 682.421;
    (7) To refund insurance premiums related to loans cancelled or 
refunded, in whole or in part;
    (8) To return to the Secretary portions of the Federal Fund required 
to be returned by the Act; and
    (9) For any other purpose authorized by the Secretary.
    (d) Prohibition against prepayment. A guaranty agency may not prepay 
obligations of the Federal Fund unless it demonstrates, to the 
satisfaction of the Secretary, that the prepayment is in the best 
interests of the United States.
    (e) Minimum Federal Fund level. The guaranty agency must maintain a 
minimum Federal Fund level equal to at least 0.25 percent of its insured 
original principal amount of loans outstanding.
    (f) Definitions. For purposes of this section--
    (1) Federal Fund level means the total of Federal Fund assets 
identified in paragraph (b) of this section plus the amount of funds 
transferred from the Federal Fund that are in the Operating Fund, using 
an accrual basis of accounting.
    (2) Original principal amount of loans outstanding means--
    (i) The sum of--
    (A) The original principal amount of all loans guaranteed by the 
agency; and
    (B) The original principal amount of any loans on which the 
guarantee was transferred to the agency from another guarantor, 
excluding loan guarantees transferred to another agency pursuant to a 
plan of the Secretary in response to the insolvency of the agency;
    (ii) Minus the original principal amount of all loans on which--
    (A) The loan guarantee was cancelled;
    (B) The loan guarantee was transferred to another agency;
    (C) Payment in full has been made by the borrower;
    (D) Reinsurance coverage has been lost and cannot be regained; and
    (E) The agency paid claims.

(Authority: 20 U.S.C. 1072-1)

[64 FR 58634, Oct. 29, 1999]



Sec. 682.420  Federal nonliquid assets.

    (a) General. The Federal portion of a nonliquid asset developed or 
purchased in whole or in part with Federal reserve funds, regardless of 
who held or controlled the Federal reserve funds or assets, is the 
property of the United States. The ownership of that asset must be 
prorated based on the percentage of the asset developed or purchased 
with Federal reserve funds. In maintaining and using the Federal portion 
of a nonliquid asset under this section, the guaranty agency must 
exercise the level of care required of a fiduciary charged with 
protecting, investing, and administering the property of others.
    (b) Treatment of revenue derived from a nonliquid Federal asset. If 
a guaranty agency derives revenue from the Federal portion of a 
nonliquid asset, including its sale or lease, the agency must promptly 
deposit the percentage of the net revenue received into the Federal Fund 
equal to the percentage of the asset owned by the United States.
    (c) Guaranty agency use of the Federal portion of a nonliquid asset. 
(1)(i) If a guaranty agency uses the Federal portion of a nonliquid 
asset in the performance of its guaranty activities

[[Page 781]]

(other than an intangible or intellectual property asset or a tangible 
asset of nominal value), the agency must promptly deposit into the 
Federal Fund an amount representing the net fair value of the use of the 
asset.
    (ii) If a guaranty agency uses the Federal portion of a nonliquid 
asset for purposes other than the performance of its guaranty 
activities, the agency must promptly deposit into the Federal Fund an 
amount representing the net fair value of the use of the asset.
    (2) Payments to the Federal Fund required by paragraph (c)(1) of 
this section must be made not less frequently than quarterly.

(Authority: 20 U.S.C. 1072-1)

[64 FR 58634, Oct. 29, 1999]



Sec. 682.421  Funds transferred from the Federal Fund to the Operating Fund 
by a guaranty agency.

    (a) General. In accordance with this section, a guaranty agency may 
request the Secretary's permission to transfer a limited amount of funds 
from the Federal Fund to the Operating Fund. Upon receiving the 
Secretary's approval, the agency may transfer the requested funds at any 
time within 6 months following the date specified by the Secretary. If 
the Secretary has not approved or disapproved the agency's request 
within 30 days after receiving it, the agency may transfer the requested 
funds at any time within the 6-month period beginning on the 31st day 
after the Secretary received the agency's request. The transferred funds 
may be used only as permitted by Secs. 682.410(a)(2) and 682.418.
    (b) Transferring the principal balance of the Federal Fund--(1) 
Amount that may be transferred. Upon receiving the Secretary's approval, 
an agency may transfer an amount up to the equivalent of 180 days of 
cash expenses for purposes allowed by Secs. 682.410(a)(2) and 682.418 
(not including claim payments) for normal operating expenses to be 
deposited into the agency's Operating Fund. The amount transferred and 
outstanding at any time during the first 3 years after establishing the 
Operating Fund may not exceed the lesser of 180 days cash expenses for 
purposes allowed by Secs. 682.410(a)(2) and 682.418 (not including claim 
payments), or 45 percent of the balance in the Federal reserve fund that 
existed under Sec. 682.410 as of September 30, 1998.
    (2) Requirements for requesting a transfer. A guaranty agency that 
wishes to transfer principal from the Federal Fund must provide the 
Secretary with a proposed repayment schedule and evidence that it can 
repay the transfer according to its proposed schedule. The agency must 
provide the Secretary with the following:
    (i) A request for the transfer that specifies the desired amount, 
the date the funds will be needed, and the agency's proposed terms of 
repayment;
    (ii) A projected revenue and expense statement, to be updated 
annually during the repayment period, that demonstrates that the agency 
will be able to repay the transferred amount within the repayment period 
requested by the agency; and
    (iii) Certifications by the agency that during the period while the 
transferred funds are outstanding--
    (A) Sufficient funds will remain in the Federal Fund to pay lender 
claims during the period the transferred funds are outstanding;
    (B) The agency will be able to meet the reserve recall requirements 
of section 422 of the Act;
    (C) The agency will be able to meet the statutory minimum reserve 
level of 0.25 percent, as mandated by section 428(c)(9) of the Act; and
    (D) No legal prohibition exists that would prevent the agency from 
obtaining or repaying the transferred funds.
    (c) Transferring interest earned on the Federal Fund. (1) Amount 
that may be transferred. The Secretary may permit an agency that owes 
the Federal Fund the maximum amount allowable under paragraph (b) of 
this section to transfer the interest income earned on the Federal Fund 
during the 3-year period following October 7, 1998. The combined amount 
of transferred interest and the amount of principal transferred under 
paragraph (b) of this section may exceed 180 days cash expenses for 
purposes allowed by Secs. 682.410(a)(2) and 682.418 (not including claim 
payments), but may not exceed 45 percent of the balance in the Federal 
reserve fund

[[Page 782]]

that existed under Sec. 682.410 as of September 30, 1998.
    (2) Requirements for requesting a transfer. To be allowed to 
transfer the interest income, in addition to the items in paragraph 
(b)(2) of this section, the agency must demonstrate to the Secretary 
that the cash flow in the Operating Fund will be negative if the agency 
is not authorized to transfer the interest, and, by transferring the 
interest, the agency will substantially improve its financial 
circumstances.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1072-1)

[64 FR 58635, Oct. 29, 1999]



Sec. 682.422  Guaranty agency repayment of funds transferred from the 
Federal Fund.

    (a) General. A guaranty agency must begin repayment of money 
transferred from the Federal Fund not later than the start of the 4th 
year after the agency establishes its Operating Fund. All amounts 
transferred must be repaid not later than five years after the date the 
Operating Fund is established.
    (b) Extension for repaying the interest transferred--(1) General. 
The Secretary may extend the period for repayment of interest 
transferred from the Federal Fund from two years to five years if the 
Secretary determines that the cash flow of the Operating Fund will be 
negative if the transferred interest had to be repaid earlier or the 
repayment of the interest would substantially diminish the financial 
circumstances of the agency.
    (2) Agency eligibility for an extension. To receive an extension, 
the agency must demonstrate that it will be able to repay all 
transferred funds by the end of the 8th year following the date of 
establishment of the Operating Fund and that the agency will be 
financially sound upon the completion of repayment.
    (3) Repayment of interest earned on transferred funds. If the 
Secretary extends the period for repayment of interest transferred from 
the Federal Fund for a guaranty agency, the agency must repay the amount 
of interest during the 6th, 7th, and 8th years following the 
establishment of the Operating Fund. In addition to repaying the amount 
of interest, the guaranty agency must also pay to the Secretary any 
income earned after the 5th year from the investment of the transferred 
amount. In determining the amount of income earned on the transferred 
amount, the Secretary uses the average investment income earned on the 
agency's Operating Fund.
    (c) Consequences if a guaranty agency fails to repay transfers from 
the Federal Fund. If a guaranty agency fails to make a scheduled 
repayment to the Federal Fund, the agency may not receive any other 
Federal funds until it becomes current in making all scheduled payments, 
unless the Secretary waives this restriction.

(Authority: 20 U.S.C. 1072-1)

[64 FR 58635, Oct. 29, 1999]



Sec. 682.423  Guaranty agency Operating Fund.

    (a) Establishment and control. A guaranty agency must establish and 
maintain an Operating Fund in an account separate from the Federal Fund. 
Except for funds that have been transferred from the Federal Fund, the 
Operating Fund is considered the property of the guaranty agency. During 
periods in which the Operating Fund contains funds transferred from the 
Federal Fund, the Operating Fund may be used only as permitted by 
Secs. 682.410(a)(2) and 682.418.
    (b) Deposits. The guaranty agency must deposit into the Operating 
Fund--
    (1) Amounts authorized by the Secretary to be transferred from the 
Federal Fund;
    (2) Account maintenance fees;
    (3) Loan processing and issuance fees;
    (4) Default aversion fees;
    (5) 30 percent of administrative cost allowances received on or 
after October 1, 1998 for loans upon which insurance was issued before 
October 1, 1998;
    (6) The portion of the amounts collected on defaulted loans that 
remains after the Secretary's share of collections has been paid and the 
complement of the reinsurance percentage has been deposited into the 
Federal Fund;

[[Page 783]]

    (7) The agency's share of the payoff amounts received from the 
consolidation or rehabilitation of defaulted loans; and
    (8) Other receipts as authorized by the Secretary.
    (c) Uses. A guaranty agency may use the Operating Fund for--
    (1) Guaranty agency-related activities, including--
    (i) Application processing;
    (ii) Loan disbursement;
    (iii) Enrollment and repayment status management;
    (iv) Default aversion activities;
    (v) Default collection activities;
    (vi) School and lender training;
    (vii) Financial aid awareness and related outreach activities; and
    (viii) Compliance monitoring; and
    (2) Other student financial aid-related activities for the benefit 
of students, as selected by the guaranty agency.

(Authority: 20 U.S.C. 1072-2)

[64 FR 58635, Oct. 29, 1999]



           Subpart E--Federal Guaranteed Student Loan Programs



Sec. 682.500  Circumstances under which loans may be guaranteed by the 
Secretary.

    (a) The Secretary may guarantee all--
    (1) FISL, Federal SLS, and Federal PLUS loans made by lenders 
located in a State in which no State or private nonprofit guaranty 
agency has in effect an agreement with the Secretary under Sec. 682.401 
to serve as guarantor in that State;
    (2) Federal Consolidation loans made by the Student Loan Marketing 
Association and Federal Consolidation loans made by any other lender 
that has applied for and been denied guarantee coverage on Consolidation 
loans by the guaranty agency that guarantees the largest dollar volume 
of FFEL loans made by the lender; and
    (3) FISL, Federal SLS, Federal PLUS, and Federal Consolidation loans 
made by lenders located in a State in which a guaranty agency program is 
operating but is not reasonably accessible to students who meet the 
agency's residency requirements.
    (b) The Secretary may guarantee FISL, Federal SLS, Federal PLUS and 
Federal Consolidation loans made by a lender located in a State where a 
guaranty agency operates a program that is reasonably accessible to 
students who meet the residency requirements of that program only for--
    (1) A student who does not meet the agency's residency requirements;
    (2) A lender who is not able to obtain a guarantee from the guaranty 
agency for at least 80 percent of the loans the lender intends to make 
over a 12-month period because of the agency's residency requirements;
    (3) With the approval of the guaranty agency, a student who has 
previously received from the same lender a FISL loan that has not been 
repaid; or
    (4) All students at a school located in the State if the Secretary 
finds that--
    (i) No single guaranty agency program is reasonably accessible to 
students at that school as compared to students at other schools during 
a comparable period of time; and
    (ii) Guaranteeing loans made in the State to students attending that 
school would significantly increase the access of students at that 
school to FFEL Program loans. The Secretary may guarantee loans made to 
those students by a lender in that State if--
    (A) The guaranty agency does not recognize the school as being 
eligible, but the school is eligible under the FISL program; or
    (B) A majority of the persons enrolled at the school meet the 
conditions of student eligibility for FISL loans but are not recognized 
as eligible under the guaranty agency program.
    (c) For purposes of paragraph (b) of this section, a lender is 
considered to be located in the same State as a school if the lender--
    (1) Has an origination relationship with the school;
    (2) Has a majority of its voting stock held by the school; or
    (3) Has common ownership or management with the school and more than 
50 percent of the loans made by that lender are made to students at that 
school.
    (d) As a condition for guaranteeing loans under the Federal FFEL 
programs, the Secretary may require the

[[Page 784]]

lender to submit evidence of circumstances that would justify loan 
guarantees under the provisions of this section.
    (e) With regard to a school lender that has entered into an 
agreement with the Secretary under Sec. 682.600, the Secretary denies 
loan guarantees on the basis of this section only if the Secretary first 
determines that all eligible students at that school who make a 
conscientious effort to obtain a loan from another lender will find a 
loan to be reasonably available. For purposes of this paragraph, the 
determination of loan availability is based on studies and surveys that 
the Secretary considers satisfactory.

(Authority: 20 U.S.C. 1071, 1073, 1078-1, 1078-2, 1078-3, 1082)



Sec. 682.501  Extent of Federal guarantee under the Federal GSL programs.

    (a) General. Except as provided in paragraph (b) of this section, 
the Secretary's guarantee liability on any Federal GSL loan is 100 
percent of the unpaid principal balance and, to the extent permitted 
under Sec. 682.512, accrued interest.
    (b) Special provisions for State lenders. (1) Except as described in 
paragraph (b)(2) of this section, the Secretary's guarantee liability is 
less than 100 percent under the following conditions:
    (i) If the total of default claims under the Federal GSL programs 
paid by the Secretary to a State lender during any fiscal year reaches 
five percent of the amount of the Federal GSL loans in repayment at the 
end of the preceding fiscal year, the Secretary's guarantee liability on 
a claim subsequently paid during that fiscal year is 90 percent of the 
amount of the unpaid principal balance plus accrued interest.
    (ii) If the total of default claims under the Federal GSL programs 
paid by the Secretary to a State lender during any fiscal year reaches 
nine percent of the amount of the Federal GSL loans in repayment at the 
end of the preceding fiscal year, the Secretary's guarantee liability on 
a claim subsequently paid during that fiscal year is 80 percent of the 
amount of the unpaid principal balance plus accrued interest.
    (iii) For purposes of this paragraph, the total default claims paid 
by the Secretary during any fiscal year do not include paid claims filed 
by the lender under the provisions of Sec. 682.412(e) or Sec. 682.509.
    (2) The potential reduction in guarantee liability does not apply to 
a State lender during the first Federal fiscal year of its operation as 
a Federal GSL Program lender and during each of the four succeeding 
fiscal years.
    (3) For the purposes of this section, the term ``amount of the 
Federal GSL loans in repayment'' means the original principal amount of 
all loans guaranteed by the Secretary less--
    (i) The original principal amount of loans on which--
    (A) Under the FISL program, the borrower has not yet reached the 
repayment period;
    (B) Payment in full has been made by the borrower;
    (C) The borrower was in deferment status at the time repayment of 
principal was scheduled to begin and remains in deferment status; or
    (D) The Secretary has paid a claim filed under section 437 of the 
Act; and
    (ii) The amount paid by the Secretary for default claims on loans, 
exclusive of paid claims filed by the lender under Sec. 682.412(e) or 
Sec. 682.509.
    (4) For the purposes of this paragraph, payments by the Secretary on 
a loan that the original lender assigned to a subsequent holder are 
considered payments made to the original lender.
    (5) State lenders shall consolidate Federal GSL loans for the 
purpose of calculating the amount of the Secretary's guarantee liability 
under this section.

(Authority: 20 U.S.C. 1077, 1078-1, 1078-2, 1078-3, 1082)



Sec. 682.502  The application to be a lender.

    (a) To be considered for participation in the Federal GSL programs, 
a lender shall submit an application to the Secretary.
    (b) In determining whether to enter into a guarantee agreement with 
an applicant, and, if so, what the terms of the agreement will be, the 
Secretary considers--
    (1) Whether the applicant meets the definition of an ``eligible 
lender'' in

[[Page 785]]

section 435(d) of the Act and the definition of ``lender`' in 
Sec. 682.200;
    (2) Whether the applicant is capable of complying with the 
regulations in this part as they apply to lenders;
    (3) Whether the applicant is capable of implementing adequate 
procedures for making, servicing, and collecting loans;
    (4) Whether the applicant has had prior experience with a similar 
Federal, State, or private nonprofit student loan program, and the 
amount and percentage of loans that are currently delinquent or in 
default under that program;
    (5) The financial resources of the applicant; and
    (6) In the case of a school that is seeking approval as a lender, 
its accreditation status.
    (c) The Secretary may require an applicant to submit sufficient 
materials with its application so that the Secretary may fairly evaluate 
it in accordance with the criteria in this section.
    (d)(1) If the Secretary decides not to approve the application for a 
guarantee agreement, the Secretary's response includes the reason for 
the decision.
    (2) The Secretary provides the lender an opportunity for the lender 
to meet with a designated Department official if the lender wishes to 
appeal the Secretary's decision.
    (3) However, the Secretary need not explain the reasons for the 
denial or grant the lender an opportunity to appeal if the lender 
submits its application within six months of a previous denial.

(Authority: 30 U.S.C. 1078-1, 1078-2, 1078-3, 1079, 1082)



Sec. 682.503  The guarantee agreement.

    (a)(1) To participate in the Federal GSL programs, a lender must 
have a guarantee agreement with the Secretary. The Secretary does not 
guarantee a loan unless it is covered by such an agreement.
    (2) In general, under a guarantee agreement the lender agrees to 
comply with all laws, regulations, and other requirements applicable to 
its participation as a lender in the Federal GSL programs. In return, 
the Secretary agrees to guarantee each eligible Federal GSL loan held by 
the lender against the borrower's default, death, total and permanent 
disability, or bankruptcy.
    (3) The Secretary may include in an agreement a limit on the 
duration of the agreement and the number or amount of Federal GSL loans 
the lender may make or hold.
    (b)(1) Except as otherwise approved by the Secretary, a guarantee 
agreement with a school lender limits the Federal GSL loans made by that 
school lender that will be covered by the Federal guarantee to those 
loans made to students, or to parents borrowing on behalf of students, 
who are--
    (i) In attendance at that school;
    (ii) In attendance at other schools under the same ownership as that 
school; or
    (iii) Employees or dependents of employees, or whose parents are 
employees, of that school lender or other schools under the same 
ownership, under circumstances the Secretary considers appropriate for 
loan guarantees.
    (2) The Secretary may on a school-by-school basis impose limits 
under paragraph (b)(1)(iii) of this section on a school lender that 
makes loans to students or to parents of students in attendance at other 
schools under the same ownership, or to employees, or to dependents or 
parents of employees, of those other schools.

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1079, 1082)



Sec. 682.504  Issuance of Federal loan guarantees.

    (a) A lender having a guarantee agreement shall submit an 
application to the Secretary for a Federal loan guarantee on each 
intended loan that the lender determines to be eligible for a guarantee. 
The application must be on a form prescribed by the Secretary. The 
Secretary notifies the lender whether the loan will be guaranteed and of 
the amount of the guarantee. No disbursement on a loan made prior to the 
Secretary's approval of that loan is covered by the guarantee.
    (b) The Secretary issues a guarantee on a Federal GSL loan in 
reliance on the implied representations of the lender that all 
requirements for the

[[Page 786]]

initial eligibility of the loan for guarantee coverage have been met. As 
described in Sec. 682.513, the continuance of the guarantee is 
conditioned upon compliance by all holders of the loan with the 
regulations in this part.

(Authority: 20 U.S.C., 1078-1, 1078-2, 1078-3, 1079, 1082)



Sec. 682.505  Insurance premium.

    (a) General. The Secretary charges the lender an insurance premium 
for each Federal GSL Program loan that is guaranteed, except that no 
insurance premium is charged on a Federal Consolidation loan, or on a 
Federal SLS or Federal PLUS loan made under Sec. 682.209(f).
    (b) Rate. The rate of the insurance premium is one-fourth of one 
percent per year of the loan principal, excluding interest or other 
charges that may have been added to the principal.
    FISL loans--insurance premium calculation. (1) The insurance premium 
for FISL loans is calculated by--
    (i) Counting the number of months beginning with the month following 
the month in which each disbursement on the loan is to be made and 
ending 12 months after the borrower's anticipated graduation from the 
school for attendance at which the loan is sought;
    (ii) Dividing one-fourth of one percent of the principal amount of 
the loan by 12; and
    (iii) Multiplying the result obtained in paragraph (c)(1)(i) of this 
section by that obtained in paragraph (c)(1)(ii) of this section.
    (2) If the lender disburses the loan in multiple installments, the 
insurance premium is calculated for each disbursement from the month 
following the month that the disbursement is made.
    (d) Federal PLUS and SLS Loans--insurance premium calculation. The 
insurance premium for a Federal PLUS or SLS loan is calculated by--
    (1) Using the projected repayment period as a base;
    (2) Amortizing the loan in equal monthly installments over the 
repayment period;
    (3) Determining one-fourth of one percent of each monthly declining 
principal balance; and
    (4) Computing the total of monthly amounts calculated under 
paragraph (d)(3) of this section.
    (e) Collection from lenders. (1) The Secretary may bill the lender 
for the insurance premium or may require the lender to pay the insurance 
premium to the Secretary at the time of disbursement of the loan. At the 
Secretary's discretion, the Secretary may alternatively collect the 
insurance premium by offsetting it against amounts payable by the 
Secretary to the lender.
    (2) The Secretary's guarantee on a loan ceases to be effective if 
the lender fails to pay the insurance premium within 60 days of the date 
payment is due. However, the Secretary may excuse late payment of an 
insurance premium and reinstate the guarantee coverage on a loan if the 
Secretary is satisfied that at the time the premium is paid--
    (i) The loan is not in default and the borrower is not delinquent in 
making installment payments; or
    (ii) The loan is in default, or the borrower is delinquent, under 
circumstances where the borrower has entered the repayment period 
without the lender's knowledge.
    Collection from borrowers. The lender may pass along the cost of the 
insurance premium to the borrower. If it does so, the insurance premium 
must be deducted from each disbursement of the loan in an amount 
proportionate to that disbursement's contribution to the premium amount.
    (g) Refund provisions. The insurance premium is not refundable by 
the Secretary and need not be refunded by the lender to the borrower, 
even if the borrower prepays, defaults, dies, becomes totally and 
permanently disabled, or files a petition in bankruptcy.

(Authority: 20 U.S.C. 1077, 1078-1, 1078-2, 1078-3, 1079, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18981, Apr. 16, 1999]



Sec. 682.506  Limitations on maximum loan amounts.

    (a) The Secretary does not guarantee a FISL, Federal SLS, or Federal 
PLUS loan in an amount that would--
    (1) Result in an annual loan amount in excess of the student's 
estimated

[[Page 787]]

cost of attendance for the period of enrollment for which the loan is 
intended less--
    (i) The student's estimated financial assistance; and
    (ii) The student's expected family contribution for that period, in 
the case of a FISL loan; or
    (2) Result in an annual or aggregate loan amount in excess of the 
permissible annual and aggregate loan limits described in Sec. 682.204.
    (b) The Secretary does not guarantee a Federal Consolidation loan in 
an amount greater than that required to discharge loans eligible for 
consolidation under Sec. 682.100(a)(4).

(Authority: 20 U.S.C. 1075, 1077, 1078-1, 1078-2, 1079, 1082, 1089)



Sec. 682.507  Due diligence in collecting a loan.

    (a) General. (1) Except as provided in paragraph (a)(4) of this 
section, a lender shall exercise due diligence in the collection of a 
loan with respect to both a borrower and an authorized endorser. In 
order to exercise due diligence, a lender shall implement the procedures 
described in this section if a borrower fails to make an installment 
payment when due.
    (2) If two borrowers are liable for repayment of a Federal PLUS or 
Federal Consolidation loan as co-makers, the lender must follow these 
procedures with respect to both borrowers.
    (3) For purposes of this section, the borrower's delinquency begins 
on the day after the due date of an installment payment not paid when 
due, except that if the borrower entered the repayment period without 
the lender's knowledge, the delinquency begins 30 days after the day the 
lender receives notice that the borrower has entered the repayment 
period.
    (4) In lieu of the procedures described in this section, a lender 
may use the due diligence procedures in Sec. 682.411 in collecting a 
Federal GSL loan.
    (b) Initial delinquency. If a borrower is delinquent in making a 
payment, the lender shall remind the borrower within 10 working days of 
the date the payment was due by means of a letter, notice, telephone 
call, or personal contact. If payments do not begin or resume, the 
lender shall attempt to contact the borrower--
    (1) At last six more times at regular intervals during the remainder 
of the six-month period that started on the date of delinquency for 
loans repayable in monthly installments; or
    (2) At least eight more times during the remainder of the eight-
month period that started on the date of delinquency for loans repayable 
in installments less frequent than monthly.
    (c) Skip-tracing assistance. (1) If a lender does not know the 
borrower's current address, the lender promptly shall attempt to locate 
the borrower through normal commercial collection activities, including 
contacting all individuals and entities named in the borrower's loan 
application. If these efforts are unsuccessful, the lender promptly 
shall attempt to learn the borrower's current address through use of the 
Department's skip-tracing assistance.
    (2) If the lender does not know the borrower's address when a 
borrower is first delinquent in making a payment, but subsequently 
obtains the borrower's address prior to the date on which the loan goes 
into default, the lender shall attempt to contact the borrower in 
accordance with paragraph (b) of this section, with the first contact 
occurring within 15 days of the date the lender obtained knowledge of 
the borrower's address, and shall attempt to contact the borrower at 
least once during each succeeding 30-day period until default.
    (d) Preclaims assistance. When the borrower is 60 days delinquent in 
making a payment, the lender shall request preclaims assistance from the 
Department of Education. This preclaims assistance consists of sending a 
series of letters to the borrower, urging the borrower to contact the 
lender and begin or resume payments.
    (e) Final demand letter. A lender shall send a final demand letter 
to the borrower at least 30 days before the lender files a default 
claim. The lender shall allow the borrower at least 30 days to respond 
to the final demand letter. However, a lender need not send a final 
demand letter to a borrower whose address is unknown to the lender.

[[Page 788]]

    (f) Litigation. (1) If a loan is in default and the lender 
determines that the borrower or an endorser has the ability to repay the 
loan, the lender may bring suit against the borrower or the endorser to 
recover the amount of the unpaid principal and interest, together with 
reasonable attorneys' fees, late charges, and court costs.
    (2) Prior to bringing suit the lender shall--
    (i) Obtain the Secretary's approval; and
    (ii) Notify the borrower or endorser in writing that it has received 
the Secretary's approval to bring suit on the loan, and that unless the 
borrower or endorser makes payments sufficient to bring the account out 
of default the lender will seek a judgment under which the borrower or 
endorser will be liable for payment of late charges, attorneys' fees, 
collection agency charges, court costs, and other reasonable collection 
costs in addition to the unpaid principal and interest on the loan. The 
lender shall mail the notice to the borrower or endorser by certified 
mail, return receipt requested.
    (3) The lender may bring suit if the borrower or endorser does not 
make payments sufficient to bring the account out of default within 10 
days following the date of delivery of the notice described in paragraph 
(f)(2)(ii) of this section to the borrower or endorser indicated on the 
receipt.
    (4) A lender may first apply the proceeds of any judgment against 
its attorneys' fees, court costs, collection agency charges, and other 
reasonable collection costs, whether or not the judgment provides for 
these fees and costs.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1079, 1080, 1081, 1082, 
1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 33358, June 28, 1994; 64 FR 18981, Apr. 16, 1999; 64 FR 58965, Nov. 
1, 1999]



Sec. 682.508  Assignment of a loan.

    (a) General. A Federal GSL loan may not be assigned except to 
another eligible lender. For the purpose of this paragraph, ``assigned'' 
means any kind of transfer of an interest in the loan, including a 
pledge of such an interest as security.
    (b)(1) Procedure. If the assignment of a FISL Program loan is to 
result in a change in the identity of the party to whom the borrower 
must send subsequent payments, the assignor and the assignee of the loan 
shall, no later than 45 days from the date the assignee acquires a 
legally enforceable right to receive payment from the borrower on the 
assigned loan, provide separate notices to the borrower of--
    (i) The assignment;
    (ii) The identity of the assignee;
    (iii) The name and address of the party to whom subsequent payments 
must be sent; and
    (iv) The telephone numbers of both the assignor and the assignee.
    (2) The assignor and assignee shall provide the notice required by 
paragraph (b)(1) of this section separately. Each notice must indicate 
that a corresponding notice will be sent by the other party to the 
assignment.
    (c) The Secretary's approval. The approval of the Secretary is 
required prior to the assignment of a note to an eligible lender that 
has not entered into a contract of insurance with the Secretary under 
Sec. 682.503.
    (d) Warranty. (1) Nothing in this section precludes the buyer of a 
loan from obtaining a warranty from the seller covering certain future 
reductions by the Secretary in computing the amount of guaranteed loss, 
if any, on a claim filed on the loan.
    (2) The warranty may cover only reductions that are attributable to 
an act or failure to act of the seller or other previous holder.
    (3) The warranty may not cover matters the buyer is responsible for 
under the regulations in this part.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1079, 1080, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999]



Sec. 682.509  Special conditions for filing a claim.

    (a) A lender shall cease collection activity on a loan and file a 
claim with

[[Page 789]]

the Secretary within the time specified in Sec. 682.511(e)(3), if--
    (1) In the case of a loan that was not made or originated by the 
school, the lender learns that while the student was enrolled at the 
school the school terminated its teaching activities for that student 
during the academic period covered by the loan; or
    (2) The Secretary directs that the claim be filed.
    (b) A lender may not as a result of a claim filed with the Secretary 
under this section report a borrower's loan as in default to any credit 
bureau or other third party.

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1079, 1080, 1082)



Sec. 682.510  Determination of the borrower's death, total and permanent 
disability, or bankruptcy.

    (a) The procedures in Sec. 682.402(a)-(d) for determining whether a 
borrower has died, become totally and permanently disabled, or filed a 
bankruptcy petition apply to the Federal GSL programs.
    (b) For purposes of this section, references to the ``guaranty 
agency'' in Sec. 682.402(d)(5) shall be understood to refer to the 
Secretary.

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1082, 1087)



Sec. 682.511  Procedures for filing a claim.

    (a) Filing a claim application. (1) A lender may file a claim 
against the Secretary's guarantee on a Federal GSL loan for any of the 
following reasons:
    (i) The loan is in default, as defined in Sec. 682.200.
    (ii) Any of the conditions exist for filing a claim without 
collection efforts, as set forth in Sec. 682.412(e)(2) or Sec. 682.509.
    (iii) The borrower has died, become totally and permanently 
disabled, or filed a bankruptcy petition, as determined by the lender in 
accordance with Sec. 682.510.
    (2) If a Federal PLUS loan was obtained by two eligible parents as 
co-makers, or a Federal Consolidation loan was obtained jointly by a 
married couple, the reason for filing a claim must hold true for both 
applicants, or each applicant must have satisfied a claimable criterion 
at the time of the request for discharge of the loan.
    (3) A lender may file a claim against the Secretary's guarantee only 
on a form provided by the Secretary. The lender shall attach to the 
claim all documents required by the Secretary. If the lender fails to do 
so, the Secretary denies the claim.
    (b) Documentation required for claims. (1) The Secretary requires a 
lender to submit the following documentation with all claims:
    (i) The original promissory note.
    (ii) The loan application.
    (iii) The repayment instrument.
    (iv) A payment history, as described in Sec. 682.414(a)(3)(ii)(I).
    (v) A collection history, as described in Sec. 682.414(a)(3)(ii)(J).
    (vi) A copy of the final demand letter if required by 
Sec. 682.507(e).
    (vii) The original or a copy of all correspondence addressed to, 
from, or on behalf of the borrower that is relevant to the loan, whether 
that correspondence involved the original lender, a subsequent holder, 
or a servicing agent.
    (viii) If applicable, evidence of the lender's requests to the 
Department for skip-tracing assistance under Sec. 682.507(c) and for 
preclaims assistance under Sec. 682.507(d).
    (ix) Any additional documentation that the Secretary determines is 
relevant to a claim.
    (2) The documentation requirements for death, total and permanent 
disability, or bankruptcy claims in Sec. 682.402(g)(1) apply to the 
Federal GSL programs. For purposes of this section, references to the 
``guaranty agency'' in Sec. 682.402(e)(1) mean the Secretary.
    (c) Assignment of note. The Secretary's payment of a claim is 
contingent upon receipt from the lender of an assignment to the United 
States of America of all rights, title, and interest of the lender in 
the note underlying the claim.
    (d) Bankruptcy subsequent to default. If the lender files a default 
claim on a loan and subsequently receives a notice of the first meeting 
of creditors in the proceeding of the borrower in bankruptcy, the lender 
shall promptly forward that notice to the Department of Education. Under 
these circumstances

[[Page 790]]

the lender shall not file a proof of claim with the bankruptcy court.
    (e) Claim filing deadlines. To obtain payment of a claim, a lender 
shall comply with the following deadlines:
    (1) Default claims. Unless the lender has already filed suit against 
the borrower in accordance with Sec. 682.507(f), it shall file a default 
claim on a loan with the Secretary within 90 days after a default has 
occurred on the loan. For a claim filed by a lender pursuant to 
Sec. 682.412(e)(2), as directed in Sec. 682.208(f)(2), the lender shall 
file a claim within 90 days following transmission of the final demand 
letter sent pursuant to Sec. 682.411(e) if the borrower failed to comply 
with the terms of the letter within 30 days of the transmission.
    (2) Death, total and permanent disability, or bankruptcy claims. The 
claim filing deadlines in Sec. 682.402(e)(2) apply to the Federal GSL 
programs. For purposes of this section, references to the ``guaranty 
agency'' in Sec. 682.402(e)(2) mean the Secretary.
    (3) Special condition claims. In the case of a special condition 
claim filed pursuant to Sec. 682.509, the lender shall file a claim with 
the Secretary within 45 days of the date the lender determines that the 
conditions set forth in Sec. 682.509(a)(1) exist, or the date the 
Secretary directs that the claim be filed pursuant to 
Sec. 682.509(a)(2).

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1080, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 33358, June 28, 1994; 64 FR 18981, Apr. 16, 1999; 64 FR 58965, Nov. 
1, 1999]



Sec. 682.512  Determination of amount payable on a claim.

    (a) Default claims. (1) Amount payable. The amount of loss to be 
paid on a default claim depends upon the date the Secretary received the 
application for a guarantee commitment on the loan. If the application 
was received--
    (i) Prior to July 1, 1972, or from August 19, 1972 through February 
28, 1973, the amount payable on a valid claim is equal to the unpaid 
balance of the original principal loan amount disbursed; or
    (ii) From July 1 through August 18, 1972, or after February 28, 
1973, the amount payable on a valid claim is equal to the unpaid balance 
of the principal and interest in accordance with paragraph (a)(2) of 
this section. The unpaid principal amount of the loan may include 
capitalized interest to the extent authorized by Sec. 682.202(b).
    (2) Payment of interest. If the guarantee covers unpaid interest, 
the payment of a valid claim covers the unpaid interest that accrues 
during the following periods:
    (i) During the period before the claim is filed, not to exceed the 
period provided for in Sec. 682.511(e) for filing the claim.
    (ii) During a period not to exceed 30 days following the return of 
the claim to the lender by the Secretary for additional documentation 
necessary for the claim to be approved by the Secretary.
    (iii) During the period, after the claim is filed, that is required 
by the Secretary to approve the claim and to authorize payment or to 
return the claim to the lender for additional documentation.
    (3) Recovery of outstanding debts. The Secretary may reduce the 
amount of loss due to the lender on a claim by the amount the Secretary 
determines is owed to the Secretary by the lender.
    (b) Death, total and permanent disability, or bankruptcy claims. (1) 
In the case of a death or disability claim, the amount to be paid on a 
valid claim--
    (i) Is equal to the unpaid balance of the original principal loan 
amount disbursed if the loan was disbursed prior to December 15, 1968; 
or
    (ii) Is calculated in accordance with Sec. 682.402(h)(2) and (h)(3) 
if the loan was disbursed after December 14, 1968.
    (2) In the case of a bankruptcy claim, the amount of loss is 
calculated in accordance with Sec. 682.402(f)(2) and (f)(3).
    (3) For purposes of this section, references to the ``guaranty 
agency'' in Sec. 682.402(f)(3) mean the Secretary.
    (c) Special rules for a loan acquired by assignment. If a claim is 
filed by a lender that obtained a loan by assignment, that lender is not 
entitled to any payment under this section greater than that to which a 
previous holder would have been entitled. For example, the Secretary 
deducts from the claim any

[[Page 791]]

amounts that are attributable to payments made by the borrower to a 
prior holder of the loan before the borrower received proper notice of 
the assignment of the loan.

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1080, 1082, 1087)

[57 FR 60323, Dec. 18, 1992, as amended at 64 FR 18981, Apr. 16, 1999]



Sec. 682.513  Factors affecting coverage of a loan under the loan guarantee.

    (a)(1) In determining whether to approve for payment a claim against 
the Secretary's guarantee, the Secretary considers matters affecting the 
enforceability of the loan obligation and whether the loan was made and 
administered in accordance with the Act and applicable regulations.
    (2) The Secretary deducts from a claim any amount that is not a 
legally enforceable obligation of the borrower, except to the extent 
that the defense of infancy applies.
    (3) Except as provided in Sec. 682.509, the Secretary does not pay a 
claim unless--
    (i) All holders of the loan have complied with the requirements of 
this part, including, but not limited to, those concerning due diligence 
in the making, servicing, and collecting of a loan;
    (ii) The current holder has complied with the deadlines for filing a 
claim established in Sec. 682.511(e); and
    (iii) The current holder complies with the requirements for 
submitting documents with a claim as established in Sec. 682.511(b).
    (b) Except as provided in Sec. 682.509, the Secretary does not pay a 
death, disability, or bankruptcy claim for a loan after a default claim 
for that loan has been disapproved by the Secretary or if it would not 
be payable as a default claim by the Secretary.
    (c) The Secretary's determination of the amount of loss payable on a 
default claim under this part, once final, is conclusive and binding on 
the lender that filed the claim.
    Note: A determination of the Secretary under this section is subject 
to judicial review under 5 U.S.C. 706 and 41 U.S.C. 321-322.

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1079, 1080, 1082)



Sec. 682.514  Procedures for receipt or retention of payments where the 
lender has violated program requirements for Federal GSL loans.

    (a) The Secretary may waive the right to recover or refuse to make 
an interest benefits, special allowance, or claim payment, or may permit 
a lender to cure certain defects in a specified manner if, in the 
Secretary's judgment, the best interests of the United States so 
require.
    (b) To receive payment on a default claim or to resume eligibility 
to receive interest benefits and special allowance on a loan as to which 
a lender has committed a violation of the requirements of this part 
regarding due diligence in collection or timely filing of claims, the 
lender shall meet the conditions described in appendix C to this part.

(Authority: 20 U.S.C. 1078-1, 1078-2, 1078-3, 1080, 1082)



Sec. 682.515  Records, reports, and inspection requirements for Federal 
GSL program lenders.

    (a) Records. (1) A lender shall maintain current, complete, and 
accurate records of each loan that it holds, including, but not limited 
to, the records described in Sec. 682.414(a)(3)(ii). The records must be 
maintained in a system that allows ready identification of each loan's 
current status.
    (2) A lender shall retain the records required for each loan for not 
less than five years following the date the loan is repaid in full by 
the borrower or the lender is reimbursed on a claim. However, in 
particular cases the Secretary may require the retention of records 
beyond this minimum period.
    (3)(i) The lender may store the records specified in 
Sec. 682.414(a)(3)(ii)(C)-(K) on microfilm, optical disk, or other 
machine readable format.
    (ii) The holder of the promissory note shall retain the original 
note and repayment instrument until the loan is fully repaid. At that 
time the holder shall return the original note and repayment instrument 
to the borrower and retain copies for the prescribed period.
    (iii) The lender shall retain the original or a copy of the loan 
application.

[[Page 792]]

    (b) Reports. A lender shall submit reports to the Secretary at the 
time and in the manner that the Secretary reasonably may require.
    (c) Inspections. Upon request, a lender or its agent shall cooperate 
with the Secretary, the Department's Office of the Inspector General, 
and the Comptroller General of the United States, or their authorized 
representatives, in the conduct of audits, investigations, and program 
reviews. This cooperation must include--
    (1) Providing timely access for examination and copying to the 
records (including computerized records) required by applicable 
regulations and to any other pertinent books, documents, papers, 
computer programs, and records; and
    (2) Providing reasonable access to lender personnel associated with 
the lender's administration of the Title IV, HEA programs for the 
purpose of obtaining relevant information. In providing reasonable 
access, the institution may not--
    (i) Refuse to supply any relevant information;
    (ii) Refuse to permit interviews with those personnel that do not 
include the presence of representatives of the lender's management; and
    (iii) Refuse to permit personnel interviews with those personnel 
that are not recorded by the lender.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078-1, 1078-2, 1078-3, 1079, 1080, 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999]



   Subpart F--Requirements, Standards, and Payments for Participating 
                                 Schools



Sec. 682.600  [Reserved]



Sec. 682.601  Rules for a school that makes or originates loans.

    (a) General. To make or originate loans under the FFEL programs--
    (1) The school shall employ full-time at least one person whose 
responsibilities are limited to the administration of financial aid 
programs for students attending the school;
    (2) The school may not be a correspondence school;
    (3) The school may not make or originate loans that would be 
outstanding to or on behalf of more than 50 percent of the 
undergraduates in attendance at that school on at least a half-time 
basis unless the Secretary waives this rule pursuant to paragraph (c) of 
this section;
    (4) The school shall inform any undergraduate student who has not 
previously obtained a loan that was made or originated by the school and 
who seeks to obtain such a loan that he or she must first make a good 
faith effort to obtain a loan from a commercial lender;
    (5)(i) The school may not make or originate a loan for an academic 
period to a student described in paragraph (a)(4) of this section until 
the student provides the school with evidence under paragraph (b) of 
this section of denial of a loan by a commercial lender for the same 
academic period.
    (ii) In determining whether a school has complied with the 
requirement set paragraph (a)(5)(i) of this section, the Secretary may 
take into consideration any patterns reflected by the letters of denial 
or the students' sworn statements referred to in paragraph (b) of this 
section that indicate that the school has not given sufficient 
counseling to students to seek loans from a commercial lender first. An 
example of an unacceptable pattern would be if all denials of loans to a 
school's students were made by a small number of lenders; and
    (6) The school's cohort default rate as calculated under subpart M 
of 34 CFR part 668 may not exceed 15 percent; and
    (7) Except for reasonable administrative expenses directly related 
to the FFEL Program, the school must use payments received under 
Sec. 682.300 and Sec. 682.302 for need-based grant programs for its 
students.
    (b) Establishing a loan denial by a commercial lender. (1) To verify 
that a borrower has sought and been denied a loan from a commercial 
lender pursuant to paragraph (a)(4) of this section, the school shall 
obtain from the borrower--

[[Page 793]]

    (i) A written statement from a commercial lender indicating that the 
lender denied the borrower a loan for that academic period; or
    (ii) The borrower's sworn statement, indicating both the refusal of 
a loan by a commercial lender and the lender's refusal to provide a 
written statement of the denial.
    (2) If the borrower's statement is used to establish the denial of a 
loan, the statement must include--
    (i) The name and address of the lender that denied the loan;
    (ii) The approximate date on which the loan was denied;
    (iii) The name and telephone number of the official who communicated 
the denial to the borrower; and
    (iv) The borrower's signature.
    (3) If the school determines that the denial of a loan to an 
eligible borrower by a commercial lender is based upon the lender's 
refusal to lend more than a part of the amount requested by the 
borrower, the school may either--
    (i) Make or originate a loan to the borrower for the entire amount; 
or
    (ii) Supplement the loan that the commercial lender is willing to 
make with a second loan to the borrower.
    (c) Waiver of the 50 percent lending limit. A school may request the 
Secretary to waive the 50 percent lending limit described in paragraph 
(a)(3) of this section if adherence to that limit would create a 
substantial hardship for the school's present or prospective students. 
The Secretary determines whether to grant the school a waiver after 
considering, among other factors--
    (1) The extent to which the school provides and expects to continue 
providing educational opportunities to economically disadvantaged 
students, as measured by the percentage of those students enrolled at 
the school who--
    (i) Are in families that fall within the ``low-income family'' 
category used by the Bureau of the Census;
    (ii) Would not be able to enroll or continue their enrollment at 
that school without Stafford or PLUS loans made or originated by the 
school; and
    (iii) Would not be able to obtain a comparable education at another 
school;
    (2) The extent to which the school offers educational programs that-
-
    (i) Are unique in the geographical area the school serves; and
    (ii) Would not be available to some students if the school adhered 
to the 50 percent lending limit; and
    (3) The quality of the school's--
    (i) Management of student financial assistance programs; and
    (ii) Conformance with sound business practices.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1085)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33358, June 28, 1994; 64 FR 58965, Nov. 1, 1999; 65 FR 65650, Nov. 1, 
2000; 66 FR 34764, June 29, 2001]



Sec. 682.602  [Reserved]



Sec. 682.603  Certification by a participating school in connection with 
a loan application.

    (a) A school shall certify that the information it provides in 
connection with a loan application about the borrower and, in the case 
of a parent borrower, the student for whom the loan is intended, is 
complete and accurate. Except as provided in 34 CFR part 668, subpart E, 
a school may rely in good faith upon statements made on the application 
by the student.
    (b) The information to be provided by the school about the borrower 
making application for the loan pertains to--
    (1) The borrower's eligibility for a loan, as determined in 
accordance with Sec. 682.201 and Sec. 682.204;
    (2) For a subsidized Stafford loan, the student's eligibility for 
interest benefits as determined in accordance with Sec. 682.301; and
    (3) The schedule for disbursement of the loan proceeds, which must 
reflect the delivery of the loan proceeds as set forth in 
Sec. 682.604(c).
    (c) Except as provided in paragraph (e) of this section, in 
certifying a loan, a school must certify a loan for the lesser of the 
borrower's request or the loan limits determined under Sec. 682.204.
    (d) A school may not certify a Stafford or PLUS loan application, or 
combination of loan applications, for a loan amount that--

[[Page 794]]

    (1) The school has reason to know would result in the borrower 
exceeding the annual or maximum loan amounts in Sec. 682.204; or
    (2) Exceeds the student's estimated cost of attendance, less--
    (i) The student's estimated financial assistance for that period; 
and
    (ii) In the case of a Stafford loan that is eligible for interest 
benefits, the borrower's expected family contribution for that period.
    (e) A school may refuse to certify a Stafford or PLUS loan 
application or may reduce the borrower's determination of need for the 
loan if the reason for that action is documented and provided to the 
student in writing, provided--
    (1) The determination is made on a case-by-case basis;
    (2) The documentation supporting the determination is retained in 
the student's file; and
    (3) The school does not engage in any pattern or practice that 
results in a denial of a borrower's access to FFEL loans because of the 
borrower's race, sex, color, religion, national origin, age, handicapped 
status, income, or selection of a particular lender or guaranty agency.
    (f)(1) The minimum period of enrollment for which a school may 
certify a loan application is--
    (i) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, a single academic term 
(e.g., a semester or quarter); or
    (ii) At a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system, the lesser of--
    (A) The length of the student's program at the school; or
    (B) The academic year as defined by the school in accordance with 34 
CFR 668.3.
    (2) The maximum period for which a school may certify a loan 
application is--
    (i) Generally an academic year, as defined by 34 CFR 668.3, except 
that a guaranty agency may allow a school to use a longer period of 
time, not to exceed 12 months, corresponding to the period to which the 
agency applies the annual loan limits under Sec. 682.401(b)(2)(ii); or
    (ii) For a defaulted borrower who has regained eligibility under 
Sec. 682.401(b)(4), the academic year in which the borrower regained 
eligibility.
    (3) In certifying a Stafford or SLS loan amount in accordance with 
Sec. 682.204--
    (i) A program of study must be considered at least one full academic 
year if--
    (A) The number of weeks of instruction time is at least 30 weeks; 
and
    (B) The number of clock hours is at least 900, the number of 
semester or trimester hours is at least 24, or the number of quarter 
hours is at least 36.
    (ii) A program of study must be considered two-thirds \2/3\ of an 
academic year if--
    (A) The number of weeks of instruction time is at least 20 weeks; 
and
    (B) The number of clock hours is at least 600, the number of 
semester or trimester hours is at least 16, or the number of quarter 
hours is at least 24.
    (iii) A program of study must be considered one-third \1/3\ of an 
academic year if--
    (A) The number of weeks of instruction time is at least 10 weeks; 
and
    (B) The number of clock hours is at least 300, the number of 
semester or trimester hours is at least 8, or the number of quarter 
hours is at least 12.
    (4) In prorating a loan amount for a student enrolled in a program 
of study with less than a full academic year remaining, the school need 
not recalculate the amount of the loan if the number of hours for which 
an eligible student is enrolled changes after the school certifies the 
loan.
    (g)(1) A school must cease certifying loans based on the exceptions 
in Sec. 682.604(c)(5)(i) and Sec. 682.604(c)(10)(i) no later than--
    (i) 30 days after the date the school receives notification from the 
Secretary of an FFEL cohort default rate, calculated under subpart M of 
34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in those paragraphs; or
    (ii) October 1, 2002.
    (2) A school must cease certifying loans based on the exceptions in 
Sec. 682.604(c)(5)(ii) and Sec. 682.604(c)(10)(ii)

[[Page 795]]

no later than 30 days after the date the school receives notification 
from the Secretary of an FFEL cohort default rate, calculated under 
subpart M of 34 CFR part 668, that causes the school to no longer meet 
the qualifications outlined in those paragraphs.
    (h) A school may not assess the borrower, or the student in the case 
of a PLUS loan, a fee for the completion or certification of any FFEL 
Program form or information or for providing any information necessary 
for a student or parent to receive a loan under part B of the Act or any 
benefits associated with such a loan.
    (i) Requesting loan proceeds. Pursuant to paragraph (b)(3) of the 
section, a school may not request the disbursement by the lender for 
loan proceeds earlier than the period specified in Sec. 668.167.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9120, Feb. 19, 1993; 59 
FR 33358, June 28, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 61757, Dec. 1, 
1995; 61 FR 60609, Nov. 29, 1996; 64 FR 18981, Apr. 16, 1999; 64 FR 
58963, Nov. 1, 1999; 65 FR 65650, Nov. 1, 2000; 66 FR 34764, June 29, 
2001; 67 FR 67080, Nov. 1, 2002]



Sec. 682.604  Processing the borrower's loan proceeds and counseling 
borrowers.

    (a) General. (1) This section establishes rules governing a school's 
processing of a borrower's Stafford or PLUS loan proceeds, and for 
counseling borrowers. The school shall also comply with any rules for 
processing a loan contained in 34 CFR part 668.
    (2) Prior to a school delivering or crediting an FFEL loan account 
by EFT or master check, the school must provide the student or parent 
borrower with the notice as described under Sec. 668.165.
    (3) Except as provided in Sec. 668.167, if the school is placed 
under the reimbursement payment method, a school shall not disburse a 
loan.
    (b) Releasing loan proceeds. (1) Except as provided in 
Sec. 682.207(b)(1)(v)(C)(1) and (D)(1), the proceeds of a Stafford or 
PLUS loan disbursed using electronic transfer of funds must be sent 
directly to the school by the lender.
    (2)(i) Except in the case of a late disbursement under paragraph (e) 
of this section or as provided in paragraph (b)(2)(iii) or (iv) of this 
section, a school may release the proceeds of any disbursement of a loan 
only to a student whom the school determines has maintained continuous 
eligibility in accordance with the provisions of Sec. 682.201 for the 
loan period certified by the school on the student's loan application.
    (ii) [Reserved]
    (iii) If, after the proceeds of the first disbursement are 
transmitted to the student, the student becomes ineligible due solely to 
the school's loss of eligibility to participate in the Title IV 
programs, the school may transmit the proceeds of the second or 
subsequent disbursement to the borrower as permitted by Sec. 668.26.
    (iv) If, prior to the transmittal of the proceeds of a disbursement 
to the student, the student temporarily ceases to be enrolled on at 
least a half-time basis, the school may transmit the proceeds of that 
disbursement and any subsequent disbursement to the student if the 
school subsequently determines and documents in the student's file--
    (A) That the student has resumed enrollment on at least a half-time 
basis;
    (B) The student's revised cost of attendance; and
    (C) That the student continues to qualify for the entire amount of 
the loan, notwithstanding any reduction in the student's cost of 
attendance caused by the student's temporary cessation of enrollment on 
at least a half-time basis.
    (c) Processing of the loan proceeds by the school. (1) Except as 
provided in paragraph (c)(3) of this section, if a school receives a 
borrower's loan proceeds, it shall hold the funds until the student has 
registered for classes for the period of enrollment for which the loan 
is intended and then follow the procedures in paragraph (c) (2) of this 
section.
    (2)(i) Except as provided in Sec. 682.207(b)(1)(v)(C)(1) and (D)(1), 
after the student has registered, if the loan proceeds are disbursed by 
means of a

[[Page 796]]

check that requires the endorsement of the student only, the school 
shall deliver the check to the student, subject to paragraph (d)(2) of 
this section, within 30 days of the school's receipt of the check.
    (ii) If the loan proceeds are disbursed by means of a check that 
requires the endorsement of both the borrower and the school, the school 
shall--
    (A) In the case of the initial disbursement on a loan, endorse the 
check on its own behalf, and, after the student has registered, deliver 
it to the student subject to paragraph (d)(2) of this section, within 30 
days of the school's receipt of the check; or
    (B) Obtain the borrower's endorsement on the check, endorse the 
check on its own behalf and, after the student has registered, credit 
the student's account, in accordance with paragraph (d)(1) of this 
section, and deliver the remaining loan proceeds to the student, as 
specified in Sec. 668.164(e).
    (3) If the loan proceeds are disbursed by electronic funds transfer 
to an account of the school in accordance with 
Sec. 682.207(b)(1)(ii)(B), or by master check in accordance with 
Sec. 682.207(b)(1)(ii)(C), the school must, unless authorization was 
provided in the loan application or MPN, obtain the student's, or in the 
case of a PLUS loan, the parent borrower's written authorization for the 
release of the initial and any subsequent disbursement of each FFEL loan 
to be made, and after the student has registered either--
    (i) Deliver the proceeds to the student or parent borrower as 
specified in Sec. 668.164; or
    (ii) Credit the student's account in accordance with paragraph 
(d)(1) of this section and Sec. 668.164, notify the student or parent 
borrower in writing that it has so credited that account, and deliver to 
the student or parent borrower the remaining loan proceeds not later 
than the timeframe specified in 668.164.
    (4) A school may not credit a student's account or release the 
proceeds of a loan to a student who is on a leave of absence, as 
described in Sec. 668.22(d).
    (5) A school may not release the first installment of a Stafford 
loan for endorsement to a student who is enrolled in the first year of 
an undergraduate program of study and who has not previously received a 
Stafford, SLS, Direct Subsidized, or Direct Unsubsidized loan until 30 
days after the first day of the student's program of study unless--
    (i) The school in which the student is enrolled has a cohort default 
rate, calculated under subpart M of 34 CFR part 668, of less than 10 
percent for each of the three most recent fiscal years for which data 
are available;
    (ii) The school is an eligible home institution certifying a loan to 
cover the student's cost of attendance in a study abroad program and has 
a cohort default rate, calculated under subpart M of 34 CFR part 668, of 
less than 5 percent for the single most recent fiscal year for which 
data are available; or
    (iii) The school is not in a State.
    (6) Unless the provision of Sec. 682.207(d) or the provisions of 
paragraph (c)(7) of this section apply--
    (i) If a loan period is more than one payment period, the school 
must deliver loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make at 
least two deliveries of loan proceeds during that payment period. The 
school may not make the second delivery until the calendar midpoint 
between the first and last scheduled days of class of the loan period.
    (7)(i) If a school measures academic progress in an educational 
program in credit hours and either does not use terms or does not use 
terms that are substantially equal in length for a loan period, the 
school may not deliver a second disbursement until the later of--
    (A) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (B) The date, as determined by the school, that the student has 
completed half of the academic coursework in the loan period.
    (ii) For purposes of paragraph (c)(7) of this section, terms in a 
loan period are substantially equal in length if no term in the loan 
period is more than two weeks longer than any other term in that loan 
period.
    (8) If an educational program measures academic progress in clock 
hours,

[[Page 797]]

the school may not deliver a second disbursement until the later of--
    (i) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (ii) The date, as determined by the school, that the student has 
completed half of the clock hours in the loan period.
    (9) The school must deliver loan proceeds in substantially equal 
installments, and no installment may exceed one-half of the loan.
    (10) Notwithstanding the requirements of paragraphs (c)(6)-(c)(9) of 
this section, a school is not required to deliver loan proceeds in more 
than one installment if--
    (i)(A) The student's loan period is not more than one semester, one 
trimester, one quarter, or, for non term-based schools or schools with 
non-standard terms, 4 months; and
    (B) The school in which the student is enrolled has a cohort default 
rate, calculated under subpart M of 34 CFR part 668, of less than 10 
percent for each of the three most recent fiscal years for which data 
are available;
    (ii) The school is an eligible home institution certifying a loan to 
cover the student's cost of attendance in a study abroad program and has 
a cohort default rate, calculated under subpart M of 34 CFR part 668, of 
less than 5 percent for the single most recent fiscal year for which 
data are available; or
    (iii) The school is not in a State.
    (11) A school may deliver loan proceeds in accordance with 
paragraphs (c)(5) and (c)(10) of this section, if the school certified 
the loan prior to the deadline as provided for in Sec. 682.603(g).
    (d) Applying the loan proceeds. (1)(i) For purposes of paragraphs 
(c)(2)(ii)(B) and (c)(3)(ii) of this section, a school may not credit a 
registered student's account earlier than the period specified in 
Sec. 668.164.
    (ii)(A) The school may credit a registered student's account with 
only those loan proceeds covering costs specified in Sec. 668.164.
    (B) The school, as a fiduciary for the benefit of the guaranty 
agency, the Secretary, and the student, may hold any additional loan 
proceeds that the student requests in writing that the school retain in 
order to assist the student in managing his or her loan funds for the 
remainder of the academic year. The school shall maintain these funds, 
as provided in Sec. 668.165(b)(5).
    (2) For purposes of paragraphs (c)(2)(i), (c)(2)(ii) and (c)(3) of 
this section, a school may not deliver loan proceeds earlier than the 
timeframe specified in Sec. 668.164.
    (3) If a student does not register for the period of enrollment for 
which the loan was made, or a registered student withdraws or is 
expelled prior to the first day of classes of the period of enrollment 
for which the loan is made, the school shall return the proceeds to the 
lender no later than the period specified in Sec. 668.167.
    (4) If the school is unable for any other reason to document that a 
registered student attended school during the period of enrollment for 
which the loan is made, the school must determine the student's 
withdrawal date as required under Sec. 682.605, and by the deadline 
described under Sec. 682.605, within 30 days of the period described in 
Sec. 682.607(c) shall notify the lender of the student's withdrawal, 
expulsion, or failure to attend school, if applicable, and return to the 
lender--
    (i) Any loan proceeds credited directly by the school to the 
student's account; and
    (ii) The amount of payments made directly by the student to the 
school, to the extent that they do not exceed the amount of any loan 
proceeds delivered by the school to the student.
    (e) Processing a late disbursement. (1) A school may process a late 
disbursement received from a lender under Sec. 682.207(f) in accordance 
with Sec. 668.164(g).
    (2) If the total amount of the late disbursement and all prior 
disbursements is greater than that portion of the borrower's educational 
charges, the school shall return the balance of the borrower's loan 
proceeds to the lender with a notice certifying--
    (i) The beginning and ending dates of the period during which the 
borrower was enrolled at the school as an eligible student during the 
loan period or payment period; and
    (ii) The borrower's corrected financial need for the loan for that 
period of enrollment or payment period.

[[Page 798]]

    (f) Initial counseling. (1) A school must ensure that initial 
counseling is conducted with each Stafford loan borrower either in 
person, by audiovisual presentation, or by interactive electronic means 
prior to its release of the first disbursement, unless the student 
borrower has received a prior Federal Stafford, Federal SLS, or Direct 
subsidized or unsubsidized loan. A school must ensure that an individual 
with expertise in the title IV programs is reasonably available shortly 
after the counseling to answer the student borrower's questions 
regarding those programs. As an alternative, in the case of a student 
borrower enrolled in a correspondence program or a student borrower 
enrolled in a study-abroad program that the home institution approves 
for credit, the counseling may be provided through written materials, 
prior to releasing those loan proceeds.
    (2) The initial counseling must--
    (i) Explain the use of a Master Promissory Note;
    (ii) Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the student borrower is assuming;
    (iii) Describe the likely consequences of default, including adverse 
credit reports, Federal offset, and litigation;
    (iv) In the case of a student borrower of a Stafford loan (other 
than a loan made or originated by the school), emphasize that the 
student borrower is obligated to repay the full amount of the loan even 
if the student borrower does not complete the program, is unable to 
obtain employment upon completion, or is otherwise dissatisfied with or 
does not receive the educational or other services that the student 
borrower purchased from the school; and
    (v) Inform the student borrower of sample monthly repayment amounts 
based on a range of student levels of indebtedness or on the average 
indebtedness of Stafford loan borrowers at the same school or in the 
same program of study at the same school.
    (3) If initial counseling is conducted through interactive 
electronic means, the school must take reasonable steps to ensure that 
each student borrower receives the counseling materials, and 
participates in and completes the initial counseling.
    (4) A school must maintain documentation substantiating the school's 
compliance with this section for each student borrower.
    (g) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Stafford loan borrower either in person, by 
audiovisual presentation, or by interactive electronic means. In each 
case, the school must ensure that this counseling is conducted shortly 
before the student borrower ceases at least half-time study at the 
school, and that an individual with expertise in the title IV programs 
is reasonably available shortly after the counseling to answer the 
student borrower's questions. As an alternative, in the case of a 
student borrower enrolled in a correspondence program or a study-abroad 
program that the home institution approves for credit, written 
counseling materials may be provided by mail within 30 days after the 
student borrower completes the program. If a student borrower withdraws 
from school without the school's prior knowledge or fails to complete an 
exit counseling session as required, the school must ensure that exit 
counseling is provided through either interactive electronic means or by 
mailing written counseling materials to the student borrower at the 
student borrower's last known address within 30 days after learning that 
the student borrower has withdrawn from school or failed to complete the 
exit counseling as required.
    (2) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of student borrowers who have obtained Stafford or 
SLS loans for attendance at the same school or in the same program of 
study at the same school;
    (ii) Review for the student borrower available repayment options, 
including standard, graduated, extended, and income-sensitive repayment 
plans and loan consolidation;
    (iii) Suggest to the student borrower debt-management strategies 
that would facilitate repayment;

[[Page 799]]

    (iv) Include the matters described in paragraph (f)(2) of this 
section;
    (v) Review for the student borrower the conditions under which the 
student borrower may defer or forbear repayment or obtain a full or 
partial discharge of a loan;
    (vi) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number and State of issuance, as well as the student 
borrower's expected permanent address, the address of the student 
borrower's next of kin, and the name and address of the student 
borrower's expected employer (if known). The school must ensure that 
this information is provided to the guaranty agency or agencies listed 
in the student borrower's records within 60 days after the student 
borrower provides the information;
    (vii) Review for the student borrower information on the 
availability of the Student Loan Ombudsman's office; and
    (viii) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS).
    (3) If exit counseling is conducted by electronic interactive means, 
the school must take reasonable steps to ensure that each student 
borrower receives the counseling materials, and participates in and 
completes the counseling.
    (4) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (h) Treatment of excess loan proceeds. Except as provided under 
paragraph (i) of this section, or in the case of a student attending a 
foreign school, if, before the delivery of any Stafford or SLS loan 
disbursement, the school learns that the borrower will receive or has 
received financial aid for the period of enrollment for which the loan 
was made that exceeds the amount of assistance for which the student is 
eligible, the school shall reduce or eliminate the overaward by either--
    (1) Using the student's SLS, PLUS, nonsubsidized or unsubsidized 
Stafford, or State-sponsored or private loan to cover the expected 
family contribution, if not already done;
    (2)(i) Returning the entire undelivered disbursement to the lender 
or escrow agent; and
    (ii) Providing the lender with a written statement--
    (A) Describing the reason for the return of the funds, if any;
    (B) Setting forth the student's revised financial need; and
    (C) Directing the lender to re-disburse a revised amount and, if 
necessary, revise subsequent disbursements to eliminate the overaward; 
or
    (3) Returning to the lender any portion of the disbursement for 
which the student is ineligible and providing the lender with a written 
statement explaining the return of the funds.
    (i) For purposes of paragraph (h) of this section, funds obtained 
from any Federal College Work-Study employment that do not exceed the 
borrower's financial need by more than $300 may not be considered as 
excess loan proceeds.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1082, 1085, 1092, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 25747, May 17, 1994; 59 FR 33358, June 28, 1994; 59 FR 61216, Nov. 
29, 1994; 59 FR 61429, Nov. 30, 1994; 59 FR 61722, Dec. 1, 1994; 60 FR 
30788, June 12, 1995; 60 FR 31411, June 15, 1995; 60 FR 61757, Dec. 1, 
1995; 61 FR 60609, Nov. 29, 1996; 62 FR 63434, Nov. 28, 1997; 64 FR 
18981, Apr. 16, 1999; 64 FR 58963, 59043, Nov. 1, 1999; 65 FR 65621, 
65651, Nov. 1, 2000; 66 FR 34764, June 29, 2001; 67 FR 67080, Nov. 1, 
2003]



Sec. 682.605  Determining the date of a student's withdrawal.

    (a) Except in the case of a student who does not return for the next 
scheduled term following a summer break, which includes any summer term 
or terms in which classes are offered but students are not generally 
required to attend, a school must follow the procedures in 
Sec. 668.22(b) or (c), as applicable, for determining the student's date 
of withdrawal. In the case of a student who does not return from a 
summer break, the school must follow the procedures in Sec. 668.22(b) or 
(c), as applicable, except that the school shall determine the student's 
withdrawal date no

[[Page 800]]

later than 30 days after the first day of the next scheduled term.
    (b) The school must use the withdrawal date determined under 
Sec. 668.22(b) or (c), as applicable for the purpose of reporting to the 
lender the date that the student has withdrawn from the school.
    (c) For the purpose of a school's reporting to a lender, a student's 
withdrawal date is the month, day and year of the withdrawal date.

(Approved by the Office of Management and Budget under control number 
1845-0020)

[60 FR 61757, Dec. 1, 1995, as amended at 64 FR 58965, 59043, Nov. 1, 
1999]



Sec. 682.606  [Reserved]



Sec. 682.607  Payment of a refund or a return of title IV, HEA program 
funds to a lender upon a student's withdrawal.

    (a) General. By applying for a FFEL loan, a borrower authorizes the 
school to pay directly to the lender that portion of a refund or return 
of title IV, HEA program funds from the school that is allocable to the 
loan upon the borrower's withdrawal. A school--
    (1) Must pay that portion of the student's refund or return of title 
IV, HEA program funds that is allocable to a FFEL loan to--
    (i) The original lender; or
    (ii) A subsequent holder, if the loan has been transferred and the 
school knows the new holder's identity; and
    (2) Must provide simultaneous written notice to the borrower if the 
school makes a payment of a refund or a return of title IV, HEA program 
funds to a lender on behalf of that student.
    (b) Allocation of a refund or returned title IV, HEA program funds. 
In determining the portion of a refund or the return of title IV, HEA 
program funds upon a student's withdrawal for an academic period that is 
allocable to a FFEL loan received by the borrower for that academic 
period, the school must follow the procedures established in part 668 
for allocating a refund or return of title IV, HEA program funds.
    (c) Timely payment. A school must pay a refund or a return of title 
IV, HEA program funds that is due in accordance with the timeframe in 
Sec. 668.22(j).

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)

[64 FR 59043, Nov. 1, 1999]



Sec. 682.608  Termination of a school's lending eligibility.

    (a) General. The Secretary may terminate a school's eligibility to 
make loans under this part if the school reaches the 15 percent limit on 
loan defaults described in paragraph (b) of this section.
    (b) The 15 percent limit. (1) The Secretary may terminate a school's 
eligibility to make loans if at the end of each of the 2 most recent 
consecutive Federal fiscal years for which data are available, the total 
amount of loans described in paragraph (b)(1)(i) of this section is 
equal to or greater than 15 percent of the total amount of loans 
described in paragraph (b)(1)(ii) of this section as follows:
    (i) The original principal amount of all loans the school has ever 
made that went into default during that period.
    (ii) The original principal amount of all loans the school has ever 
made, including loans in deferment status that--
    (A) Were in repayment status at the beginning of that period; or
    (B) Entered repayment status during that period.
    (2) In making the determination under this section, the Secretary 
considers the status of all FFEL loans made by the school whether the 
loans are held by the school or by a subsequent holder.
    (c) Exception based on hardship. The Secretary does not terminate a 
school's lending eligibility under paragraphs (a) and (b) of this 
section if the Secretary determines that the termination would result in 
a hardship for the school or its students. The Secretary makes this 
determination if the school shows that--
    (1) Termination is not justified in light of recent improvements the 
school has made in its collection capabilities that will reduce the 
school's loan default rate significantly within the next year. Examples 
of these improvements include--

[[Page 801]]

    (i) Adopting more efficient collection procedures; or
    (ii) Employing increased collection staff; or
    (2) Termination would cause a substantial hardship to the school's 
current or prospective students or their parents based on--
    (i) The extent to which the school provides, and expects to continue 
to provide educational opportunities to economically disadvantaged 
students as measured by the percentage of students enrolled at the 
school who--
    (A) Are in families that fall within the ``low-income family'' 
category used by the Bureau of the Census;
    (B) Would not be able to enroll or continue their enrollment at that 
school without a loan from the school; and
    (C) Would not be able to obtain a comparable education at another 
school;
    (ii) The extent to which the school offers educational programs 
that--
    (A) Are unique in the geographical area that the school serves; and
    (B) Would not be available to some students if they or their parents 
could not obtain loans from the school; and
    (iii) The quality of improvements the school has made in its--
    (A) Management of student financial assistance programs; and
    (B) Conformance with sound business practices.
    (d) Termination procedures. (1) The Secretary notifies the school of 
the proposed termination of its lending eligibility and provides an 
opportunity for a hearing before the Secretary terminates the school 
under this section.
    (2) The Secretary or his designee begins a termination action by 
sending a notice to the school. The notice is sent by certified mail 
with return receipt requested. The notice--
    (i) Informs the school of the intent to terminate the school's 
lending eligibility because of the school's default experience;
    (ii) Specifies the proposed date the termination becomes effective; 
and
    (iii) Informs the school that it has 15 days to--
    (A) Submit any written material it wants considered in determining 
whether its lending eligibility should be terminated under paragraphs 
(a) and (b) of this section, including written material in support of a 
hardship exception under paragraph (c) of this section; or
    (B) Request an oral hearing to show why the school's lending 
eligibility should not be terminated.
    (3) If the school does not request an oral hearing but submits 
written material, the Secretary or the designated official considers 
that material and notifies the school as to whether the termination 
action will be taken.
    (4) The Secretary or the designated official (presiding officer) 
schedules the date and place of a hearing for a school that has 
requested an oral hearing. The date of the hearing is at least 15 days 
from the date of receipt of the request. A presiding officer--
    (i) Conducts the hearing;
    (ii) Considers all written material presented before the hearing and 
any other material presented during the hearing; and
    (iii) Determines if termination of the school's lending eligibility 
is warranted.
    (5) The decision of the designated official is subject to review by 
the Secretary.
    (e) Effects of termination. A school that has its lending 
eligibility terminated under this section may not--
    (1) Make further loans under this part until it has entered into a 
new guarantee agreement with the Secretary; or
    (2) Enter into a new guarantee agreement with the Secretary until at 
least one year after the school's lending eligibility has been 
terminated under this section.
    (f) Schools under the same ownership. If a school makes loans to 
students or parents of students in attendance at other schools under the 
same ownership, the Secretary may make the determination required by 
this section by--
    (1) Treating all of the schools as one school; or
    (2) Treating each school on an individual basis.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1085)

[[Page 802]]



Sec. 682.609  Remedial actions.

    (a) The Secretary may require a school to repay funds paid to other 
program participants by the Secretary. The Secretary also may require a 
school to purchase from the holder of a FFEL loan that portion of the 
loan that is unenforceable, that the borrower was ineligible to receive, 
or for which the borrower was ineligible to receive interest benefits 
contrary to the school's certification, and to make arrangements 
acceptable to the Secretary for reimbursement of the amounts the 
Secretary will be obligated to pay to program participants respecting 
that loan in the future. The repayment of funds and purchase of loans 
may be required if the Secretary determines that the payment to program 
participants, the unenforceability of the loan, or the disbursement of 
loan amounts for which the borrower was ineligible or for which the 
borrower was ineligible for interest benefits, resulted in whole or in 
part from--
    (1) The school's violation of a Federal statute or regulation; or
    (2) The school's negligent or willful false certification.
    (b) In requiring a school to repay funds to the Secretary or to 
another party or to purchase loans from a holder in connection with an 
audit or program review, the Secretary follows the procedures described 
in 34 CFR part 668, subpart H.
    (c) Notwithstanding paragraph (a) of this section, the Secretary may 
waive the right to require repayment of funds or repurchase of loans by 
a school if, in the Secretary's judgment, the best interest of the 
United States so requires.
    (d) The Secretary may impose a fine or take an emergency action 
against a school or limit, suspend, or terminate a school's 
participation in the FFEL programs, in accordance with 34 CFR part 668, 
subpart G.
    (e) A school shall comply with any emergency action, limitation, 
suspension, or termination imposed by a guaranty agency in accordance 
with the agency's standards and procedures. A school shall repay funds 
to the Secretary or other party or purchase loans from a holder if a 
guaranty agency determines that the school improperly received or 
retained the funds in violation of a Federal law or regulation or a 
guaranty agency rule or regulation.

(Authority: 20 U.S.C. 1077, 1078 , 1078-1, 1078-2, 1082, 1094)



Sec. 682.610  Administrative and fiscal requirements for participating 
schools.

    (a) General. Each school shall--
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in the regulations in 
this part and in 34 CFR part 668;
    (2) Follow the record retention and examination provisions in this 
part and in 34 CFR 668.24; and
    (3) Submit all reports required by this part and 34 CFR part 668 to 
the Secretary.
    (b) Loan record requirements. In addition to records required by 34 
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on 
behalf of its students, a school must maintain--
    (1) A copy of the loan certification or data electronically 
submitted to the lender, that includes the amount of the loan and the 
period of enrollment for which the loan was intended;
    (2) The cost of attendance, estimated financial assistance, and 
estimated family contribution used to calculate the loan amount;
    (3) For loans delivered to the school by check, the date the school 
endorsed each loan check, if required;
    (4) The date or dates of delivery of the loan proceeds by the school 
to the student or to the parent borrower;
    (5) For loans delivered by electronic funds transfer or master 
check, a copy of the borrower's written authorization required under 
Sec. 682.604(c)(3), if applicable, to deliver the initial and subsequent 
disbursements of each FFEL program loan; and
    (6) Documentation of any MPN confirmation process or processes the 
school may have used.
    (c) Student status confirmation reports. A school shall--
    (1) Upon receipt of a student status confirmation report form from 
the Secretary or a similar student status confirmation report form from 
any guaranty agency, complete and return that report within 30 days of 
receipt to the

[[Page 803]]

Secretary or the guaranty agency, as appropriate; and
    (2) Unless it expects to submit its next student status confirmation 
report to the Secretary or the guaranty agency within the next 60 days, 
notify the guaranty agency or lender within 30 days--
    (i) If it discovers that a Stafford, SLS, or PLUS loan has been made 
to or on behalf of a student who enrolled at that school, but who has 
ceased to be enrolled on at least a half-time basis;
    (ii) If it discovers that a Stafford, SLS, or PLUS loan has been 
made to or on behalf of a student who has been accepted for enrollment 
at that school, but who failed to enroll on at least a half-time basis 
for the period for which the loan was intended;
    (iii) If it discovers that a Stafford, SLS, or PLUS loan has been 
made to or on behalf of a full-time student who has ceased to be 
enrolled on a full-time basis; or
    (iv) If it discovers that a student who is enrolled and who has 
received a Stafford or SLS loan has changed his or her permanent 
address.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1082, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 61 
FR 60493, Nov. 27, 1996; 64 FR 58965, Nov. 1, 1999; 66 FR 34764, June 
29, 2001]



Sec. 682.611  Foreign schools.

    A foreign school is required to comply with the provisions of this 
part, except to the extent that the Secretary states in this part or in 
other official publications or documents that those schools need not 
comply with those provisions.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1088, 
and 1094)

[60 FR 61816, Dec. 1, 1995]



  Subpart G--Limitation, Suspension, or Termination of Lender or Third-
 party Servicer Eligibility and Disqualification of Lenders and Schools



Sec. 682.700  Purpose and scope.

    (a) This subpart governs the limitation, suspension, or termination 
by the Secretary of the eligibility of an otherwise eligible lender to 
participate in the FFEL programs or the eligibility of a third-party 
servicer to enter into a contract with an eligible lender to administer 
any aspect of the lender's FFEL programs. The regulations in this 
subpart apply to a lender or third-party servicer that violates any 
statutory provision governing the FFEL programs or any regulations, 
special arrangements, agreements, or limitations entered into under the 
authority of statutes applicable to Title IV of the HEA prescribed under 
the FFEL programs. These regulations apply to lenders that participate 
only in a guaranty agency program, lenders that participate in the FFEL 
programs, and third-party servicers that administer aspects of a 
lender's FFELP portfolio. These regulations also govern the Secretary's 
disqualification of a lender or school from participation in the FFEL 
programs under section 432(h)(2) and (h)(3) of the Act.
    (b) This subpart does not apply--
    (1)(i) To a determination that an organization fails to meet the 
definition of ``eligible lender'' in section 435(d)(1) of the Act or the 
definition of ``lender'' in Sec. 682.200, for any reason other than a 
violation of the prohibitions in section 435(d)(5) of the Act; or
    (ii) To a determination that an organization fails to meet the 
standards in Sec. 682.416;
    (2) To a school's loss of lending eligibility under Sec. 682.608; or
    (3) To an administrative action by the Department of Education based 
on any alleged violation of--
    (i) The Family Educational Rights and Privacy Act of 1974 (section 
438 of the General Education Provisions Act), which is governed by 34 
CFR part 99;
    (ii) Title VI of the Civil Rights Act of 1964, which is governed by 
34 CFR parts 100 and 101;

[[Page 804]]

    (iii) Section 504 of the Rehabilitation Act of 1973 (relating to 
discrimination on the basis of handicap), which is governed by 34 CFR 
part 104; or
    (iv) Title IX of the Education Amendments of 1972 (relating to sex 
discrimination), which is governed by 34 CFR part 106.
    (c) This subpart does not supplant any rights or remedies that the 
Secretary may have against participating lenders or schools under other 
authorities.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22456, Apr. 29, 1994]



Sec. 682.701  Definitions of terms used in this subpart.

    The following definitions apply to terms used in this subpart:
    Designated Departmental Official: An official of the Department of 
Education to whom the Secretary has delegated the responsibility for 
initiating and pursuing disqualification or limitation, suspension, or 
termination proceedings.
    Disqualification: The removal of a lender's or school's eligibility 
for an indefinite period of time by the Secretary on review of 
limitation, suspension, or termination action taken against the lender 
or school by a guaranty agency.
    Limitation. The continuation of a lender's or third-party servicer's 
eligibility subject to compliance with special conditions established by 
agreement with the Secretary or a guaranty agency, as applicable, or 
imposed as the result of a limitation or termination proceeding.
    Suspension. The removal of a lender's eligibility, or a third-party 
servicer's eligibility to contract with a lender or guaranty agency, for 
a specified period of time or until the lender or servicer fulfills 
certain requirements.
    Termination. (1) The removal of a lender's eligibility for an 
indefinite period of time--
    (i) By a guaranty agency; or
    (ii) By the Secretary, based on an action taken by the Secretary, or 
a designated Departmental official under Sec. 682.706; or
    (2) The removal of a third-party servicer's eligibility to contract 
with a lender or guaranty agency for an indefinite period of time by the 
Secretary based on an action taken by the Secretary, or a designated 
Departmental official under Sec. 682.706.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]



Sec. 682.702  Effect on participation.

    (a) Limitation, suspension, or termination proceedings by the 
Secretary do not affect a lender's responsibilities or rights to 
benefits and claim payments that are based on the lender's prior 
participation in the program, except as provided in paragraph (d) of 
this section and in Sec. 682.709.
    (b) A limitation imposes on a lender--
    (1) A limit on the number or total amount of loans that a lender may 
make, purchase, or hold under the FFEL programs;
    (2) A limit on the number or total amount of loans a lender may make 
to, or on behalf of, students at a particular school under the FFEL 
programs; or
    (3) Other reasonable requirements or conditions, including those 
described in Sec. 682.709.
    (c) A limitation imposes on a third-party servicer--
    (1) A limit on the number of loans or accounts or total amount of 
loans that the servicer may service;
    (2) A limit on the number of loans or accounts or total amount of 
loans that the servicer is administering under its contract with a 
lender or guaranty agency; or
    (3) Other reasonable requirements or conditions, including those 
described in Sec. 682.709.
    (d) After the date the termination of a lender's eligibility becomes 
effective, the Secretary does not guarantee new loans made by that 
lender or pay interest benefits, special allowance, or reinsurance on 
new loans guaranteed by a guaranty agency after that date. The Secretary 
may also prohibit the lender from making further disbursements on a loan 
for which a guarantee commitment has already been issued.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]

[[Page 805]]



Sec. 682.703  Informal compliance procedure.

    (a) The Secretary may use the informal compliance procedure in 
paragraph (b) of this section if the Secretary receives a complaint or 
other reliable information indicating that a lender or third-party 
servicer may be in violation of applicable laws, regulations, special 
arrangements, agreements, or limitations entered into under the 
authority of statutes applicable to Title IV of the HEA.
    (b) Under the informal compliance procedure, the Secretary gives the 
lender or servicer a reasonable opportunity to--
    (1) Respond to the complaint or information; and
    (2) Show that the violation has been corrected or submit an 
acceptable plan for correcting the violation and preventing its 
recurrence.
    (c) The Secretary does not delay limitation, suspension, or 
termination procedures during the informal compliance procedure if--
    (1) The delay would harm the FFEL programs; or
    (2) The informal compliance procedure will not result in correction 
of the alleged violation.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]



Sec. 682.704  Emergency action.

    (a) The Secretary, or a designated Departmental official, may take 
emergency action to stop the issuance of guarantee commitments by the 
Secretary and guarantee agencies and to withhold payment of interest 
benefits and special allowance to a lender if the Secretary--
    (1) Receives reliable information that the lender or a third-party 
servicer with which the lender contracts is in violation of applicable 
laws, regulations, special arrangements, agreements, or limitations 
entered into under the authority of statutes applicable to Title IV of 
the HEA pertaining to the lender's portfolio of loans;
    (2) Determines that immediate action is necessary to prevent the 
likelihood of substantial losses by the Federal Government, parent 
borrowers, or students; and
    (3) Determines that the likelihood of loss exceeds the importance of 
following the procedures for limitation, suspension, or termination.
    (b) The Secretary begins an emergency action by notifying the lender 
or third-party servicer, by certified mail, return receipt requested, of 
the action and the basis for the action.
    (c) The action becomes effective on the date the notice is mailed to 
the lender or third-party servicer.
    (d)(1) An emergency action does not exceed 30 days unless a 
limitation, suspension, or termination proceeding is begun before that 
time expires.
    (2) If a limitation, suspension, or termination proceeding is begun 
before the expiration of the 30-day period--
    (i) The emergency action may be extended until completion of the 
proceeding, including any appeal to the Secretary; and
    (ii) Upon the written request of the lender or third-party servicer, 
the Secretary may provide the lender or servicer with an opportunity to 
demonstrate that the emergency action is unwarranted.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22457, Apr. 29, 1994]



Sec. 682.705  Suspension proceedings.

    (a) Scope. (1) A suspension by the Secretary removes a lender's 
eligibility under the FFEL programs or a third-party servicer's ability 
to enter into contracts with eligible lenders, and the Secretary does 
not guarantee or reinsure a new loan made by the lender or new loan 
serviced by the servicer during a period not to exceed 60 days from the 
date the suspension becomes effective, unless--
    (i) The lender or servicer and the Secretary agree to an extension 
of the suspension period, if the lender or third-party servicer has not 
requested a hearing; or
    (ii) The Secretary begins a limitation or a termination proceeding.
    (2) If the Secretary begins a limitation or a termination proceeding 
before

[[Page 806]]

the suspension period ends, the Secretary may extend the suspension 
period until the completion of that proceeding, including any appeal to 
the Secretary.
    (3) A suspension described in 34 CFR 85.201(c) lasts for a period of 
60 days, beginning on the effective date specified in the notice by the 
Secretary under 34 CFR 85.201(b), except as provided in paragraph 
(a)(1)(i) or (ii) of this section.
    (b) Notice. (1) The Secretary, or a designated Departmental 
official, begins a suspension proceeding by sending the lender or 
servicer a notice by certified mail with return receipt requested.
    (2) The notice--
    (i) Informs the lender or servicer of the Secretary's intent to 
suspend the lender's or servicer's eligibility for a period not to 
exceed 60 days;
    (ii) Describes the consequences of a suspension;
    (iii) Identifies the alleged violations on which the proposed 
suspension is based;
    (iv) States the proposed date the suspension becomes effective, 
which is at least 20 days after the date of mailing of the notice;
    (v) Informs the lender or servicer that the suspension will not take 
effect on the proposed date, except as provided in paragraph (c)(9) of 
this section, if the Secretary receives at least five days prior to that 
date a request for an oral hearing or written material showing why the 
suspension should not take effect; and
    (vi) Asks the lender or servicer to correct voluntarily any alleged 
violations.
    (c) Hearing. (1) If the lender or servicer does not request an oral 
hearing but submits written material, the Secretary, or a designated 
Departmental official, considers the material and--
    (i) Dismisses the proposed suspension; or
    (ii) Determines that the proposed suspension should be implemented 
and notifies the lender or servicer of the effective date of the 
suspension.
    (2) If the lender or servicer requests an oral hearing within the 
time specified in paragraph (b)(2)(v) of this section, the Secretary 
schedules the date and place of the hearing. The date is at least 15 
days after receipt of the request from the lender or servicer. No 
proposed suspension takes effect until a hearing is held.
    (3) The oral hearing is conducted by a presiding officer who--
    (i) Ensures that a written record of the hearing is made;
    (ii) Considers relevant written material presented before the 
hearing and other relevant evidence presented during the hearing; and
    (iii) Issues a decision based on findings of fact and conclusions of 
law that may suspend the lender's or servicer's eligibility only if the 
presiding officer is persuaded that the suspension is warranted by the 
evidence.
    (4) The formal rules of evidence do not apply, and no discovery, as 
provided in the Federal Rules of Civil Procedure, (28 U.S.C. Appendix) 
is required.
    (5) The presiding officer shall base findings of fact only on 
evidence considered at or before the hearing and matters given official 
notice.
    (6) In a suspension action against a lender or third-party servicer 
based on a suspension under Executive Order 12549 or a proposed 
debarment under the Federal Acquisition Regulation (FAR), 48 CFR part 9, 
subpart 9.4, that does not meet the standards described in 34 CFR 
85.201(c), the presiding official finds that the suspension or proposed 
debarment constitutes prima facie evidence that cause for suspension 
under this subpart exists.
    (7) The initial decision of the presiding officer is mailed to the 
lender or servicer.
    (8) The Secretary automatically reviews the initial decision of the 
presiding officer. The Secretary notifies the lender or servicer of the 
Secretary's decision by mail.
    (9) A suspension takes effect on either a date that is at least 20 
days after the date the notice of a decision imposing the suspension is 
mailed to the lender or servicer, or on the proposed effective date 
stated in the notice sent

[[Page 807]]

under paragraph (b) of this section, whichever is later.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[59 FR 22457, Apr. 29, 1994, as amended at 60 FR 33058, June 26, 1995; 
66 FR 34764, June 29, 2001]



Sec. 682.706  Limitation or termination proceedings.

    (a) Notice. (1) The Secretary, or a designated Departmental 
official, begins a limitation or termination proceeding, whether a 
suspension proceeding has begun, by sending the lender or third-party 
servicer a notice by certified mail with return receipt requested.
    (2) The notice--
    (i) Informs the lender or servicer of the Secretary's intent to 
limit or terminate the lender's or servicer's eligibility;
    (ii) Describes the consequences of a limitation or termination;
    (iii) Identifies the alleged violations on which the proposed 
limitation or termination is based;
    (iv) States the limits which may be imposed, in the case of a 
limitation proceeding;
    (v) States the proposed date the limitation or termination becomes 
effective, which is at least 20 days after the date of mailing of the 
notice;
    (vi) Informs the lender or servicer that the limitation or 
termination will not take effect on the proposed date if the Secretary 
receives, at least five days prior to that date, a request for an oral 
hearing or written material showing why the limitation or termination 
should not take effect;
    (vii) Asks the lender or servicer to correct voluntarily any alleged 
violations; and
    (viii) Notifies the lender or servicer that the Secretary may 
collect any amount owed by means of offset against amounts owed to the 
lender by the Department and other Federal agencies.
    (b) Hearing. (1) If the lender or servicer does not request an oral 
hearing but submits written material, the Secretary, or a designated 
Departmental official, considers the material and--
    (i) Dismisses the proposed limitation or termination; or
    (ii) Notifies the lender or servicer of the date the limitation or 
termination becomes effective.
    (2) If the lender or servicer requests a hearing within the time 
specified in paragraph (a)(2)(vi) of this section, the Secretary 
schedules the date and place of the hearing. The date is at least 15 
days after receipt of the request from the lender or servicer. No 
proposed limitation or termination takes effect until a hearing is held.
    (3) The hearing is conducted by a presiding officer who--
    (i) Ensures that a written record of the hearing is made;
    (ii) Considers relevant written material presented before the 
hearing and other relevant evidence presented during the hearing; and
    (iii) Issues an initial decision, based on findings of fact and 
conclusions of law, that may limit or terminate the lender's or 
servicer's eligibility if the presiding officer is persuaded that the 
limitation or termination is warranted by the evidence.
    (4) The formal rules of evidence do not apply, and no discovery, as 
provided in the Federal Rules of Civil Procedure (28 U.S.C. appendix), 
is required.
    (5) The presiding officer shall base findings of fact only on 
evidence presented at or before the hearing and matters given official 
notice.
    (6) If a termination action is brought against a lender or third-
party servicer and the presiding officer concludes that a limitation is 
more appropriate, the presiding officer may issue a decision imposing 
one or more limitations on a lender or third-party servicer rather than 
terminating the lender's or servicer's eligibility.
    (7) In a termination action against a lender or third-party servicer 
based on a debarment under Executive Order 12549 or under the Federal 
Acquisition Regulation (FAR), 48 CFR part 9, subpart 9.4 that does not 
meet the standards described in 34 CFR 85.201(c), the presiding official 
finds that the debarment constitutes prima facie evidence that cause for 
debarment and termination under this subpart exists.
    (8) The initial decision of the presiding officer is mailed to the 
lender or servicer.

[[Page 808]]

    (9) Any time schedule specified in this section may be shortened 
with the approval of the presiding officer and the consent of the lender 
or servicer and the Secretary or designated Departmental official.
    (10) The presiding officer's initial decision automatically becomes 
the Secretary's final decision 20 days after it is issued and received 
by both parties unless the lender, servicer, or designated Departmental 
official appeals the decision to the Secretary within this period.
    (c) Notwithstanding the other provisions of this section, if a 
lender or a lender's owner or officer or third-party servicer or 
servicer's owner or officer, respectively, is convicted of or pled nolo 
contendere or guilty to a crime involving the unlawful acquisition, use, 
or expenditure of FFEL program funds, that conviction or guilty plea is 
grounds for terminating the lender's or servicer's eligibility, 
respectively, to participate in the FFEL programs.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[59 FR 22458, Apr. 29, 1994, as amended at 60 FR 33058, June 25, 1995]



Sec. 682.707  Appeals in a limitation or termination proceeding.

    (a) If the lender, third-party servicer, or designated Departmental 
official appeals the initial decision of the presiding officer in 
accordance with Sec. 682.706(b)(10)--
    (1) An appeal is made to the Secretary by submitting to the 
Secretary and the opposing party within 15 days of the date of the 
appealing party's receipt of the presiding officer's decision, a brief 
or other written material explaining why the decision of the presiding 
officer should be overturned or modified; and
    (2) The opposing party shall submit its brief or other written 
material to the Secretary and the appealing party within 15 days of its 
receipt of the brief or written material of the appealing party.
    (b) The Secretary issues a final decision affirming, modifying, or 
reversing the initial decision, including a statement of the reasons for 
the Secretary's decision.
    (c) Any party submitting material to the Secretary shall provide a 
copy to each party that participates in the hearing.
    (d) If the presiding officer's initial decision would limit or 
terminate the lender's or servicer's eligibility, it does not take 
effect pending the appeal unless the Secretary determines that a stay of 
the date it becomes effective would seriously and adversely affect the 
FFEL programs or student or parent borrowers.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22458, Apr. 29, 1994; 
66 FR 34765, June 29, 2001]



Sec. 682.708  Evidence of mailing and receipt dates.

    (a) All mailing dates and receipt dates referred to in this subpart 
must be substantiated by the original receipts from the U.S. Postal 
Service.
    (b) If a lender or third-party servicer refuses to accept a notice 
mailed under this subpart, the Secretary considers the notice as being 
received on the date that the lender or servicer refuses to accept the 
notice.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]



Sec. 682.709  Reimbursements, refunds, and offsets.

    (a) As part of a limitation or termination proceeding, the 
Secretary, or a designated Departmental official, may require a lender 
or third-party servicer to take reasonable corrective action to remedy a 
violation of applicable laws, regulations, special arrangements, 
agreements, or limitations entered into under the authority of statutes 
applicable to Title IV of the HEA.
    (b) The corrective action may include payment to the Secretary or 
recipients designated by the Secretary of any funds, and any interest 
thereon, that the lender, or, in the case of a third-party servicer, the 
servicer or the lender that has a contract with a third-party servicer, 
improperly received, withheld, disbursed, or caused to be disbursed. A 
third-party servicer may be held liable up to the amounts specified in 
Sec. 682.413(a)(2).
    (c) If a final decision requires a lender, a lender that has a 
contract with a

[[Page 809]]

third-party servicer, or a third-party servicer to reimburse or make any 
payment to the Secretary, the Secretary may, without further notice or 
opportunity for a hearing, proceed to offset or arrange for another 
Federal agency to offset the amount due against any interest benefits, 
special allowance, or other payments due to the lender, the lender that 
has a contract with the third-party servicer, or the third-party 
servicer. A third-party servicer may be held liable up to the amounts 
specified in Sec. 682.413(a)(2).

(Authority: 20 U.S.C. 1080, 1082, 1094)

[59 FR 22459, Apr. 29, 1994]



Sec. 682.710  Removal of limitation.

    (a) A lender or third-party servicer may request removal of a 
limitation imposed by the Secretary in accordance with the regulations 
in this subpart at any time more than 12 months after the date the 
limitation becomes effective.
    (b) The request must be in writing and must show that the lender or 
servicer has corrected any violations on which the limitation was based.
    (c) Within 60 days after receiving the request, the Secretary--
    (1) Grants the request;
    (2) Denies the request; or
    (3) Grants the request subject to other limitations.
    (d)(1) If the Secretary denies the request or establishes other 
limitations, the lender or servicer, upon request, is given an 
opportunity to show why all limitations should be removed.
    (2) A lender or third-party servicer may continue to participate in 
the FFEL programs, subject to any limitation imposed by the Secretary 
under paragraph (c)(3) of this section, pending a decision by the 
Secretary on a request under paragraph (d)(1) of this section.

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 59 FR 22459, Apr. 29, 1994]



Sec. 682.711  Reinstatement after termination.

    (a) A lender or third-party servicer whose eligibility has been 
terminated by the Secretary in accordance with the procedures of this 
subpart may request reinstatement of its eligibility after the later of-
-
    (1) Eighteen months from the effective date of the termination; or
    (2) The expiration of the period of debarment under Executive Order 
12459 or the Federal Acquisition Regulation (FAR), 48 CFR part 9, 
subpart 9.4.
    (b) The request must be in writing and must show that--
    (1) The lender or servicer has corrected any violations on which the 
termination was based; and
    (2) The lender or servicer meets all requirements for eligibility.
    (c) A school lender whose eligibility as a participating school has 
been terminated under 34 CFR part 668 may not be considered for 
reinstatement as a lender until it is reinstated as a participating 
school. However, the school may request reinstatement as both a school 
and a lender at the same time.
    (d) Within 60 days after receiving a request for reinstatement, the 
Secretary--
    (1) Grants the request;
    (2) Denies the request; or
    (3) Grants the request subject to limitations.
    (e)(1) If the Secretary denies the lender's or servicer's request or 
allows reinstatement subject to limitations, the lender or servicer, 
upon request, is given an opportunity to show why its eligibility should 
be reinstated and all limitations removed.
    (2) A lender or third-party servicer whose eligibility to 
participate in the FFEL programs is reinstated subject to limitations 
imposed by the Secretary pursuant to paragraph (d)(3) of this section, 
may participate in those programs, subject to those limitations, pending 
a decision by the Secretary on a request under paragraph (e)(1) of this 
section.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1080, 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59 
FR 22459, Apr. 29, 1994; 59 FR 34964, July 7, 1994; 60 FR 33058, June 
26, 1995; 64 FR 58965, Nov. 1, 1999]

[[Page 810]]



Sec. 682.712  Disqualification review of limitation, suspension, and 
termination actions taken by guarantee agencies against lenders.

    (a) The Secretary reviews a limitation, suspension, or termination 
action taken by a guaranty agency against a lender participating in the 
FFEL programs to determine if national disqualification is appropriate. 
Upon completion of the Secretary's review, the Secretary notifies the 
guaranty agency and the lender of the Secretary's decision by mail.
    (b) The Secretary disqualifies a lender from participation in the 
FFEL programs if--
    (1) The lender waives review by the Secretary; or
    (2) The Secretary conducts the review and determines that the 
limitation, suspension, or termination was imposed in accordance with 
section 428(b)(1)(U) of the Act.
    (c)(1) Disqualification by the Secretary continues until the 
Secretary is satisfied that--
    (i) The lender has corrected the failure that led to the limitation, 
suspension, or termination; and
    (ii) There are reasonable assurances that the lender will comply 
with the requirements of the FFEL programs in the future.
    (2) Revocation of disqualification by the Secretary does not remove 
any limitation, suspension, or termination imposed by the agency whose 
action resulted in the disqualification.
    (d) A guaranty agency shall refer a limitation, suspension, or 
termination action that it takes against a lender to the Secretary 
within 30 days of its final decision to limit, suspend, or terminate the 
lender's eligibility to participate in the agency's program.
    (e) The Secretary reviews an agency's limitation, suspension, or 
termination of a lender's eligibility only when the guaranty agency's 
action is final, e.g, the lender is not entitled to any further appeals 
within the guaranty agency. A subsequent court challenge to an agency's 
action does not by itself affect the timing of the Secretary's review.
    (f) The guaranty agency's notice to the Secretary regarding a 
termination action must include a certified copy of the administrative 
record compiled by the agency with regard to the action. The record must 
include certified copies of the following documents:
    (1) The guaranty agency's letter initiating the action.
    (2) The lender's response.
    (3) The transcript of the agency's hearing.
    (4) The decision of the agency's hearing officer.
    (5) The decision of the agency on appeal from the hearing officer's 
decision, if any.
    (6) The regulations and written procedures of the agency under which 
the action was taken.
    (7) The audit or lender review report or documented basis that led 
to the action.
    (8) All other documents relevant to the action.
    (g) The guaranty agency's referral notice to the Secretary regarding 
a limitation or suspension action must include--
    (1) The documents described in paragraph (f) of this section; and
    (2) Documents describing and substantiating the existence of one or 
more of the circumstances described in paragraph (j) of this section.
    (h)(1) Within 60 days of the Secretary's receipt of a referral 
notice described in paragraph (f) or (g) of this section, the Secretary 
makes an initial assessment, based on the agency's record, as to whether 
the agency's action appears to comply with section 428(b)(1)(U) of the 
Act.
    (2) In the case of a referral notice described in paragraph (g) of 
this section, the Secretary also determines whether one or more of the 
circumstances described in paragraph (j) of this section exist.
    (3) If the Secretary concludes that the agency's action appears to 
comply with section 428(b)(1)(U) of the Act and, if applicable, one or 
more of the circumstances described in paragraph (j) of this section 
exist, the Secretary notifies the lender that the Secretary will review 
the guaranty agency's action to determine whether to disqualify the 
lender from further participation in the FFEL programs and affords the 
lender an opportunity--
    (i) To waive the review and be disqualified immediately; or

[[Page 811]]

    (ii) To request a review.
    (i) The Secretary's review of the guaranty agency's action is 
limited to whether the agency action was taken in accordance with 
procedures that were substantially the same as procedures applicable to 
the limitation, suspension, or termination of eligibility of a lender 
under the FISL Program (34 CFR part 682, subpart G).
    (j) In the case of an action by an agency that limits or suspends a 
lender's eligibility to participate in the agency's program, the agency 
shall provide the Secretary with a referral as described in paragraph 
(g) of this section only if--
    (1) The lender has not corrected the violation. A violation is 
corrected if, among other things, the lender has satisfied fully all 
liabilities incurred by the lender as a result of the violation, 
including its liability to the Secretary, or the lender has arranged to 
satisfy those liabilities in a manner acceptable to the parties to whom 
the liabilities are owed;
    (2) The lender has not provided satisfactory assurances to the 
agency of future compliance with program requirements; or
    (3) The guaranty agency determines that special circumstances 
warrant disqualification of the lender from the FFEL programs for a 
significant period, notwithstanding the agency's decision not to 
terminate the lender's eligibility to participate in the agency's 
program.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1082)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999]



Sec. 682.713  Disqualification review of limitation, suspension, and 
termination actions taken by guarantee agencies against a school.

    (a) The Secretary reviews a limitation, suspension, or termination 
action taken by a guaranty agency against a school participating in the 
FFEL programs to determine if national disqualification is appropriate. 
Upon completion of the Secretary's review, the Secretary notifies the 
guaranty agency and the school of his decision by mail.
    (b) The Secretary disqualifies a school from participation in the 
FFEL programs if--
    (1) The school waives review by the Secretary; or
    (2) The Secretary conducts the review and determines that the 
limitation, suspension, or termination was imposed in accordance with 
section 428(b)(1)(T) of the Act.
    (c)(1) Disqualification by the Secretary continues until the 
Secretary is satisfied that--
    (i) The school has corrected the failure that led to the limitation, 
suspension, or termination; and
    (ii) There are reasonable assurances that the school will comply 
with the requirements of the FFEL programs in the future.
    (2) Revocation of disqualification by the Secretary does not remove 
any limitation, suspension, or termination imposed by the agency whose 
action resulted in the disqualification.
    (d) A guaranty agency shall refer a limitation, suspension, or 
termination action that it takes against a school to the Secretary 
within 30 days of its final decision to limit, suspend, or terminate the 
school's eligibility to participate in the agency's program.
    (e) The Secretary reviews an agency's limitation, suspension, or 
termination of a school's eligibility only when the guaranty agency's 
action is final, i.e., the institution is not entitled to any further 
appeals within the guaranty agency. A subsequent court challenge to an 
agency's action does not by itself affect the timing of the Secretary's 
review.
    (f) The guaranty agency's notice to the Secretary regarding a 
termination action must include a certified copy of the administrative 
record compiled by the agency with regard to the action. The record must 
include certified copies of the following documents:
    (1) The guaranty agency's letter initiating the action.
    (2) The school's response.
    (3) The transcript of the agency's hearing.
    (4) The decision of the agency's hearing officer.
    (5) The decision of the agency on appeal from the hearing officer's 
decision, if any.

[[Page 812]]

    (6) The regulations and written procedures of the agency under which 
the action was taken.
    (7) The audit or program review report or documented basis that led 
to the action.
    (8) All other documents relevant to the action.
    (g) The guaranty agency's referral notice to the Secretary regarding 
a limitation or suspension action must include--
    (1) The documents described in paragraph (f) of this section; and
    (2) Documents describing and substantiating the existence of one or 
more of the circumstances described in paragraph (j) of this section.
    (h)(1) Within 60 days of the Secretary's receipt of a referral 
notice described in paragraph (f) or (g) of this section, the Secretary 
makes an initial assessment, based on the agency's record, as to whether 
the agency's action appears to comply with section 428(b)(1)(T) of the 
Act.
    (2) In the case of a referral notice described in paragraph (g) of 
this section, the Secretary also determines whether one or more of the 
circumstances described in paragraph (j) of this section exist.
    (3) If the Secretary concludes that the agency's action appears to 
comply with section 428(b)(1)(T) of the Act, and, if applicable, one or 
more of the circumstances described in paragraph (j) of this section 
exist, the Secretary notifies the school that the Secretary will review 
the guaranty agency's action to determine whether to disqualify the 
school from further participation in the FFEL programs and gives the 
school an opportunity within 30 days from the date the notice is mailed-
-
    (i) To waive the review and be disqualified immediately; or
    (ii) To request a review.
    (i) The Secretary's review of the guaranty agency's action is 
limited to--
    (1) A review of the written record of the agency's proceedings; and
    (2) Whether the agency action was taken in accordance with 
procedures that were substantially the same as procedures established by 
the Secretary in 34 CFR part 668, subpart G.
    (j) In the case of an action by an agency that limits or suspends a 
school's eligibility to participate in the agency's program, the agency 
shall provide the Secretary with a referral as described in paragraph 
(g) of this section only if--
    (1) The school has not corrected the violation. A violation is 
corrected if, among other things, the school has fully satisfied all 
liabilities incurred by the school as a result of the violation, 
including its liability to the Secretary, or the school has arranged to 
satisfy those liabilities in a manner acceptable to the parties to whom 
the liabilities are owed;
    (2) The school has not provided assurances satisfactory to the 
agency of future compliance with program requirements; or
    (3) The guaranty agency determines that special circumstances 
warrant disqualification of the school from the FFEL programs for a 
significant period, notwithstanding the agency's decision not to 
terminate the school's eligibility to participate in the agency's 
program.

(Approved by the Office of Management and Budget under control number 
1845-0020)

(Authority: 20 U.S.C. 1082, 1085, 1094)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 64 
FR 58965, Nov. 1, 1999]



 Subpart H--Special Allowance Payments on Loans Made or Purchased With 
                   Proceeds of Tax-Exempt Obligations



Sec. 682.800  Prohibition against discrimination as a condition for receiving 
special allowance payments.

    (a) For an Authority to receive special allowance payments on loans 
made or acquired with the proceeds of a tax-exempt obligation, the 
Authority or its agent may not engage in any pattern or practice that 
results in a denial of a borrower's access to loans under the FFEL 
programs because of the borrower's race, sex, color, religion, national 
origin, age, disability status, income, attendance at a particular 
institution within the area served by the Authority, length of the 
borrower's

[[Page 813]]

education program, or the borrower's academic year in school.
    (b) The Secretary considers an Authority that makes or acquires 
loans guaranteed by an agency or organization that discriminates on one 
or more grounds listed in paragraph (a) of this section to have adopted 
a practice of denying access to loans on that ground unless the 
Authority makes provision for loan guarantees from other sources 
necessary to serve the borrowers excluded by that discriminatory policy.

(Authority: 20 U.S.C. 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992. Redesignated and amended at 64 FR 58636, 
Oct. 29, 1999]

                  Appendixes A-B to Part 682 [Reserved]

  Appendix C to Part 682--Procedures for Curing Violations of the Due 
    Diligence in Collection and Timely Filing of Claims Requirements 
Applicable to FISLP and Federal PLUS Program Loans and for Repayment of 
      Interest and Special Allowance Overbillings [Bulletin L-77a]

    Note: The following is a reprint of Bulletin L-77a, issued on 
January 7, 1983, with minor modifications made to reflect changes in the 
program regulations since that date. All references to ``the date of 
this bulletin'' refer to that date. All references made to the Federal 
Insured Student Loan Program (FISLP) shall be understood to include the 
Federal PLUS Program. The bulletin includes references to the 120- and 
180-day default periods that used to apply to FFELP and PLUS Program 
loans. Public Law 99-272 established new default periods of 180 and 240 
days (as set out in 34 CFR 682.200 of these regulations) for all new 
loans and many existing ones. Although the discussion in this appendix C 
refers to the 120- and 180-day default periods, it is equally applicable 
to the new 180- and 240-day default periods.

                              Introduction

    This bulletin prescribes procedures for lenders to use (1) to cure 
violations of the requirements for due diligence in collection (``due 
diligence'') and timely filing of claims under the Federal Insured 
Student Loan Program (FISLP), and (2) to repay interest and special 
allowance overbillings made on loans evidencing such violations. See 34 
CFR 682.507, 682.511.\1\ These procedures allow for the reinstatement of 
a lender's eligibility for interest and special allowance and claim 
payments on loans evidencing such violations, under specified 
circumstances. These procedures apply to loans for which the first day 
of the 120-day or 180-day default period occurred on or after October 
21, 1979 (the effective date of the September 17, 1979 regulations), 
whether or not the loans have previously been submitted as claims to the 
Secretary.
    The due diligence and timely filing requirements governing the FISLP 
were established in response to requests from some lenders for more 
detailed regulatory guidance on the proper handling of FISLP loans. 
Despite the promulgation of these provisions, a number of lenders have 
failed to exercise the requisite care in their treatment of these loans, 
thereby increasing the risk of default thereon and, in many cases, 
prejudicing the Secretary's ability to collect from the borrowers. At 
the time the current due diligence and timely filing rules were issued, 
the Secretary anticipated that violations of these rules would be so 
infrequent as to permit requests for cures to be handled individually. 
However, the unexpectedly high incidence of violations of these rules 
has made continued case-by-case treatment of all cure requests 
administratively unmanageable. After carefully considering the views of 
lenders and other program participants, the Secretary has decided to 
exercise his authority under 20 U.S.C. 1082(a)(5), (6), and institute 
uniform procedures by which lenders with loans involving violations of 
the due diligence or timely filing requirements may cure these 
violations.

                              Due Diligence

    Collection activity is required to begin immediately upon 
delinquency by the borrower in honoring the repayment obligation. This 
holds true whether or not the borrower received a repayment schedule or 
signed a repayment agreement. Under 34 CFR 682.200, default on a FISLP 
loan occurs when a borrower fails to make a payment when due, provided 
this failure persists for 120 days for loans payable in monthly 
installments, or for 180 days for loans payable in less frequent 
installments. If, however, the lender has added the optional provision 
to the promissory note requiring the borrower to execute a repayment 
agreement not later than 120 days prior to the expiration of the grace 
period, the loan entered repayment prior to September 4, 1985 (see 50 FR 
35970), the lender sends the agreement to the borrower 150 days or more 
before the end of the grace period, and the agreement is not executed 
before the end of the grace period, default occurs at that time. One 
exception to this rule is as follows: If the holder of the loan is not 
the lender that made the loan, the holder may choose to forego 
enforcement of the optional 120-day provision in the note.

[[Page 814]]

    The 120/180 day default period applies regardless of whether 
payments were missed consecutively or intermittently. For example, if 
the borrower, on a loan payable in monthly installments, makes his 
January 1st payment on time, his February 1st payment two months late 
(April 1st), his March 1st payment three months late (June 1st), and 
makes no further payments, the default period begins on February 1st, 
with the first delinquency, and ends on August 1st, when the April 1st 
payment becomes 120 days past due. The lender must treat the payment 
made on April 1st as the February 1st payment, since the February 1st 
payment had not been made prior to that time. Similarly, the lender must 
treat the payment made on June 1st as the March 1st payment, since the 
March payment had not been made prior to that time.
    Note: Lenders are strongly encouraged to exercise forbearance, prior 
to default, for the benefit of borrowers who have missed payments 
intermittently but have otherwise indicated willingness to repay their 
loans. See 34 CFR 682.211. The forebearance process helps to reduce the 
incidence of default, and serves to emphasize for the borrower the 
importance of compliance with the repayment obligation.

                              Timely Filing

    The 90-day filing period applicable to FISLP default claims is set 
forth in 34 CFR 682.511(e) (1) and (3). The 90-day filing period begins 
at the end of the 120/180 day default period. The lender must file a 
default claim on a loan in default by the end of the filing period, 
unless the borrower brings the account current before the end of the 
filing period. In such a case, the lender may choose not to file a claim 
on the loan at that time.
    In addition, for any loan less than 210 days delinquent on the date 
of this bulletin, the lender need not file a claim on that loan before 
the 210th day of delinquency (120-day default period plus 90-day filing 
period) if the borrower brings the account less than 120 days delinquent 
before such 210th day. Thus, in the above example, if the borrower makes 
the April 1st payment on August 2nd, the 90-day filing period continues 
to run from August 1st, unless the loan was less than 210 days 
delinquent on the date of this bulletin. If the loan was less than 210 
days delinquent on the date of this bulletin, then the August 2nd 
payment makes the loan 91 days delinquent, and the lender may, but need 
not file a default claim on the loan at that time. If, however, that 
loan again becomes 120 days delinquent, the lender must file a default 
claim within 90 days thereafter (unless the loan is again brought to 
less than 120 days delinquent prior to the end of that 90 day period). 
In other words, for any loan less than 210 days delinquent on the date 
of this bulletin, the Secretary will permit a lender to treat payments 
made during the filing period as ``curing'' the default if such payments 
are sufficient to make the loan less than 120 days delinquent.
    If a lender fails to comply with either the due diligence or timely 
filing requirements, the affected loan ceases to be insured; that is, 
the lender loses its right to receive interest benefits, special 
allowance and claim payments thereon. Some examples of violations of the 
due diligence requirements are set out in section I.C. below.

                           I. Cure Procedures

                             A. Definitions

    The following definitions apply to terms used throughout Section I 
of this bulletin.
    Full payment means payment by the borrower, or another person (other 
than the lender) on the borrower's behalf, in an amount at least as 
great as the monthly payment amount required under the existing terms of 
the loan, exclusive of any forbearance agreement in force at the time of 
the default. (For example, if the original repayment schedule or 
agreement called for payments of $30 per month, but a forbearance 
agreement was in effect at the time of default that allowed the borrower 
to pay $15 per month for a specified time, and the borrower defaulted in 
making the reduced payments, a ``full payment'' would be $30, or two $15 
payments in accordance with original repayment schedule or agreement.)
    Reinstatement with respect to insurance coverage means the 
reinstatement of the lender's right to receive default, death, 
disability, or bankruptcy claim payments for the unpaid principal 
balance of the loan and for unpaid interest accruing on the loan after 
the date of reinstatement. Upon reinstatement of insurance, the borrower 
regains the right to receive forbearance or deferments, as appropriate. 
For purposes of this bulletin, ``reinstatement'' with respect to 
insurance on a loan does not include reinstatement of the lender's right 
to receive interest and special allowance payments on that loan. 
Reinstatement of the lender's right to receive interest and special 
allowance payments is addressed in section I.B.1, below.

                               B. General

    1. Resumption of Interest and Special Allowance Billing on Loans 
Involving Due Diligence or Timely Filing Violations. For any loan on 
which a cure is attempted under this bulletin, the lender may resume 
billing for interest and special allowance on the loan only for periods 
following the earlier of (1) its receipt of the equivalent of three full 
payments thereon, after the date of this bulletin or the date of the 
violation, whichever is

[[Page 815]]

later, or (2) receipt by the borrower of an authorized deferment, after 
reinstatement of insurance coverage.
    2. Reservation of the Secretary's Right to Strict Enforcement. While 
this bulletin allows cures to be attempted for particular violations in 
specified ways, the Secretary retains the option of refusing to permit 
or recognize cures in cases where, in the Secretary's judgment, a lender 
has committed an excessive number of severe violations of the due 
diligence or timely filing rules, and in cases where the best interests 
of the program otherwise require strict enforcement of these 
requirements. More generally, this bulletin states the Secretary's 
general policy and is not intended to limit in any way the authority and 
discretion afforded the Secretary by statute or regulations.
    3. Applicability of the Cure Procedures to Particular Classes of 
Loans. The cure procedures outlined in this bulletin apply only to a 
loan for which the first day of the 120/180 day default period that 
ended with default by the borrower occurred on or after October 21, 
1979, and which involve violations only of the due diligence and/or 
timely filing requirements.
    The cure procedures applicable to loans involving due diligence 
violations also apply to loans involving violations of both the timely 
filing and due diligence requirements.
    4. Excusal of Certain Due Diligence Violations. A lender whose claim 
was previously denied solely for violation of the timely filing rule, 
and who is permitted to cure that violation under the procedures set out 
in this bulletin, will not be required to utilize the procedures for 
curing due diligence violations, or to repay interest and special 
allowance improperly received from the Secretary as a result of a due 
diligence violation for periods prior to the timely filing violation. 
This applies even if, upon submission of the ``cured'' claim, the 
Secretary discovers that evidence of due diligence violations appeared 
in the file of the previously rejected claim.
    The Secretary will also excuse a due diligence violation by a lender 
if the account was brought current by the borrower (or another, other 
than the lender, on the borrower's behalf) prior to the 120th/180th day 
of the delinquency period during which the violation occurred.
    5. Treatment of Accrued Interest on ``Cured'' Claims--a. Due 
Diligence Violations. For any default claim involving ``cured'' 
violations of the due diligence rules, the Secretary will not reimburse 
the lender for any unpaid interest accruing after the first day of the 
120/180 day period that culminated in default, and prior to the date of 
reinstatement of insurance coverage.
    For any loan involving ``cured'' due diligence violations, the 
lender may capitalize unpaid interest accruing on the loan from the 
commencement of the 120/180 day default period to the date of the 
reinstatement of insurance coverage. See sections I.C. and D. below. 
However, if the lender later files a claim on that loan, the lender must 
deduct this capitalized interest from the amount of the claim. This 
deduction must be reflected in column 15 on the ED Form 1207, Lender's 
Application for Insurance Claim on Federal Insured Student Loan, filed 
with the claim evidencing the cure.
    b. Timely Filing Violations. For any default claim involving 
``cured'' violations of the timely filing rules, the Secretary will not 
reimburse the lender for unpaid interest accruing after the end of the 
120/180 day default period that culminated in default, and prior to the 
date of reinstatement of insurance coverage.
    For any default claim involving a ``cured'' timely filing violation, 
if insurance coverage is later reinstated, the lender may capitalize 
unpaid interest accruing on the loan from the commencement of the 
original 120/180 day default period to the date of the reinstatement of 
insurance coverage. See sections I.C. and D. below. However, if the 
lender later files a claim, on that loan, the lender must deduct this 
capitalized interest from the amount of the claim, except that the 
lender need not deduct from the claim unpaid interest that accrued on 
the loan during the original 120/180 day default period. This deduction 
must be reflected in Column 15 of the ED Form 1207, Lender's Application 
for Insurance Claim on Federal Insured Student Loan, filed with the 
claim evidencing the cure.
    Some timely filing cures will not reinstate insurance coverage. For 
treatment of accrued interest in such cases, see Section I.D.1.c.
    6. Documents to be Submitted with ``Cured'' Claims. The Secretary 
requests that any lender submitting a claim on a loan involving 
``cured'' violations identify the claim as such with a note in the claim 
file stapled to the new ED Form 1207.
    For all ``cured'' claims, the lender must submit:
     For loans on which a claim was previously rejected, all 
documents sent by the regional office with the original claim (when the 
claim was rejected and returned to the lender), including without 
limitation, the original ED Form 1207 and all documents showing the 
reason(s) for the original rejection;
     All documents ordinarily required in connection with the 
submission of a default claim, including, without limitation, the 
promissory note, which must bear a valid assignment to the United States 
of America;
     A new ED Form 1207; and
     All documents showing that the lender has complied with the 
applicable cure procedures and requirements.

[[Page 816]]

C. Cures for Violations of the Due Diligence in Collection Requirements 
                            (34 CFR 682.507)

    A violation of the due diligence in collection rules occurs when a 
lender fails to meet requirements found in 34 CFR 682.507. For example, 
a violation occurs if the lender fails to:
     Remind the borrower of the date a missed payment was due 
within 15 days of delinquency;
     Attempt to contact the borrower and any endorser at least 3 
times at regular intervals during the rest of the 120/180 day default 
period;
     Request preclaims assistance from the Department of 
Education;
     Request skip-tracing assistance from the Secretary, if 
required, or
     Send a final demand letter to the borrower exercising the 
option to accelerate the due date for the outstanding balance of the 
loan, unless the lender does not know the borrower's address as of the 
90th day of delinquency.
    1. Reinstatement of Insurance Coverage. In the case of a due 
diligence violation, the lender may utilize either of the two procedures 
described below for obtaining reinstatement of insurance coverage on the 
loan. After the date of this bulletin, or after the date of the 
violation, whichever is later:
    (a) The lender obtains a new repayment agreement signed by the 
borrower which complies with the ten and fifteen year repayment 
limitations set out in 34 CFR 682.209(a)(7); or
    (b) The lender obtains 3 full payments. If the borrower later 
defaults, the lender must submit evidence of these payments (e.g., 
copies of the checks) with the claim.
    2. Borrower's Deemed Current As of Date of Cure. On the date the 
lender receives a signed copy of the new repayment agreement, or 
receives the third (curing) payment, insurance coverage on the loan is 
reinstated, and the borrower shall be deemed by the lender to be current 
in repaying the loan and entitled to all rights and benefits available 
to FISLP borrowers. If the borrower later becomes delinquent in 
repayment, the lender shall follow the collection procedures set out in 
34 CFR 682.507, and the timely filing requirements set out in 34 CFR 
682.511.

   D. Cures for Violations of the Timely Filing Requirements (34 CFR 
                                682.511)

    1. Default Claims.--a. Reinstatement of Insurance Coverage. In order 
to obtain reinstatement of insurance coverage on a loan in the case of a 
timely filing violation, the lender must first locate the borrower after 
the date of this bulletin, or after the date of the violation, whichever 
is later (see section I.D.1.d. for description of acceptable evidence of 
location). Then, the lender must send to the borrower, at the address at 
which the borrower was located, (i) a new repayment agreement, to be 
signed by the borrower, which complies with the ten and fifteen year 
repayment limitations set out in 34 CFR 682.209(a)(7), along with (ii) a 
collection letter indicating in strong terms the seriousness of the 
borrower's delinquency and its potential effect on his or her credit 
rating if repayment is not commenced or resumed.
    If, within 30 days after the lender sends these items, the borrower 
fails to make a full payment or to sign and return the new repayment 
agreement, the lender shall, within 5 working days thereafter, send the 
borrower a copy of the attached ``48 hour'' collection letter, on the 
lender's letterhead. (See attachment A.)
    b. Borrower Deemed Current Under Certain Circumstances. If, within 
45 days after the lender sends the new repayment agreement to the 
borrower for signature, the borrower makes a full payment or signs and 
returns the new repayment agreement, insurance coverage on the loan is 
reinstated. The borrower shall be deemed by the lender to be current in 
repaying the loan and entitled to all rights and benefits available to 
FISLP borrowers. If the borrower later becomes delinquent in repayment, 
the lender shall follow the collection steps in 34 CFR 682.507 and the 
timely filing requirements in 34 CFR 682.511.
    c. Borrower Deemed in Default Under Certain Circumstances. If the 
borrower does not make a full payment, or sign and return the new 
repayment agreement, within 45 days after the lender sends the new 
repayment agreement, the lender shall deem the borrower to be in 
default. The lender shall then file a default claim on the loan 
accompanied by acceptable evidence of location (see I.D.I.d below), 
within 30 days after the end of such 45-day period. Although insurance 
coverage is not reinstated on loans involving these circumstances, the 
Secretary will honor default claims submitted in accordance with this 
paragraph on the outstanding principal balance of such loans, and on 
unpaid interest accruing on the loan during the 120/180 day default 
period.
    d. Acceptable Evidence of Location. Only the following documentation 
is acceptable as evidence that the lender has located the borrower:
    (i) Postal receipt signed by the borrower not more than 25 days 
prior to the date on which the lender sent the new repayment agreement, 
indicating acceptance of correspondence from the lender by the borrower 
at the address shown on the receipt; or
    (ii) A completed ``Certification of Borrower Location'' form 
(Attachment B).
    2. Death, Disability, and Bankruptcy Claims. Lenders may immediately 
resubmit any death or disability claim which was rejected solely for 
failure to meet the 60 day timely filing requirements (see 34 CFR 
685.511(e)(2)).

[[Page 817]]

However, the Secretary will not pay any such claim if, before the date 
the lender determined that the borrower died or was totally and 
permanently disabled, the lender had violated the due diligence or 
timely filing requirements applicable to default claims with respect to 
that loan. Interest that accrued on the loan after the expiration of the 
60-day filing period remains uninsured by the Secretary, and the lender 
must repay all interest and special allowance received on the loan for 
periods after the expiration of the 60-day filing period.
    The Secretary has determined that, in the vast majority of cases, 
the failure of a lender to comply with the timely filing requirement 
applicable to bankruptcy claims causes irreparable harm to the 
Secretary's ability to contest the discharge of the loan by the court, 
or to otherwise collect from the borrower. Therefore, the Secretary has 
decided not to permit cures for violations of the timely filing 
requirement applicable to bankruptcy claims, except when the lender can 
demonstrate that the bankruptcy action has concluded and that the loan 
has not been discharged in bankruptcy. In that case, the lender shall 
treat the loan as in default. The Secretary will honor a default claim 
later filed on such a loan only if the lender has met the cure 
requirements in section I.C. above for due diligence violations.

  II. Repayment of Interest and Special Allowance on Loans Evidencing 
      Violations of the Due Diligence or Timely Filing Requirements

                             A. General Rule

    It has always been the Secretary's interpretation of the FISLP 
statute and regulations that a lender's right to receive interest and 
special allowance payments on a FISLP loan terminates immediately 
following the lender's violation of the due diligence or timely filing 
requirements. This applies whether or not the lender has filed a claim 
on the loan. In other words, lenders may receive interest and special 
allowance only on loans which are insured by the Secretary. Since these 
violations result in the termination of insurance, they also result in 
the termination of FISLP benefits.

   B. Cessation of Billing on Loans Evidencing Violations of the Due 
                 Diligence or Timely Filing Requirements

    Any lender currently billing the Secretary for interest and special 
allowance on a loan that the lender knows involves a due diligence or 
timely filing violation must cease doing so immediately. However, 
lenders are not required at this time to review their loan portfolios 
for due diligence and timely filing violations.

C. Determination of Amounts of Interest and Special Allowance That Must 
                                Be Repaid

    1. Due Diligence Violations. In the case of due diligence 
violations, it is often difficult to ascertain the precise date on which 
a violation occurred. For the administrative ease of the Secretary and 
lenders, the Secretary has decided to waive his right to recoup interest 
and special allowance payments made to a lender for periods between the 
date of a due diligence violation and the end of the 120/180 day default 
period. However, any lender that has received interest or special 
allowance payments from the Secretary for periods after the end of the 
120/180 day default period on a loan that the lender knows involves a 
due diligence violation must promptly repay those amounts.
    2. Timely Filing Violations. In the case of timely filing 
violations, the lender loses its right to receive interest and special 
allowance payments as of the expiration of the applicable timely filing 
period. Therefore, any lender that has received interest or special 
allowance payments from the Secretary for periods following the end of 
the applicable timely filing period on a loan that the lender knows 
involves a timely filing violation must repay those amounts.
    3. Situations in Which a Lender May Have Received Interest Benefits 
for Periods During Which a Loan was Uninsured. Because most due 
diligence violations, and timely filing violations, occur after 
termination of the grace period, interest payments are ordinarily not 
affected by such violations. However, there are three types of 
situations in which a lender may have received interest payments from 
the Secretary to which it was not entitled due to a due diligence or 
timely filing violation.
    a. Promissory notes that include a requirement that the borrower 
sign a repayment agreement no later than 120 days prior to the 
expiration of the grace period. In such cases, a due diligence violation 
may occur during the grace period, when the lender may otherwise have 
been eligible to receive interest benefits. However, the lender need not 
repay that interest to the Secretary. See II.C.1. above.
    b. Deferment Periods. A due diligence violation may occur prior to a 
deferment period when the lender would otherwise have been eligible to 
receive interest benefits.
    c. Loans Made Prior to December 15, 1968. A loan disbursed prior to 
December 15, 1968, and which qualified for payment of Federal interest 
benefits at the time the loan was disbursed, qualifies for payment of a 
3 percent interest subsidy on the unpaid principal balance during the 
entire repayment period, provided the loan remains insured. In the case 
of such a loan, a due diligence or timely filing violation terminates 
the lender's eligibility for the 3 percent payments.

[[Page 818]]

  D. Procedures for Repayment of Federal Interest Benefits and Special 
   Allowance Received by a Lender for Periods During Which a Loan Was 
                                Uninsured

    A lender must make the repayments of interest and/or special 
allowance discussed in II.C. above, by way of an adjustment during the 
two quarters immediately following the discovery of the violation. These 
adjustments must be reported on the normal Lender`s Interest and Special 
Allowance Request and Report (ED Form 799). Lenders are requested not to 
send a check with the adjustment; the overpaid amount will be deducted 
by the Secretary from the lender's next regular interest and special 
allowance payment. For five years after any loan for which an adjustment 
is made is repaid in full, the lender shall retain a record of the basis 
for the adjustment showing the amount(s) of the overbilling(s), and the 
date it used for cessation of interest or special allowance eligibility 
in calculating the overbilled amount. See 34 CFR 682.515(a)(2).

                              Attachments.

    \1\ All references to the program regulations are to part 682 of 
title 34 of the Code of Federal Regulations (34 CFR part 682).

                              Attachment A
[GRAPHIC] [TIFF OMITTED] TC21OC91.021


[[Page 819]]



                              Attachment B

                   Certification of Borrower Location

    As an employee or agent of

 Name and Address of Lender_____________________________________________

    I hereby certify as follows:
    1. On (Date), I spoke with or received written communication from 
(copy attached):

                             (Circle a or b)

    (a) the borrower on the loan underlying the default claim, or
    (b) a parent, spouse, or sibling of the borrower.
    2. The borrower, parent, spouse, or sibling represented to me that 
the borrower's address and telephone number are------------.

________________________________________________________________________
Address and Telephone Number

    3. Within 15 days thereafter, this institution sent the borrower a 
new repayment agreement along with a collection letter of the type 
described in section I.D.1.a.ii of Bulletin L-77a, dated January 7, 
1983, to the address set out in 2, above.
    4. (Applicable only if 1(b), above, is used.) The letter and 
agreement referenced in 3, above, has not been returned undelivered.

________________________________________________________________________

Name of Borrower

________________________________________________________________________
Borrower's SSN

________________________________________________________________________
Signature of Employee or Agent

________________________________________________________________________
Typed Name of Employee or Agent

________________________________________________________________________
Title of Employee or Agent

________________________________________________________________________
Date

________________________________________________________________________
Lender Identification Number

  Appendix D to Part 682--Policy for Waiving the Secretary's Right To 
   Recover or Refuse To Pay Interest Benefits, Special Allowance, and 
  Reinsurance on Stafford, Plus, Supplemental Loans for Students, and 
  Consolidation Program Loans Involving Lenders' Violations of Federal 
 Regulations Pertaining to Due Diligence in Collection or Timely Filing 
                      of Claims [Bulletin 88-G-138]

    Note: The following is a reprint of Bulletin 88-G-138, issued on 
March 11, 1988, with modifications made to reflect changes in the 
program regulations. For a loan that has lost reinsurance prior to 
December 1, 1992, this policy applies only through November 30, 1995. 
For a loan that loses reinsurance on or after December 1, 1992, this 
policy applies until 3 years after the default claim filing deadline. 
For the purpose of determining the 3-year deadline, reinsurance is lost 
on the later of (a) 3 years from the last date the claim could have been 
filed for claim payment with the guaranty agency for a claim that was 
not filed; or (b) 3 years from the date the guaranty agency rejected the 
claim, for a claim that was filed. These deadlines are extended by 
periods during which collection activities are suspended due to the 
filing of a bankruptcy petition.

                              Introduction

    (1) This letter sets forth the circumstances under which the 
Secretary, pursuant to sections 432(a)(5) and (6) of the Higher 
Education Act of 1965 and 34 CFR 682.406(b) and 682.413(f), will waive 
certain of the Secretary's rights and claims with respect to Stafford 
Loans, PLUS, Supplemental Loans for Students (SLS), and Consolidation 
Program loans made under a guaranty agency program that involve 
violations of Federal regulations pertaining to due diligence in 
collection or timely filing. (These programs are collectively referred 
to in this letter as the FFEL Program.) This policy applies to due 
diligence violations on loans for which the first day of delinquency 
occurred on or after March 10, 1987 (the effective date of the November 
10, 1986 due diligence regulations) and to timely filing violations 
occurring on or after December 26, 1986, whether or not the affected 
loans have been submitted as claims to the guaranty agency.
    (2) The Secretary has been implementing a variety of regulatory and 
administrative actions to minimize defaults in the FFEL Program. As a 
part of this effort, the Secretary published final regulations on 
November 10, 1986, requiring lenders and guaranty agencies to undertake 
specific due diligence activities to collect delinquent and defaulted 
loans, and establishing deadlines for the filing of claims by lenders 
with guaranty agencies. In recognition of the time required for agencies 
and lenders to modify their internal procedures, the Secretary delayed 
for four months the date by which lenders were required to comply with 
the new due diligence requirements. Thus, Sec. 682.411 of the 
regulations, which established minimum due diligence procedures that a 
lender must follow in order for a guaranty agency to receive reinsurance 
on a loan, became effective for loans for which the first day of 
delinquency occurred on or after March 10, 1987. The regulations make 
clear that compliance with these minimum requirements, and with the new 
timely filing deadlines, is a condition for an agency's receiving or 
retaining reinsurance payments made by the Secretary on a loan. See 34 
CFR 682.406(a)(3), (a)(5), (a)(6), and

[[Page 820]]

682.413(b). The regulations also specify that a lender must comply with 
Sec. 682.411 and with the applicable filing deadline as a condition for 
its right to receive or retain interest benefits and special allowance 
on a loan for certain periods. See 34 CFR 682.300(b)(2)(vii), 
682.302(d)(1)(iv), 682.413(a)(1).
    (3) The Department has received inquiries regarding the procedures 
by which a lender may cure a violation of Sec. 682.411 regarding 
diligent loan collection, or of the 90-day deadline for the filing of 
default claims found in Sec. 682.406(a)(3) and (a)(5), in order to 
reinstate the agency's right to reinsurance and the lender's right to 
interest benefits and special allowance. Preliminarily, please note 
that, absent an exercise of the Secretary's waiver authority, a guaranty 
agency may not receive or retain reinsurance payments on a loan on which 
the lender has violated the Federal due diligence or timely filing 
requirements, even if the lender has followed a cure procedure 
established by the agency. Under Secs. 682.406(b) and 682.413(f), the 
Secretary--not the guaranty agency--decides whether to reinstate 
reinsurance coverage on a loan involving such a violation or any other 
violation of Federal regulations. A lender's violation of a guaranty 
agency's requirement that affects the agency's guarantee coverage also 
affects reinsurance coverage. See Secs. 682.406(a)(7) and 682.413(b). As 
Secs. 682.406(a)(7) and 682.413(b) make clear, a guaranty agency's cure 
procedures are relevant to reinsurance coverage only insofar as they 
allow for cure of violations of requirements established by the agency 
affecting the loan insurance it provides to lenders. In addition, all 
those requirements must be submitted to the Secretary for review and 
approval under 34 CFR 682.401(d).
    (4) References throughout this letter to ``due diligence and timely 
filing'' rules, requirements, and violations should be understood to 
mean only the Federal rules cited above, unless the context clearly 
requires otherwise.

                                A. Scope

    This letter outlines the Secretary's waiver policy regarding certain 
violations of Federal due diligence or timely filing requirements on a 
loan insured by a guaranty agency. Unless your agency receives 
notification to the contrary, or the lender's violation involves fraud 
or other intentional misconduct, you may treat as reinsured any 
otherwise reinsured loan involving such a violation that has been cured 
in accordance with this letter.

          B. Duty of a Guaranty Agency To Enforce Its Standards

    As noted above, a lender's violation of a guaranty agency's 
requirement that affects the agency's guarantee coverage also affects 
reinsurance coverage. Thus, as a general rule, an agency that fails to 
enforce such a requirement and pays a default claim involving a 
violation is not eligible to receive reinsurance on the underlying loan. 
However, in light of the waiver policy outlined below, which provides 
more stringent cure procedures for violations occurring on or after May 
1, 1988 than for pre-May 1, 1988 violations, some guaranty agencies with 
more stringent policies than the policy outlined below for the pre-May 1 
violations have indicated that they wish to relax their own policies for 
violations of agency rules during that period. While the Secretary does 
not encourage any agency to do so, the Secretary will permit an agency 
to take either of the following approaches to its enforcement of its own 
due diligence and timely filing rules for violations occurring before 
May 1, 1988.
    (1) The agency may continue to enforce its rules, even if they 
result in the denial of guarantee coverage by the agency on otherwise 
reinsurable loans; or
    (2) The agency may decline to enforce its rules as to any loan that 
would be reinsured under the retrospective waiver policy outlined below. 
In other words, for violations of a guaranty agency's due diligence and 
timely filing rules occurring before May 1, 1988, a guaranty agency is 
authorized, but not required, to retroactively revise its own due 
diligence and timely filing standards to treat as guaranteed any loan 
amount that is reinsured under the retrospective enforcement policy 
outlined in section I.C.1. However, for any violation of an agency's due 
diligence or timely filing rules occurring on or after May 1, 1988, the 
agency must resume enforcing those rules in accordance with their terms, 
in order to receive reinsurance payments on the underlying loan. For 
these post-April 30 violations, and for any other violation of an 
agency's rule affecting its guarantee coverage, the Secretary will treat 
as reinsured all loans on which the agency has engaged in, and 
documented, a case-by-case exercise of reasonable discretion allowing 
for guarantee coverage to be continued or reinstated notwithstanding the 
violation. But any agency that otherwise fails, or refuses, to enforce 
such a rule does so without the benefit of reinsurance coverage on the 
affected loans, and the lenders continue to be ineligible for interest 
benefits and special allowance thereon.

                            C. Due Diligence

    Under 34 CFR 682.200, default on a FFEL Program loan occurs when a 
borrower fails to make a payment when due, provided this failure 
persists for 270 days for loans payable in monthly installments, or for 
330 days for loans payable in less frequent installments.

[[Page 821]]

The 270/330-day default period applies regardless of whether payments 
were missed consecutively or intermittently. For example, if the 
borrower, on a loan payable in monthly installments, makes his January 
1st payment on time, his February 1st payment two months late (April 
1st), his March 1st payment 3 months late (June 1st), and makes no 
further payments, the delinquency period begins on February 2nd, with 
the first delinquency, and default occurs on December 27th, when the 
April payment becomes 270 days past due. The lender must treat the 
payment made on April 1st as the February 1st payment, since the 
February 1st payment had not been made prior to that time. Similarly, 
the lender must treat the payment made on June 1st as the March 1st 
payment, since the March payment had not been made prior to that time.

    Note: Lenders are strongly encouraged to exercise forbearance, prior 
to default, for the benefit of borrowers who have missed payments 
intermittently but have otherwise indicated willingness to repay their 
loans. See 34 CFR 682.211. The forbearance process helps to reduce the 
incidence of default, and serves to emphasize for the borrower the 
importance of compliance with the repayment obligation.

                            D. Timely Filing

    (1) The 90-day filing period applicable to FFEL Program default 
claims is described in 34 CFR 682.406(a)(5). The 90-day filing period 
begins at the end of the 270/330-day default period. The lender 
ordinarily must file a default claim on a loan in default by the end of 
the filing period. However, the lender may, but need not, file a claim 
on that loan before the 360th day of delinquency (270-day default period 
plus 90-day filing period) if the borrower brings the account less than 
270 days delinquent before the 360th day. Thus, in the above example, if 
the borrower makes the April 1st payment on December 28th, that payment 
makes the loan 241 days delinquent, and the lender may, but need not, 
file a default claim on the loan at that time. If, however, the loan 
again becomes 270 days delinquent, the lender must file a default claim 
within 90 days thereafter (unless the loan is again brought to less than 
270 days delinquent prior to the end of that 90-day period). In other 
words, the Secretary will permit a lender to treat payments made during 
the filing period as curing the default if those payments are sufficient 
to make the loan less than 270 days delinquent.
    (2) Section I of this letter outlines the Secretary's waiver policy 
for due diligence and timely filing violations. As noted above, to the 
extent that it results in the imposition of a lesser sanction than that 
available to the Secretary by statute or regulation, this policy 
reflects the exercise of the Secretary's authority to waive the 
Secretary's rights and claims in this area. Section II discusses the 
issue of the due date of the first payment on a loan and the application 
of the waiver policy to that issue. Section III provides guidance on 
several issues related to due diligence and timely filing as to which 
clarification has been requested by some program participants.

                            I. Waiver Policy

                             A. Definitions

    The following definitions apply to terms used throughout this 
letter:
    Full payment means payment by the borrower, or another person (other 
than the lender) on the borrower's behalf, in an amount at least as 
great as the monthly payment amount required under the existing terms of 
the loan, exclusive of any forbearance agreement in force at the time of 
the default. (For example, if the original repayment schedule or 
agreement called for payments of $50 per month, but a forbearance 
agreement was in effect at the time of default that allowed the borrower 
to pay $25 per month for a specified time, and the borrower defaulted in 
making the reduced payments, a full payment would be $50, or two $25 
payments in accordance with the original repayment schedule or 
agreement.) In the case of a payment made by cash, money order, or other 
means that do not identify the payor that is received by a lender after 
the date of this letter, that payment may constitute a full payment only 
if a senior officer of the lender or servicing agent certifies that the 
payment was not made by or on behalf of the lender or servicing agent.
    Earliest unexcused violation means:
    (a) In cases when reinsurance is lost due to a failure to timely 
establish a first payment due date, the earliest unexcused violation 
would be the 46th day after the date the first payment due date should 
have been established.
    (b) In cases when reinsurance is lost due to a gap of 46 days, the 
earliest unexcused violation date would be the 46th day following the 
last collection activity.
    (c) In cases when reinsurance is lost due to three or more due 
diligence violations of 6 days or more, the earliest unexcused violation 
would be the day after the date of default.
    (d) In cases when reinsurance is lost due to a timely filing 
violation, the earliest unexcused violation would be the day after the 
filing deadline.
    Reinstatement with respect to reinsurance coverage means the 
reinstatement of the guaranty agency's right to receive reinsurance 
payments on the loan after the date of reinstatement. Upon reinstatement 
of reinsurance, the borrower regains the right to

[[Page 822]]

receive forbearance or deferments, as appropriate. Reinstatement with 
respect to reinsurance on a loan also includes reinstatement of the 
lender's right to receive interest and special allowance payments on 
that loan.
    Gap in collection activity on a loan means:
    (a) The period between the initial delinquency and the first 
collection activity;
    (b) The period between collection activities (a request for 
preclaims assistance is considered a collection activity);
    (c) The period between the last collection activity and default; or
    (d) The period between the date a lender discovers a borrower has 
``skipped'' and the lender's first skip-tracing activity.

    Note: The concept of ``gap'' is used herein simply as one measure of 
collection activity. This definition applies to loans subject to the 
FFEL and PLUS programs regulations published on or after November 10, 
1986. For those loans, not all gaps are violations of the due diligence 
rules.

    Violation with respect to the due diligence requirements in 
Sec. 682.411 means the failure to timely complete a required diligent 
phone contact effort, the failure to timely send a required letter 
(including a request for preclaims assistance), or the failure to timely 
engage in a required skip-tracing activity. If during the delinquency 
period a gap of more than 45 days occurs (more than 60 days for loans 
with a transfer), the lender must satisfy the requirement outlined in 
I.D.1. for reinsurance to be reinstated. The day after the 45-day gap 
(or 60 for loans with a transfer) will be considered the date that the 
violation occurred.
    Transfer means any action, including, but not limited to, the sale 
of the loan, that results in a change in the system used to monitor or 
conduct collection activity on a loan from one system to another.
    B. General
    1. Resumption of Interest and Special Allowance Billing on Loans 
Involving Due Diligence or Timely Filing Violations. For any loan on 
which a cure is required under this letter in order for the agency to 
receive any reinsurance payment, the lender may resume billing for 
interest and special allowance on the loan only for periods following 
its completion of the required cure procedure.
    2. Reservation of the Secretary's Right to Strict Enforcement. While 
this letter describes the Secretary's general waiver policy, the 
Secretary retains the option of refusing to permit or recognize cures, 
or of insisting on strict enforcement of the remedies established by 
statute or regulation, in cases where, in the Secretary's judgment, a 
lender has committed an excessive number of severe violations of due 
diligence or timely filing rules and in cases where the best interests 
of the United States otherwise require strict enforcement. More 
generally, this bulletin states the Secretary's general policy and is 
not intended to limit in any way the authority and discretion afforded 
the Secretary by statute or regulation.
    3. Interest, Special Allowance, and Reinsurance Repayment Required 
as a Condition for Exercise of the Secretary's Waiver Authority. The 
Secretary's waiver of the right to recover or refuse to pay reinsurance, 
interest benefits, or special allowance payments, and recognition of 
cures for due diligence and timely filing violations, are conditioned on 
the following:
    a. The guaranty agency and lender must ensure that the lender repays 
all interest benefits and special allowance received on loans involving 
violations occurring prior to May 1, 1988, for which the lender is 
ineligible under the waiver policy for the ``retrospective period'' 
described in section I.C.1., or under the waiver policy for timely 
filing violations described in section I.E.1., by an adjustment to one 
of the next three quarterly billings for interest benefits and special 
allowance submitted by the lender in a timely manner after May 1, 1988. 
The guaranty agency's responsibility in this regard is satisfied by 
receipt of a certification from the lender that this repayment has been 
made in full.
    b. The guaranty agency, on or before October 1, 1988, must repay all 
reinsurance received on loans involving violations occurring prior to 
May 1, 1988, for which the agency is ineligible under the waiver policy 
for the ``retrospective period'' described in section I.C.1., or under 
the waiver policy for timely filing violations described in section 
I.E.1. Pending completion of the repayment described above, a lender or 
guaranty agency may submit billings to the Secretary on loans that are 
eligible for reinsurance under the waiver policy in this letter until it 
learns that repayment in full will not be made, or until the deadline 
for a repayment has passed without it being made, whichever is earlier. 
Of course, a lender or guaranty agency is prohibited from billing the 
Secretary for program payments on any loan amount that is not eligible 
for reinsurance under the waiver policy outlined in this letter. In 
addition to the repayments required above, any amounts received in the 
future in violation of this prohibition must immediately be repaid to 
the Secretary.
    4. Applicability of the Waiver Policy to Particular Classes of 
Loans. The policy outlined in this letter applies only to a loan for 
which the first day of the 180/240-day or 270/330-day default period (as 
applicable) that ended with default by the borrower occurred on or after 
March 10, 1987, or, in the case of a timely filing violation, December 
26, 1986, and that involves violations only of the due diligence or 
timely filing requirements or both. For a loan that has lost reinsurance 
prior to

[[Page 823]]

December 1, 1992, this policy applies only through November 30, 1995. 
For a loan that loses reinsurance on or after December 1, 1992, this 
policy applies until 3 years after the default claim filing deadline.
    5. Excuse of Certain Due Diligence Violations. Except as noted in 
section II, if a loan has due diligence violations but was later cured 
and brought current, those violations will not be considered in 
determining whether a loan was serviced in accordance with 34 CFR 
682.411. Guarantors must review the due diligence for the 180/240 or 
270/330-day period (as applicable) prior to the default date ensuring 
the due date of the first payment not later made is the correct payment 
due date for the borrower.
    6. Excuse of Timely Filing Violations Due to Performance of a 
Guaranty Agency's Cure Procedures. If, prior to May 1, 1988, and prior 
to the filing deadline, a lender commenced the performance of collection 
activities specifically required by the guaranty agency to cure a due 
diligence violation on a loan, the Secretary will excuse the lender's 
timely filing violation if the lender completes the additional 
activities within the time period permitted by the guaranty agency and 
files a default claim on the loan not more than 45 days after completing 
the additional activities.
    7. Treatment of Accrued Interest on ``Cured'' Claims. For any loan 
involving any violation of the due diligence or timely filing rules for 
which a ``cure'' is required under section I.C. or I.E., for the agency 
to receive a reinsurance payment, the Secretary will not reimburse the 
guaranty agency for any unpaid interest accruing after the date of the 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished, and prior to the date of reinstatement 
of reinsurance coverage. The lender may capitalize unpaid interest 
accruing on the loan from the date of the earliest unexcused violation 
to the date of the reinstatement of reinsurance coverage. However, if 
the agency later files a claim for reinsurance on that loan, the agency 
must deduct this capitalized interest from the amount of the claim. Some 
cures will not reinstate coverage. For treatment of accrued interest in 
those cases, see section I.E.1.c.
    C. Waiver Policy for Violations of the Federal Due Diligence in 
Collection Requirements (34 CFR 682.411)
    A violation of the due diligence in collection rules occurs when a 
lender fails to meet the requirements found in 34 CFR 682.411. However, 
if a lender makes all required calls and sends all required letters 
during any of the delinquency periods described in that section, the 
lender is considered to be in compliance with that section for that 
period, even if the letters were sent before the calls were made. The 
special provisions for transfers apply whenever the violation(s) and, if 
applicable, the gap, were due to a transfer, as defined in section I.A.
    1. Retrospective Period. For one or more due diligence violations 
occurring during the period March 10, 1987-April 30, 1988--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if no gap of 46 days or more 
(61 days or more for a transfer) exists.
    b. If a gap of 46-60 days (61-75 days for a transfer) exists, 
principal will be reinsured, but accrued interest, interest benefits, 
and special allowance otherwise payable by the Secretary for the 
delinquency period are limited to amounts accruing through the date of 
default.
    c. If a gap of 61 days or more (76 days or more for a transfer) 
exists, the borrower must be located after the gap, either by the agency 
or the lender, in order for reinsurance on the loan to be reinstated. 
(See section I.E.1.d., for a description of acceptable evidence of 
location.) In addition, if the loan is held by the lender or after March 
15, 1988, the lender must follow the steps described in section I.E.1., 
or receive a full payment or a new signed repayment agreement, in order 
for the loan to again be eligible for reinsurance. The lender must repay 
all interest benefits and special allowance received for the period 
beginning with its earliest unexcused violation, occurring after the 
last payment received before the cure is accomplished, and ending with 
the date, if any, that reinsurance on the loan is reinstated.
    2. Prospective Period. For due diligence violations occurring on or 
after May 1, 1988 based on due dates prior to October 6, 1998--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if there is no violation of 
Federal requirements of 6 days or more (21 days or more for a transfer.)
    b. If there exist not more than two violations of 6 days or more 
each (21 days or more for a transfer), and no gap of 46 days or more (61 
days or more for a transfer) exists, principal will be reinsured, but 
accrued interest, interest benefits, and special allowance otherwise 
payable by the Secretary for the delinquency period will be limited to 
amounts accruing through the date of default. However, the lender must 
complete all required activities before the claim filing deadline, 
except that a preclaims assistance request must be made before the 240th 
day of delinquency. If the lender fails to make this request by the 
240th day, the Secretary will not pay any accrued interest, interest 
benefits, and special allowance for the most recent 180 days prior to 
default. If the lender fails to complete any other required activity 
before the claim filing deadline, accrued interest, interest benefits, 
and special allowance otherwise payable by the Secretary for the 
delinquency period will be limited to

[[Page 824]]

amounts accruing through the 90th day before default.
    c. If there exist three violations of 6 days or more each (21 days 
or more for a transfer) and no gap of 46 days or more (61 days or more 
for a transfer), the lender must satisfy the requirements outlined in 
I.E.1., or receive a full payment or a new signed repayment agreement in 
order for reinsurance on the loan to be reinstated. The Secretary does 
not pay any interest benefits or special allowance for the period 
beginning with the lender's earliest unexcused violation occurring after 
the last payment received before the cure is accomplished, and ending 
with the date, if any, that reinsurance on the loan is reinstated.
    d. If there exist more than three violations of 6 days or more each 
(21 days or more for a transfer) of any type, or a gap of 46 days (61 
days for a transfer) or more and at least one violation, the lender must 
satisfy the requirement outlined in section I.D.1., for reinsurance on 
the loan to be reinstated. The Secretary does not pay any interest 
benefits or special allowance for the period beginning with the lender's 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished, and ending with the date, if any, that 
reinsurance on the loan is reinstated.
    3. Post 1998 Amendments. For due diligence violations based on due 
dates on or after October 6, 1998--
    a. There will be no reduction or recovery by the Secretary of 
payments to the lender or guaranty agency if there is no violation of 
Federal requirements of 6 days or more (21 days or more for a transfer).
    b. If there exist not more than two violations of 6 days or more 
each (21 days or more for a transfer), and no gap of 46 days or more (61 
days or more for a transfer) exists, principal will be reinsured, but 
accrued interest, interest benefits, and special allowance otherwise 
payable by the Secretary for the delinquency period will be limited to 
amounts accruing through the date of default. However, the lender must 
complete all required activities before the claim filing deadline, 
except that a default aversion assistance request must be made before 
the 330th day of delinquency. If the lender fails to make this request 
by the 330th day, the Secretary will not pay any accrued interest, 
interest benefits, and special allowance for the most recent 270 days 
prior to default. If the lender fails to complete any other required 
activity before the claim filing deadline, accrued interest, interest 
benefits, and special allowance otherwise payable by the Secretary for 
the delinquency period will be limited to amounts accruing through the 
90th day before default.
    c. If there exist three violations of 6 days or more each (21 days 
or more for a transfer) and no gap of 46 days or more (61 days or more 
for a transfer), the lender must satisfy the requirements outlined in 
I.E.1. or receive a full payment or a new signed repayment agreement in 
order for reinsurance on the loan to be reinstated. The Secretary does 
not pay any interest benefits or special allowance for the period 
beginning with the lender's earliest unexcused violation occurring after 
the last payment received before the cure is accomplished, and ending 
with the date, if any, that reinsurance on the loan is reinstated.
    d. If there exist more than three violations of 6 days or more each 
(21 days or more for a transfer) of any type, or a gap of 46 days (61 
days for a transfer) or more and at least one violation, the lender must 
satisfy the requirement outlined in section I.D.1. for reinsurance on 
the loan to be reinstated. The Secretary does not pay any interest 
benefits or special allowance for the period beginning with the lender's 
earliest unexcused violation occurring after the last payment received 
before the cure is accomplished and ending with the date, if any, that 
reinsurance on the loan is reinstated.
    D. Reinstatement of Reinsurance Coverage for Certain Egregious Due 
Diligence Violations.
    1. Cures. In the case of a loan involving violations described in 
section I.C.2.d. or I.C.3.d., the lender may utilize either of the two 
procedures described in section I.D.1.a or I.D.1.b. for obtaining 
reinstatement of reinsurance coverage on the loan.
    a. After the violations occur, the lender obtains a new repayment 
agreement signed by the borrower. The repayment agreement must comply 
with the repayment period limitations set out in 34 CFR 682.209(a)(8) 
and 682.209(h)(2); or
    b. After the violations occur, the lender obtains one full payment. 
If the borrower later defaults, the guaranty agency must obtain evidence 
of this payment (e.g., a copy of the check) from the lender.
    2. Borrower Deemed Current as of Date of Cure. On the date the 
lender receives a new signed repayment agreement or the curing payment 
under section I.D.1., reinsurance coverage on the loan is reinstated, 
and the borrower must be deemed by the lender to be current in repaying 
the loan and entitled to all rights and benefits available to borrowers 
who are not in default. The lender must then follow the collection and 
timely filing requirements applicable to the loan.
    E. Cures for Timely Filing Violations and Certain Due Diligence 
Violations
    1. Default Claims.
    a. Reinstatement of Insurance Coverage. Except as noted in section 
I.B.6., in order to obtain reinstatement of reinsurance coverage on a 
loan in the case of a timely filing violation, a due diligence violation 
described in section I.C.2.c. or I.C.3.c., or a due diligence violation 
described in section I.C.1.c. where the lender holds the loan on or 
after March

[[Page 825]]

15, 1988, the lender must first locate the borrower after the gap, or 
after the date of the last violation, as applicable. (See section 
I.E.1.d. for description of acceptable evidence of location.) Within 15 
days thereafter, the lender must send to the borrower, at the address at 
which the borrower was located, (i) a new repayment agreement, to be 
signed by the borrower, that complies with the ten-year repayment 
limitations in 34 CFR 682.209(a)(7), along with (ii) a collection letter 
indicating in strong terms the seriousness of the borrower's delinquency 
and its potential effect on his or her credit rating if repayment is not 
commenced or resumed. If, within 15 days after the lender sends these 
items, the borrower fails to make a full payment or to sign and return 
the new repayment agreement, the lender must, within 5 days thereafter, 
diligently attempt to contact the borrower by telephone. Within 5-10 
days after completing these efforts, the lender must again diligently 
attempt to contact the borrower by telephone. Finally, within 5-10 days 
after completing these efforts, the lender must send a forceful 
collection letter indicating that the entire unpaid balance of the loan 
is due and payable, and that, unless the borrower immediately contacts 
the lender to arrange repayment, the lender will be filing a default 
claim with the guaranty agency.
    b. Borrower Deemed Current Under Certain Circumstances. If, at any 
time on or before the 30th day after the lender completes the additional 
collection efforts described in section I.E.1.a., or the 270th day of 
delinquency, whichever is later, the lender receives a full payment or a 
new signed repayment agreement, reinsurance coverage on the loan is 
reinstated on the date the lender receives the full payment or new 
agreement. The borrower must be deemed by the lender to be current in 
repaying the loan and entitled to all rights and benefits available to 
borrowers who are not in default. In the case of a timely filing 
violation on a loan for which the borrower is deemed current under this 
paragraph, the lender is ineligible to receive interest benefits and 
special allowance accruing from the date of the violation to the date of 
reinstatement of reinsurance coverage on the loan.
    c. Borrower Deemed in Default Under Certain Circumstances. If the 
borrower does not make a full payment, or sign and return the new 
repayment agreement, on or before the 30th day after the lender 
completes the additional collection efforts described in section 
I.E.1.a., or the 270th day of delinquency, whichever is later, the 
lender must deem the borrower to be in default. The lender must then 
file a default claim on the loan, accompanied by acceptable evidence of 
location (see section I.E.1.d.), within 30 days after the end of the 30-
day period. Reinsurance coverage, and therefore the lender's right to 
receive interest benefits and special allowance, is not reinstated on a 
loan involving these circumstances. However, the Secretary will honor 
reinsurance claims submitted in accordance with this paragraph on the 
outstanding principal balance of those loans, on unpaid interest as 
provided in section I.B.7., and for reimbursement of eligible 
supplemental preclaims assistance costs. In the case of a timely filing 
violation on a loan for which the borrower is deemed in default under 
this paragraph, the lender is ineligible to receive interest benefits 
and special allowance accruing from the date of the violation.
    d. Acceptable Evidence of Location. Only the following documentation 
is acceptable as evidence that the lender has located the borrower:
    (1) A postal receipt signed by the borrower not more than 15 days 
prior to the date on which the lender sent the new repayment agreement, 
indicating acceptance of correspondence from the lender by the borrower 
at the address shown on the receipt; or
    (2) Documentation submitted by the lender showing--
    (i) The name, identification number, and address of the lender;
    (ii) The name and Social Security number of the borrower; and
    (iii) A signed certification by an employee or agent of the lender, 
that--
    (A) On a specified date, he or she spoke with or received written 
communication (attached to the certification) from the borrower on the 
loan underlying the default claim, or a parent, spouse, sibling, 
roommate, or neighbor of the borrower;
    (B) The address and, if available, telephone number of the borrower 
were provided to the lender in the telephone or written communication; 
and
    (C) In the case of a borrower whose address or telephone number was 
provided to the lender by someone other than the borrower, the new 
repayment agreement and the letter sent by the lender pursuant to 
section I.E.1.a., had not been returned undelivered as of 20 days after 
the date those items were sent, for due diligence violations described 
in section I.C.1.c. where the lender holds the loan on the date of this 
letter, and as of the date the lender filed a default claim on the cured 
loan, for all other violations.
    2. Death, Disability, and Bankruptcy Claims. The Secretary will 
honor a death or disability claim on an otherwise eligible loan 
notwithstanding the lender's failure to meet the 60-day timely filing 
requirement (See 34 CFR 682.402(g)(2)(i)). However, the Secretary will 
not reimburse the guaranty agency if, before the date the lender 
determined that the borrower died or was totally and permanently 
disabled, the lender had violated the Federal due diligence or timely 
filing requirements applicable to that loan, except in

[[Page 826]]

accordance with the waiver policy described above. Interest that accrued 
on the loan after the expiration of the 60-day filing period remains 
ineligible for reimbursement by the Secretary, and the lender must repay 
all interest and special allowance received on the loan for periods 
after the expiration of the 60-day filing period. The Secretary has 
determined that, in the vast majority of cases, the failure of a lender 
to comply with the timely filing requirement applicable to bankruptcy 
claims (Sec. 682.402(g)(2)(iv)) causes irreparable harm to the guaranty 
agency's ability to contest the discharge of the loan by the court, or 
to otherwise collect from the borrower. Therefore, the Secretary has 
decided not to excuse violations of the timely filing requirement 
applicable to bankruptcy claims, except when the lender can demonstrate 
that the bankruptcy action has concluded and that the loan has not been 
discharged in bankruptcy or, if previously discharged, has been the 
subject of a reversal of the discharge. In that case, the lender must 
return the borrower to the appropriate status that existed prior to the 
filing of the bankruptcy claim unless the status has changed due solely 
to passage of time. In the latter case, the lender must place the 
borrower in the status that would exist had no bankruptcy claim been 
filed. If the borrower is delinquent after the loan is determined 
nondischargeable, the lender should grant administrative forbearance to 
bring the borrower's account current as provided in Sec. 682.211(f)(4) 
and Sec. 682.402(f)(5)(ii) and (f)(6). The Secretary will not reimburse 
the guaranty agency for interest for the period beginning on the filing 
deadline for the bankruptcy claim and ending on the date the loan 
becomes eligible again for reinsurance. Reinsurance is reinstated on the 
date the bankruptcy action concludes and the loan is not discharged or 
on the date a previous discharge is reversed.
    II. Due Date of First Payment. Section 682.411(b)(1) refers to the 
``due date of the first missed payment not later made'' as one way to 
determine the first day of delinquency on a loan. Section 682.209(a)(3) 
states that, generally, the repayment period on an FFEL Program loan 
begins some number of months after the month in which the borrower 
ceases at least half-time study. Where the borrower enters the repayment 
period with the lender's knowledge, the first payment due date may be 
set by the lender, provided it falls within a reasonable time after the 
first day of the month in which the repayment period begins. In this 
situation, the Secretary generally permits a lender to allow the 
borrower up to 45 days from the first day of repayment to make the first 
payment (unless the lender establishes the first day of repayment under 
Sec. 682.209(a)(3)(ii)(E)).
    1. In cases where the lender learns that the borrower has entered 
the repayment period after the fact, current Sec. 682.411 treats the 
30th day after the lender receives this information as the first day of 
delinquency. In the course of discussion with lenders, the Secretary has 
learned that many lenders have not been using the 30th day after receipt 
of notice that the repayment period has begun (``the notice'') as the 
first payment due date. In recognition of this apparently widespread 
practice, the Secretary has decided that, both retrospectively and 
prospectively, a lender should be allowed to establish a first payment 
due date within 60 days after receipt of the notice, to capitalize 
interest accruing up to the first payment due date, and to exercise 
forbearance with respect to the period during which the borrower was in 
the repayment period but made no payment. In effect, this means that, if 
the lender sends the borrower a coupon book, billing notice, or other 
correspondence establishing a new first payment due date, on or before 
the 60th day after receipt of the notice, the lender is deemed to have 
exercised forbearance up to the new first payment due date. The new 
first payment due date must fall no later than 75 days after receipt of 
the notice (unless the lender establishes the first day of repayment 
under Sec. 682.209(a)(3)(ii)(E)). In keeping with the 5-day tolerance 
permitted under section I.C.2.a., for the ``prospective period,'' or 
section I.C.3.a., for the ``post 1998 amendment period,'' a lender that 
sends the above-described material on or before the 65th day after 
receipt of the notice will be held harmless. However, a lender that does 
so on the 66th day will have failed by more than 5 days to send both of 
the collection letters required by Sec. 682.411(c) to be sent within the 
first 30 days of delinquency and will thus have committed two violations 
of more than five days of that rule.
    2. If the lender fails to send the material establishing a new first 
payment due date on or before the 65th day after receipt of the notice, 
it may thereafter send material establishing a new first payment due 
date falling not more than 45 days after the materials are sent and will 
be deemed to have exercised forbearance up to the new first payment due 
date. However, all violations and gaps occurring prior to the date on 
which the material is sent are subject to the waiver policies described 
in section I for violations falling in either the retrospective or 
prospective periods. This is an exception to the general policy set 
forth in section I.B.5., that only violations occurring during the most 
recent 180 or 270 days (as applicable) of the delinquency period on a 
loan are relevant to the Secretary's examination of due diligence.
    Please Note: References to the ``65th day after receipt of the 
notice'' and ``66th day'' in the preceding paragraphs should be amended

[[Page 827]]

to read ``95th day'' and ``96th day'' respectively for lenders subject 
to Sec. 682.209(a)(3)(ii)(E).
    III. Questions and Answers
    The waiver policy outlined in this letter was developed after 
extensive discussion and consultation with participating lenders and 
guaranty agencies. In the course of these discussions, lenders and 
agencies raised a number of questions regarding the due diligence rules 
as applied to various circumstances. The Secretary's responses to these 
questions follow.
    Note: The answer to questions 1 and 4 are applicable only to loans 
subject to Sec. 682.411 of the FFEL and PLUS program regulations 
published on or after November 10, 1986.
    1. Q: Section 682.411 of the program regulations requires the lender 
to make ``diligent efforts to contact the borrower by telephone'' during 
each 30-day period of delinquency beginning after the 30th day of 
delinquency. What must a lender do to comply with this requirement?
    A: Generally speaking, one actual telephone contact with the 
borrower, or two attempts to make such contact on different days and at 
different times, will satisfy the ``diligent efforts'' requirement for 
any of the 30-day delinquency periods described in the rule. However, 
the ``diligent efforts'' requirement is intended to be a flexible one, 
requiring the lender to act on information it receives in the course of 
attempting telephone contact regarding the borrower's actual telephone 
number, the best time to call to reach the borrower, etc. For instance, 
if the lender is told during its second telephone contact attempt that 
the borrower can be reached at another number or at a different time of 
day, the lender must then attempt to reach the borrower by telephone at 
that number or that time of day.
    2. Q: What must a lender do when it receives conflicting information 
regarding the date a borrower ceased at least half-time study?
    A: A lender must promptly attempt to reconcile conflicting 
information regarding a borrower's in-school status by making inquiries 
of appropriate parties, including the borrower's school. Pending 
reconciliation, the lender may rely on the most recent credible 
information it has.
    3. Q: If a loan is transferred from one lender to another, is the 
transferee held responsible for information regarding the borrower's 
status that is received by the transferor but is not passed on to the 
transferee?
    A: No. A lender is responsible only for information received by its 
agents and employees. However, if the transferee has reason to believe 
that the transferor has received additional information regarding the 
loan, the transferee must make a reasonable inquiry of the transferor as 
to the nature and substance of that information.
    4. Q: What are a lender's due diligence responsibilities where a 
check received on a loan is dishonored by the bank on which it was 
drawn?
    A: Upon receiving notice that a check has been dishonored, the 
lender must treat the payment as having never been made for purposes of 
determining the number of days that the borrower is delinquent at that 
time. The lender must then begin (or resume) attempting collection on 
the loan in accordance with Sec. 682.411, commencing with the first 30-
day delinquency period described in Sec. 682.411 that begins after the 
30-day delinquency period in which the notice of dishonor is received. 
The same result occurs when the lender successfully obtains a delinquent 
borrower's correct address through skip-tracing, or when a delinquent 
borrower leaves deferment or forbearance status.

[64 FR 58636, Oct. 29, 1999, as amended at 66 FR 34765, June 29, 2001]



PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM--Table of Contents




                      Subpart A--Purpose and Scope

Sec.
685.100  The William D. Ford Federal Direct Loan Program.
685.101  Participation in the Direct Loan Program.
685.102  Definitions.
685.103  Applicability of subparts.

                     Subpart B--Borrower Provisions

685.200  Borrower eligibility.
685.201  Obtaining a loan.
685.202  Charges for which Direct Loan Program borrowers are 
          responsible.
685.203  Loan limits.
685.204  Deferment.
685.205  Forbearance.
685.206  Borrower responsibilities and defenses.
685.207  Obligation to repay.
685.208  Repayment plans.
685.209  Income contingent repayment plan.
685.210  Choice of repayment plan.
685.211  Miscellaneous repayment provisions.
685.212  Discharge of a loan obligation.
685.213  Total and permanent disability discharge.
685.214  Closed school discharge.
685.215  Discharge for false certification of student eligibility or 
          unauthorized payment.
685.216  Unpaid refund discharge.
685.217  Teacher loan forgiveness program.
685.218-685.219  [Reserved]
685.220  Consolidation.

[[Page 828]]

Subpart C--Requirements, Standards, and Payments for Direct Loan Program 
                                 Schools

685.300  Agreements between an eligible school and the Secretary for 
          participation in the Direct Loan Program.
685.301  Origination of a loan by a Direct Loan Program school.
685.302  Schedule requirements for courses of study by correspondence.
685.303  Processing loan proceeds.
685.304  Counseling borrowers.
685.305  Determining the date of a student's withdrawal.
685.306  Payment of a refund or return of title IV, HEA program funds to 
          the Secretary.
685.307  Withdrawal procedure for schools participating in the Direct 
          Loan Program.
685.308  Remedial actions.
685.309  Administrative and fiscal control and fund accounting 
          requirements for schools participating in the Direct Loan 
          Program.

Subpart D--School Participation and Loan Origination in the Direct Loan 
                                 Program

685.400  School participation requirements.
685.401  [Reserved]
685.402  Criteria for schools to originate loans.

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

    Source: 59 FR 61690, Dec. 1, 1994, unless otherwise noted.



                      Subpart A--Purpose and Scope



Sec. 685.100  The William D. Ford Federal Direct Loan Program.

    (a) Under the William D. Ford Federal Direct Loan (Direct Loan) 
Program (formerly known as the Federal Direct Student Loan Program), the 
Secretary makes loans to enable a student or parent to pay the costs of 
the student's attendance at a postsecondary school. This part governs 
the Federal Direct Stafford/Ford Loan Program, the Federal Direct 
Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS 
Program, and the Federal Direct Consolidation Loan Program. The 
Secretary makes loans under the following program components:
    (1) Federal Direct Stafford/Ford Loan Program (formerly known as the 
Federal Direct Stafford Loan Program), which provides loans to 
undergraduate, graduate, and professional students. The Secretary 
subsidizes the interest while the borrower is in an in-school, grace, or 
deferment period.
    (2) Federal Direct Unsubsidized Stafford/Ford Loan Program (formerly 
known as the Federal Direct Unsubsidized Stafford Loan Program), which 
provides loans to undergraduate, graduate and professional students. The 
borrower is responsible for the interest that accrues during any period.
    (3) Federal Direct PLUS Program, which provides loans to parents of 
dependent students. The borrower is responsible for the interest that 
accrues during any period.
    (4) Federal Direct Consolidation Loan Program, which provides loans 
to borrowers to consolidate certain Federal educational loans.
    (b) The Secretary makes a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, or a Direct PLUS Loan only to a student or a parent 
of a student enrolled in a school that has been selected by the 
Secretary to participate in the Direct Loan Program.
    (c) The Secretary makes a Direct Consolidation Loan only to--
    (1) A borrower with a loan made under the Direct Loan Program; or
    (2) A borrower with a loan made under the Federal Family Education 
Loan Program who is not able to receive--
    (i) A Federal Consolidation Loan; or
    (ii) A Federal Consolidation Loan with income-sensitive repayment 
terms that are satisfactory to the borrower.

(Authority: 20 U.S.C. 1087a et seq.)



Sec. 685.101  Participation in the Direct Loan Program.

    (a)(1) Colleges, universities, graduate and professional schools, 
vocational schools, and proprietary schools selected by the Secretary 
may participate in the Direct Loan Program. Participation in the Direct 
Loan Program enables an eligible student or parent to obtain a loan to 
pay for the student's cost of attendance at the school.
    (2) The Secretary may permit a school to participate in both the 
Federal Family Education Loan (FFEL) Program, as defined in 34 CFR part 
600, and the Direct Loan Program. A school

[[Page 829]]

permitted to participate in both the FFEL Program and the Direct Loan 
Program may certify loan applications under the FFEL Program according 
to the terms of its agreement with the Secretary.
    (b) An eligible student who is enrolled at a school participating in 
the Direct Loan Program may borrow under the Federal Direct Stafford/
Ford Loan and Federal Direct Unsubsidized Stafford/Ford Loan Programs. 
An eligible parent of an eligible dependent student enrolled at a school 
participating in the Direct Loan Program may borrow under the Federal 
Direct PLUS Program.

(Authority: 20 U.S.C. 1087a et seq.)



Sec. 685.102  Definitions.

    (a)(1) The definitions of the following terms used in this part are 
set forth in subpart A of the Student Assistance General Provisions, 34 
CFR part 668:

Academic year
Campus-based programs
Dependent student
Disburse
Eligible program
Eligible student
Enrolled
Federal Consolidation Loan Program
Federal Direct Student Loan Program (Direct Loan Program)
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Supplemental Educational Opportunity Grant Program
Federal Work-Study Program
Independent student
Leveraging Educational Assistance Partnership Program
One-third of an academic year
Parent
Payment period
State
Two-thirds of an academic year
U.S. citizen or national

    (2) The following definitions are set forth in the regulations for 
Institutional Eligibility under the Higher Education Act of 1965, as 
amended, 34 CFR part 600:

Accredited
Clock hour
Educational program
Eligible institution
Federal Family Education Loan (FFEL) Program
Institution of higher education
Nationally recognized accrediting agency or association
Preaccredited
Program of study by correspondence
Secretary

    (3) The following definitions are set forth in the regulations for 
the Federal Family Education Loan (FFEL) Program, 34 CFR part 682:

Act
Endorser
Expected family contribution
Federal Insured Student Loan (FISL) Program
Federal Stafford Loan Program
Foreign school
Full-time student
Graduate or professional student
Guaranty agency
Holder
Legal guardian
Lender
Totally and permanently disabled
Undergraduate student

    (b) The following definitions also apply to this part:
    Alternative originator: An entity under contract with the Secretary 
that originates Direct Loans to students and parents of students who 
attend a Direct Loan Program school that does not originate loans.
    Consortium: For purposes of this part, a consortium is a group of 
two or more schools that interacts with the Secretary in the same manner 
as other schools, except that the electronic communication between the 
Secretary and the schools is channeled through a single point. Each 
school in a consortium shall sign a Direct Loan Program participation 
agreement with the Secretary and be responsible for the information it 
supplies through the consortium.
    Default: The failure of a borrower and endorser, if any, to make an 
installment payment when due, or to meet other terms of the promissory 
note, if the Secretary finds it reasonable to conclude that the borrower 
and endorser, if any, no longer intend to honor the obligation to repay, 
provided that this failure persists for 270 days.
    Estimated financial assistance: (1) The estimated amount of 
assistance for a period of enrollment that a student (or

[[Page 830]]

a parent on behalf of a student) will receive from Federal, State, 
institutional, or other sources, such as scholarships, grants, financial 
need-based employment, or loans, including but not limited to--
    (i) Except as provided in paragraph (2)(iii) of this definition, 
veterans' educational benefits paid under chapters 30, 31, 32, and 35 of 
title 38 of the United States Code;
    (ii) Educational benefits paid under chapters 106 and 107 of title 
10 of the United States Code (Selected Reserve Educational Assistance 
Program);
    (iii) Reserve Officer Training Corps (ROTC) scholarships and 
subsistence allowances awarded under chapter 2 of title 10 and chapter 2 
of title 37 of the United States Code;
    (iv) Benefits paid under Public Law 97-376, section 156: Restored 
Entitlement Program for Survivors (or Quayle benefits);
    (v) Benefits paid under Public Law 96-342, section 903: Educational 
Assistance Pilot Program;
    (vi) Any educational benefits paid because of enrollment in a 
postsecondary education institution;
    (vii) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, and 
the gross amount (including fees) of a Direct Subsidized, Direct 
Unsubsidized, and Direct PLUS Loan; and
    (viii) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990.
    (2) Estimated financial assistance does not include--
    (i) Those amounts used to replace the expected family contribution, 
including--
    (A) Direct PLUS Loan amounts;
    (B) Direct Unsubsidized Loan amounts; and
    (C) Non-Federal loan amounts;
    (ii) Federal Perkins loan and Federal Work-Study funds that the 
student has declined; and
    (iii) For the purpose of determining eligibility for a Direct 
Subsidized Loan, veterans' educational benefits paid under chapter 30 of 
title 38 of the United States Code (Montgomery GI Bill--Active Duty) and 
national service education awards or post-service benefits under title I 
of the National and Community Service Act of 1990.
    Federal Direct Consolidation Loan Program: A loan program authorized 
by title IV, part D of the Act that provides loans to borrowers who 
consolidate certain Federal educational loan(s), and one of the 
components of the Direct Loan Program. Loans made under this program are 
referred to as Direct Consolidation Loans. There are three types of 
Direct Consolidation Loans:
    (1) Direct Subsidized Consolidation Loans. Subsidized title IV 
education loans may be consolidated into a Direct Subsidized 
Consolidation Loan. Interest is not charged to the borrower during in-
school, grace, and deferment periods.
    (2) Direct Unsubsidized Consolidation Loans. Certain Federal 
education loans may be consolidated into a Direct Unsubsidized 
Consolidation Loan. The borrower is responsible for the interest that 
accrues during any period.
    (3) Direct PLUS Consolidation Loans. Parent Loans for Undergraduate 
Students, Federal PLUS, Direct PLUS, and Direct PLUS Consolidation Loans 
may be consolidated into a Direct PLUS Consolidation Loan. The borrower 
is responsible for the interest that accrues during any period.
    Federal Direct PLUS Program: A loan program authorized by title IV, 
part D of the Act that provides loans to parents of dependent students 
attending schools that participate in the Direct Loan Program, and one 
of the components of the Direct Loan Program. The borrower is 
responsible for the interest that accrues during any period. Loans made 
under this program are referred to as Direct PLUS Loans.
    Federal Direct Stafford/Ford Loan Program: A loan program authorized 
by title IV, part D of the Act that provides loans to undergraduate, 
graduate, and professional students attending Direct Loan Program 
schools, and one of the components of the Direct Loan Program. The 
Secretary subsidizes the interest while the borrower is in an in-school, 
grace, or deferment period. Loans made under this program are referred 
to as Direct Subsidized Loans.

[[Page 831]]

    Federal Direct Unsubsidized Stafford/Ford Loan Program: A loan 
program authorized by title IV, part D of the Act that provides loans to 
undergraduate, graduate, and professional students attending Direct Loan 
Program schools, and one of the components of the Direct Loan Program. 
The borrower is responsible for the interest that accrues during any 
period. Loans made under this program are referred to as Direct 
Unsubsidized Loans.
    Grace period: A six-month period that begins on the day after a 
Direct Loan Program borrower ceases to be enrolled as at least a half-
time student at an eligible institution and ends on the day before the 
repayment period begins.
    Half-time student: A student who is not a full-time student and who 
is enrolled in an institution of higher education and is carrying an 
academic workload that is at least one-half the workload of a full-time 
student, as determined by the school. A student enrolled solely in an 
eligible program of study by correspondence is considered a half-time 
student.
    Interest rate: The annual interest rate that is charged on a loan, 
under title IV, part D of the Act.
    Loan fee: A fee, payable by the borrower, that is used to help 
defray the costs of the Direct Loan Program.
    Master Promissory Note (MPN): (1) A promissory note under which the 
borrower may receive loans for a single academic year or multiple 
academic years.
    (2) For MPNs processed by the Secretary before July 1, 2003, loans 
may no longer be made under an MPN after the earliest of--
    (i) The date the Secretary or the school receives the borrower's 
written notice that no further loans may be disbursed;
    (ii) One year after the date of the borrower's first anticipated 
disbursement if no disbursement is made during that twelve-month period; 
or
    (iii) Ten years after the date of the first anticipated 
disbursement, except that a remaining portion of a loan may be disbursed 
after this date.
    (3) For MPNs processed by the Secretary on or after July 1, 2003, 
loans may no longer be made under an MPN after the earliest of--
    (i) The date the Secretary or the school receives the borrower's 
written notice that no further loans may be made;
    (ii) One year after the date the borrower signed the MPN or the date 
the Secretary receives the MPN, if no disbursements are made under that 
MPN; or
    (iii) Ten years after the date the borrower signed the MPN or the 
date the Secretary receives the MPN, except that a remaining portion of 
a loan may be disbursed after this date.
    Period of enrollment: The period for which a Direct Subsidized, 
Direct Unsubsidized, or Direct PLUS Loan is intended. The period of 
enrollment must coincide with one or more academic terms established by 
the school (such as semester, trimester, quarter, academic year, and 
length of the program of study), for which institutional charges are 
generally assessed. The period of enrollment is also referred to in this 
part as the loan period.
    Satisfactory repayment arrangement. (1) For the purpose of regaining 
eligibility under section 428F(b) of the HEA, the making of six 
consecutive, voluntary, on-time, full monthly payments on a defaulted 
loan. A borrower may only obtain the benefit of this paragraph with 
respect to renewed eligibility once.
    (2) For the purpose of consolidating a defaulted loan under 34 CFR 
685.220(d)(1)(ii)(E), the making of three consecutive, voluntary, on-
time, full monthly payments on a defaulted loan.
    (3) The required monthly payment amount may not be more than is 
reasonable and affordable based on the borrower's total financial 
circumstances. ``On-time'' means a payment made within 15 days of the 
scheduled due date, and voluntary payments are those payments made 
directly by the borrower and do not include payments obtained by Federal 
offset, garnishment, or income or asset execution.
    School origination option 1: In general, under this option the 
school performs the following functions: creates a loan origination 
record, transmits the record to the Servicer, prepares the promissory 
note, obtains a completed

[[Page 832]]

and signed promissory note from a borrower, transmits the promissory 
note to the Servicer, receives the funds electronically, disburses a 
loan to a borrower, creates a disbursement record, transmits the 
disbursement record to the Servicer, and reconciles on a monthly basis. 
The Servicer initiates the drawdown of funds for schools participating 
in school origination option 1. The Secretary may modify the functions 
performed by a particular school.
    School origination option 2: In general, under this option the 
school performs the following functions: creates a loan origination 
record, transmits the record to the Servicer, prepares the promissory 
note, obtains a completed and signed promissory note from a borrower, 
transmits the promissory note to the Servicer, determines funding needs, 
initiates the drawdown of funds, receives the funds electronically, 
disburses a loan to a borrower, creates a disbursement record, transmits 
the disbursement record to the Servicer, and reconciles on a monthly 
basis. The Secretary may modify the functions performed by a particular 
school.
    Servicer: An entity that has contracted with the Secretary to act as 
the Secretary's agent in providing services relating to the origination 
or servicing of Direct Loans.
    Standard origination: In general, under this option the school 
performs the following functions: creates a loan origination record, 
transmits the record to the Servicer, receives funds electronically, 
disburses funds, creates a disbursement record, transmits the 
disbursement record to the Servicer, and reconciles on a monthly basis. 
The Servicer prepares the promissory note, obtains a completed and 
signed promissory note from a borrower, and initiates the drawdown of 
funds for schools participating in standard origination. The Secretary 
may modify the functions performed by a particular school.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 61793, Dec. 1, 1995; 61 
FR 29899, June 12, 1996; 61 FR 60610, Nov. 29, 1996; 64 FR 58965, Nov. 
1, 1999; 65 FR 38729, June 22, 2000; 65 FR 65629, Nov. 1, 2000; 66 FR 
34765, June 29, 2001; 67 FR 67081, Nov. 1, 2002]



Sec. 685.103  Applicability of subparts.

    (a) Subpart A contains general provisions regarding the purpose and 
scope of the Direct Loan Program.
    (b) Subpart B contains provisions regarding borrowers in the Direct 
Loan Program.
    (c) Subpart C contains certain requirements regarding schools in the 
Direct Loan Program.
    (d) Subpart D contains provisions regarding school eligibility for 
participation and origination in the Direct Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)



                     Subpart B--Borrower Provisions



Sec. 685.200  Borrower eligibility.

    (a) Student borrower. (1) A student is eligible to receive a Direct 
Subsidized Loan, a Direct Unsubsidized Loan, or a combination of these 
loans, if the student meets the following requirements:
    (i) The student is enrolled, or accepted for enrollment, on at least 
a half-time basis in a school that participates in the Direct Loan 
Program.
    (ii) The student meets the requirements for an eligible student 
under 34 CFR part 668.
    (iii) In the case of an undergraduate student who seeks a Direct 
Subsidized Loan or a Direct Unsubsidized Loan at a school that 
participates in the Federal Pell Grant Program, the student has received 
a determination of Federal Pell Grant eligibility for the period of 
enrollment for which the loan is sought.
    (iv) In the case of a borrower whose previous loan was cancelled due 
to total and permanent disability, the student--
    (A) In the case of a borrower whose prior loan under title IV of the 
Act was discharged after a final determination of total and permanent 
disability, the borrower--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity; and
    (2) Signs a statement acknowledging that the Direct Loan the 
borrower receives cannot be discharged in the future on the basis of any 
impairment

[[Page 833]]

present when the new loan is made, unless that impairment substantially 
deteriorates.
    (B) In the case of a borrower whose prior loan under title IV of the 
Act was discharged on or after July 1, 2001 and before July 1, 2002 
after a final determination of total and permanent disability, the 
borrower--
    (1) Complies with the requirements of paragraph (a)(1)(iv)(A) of 
this section; and
    (2) If the borrower applies for another loan within three years from 
the date that the borrower became totally and permanently disabled, as 
certified by the physician, reaffirms the previously discharged loan 
before receiving the new loan. For the purposes of this paragraph, 
reaffirmation means the acknowledgement of the loan by the borrower in a 
legally binding manner. The acknowledgement may include, but is not 
limited to, the borrower signing a new promissory note that includes the 
same terms and conditions as the original note signed by the borrower, 
making a payment on the loan, or signing a repayment agreement.
    (C) In the case of a borrower whose prior loan under title IV of the 
Act was conditionally discharged based on an initial determination that 
the borrower was totally and permanently disabled--
    (1) The suspension of collection activity on the prior loan has been 
lifted;
    (2) The borrower complies with the requirement in paragraph 
(a)(1)(iv)(A)(1) of this section;
    (3) The borrower signs a statement acknowledging that neither the 
prior loan nor the Direct Loan that the borrower receives may be 
discharged in the future on the basis of any impairment present when the 
borrower applied for a total and permanent disability discharge or when 
the new loan is made, unless that impairment substantially deteriorates; 
and
    (4) The borrower signs a statement acknowledging that the suspension 
of collection activity on the prior loan will be lifted.
    (v) In the case of a student who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education or 
the recognized equivalent of such a certificate, the student meets the 
requirements under 34 CFR 668.32(e)(2), (3) or (4).
    (2)(i) A Direct Subsidized Loan borrower must demonstrate financial 
need in accordance with title IV, part F of the Act.
    (ii) The Secretary considers a member of a religious order, group, 
community, society, agency, or other organization who is pursuing a 
course of study at an institution of higher education to have no 
financial need if that organization--
    (A) Has as its primary objective the promotion of ideals and beliefs 
regarding a Supreme Being;
    (B) Requires its members to forego monetary or other support 
substantially beyond the support it provides; and
    (C)(1) Directs the member to pursue the course of study; or
    (2) Provides subsistence support to its members.
    (b) Parent borrower. (1) A parent is eligible to receive a Direct 
PLUS Loan if the parent meets the following requirements:
    (i) The parent is borrowing to pay for the educational costs of a 
dependent undergraduate student who meets the requirements for an 
eligible student under 34 CFR part 668.
    (ii) The parent provides his or her and the student's social 
security number.
    (iii) The parent meets the requirements pertaining to citizenship 
and residency that apply to the student under 34 CFR 668.33.
    (iv) The parent meets the requirements concerning defaults and 
overpayments that apply to the student in 34 CFR 668.32(g).
    (v) The parent complies with the requirements for submission of a 
Statement of Educational Purpose that apply to the student under 34 CFR 
part 668, except for the completion of a Statement of Selective Service 
Registration Status.
    (vi) The parent meets the requirements that apply to a student under 
paragraph (a)(1)(iv) of this section.
    (vii)(A) The parent--
    (1) Does not have an adverse credit history;

[[Page 834]]

    (2) Has an adverse credit history but has obtained an endorser who 
does not have an adverse credit history; or
    (3) Has an adverse credit history but documents to the satisfaction 
of the Secretary that extenuating circumstances exist.
    (B) For purposes of paragraph (b)(1)(vii)(A) of this section, an 
adverse credit history means that as of the date of the credit report, 
the applicant--
    (1) Is 90 or more days delinquent on any debt; or
    (2) Has been the subject of a default determination, bankruptcy 
discharge, foreclosure, repossession, tax lien, wage garnishment, or 
write-off of a debt under title IV of the Act during the five years 
preceding the date of the credit report.
    (C) For the purposes of (b)(1)(vii)(A) of this section, the 
Secretary does not consider the absence of a credit history as an 
adverse credit history and does not deny a Direct PLUS loan on that 
basis.
    (2) For purposes of paragraph (b)(1) of this section, a ``parent'' 
includes the individuals described in the definition of ``parent'' in 34 
CFR 668.2 and the spouse of a parent who remarried, if that spouse's 
income and assets would have been taken into account when calculating a 
dependent student's expected family contribution.
    (c) Defaulted FFEL Program and Direct Loan borrowers. Except as 
noted in Sec. 685.220(d)(1)(ii)(F), in the case of a student or parent 
borrower who is currently in default on an FFEL Program or a Direct Loan 
Program Loan, the borrower shall make satisfactory repayment 
arrangements, as described in paragraph (2) of the definition of that 
term under Sec. 685.102(b), on the defaulted loan.
    (d) Use of loan proceeds to replace expected family contribution. 
The amount of a Direct Unsubsidized Loan, a Direct PLUS Loan, a State-
sponsored loan, or another non-Federal loan obtained for a loan period 
may be used to replace the expected family contribution for that loan 
period.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 61816, Dec. 1, 1995; 61 
FR 29900, June 12, 1996; 65 FR 65629, 65693, Nov. 1, 2000; 66 FR 34765, 
June 29, 2001; 66 FR 44007, Aug. 21, 2001]



Sec. 685.201  Obtaining a loan.

    (a) Application for a Direct Subsidized Loan or a Direct 
Unsubsidized Loan. (1) To obtain a Direct Subsidized Loan or a Direct 
Unsubsidized Loan, a student must complete a Free Application for 
Federal Student Aid and submit it in accordance with instructions in the 
application.
    (2) If the student is eligible for a Direct Subsidized Loan or a 
Direct Unsubsidized Loan, the Secretary or the school in which the 
student is enrolled must perform specific functions. Unless a school's 
agreement with the Secretary specifies otherwise, the school must 
perform the following functions:
    (i) A school participating under school origination option 2 must 
create a loan origination record, ensure that the loan is supported by a 
completed Master Promissory Note (MPN), draw down funds, and disburse 
the funds to the student.
    (ii) A school participating under school origination option 1 must 
create a loan origination record, ensure that the loan is supported by a 
completed MPN, and transmit the record and MPN (if required) to the 
Servicer. The Servicer initiates the drawdown of funds. The school must 
disburse the funds to the student.
    (iii) If the student is attending a school participating under 
standard origination, the school must create a loan origination record 
and transmit the record to the alternative originator, which either 
confirms that a completed MPN supports the loan or prepares an MPN and 
sends it to the student. The Servicer receives the completed MPN from 
the student (if required) and initiates the drawdown of funds. The 
school must disburse the funds to the student.

[[Page 835]]

    (b) Application for a Direct PLUS Loan. To obtain a Direct PLUS 
Loan, the parent must complete the application and promissory note and 
submit it to the school at which the student is enrolled. The school 
must complete its portion of the application and promissory note and 
submit it to the Servicer, which makes a determination as to whether the 
parent has an adverse credit history. Unless a school's agreement with 
the Secretary specifies otherwise, the school must perform the following 
functions: A school participating under school origination option 2 must 
draw down funds and disburse the funds. For a school participating under 
school origination option 1 or standard origination, the Servicer 
initiates the drawdown of funds, and the school disburses the funds.
    (c) Application for a Direct Consolidation Loan. (1) To obtain a 
Direct Consolidation Loan, the applicant must complete the application 
and promissory note and submit it to the Servicer. The application and 
promissory note sets forth the terms and conditions of the Direct 
Consolidation Loan and informs the applicant how to contact the 
Servicer. The Servicer answers questions regarding the process of 
applying for a Direct Consolidation Loan and provides information about 
the terms and conditions of both Direct Consolidation Loans and the 
types of loans that may be consolidated.
    (2) Once the applicant has submitted the completed application and 
promissory note to the Servicer, the Secretary makes the Direct 
Consolidation Loan under the procedures specified in Sec. 685.220.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[64 FR 58965, Nov. 1, 1999, as amended at 65 FR 65629, Nov. 1, 2000]



Sec. 685.202  Charges for which Direct Loan Program borrowers are responsible.

    (a) Interest--(1) Interest rate for Direct Subsidized Loans and 
Direct Unsubsidized Loans. (i) Loans first disbursed before July 1, 
1995. During all periods, the interest rate during any twelve-month 
period beginning on July 1 and ending on June 30 is determined on the 
June 1 immediately preceding that period. The interest rate is equal to 
the bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 3.1 percentage points, but does 
not exceed 8.25 percent.
    (ii) Loans first disbursed on or after July 1, 1995 and before July 
1, 1998. (A) During the in-school, grace, and deferment periods. The 
interest rate during any twelve-month period beginning on July 1 and 
ending on June 30 is determined on the June 1 immediately preceding that 
period. The interest rate is equal to the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 2.5 percentage points, but does not exceed 8.25 percent.
    (B) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is equal 
to the bond equivalent rate of 91-day Treasury bills auctioned at the 
final auction held prior to that June 1 plus 3.1 percentage points, but 
does not exceed 8.25 percent.
    (iii) Loans first disbursed on or after July 1, 1998. (A) During the 
in-school, grace, and deferment periods. The interest rate during any 
twelve-month period beginning on July 1 and ending on June 30 is 
determined on the June 1 immediately preceding that period. The interest 
rate is equal to the bond equivalent rate of 91-day Treasury bills 
auctioned at the final auction held prior to that June 1 plus 1.7 
percentage points, but does not exceed 8.25 percent.
    (B) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on 
the June 1 immediately preceding that period. The interest rate is equal 
to the bond equivalent rate of 91-day Treasury bills auctioned at the 
final auction held prior to that June 1 plus 2.3 percentage points, but 
does not exceed 8.25 percent.
    (2) Interest rate for Direct PLUS Loans. (i) Loans first disbursed 
before July 1, 1998. (A) Interest rates for periods ending before July 
1, 2001. During all periods, the interest rate during any twelve-month 
period beginning on July 1 and

[[Page 836]]

ending on June 30 is determined on the June 1 preceding that period. The 
interest rate is equal to the bond equivalent rate of 52-week Treasury 
bills auctioned at the final auction held prior to that June 1 plus 3.1 
percentage points, but does not exceed 9 percent.
    (B) Interest rates for periods beginning on or after July 1, 2001. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 26 
preceding that period. The interest rate is equal to the weekly average 
1-year constant maturity Treasury yield, as published by the Board of 
Governors of the Federal Reserve System, for the last calendar week 
ending on or before that June 26 plus 3.1 percentage points, but does 
not exceed 9 percent.
    (ii) Loans first disbursed on or after July 1, 1998. During all 
periods, the interest rate during any twelve-month period beginning on 
July 1 and ending on June 30 is determined on the June 1 preceding that 
period. The interest rate is equal to the bond equivalent rate of 91-day 
Treasury bills auctioned at the final auction held prior to that June 1 
plus 3.1 percentage points, but does not exceed 9 percent.
    (3) Interest rate of Direct Consolidation Loans. (i) Interest rate 
for Direct Subsidized Consolidation Loans and Direct Unsubsidized 
Consolidation Loans. (A) Loans first disbursed before July 1, 1995. The 
interest rate is the rate established for Direct Subsidized Loans and 
Direct Unsubsidized Loans in paragraph (a)(1)(i) of this section.
    (B) Loans first disbursed on or after July 1, 1995 and before July 
1, 1998. The interest rate is the rate established for Direct Subsidized 
Loans and Direct Unsubsidized Loans in paragraph (a)(1)(ii) of this 
section.
    (C) Loans for which the first disbursement is made on or after July 
1, 1998 and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998 for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct Subsidized 
Loans and Direct Unsubsidized Loans in paragraph (a)(1)(iii) of this 
section.
    (D) Loans for which the consolidation application is received by the 
Secretary on or after October 1, 1998 and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.
    (E) Loans for which the consolidation application is received by the 
Secretary on or after February 1, 1999. During all periods, the interest 
rate is based on the weighted average of the interest rates on the loans 
being consolidated, rounded to the nearest higher one-eighth of one 
percent, but does not exceed 8.25 percent.
    (ii) Interest rate for Direct PLUS Consolidation Loans. (A) Loans 
first disbursed before July 1, 1998. The interest rate is the rate 
established for Direct PLUS Loans in paragraph (a)(2)(i) of this 
section.
    (B) Loans for which the first disbursement is made on or after July 
1, 1998 and prior to October 1, 1998, and loans for which the 
disbursement is made on or after October 1, 1998 for which the 
consolidation application was received by the Secretary before October 
1, 1998. The interest rate is the rate established for Direct PLUS Loans 
in paragraph (a)(2)(ii) of this section.
    (C) Loans for which the consolidation application is received by the 
Secretary on or after October 1, 1998 and before February 1, 1999. 
During all periods, the interest rate during any twelve-month period 
beginning on July 1 and ending on June 30 is determined on the June 1 
immediately preceding that period. The interest rate is equal to the 
bond equivalent rate of 91-day Treasury bills auctioned at the final 
auction held prior to that June 1 plus 2.3 percentage points, but does 
not exceed 8.25 percent.
    (D) Loans for which the consolidation application is received by the 
Secretary on or after February 1, 1999. During all periods, the interest 
rate is based on the weighted average of the interest rates

[[Page 837]]

on the loans being consolidated, rounded to the nearest higher one-
eighth of one percent, but does not exceed 8.25 percent.
    (b) Capitalization. (1) The Secretary may add unpaid accrued 
interest to the borrower's unpaid principal balance. This increase in 
the principal balance of a loan is called ``capitalization.''
    (2) For a Direct Unsubsidized Loan or a Direct Unsubsidized 
Consolidation Loan that qualifies for a grace period, the Secretary 
capitalizes the unpaid interest that accrues on the loan when the 
borrower enters repayment.
    (3) Notwithstanding Sec. 685.208(g)(5) and Sec. 685.209(d)(3), for a 
Direct Loan not eligible for interest subsidies during periods of 
deferment, and for all Direct Loans during periods of forbearance, the 
Secretary capitalizes the unpaid interest that has accrued on the loan 
upon the expiration of the deferment or forbearance.
    (4) Except as provided in paragraph (b)(3) of this section and in 
Sec. 685.208(g)(5), and Sec. 685.209(d)(3), the Secretary annually 
capitalizes unpaid interest when the borrower is paying under the 
alternative or income contingent repayment plans and the borrower's 
scheduled payments do not cover the interest that has accrued on the 
loan.
    (5) The Secretary may capitalize unpaid interest when the borrower 
defaults on the loan.
    (c) Loan fee for Direct Subsidized, Direct Unsubsidized, and Direct 
PLUS Loans. The Secretary--
    (1)(i) Charges a borrower a loan fee not to exceed four percent of 
the principal amount of the loan on a Direct Subsidized or Direct 
Unsubsidized Loan; and
    (ii) Charges a borrower a loan fee of four percent of the principal 
amount of the loan on a Direct PLUS Loan.
    (2) Deducts the loan fee from the proceeds of the loan;
    (3) In the case of a loan disbursed in multiple installments, 
deducts a pro rated portion of the fee from each disbursement; and
    (4) Applies to a borrower's loan balance the portion of the loan fee 
previously deducted from the loan that is attributable to any portion of 
the loan that is--
    (i) Repaid or returned within 120 days of disbursement, unless--
    (A) The borrower has no Direct Loans in repayment status and has 
requested, in writing, that the repaid or returned funds be used for a 
different purpose; or
    (B) The borrower has a Direct Loan in repayment status, in which 
case the payment is applied in accordance with Sec. 685.211(a) unless 
the borrower has requested, in writing, that the repaid or returned 
funds be applied as a cancellation of all or part of the loan; or
    (ii) Returned by a school in order to comply with the Act or with 
applicable regulations.
    (d) Late charge. (1) The Secretary may require the borrower to pay a 
late charge of up to six cents for each dollar of each installment or 
portion thereof that is late under the circumstances described in 
paragraph (d)(2) of this section.
    (2) The late charge may be assessed if the borrower fails to pay all 
or a portion of a required installment payment within 30 days after it 
is due.
    (e)(1) Collection charges before default. Notwithstanding any 
provision of State law, the Secretary may require that the borrower or 
any endorser pay costs incurred by the Secretary or the Secretary's 
agents in collecting installments not paid when due. These charges do 
not include routine collection costs associated with preparing letters 
or notices or with making personal contacts with the borrower (e.g., 
local and long-distance telephone calls).
    (2) Collection charges after default. If a borrower defaults on a 
Direct Loan, the Secretary assesses collection costs on the basis of 34 
CFR 30.60.

(Authority: 20 U.S.C. 1087a et seq., 1091a)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 62 
FR 63434, Nov. 28, 1997; 64 FR 46254, Aug. 24, 1999; 66 FR 34765, June 
29, 2001]



Sec. 685.203  Loan limits.

    (a) Direct Subsidized Loans. (1) In the case of an undergraduate 
student who has not successfully completed the first year of a program 
of undergraduate education, the total amount the student may borrow for 
any academic year of study under the Federal Direct Stafford/Ford Loan 
Program in

[[Page 838]]

combination with the Federal Stafford Loan Program may not exceed the 
following:
    (i) $2,625 for a program of study of at least a full academic year 
in length.
    (ii) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $2,625 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.000

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,625 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.001

    (2) In the case of an undergraduate student who has successfully 
completed the first year of an undergraduate program but has not 
successfully completed the second year of an undergraduate program, the 
total amount the student may borrow for any academic year of study under 
the Federal Direct Stafford/Ford Loan Program in combination with the 
Federal Stafford Loan Program may not exceed the following:
    (i) $3,500 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.002

    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the remainder 
of the program, the total amount the student may borrow for any academic 
year of study under the Federal Direct Stafford/Ford Loan Program in 
combination with the Federal Stafford Loan Program may not exceed the 
following:
    (i) $5,500 for a program of study of at least an academic year in 
length.
    (ii) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.003


[[Page 839]]


    (4) In the case of a student who has an associate or baccalaureate 
degree which is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (a)(3) of this section.
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for any academic year of study under the 
Federal Direct Stafford/Ford Loan Program in combination with the 
Federal Stafford Loan Program may not exceed $8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate, the total 
amount the student may borrow for any academic year of study under the 
Federal Direct Stafford/Ford Loan Program in combination with the 
Federal Stafford Loan Program may not exceed the following:
    (i) $2,625 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (ii) $5,500 for coursework necessary for enrollment in a graduate or 
professional degree or certification program for a student who has 
obtained a baccalaureate degree.
    (7) In the case of a student who has obtained a baccalaureate degree 
and is enrolled or accepted for enrollment in coursework necessary for a 
professional credential or certification from a State that is required 
for employment as a teacher in an elementary or secondary school in that 
State, the total amount the student may borrow for any academic year of 
study under the Federal Direct Stafford/Ford Loan Program in combination 
with the Federal Stafford Loan Program may not exceed $5,500.
    (8) Except as provided in paragraph (a)(4) of this section, an 
undergraduate student who is enrolled in a program that is one academic 
year or less in length may not borrow an amount for any academic year of 
study that exceeds the amounts in paragraph (a)(1) of this section.
    (9) Except as provided in paragraph (a)(4) of this section--
    (i) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph (a)(1) 
of this section.
    (ii) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (a)(2) of this 
section.
    (b) Direct Unsubsidized Loans. The total amount a student may borrow 
under any period of study for the Federal Direct Unsubsidized Loan 
Program and the Federal Unsubsidized Stafford/Ford Loan Program is the 
same as the amount determined under paragraph (a) of this section, less 
any amount received under the Federal Direct Stafford/Ford Loan Program 
or the Federal Stafford Loan Program.
    (c) Additional eligibility for Direct Unsubsidized Loans. (1)(i) An 
independent undergraduate student, graduate or professional student, and 
certain dependent undergraduate students may borrow amounts under the 
Federal Direct Unsubsidized Loan Program in addition to any amount 
borrowed under paragraph (b) of this section.
    (ii) In order for a dependent undergraduate student to receive this 
additional loan amount, the financial aid administrator must determine 
that the student's parent likely will be precluded by exceptional 
circumstances from borrowing under the Federal Direct PLUS Program or 
the Federal PLUS Program and the student's family is otherwise unable to 
provide the student's expected family contribution. The financial aid 
administrator shall base the determination on a review of the family 
financial information provided by the student and consideration of the 
student's debt burden and shall document the determination in the 
school's file.

[[Page 840]]

    (iii) ``Exceptional circumstances'' under paragraph (c)(1)(ii) of 
this section include but are not limited to circumstances in which the 
student's parent receives only public assistance or disability benefits, 
the parent is incarcerated, the parent has an adverse credit history, or 
the parent's whereabouts are unknown. A parent's refusal to borrow a 
Federal PLUS Loan or Direct PLUS Loan does not constitute ``exceptional 
circumstances.''
    (2) The additional amount that a student described in paragraph 
(c)(1)(i) of this section may borrow under the Federal Direct 
Unsubsidized Stafford/Ford Loan Program and the Federal Unsubsidized 
Stafford Loan Program for any academic year of study may not exceed the 
following:
    (i) In the case of a student who has not successfully completed the 
first year of a program of undergraduate education--
    (A) $4,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.004

    (C) For a one-year program of study with less than a full academic 
year remaining, the amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.005

    (D) For a program of study that is less than a full academic year in 
length, an amount that is the same ratio to $4,000 as the lesser of the-
-
[GRAPHIC] [TIFF OMITTED] TR01NO99.006

    (ii) In the case of a student who has completed the first year of a 
program of undergraduate education but has not successfully completed 
the second year of a program of undergraduate education--
    (A) $4,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.007


[[Page 841]]


    (iii) In the case of a student who has successfully completed the 
second year of a program of undergraduate education but has not 
completed the remainder of the program of study--
    (A) $5,000 for a program of study of at least a full academic year 
in length.
    (B) For a program of study with less than a full academic year 
remaining, an amount that is the same ratio to $5,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.008

    (iv) In the case of a student who has an associate or baccalaureate 
degree which is required for admission into a program and who is not a 
graduate or professional student, the total amount the student may 
borrow for any academic year of study may not exceed the amounts in 
paragraph (c)(2)(iii) of this section.
    (v) In the case of a graduate or professional student, $10,000.
    (vi) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate--
    (A) $4,000 for coursework necessary for enrollment in an 
undergraduate degree or certificate program.
    (B) $5,000 for coursework necessary for enrollment in a graduate or 
professional degree or certification program for a student who has 
obtained a baccalaureate degree.
    (vii) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in coursework 
necessary for a professional credential or certification from a State 
that is required for employment as a teacher in an elementary or 
secondary school in that State, $5,000.
    (viii) Except as provided in paragraph (c)(2)(iv) of this section, 
an undergraduate student who is enrolled in a program that is one 
academic year or less in length may not borrow an amount for any 
academic year of study that exceeds the amounts in paragraph (c)(2)(i) 
of this section.
    (ix) Except as provided in paragraph (c)(2)(iv) of this section--
    (A) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has not successfully 
completed the first year of that program may not borrow an amount for 
any academic year of study that exceeds the amounts in paragraph 
(c)(2)(i) of this section.
    (B) An undergraduate student who is enrolled in a program that is 
more than one academic year in length and who has successfully completed 
the first year of that program, but has not successfully completed the 
second year of the program, may not borrow an amount for any academic 
year of study that exceeds the amounts in paragraph (c)(2)(ii) of this 
section.
    (d) Federal Direct Stafford/Ford Loan Program and Federal Stafford 
Loan Program aggregate limits. The aggregate unpaid principal amount of 
all Direct Subsidized Loans and Federal Stafford Loans made to a student 
but excluding the amount of capitalized interest may not exceed the 
following:
    (1) $23,000 in the case of any student who has not successfully 
completed a program of study at the undergraduate level.
    (2) $65,500 in the case of a graduate or professional student, 
including loans for undergraduate study.
    (e) Aggregate limits for unsubsidized loans. The total amount of 
Direct Unsubsidized Loans, Federal Unsubsidized Stafford Loans, and 
Federal SLS Loans but excluding the amount of capitalized interest may 
not exceed the following:
    (1) For a dependent undergraduate student, $23,000 minus any Direct 
Subsidized Loan and Federal Stafford Loan amounts, unless the student 
qualifies under paragraph (c) of this section for additional eligibility 
or qualified for that additional eligibility under the Federal SLS 
Program.
    (2) For an independent undergraduate or a dependent undergraduate 
who

[[Page 842]]

qualifies for additional eligibility under paragraph (c) of this section 
or qualified for this additional eligibility under the Federal SLS 
Program, $46,000 minus any Direct Subsidized Loan and Federal Stafford 
Loan amounts.
    (3) For a graduate or professional student, $138,500 including any 
loans for undergraduate study, minus any Direct Subsidized Loan, Federal 
Stafford Loan, and Federal SLS Program loan amounts.
    (f) Direct PLUS Loans annual limit. The total amount of all Direct 
PLUS Loans that a parent or parents may borrow on behalf of each 
dependent student for any academic year of study may not exceed the cost 
of attendance minus other estimated financial assistance for that 
student.
    (g) Direct PLUS Loans aggregate limit. The total amount of all 
Direct PLUS Loans that a parent or parents may borrow on behalf of each 
dependent student for enrollment in an eligible program of study may not 
exceed the student's cost of attendance minus other estimated financial 
assistance for that student for the entire period of enrollment.
    (h) Loan limit period. The annual loan limits apply to an academic 
year, as defined in 34 CFR 668.3.
    (i) Treatment of Direct Consolidation Loans and Federal 
Consolidation Loans. The percentage of the outstanding balance on Direct 
Consolidation Loans or Federal Consolidation Loans counted against a 
borrower's aggregate loan limits is calculated as follows:
    (1) For Direct Subsidized Loans, the percentage equals the 
percentage of the original amount of the Direct Consolidation Loan or 
Federal Consolidation Loan attributable to the Direct Subsidized and 
Federal Stafford Loans.
    (2) For Direct Unsubsidized Loans, the percentage equals the 
percentage of the original amount of the Direct Consolidation Loan or 
Federal Consolidation Loan attributable to the Direct Unsubsidized, 
Federal SLS, and Federal Unsubsidized Stafford Loans.
    (j) Maximum loan amounts. In no case may a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan amount exceed the student's estimated 
cost of attendance for the period of enrollment for which the loan is 
intended, less--
    (1) The student's estimated financial assistance for that period; 
and
    (2) In the case of a Direct Subsidized Loan, the borrower's expected 
family contribution for that period.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58966, Nov. 1, 1999; 67 
FR 67081, Nov. 1, 2002]



Sec. 685.204  Deferment.

    (a)(1) A Direct Loan borrower whose loan is eligible for interest 
subsidies and who meets the requirements described in paragraph (b) of 
this section is eligible for a deferment during which periodic 
installments of principal and interest need not be paid.
    (2) A Direct Loan borrower whose loan is not eligible for interest 
subsidies and who meets the requirements described in paragraph (b) of 
this section is eligible for a deferment during which periodic 
installments of principal need not be paid but interest does accrue and 
is capitalized or paid by the borrower.
    (b) Except as provided in paragraphs (d) and (e) of this section, a 
Direct Loan borrower is eligible for a deferment during any period 
during which the borrower meets any of the following requirements:
    (1)(i) The borrower--
    (A) Is carrying at least one-half the normal full-time work load for 
the course of study that the borrower is pursuing, as determined by the 
eligible school the borrower is attending;
    (B) Is pursuing a course of study pursuant to a graduate fellowship 
program approved by the Secretary; or
    (C) Is pursuing a rehabilitation training program, approved by the 
Secretary, for individuals with disabilities; and
    (ii) The borrower is not serving in a medical internship or 
residency program, except for a residency program in dentistry.
    (iii)(A) For the purpose of paragraph (b)(1)(i) of this section, the 
Secretary processes a deferment when--
    (1) The borrower submits a request to the Secretary along with 
documentation verifying the borrower's eligibility;

[[Page 843]]

    (2) The Secretary receives information from the borrower's school 
indicating that the borrower is eligible to receive a new loan; or
    (3) The Secretary receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower is enrolled on at least a half-time basis.
    (B)(1) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(1)(iii)(A)(2) or (3) of this section, the 
borrower has the option to continue paying on the loan.
    (2) If the borrower elects to cancel the deferment and continue 
paying on the loan, the borrower has the option to make the principal 
and interest payments that were deferred. If the borrower does not make 
the payments, the Secretary applies a deferment for the period in which 
payments were not made and capitalizes the interest.
    (2)(i) The borrower is seeking and unable to find full-time 
employment.
    (ii) For purposes of paragraph (b)(2)(i) of this section, the 
Secretary determines whether a borrower is eligible for a deferment due 
to the inability to find full-time employment using the standards and 
procedures set forth in 34 CFR 682.210(h) with references to the lender 
understood to mean the Secretary.
    (3)(i) The borrower has experienced or will experience an economic 
hardship.
    (ii) For purposes of paragraph (b)(3)(i) of this section, the 
Secretary determines whether a borrower is eligible for a deferment due 
to an economic hardship using the standards and procedures set forth in 
34 CFR 682.210(s)(6) with references to the lender understood to mean 
the Secretary.
    (c) No deferment under paragraphs (b) (2) or (3) of this section may 
exceed three years.
    (d) If, at the time of application for a borrower's first Direct 
Loan, a borrower has an outstanding balance of principal or interest 
owing on any FFEL Program loan that was made, insured, or guaranteed 
prior to July 1, 1993, the borrower is eligible for a deferment during--
    (1) the periods described in paragraph (b) of this section; and
    (2) the periods described in 34 CFR 682.210(b), including those 
periods that apply to a ``new borrower'' as that term is defined in 34 
CFR 682.210(b)(7).
    (e) A borrower whose loan is in default is not eligible for a 
deferment, unless the borrower has made payment arrangements 
satisfactory to the Secretary.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 61 
FR 29900, June 12, 1996; 64 FR 58968, Nov. 1, 1999]



Sec. 685.205  Forbearance.

    (a) General. ``Forbearance'' means permitting the temporary 
cessation of payments, allowing an extension of time for making 
payments, or temporarily accepting smaller payments than previously 
scheduled. The borrower has the option to choose the form of 
forbearance. Except as provided in paragraph (b)(9) of this section, if 
payments of interest are forborne, they are capitalized. The Secretary 
grants forbearance if the borrower or endorser intends to repay the loan 
but requests forbearance and provides sufficient documentation to 
support this request, and--
    (1) The Secretary determines that, due to poor health or other 
acceptable reasons, the borrower or endorser is currently unable to make 
scheduled payments;
    (2) The borrower's payments of principal are deferred under 
Sec. 685.204 and the Secretary does not subsidize the interest benefits 
on behalf of the borrower;
    (3) The borrower is in a medical or dental internship or residency 
that must be successfully completed before the borrower may begin 
professional practice or service, or the borrower is serving in a 
medical or dental internship or residency program leading to a degree or 
certificate awarded by an institution of higher education, a hospital, 
or a health care facility that offers postgraduate training;
    (4) The borrower is serving in a national service position for which 
the borrower is receiving a national service education award under title 
I of the

[[Page 844]]

National and Community Service Act of 1990; or
    (5) The borrower--
    (i) Is performing the type of service that would qualify the 
borrower for loan forgiveness under the requirements of the teacher loan 
forgiveness program in Sec. 685.217; and
    (ii) Is required, by the Secretary, before a forbearance is granted 
under Sec. 685.205(a)(5)(i) to--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and ending dates that the borrower is 
expected to perform, for that year, the type of service described in 
Sec. 685.217(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec. 685.217(c).
    (6) For not more than three years during which the borrower or 
endorser--
    (i) Is currently obligated to make payments on loans under title IV 
of the Act; and
    (ii) The sum of these payments each month (or a proportional share 
if the payments are due less frequently than monthly) is equal to or 
greater than 20 percent of the borrower's or endorser's total monthly 
gross income.
    (b) Administrative forbearance. In certain circumstances, the 
Secretary grants forbearance without requiring documentation from the 
borrower. These circumstances include but are not limited to--
    (1) A properly granted period of deferment for which the Secretary 
learns the borrower did not qualify;
    (2) The period for which payments are overdue at the beginning of an 
authorized deferment period;
    (3) The period beginning when the borrower entered repayment until 
the first payment due date was established;
    (4) The period prior to a borrower's filing of a bankruptcy 
petition;
    (5) A period after the Secretary receives reliable information 
indicating that the borrower (or the student in the case of a Direct 
PLUS Loan) has died, or the borrower has become totally and permanently 
disabled, until the Secretary receives documentation of death or total 
and permanent disability;
    (6) Periods necessary for the Secretary to determine the borrower's 
eligibility for discharge--
    (i) Under Sec. 685.214;
    (ii) Under Sec. 685.215;
    (iii) Under Sec. 685.216;
    (iv) Under Sec. 685.217; or
    (v) Due to the borrower's or endorser's (if applicable) bankruptcy;
    (7) A period of up to three years in cases where the effect of a 
variable interest rate on a fixed-amount or graduated repayment schedule 
causes the extension of the maximum repayment term;
    (8) A period during which the Secretary has authorized forbearance 
due to a national military mobilization or other local or national 
emergency; or
    (9) A period of up to 60 days necessary for the Secretary to collect 
and process documentation supporting the borrower's request for a 
deferment, forbearance, change in repayment plan, or consolidation loan. 
Interest that accrues during this period is not capitalized.
    (c) Period of forbearance. (1) The Secretary grants forbearance for 
a period of up to one year.
    (2) The forbearance is renewable, upon request of the borrower, for 
the duration of the period in which the borrower meets the condition 
required for the forbearance.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 64 
FR 58968, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 
2001]



Sec. 685.206  Borrower responsibilities and defenses.

    (a) The borrower shall give the school the following information as 
part of the origination process for a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan:
    (1) A statement, as described in 34 CFR part 668, that the loan will 
be used for the cost of the student's attendance.
    (2) Information demonstrating that the borrower is eligible for the 
loan.
    (3) Information concerning the outstanding FFEL Program and Direct 
Loan Program loans of the borrower

[[Page 845]]

and, for a parent borrower, of the student, including any Federal 
Consolidation Loan or Direct Consolidation Loan.
    (4) A statement authorizing the school to release to the Secretary 
information relevant to the student's eligibility to borrow or to have a 
parent borrow on the student's behalf (e.g., the student's enrollment 
status, financial assistance, and employment records).
    (b)(1) The borrower shall promptly notify the Secretary of any 
change of name, address, student status to less than half-time, 
employer, or employer's address; and
    (2) The borrower shall promptly notify the school of any change in 
address during enrollment.
    (c) Borrower defenses. (1) In any proceeding to collect on a Direct 
Loan, the borrower may assert as a defense against repayment, any act or 
omission of the school attended by the student that would give rise to a 
cause of action against the school under applicable State law. These 
proceedings include, but are not limited to, the following:
    (i) Tax refund offset proceedings under 34 CFR 30.33.
    (ii) Wage garnishment proceedings under section 488A of the Act.
    (iii) Salary offset proceedings for Federal employees under 34 CFR 
part 31.
    (iv) Credit bureau reporting proceedings under 31 U.S.C. 3711(f).
    (2) If the borrower's defense against repayment is successful, the 
Secretary notifies the borrower that the borrower is relieved of the 
obligation to repay all or part of the loan and associated costs and 
fees that the borrower would otherwise be obligated to pay. The 
Secretary affords the borrower such further relief as the Secretary 
determines is appropriate under the circumstances. Further relief may 
include, but is not limited to, the following:
    (i) Reimbursing the borrower for amounts paid toward the loan 
voluntarily or through enforced collection.
    (ii) Determining that the borrower is not in default on the loan and 
is eligible to receive assistance under title IV of the Act.
    (iii) Updating reports to credit bureaus to which the Secretary 
previously made adverse credit reports with regard to the borrower's 
Direct Loan.
    (3) The Secretary may initiate an appropriate proceeding to require 
the school whose act or omission resulted in the borrower's successful 
defense against repayment of a Direct Loan to pay to the Secretary the 
amount of the loan to which the defense applies. However, the Secretary 
does not initiate such a proceeding after the period for the retention 
of records described in Sec. 685.309(c) unless the school received 
actual notice of the claim during that period.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 64 
FR 58972, Nov. 1, 1999]



Sec. 685.207  Obligation to repay.

    (a) Obligation of repayment in general. (1) A borrower is obligated 
to repay the full amount of a Direct Loan, including the principal 
balance, fees, any collection costs charged under Sec. 685.202(e), and 
any interest not subsidized by the Secretary, unless the borrower is 
relieved of the obligation to repay as provided in this part.
    (2) The borrower's repayment of a Direct Loan may also be subject to 
the deferment provisions in Sec. 685.204, the forbearance provisions in 
Sec. 685.205, and the discharge provisions in Sec. 685.212.
    (b) Direct Subsidized Loan repayment. (1) During the period in which 
a borrower is enrolled at an eligible school on at least a half-time 
basis, the borrower is in an ``in-school'' period and is not required to 
make payments on a Direct Subsidized Loan unless--
    (i) The loan entered repayment before the in-school period began; 
and
    (ii) The borrower has not been granted a deferment under 
Sec. 685.204.
    (2)(i) When a borrower ceases to be enrolled at an eligible school 
on at least a half-time basis, a six-month grace period begins, unless 
the grace period has been previously exhausted.
    (ii)(A) Any borrower who is a member of a reserve component of the 
Armed

[[Page 846]]

Forces named in section 10101 of title 10, United States Code and is 
called or ordered to active duty for a period of more than 30 days is 
entitled to have the active duty period excluded from the six-month 
grace period. The excluded period includes the time necessary for the 
borrower to resume enrollment at the next available regular enrollment 
period. Any single excluded period may not exceed 3 years.
    (B) Any borrower who is in a grace period when called or ordered to 
active duty as specified in paragraph (b)(2)(ii)(A) of this section is 
entitled to a full six-month grace period upon completion of the 
excluded period.
    (iii) During a grace period, the borrower is not required to make 
any principal payments on a Direct Subsidized Loan.
    (3) A borrower is not obligated to pay interest on a Direct 
Subsidized Loan for in-school or grace periods unless the borrower is 
required to make payments on the loan during those periods under 
paragraph (b)(1) of this section.
    (4) The repayment period for a Direct Subsidized Loan begins the day 
after the grace period ends. A borrower is obligated to repay the loan 
under paragraph (a) of this section during the repayment period.
    (c) Direct Unsubsidized Loan repayment. (1) During the period in 
which a borrower is enrolled at an eligible school on at least a half-
time basis, the borrower is in an ``in-school'' period and is not 
required to make payments of principal on a Direct Unsubsidized Loan 
unless--
    (i) The loan entered repayment before the in-school period began; 
and
    (ii) The borrower has not been granted a deferment under 
Sec. 685.204.
    (2)(i) When a borrower ceases to be enrolled at an eligible school 
on at least a half-time basis, a six-month grace period begins, unless 
the grace period has been previously exhausted.
    (ii)(A) Any borrower who is a member of a reserve component of the 
Armed Forces named in section 10101 of title 10, United States Code and 
is called or ordered to active duty for a period of more than 30 days is 
entitled to have the active duty period excluded from the six-month 
grace period. The excluded period includes the time necessary for the 
borrower to resume enrollment at the next available regular enrollment 
period. Any single excluded period may not exceed 3 years.
    (B) Any borrower who is in a grace period when called or ordered to 
active duty as specified in paragraph (c)(2)(ii)(A) of this section is 
entitled to a full six-month grace period upon completion of the 
excluded period.
    (iii) During a grace period, the borrower is not required to make 
any principal payments on a Direct Unsubsidized Loan.
    (3) A borrower is responsible for the interest that accrues on a 
Direct Unsubsidized Loan during in-school and grace periods. Interest 
begins to accrue on the day the first installment is disbursed. Interest 
that accrues may be capitalized or paid by the borrower.
    (4) The repayment period for a Direct Unsubsidized Loan begins the 
day after the grace period ends. A borrower is obligated to repay the 
loan under paragraph (a) of this section during the repayment period.
    (d) Direct PLUS Loan repayment. The repayment period for a Direct 
PLUS Loan begins on the day the loan is fully disbursed. Interest begins 
to accrue on the day the first installment is disbursed. A borrower is 
obligated to repay the loan under paragraph (a) of this section during 
the repayment period.
    (e) Direct Consolidation Loan repayment. (1) Except as provided in 
paragraphs (e)(2) and (e)(3) of this section, the repayment period for a 
Direct Consolidation Loan begins and interest begins to accrue on the 
day the loan is made. The borrower is obligated to repay the loan under 
paragraph (a) of this section during the repayment period.
    (2) A borrower who obtains a Direct Subsidized Consolidation Loan 
during an in-school period will be subject to the repayment provisions 
in paragraph (b) of this section.
    (3) A borrower who obtains a Direct Unsubsidized Consolidation Loan 
during an in-school period will be subject to the repayment provisions 
in paragraph (c) of this section.
    (f) Determining the date on which the grace period begins for a 
borrower in a correspondence program. For a borrower

[[Page 847]]

of a Direct Subsidized or Direct Unsubsidized Loan who is a 
correspondence student, the grace period begins on the earliest of the 
date--
    (1) The borrower completes the program;
    (2) The borrower falls 60 days behind the due date for submission of 
a scheduled assignment, according to the schedule required in 
Sec. 685.302. However, a school may grant the borrower one restoration 
to in-school status if the borrower fails to submit a lesson within this 
60-day period after the due date for submission of a particular 
assignment if, within the 60-day period, the borrower declares, in 
writing, an intention to continue in the program and an understanding 
that the required lessons must be submitted on time; or
    (3) That is 60 days following the latest allowable date established 
by the school for completing the program under the schedule required 
under Sec. 685.302.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58968, Nov. 1, 1999]



Sec. 685.208  Repayment plans.

    (a) General. (1) A borrower may repay a Direct Subsidized Loan, a 
Direct Unsubsidized Loan, a Direct Subsidized Consolidation Loan, or a 
Direct Unsubsidized Consolidation Loan under the standard repayment 
plan, the extended repayment plan, the graduated repayment plan, or the 
income contingent repayment plan.
    (2) A borrower may repay a Direct PLUS Loan or a Direct PLUS 
Consolidation Loan under the standard repayment plan, the extended 
repayment plan, or the graduated repayment plan.
    (3) The Secretary may provide an alternative repayment plan in 
accordance with paragraph (g) of this section.
    (4) All Direct Loans obtained by one borrower must be repaid 
together under the same repayment plan, except that a borrower of a 
Direct PLUS Loan or a Direct PLUS Consolidation Loan may repay the 
Direct PLUS Loan or the Direct PLUS Consolidation Loan separately from 
other Direct Loans obtained by that borrower.
    (b) Standard repayment plan. (1) Under the standard repayment plan, 
a borrower shall repay a loan in full within ten years from the date the 
loan entered repayment by making fixed monthly payments.
    (2) Periods of authorized deferment or forbearance are not included 
in the ten-year repayment period.
    (3) A borrower's payments under the standard repayment plan are at 
least $50 per month, except that a borrower's final payment may be less 
than $50.
    (4) The number of payments or the fixed monthly repayment amount may 
be adjusted to reflect changes in the variable interest rate identified 
in Sec. 685.202(a).
    (c) Extended repayment plan. (1) Under the extended repayment plan, 
a borrower shall repay a loan in full by making fixed monthly payments 
within an extended period of time that varies with the total amount of 
the borrower's loans, as described in paragraph (e) of this section.
    (2) Periods of deferment and forbearance are not included in the 
number of years of repayment.
    (3) A borrower makes fixed monthly payments of at least $50, except 
that a borrower's final payment may be less than $50.
    (4) The number of payments or the fixed monthly repayment amount may 
be adjusted to reflect changes in the variable interest rate identified 
in Sec. 685.202(a).
    (d) Graduated repayment plan. (1) Under the graduated repayment 
plan, a borrower shall repay a loan in full by making payments at two or 
more levels within a period of time that varies with the total amount of 
the borrower's loans, as described in paragraph (e) of this section.
    (2) Periods of deferment and forbearance are not included in the 
number of years of repayment.
    (3) The number of payments or the monthly repayment amount may be 
adjusted to reflect changes in the variable interest rate identified in 
Sec. 685.202(a).
    (4) No scheduled payment under the graduated repayment plan may be 
less than the amount of interest accrued on the loan between monthly 
payments, less than 50 percent of the payment amount that would be 
required under the standard repayment plan, or more

[[Page 848]]

than 150 percent of the payment amount that would be required under the 
standard repayment plan.
    (e) Repayment period for the extended and graduated plans. Under the 
extended and graduated repayment plans, if the total amount of the 
borrower's Direct Loans is--
    (1) Less than $10,000, the borrower shall repay the loans within 12 
years of entering repayment;
    (2) Greater than or equal to $10,000 but less than $20,000, the 
borrower shall repay the loans within 15 years of entering repayment;
    (3) Greater than or equal to $20,000 but less than $40,000, the 
borrower shall repay the loans within 20 years of entering repayment;
    (4) Greater than or equal to $40,000 but less than $60,000, the 
borrower shall repay the loans within 25 years of entering repayment; 
and
    (5) Greater than or equal to $60,000, the borrower shall repay the 
loans within 30 years of entering repayment.
    (f) Income contingent repayment plan. (1) Under the income 
contingent repayment plan, a borrower's monthly repayment amount is 
generally based on the total amount of the borrower's Direct Loans, 
family size, and Adjusted Gross Income (AGI) reported by the borrower 
for the most recent year for which the Secretary has obtained income 
information. The borrower's AGI includes the income of the borrower's 
spouse. A borrower shall make payments on a loan until the loan is 
repaid in full or until the loan has been in repayment through the end 
of the income contingent repayment period.
    (2) The regulations in effect at the time a borrower enters 
repayment and selects the income contingent repayment plan or changes 
into the income contingent repayment plan from another plan govern the 
method for determining the borrower's monthly repayment amount for all 
of the borrower's Direct Loans, unless--
    (i) The Secretary amends the regulations relating to a borrower's 
monthly repayment amount under the income contingent repayment plan; and
    (ii) The borrower submits a written request that the amended 
regulations apply to the repayment of the borrower's Direct Loans.
    (3) Provisions governing the income contingent repayment plan are 
set out in Sec. 685.209.
    (g) Alternative repayment. (1) The Secretary may provide an 
alternative repayment plan for a borrower who demonstrates to the 
Secretary's satisfaction that the terms and conditions of the repayment 
plans specified in paragraphs (b) through (f) of this section are not 
adequate to accommodate the borrower's exceptional circumstances.
    (2) The Secretary may require a borrower to provide evidence of the 
borrower's exceptional circumstances before permitting the borrower to 
repay a loan under an alternative repayment plan.
    (3) If the Secretary agrees to permit a borrower to repay a loan 
under an alternative repayment plan, the Secretary notifies the borrower 
in writing of the terms of the plan. After the borrower receives 
notification of the terms of the plan, the borrower may accept the plan 
or choose another repayment plan.
    (4) A borrower shall repay a loan under an alternative repayment 
plan within 30 years of the date the loan entered repayment, not 
including periods of deferment and forbearance.
    (5) If the amount of a borrower's monthly payment under an 
alternative repayment plan is less than the accrued interest on the 
loan, the unpaid interest is capitalized until the outstanding principal 
amount is 10 percent greater than the original principal amount. After 
the outstanding principal amount is 10 percent greater than the original 
principal amount, interest continues to accrue but is not capitalized. 
For purposes of this paragraph, the original principal amount is the 
amount owed by the borrower when the borrower enters repayment.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 59 FR 66134, Dec. 22, 1994; 61 
FR 31359, June 19, 1996; 62 FR 25515, May 9, 1997; 66 FR 34765, June 29, 
2001]



Sec. 685.209  Income contingent repayment plan.

    (a) Repayment amount calculation. (1) The amount the borrower would 
repay is based upon the borrower's Direct Loan debt when the borrower's 
first

[[Page 849]]

loan enters repayment, and this basis for calculation does not change 
unless the borrower obtains another Direct Loan or the borrower and the 
borrower's spouse obtain approval to repay their loans jointly under 
paragraph (b)(2) of this section. If the borrower obtains another Direct 
Loan, the amount the borrower would repay is based on the combined 
amounts of the loans when the last loan enters repayment. If the 
borrower and the borrower's spouse repay the loans jointly, the amount 
the borrowers would repay is based on both borrowers' Direct Loan debts 
at the time they enter joint repayment.
    (2) The annual amount payable under the income contingent repayment 
plan by a borrower is the lesser of--
    (i) The amount the borrower would repay annually over 12 years using 
standard amortization multiplied by an income percentage factor that 
corresponds to the borrower's adjusted gross income (AGI) as shown in 
the income percentage factor table in a notice published annually by the 
Secretary in the Federal Register; or
    (ii) 20 percent of discretionary income.
    (3) For purposes of this section, discretionary income is defined as 
a borrower's AGI minus the amount of the ``HHS Poverty Guidelines for 
all States (except Alaska and Hawaii) and the District of Columbia'' as 
published by the United States Department of Health and Human Services 
on an annual basis.1 For residents of Alaska and Hawaii, 
discretionary income is defined as a borrower's AGI minus the amounts in 
the ``HHS Poverty Guidelines for Alaska'' and the ``HHS Poverty 
Guidelines for Hawaii'' respectively. If a borrower provides 
documentation acceptable to the Secretary that the borrower has more 
than one person in the borrower's family, the Secretary applies the HHS 
Poverty Guidelines for the borrower's family size.
---------------------------------------------------------------------------

    \1\ The HHS Poverty Guidelines are available from the Office of the 
Assistant Secretary for Planning and Evaluation, Department of Health 
and Human Services (HHS), Room 438F, Humphrey Building, 200 Independence 
Avenue, S.W., Washington, D.C. 20201
---------------------------------------------------------------------------

    (4) For exact incomes not shown in the income percentage factor 
table in the annual notice published by the Secretary, an income 
percentage factor is calculated, based upon the intervals between the 
incomes and income percentage factors shown on the table.
    (5) Each year, the Secretary recalculates the borrower's annual 
payment amount based on changes in the borrower's AGI, the variable 
interest rate, the income percentage factors in the table in the annual 
notice published by the Secretary, and updated HHS Poverty Guidelines 
(if applicable).
    (6) If a borrower's monthly payment is calculated to be greater than 
$0 but less than or equal to $5.00, the amount payable by the borrower 
shall be $5.00.
    (7) For purposes of the annual recalculation described in paragraph 
(a)(5) of this section, after periods in which a borrower makes payments 
that are less than interest accrued on the loan, the payment amount is 
recalculated based upon unpaid accrued interest and the highest 
outstanding principal loan amount (including amount capitalized) 
calculated for that borrower while paying under the income contingent 
repayment plan.
    (8) For each calendar year after calendar year 1996, the Secretary 
publishes in the Federal Register a revised income percentage factor 
table reflecting changes based on inflation. This revised table is 
developed by changing each of the dollar amounts contained in the table 
by a percentage equal to the estimated percentage changes in the 
Consumer Price Index (as determined by the Secretary) between December 
1995 and the December next preceding the beginning of such calendar 
year.
    (9) Examples of the calculation of monthly repayment amounts and 
tables that show monthly repayment amounts for borrowers at various 
income and debt levels are included in the annual notice published by 
the Secretary.
    (b) Treatment of married borrowers. (1) A married borrower who 
wishes to repay under the income contingent repayment plan and who has 
filed an income tax return separately from his or her spouse must 
provide his or her spouse's written consent to the disclosure of certain 
tax return information under paragraph (c)(5) of this section

[[Page 850]]

(unless the borrower is separated from his or her spouse). The AGI for 
both spouses is used to calculate the monthly repayment amount.
    (2) Married borrowers may repay their loans jointly. The outstanding 
balances on the loans of each borrower are added together to determine 
the borrowers' payback rate under (a)(1) of this section.
    (3) The amount of the payment applied to each borrower's debt is the 
proportion of the payments that equals the same proportion as that 
borrower's debt to the total outstanding balance, except that the 
payment is credited toward outstanding interest on any loan before any 
payment is credited toward principal.
    (c) Other features of the income contingent repayment plan. (1) 
Alternative documentation of income. If a borrower's AGI is not 
available or if, in the Secretary's opinion, the borrower's reported AGI 
does not reasonably reflect the borrower's current income, the Secretary 
may use other documentation of income provided by the borrower to 
calculate the borrower's monthly repayment amount.
    (2) First and second year borrowers. The Secretary requires 
alternative documentation of income from borrowers in their first and 
second years of repayment, when in the Secretary's opinion, the 
borrower's reported AGI does not reasonably reflect the borrower's 
current income.
    (3) Adjustments to repayment obligations. The Secretary may 
determine that special circumstances, such as a loss of employment by 
the borrower or the borrower's spouse, warrant an adjustment to the 
borrower's repayment obligations.
    (4) Repayment period. (i) The maximum repayment period under the 
income contingent repayment plan is 25 years.
    (ii) The repayment period includes periods in which the borrower 
makes payments under the standard repayment plan and under extended 
repayment plans in which payments are based on a repayment period that 
is up to 12 years. The repayment period does not include periods in 
which the borrower makes payments under the graduated and alternative 
repayment plans or periods of authorized deferment or forbearance. The 
repayment period also does not include periods in which the borrower 
makes payments under an extended repayment plan in which payments are 
based on a repayment period that is longer than 12 years.
    (iii) If a borrower repays more than one loan under the income 
contingent repayment plan, a separate repayment period for each loan 
begins when that loan enters repayment.
    (iv) If a borrower has not repaid a loan in full at the end of the 
25-year repayment period under the income contingent repayment plan, the 
Secretary cancels the unpaid portion of the loan.
    (v) At the beginning of the repayment period under the income 
contingent repayment plan, a borrower shall make monthly payments of the 
amount of interest that accrues on the borrower's Direct Loans until the 
Secretary calculates the borrower's monthly repayment amount on the 
basis of the borrower's income.
    (5) Limitation on capitalization of interest. If the amount of a 
borrower's monthly payment is less than the accrued interest, the unpaid 
interest is capitalized until the outstanding principal amount is ten 
percent greater than the original principal amount. After the 
outstanding principal amount is ten percent greater than the original 
amount, interest continues to accrue but is not capitalized. For 
purposes of this paragraph, the original amount is the amount owed by 
the borrower when the borrower enters repayment.
    (6) Notification of terms and conditions. When a borrower elects or 
is required by the Secretary to repay a loan under the income contingent 
repayment plan, the Secretary notifies the borrower of the terms and 
conditions of the plan, including--
    (i) That the Internal Revenue Service will disclose certain tax 
return information to the Secretary or the Secretary's agents; and
    (ii) That if the borrower believes that special circumstances 
warrant an adjustment to the borrower's repayment obligations, as 
described in

[[Page 851]]

Sec. 685.209(c)(3), the borrower may contact the Secretary and obtain 
the Secretary's determination as to whether an adjustment is 
appropriate.
    (7) Consent to disclosure of tax return information. (i) A borrower 
shall provide written consent to the disclosure of certain tax return 
information by the Internal Revenue Service (IRS) to agents of the 
Secretary for purposes of calculating a monthly repayment amount and 
servicing and collecting a loan under the income contingent repayment 
plan. The borrower shall provide consent by signing a consent form, 
developed consistent with 26 CFR 301.6103(c)-1 and provided to the 
borrower by the Secretary, and shall return the signed form to the 
Secretary.
    (ii) The borrower shall consent to disclosure of the borrower's 
taxpayer identity information as defined in 26 U.S.C. 6103(b)(6), tax 
filing status, and AGI.
    (iii) The borrower shall provide consent for a period of five years 
from the date the borrower signs the consent form. The Secretary 
provides the borrower a new consent form before that period expires. The 
IRS does not disclose tax return information after the IRS has processed 
a borrower's withdrawal of consent.
    (iv) The Secretary designates the standard repayment plan for a 
borrower who selects the income contingent repayment plan but--
    (A) Fails to provide the required written consent;
    (B) Fails to renew written consent upon the expiration of the five-
year period for consent; or
    (C) Withdraws consent and does not select another repayment plan.
    (v) If a borrower defaults and the Secretary designates the income 
contingent repayment plan for the borrower but the borrower fails to 
provide the required written consent, the Secretary mails a notice to 
the borrower establishing a repayment schedule for the borrower.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 66134, Dec. 22, 1994, as amended at 60 FR 33345, June 28, 1995; 
60 FR 61823, Dec. 1, 1995; 61 FR 24447, May 15, 1996; 61 FR 31359, June 
19, 1996; 64 FR 29183, May 28, 1999; 64 FR 58972, Nov. 1, 1999]



Sec. 685.210  Choice of repayment plan.

    (a) Initial selection of a repayment plan. (1) Before a Direct Loan 
enters into repayment, the Secretary provides the borrower a description 
of the available repayment plans and requests the borrower to select 
one. A borrower may select a repayment plan before the loan enters 
repayment by notifying the Secretary of the borrower's selection in 
writing.
    (2) If a borrower does not select a repayment plan, the Secretary 
designates the standard repayment plan described in Sec. 685.208(b) for 
the borrower.
    (b) Changing repayment plans. (1) A borrower may change repayment 
plans at any time after the loan has entered repayment by notifying the 
Secretary. However, a borrower who is repaying a defaulted loan under 
the income contingent repayment plan under Sec. 685.211(c)(3)(ii) may 
not change to another repayment plan unless--
    (i) The borrower was required to and did make a payment under the 
income contingent repayment plan in each of the prior three (3) months; 
or
    (ii) The borrower was not required to make payments but made three 
reasonable and affordable payments in each of the prior three months; 
and
    (iii) The borrower makes and the Secretary approves a request to 
change plans.
    (2)(i) A borrower may not change to a repayment plan that has a 
maximum repayment period of less than the number of years the loan has 
already been in repayment, except that a borrower

[[Page 852]]

may change to the income contingent repayment plan at any time.
    (ii) If a borrower changes plans, the repayment period is the period 
provided under the borrower's new repayment plan, calculated from the 
date the loan initially entered repayment. However, if a borrower 
changes to the income contingent repayment plan, the repayment period is 
calculated as described in Sec. 685.209(c)(4).

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 65 FR 65629, Nov. 1, 2000]



Sec. 685.211  Miscellaneous repayment provisions.

    (a) Payment application and prepayment. (1) The Secretary applies 
any payment first to any accrued charges and collection costs, then to 
any outstanding interest, and then to outstanding principal.
    (2) A borrower may prepay all or part of a loan at any time without 
penalty. If a borrower pays any amount in excess of the amount due, the 
excess amount is a prepayment.
    (3) If a prepayment equals or exceeds the monthly repayment amount 
under the borrower's repayment plan, the Secretary--
    (i) Applies the prepaid amount according to paragraph (a)(1) of this 
section;
    (ii) Advances the due date of the next payment unless the borrower 
requests otherwise; and
    (iii) Notifies the borrower of any revised due date for the next 
payment.
    (4) If a prepayment is less than the monthly repayment amount, the 
Secretary applies the prepayment according to paragraph (a)(1) of this 
section.
    (b) Repayment incentives. To encourage on-time repayment, the 
Secretary may reduce the interest rate for a borrower who repays a loan 
under a system or on a schedule that meets requirements specified by the 
Secretary.
    (c) Refunds and returns of title IV, HEA program funds from schools. 
The Secretary applies any refund or return of title IV, HEA program 
funds that the Secretary receives from a school under Sec. 668.22 
against the borrower's outstanding principal and notifies the borrower 
of the refund or return.
    (d) Default. (1) Acceleration. If a borrower defaults on a Direct 
Loan, the entire unpaid balance and accrued interest are immediately due 
and payable.
    (2) Collection charges. If a borrower defaults on a Direct Loan, the 
Secretary assesses collection charges in accordance with 
Sec. 685.202(e).
    (3) Collection of a defaulted loan. (i) The Secretary may take any 
action authorized by law to collect a defaulted Direct Loan including, 
but not limited to, filing a lawsuit against the borrower, reporting the 
default to national credit bureaus, requesting the Internal Revenue 
Service to offset the borrower's Federal income tax refund, and 
garnishing the borrower's wages.
    (ii) If a borrower defaults on a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, a Direct Unsubsidized Consolidation Loan or a Direct 
Subsidized Consolidation Loan, the Secretary may designate the income 
contingent repayment plan for the borrower.
    (e) Ineligible borrowers. (1) The Secretary determines that a 
borrower is ineligible if, at the time the loan was made and without the 
school's or the Secretary's knowledge, the borrower (or the student on 
whose behalf a parent borrowed) provided false or erroneous information 
or took actions that caused the borrower or student--
    (i) To receive a loan for which the borrower is wholly or partially 
ineligible;
    (ii) To receive interest benefits for which the borrower was 
ineligible; or
    (iii) To receive loan proceeds for a period of enrollment for which 
the borrower was not eligible.
    (2) If the Secretary makes the determination described in paragraph 
(e)(1) of this section, the Secretary sends an ineligible borrower a 
demand letter that requires the borrower to repay some or all of a loan, 
as appropriate. The demand letter requires that within 30 days from the 
date the letter is mailed, the borrower repay any principal amount for 
which the borrower is ineligible and any accrued interest, including 
interest subsidized by the Secretary, through the previous quarter.

[[Page 853]]

    (3) If a borrower fails to comply with the demand letter described 
in paragraph (e)(2) of this section, the borrower is in default on the 
entire loan.
    (4) A borrower may not consolidate a loan under Sec. 685.220 for 
which the borrower is wholly or partially ineligible.
    (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, 
except for a loan on which a judgment has been obtained, is 
rehabilitated if the borrower makes 12 consecutive, on-time, reasonable, 
and affordable monthly payments. The amount of such a payment is 
determined on the basis of the borrower's total financial circumstances. 
If a defaulted loan is rehabilitated, the Secretary instructs any credit 
bureau to which the default was reported to remove the default from the 
borrower's credit history.
    (2) A defaulted Direct Loan on which a judgment has been obtained 
may not be rehabilitated.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 57961, Oct. 27, 1999; 64 
FR 59043, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 
2001; 67 FR 67081, Nov. 1, 2002]



Sec. 685.212  Discharge of a loan obligation.

    (a) Death. (1) If a borrower (or the student on whose behalf a 
parent borrowed a Direct PLUS Loan) dies, the Secretary discharges the 
obligation of the borrower and any endorser to make any further payments 
on the loan based on an original or certified copy of the borrower's (or 
student's in the case of a Direct PLUS loan) death certificate.
    (2) If an original or certified copy of the death certificate is not 
available, the Secretary discharges the loan only based on other 
reliable documentation that establishes, to the Secretary's 
satisfaction, that the borrower (or student) has died. The Secretary 
discharges a loan based on documentation other than an original or 
certified copy of the death certificate only under exceptional 
circumstances and on a case-by-case basis.
    (3) In the case of a Direct PLUS Consolidation Loan that repaid a 
Direct PLUS Loan or a Federal PLUS Loan obtained on behalf of a student 
who dies, the Secretary discharges an amount equal to the portion of the 
outstanding balance of the consolidation loan, as of the date of the 
student's death, attributable to that Direct PLUS Loan or Federal PLUS 
Loan.
    (b) Total and permanent disability. If a borrower meets the 
requirements in Sec. 685.213(c), the Secretary discharges the obligation 
of the borrower and any endorser to make any further payments on the 
loan.
    (c) Bankruptcy. If a borrower's obligation to repay a loan is 
discharged in bankruptcy, the Secretary does not require the borrower to 
make any further payments on the loan.
    (d) Closed schools. If a borrower meets the requirements in 
Sec. 685.214, the Secretary discharges the obligation of the borrower 
and any endorser to make any further payments on the loan. In the case 
of a Direct Consolidation Loan, the Secretary discharges the portion of 
the consolidation loan equal to the amount of the discharge applicable 
to any loan disbursed, in whole or in part, on or after January 1, 1986 
that was included in the consolidation loan.
    (e) False certification and unauthorized disbursement. If a borrower 
meets the requirements in Sec. 685.215, the Secretary discharges the 
obligation of the borrower and any endorser to make any further payments 
on the loan. In the case of a Direct Consolidation Loan, the Secretary 
discharges the portion of the consolidation loan equal to the amount of 
the discharge applicable to any loan disbursed, in whole or in part, on 
or after January 1, 1986 that was included in the consolidation loan.
    (f) Unpaid refunds. If a borrower meets the requirements in 
Sec. 685.216, the Secretary discharges the obligation of the borrower 
and any endorser to make any further payments on the amount of the loan 
equal to the unpaid refund and any accrued interest and other charges 
associated with the unpaid refund. In the case of a Direct Consolidation 
Loan, the Secretary discharges the portion of the consolidation loan 
equal to the amount of the unpaid refund owed on any loan disbursed, in 
whole or in part, on or after January 1, 1986 that was included in the 
consolidation loan.
    (g) Payments received after eligibility for discharge. (1) For the 
discharge conditions in paragraphs (a), (c), (d), and (e) of

[[Page 854]]

this section. Upon receipt of acceptable documentation and approval of 
the discharge request, the Secretary returns to the sender, or, for a 
discharge based on death, the borrower's estate, any payments received 
after the date that the eligibility requirements for discharge were met.
    (2) For the discharge condition in paragraph (b) of this section. 
Upon making a final determination of eligibility for discharge based on 
total and permanent disability, the Secretary returns to the sender any 
payments received after the date the borrower became totally and 
permanently disabled, as certified under Sec. 685.213(b).
    (3) For the discharge condition in paragraph (f) of this section. 
Upon receipt of acceptable documentation and approval of the discharge 
request, the Secretary returns to the sender payments received in excess 
of the amount owed on the loan after applying the unpaid refund.
    (h) Teacher loan forgiveness program. If a new borrower meets the 
requirements in Sec. 685.217, the Secretary repays up to $5,000 of the 
borrower's Direct Subsidized Loans, Direct Unsubsidized Loans, and, in 
certain cases, Direct Consolidation Loans.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 61 FR 29900, June 12, 1996; 62 
FR 30412, June 3, 1997; 62 FR 63435, Nov. 28, 1997; 63 FR 34816, June 
26, 1998; 64 FR 58969, Nov. 1, 1999; 65 FR 65629, 65694, Nov. 1, 2000; 
66 FR 34765, June 29, 2001; 67 FR 67081, Nov. 1, 2002]



Sec. 685.213  Total and permanent disability discharge.

    (a) General. (1) If the Secretary makes an initial determination 
that a borrower is totally and permanently disabled, the Secretary--
    (i) Notifies the borrower that the loan will be in a conditional 
discharge status for up to three years from the date that the borrower 
became totally and permanently disabled, as certified under 685.213(b). 
The Secretary also notifies the borrower of the conditions of the 
conditional discharge period, and that all or part of the three-year 
conditional discharge period may predate the Secretary's initial 
determination.
    (ii) Suspends any efforts to collect on the loan from the date of 
the initial determination described in paragraph (a)(1) of this section 
until the end of the conditional discharge period.
    (2) If the borrower continues to meet the eligibility requirements 
for total and permanent disability discharge during and at the end of 
the three-year conditional discharge period, the Secretary--
    (i) Discharges the obligation of the borrower and any endorser to 
make any further payments on the loan at the end of that period; and
    (ii) Returns to the borrower any payments received after the date 
the borrower became totally and permanently disabled, as certified under 
Sec. 685.213(b).
    (3) If the borrower does not continue to meet the eligibility 
requirements for a total and permanent disability discharge at any time 
during or at the end of the three-year conditional discharge period, the 
Secretary resumes collection activity on the loan. The Secretary does 
not require the borrower to pay any interest that accrued on the loan 
from the date of the initial determination described in paragraph (a)(1) 
of this section through the end of the conditional discharge period.
    (4) Except as provided in paragraph (e)(1) of this section, a 
borrower is not considered totally and permanently disabled based on a 
condition that existed at the time the loan was made, unless the 
borrower's condition substantially deteriorated after the loan was made 
so as to render the borrower totally and permanently disabled.
    (b) Initial determination of total and permanent disability. The 
Secretary makes an initial determination that a borrower is totally and 
permanently disabled if the borrower (or the borrower's representative) 
provides the Secretary with a certification (on a form approved by the 
Secretary) by a physician who is a doctor of medicine or osteopathy and 
legally authorized to practice in a State that the borrower is totally 
and permanently disabled as defined in 34 CFR 682.200(b).
    (c) Eligibility requirements for total and permanent disability 
discharge. A borrower meets the eligibility requirements for total and 
permanent disability discharge if, during and at the

[[Page 855]]

end of the three-year conditional discharge period described in 
paragraph (a)(1) of this section--
    (1) The borrower's annual earnings from employment do not exceed 100 
percent of the poverty line for a family of two, as determined in 
accordance with the Community Service Block Grant Act; and
    (2) The borrower does not receive a new loan under the Perkins, 
FFEL, or Direct Loan programs, except for a FFEL or Direct consolidation 
loan that does not include any loans that are in a conditional discharge 
status.
    (d) Conditional discharge period. During the conditional discharge 
period described in paragraph (a)(1) of this section, the borrower--
    (1) Is not required to make any payments of principal or interest on 
the loan beginning on the date the Secretary makes an initial 
determination that the borrower is totally and permanently disabled;
    (2) Is not considered to be delinquent or in default on the loan, 
unless the loan was delinquent or in default at the time the conditional 
discharge was granted;
    (3) Must promptly notify the Secretary of any changes in the 
borrower's address or telephone number;
    (4) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph (c)(1) 
of this section; and
    (5) Must provide the Secretary, upon request, with additional 
documentation or information related to the borrower's eligibility for 
discharge under this section.
    (e) Provisions for discharge of Direct Consolidation Loans. (1) For 
a Direct Consolidation Loan, a borrower is considered totally and 
permanently disabled if he or she would be considered totally and 
permanently disabled under the provisions of this section for all of the 
loans that were included in the Direct Consolidation Loan if those loans 
had not been consolidated.
    (2) For the purposes of discharging a loan under paragraph (e)(1) of 
this section, the provisions of this section apply to each loan included 
in the Direct Consolidation Loan, even if the loan is not a Direct Loan 
Program loan.
    (3) If requested, a borrower seeking to discharge a loan obligation 
under paragraph (e)(1) of this section must provide the Secretary with 
the disbursement dates of the underlying loans.

(Authority: 20 U.S.C. 1087a et seq.)

[65 FR 65694, Nov. 1, 2000]



Sec. 685.214  Closed school discharge.

    (a) General. (1) The Secretary discharges the borrower's (and any 
endorser's) obligation to repay a Direct Loan in accordance with the 
provisions of this section if the borrower (or the student on whose 
behalf a parent borrowed) did not complete the program of study for 
which the loan was made because the school at which the borrower (or 
student) was enrolled closed, as described in paragraph (c) of this 
section.
    (2) For purposes of this section--
    (i) A school's closure date is the date that the school ceases to 
provide educational instruction in all programs, as determined by the 
Secretary; and
    (ii) ``School'' means a school's main campus or any location or 
branch of the main campus.
    (b) Relief pursuant to discharge. (1) Discharge under this section 
relieves the borrower of any past or present obligation to repay the 
loan and any accrued charges or collection costs with respect to the 
loan.
    (2) The discharge of a loan under this section qualifies the 
borrower for reimbursement of amounts paid voluntarily or through 
enforced collection on the loan.
    (3) The Secretary does not regard a borrower who has defaulted on a 
loan discharged under this section as in default on the loan after 
discharge, and such a borrower is eligible to receive assistance under 
programs authorized by title IV of the Act.
    (4) The Secretary reports the discharge of a loan under this section 
to all credit reporting agencies to which the Secretary previously 
reported the status of the loan.
    (c) Borrower qualification for discharge. In order to qualify for 
discharge of a loan under this section, a borrower shall submit to the 
Secretary a written

[[Page 856]]

request and sworn statement, and the factual assertions in the statement 
must be true. The statement need not be notarized but must be made by 
the borrower under penalty of perjury. In the statement, the borrower 
shall--
    (1) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (i) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (ii) Did not complete the program of study at that school because 
the school closed while the student was enrolled, or the student 
withdrew from the school not more than 90 days before the school closed 
(or longer in exceptional circumstances); and
    (iii) Did not complete the program of study through a teach-out at 
another school or by transferring academic credits or hours earned at 
the closed school to another school;
    (2) State whether the borrower (or student) has made a claim with 
respect to the school's closing with any third party, such as the holder 
of a performance bond or a tuition recovery program, and, if so, the 
amount of any payment received by the borrower (or student) or credited 
to the borrower's loan obligation; and
    (3) State that the borrower (or student)--
    (i) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (ii) Agrees to cooperate with the Secretary in enforcement actions 
in accordance with paragraph (d) of this section and to transfer any 
right to recovery against a third party to the Secretary in accordance 
with paragraph (e) of this section.
    (d) Cooperation by borrower in enforcement actions. (1) In order to 
obtain a discharge under this section, a borrower shall cooperate with 
the Secretary in any judicial or administrative proceeding brought by 
the Secretary to recover amounts discharged or to take other enforcement 
action with respect to the conduct on which the discharge was based. At 
the request of the Secretary and upon the Secretary's tendering to the 
borrower the fees and costs that are customarily provided in litigation 
to reimburse witnesses, the borrower shall--
    (i) Provide testimony regarding any representation made by the 
borrower to support a request for discharge;
    (ii) Produce any documents reasonably available to the borrower with 
respect to those representations; and
    (iii) If required by the Secretary, provide a sworn statement 
regarding those documents and representations.
    (2) The Secretary denies the request for a discharge or revokes the 
discharge of a borrower who--
    (i) Fails to provide the testimony, documents, or a sworn statement 
required under paragraph (d)(1) of this section; or
    (ii) Provides testimony, documents, or a sworn statement that does 
not support the material representations made by the borrower to obtain 
the discharge.
    (e) Transfer to the Secretary of borrower's right of recovery 
against third parties. (1) Upon discharge under this section, the 
borrower is deemed to have assigned to and relinquished in favor of the 
Secretary any right to a loan refund (up to the amount discharged) that 
the borrower (or student) may have by contract or applicable law with 
respect to the loan or the enrollment agreement for the program for 
which the loan was received, against the school, its principals, its 
affiliates and their successors, its sureties, and any private fund, 
including the portion of a public fund that represents funds received 
from a private party.
    (2) The provisions of this section apply notwithstanding any 
provision of State law that would otherwise restrict transfer of those 
rights by the borrower (or student), limit or prevent a transferee from 
exercising those rights, or establish procedures or a scheme of 
distribution that would prejudice the Secretary's ability to recover on 
those rights.
    (3) Nothing in this section limits or forecloses the borrower's (or 
student's) right to pursue legal and equitable relief regarding disputes 
arising from matters unrelated to the discharged Direct Loan.

[[Page 857]]

    (f) Discharge procedures. (1) After confirming the date of a 
school's closure, the Secretary identifies any Direct Loan borrower (or 
student on whose behalf a parent borrowed) who appears to have been 
enrolled at the school on the school closure date or to have withdrawn 
not more than 90 days prior to the closure date.
    (2) If the borrower's current address is known, the Secretary mails 
the borrower a discharge application and an explanation of the 
qualifications and procedures for obtaining a discharge. The Secretary 
also promptly suspends any efforts to collect from the borrower on any 
affected loan. The Secretary may continue to receive borrower payments.
    (3) If the borrower's current address is unknown, the Secretary 
attempts to locate the borrower and determines the borrower's potential 
eligibility for a discharge under this section by consulting with 
representatives of the closed school, the school's licensing agency, the 
school's accrediting agency, and other appropriate parties. If the 
Secretary learns the new address of a borrower, the Secretary mails to 
the borrower a discharge application and explanation and suspends 
collection, as described in paragraph (f)(2) of this section.
    (4) If a borrower fails to submit the written request and sworn 
statement described in paragraph (c) of this section within 60 days of 
the Secretary's mailing the discharge application, the Secretary resumes 
collection and grants forbearance of principal and interest for the 
period in which collection activity was suspended. The Secretary may 
capitalize any interest accrued and not paid during that period.
    (5) If the Secretary determines that a borrower who requests a 
discharge meets the qualifications for a discharge, the Secretary 
notifies the borrower in writing of that determination.
    (6) If the Secretary determines that a borrower who requests a 
discharge does not meet the qualifications for a discharge, the 
Secretary notifies that borrower in writing of that determination and 
the reasons for the determination.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 59 FR 66134, Dec. 22, 1994; 64 
FR 58972, Nov. 1, 1999. Redesignated at 65 FR 65629, Nov. 1, 2000, as 
amended at 66 FR 34765, June 29, 2001]



Sec. 685.215  Discharge for false certification of student eligibility or 
unauthorized payment.

    (a) Basis for discharge. (1) False certification. The Secretary 
discharges a borrower's (and any endorser's) obligation to repay a 
Direct Loan in accordance with the provisions of this section if a 
school falsely certifies the eligibility of the borrower (or the student 
on whose behalf a parent borrowed) to receive the loan. The Secretary 
considers a student's eligibility to borrow to have been falsely 
certified by the school if the school--
    (i) Certified the student's eligibility for a Direct Loan on the 
basis of ability to benefit from its training and the student did not 
meet the eligibility requirements described in 34 CFR part 668 and 
section 484(d) of the Act, as applicable;
    (ii) Signed the borrower's name on the loan application or 
promissory note without the borrower's authorization; or
    (iii) Certified the eligibility of a student who, because of a 
physical or mental condition, age, criminal record, or other reason 
accepted by the Secretary, would not meet the requirements for 
employment (in the student's State of residence when the loan was 
originated) in the occupation for which the training program supported 
by the loan was intended.
    (2) Unauthorized payment. The Secretary discharges a borrower's (and 
any endorser's) obligation to repay a Direct Loan if the school, without 
the borrower's authorization, endorsed the borrower's loan check or 
signed the borrower's authorization for electronic funds transfer, 
unless the proceeds of the loan were delivered to the student

[[Page 858]]

or applied to charges owed by the student to the school.
    (b) Relief pursuant to discharge. (1) Discharge for false 
certification under paragraph (a)(1) of this section relieves the 
borrower of any past or present obligation to repay the loan and any 
accrued charges and collection costs with respect to the loan.
    (2) Discharge for unauthorized payment under paragraph (a)(2) of 
this section relieves the borrower of the obligation to repay the amount 
of the payment discharged.
    (3) The discharge under this section qualifies the borrower for 
reimbursement of amounts paid voluntarily or through enforced collection 
on the discharged loan or payment.
    (4) The Secretary does not regard a borrower who has defaulted on a 
loan discharged under this section as in default on the loan after 
discharge, and such a borrower is eligible to receive assistance under 
programs authorized by title IV of the Act.
    (5) The Secretary reports the discharge under this section to all 
credit reporting agencies to which the Secretary previously reported the 
status of the loan.
    (c) Borrower qualification for discharge. In order to qualify for 
discharge under this section, the borrower shall submit to the Secretary 
a written request and a sworn statement, and the factual assertions in 
the statement must be true. The statement need not be notarized but must 
be made by the borrower under penalty of perjury. In the statement, the 
borrower shall meet the requirements in paragraphs (c) (1) through (5) 
of this section.
    (1) Ability to benefit. In the case of a borrower requesting a 
discharge based on defective testing of the student's ability to 
benefit, the borrower shall state that the borrower (or the student on 
whose behalf a parent borrowed)--
    (i) Received a disbursement of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school; and
    (ii) Received a Direct Loan at that school on the basis of an 
ability to benefit from the school's training and did not meet the 
eligibility requirements described in 34 CFR part 668 and section 484(d) 
of the Act, as applicable;
    (2) Unauthorized loan. In the case of a borrower requesting a 
discharge because the school signed the borrower's name on the loan 
application or promissory note without the borrower's authorization, the 
borrower shall--
    (i) State that he or she did not sign the document in question or 
authorize the school to do so; and
    (ii) Provide five different specimens of his or her signature, two 
of which must be within one year before or after the date of the 
contested signature.
    (3) Unauthorized payment. In the case of a borrower requesting a 
discharge because the school, without the borrower's authorization, 
endorsed the borrower's loan check or signed the borrower's 
authorization for electronic funds transfer, the borrower shall--
    (i) State that he or she did not endorse the loan check or sign the 
authorization for electronic funds transfer or authorize the school to 
do so;
    (ii) Provide five different specimens of his or her signature, two 
of which must be within one year before or after the date of the 
contested signature;
    (iii) State that the proceeds of the contested disbursement were not 
delivered to the student or applied to charges owed by the student to 
the school.
    (4) Claim to third party. The borrower shall state whether the 
borrower (or student) has made a claim with respect to the school's 
false certification or unauthorized payment with any third party, such 
as the holder of a performance bond or a tuition recovery program, and, 
if so, the amount of any payment received by the borrower (or student) 
or credited to the borrower's loan obligation.
    (5) Cooperation with Secretary. The borrower shall state that the 
borrower (or student)--
    (i) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (ii) Agrees to cooperate with the Secretary in enforcement actions 
as described in Sec. 685.214(d) and to transfer any right to recovery 
against a third party to the Secretary as described in Sec. 685.214(e).

[[Page 859]]

    (6) Discharge without an application. The Secretary may discharge a 
loan under this section without an application from the borrower if the 
Secretary determines, based on information in the Secretary's 
possession, that the borrower qualifies for a discharge.
    (d) Discharge procedures. (1) If the Secretary determines that a 
borrower's Direct Loan may be eligible for a discharge under this 
section, the Secretary mails the borrower a disclosure application and 
an explanation of the qualifications and procedures for obtaining a 
discharge. The Secretary also promptly suspends any efforts to collect 
from the borrower on any affected loan. The Secretary may continue to 
receive borrower payments.
    (2) If the borrower fails to submit the written request and sworn 
statement described in paragraph (c) of this section within 60 days of 
the Secretary's mailing the disclosure application, the Secretary 
resumes collection and grants forbearance of principal and interest for 
the period in which collection activity was suspended. The Secretary may 
capitalize any interest accrued and not paid during that period.
    (3) If the borrower submits the written request and sworn statement 
described in paragraph (c) of the section, the Secretary determines 
whether to grant a request for discharge under this section by reviewing 
the request and sworn statement in light of information available from 
the Secretary's records and from other sources, including guaranty 
agencies, State authorities, and cognizant accrediting associations.
    (4) If the Secretary determines that the borrower meets the 
applicable requirements for a discharge under paragraph (c) of this 
section, the Secretary notifies the borrower in writing of that 
determination.
    (5) If the Secretary determines that the borrower does not qualify 
for a discharge, the Secretary notifies the borrower in writing of that 
determination and the reasons for the determination.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 59 FR 66134, Dec. 22, 1994; 61 
FR 29900, June 12, 1996; 64 FR 58972, Nov. 1, 1999; 65 FR 65622, Nov. 1, 
2000. Redesignated and amended at 65 FR 65629, Nov. 1, 2000; 66 FR 
34765, June 29, 2001]



Sec. 685.216  Unpaid refund discharge.

    (a)(1) Unpaid refunds in closed school situations. In the case of a 
school that has closed, the Secretary discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of a 
Direct Loan equal to the refund that should have been made by the school 
under applicable law and regulations, including this section. Any 
accrued interest and other charges associated with the unpaid refund are 
also discharged.
    (2) Unpaid refunds in open school situations. (i) In the case of a 
school that is open, the Secretary discharges a former or current 
borrower's (and any endorser's) obligation to repay that portion of a 
Direct Loan equal to the refund that should have been made by the school 
under applicable law and regulations, including this section, if--
    (A) The borrower (or the student on whose behalf a parent borrowed) 
is not attending the school that owes the refund;
    (B) The borrower has been unable to resolve the unpaid refund with 
the school; and
    (C) The Secretary is unable to resolve the unpaid refund with the 
school within 120 days from the date the borrower submits a complete 
application in accordance with paragraph (c)(1) of this section 
regarding the unpaid refund. Any accrued interest and other charges 
associated with the unpaid refund are also discharged.
    (ii) For the purpose of paragraph (a)(2)(i)(C) of this section, 
within 60

[[Page 860]]

days of the date notified by the Secretary, the school must submit to 
the Secretary documentation demonstrating that the refund was made by 
the school or that the refund was not required to be made by the school.
    (b) Relief to borrower following discharge. (1) If the borrower 
receives a discharge of a portion of a loan under this section, the 
borrower is reimbursed for any amounts paid in excess of the remaining 
balance of the loan (including accrued interest and other charges) owed 
by the borrower at the time of discharge.
    (2) The Secretary reports the discharge of a portion of a loan under 
this section to all credit reporting agencies to which the Secretary 
previously reported the status of the loan.
    (c) Borrower qualification for discharge. (1) Except as provided in 
paragraph (c)(2) of this section, to receive a discharge of a portion of 
a loan under this section, a borrower must submit a written application 
to the Secretary. The application requests the information required to 
calculate the amount of the discharge and requires the borrower to sign 
a statement swearing to the accuracy of the information in the 
application. The statement need not be notarized but must be made by the 
borrower under penalty of perjury. In the statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a parent 
borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not attend, withdrew, or was terminated from the school 
within a timeframe that entitled the borrower to a refund; and
    (C) Did not receive the benefit of a refund to which the borrower 
was entitled either from the school or from a third party, such as the 
holder of a performance bond or a tuition recovery program;
    (ii) State whether the borrower (or student) has any other 
application for discharge pending for this loan; and
    (iii) State that the borrower (or student)--
    (A) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (B) Agrees to cooperate with the Secretary in enforcement actions as 
described in Sec. 685.214(d) and to transfer any right to recovery 
against a third party to the Secretary as described in Sec. 685.214(e).
    (2) The Secretary may discharge a portion of a loan under this 
section without an application if the Secretary determines, based on 
information in the Secretary's possession, that the borrower qualifies 
for a discharge.
    (d) Determination of amount eligible for discharge. (1) The 
Secretary determines the amount eligible for discharge based on 
information showing the refund amount or by applying the appropriate 
refund formula to information that the borrower provides or that is 
otherwise available to the Secretary. For purposes of this section, all 
unpaid refunds are considered to be attributed to loan proceeds.
    (2) If the information in paragraph (d)(1) of this section is not 
available, the Secretary uses the following formulas to determine the 
amount eligible for discharge:
    (i) In the case of a student who fails to attend or whose withdrawal 
or termination date is before October 7, 2000 and who completes less 
than 60 percent of the loan period, the Secretary discharges the lesser 
of the institutional charges unearned or the loan amount. The Secretary 
determines the amount of the institutional charges unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan period after the student's last day of attendance to the actual 
length of the loan period; and
    (B) Multiplying the resulting factor by the institutional charges 
assessed the student for the loan period.
    (ii) In the case of a student who fails to attend or whose 
withdrawal or termination date is on or after October 7, 2000 and who 
completes less than 60 percent of the loan period, the Secretary 
discharges the loan amount unearned. The Secretary determines the loan 
amount unearned by--
    (A) Calculating the ratio of the amount of time remaining in the 
loan

[[Page 861]]

period after the student's last day of attendance to the actual length 
of the loan period; and
    (B) Multiplying the resulting factor by the total amount of title IV 
grants and loans received by the student, or, if unknown, the loan 
amount.
    (iii) In the case of a student who completes 60 percent or more of 
the loan period, the Secretary does not discharge any amount because a 
student who completes 60 percent or more of the loan period is not 
entitled to a refund.
    (e) Discharge procedures. (1) Except as provided in paragraph (c)(2) 
of this section, if the Secretary learns that a school did not make a 
refund of loan proceeds owed under applicable law and regulations, the 
Secretary sends the borrower a discharge application and an explanation 
of the qualifications and procedures for obtaining a discharge. The 
Secretary also promptly suspends any efforts to collect from the 
borrower on any affected loan. The Secretary may continue to receive 
borrower payments.
    (2) If a borrower who is sent a discharge application fails to 
submit the application within 60 days of the Secretary's sending the 
discharge application, the Secretary resumes collection and grants 
forbearance of principal and interest for the period in which collection 
activity was suspended. The Secretary may capitalize any interest 
accrued and not paid during that period.
    (3) If a borrower qualifies for a discharge, the Secretary notifies 
the borrower in writing. The Secretary resumes collection and grants 
forbearance of principal and interest on the portion of the loan not 
discharged for the period in which collection activity was suspended. 
The Secretary may capitalize any interest accrued and not paid during 
that period.
    (4) If a borrower does not qualify for a discharge, the Secretary 
notifies the borrower in writing of the reasons for the determination. 
The Secretary resumes collection and grants forbearance of principal and 
interest for the period in which collection activity was suspended. The 
Secretary may capitalize any interest accrued and not paid during that 
period.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[64 FR 58969, Nov. 1, 1999. Redesignated and amended at 65 FR 65629, 
Nov. 1, 2000; 66 FR 34765, June 29, 2001]



Sec. 685.217  Teacher loan forgiveness program.

    (a) General. The teacher loan forgiveness program is intended to 
encourage individuals to enter and continue in the teaching profession. 
For new borrowers, the Secretary will repay up to a combined total of 
$5,000 of subsidized and unsubsidized Federal Stafford Loans, Direct 
Subsidized Loans, Direct Unsubsidized Loans, and, in certain cases, 
Federal Consolidation Loans or Direct Consolidation Loans. The 
forgiveness program is only available to a borrower who has no 
outstanding loan balance under the FFEL Program or the Direct Loan 
Program on October 1, 1998 or who has no outstanding loan balance on the 
date he or she obtains a loan after October l, 1998. In addition, the 
borrower must have been employed as a full-time teacher for five 
consecutive complete academic years, at least one of which was after the 
1997-1998 academic year, in certain eligible elementary or secondary 
schools that serve low-income families. The loan for which the borrower 
is seeking forgiveness must have been made prior to the end of the fifth 
year of qualifying teaching service.
    (b) Definitions. The following definitions apply to this section:
    Academic year means one complete school year at the same school, or 
two complete and consecutive half years at different schools, or two 
complete and consecutive half years from different school years at 
either the same school or different schools. Half years exclude summer 
sessions and generally fall within a twelve-month period. For schools 
that have a year-round program of instruction, a minimum of nine months 
is considered an academic year.
    Elementary school means a public or nonprofit private school that 
provides elementary education as determined by

[[Page 862]]

State law or the Secretary if that school is not in a State.
    Full-time means the standard used by a State in defining full-time 
employment as a teacher. For a borrower teaching in more than one 
school, the determination of full-time is based on the combination of 
all qualifying employment.
    Secondary school means a public or nonprofit private school that 
provides secondary education as determined by State law or the Secretary 
if the school is not in a State.
    Teacher means a person who provides direct classroom teaching or 
classroom-type teaching in a non-classroom setting, including Special 
Education teachers.
    (c) Borrower eligibility. (1) A borrower may obtain loan forgiveness 
under this program if he or she has been employed as a full-time teacher 
for five consecutive complete academic years, at least one of which was 
after the 1997-1998 academic year, in an elementary or secondary school 
that--
    (i) Is in a school district that qualifies for funds under title I 
of the Elementary and Secondary Education Act of 1965, as amended;
    (ii) Has been selected by the Secretary based on a determination 
that more than 30 percent of the school's total enrollment is made up of 
children who qualify for services provided under title I; and
    (iii) Is listed in the Annual Directory of Designated Low-Income 
Schools for Teacher Cancellation Benefits. If this directory is not 
available before May 1 of any year, the previous year's directory may be 
used.
    (2) If the school at which the borrower is employed meets the 
requirements specified in paragraph (c)(1) of this section for at least 
one year of the borrower's five consecutive complete academic years of 
teaching and the school failed to meet those requirements in subsequent 
years, those subsequent years of teaching qualify for purposes of this 
section for that borrower.
    (3) A borrower who is employed as an elementary school teacher must 
demonstrate knowledge and teaching skills in reading, writing, 
mathematics, and other areas of the elementary school curriculum, as 
certified by the chief administrative officer of the school in which the 
borrower was employed.
    (4) A borrower who is employed as a secondary school teacher must 
teach in a subject area that is relevant to the borrower's academic 
major as certified by the chief administrative officer of the school in 
which the borrower was employed.
    (5) The academic year may be counted as one of the borrower's five 
consecutive complete academic years if the borrower completes at least 
one-half of the academic year and the borrower's employer considers the 
borrower to have fulfilled his or her contract requirements for the 
academic year for the purposes of salary increases, tenure, and 
retirement if the borrower is unable to complete an academic year due 
to--
    (i) A return to postsecondary education, on at least a half-time 
basis, that is directly related to the performance of the service 
described in this section;
    (ii) A condition that is covered under the Family and Medical Leave 
Act of 1993 (FMLA) (19 U.S.C. 2654); or
    (iii) A call or order to active duty status for more than 30 days as 
a member of a reserve component of the Armed Forces named in section 
10101 of title 10, United States Code.
    (6) If a borrower meets the requirements of paragraph (c)(5) of this 
section, the borrower's period of postsecondary education, active duty, 
or qualifying FMLA condition including the time necessary for the 
borrower to resume qualifying teaching no later than the beginning of 
the next regularly scheduled academic year, does not constitute a break 
in the required five consecutive years of qualifying teaching service.
    (7) A borrower who teaches in more than one qualifying school during 
an academic year and demonstrates that the combined teaching was the 
equivalent of full-time, as supported by the certification of one or 
more of the chief administrative officers of the schools involved, is 
considered to have completed one academic year of qualifying teaching.
    (8) A borrower is not eligible for teacher loan forgiveness on a 
defaulted

[[Page 863]]

loan unless the borrower has made satisfactory repayment arrangements to 
re-establish title IV eligibility, as defined in Sec. 685.200(b).
    (9) A borrower may not receive loan forgiveness for qualifying 
teaching service under this section if the borrower receives a benefit 
for the same teaching service under subtitle D of title I of the 
National and Community Service Act of 1990.
    (d) Forgiveness amount. (1) A qualified borrower is eligible for 
forgiveness of up to $5,000 of the aggregate amount of a borrower's 
Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct 
Consolidation Loan obligation that is outstanding after the borrower 
completes his or her fifth consecutive complete academic year of 
teaching as described in paragraph (c) of this section. Only the 
outstanding portion of a Direct Consolidation Loan that was used to 
repay an eligible subsidized or unsubsidized Federal Stafford loan, an 
eligible Direct Subsidized Loan, or an eligible Direct Unsubsidized Loan 
qualifies for loan forgiveness under this section.
    (2) A borrower may not receive more than a total of $5,000 in loan 
forgiveness for outstanding principal and accrued interest under both 
this section and 34 CFR Sec. 682.215.
    (3) The Secretary does not refund payments that were received from 
or on behalf of a borrower who qualifies for loan forgiveness under this 
section.
    (e) Application. (1) A borrower, after completing the qualifying 
teacher service, must request loan forgiveness from the Secretary on a 
form provided by the Secretary.
    (2) If the Secretary determines that the borrower meets the 
eligibility requirements for loan forgiveness under this section, the 
Secretary--
    (i) Notifies the borrower of this determination; and
    (ii) Unless otherwise instructed by the borrower, applies the 
proceeds of the loan forgiveness first to any outstanding Direct 
Unsubsidized Loan balances, next to any outstanding Direct Subsidized 
Loan balances, next to any qualifying Direct Unsubsidized Consolidation 
Loan balances, and last to any qualifying outstanding Direct Subsidized 
Consolidation Loan balances.
    (3) If the Secretary determines that the borrower does not meet the 
eligibility requirements for loan forgiveness under this section, the 
Secretary notifies the borrower of this determination.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[65 FR 65629, Nov. 1, 2000]



Secs. 685.218-685.219  [Reserved]



Sec. 685.220  Consolidation.

    (a) Direct Consolidation Loans. A borrower may consolidate one or 
more education loans made under certain Federal programs into one or 
more Direct Consolidation Loans. Loans consolidated into a Direct 
Consolidation Loan are discharged when the Direct Consolidation Loan is 
originated.
    (b) Loans eligible for consolidation. The following loans may be 
consolidated into a Direct Consolidation Loan:
    (1) Federal Stafford Loans.
    (2) Guaranteed Student Loans.
    (3) Federal Insured Student Loans (FISL).
    (4) Direct Subsidized Loans.
    (5) Direct Subsidized Consolidation Loans.
    (6) Federal Perkins Loans.
    (7) National Direct Student Loans (NDSL).
    (8) National Defense Student Loans (NDSL).
    (9) Federal PLUS Loans.
    (10) Parent Loans for Undergraduate Students (PLUS).
    (11) Direct PLUS Loans.
    (12) Direct PLUS Consolidation Loans.
    (13) Federal Unsubsidized Stafford Loans.
    (14) Federal Supplemental Loans for Students (SLS).
    (15) Federal Consolidation Loans.
    (16) Direct Unsubsidized Loans.
    (17) Direct Unsubsidized Consolidation Loans.
    (18) Auxiliary Loans to Assist Students (ALAS).
    (19) Health Professions Student Loans (HPSL) and Loans for 
Disadvantaged Students (LDS) made under subpart II of part A of title 
VII of the Public Health Service Act.

[[Page 864]]

    (20) Health Education Assistance Loans (HEAL).
    (21) Nursing loans made under subpart II of part B of title VIII of 
the Public Health Service Act.
    (c) Types of Direct Consolidation Loans. (1) The loans identified in 
paragraphs (b)(1) through (8) of this section may be consolidated into a 
Direct Subsidized Consolidation Loan.
    (2) The loans identified in paragraphs (b)(9) through (12) of this 
section may be consolidated into a Direct PLUS Consolidation Loan.
    (3) The loans identified in paragraphs (b)(13) through (21) of this 
section may be consolidated into a Direct Unsubsidized Consolidation 
Loan. In addition, Federal Consolidation Loans under (b)(15) of this 
section may be consolidated into a Direct Subsidized Consolidation Loan, 
if they are eligible for interest benefits during a deferment period 
under Section 428C(b)(4)(C) of the Act.
    (d) Eligibility for a Direct Consolidation Loan. (1) A borrower may 
obtain a Direct Consolidation Loan if, at the time the borrower applies 
for such a loan, the borrower meets the following requirements:
    (i) The borrower either--
    (A) Has an outstanding balance on a Direct Loan; or
    (B) Has an outstanding balance on an FFEL loan and asserts either--
    (1) That the borrower is unable to obtain an FFEL consolidation 
loan; or
    (2) That the borrower is unable to obtain an FFEL consolidation loan 
with income-sensitive repayment terms acceptable to the borrower and is 
eligible for the income contingent repayment plan under the Direct Loan 
Program.
    (ii) On the loans being consolidated, the borrower is--
    (A) In an in-school period and seeks to consolidate loans made under 
both the FFEL Program and the Direct Loan Program;
    (B) In an in-school period at a school participating in the Direct 
Loan Program and seeks to consolidate loans made under the FFEL Program;
    (C) In a six-month grace period;
    (D) In a repayment period but not in default;
    (E) In default but has made satisfactory repayment arrangements, as 
defined in applicable program regulations, on the defaulted loan; or
    (F) In default but agrees to repay the consolidation loan under the 
income contingent repayment plan described in Sec. 685.208(f) and signs 
the consent form described in Sec. 685.209(d)(5).
    (iii) The borrower certifies that no other application to 
consolidate any of the borrower's loans listed in paragraph (b) of this 
section is pending with any other lender.
    (iv) The borrower agrees to notify the Secretary of any change in 
address.
    (v) In the case of a Direct PLUS Consolidation Loan--
    (A) The borrower may not have an adverse credit history as defined 
in Sec. 685.200(b)(7)(ii); or
    (B) If the borrower has such an adverse credit history, the borrower 
shall obtain an endorser for the consolidation loan who does not have an 
adverse credit history or provide documentation satisfactory to the 
Secretary that extenuating circumstances relating to the borrower's 
credit history exist.
    (vi) In the case of a defaulted Direct Consolidation Loan, the 
borrower obtains the approval of the Secretary.
    (vii) In the case of a loan on which the holder has obtained a 
judgment, the borrower obtains the approval of the Secretary.
    (2) Two married borrowers may consolidate their loans together if 
they meet the following requirements:
    (i) At least one spouse meets the requirements of paragraphs 
(d)(1)(i) and (d)(1)(v) of this section.
    (ii) Both spouses meet the requirements of paragraphs (d)(1) (ii) 
through (d)(1)(iv) of this section.
    (iii) Each spouse agrees to be held jointly and severally liable for 
the repayment of the total amount of the consolidation loan and to repay 
the loan regardless of any change in marital status.
    (e) Application for a Direct Consolidation Loan. To obtain a Direct 
Consolidation Loan, a borrower or borrowers shall submit a completed 
application to the Secretary. A single application may be used for one 
or more consolidation loans. A borrower may add eligible loans to a 
Direct Consolidation Loan by submitting a request to the Secretary 
within 180 days after the date on

[[Page 865]]

which the Direct Consolidation Loan is originated.
    (f) Origination of a consolidation loan. (1)(i) The holder of a loan 
that a borrower wishes to consolidate into a Direct Loan shall complete 
and return the Secretary's request for certification of the amount owed 
within 10 business days of receipt or, if it is unable to provide the 
certification, provide to the Secretary a written explanation of the 
reasons for its inability to provide the certification.
    (ii) If the Secretary approves an application for a consolidation 
loan, the Secretary pays to each holder of a loan selected for 
consolidation the amount necessary to discharge the loan.
    (iii) For a Direct loan or FFEL Program loan that is in default, the 
Secretary limits collection costs that may be charged to the borrower to 
no more than those authorized under the FFEL Program and may impose 
reasonable limits on collection costs paid to the holder.
    (2) Upon receipt of the proceeds of a Direct Consolidation Loan, the 
holder of a consolidated loan shall promptly apply the proceeds to fully 
discharge the borrower's obligation on the consolidated loan. The holder 
of a consolidated loan shall notify the borrower that the loan has been 
paid in full.
    (3) The principal balance of a Direct Consolidation Loan is equal to 
the sum of the amounts paid to the holders of the consolidated loans.
    (4) If the amount paid by the Secretary to the holder of a 
consolidated loan exceeds the amount needed to discharge that loan, the 
holder of the consolidated loan shall promptly refund the excess amount 
to the Secretary to be credited against the outstanding balance of the 
Direct Consolidation Loan.
    (5) If the amount paid by the Secretary to the holder of the 
consolidated loan is insufficient to discharge that loan, the holder 
shall notify the Secretary in writing of the remaining amount due on the 
loan. The Secretary promptly pays the remaining amount due.
    (g) Interest rate. The interest rate on a Direct Subsidized 
Consolidation Loan or a Direct Unsubsidized Consolidation Loan is the 
rate established in Sec. 685.202(a)(3)(i). The interest rate on a Direct 
PLUS Consolidation Loan is the rate established in 
Sec. 685.202(a)(3)(ii).
    (h) Repayment plans. A borrower may repay a Direct Consolidation 
Loan under any of the repayment plans described in Sec. 685.208, except 
that--
    (1) A borrower may not repay a Direct PLUS Consolidation Loan under 
the income contingent repayment plan; and
    (2) A borrower who became eligible to consolidate a defaulted loan 
under paragraph (d)(1)(ii)(E) of this section shall repay the 
consolidation loan under the income contingent repayment plan unless--
    (i) The borrower was required to and did make a payment under the 
income contingent repayment plan in each of the prior three (3) months; 
or
    (ii) The borrower was not required to make payments but made three 
reasonable and affordable payments in each of the prior three (3) 
months; and
    (iii) The borrower makes and the Secretary approves a request to 
change plans.
    (i) Repayment period. (1) Except as noted in paragraph (i)(4) of 
this section, the repayment period for a Direct Consolidation Loan 
begins on the day the loan is disbursed.
    (2) Under the extended or graduated repayment plan, the Secretary 
determines the repayment period under Sec. 685.208(e) on the basis of 
the outstanding balances on all of the borrower's loans that are 
eligible for consolidation and the balances on other education loans 
except as provided in paragraph (i)(3) of this section.
    (3)(i) The total amount of outstanding balances on the other 
education loans used to determine the repayment period under the 
graduated or extended repayment plan may not exceed the amount of the 
Direct Consolidation Loan.
    (ii) The borrower may not be in default on the other education loan 
unless the borrower has made satisfactory repayment arrangements with 
the holder of the loan.
    (iii) The lender of the other educational loan may not be an 
individual.
    (4) A Direct Consolidation Loan receives a grace period if it 
includes a Direct Loan or FFEL Program loan for

[[Page 866]]

which the borrower is in an in-school period at the time of 
consolidation. The repayment period begins the day after the grace 
period ends.
    (j) Repayment schedule. (1) The Secretary provides a borrower of a 
Direct Consolidation Loan a repayment schedule before the borrower's 
first payment is due. The repayment schedule identifies the borrower's 
monthly repayment amount under the repayment plan selected.
    (2) If a borrower adds an eligible loan to the consolidation loan 
under paragraph (e) of this section, the Secretary makes appropriate 
adjustments to the borrower's monthly repayment amount and repayment 
period.
    (k) Refunds and returns of title IV, HEA program funds received from 
schools. If a lender receives a refund or return of title IV, HEA 
program funds from a school on a loan that has been consolidated into a 
Direct Consolidation Loan, the lender shall transmit the refund or 
return and an explanation of the source of the refund or return to the 
Secretary within 30 days of receipt.
    (l) Special provisions for joint consolidation loans. The provisions 
of paragraphs (l)(1) through (3) of this section apply to a Direct 
Consolidation Loan obtained by two married borrowers.
    (1) Deferment. To obtain a deferment on a joint Direct Consolidation 
Loan under Sec. 685.204, both borrowers must meet the requirements of 
that section.
    (2) Forbearance. To obtain forbearance on a joint Direct 
Consolidation Loan under Sec. 685.205, both borrowers must meet the 
requirements of that section.
    (3) Discharge. (i) If a borrower dies and the Secretary receives the 
documentation described in Sec. 685.212(a), the Secretary discharges an 
amount equal to the portion of the outstanding balance of the 
consolidation loan, as of the date of the borrower's death, attributable 
to any of that borrower's loans that were repaid by the consolidation 
loan.
    (ii) If a borrower meets the requirements for total and permanent 
disability discharge under Sec. 685.212(b), the Secretary discharges an 
amount equal to the portion of the outstanding balance of the 
consolidation loan, as of the date the borrower became totally and 
permanently disabled, attributable to any of that borrower's loans that 
were repaid by the consolidation loan.
    (iii) If a borrower meets the requirements for discharge under 
Sec. 685.212(d), (e), or (f) on a loan that was consolidated into a 
joint Direct Consolidation Loan, the Secretary discharges the portion of 
the consolidation loan equal to the amount of the loan that would be 
eligible for discharge under the provisions of Sec. 685.212(d), (e), or 
(f) as applicable, and that was repaid by the consolidation loan.
    (iv) If a borrower meets the requirements for loan forgiveness under 
Sec. 685.212(h) on a loan that was consolidated into a joint Direct 
Consolidation Loan, the Secretary repays the portion of the outstanding 
balance of the consolidation loan attributable to the loan that would be 
eligible for forgiveness under the provisions of Sec. 685.212(h), and 
that was repaid by the consolidation loan.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1078-8, 1087a et seq.)

[59 FR 61690, Dec. 1, 1994. Redesignated and amended at 64 FR 58969, 
58970, 59044, Nov. 1, 1999; 65 FR 37045, June 13, 2000. Redesignated at 
65 FR 65629, Nov. 1, 2000, as amended at 66 FR 34765, June 29, 2001; 67 
FR 67082, Nov. 1, 2002]



Subpart C--Requirements, Standards, and Payments for Direct Loan Program 
                                 Schools



Sec. 685.300  Agreements between an eligible school and the Secretary for 
participation in the Direct Loan Program.

    (a) General. (1) Participation of a school in the Direct Loan 
Program means that eligible students at the school may receive Direct 
Loans. To participate in the Direct Loan Program, a school shall--
    (i) Demonstrate to the satisfaction of the Secretary that the school 
meets the requirements for eligibility under the Act and applicable 
regulations; and
    (ii) Enter into a written program participation agreement with the 
Secretary that identifies the loan program or programs in which the 
school chooses to participate.

[[Page 867]]

    (2) The chief executive officer of the school shall sign the program 
participation agreement on behalf of the school.
    (b) Program participation agreement. In the program participation 
agreement, the school shall promise to comply with the Act and 
applicable regulations and shall agree to--
    (1) Identify eligible students who seek student financial assistance 
at the institution in accordance with section 484 of the Act;
    (2) Estimate the need of each of these students as required by part 
F of the Act for an academic year. For purposes of estimating need, a 
Direct Unsubsidized Loan, a Direct PLUS Loan, or any loan obtained under 
any State-sponsored or private loan program may be used to offset the 
expected family contribution of the student for that year;
    (3) Certify that the amount of the loan for any student under part D 
of the Act is not in excess of the annual limit applicable for that loan 
program and that the amount of the loan, in combination with previous 
loans received by the borrower, is not in excess of the aggregate limit 
for that loan program;
    (4) Set forth a schedule for disbursement of the proceeds of the 
loan in installments, consistent with the requirements of section 428G 
of the Act;
    (5) Provide timely and accurate information to the Secretary for the 
servicing and collecting of loans--
    (i) Concerning the status of student borrowers (and students on 
whose behalf parents borrow) while these students are in attendance at 
the school;
    (ii) Upon request by the Secretary, concerning any new information 
of which the school becomes aware for these students (or their parents) 
after the student leaves the school; and
    (iii) Concerning student eligibility and need, for the alternative 
origination of loans to eligible students and parents in accordance with 
part D of the Act;
    (6) Provide assurances that the school will comply with requirements 
established by the Secretary relating to student loan information with 
respect to loans made under the Direct Loan Program;
    (7) Provide that the school will accept responsibility and financial 
liability stemming from its failure to perform its functions pursuant to 
the agreement;
    (8) Provide that eligible students at the school and their parents 
may participate in the programs under part B of the Act at the 
discretion of the Secretary for the period during which the school 
participates in the Direct Loan Program under part D of the Act, except 
that a student may not receive loans under both part D of the Act and 
part B of the Act for the same period of enrollment and a parent 
(borrowing for the same student) may not receive loans under both part D 
of the Act and part B of the Act for the same period of enrollment;
    (9) Provide for the implementation of a quality assurance system, as 
established by the Secretary and developed in consultation with the 
school, to ensure that the school is complying with program requirements 
and meeting program objectives;
    (10) Provide that the school will not charge any fees of any kind, 
however described, to student or parent borrowers for origination 
activities or the provision of any information necessary for a student 
or parent to receive a loan under part D of the Act or any benefits 
associated with such a loan; and
    (11) Comply with other provisions that the Secretary determines are 
necessary to protect the interests of the United States and to promote 
the purposes of part D of the Act.
    (c) Origination. (1) If a school or consortium originates loans in 
the Direct Loan Program, it shall enter into a supplemental agreement 
that--
    (i) Provides that the school or consortium will originate loans to 
eligible students and parents in accordance with part D of the Act; and
    (ii) Provides that the note or evidence of obligation on the loan is 
the property of the Secretary.
    (2) The chief executive officer of the school shall sign the 
supplemental agreement on behalf of the school.

(Authority: 20 U.S.C. 1087a et seq., 1094)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 58970, Nov. 1, 1999]

[[Page 868]]



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

    (a) Determining eligibility and loan amount. (1) A school 
participating in the Direct Loan Program shall ensure that any 
information it provides to the Secretary in connection with loan 
origination is complete and accurate. A school shall originate a Direct 
Loan while the student meets the borrower eligibility requirements of 
Sec. 685.200. Except as provided in 34 CFR part 668, subpart E, a school 
may rely in good faith upon statements made in the application by the 
student.
    (2) A school shall provide to the Secretary borrower information 
that includes but is not limited to--
    (i) The borrower's eligibility for a loan, as determined in 
accordance with Sec. 685.200 and Sec. 685.203;
    (ii) The student's loan amount; and
    (iii) The anticipated and actual disbursement date or dates and 
disbursement amounts of the loan proceeds.
    (3) A school may not originate a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan, or a combination of loans, for an 
amount that--
    (i) The school has reason to know would result in the borrower 
exceeding the annual or maximum loan amounts in Sec. 685.203; or
    (ii) Exceeds the student's estimated cost of attendance less--
    (A) The student's estimated financial assistance for that period; 
and
    (B) In the case of a Direct Subsidized Loan, the borrower's expected 
family contribution for that period.
    (4)(i) A school determines a Direct Subsidized or Direct 
Unsubsidized Loan amount in accordance with Sec. 685.203 and the 
definitions in 34 CFR 668.2 for the proration of loan amounts required 
for undergraduate students.
    (ii) When prorating a loan amount for a student enrolled in a 
program of study with less than a full academic year remaining, the 
school need not recalculate the amount of the loan if the number of 
hours for which an eligible student is enrolled changes after the school 
originates the loan.
    (5) The date of loan origination is the date a school creates the 
electronic loan origination record.
    (6) If a student has received a determination of need for a Direct 
Subsidized Loan that is $200 or less, a school may choose not to 
originate a Direct Subsidized Loan for that student and to include the 
amount as part of a Direct Unsubsidized Loan.
    (7) A school may refuse to originate a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan or may reduce the borrower's 
determination of need for the loan if the reason for that action is 
documented and provided to the student in writing, and if--
    (i) The determination is made on a case-by-case basis;
    (ii) The documentation supporting the determination is retained in 
the student's file; and
    (iii) The school does not engage in any pattern or practice that 
results in a denial of a borrower's access to Direct Loans because of 
the borrower's race, gender, color, religion, national origin, age, 
disability status, or income.
    (8) A school may not assess a fee for the completion or 
certification of any Direct Loan Program forms or information or for the 
origination of a Direct Loan.
    (9)(i) The minimum period of enrollment for which a school may 
originate a Direct Loan is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, a single academic term 
(e.g., a semester or quarter); or
    (B) At a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system, the lesser of--
    (1) The length of the student's program at the school; or
    (2) The academic year as defined by the school in accordance with 34 
CFR 668.3.
    (ii) The maximum period for which a school may originate a Direct 
Loan is--
    (A) Generally an academic year, as defined by 34 CFR 668.3, except 
that a school may use a longer period of time, not to exceed 12 months, 
corresponding to the period to which the school applies the annual loan 
limits under Sec. 685.203; or
    (B) For a defaulted borrower who has regained eligibility, the 
academic year

[[Page 869]]

in which the borrower regained eligibility.
    (b) Determining disbursement dates and amounts. (1) Before 
disbursing a loan, a school that originates loans shall determine that 
all information required by the loan application and promissory note has 
been provided by the borrower and, if applicable, the student.
    (2) Unless paragraph (b)(5) or (6) of this section applies, an 
institution must disburse the loan proceeds on a payment period basis in 
accordance with 34 CFR 668.164(b).
    (3) Unless paragraph (b)(4), (5), (6), or (8) of this section 
applies--
    (i) If a loan period is more than one payment period, the school 
must disburse loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make at 
least two disbursements during that payment period. The school may not 
make the second disbursement until the calendar midpoint between the 
first and last scheduled days of class of the loan period.
    (4)(i) If one or more payment periods have elapsed before a school 
makes a disbursement, the school may include in the disbursement loan 
proceeds for completed payment periods; or
    (ii) If the loan period is equal to one payment period and more than 
one-half of it has elapsed, the school may include in the disbursement 
loan proceeds for the entire payment period.
    (5)(i) If a school measures academic progress in an educational 
program in credit hours and either does not use terms or does not use 
terms that are substantially equal in length for a loan period, the 
school may not make a second disbursement until the later of--
    (A) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (B) The date, as determined by the school, that the student has 
completed half of the academic coursework in the loan period.
    (ii) For purposes of this paragraph, terms in a loan period are 
substantially equal in length if no term in the loan period is more than 
two weeks longer than any other term in that loan period.
    (6) If an educational program measures academic progress in clock 
hours, the school may not make a second disbursement until the later of-
-
    (i) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (ii) The date, as determined by the institution, that the student 
has completed half of the clock hours in the loan period.
    (7) The school must disburse loan proceeds in substantially equal 
installments, and no installment may exceed one-half of the loan.
    (8)(i) A school is not required to make more than one disbursement 
if--
    (A)(1) The loan period is not more than one semester, one trimester, 
one quarter, or, for non term-based schools or schools with non-standard 
terms, 4 months; and
    (2) The school has a cohort default rate, calculated under subpart M 
of 34 CFR part 668 of less than 10 percent for each of the three most 
recent fiscal years for which data are available;
    (B) The school is an eligible home institution originating a loan to 
cover the cost of attendance in a study abroad program and has a cohort 
default rate, calculated under subpart M of 34 part 668, of less than 5 
percent for the single most recent fiscal year for which data are 
available; or
    (C) The school is not in a State.
    (ii) Paragraph (b)(8)(i)(A) of this section does not apply to any 
loans originated by the school beginning--
    (A) 30 days after the date the school receives notification from the 
Secretary of a cohort default rate, calculated under subpart M of 34 CFR 
part 668, that causes the school to no longer meet the qualifications 
outlined in that paragraph; or
    (B) October 1, 2002.
    (iii) Paragraph (b)(8)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M of 34 CFR part 668, that causes the 
school to no longer meet the qualifications outlined in that paragraph.
    (c) Promissory note handling. (1) The Secretary provides promissory 
notes for use in the Direct Loan Program. A

[[Page 870]]

school may not modify, or make any additions to, the promissory note 
without the Secretary's prior written approval.
    (2) A school that originates a loan must ensure that the loan is 
supported by a completed promissory note as proof of the borrower's 
indebtedness.
    (d) Reporting to the Secretary. (1) A school that participates under 
school origination option 2 must submit the promissory note, loan 
origination record, and initial disbursement record for a loan to the 
Secretary no later than 30 days following the date of the initial 
disbursement. The school must submit subsequent disbursement records, 
including adjustment and cancellation records, to the Secretary no later 
than 30 days following the date the disbursement, adjustment, or 
cancellation is made.
    (2) A school that participates under school origination option 1 or 
standard origination must submit the initial disbursement record for a 
loan to the Secretary no later than 30 days following the date of the 
initial disbursement. The school must submit subsequent disbursement 
records, including adjustment and cancellation records, to the Secretary 
no later than 30 days following the date the disbursement, adjustment, 
or cancellation is made.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 60 
FR 61794, Dec. 1, 1995; 61 FR 29900, June 12, 1996; 61 FR 31359, June 
19, 1996; 61 FR 60610, Nov. 29, 1996; 62 FR 63435, Nov. 28, 1997; 64 FR 
58970, Nov. 1, 1999; 65 FR 65622, 65651, Nov. 1, 2000; 66 FR 34765, June 
29, 2001; 67 FR 67082, Nov. 1, 2002]



Sec. 685.302  Schedule requirements for courses of study by correspondence.

    (a) This section contains requirements relating to the enrollment 
status of students in schools that offer programs of study by 
correspondence.
    (b) A school that offers a course of study by correspondence shall 
establish a schedule for submission of lessons by its students and 
provide it to a prospective student prior to the student's enrollment.
    (c) The school shall include in its schedule--
    (1) A due date for each lesson in the course;
    (2) A description of the options, if any, available to the student 
for altering the sequence of lesson submissions from the sequence in 
which they are otherwise required to be submitted;
    (3) The date by which the course is to be completed; and
    (4) The date by which any resident training must begin, the location 
of any resident training, and the period of time within which that 
resident training must be completed.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 64 
FR 58972, Nov. 1, 1999]



Sec. 685.303  Processing loan proceeds.

    (a) Purpose. This section establishes rules governing a school's 
processing of a borrower's Direct Subsidized, Direct Unsubsidized, or 
Direct PLUS Loan proceeds. The school shall also comply with any rules 
for processing loan proceeds contained in 34 CFR part 668.
    (b) General--(1)(i) A school that initiates the drawdown of funds. A 
school may not disburse loan proceeds to a borrower unless the school 
has obtained an executed, legally enforceable promissory note from the 
borrower.
    (ii) A school that does not initiate the drawdown of funds. A school 
may disburse loan proceeds only to a borrower for whom the school has 
received funds from the Secretary.
    (2)(i) Except in the case of a late disbursement under paragraph (d) 
of this section, or as provided in paragraph (b)(2)(iii) of this 
section, a school may disburse loan proceeds only to a student, or a 
parent in the case of a PLUS Loan, if the school determines the student 
has continuously maintained eligibility in accordance with the 
provisions of Sec. 685.200 from the beginning of the loan period 
described in the promissory note.
    (ii) In the event a student delays attending school for a period of 
time, the school may consider that student to have maintained 
eligibility for the loan from the first day of the period of enrollment. 
However, the school must

[[Page 871]]

comply with the requirements under paragraph (b)(3) of this section.
    (iii) If, after a school makes the first disbursement to a borrower, 
the student becomes ineligible due solely to the school's loss of 
eligibility to participate in the title IV programs or the Direct Loan 
Program, the school may make subsequent disbursements to the borrower as 
permitted by 34 CFR part 668.
    (iv) If, prior to making any disbursement to a borrower, the student 
temporarily ceases to be enrolled on at least a half-time basis, the 
school may make a disbursement and any subsequent disbursement to the 
student if the school determines and documents in the student's file--
    (A) That the student has resumed enrollment on at least a half-time 
basis;
    (B) The student's revised cost of attendance; and
    (C) That the student continues to qualify for the entire amount of 
the loan, notwithstanding any reduction in the student's cost of 
attendance caused by the student's temporary cessation of enrollment on 
at least a half-time basis.
    (3) If a registered student withdraws or is expelled prior to the 
first day of classes of the period of enrollment for which the loan is 
made, or fails to attend school during that period, or if the school is 
unable for any other reason to document that the student attended school 
during that period, the school shall notify the Secretary, within 30 
days of the date described in Sec. 685.305(a), of the student's 
withdrawal, expulsion, or failure to attend school, as applicable, and 
return to the Secretary--
    (i) Any loan proceeds credited by the school to the student's 
account; and
    (ii) The amount of payments made by the student to the school, to 
the extent that they do not exceed the amount of any loan proceeds 
disbursed by the school to the student.
    (4)(i) If a student is enrolled in the first year of an 
undergraduate program of study and has not previously received a Federal 
Stafford, Federal Supplemental Loans for Students, Direct Subsidized, or 
Direct Unsubsidized Loan, a school may not disburse the proceeds of a 
Direct Subsidized or Direct Unsubsidized Loan until 30 days after the 
first day of the student's program of study unless--
    (A) The school has a cohort default rate, calculated under subpart M 
of 34 CFR part 668, or weighted average cohort rate of less than 10 
percent for each of the three most recent fiscal years for which data 
are available;
    (B) The school is an eligible home institution originating a loan to 
cover the cost of attendance in a study abroad program and has a Direct 
Loan Program cohort rate, FFEL cohort default rate, or weighted average 
cohort rate of less than 5 percent for the single most recent fiscal 
year for which data are available; or
    (C) The school is not in a State.
    (ii) Paragraph (b)(4)(i)(A) of this section does not apply to any 
loans originated by the school beginning--
    (A) 30 days after the date the school receives notification from the 
Secretary of a cohort default rate, calculated under subpart M of 34 CFR 
part 668, that causes the school to no longer meet the qualifications 
outlined in that paragraph; or
    (B) October 1, 2002.
    (iii) Paragraph (b)(4)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under Subpart M of 34 CFR part 668, that causes the 
school to no longer meet the qualifications outlined in that paragraph.
    (c) Processing of the proceeds of a Direct Loan. Schools shall 
follow the procedures for disbursing funds in 34 CFR 668.164.
    (d) Late Disbursement. A school may make a late disbursement 
according to the provisions found under 34 CFR 668.164(g).
    (e) Treatment of excess loan proceeds. Before the disbursement of 
any Direct Subsidized or Direct Unsubsidized Loan proceeds, if a school 
learns that the borrower will receive or has received financial aid for 
the period of enrollment for which the loan was intended that exceeds 
the amount of assistance for which the student is eligible (except for 
Federal Work-Study Program funds up to $300), the school shall reduce or 
eliminate the overaward by either--

[[Page 872]]

    (1) Using the student's Direct Unsubsidized, Direct PLUS, or State-
sponsored or another non-Federal loan to cover the expected family 
contribution, if not already done; or
    (2) Reducing one or more subsequent disbursements to eliminate the 
overaward.

(Approved by the Office of Management and Budget under control number 
1840-0672)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 61 
FR 29901, June 12, 1996; 61 FR 60610, Nov. 29, 1996; 64 FR 58971, Nov. 
1, 1999; 65 FR 65651, Nov. 1, 2000; 66 FR 34766, June 29, 2001]



Sec. 685.304  Counseling borrowers.

    (a) Initial counseling. (1) Except as provided in paragraph (a)(4) 
of this section, a school must ensure that initial counseling is 
conducted with each Direct Subsidized Loan or Direct Unsubsidized Loan 
student borrower prior to making the first disbursement of the proceeds 
of a loan to a student borrower unless the student borrower has received 
a prior Direct Subsidized, Direct Unsubsidized, Federal Stafford, or 
Federal SLS Loan.
    (2) The initial counseling must be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
school must ensure that an individual with expertise in the title IV 
programs is reasonably available shortly after the counseling to answer 
the student borrower's questions. As an alternative, in the case of a 
student borrower enrolled in a correspondence program or a study-abroad 
program approved for credit at the home institution, the student 
borrower may be provided with written counseling materials before the 
loan proceeds are disbursed.
    (3) The initial counseling must--
    (i) Explain the use of a Master Promissory Note (MPN);
    (ii) Emphasize to the borrower the seriousness and importance of the 
repayment obligation the student borrower is assuming;
    (iii) Describe the likely consequences of default, including adverse 
credit reports, garnishment of wages, Federal offset, and litigation;
    (iv) Inform the student borrower of sample monthly repayment amounts 
based on a range of student levels of indebtedness or on the average 
indebtedness of Direct Subsidized Loan and Direct Unsubsidized Loan 
borrowers at the same school or in the same program of study at the same 
school; and
    (v) Emphasize that the student borrower is obligated to repay the 
full amount of the loan even if the student borrower does not complete 
the program, is unable to obtain employment upon completion, or is 
otherwise dissatisfied with or does not receive the educational or other 
services that the student borrower purchased from the school.
    (4) A school may adopt an alternative approach for initial 
counseling as part of the school's quality assurance plan described in 
Sec. 685.300(b)(9). If a school adopts an alternative approach, it is 
not required to meet the requirements of paragraphs (a)(1)-(3) of this 
section unless the Secretary determines that the alternative approach is 
not adequate for the school. The alternative approach must--
    (i) Ensure that each student borrower subject to initial counseling 
under paragraph (a)(1) of this section is provided written counseling 
materials that contain the information described in paragraph (a)(3) of 
this section;
    (ii) Be designed to target those student borrowers who are most 
likely to default on their repayment obligations and provide them more 
intensive counseling and support services; and
    (iii) Include performance measures that demonstrate the 
effectiveness of the school's alternative approach. These performance 
measures must include objective outcomes, such as levels of borrowing, 
default rates, and withdrawal rates.
    (5) If initial counseling is conducted through interactive 
electronic means, a school must take reasonable steps to ensure that 
each student borrower receives the counseling materials, and 
participates in and completes the initial counseling.
    (6) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.
    (b) Exit counseling. (1) A school must ensure that exit counseling 
is conducted with each Direct Subsidized

[[Page 873]]

Loan or Direct Unsubsidized Loan borrower shortly before the student 
borrower ceases at least half-time study at the school.
    (2) The exit counseling must be in person, by audiovisual 
presentation, or by interactive electronic means. In each case, the 
school must ensure that an individual with expertise in the title IV 
programs is reasonably available shortly after the counseling to answer 
the student borrower's questions. As an alternative, in the case of a 
student borrower enrolled in a correspondence program or a study-abroad 
program approved for credit at the home institution, the student 
borrower may be provided with written counseling materials within 30 
days after the student borrower completes the program.
    (3) If a student borrower withdraws from school without the school's 
prior knowledge or fails to complete the exit counseling as required, 
exit counseling must be provided either through interactive electronic 
means or by mailing written counseling materials to the student borrower 
at the student borrower's last known address within 30 days after the 
school learns that the student borrower has withdrawn from school or 
failed to complete the exit counseling as required.
    (4) The exit counseling must--
    (i) Inform the student borrower of the average anticipated monthly 
repayment amount based on the student borrower's indebtedness or on the 
average indebtedness of Direct Subsidized Loan and Direct Unsubsidized 
Loan borrowers at the same school or in the same program of study at the 
same school;
    (ii) Review for the student borrower available repayment options 
including the standard repayment, extended repayment, graduated 
repayment, and income contingent repayment plans, and loan 
consolidation;
    (iii) Suggest to the student borrower debt-management strategies 
that would facilitate repayment;
    (iv) Explain to the student borrower how to contact the party 
servicing the student borrower's Direct Loans;
    (v) Meet the requirements described in paragraphs (a)(3)(i), (ii), 
(iii), and (v) of this section;
    (vi) Review for the student borrower the conditions under which the 
student borrower may defer or forbear repayment or obtain a full or 
partial discharge of a loan;
    (vii) Review for the student borrower information on the 
availability of the Department's Student Loan Ombudsman's office;
    (viii) Inform the student borrower of the availability of title IV 
loan information in the National Student Loan Data System (NSLDS); and
    (ix) Require the student borrower to provide current information 
concerning name, address, social security number, references, and 
driver's license number and State of issuance, as well as the student 
borrower's expected permanent address, the address of the student 
borrower's next of kin, and the name and address of the student 
borrower's expected employer (if known).
    (5) The school must ensure that the information required in 
paragraph (b)(4)(ix) of this section is provided to the Secretary within 
60 days after the student borrower provides the information.
    (6) If exit counseling is conducted through interactive electronic 
means, a school must take reasonable steps to ensure that each student 
borrower receives the counseling materials, and participates in and 
completes the exit counseling.
    (7) The school must maintain documentation substantiating the 
school's compliance with this section for each student borrower.

(Approved by the Office of Management and Budget under control number 
1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 62 FR 63435, Nov. 28, 1997; 64 
FR 58971, Nov. 1, 1999; 65 FR 65651, Nov. 1, 2000; 66 FR 34766, June 29, 
2001; 67 FR 67082, Nov. 1, 2002]



Sec. 685.305  Determining the date of a student's withdrawal.

    (a) Except as provided in paragraph (b) of this section, a school 
shall follow the procedures in Sec. 668.22(b) or (c), as applicable, for 
determining the student's date of withdrawal.
    (b) For a student who does not return for the next scheduled term 
following a summer break, which includes any summer term(s) in which 
classes are

[[Page 874]]

offered but students are not generally required to attend, a school 
shall follow the procedures in Sec. 668.22(b) or (c), as applicable, for 
determining the student's date of withdrawal except that the school must 
determine the student's date of withdrawal no later than 30 days after 
the start of the next scheduled term.
    (c) The school shall use the date determined under paragraph (a) or 
(b) of this section for the purpose of reporting to the Secretary the 
student's date of withdrawal and for determining when a refund or return 
of title IV, HEA program funds must be paid under Sec. 685.306.

(Authority: 20 U.S.C. 1087 et seq.)

[64 FR 59044, Nov. 1, 1999]



Sec. 685.306  Payment of a refund or return of title IV, HEA program funds 
to the Secretary.

    (a) General. By applying for a Direct Loan, a borrower authorizes 
the school to pay directly to the Secretary that portion of a refund or 
return of title IV, HEA program funds from the school that is allocable 
to the loan. A school--
    (1) Shall pay that portion of the student's refund or return of 
title IV, HEA program funds that is allocable to a Direct Loan to the 
Secretary; and
    (2) Shall provide simultaneous writ-ten notice to the borrower if 
the school pays a refund or return of title IV, HEA program funds to the 
Secretary on be-half of that student.
    (b) Determination, allocation, and payment of a refund or return of 
title IV, HEA program funds. In determining the portion of a student's 
refund or return of title IV, HEA program funds that is allocable to a 
Direct Loan, the school shall follow the procedures established in 34 
CFR 668.22 for allocating and paying a refund or return of title IV, HEA 
program funds that is due.

(Authority: 20 U.S.C. 1087a et seq.)

[64 FR 59044, Nov. 1, 1999; 65 FR 37045, June 13, 2000]



Sec. 685.307  Withdrawal procedure for schools participating in the Direct 
Loan Program.

    (a) A school participating in the Direct Loan Program may withdraw 
from the program by providing written notice to the Secretary.
    (b) A participating school that intends to withdraw from the Direct 
Loan Program shall give at least 60 days notice to the Secretary.
    (c) Unless the Secretary approves an earlier date, the withdrawal is 
effective on the later of--
    (1) 60 days after the school notifies the Secretary; or
    (2) The date designated by the school.

(Authority: 20 U.S.C. 1087a et seq.)



Sec. 685.308  Remedial actions.

    (a) General. The Secretary may require the repayment of funds and 
the purchase of loans by the school if the Secretary determines that the 
unenforceability of a loan or loans, or the disbursement of loan amounts 
for which the borrower was ineligible, resulted in whole or in part 
from--
    (1) The school's violation of a Federal statute or regulation; or
    (2) The school's negligent or willful false certification.
    (b) In requiring a school to repay funds to the Secretary or to 
purchase loans from the Secretary in connection with an audit or program 
review, the Secretary follows the procedures described in 34 CFR part 
668, subpart H.
    (c) The Secretary may impose a fine or take an emergency action 
against a school or limit, suspend, or terminate a school's 
participation in the Direct Loan Program in accordance with 34 CFR part 
668, subpart G.

(Authority: 20 U.S.C. 1087a et seq.)



Sec. 685.309  Administrative and fiscal control and fund accounting 
requirements for schools participating in the Direct Loan Program.

    (a) General. A participating school shall--
    (1) Establish and maintain proper administrative and fiscal 
procedures and all necessary records as set forth in this part and in 34 
CFR part 668; and
    (2) Submit all reports required by this part and 34 CFR part 668 to 
the Secretary.
    (b) Student status confirmation reports. A school shall--

[[Page 875]]

    (1) Upon receipt of a student status confirmation report from the 
Secretary, complete and return that report to the Secretary within 30 
days of receipt; and
    (2) Unless it expects to submit its next student status confirmation 
report to the Secretary within the next 60 days, notify the Secretary 
within 30 days if it discovers that a Direct Subsidized, Direct 
Unsubsidized, or Direct PLUS Loan has been made to or on behalf of a 
student who--
    (i) Enrolled at that school but has ceased to be enrolled on at 
least a half-time basis;
    (ii) Has been accepted for enrollment at that school but failed to 
enroll on at least a half-time basis for the period for which the loan 
was intended; or
    (iii) Has changed his or her permanent address.
    (3) The Secretary provides student status confirmation reports to a 
school at least semi-annually.
    (4) The Secretary may provide the student status confirmation report 
in either paper or electronic format.
    (c) Record retention requirements. An institution shall follow the 
record retention and examination requirements in this part and in 34 CFR 
668.24.
    (d) Accounting requirements. A school shall follow accounting 
requirements in 34 CFR 668.24(b).
    (e) Direct Loan Program bank account. Schools shall follow the 
procedures for maintaining funds established in 34 CFR 668.163.
    (f) Division of functions. Schools shall follow the procedures for 
division of functions in 34 CFR 668.16(c).
    (g) Limit on use of funds. Except for funds paid to a school under 
section 452(b)(1) of the Act, funds received by a school under this part 
may be used only to make Direct Loans to eligible borrowers and may not 
be used or hypothecated for any other purpose.

(Approved by the Office of Management and Budget under control number 
1840-0672)

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 60 FR 33345, June 28, 1995; 61 
FR 60493, Nov. 27, 1996; 61 FR 60610, Nov. 29, 1996]



Subpart D--School Participation and Loan Origination in the Direct Loan 
                                 Program



Sec. 685.400  School participation requirements.

    (a)(1) In order to qualify for initial participation in the Direct 
Loan Program, a school must meet the eligibility requirements in section 
435(a) of the Act, including the requirement that it have a cohort 
default rate of less than 25 percent for at least one of the three most 
recent fiscal years for which data are available unless the school is 
exempt from this requirement under section 435(a)(2)(C) of the Act.
    (2) In order to continue to participate in the Direct Loan Program, 
a school must continue to meet the requirements of paragraph (a)(1) of 
this section for years for which cohort default rate data represent the 
years prior to the school's participation in the Direct Loan Program.
    (b) In order to qualify for initial participation, the school must 
not be subject to an emergency action or a proposed or final limitation, 
suspension, or termination action under sections 428(b)(1)(T), 432(h), 
or 487(c) of the Act.
    (c) If schools apply as a consortium, each school in the consortium 
must meet the requirements in paragraphs (a) and (b) of this section.
    (d) The Secretary selects schools to participate in the Direct Loan 
Program from among those that apply to participate and meet the 
requirements in paragraphs (a)(1), (b), and (c) of this section.

(Authority: 20 U.S.C. 1087a et seq.)

[59 FR 61690, Dec. 1, 1994, as amended at 64 FR 46255, Aug. 24, 1999]



Sec. 685.401  [Reserved]



Sec. 685.402  Criteria for schools to originate loans.

    (a) Initial determination of origination status. (1) Standard 
origination. Any school eligible to participate in the Direct Loan 
Program under Sec. 685.400 is eligible to participate under standard 
origination.
    (2) School Origination. To be eligible to originate loans, a school 
must meet the following criteria:

[[Page 876]]

    (i) Have participated in the Federal Perkins Loan Program, the 
Federal Pell Grant Program, or, for a graduate and professional school, 
a similar program for the three most recent years preceding the date of 
application to participate in the Direct Loan Program.
    (ii) If participating in the Federal Pell Grant Program, not be on 
the reimbursement system of payment.
    (iii) In the opinion of the Secretary, have had no severe 
performance deficiencies for any of the programs under title IV of the 
Act, including deficiencies demonstrated by the most recent audit or 
program review.
    (iv) Be financially responsible in accordance with the standards of 
34 CFR 668.15.
    (v) Be current on program and financial reports and audits required 
under title IV of the Act for the 12-month period immediately preceding 
the date of application to participate in the Direct Loan Program.
    (vi) Be current on Federal cash transaction reports required under 
title IV of the Act for the 12-month period immediately preceding the 
date of application to participate in the Direct Loan Program and have 
no final determination of cash on hand that exceeds immediate title IV 
program needs.
    (vii) Have no material findings in any of the annual financial 
audits submitted for the three most recent years preceding the date of 
application to participate in the Direct Loan Program.
    (viii) Provide an assurance that the school has no delinquent 
outstanding debts to the Federal Government, unless--
    (A) Those debts are being repaid under or in accordance with a 
repayment arrangement satisfactory to the Federal Government; or
    (B) The Secretary determines that the existence or amount of the 
debts has not been finally determined by the cognizant Federal agency.
    (3) A school that meets the criteria to originate loans may 
participate under school origination option 1 or 2 or under standard 
origination.
    (b) Change in origination status. (1) After the initial 
determination of a school's origination status, the Secretary may allow 
a school that does not qualify to originate loans under either 
origination option 1 or origination option 2 to do so if the Secretary 
determines that the school is fully capable of originating loans under 
one of those options.
    (2)(i) At any time after the initial determination of a school's 
origination status, a school participating under origination option 2 
may request to change to origination option 1 or standard origination, 
and a school participating under origination option 1 may request to 
change to standard origination.
    (ii) The change in origination status becomes effective when the 
school receives notice of the Secretary's approval, unless the Secretary 
specifies a later date.
    (3)(i) A school participating under origination option 1 may apply 
to participate under option 2, and a school participating in standard 
origination may apply to participate under either origination option 1 
or 2 after one full year of participation in its initial origination 
status.
    (ii) Applications to participate under another origination option 
are considered on an annual basis.
    (iii) An application to participate under another origination option 
is evaluated on the basis of criteria and performance standards 
established by the Secretary, including but not limited to--
    (A) Eligibility under paragraph (a)(2) of this section;
    (B) Timely submission of accurate origination and disbursement 
records;
    (C) Successful completion of reconciliation on a monthly basis; and
    (D) Timely submission of completed and signed promissory notes, if 
applicable.
    (iv) The change in origination status becomes effective when the 
school receives notice of the Secretary's approval, unless the Secretary 
specifies a later date.
    (c) Secretarial determination of change in origination status. (1) 
At any time after a school has been approved to originate loans, the 
Secretary may require a school participating under origination option 2 
to convert to option 1 or to standard origination and

[[Page 877]]

may require a school participating under origination option 1 to convert 
to standard origination.
    (2) The Secretary may require a school to change origination status 
if the Secretary determines that such a change is necessary to ensure 
program integrity or if the school fails to meet the criteria and 
performance standards established by the Secretary, including but not 
limited to--
    (i) For an origination option 1 school, eligibility under paragraph 
(a)(2) of this section, the timely submission of completed and signed 
promissory notes and accurate origination and disbursement records, and 
the successful completion of reconciliation on a monthly basis; and
    (ii) For an origination option 2 school, the criteria and 
performance standards required of origination option 1 schools and 
accurate and timely drawdown requests.
    (3) The change in origination status becomes effective when the 
school receives notice of the Secretary's approval, unless the Secretary 
specifies a later date.
    (d) Origination by consortia. A consortium of schools may 
participate under origination options 1 or 2 only if all members of the 
consortium are eligible to participate under paragraph (a)(2) of this 
section. All provisions of this section that apply to an individual 
school apply to a consortium.
    (e) School determination of change of Servicer. (1) The Secretary 
assigns one or more Servicers to work with a school to perform certain 
functions relating to the origination and servicing of Direct Loans.
    (2) A school may request the Secretary to designate a different 
Servicer. Documentation of the unsatisfactory performance of the 
school's current Servicer must accompany the request. The Servicer 
requested must be one of those approved by the Secretary for 
participation in the Direct Loan Program.
    (3) The Secretary grants the request if the Secretary determines 
that--
    (i) The claim of unsatisfactory performance is accurate and 
substantial; and
    (ii) The Servicer requested by the school can accommodate such a 
change.
    (4) If the Secretary denies the school's request based on a 
determination under paragraph (e)(3)(ii) of this section, the school may 
request another Servicer.
    (5) The change in Servicer is effective when the school receives 
notice of the Secretary's approval, unless the Secretary specifies a 
later date.
    (f) Determination of eligibility for multi-year use of the Master 
Promissory Note. (1) A school must be authorized by the Secretary to use 
a single Master Promissory Note (MPN) as the basis for all loans 
borrowed by a student or parent borrower for attendance at that school. 
A school that is not authorized by the Secretary for multi-year use of 
the MPN must obtain a new MPN from a student or parent borrower for each 
academic year.
    (2) To be authorized for multi-year use of the MPN, a school must--
    (i) Be a four-year or graduate/professional school, or other 
institution meeting criteria or otherwise designated at the sole 
discretion of the Secretary; and
    (ii)(A) Not be subject to an emergency action or a proposed or final 
limitation, suspension, or termination action under sections 
428(b)(1)(T), 432(h), or 487(c) of the Act; and
    (B) Meet other performance criteria determined by the Secretary.
    (3) A school that is authorized by the Secretary for multi-year use 
of the MPN must develop and document a confirmation process in 
accordance with guidelines established by the Secretary for loans made 
under the multi-year feature of the MPN.

(Authority: 20 U.S.C. 1087a et seq.)

[62 FR 35602, July 1, 1997, as amended at 64 FR 58972, Nov. 1, 1999]



PART 690--FEDERAL PELL GRANT PROGRAM--Table of Contents




            Subpart A--Scope, Purpose and General Definitions

Sec.
690.1  Scope and purpose.
690.2  Definitions.
690.3-690.5  [Reserved]

[[Page 878]]

690.6  Duration of student eligibility--undergraduate course of study 
          and eligible postbaccalaureate program.
690.7  Institutional participation.
690.8  Enrollment status for students taking regular and correspondence 
          courses.
690.10  Administrative cost allowance to participating schools.
690.11  Federal Pell Grant payments from more than one institution.

   Subpart B--Application Procedures for Determining Expected Family 
                              Contribution

690.12  Application.
690.13  Notification of expected family contribution.
690.14  Applicant's request to recalculate expected family contribution 
          because of a clerical or arithmetic error or the submission of 
          inaccurate information.

Subparts C-E [Reserved]

          Subpart F--Determination of Federal Pell Grant Awards

690.61  Submission process and deadline for a Student Aid Report or 
          Institutional Student Information Record.
690.62  Calculation of a Federal Pell Grant.
690.63  Calculation of a Federal Pell Grant for a payment period.
690.64  Calculation of a Federal Pell Grant for a payment period which 
          occurs in two award years.
690.65  Transfer student: attendance at more than one institution during 
          an award year.
690.66  Correspondence study.
690.67  Receiving up to two Scheduled Federal Pell Grant awards during a 
          single award year.

               Subpart G--Administration of Grant Payments

690.71  Scope.
690.72-690.74  [Reserved]
690.75  Determination of eligibility for payment.
690.76  Frequency of payment.
690.77  [Reserved]
690.78  Method of disbursement--by check or credit to a student's 
          account.
690.79  Liability for and recovery of Federal Pell Grant overpayments.
690.80  Recalculation of a Federal Pell Grant award.
690.81  Fiscal control and fund accounting procedures.
690.82  Maintenance and retention of records.
690.83  Submission of reports.

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



            Subpart A--Scope, Purpose and General Definitions

    Source: 50 FR 10717, Mar. 15, 1985, unless otherwise noted.



Sec. 690.1  Scope and purpose.

    The Federal Pell Grant Program awards grants to help financially 
needy students meet the cost of their postsecondary education.

(Authority: 20 U.S.C. 1070a)

[50 FR 10717, Mar. 15, 1985, as amended at 59 FR 54730, Nov. 1, 1994]



Sec. 690.2  Definitions.

    (a) The definitions of the following terms used in this part are set 
forth in subpart A of the Student Assistance General Provisions, 34 CFR 
part 668:

Accredited
Award year
Clock hour
Correspondence course
Educational program
Eligible institution
Payment period
Recognized equivalent of high school diploma
Regular student
Secretary
State

    (b) Definitions of the following terms used in this part are 
described in subpart A of the Student Assistance General Provisions, 34 
CFR part 668:

Academic year
Dependent student
Eligible program
Eligible student
Enrolled
Federal Pell Grant Program
Federal Perkins Loan Program
Federal Supplemental Educational Opportunity Grant Program
Federal Work-Study Program
Full-time student
HEA
Independent student
Parent

    (c) Other terms used in this part are:
    Annual award: The Federal Pell Grant award amount a full-time 
student would receive under the Payment Schedule for a full academic 
year in an award year, and the amount a three-quarter-time, half-time, 
and less-than-half-time student would receive under the appropriate 
Disbursement Schedule

[[Page 879]]

for being enrolled in that enrollment status for a full academic year in 
an award year.
    Central processor: An organization under contract with the Secretary 
that calculates an applicant's expected family contribution based on the 
applicant's application information, transmits an ISIR to each 
institution designated by the applicant, and submits reports to the 
Secretary on the correctness of its computations of the expected family 
contribution amounts and the accuracy of the answers to questions on 
application forms for the previous award year cycle.
    Disbursement Schedule: A table showing the annual awards that three-
quarter, half-time, and less-than-half-time students at term-based 
institutions using credit hours would receive for an academic year. This 
table is published annually by the Secretary and is based on--
    (1) A student's expected family contribution, as determined in 
accordance with title IV, part F of the HEA; and
    (2) A student's attendance costs as defined in title IV, part F of 
the HEA.
    (3) The amount of funds available for making Federal Pell Grants.
    Electronic Data Exchange: An electronic exchange system between the 
central processor and an institution under which--
    (1) A student is able to transmit his or her application information 
to the central processor through his or her institution and an ISIR is 
transmitted back to the institution;
    (2) A student through his or her institution is able to transmit any 
changes in application information to the central processor; and
    (3) An institution is able to receive an ISIR from the central 
processor for a student.
    Enrollment status: Full-time, three-quarter-time, half-time, or 
less-than-half-time depending on a student's credit-hour work load per 
academic term at an institution using semesters, trimesters, quarters, 
or other academic terms and measuring progress by credit hours.
    Expected family contribution (EFC): The amount, determined under 
title IV, part F of the HEA, which the student and the student's family 
may be reasonably expected to contribute toward the student's 
postsecondary education for the academic year.
    Half-time student: (1) Except as provided in paragraph (2), an 
enrolled student who is carrying a half-time academic work load--as 
determined by the institution--which amounts to at least half the work 
load of the appropriate minimum requirement outlined in the definition 
of a full-time student.
    (2) A student enrolled solely in a program of study by 
correspondence who is carrying a work load of at least 12 hours of work 
per week, or is earning at least 6 credit hours per semester, trimester 
or quarter. However, regardless of the work, no student enrolled solely 
in correspondence study is considered more than a half-time student.
    Institution of higher education (Institution). An institution of 
higher education, or a proprietary institution of higher education, or a 
postsecondary vocational institution as defined in 34 CFR part 600.
    Institutional Student Information Record (ISIR): A paper document or 
a computer-generated electronic record that the central processor 
transmits to an institution that includes an applicant's--
    (1) Personal identification information;
    (2) Application data used to calculate the applicant's EFC; and
    (3) EFC calculated by the central processor.
    Less-than-half-time student: An enrolled student who is carrying 
less than half the work load of the appropriate minimum requirement 
outlined in the institution's definition of a full-time student.
    Payment Data: An electronic or magnetic record that is provided to 
the Secretary by an institution showing a student's expected family 
contribution, cost of attendance, enrollment status, and student 
disbursement information.
    Payment Schedule: A table showing a full-time student's Scheduled 
Federal Pell Grant for an academic year. This table, published annually 
by the Secretary, is based on--
    (1) The student's expected family contribution, as determined in 
accordance with part F of title IV of the HEA; and

[[Page 880]]

    (2) The student's cost of attendance as defined in part F of title 
IV of the HEA.
    Scheduled Federal Pell Grant: The amount of a Federal Pell Grant 
which would be paid to a full-time student for a full academic year.
    Student Aid Report (SAR): A report provided to an applicant showing 
the amount of his or her expected family contribution.
    Three-quarter-time student: An enrolled student who is carrying a 
three-quarter-time academic work load--as determined by the institution-
-which amounts to at least three quarters of the work of the appropriate 
minimum requirement outlined in the definition of a ``full-time 
student.''
    Undergraduate student: A student enrolled in an undergraduate course 
of study at an institution of higher education who--
    (1) Has not earned a baccalaureate or first professional degree; and
    (2) Is in an undergraduate course of study which usually does not 
exceed 4 academic years, or is enrolled in a 4 to 5 academic year 
program designed to lead to a first degree. A student enrolled in a 
program of any other length is considered an undergraduate student for 
only the first 4 academic years of that program.
    Valid Institutional Student Information Record (valid ISIR): An ISIR 
on which all the information used in calculating the applicant's 
expected family contribution is accurate and complete as of the date the 
application is signed.
    Valid Student Aid Report: A Student Aid Report on which all of the 
information used in calculating the applicant's expected family 
contribution is accurate and complete as of the date the application is 
signed.

(Authority: 20 U.S.C. 1070a)

[50 FR 10717, Mar. 15, 1985, as amended at 51 FR 41926, Nov. 19, 1986; 
51 FR 43161, Nov. 28, 1986; 52 FR 38207, Oct. 14, 1987; 52 FR 45735, 
Dec. 1, 1987; 56 FR 56916, Nov. 6, 1991; 59 FR 54730, Nov. 1, 1994; 60 
FR 61816, Dec. 1, 1995; 61 FR 60396, Nov. 27, 1996; 61 FR 60610, Nov. 
29, 1996]



Secs. 690.3-690.5  [Reserved]



Sec. 690.6  Duration of student eligibility--undergraduate course of study 
and eligible postbaccalaureate program.

    (a) Except as provided in paragraphs (c) and (d) of this section, a 
student is eligible to receive a Federal Pell Grant for the period of 
time required to complete his or her first undergraduate baccalaureate 
course of study.
    (b) An institution shall determine when the student has completed 
the academic curriculum requirements for that first undergraduate 
baccalaureate course of study. Any noncredit or remedial course taken by 
a student, including a course in English language instruction, is not 
included in the institution's determination of that student's period of 
Federal Pell Grant eligibility.
    (c) An otherwise eligible student who has a baccalaureate degree and 
is enrolled in a postbaccalaureate program is eligible to receive a 
Federal Pell Grant for the period of time necessary to complete the 
program if--
    (1) The postbaccalaureate program consists of courses that are 
required by a State for the student to receive a professional 
certification or licensing credential that is required for employment as 
a teacher in an elementary or secondary school in that State;
    (2) The postbaccalaureate program does not lead to a graduate 
degree;
    (3) The institution offering the postbaccalaureate program does not 
also offer a baccalaureate degree in education;
    (4) The student is enrolled as at least a half-time student; and
    (5) The student is pursuing an initial teacher certification or 
licensing credential within a State.
    (d) An institution must treat a student who receives a Federal Pell 
Grant under paragraph (c) of this section as an undergraduate student 
enrolled in an undergraduate program for title IV purposes.

(Authority: 20 U.S.C. 1070a)

[52 FR 38207, Oct. 14, 1987, as amended at 59 FR 54730-54731, Nov. 1, 
1994; 64 FR 58294, Oct. 28, 1999]

[[Page 881]]



Sec. 690.7  Institutional participation.

    (a) If an institution begins participation in the Federal Pell Grant 
Program during an award year, a student enrolled and attending that 
institution is eligible to receive a Federal Pell Grant for the payment 
period during which the institution enters into a program participation 
agreement with the Secretary and any subsequent payment period.
    (b) If an institution becomes ineligible to participate in the 
Federal Pell Grant Program during an award year, an eligible student who 
was attending the institution and who submitted a valid SAR to the 
institution before the date the institution became ineligible is paid a 
Federal Pell Grant for that award year for--
    (1) The payment periods that the student completed before the 
institution became ineligible; and
    (2) The payment period in which the institution became ineligible.
    (c)(1) If an institution loses its eligibility to participate in the 
FFEL or Direct Loan program under the provisions of subpart M of 34 CFR 
part 668, it also loses its eligibility to participate in the Federal 
Pell Grant Program for the same period of time.
    (2) That loss of eligibility must be in accordance with the 
provisions of 34 CFR 668.187.
    (d) An institution which becomes ineligible shall, within 45 days 
after the effective date of loss of eligibility, provide to the 
Secretary--
    (1) The name and enrollment status of each eligible student who, 
during the award year, submitted a valid SAR to the institution before 
it became ineligible;
    (2) The amount of funds paid to each Federal Pell Grant recipient 
for that award year;
    (3) The amount due each student eligible to receive a Federal Pell 
Grant through the end of the payment period during which the institution 
became ineligible; and
    (4) An accounting of the Federal Pell Grant expenditures for that 
award year to the date of termination.

(Authority: 20 U.S.C. 1070a)

[50 FR 10717, Mar. 15, 1985, as amended at 51 FR 43161, Nov. 28, 1986; 
56 FR 56916, Nov. 6, 1991; 59 FR 54730, Nov. 1, 1994; 60 FR 61816, Dec. 
1, 1995; 64 FR 58294, Oct. 28, 1999; 65 FR 65651, Nov. 1, 2000]



Sec. 690.8  Enrollment status for students taking regular and correspondence 
courses.

    (a) If, in addition to regular coursework, a student takes 
correspondence courses from either his or her own institution or another 
institution having an agreement for this purpose with the student's 
institution, the correspondence work may be included in determining the 
student's enrollment status to the extent permitted under paragraph (b) 
of this section.
    (b) Except as noted in paragraph (c) of this section, the 
correspondence work that may be included in determining a student's 
enrollment status is that amount of work which--
    (1) Applies toward a student's degree or certificate or is remedial 
work taken by the student to help in his or her course of study;
    (2) Is completed within the period of time required for regular 
course work; and
    (3) does not exceed the amount of a student's regular course work 
for the payment period for which the student's enrollment status is 
being calculated.
    (c)(1) Notwithstanding the limitation in paragraph (b)(3) of this 
section, a student who would be a half-time student based solely on his 
or her correspondence work is considered a half-time student unless the 
calculation in paragraph (b) of this section produces an enrollment 
status greater than half-time.
    (2) A student who would be a less-than-half-time student based 
solely on his or her correspondence work or a combination of 
correspondence work and regular course work is considered a less-than-
half-time student.

[[Page 882]]

    (d) The following chart provides examples of the rules set forth in 
this section. It assumes that the institution defines full-time 
enrollment as 12 credits per term, making the half-time enrollment equal 
to 6 credits per term.

----------------------------------------------------------------------------------------------------------------
                                                                     Total course
                                                                    load in credit
                                    No. of credit   No. of credit      hours to
        Under Sec.  690.8           hours regular       hours          determine          Enrollment status
                                        work       correspondence     enrollment
                                                                        status
----------------------------------------------------------------------------------------------------------------
(b)(3)...........................               3               3                 6  Half-time.
(b)(3)...........................               3               6                 6  Half-time.
(b)(3)...........................               3               9                 6  Half-time.
(b)(3)...........................               6               3                 9  Three-quarter-time.
(b)(3)...........................               6               6                12  Full-time.
(b)(3) and (c)...................               2               6                 6  Half-time.
(c) \1\..........................  ..............  ..............  ................  Less-than-half-time.
----------------------------------------------------------------------------------------------------------------
\1\ Any combination of regular and correspondence work that is greater than 0, but less than 6 hours.


(Authority: 20 U.S.C. 1070a)

[52 FR 45735, Dec. 1, 1987, as amended at 59 FR 54731, Nov. 1, 1994]



Sec. 690.10  Administrative cost allowance to participating schools.

    (a) Subject to available appropriations, the Secretary pays to each 
participating institution $5.00 for each student who receives a Federal 
Pell Grant at that institution for an award year.
    (b) All funds an institution receives under this section must be 
used solely to pay the institution's cost of administering the Federal 
Pell Grant, Federal Perkins Loan, Federal Work-Study, and Federal 
Supplemental Educational Opportunity Grant programs.
    (c) If an institution enrolls a significant number of students who 
are attending less-than-full-time or are independent students, the 
institution shall use a reasonable proportion of these funds to make 
financial aid services available during times and in places that will 
most effectively accommodate the needs of those students.

(Authority: 20 U.S.C. 1096)

[50 FR 10717, Mar. 15, 1985, as amended at 52 FR 45736, Dec. 1, 1987; 59 
FR 54730, 54732, Nov. 1, 1994; 61 FR 60397, Nov. 27, 1996]



Sec. 690.11  Federal Pell Grant payments from more than one institution.

    A student is not entitled to receive Federal Pell Grant payments 
concurrently from more than one institution or from the Secretary and an 
institution.

(Authority: 20 U.S.C. 1070a)

[50 FR 10717, Mar. 15, 1985, as amended at 59 FR 54730, Nov. 1, 1994]



   Subpart B--Application Procedures for Determining Expected Family 
                              Contribution



Sec. 690.12  Application.

    (a) As the first step to receiving a Federal Pell Grant, a student 
shall apply on an approved application form to the Secretary to have his 
or her expected family contribution calculated. A copy of this form is 
not acceptable.
    (b) The student shall submit an application to the Secretary by--
    (1) Providing the application form, signed by all appropriate family 
members, to the institution at which the student attends or plans to 
attend so that the institution can transmit electronically the 
application information to the Secretary under EDE; or
    (2) Sending an approved application form to the Secretary.
    (c) The student shall provide the address of his or her residence 
unless the student is incarcerated and the educational institution has 
made special arrangements with the Secretary to receive relevant 
correspondence on behalf of the student. If such an arrangement is made, 
the student shall provide the address indicated by the institution.
    (d) For each award year the Secretary, through publication in the 
Federal Register, establishes deadline dates for submitting these 
applications

[[Page 883]]

and for making corrections to the information contained in the 
applications.

(Approved by the Office of Management and Budget under control number 
1840-0681)

(Authority: 20 U.S.C. 1070a)

[50 FR 10721, Mar. 15, 1985, as amended at 59 FR 54732, Nov. 1, 1994; 60 
FR 21438, May 2, 1995; 60 FR 30789, June 12, 1995; 61 FR 60397, Nov. 27, 
1996]



Sec. 690.13  Notification of expected family contribution.

    The Secretary sends a student's application information and EFC as 
calculated by the central processor to the student on an SAR and allows 
each institution designated by the student to obtain an ISIR for that 
student.

(Approved by the Office of Management and Budget under control number 
1840-0681)

(Authority: 20 U.S.C. 1070a)

[61 FR 60397, Nov. 27, 1996]



Sec. 690.14  Applicant's request to recalculate expected family contribution 
because of a clerical or arithmetic error or the submission of inaccurate 
          information.

    (a) An applicant may request that the Secretary recalculate his or 
her expected family contribution if--
    (1) He or she believes a clerical or arithmetic error has occurred; 
or
    (2) The information he or she submitted was inaccurate when the 
application was signed.
    (b) The applicant shall request that the Secretary make the 
recalculation described in paragraph (a) of this section by--
    (1) Having his or her institution transmit that request to the 
Secretary under EDE; or
    (2) Sending to the Secretary an approved form, certified by the 
student, and one of the student's parents if the student is a dependent 
student.
    (c) If an institution transmits electronically the student's 
recalculation request to the Secretary, the corrected information must 
be supported by--
    (1) Information contained on an approved form, that is certified by 
the student, and if the student is a dependent student, one of the 
student's parents; or
    (2) Verification documentation provided by a student under 34 CFR 
668.57.
    (d) The recalculation request must be received by the Secretary no 
later than the deadline date established by the Secretary through 
publication in the Federal Register.

(Authority: 20 U.S.C. 1070a)

[50 FR 10721, Mar. 15, 1985, as amended at 51 FR 8954, Mar. 14, 1986; 59 
FR 54732, Nov. 1, 1994; 61 FR 60397, Nov. 27, 1996]

Subparts C-E [Reserved]



          Subpart F--Determination of Federal Pell Grant Awards

    Source: 50 FR 10722, Mar. 15, 1985, unless otherwise noted.



Sec. 690.61  Submission process and deadline for a Student Aid Report or 
Institutional Student Information Record.

    (a) Submission process. (1) Except as provided in paragraph (a)(2) 
of this section, an institution must disburse a Federal Pell Grant to an 
eligible student who is otherwise qualified to receive that disbursement 
if--
    (i) The student submits a valid SAR to the institution; or
    (ii) The institution obtains a valid ISIR for the student.
    (A) Obtains a valid ISIR for that student; and
    (B) For the 1995-96 award year, electronically or magnetically 
transmits Federal Pell Grant disbursement data to the Secretary.
    (2) In determining a student's eligibility to receive his or her 
Federal Pell Grant, an institution is entitled to assume that SAR 
information or ISIR information is accurate and complete except under 
the conditions set forth in 34 CFR 668.16(f) and 668.60.
    (b) Student Aid Report or Institutional Student Information Record 
deadline. Except as provided in the verification provisions of 
Sec. 668.60 and the late disbursement provisions of Sec. 668.164(g) of 
this chapter, for a student to receive a Federal Pell Grant for an award 
year, the student must submit the relevant parts of the SAR to his or 
her institution or the institution must obtain a valid ISIR by the 
earlier of--

[[Page 884]]

    (1) The last date that the student is still enrolled and eligible 
for payment at that institution; or
    (2) By the deadline date established by the Secretary through 
publication of a notice in the Federal Register.

(Authority: 20 U.S.C 1070a)

[59 FR 54732, Nov. 1, 1994, as amended at 61 FR 60397, Nov. 27, 1996; 67 
FR 67083, Nov. 1, 2002]



Sec. 690.62  Calculation of a Federal Pell Grant.

    (a) The amount of a student's Pell Grant for an academic year is 
based upon the payment and disbursement schedules published by the 
Secretary for each award year.
    (b) No payment may be made to a student if the student's annual 
award is less than $200. However, a student who is eligible for an 
annual award that is equal to or greater than $200, but less than or 
equal to $400, shall be awarded a Federal Pell Grant of $400.

(Authority: 20 U.S.C. 1070a(a)(2))

[50 FR 10722, Mar. 15, 1985, as amended at 59 FR 54730, 54732, Nov. 1, 
1994]



Sec. 690.63  Calculation of a Federal Pell Grant for a payment period.

    (a)(1) Programs using standard terms with at least 30 weeks of 
instructional time. A student's Federal Pell Grant for a payment period 
is calculated under paragraphs (b) or (d) of this section if--
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters;
    (C) Requires the student to enroll for at least 12 credit hours in 
each term in the award year to qualify as a full-time student; and
    (D) Is not offered with overlapping terms; and
    (ii) The institution offering the program--
    (A) Provides the program using an academic calendar that includes 
two semesters or trimesters in the fall through the following spring, or 
three quarters in the fall, winter, and spring; and
    (B) Provides at least 30 weeks of instructional time in the terms 
specified in paragraph (a)(1)(ii)(A) of this section.
    (2) Programs using standard terms with less than 30 weeks of 
instructional time. A student's Federal Pell Grant for a payment period 
is calculated under paragraph (c) or (d) of this section if--
    (i) The student is enrolled in an eligible program that--
    (A) Measures progress in credit hours;
    (B) Is offered in semesters, trimesters, or quarters;
    (C) Requires the student to enroll in at least 12 credit hours in 
each term in the award year to qualify as a full-time student; and
    (D) Is not offered with overlapping terms; and
    (ii) The institution offering the program--
    (A) Provides the program using an academic calendar that includes 
two semesters or trimesters in the fall through the following spring, or 
three quarters in the fall, winter, and spring; and
    (B) Does not provide at least 30 weeks of instructional time in the 
terms specified in paragraph (a)(2)(ii)(A) of this section.
    (3) Other programs using terms and credit hours. A student's Federal 
Pell Grant for a payment period is calculated under paragraph (d) of 
this section if the student is enrolled in an eligible program that--
    (i) Measures progress in credit hours; and
    (ii) Is offered in academic terms other than those described in 
paragraphs (a)(1) and (a)(2) of this section.
    (4) Programs not using terms or using clock hours. A student's 
Federal Pell Grant for any payment period is calculated under paragraph 
(e) of this section if the student is enrolled in an eligible program 
that--
    (i) Is offered in credit hours but is not offered in academic terms; 
or
    (ii) Is offered in clock hours.
    (5) Programs of study offered by correspondence. A student's Federal 
Pell Grant payment for a payment period is calculated under Sec. 690.66 
if the program is offered by correspondence courses.
    (6) Programs for which an exception to the academic year definition 
has been

[[Page 885]]

granted under 34 CFR 668.3. If an institution receives a waiver from the 
Secretary of the 30 weeks of instructional time requirement under 34 CFR 
668.3, an institution may calculate a student's Federal Pell Grant 
payment for a payment period using the following methodologies:
    (i) If the program is offered in terms and credit hours, the 
institution uses the methodology in--
    (A) Paragraph (b) of this section provided that the program meets 
all the criteria in paragraph (a)(1) of this section, except that in 
lieu of paragraph (a)(1)(ii)(B) of this section, the program provides at 
least the same number of weeks of instructional time in the terms 
specified in paragraph (a)(1)(ii)(A) of this section as are in the 
program's academic year; or
    (B) Paragraph (d) of this section.
    (ii) The institution uses the methodology described in paragraph (e) 
of this section if the program is offered in credit hours without terms 
or clock hours.
    (iii) The institution uses the methodology described in Sec. 690.66 
if the program is correspondence study.
    (b) Programs using standard terms with at least 30 weeks of 
instructional time. The Federal Pell Grant for a payment period, i.e., 
an academic term, for a student in a program using standard terms with 
at least 30 weeks of instructional time in two semesters or trimesters 
or in three quarters as described in paragraph (a)(1)(ii)(A) of this 
section, is calculated by--
    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award from the Payment Schedule for full-time students or the 
Disbursement Schedule for three-quarter-time, half-time, or less-than-
half-time students; and
    (3) Dividing the amount described under paragraph (b)(2) of this 
section by--
    (i) Two at institutions using semesters or trimesters or three at 
institutions using quarters; or
    (ii) The number of terms over which the institution chooses to 
distribute the student's annual award if--
    (A) An institution chooses to distribute all of the student's annual 
award determined under paragraph (b)(2) of this section over more than 
two terms at institutions using semesters or trimesters or more than 
three quarters at institutions using quarters; and
    (B) The number of weeks of instructional time in the terms, 
including the additional term or terms, equals the weeks of 
instructional time in the program's academic year.
    (c) Programs using standard terms with less than 30 weeks of 
instructional time. The Federal Pell Grant for a payment period, i.e., 
an academic term, for a student in a program using standard terms with 
less than 30 weeks of instructional time in two semesters or trimesters 
or in three quarters as described in paragraph (a)(2)(ii)(A) of this 
section, is calculated by--
    (1) Determining his or her enrollment status for the term;
    (2) Based upon that enrollment status, determining his or her annual 
award from the Payment Schedule for full-time students or the 
Disbursement Schedule for three-quarter-time, half-time, or less-than-
half-time students;
    (3) Multiplying his or her annual award determined under paragraph 
(c)(2) of this section by the following fraction as applicable:
    In a program using semesters or trimesters--
    [GRAPHIC] [TIFF OMITTED] TC15NO91.028
    

; or
    In a program using quarters--
    [GRAPHIC] [TIFF OMITTED] TC15NO91.029
    

; and
    (4)(i) Dividing the amount determined under paragraph (c)(3) of this

[[Page 886]]

section by two for programs using semesters or trimesters or three for 
programs using quarters; or
    (ii) Dividing the student's annual award determined under paragraph 
(c)(2) of this section by the number of terms over which the institution 
chooses to distribute the student's annual award if--
    (A) An institution chooses to distribute all of the student's annual 
award determined under paragraph (c)(2) of this section over more than 
two terms for programs using semesters or trimesters or more than three 
quarters for programs using quarters; and
    (B) The number of weeks of instructional time in the terms, 
including the additional term or terms, equals the weeks of 
instructional time in the program's academic year definition.
    (d) Other programs using terms and credit hours. The Federal Pell 
Grant for a payment period, i.e., an academic term, for a student in a 
program using terms and credit hours, other than those described in 
paragraphs (a)(1) or (a)(2) of this section, is calculated by--
    (1)(i) For a student enrolled in a semester, trimester, or quarter, 
determining his or her enrollment status for the term; or
    (ii) For a student enrolled in a term other than a semester, 
trimester, or quarter, determining his or her enrollment status for the 
term by--
    (A) Dividing the number of weeks of instructional time in the term 
by the number of weeks of instructional time in the program's academic 
year;
    (B) Multiplying the fraction determined under paragraph 
(d)(1)(ii)(A) of this section by the number of credit hours in the 
program's academic year to determine the number of hours required to be 
enrolled to be considered a full-time student; and
    (C) Determining a student's enrollment status by comparing the 
number of hours in which the student enrolls in the term to the number 
of hours required to be considered full-time under paragraph 
(d)(1)(ii)(B) of this section for that term;
    (2) Based upon that enrollment status, determining his or her annual 
award from the Payment Schedule for full-time students or the 
Disbursement Schedule for three-quarter-time, half-time, or less-than-
half-time student;
    (3) Multiplying his or her annual award determined under paragraph 
(d)(2) of this section by the following fraction:
[GRAPHIC] [TIFF OMITTED] TC15NO91.030


; and
    (4) Paying the student the amount determined under paragraph (d)(3) 
of this section.
    (e) Programs using clock hours or credit hours without terms. The 
Federal Pell Grant for a payment period for a student in a program using 
credit hours without terms or using clock hours is calculated by--
    (1) Determining the student's Scheduled Federal Pell Grant using the 
Payment Schedule;
    (2) Multiplying the amount determined under paragraph (e)(1) of this 
section by the lesser of--
[GRAPHIC] [TIFF OMITTED] TC15NO91.031


; or
    (ii) One; and
    (3) Multiplying the amount determined under paragraph (e)(2) of this 
section by--
[GRAPHIC] [TIFF OMITTED] TC15NO91.032

    (f) A single disbursement may not exceed 50 percent of any award 
determined under paragraph (d) or (e) of this section. If a payment for 
a payment period calculated under paragraphs (d) or (e) of this section 
would require the disbursement of more than 50 percent of a student's 
annual award in that payment period, the institution shall make at least 
two disbursements to the

[[Page 887]]

student in that payment period. The institution may not disburse an 
amount that exceeds 50 percent of the student's annual award until the 
student has completed the period of time in the payment period that 
equals, in terms of weeks of instructional time, 50 percent of the weeks 
of instructional time in the program's academic year.
    (g)(1) Notwithstanding paragraphs (b), (c), (d), and (e) of this 
section and 34 CFR 668.66, the amount of a student's award for an award 
year may not exceed his or her Scheduled Federal Pell Grant award for 
that award year except as provided in Sec. 690.67.
    (2) For purposes of this section and Sec. 690.66, an institution 
must define an academic year for each of its eligible programs in terms 
of the number of credit or clock hours and weeks of instructional time 
in accordance with the requirements of 34 CFR 668.2 and 668.3.

[59 FR 54733, Nov. 1, 1994]



Sec. 690.64  Calculation of a Federal Pell Grant for a payment period which 
occurs in two award years.

    (a) If a student enrolls in a payment period which is scheduled to 
occur in two award years--
    (1) The entire payment period must be considered to occur within one 
award year.
    (2) The institution shall determine for each Federal Pell Grant 
recipient the award year in which the payment period will be placed 
subject to the restrictions set forth in paragraph (a)(3) of this 
section.
    (3) The institution shall place a payment period with more than six 
months scheduled to occur within one award year in that award year.
    (4) If an institution places the payment period in the first award 
year, it shall pay a student with funds from the first award year.
    (5) If an institution places the payment period in the second award 
year, it shall pay a student with funds from the second award year.
    (b) An institution may not make a payment which will result in the 
student receiving more than his or her Scheduled Federal Pell Grant for 
an award year.

(Authority: 20 U.S.C. 1070a)

[50 FR 10722, Mar. 15, 1985, as amended at 56 FR 56916, Nov. 6, 1991; 59 
FR 54730, 54734, Nov. 1, 1994]



Sec. 690.65  Transfer student: attendance at more than one institution 
during an award year.

    (a) If a student who receives a Federal Pell Grant at one 
institution subsequently enrolls at a second institution in the same 
award year, the student may receive a Federal Pell Grant at the second 
institution only if--
    (1) The student submits a valid SAR to the second institution; or
    (2) The second institution obtains a valid ISIR.
    (b) The second institution shall calculate the student's award 
according to Sec. 690.63.
    (c) The second institution may pay a Federal Pell Grant only for 
that portion of the academic year in which a student is enrolled at that 
institution. The grant amount must be adjusted, if necessary, to ensure 
that the grant does not exceed the student's Scheduled Federal Pell 
Grant for that award year except as provided under Sec. 690.67.
    (d) If a student's Scheduled Federal Pell Grant at the second 
institution differs from the Scheduled Federal Pell Grant at the first 
institution, the grant amount at the second institution is calculated as 
follows--
    (1) The amount received at the first institution is compared to the 
Scheduled Federal Pell Grant at the first institution to determine the 
percentage of the Scheduled Federal Pell Grant that the student has 
received.
    (2) That percentage is subtracted from 100 percent.
    (3) The remaining percentage is the percentage of the Scheduled 
Federal Pell Grant at the second institution to which the student is 
entitled.
    (e) The student's Federal Pell Grant for each payment period is 
calculated according to the procedures in Sec. 690.63 unless the 
remaining percentage of the Scheduled Federal Pell Grant at the second 
institution, referred to in paragraph (d)(3) of this section, is less 
than the amount the student would normally receive for that payment 
period.

[[Page 888]]

In that case, the student's Federal Pell Grant is equal to that 
remaining percentage.
    (f) A transfer student shall repay any amount received in an award 
year that exceeds--
    (1) His or her Scheduled Federal Pell Grant; or
    (2) The amount which he or she was eligible to receive for the award 
year under Sec. 690.67.

(Authority: 20 U.S.C. 1070a)

[50 FR 10722, Mar. 15, 1985, as amended at 51 FR 43162, Nov. 28, 1986; 
59 FR 54730, 54734, Nov. 1, 1994]



Sec. 690.66  Correspondence study.

    (a) An institution calculates the Federal Pell Grant for a payment 
period for a student in a program of study offered by correspondence 
courses without terms, but not including any residential component by--
    (1) Determining the student's annual award using the half-time 
Disbursement Schedule;
    (2) Determining the length of the correspondence program in weeks of 
instructional time by--
    (i) Preparing a written schedule for submission of lessons that 
reflect a workload of at least 12 hours of preparation per week; and
    (ii) Determining the number of weeks of instructional time in the 
program of study using the written schedule for submission of lessons;
    (3) Multiplying the annual award determined from the Disbursement 
Schedule for a half-time student by the lesser of--
[GRAPHIC] [TIFF OMITTED] TC15NO91.033


; or

    (ii) One; and
    (4) Multiplying the amount determined under (a)(3) of this section 
by--
[GRAPHIC] [TIFF OMITTED] TC15NO91.034

    (b) For purposes of paragraph (a) of this section--
    (1) An academic year as measured in credit hours must consist of 2 
payment periods--
    (i) The first payment period must be the period of time in which the 
student completes the lesser of the first half of his or her academic 
year or program; and
    (ii) The second payment period must be the period of time in which 
the student completes the lesser of the second half of the academic year 
or program; and
    (2)(i) The institution shall make the first payment to a student for 
an academic year, as calculated under paragraph (a)(4) of this section, 
after the student submits 25 percent of the lessons or otherwise 
completes 25 percent of the work scheduled for the program or the 
academic year, whichever occurs last; and
    (ii) The institution shall make the second payment to a student for 
an academic year, as calculated under (a)(4) of this section, after the 
student submits 75 percent of the lessons or otherwise completes 75 
percent of the work scheduled for the program or the academic year, 
whichever occurs last.
    (c) In a program of correspondence study offered by correspondence 
courses using terms but not including any residential component--
    (1) The institution must prepare a written schedule for submission 
of lessons that reflects a workload of at least 30 hours of preparation 
per semester hour or 20 hours of preparation per quarter hour during the 
term;
    (2)(i) If the student is enrolled in at least 6 credit hours that 
commence and are completed in that term, the Disbursement Schedule for a 
half-time student is used; or
    (ii) If the student is enrolled in less than 6 credit hours that 
commence and are completed in that term the Disbursement Schedule for a 
less-than-half-time student is used;
    (3) A payment for a payment period is calculated using the formula 
in

[[Page 889]]

Sec. 690.63(d) except that paragraphs (c) (1) and (2) of this section 
are used in lieu of Sec. 690.63(d) (1) and (2) respectively; and
    (4) The institution shall make the payment to a student for a 
payment period after that student completes 50 percent of the lessons or 
otherwise completes 50 percent of the work scheduled for the term, 
whichever occurs last.
    (d) Payments for periods of residential training shall be calculated 
under Sec. 690.63(d) if the residential training is offered using terms 
and credit hours or Sec. 690.63(e) if the residential training is 
offered using credit hours without terms.

[59 FR 54734, Nov. 1, 1994]



Sec. 690.67  Receiving up to two Scheduled Federal Pell Grant awards 
during a single award year.

    (a) The Secretary announces in the Federal Register whether an 
institution may award up to a second Scheduled Federal Pell Grant to a 
student in a particular award year.
    (b) Based on the announcement described in paragraph (a) of this 
section, an institution may award up to a second Scheduled Federal Pell 
Grant award to a student in that award year if--
    (1) The student is enrolled as a full-time student in an eligible 
program that is at least 2 academic years as measured in credit hours 
and weeks of instructional time and leads to an associate or 
baccalaureate degree at an institution;
    (2) The student is enrolled only in coursework required for 
completing his or her associate or baccalaureate degree, including 
courses in his or her major area of study or electives that fulfill the 
student's graduation requirements, during any payment period in which 
the student is paid any portion of his or her second Scheduled Federal 
Pell Grant award;
    (3) In the previous payment periods in the award year the student 
has completed the number of credit hours required in an academic year 
leading to his or her associate or baccalaureate degree program; and
    (4) The student has completed the weeks of instructional time 
required for an academic year or will complete them in the first payment 
period for which he or she will receive a payment from his or her second 
Scheduled Federal Pell Grant award.
    (c) If an institution awards a student up to a second Scheduled 
Federal Pell Grant award, the institution must make such awards to all 
students who qualify under paragraph (a) of this section.

(Authority 20 U.S.C. 1070a)

[59 FR 54735, Nov. 1, 1994]



               Subpart G--Administration of Grant Payments

    Source: 50 FR 10724, Mar. 15, 1985, unless otherwise noted.



Sec. 690.71  Scope.

    This subpart deals with program administration by an institution of 
higher education.

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 51 FR 43162, Nov. 28, 1986; 
59 FR 54730, Nov. 1, 1994; 60 FR 61816, Dec. 1, 1995]



Secs. 690.72-690.74  [Reserved]



Sec. 690.75  Determination of eligibility for payment.

    (a) For each payment period, an institution may pay a Federal Pell 
Grant to an eligible student only after it determines that the student--
    (1) Qualifies as an eligible student under 34 CFR Part 668, Subpart 
C;
    (2) Is enrolled in an eligible program as an undergraduate student; 
and
    (3) If enrolled in a credit hour program without terms or a clock 
hour program, has completed the payment period as defined in Sec. 668.4 
for which he or she has been paid a Federal Pell Grant.
    (b) If an institution determines at the beginning of a payment 
period that a student is not maintaining satisfactory progress, but 
reverses that determination before the end of the payment period, the 
institution may pay a Federal Pell Grant to the student for the entire 
payment period.
    (c) If an institution determines at the beginning of a payment 
period that a student is not maintaining satisfactory

[[Page 890]]

progress, but reverses that determination after the end of the payment 
period, the institution may neither pay the student a Federal Pell Grant 
for that payment period nor make adjustments in subsequent Federal Pell 
Grant payments to compensate for the loss of aid for that period.
    (d) A member of a religious order, community, society, agency of or 
organization who is pursuing a course of study in an institution of 
higher education is considered to have an expected family contribution 
amount at least equal to the maximum authorized award amount for the 
award year if that religious order--
    (1) Has as a primary objective the promotion of ideals and beliefs 
regarding a Supreme Being; and
    (2) Provides subsistence support to its members, or has directed the 
member to pursue the course of study.

(Approved by the Office of Management and Budget under control number 
1845-0681)

(Authority: 20 U.S.C. 1070a)

[52 FR 45736, Dec. 1, 1987, as amended at 56 FR 56916, Nov. 6, 1991; 59 
FR 54730, 54735, Nov. 1, 1994; 60 FR 30789, June 12, 1995; 61 FR 60397, 
Nov. 27, 1996; 61 FR 60610, Nov. 29, 1996; 65 FR 65676, Nov. 1, 2000; 67 
FR 67083, Nov. 1, 2002]



Sec. 690.76  Frequency of payment.

    (a) In each payment period, an institution may pay a student at such 
times and in such installments as it determines will best meet the 
student's needs.
    (b) The institution may pay funds in one lump sum for all the prior 
payment periods for which the student was an eligible student within the 
award year. The student's enrollment status must be determined according 
to work already completed.

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 56 FR 56916, Nov. 6, 1991]



Sec. 690.77  [Reserved]



Sec. 690.78  Method of disbursement--by check or credit to a student's 
account.

    (a) An institution shall disburse funds to a student or the 
student's account in accordance with the provisions in Sec. 668.164.
    (b) The institution shall return to the Federal Pell Grant account 
any funds paid to a student who, before the first day of classes--
    (1) Officially or unofficially withdraws; or
    (2) Is expelled.
    (c)(1) An institution that intends to pay a student directly must 
notify the student in accordance with Sec. 668.165(a).
    (2) If a student does not pick up the check on time, the institution 
shall still pay the student if he or she requests payment within 20 days 
after the last date that his or her enrollment ends in that award year.
    (3) If the student has not picked up his or her payment at the end 
of the 20-day period, the institution may credit the student's account 
only for any outstanding charges for tuition and fees and room and board 
for the award year incurred by the student while he or she was eligible.
    (4) A student forfeits the right to receive the payment if he or she 
does not pick up a payment by the end of the 20 day period.
    (5) Notwithstanding paragraph (d)(4) of this section, the 
institution may, if it chooses, pay a student who did not pick up his or 
her payment, through the next payment period.
    (6) An institution shall make a late disbursement to an ineligible 
student in accordance with the provisions in 34 CFR 668.164(g).

(Approved by the Office of Management and Budget under control number 
1840-0536)

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 56 FR 56916, Nov. 6, 1991; 59 
FR 54730, Nov. 1, 1994; 59 FR 61722, Dec. 1, 1994; 61 FR 60397, Nov. 27, 
1996; 61 FR 60610, Nov. 29, 1996]



Sec. 690.79  Liability for and recovery of Federal Pell Grant overpayments.

    (a)(1) Except as provided in paragraphs (a)(2) and (a)(3) of this 
section, a student is liable for any Federal Pell Grant overpayment made 
to him or her.
    (2) The institution is liable for a Federal Pell Grant overpayment 
if the overpayment occurred because the institution failed to follow the 
procedures set forth in this part or 34 CFR Part 668. The institution 
must restore

[[Page 891]]

an amount equal to the overpayment to its Federal Pell Grant account.
    (3) A student is not liable for, and the institution is not required 
to attempt recovery of or refer to the Secretary, a Federal Pell Grant 
overpayment if the amount of the overpayment is less than $25 and is not 
a remaining balance.
    (b)(1) Except as provided in paragraph (a)(3) of this section, if an 
institution makes a Federal Pell Grant overpayment for which it is not 
liable, it must promptly send a written notice to the student requesting 
repayment of the overpayment amount. The notice must state that failure 
to make that repayment, or to make arrangements satisfactory to the 
holder of the overpayment debt to repay the overpayment, makes the 
student ineligible for further title IV, HEA program funds until final 
resolution of the Federal Pell Grant overpayment.
    (2) If a student objects to the institution's Federal Pell Grant 
overpayment determination on the grounds that it is erroneous, the 
institution must consider any information provided by the student and 
determine whether the objection is warranted.
    (c) Except as provided in paragraph (a)(3) of this section, if the 
student fails to repay a Federal Pell Grant overpayment or make 
arrangements satisfactory to the holder of the overpayment debt to repay 
the Federal Pell Grant overpayment, after the institution has taken the 
action required by paragraph (b) of this section, the institution must 
refer the overpayment to the Secretary for collection purposes in 
accordance with procedures required by the Secretary. After referring 
the Federal Pell Grant overpayment to the Secretary under this section, 
the institution need make no further efforts to recover the overpayment.

(Authority: 20 U.S.C. 1070a)

[67 FR 67083, Nov. 1, 2002]



Sec. 690.80  Recalculation of a Federal Pell Grant award.

    (a) Change in expected family contribution. (1) The institution 
shall recalculate a Federal Pell Grant award for the entire award year 
if the student's expected family contribution changes at any time during 
the award year. The change may result from--
    (i) The correction of a clerical or arithmetic error under 
Sec. 690.14; or
    (ii) A correction based on information required as a result of 
verification under 34 CFR part 668, subpart E.
    (2) Except as described in 34 CFR 668.60(c), the institution shall 
adjust the student's award when an overaward or underaward is caused by 
the change in the expected family contribution. That adjustment must be 
made--
    (i) Within the same award year--if possible--to correct any 
overpayment or underpayment; or
    (ii) During the next award year to correct any overpayment that 
could not be adjusted during the year in which the student was overpaid.
    (b) Change in enrollment status. (1) If the student's enrollment 
status changes from one academic term to another term within the same 
award year, the institution shall recalculate the Federal Pell Grant 
award for the new payment period taking into account any changes in the 
cost of attendance.
    (2)(i) If the student's projected enrollment status changes during a 
payment period after the student has begun attendance in all of his or 
her classes for that payment period, the institution may (but is not 
required to) establish a policy under which the student's award for the 
payment period is recalculated. Any such recalculations must take into 
account any changes in the cost of attendance. If such a policy is 
established, it must apply to all students.
    (ii) If a student's projected enrollment status changes during a 
payment period before the student begins attendance in all of his or her 
classes for that payment period, the institution shall recalculate the 
student's enrollment status to reflect only those classes for which the 
student actually began attendance.
    (c) Change in cost of attendance. If the student's cost of 
attendance changes at any time during the award year and his or her 
enrollment status remains the same, the institution may (but is not 
required to) establish a policy under which the student's award for the 
payment period is recalculated. If such a

[[Page 892]]

policy is established, it must apply to all students.

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 59 FR 54735, Nov. 1, 1994]



Sec. 690.81  Fiscal control and fund accounting procedures.

    (a) An institution shall follow provisions for maintaining general 
fiscal records in this part and in 34 CFR 668.24(b).
    (b) An institution shall maintain funds received under this part in 
accordance with the requirements in Sec. 668.164.

(Approved by the Office of Management and Budget under control number 
1840-0536)

(Authority: 20 U.S.C. 1070a)

[50 FR 10724, Mar. 15, 1985, as amended at 53 FR 49147, Dec. 6, 1988; 59 
FR 54730, Nov. 1, 1994; 59 FR 61722, Dec. 1, 1994; 61 FR 60397, 60493, 
Nov. 27, 1996]



Sec. 690.82  Maintenance and retention of records.

    (a) An institution shall follow the record retention and examination 
provisions in this part and in 34 CFR 668.24.
    (b) For any disputed expenditures in any award year for which the 
institution cannot provide records, the Secretary determines the final 
authorized level of expenditures.

(Approved by the Office of Management and Budget under control number 
1840-0681)

(Authority: 20 U.S.C. 1070a, 1232f)

[61 FR 60494, Nov. 27, 1996]



Sec. 690.83  Submission of reports.

    (a)(1) An institution may receive either a payment from the 
Secretary for an award to a Federal Pell Grant recipient, or a 
corresponding reduction in the amount of Federal funds received in 
advance for which it is accountable, if--
    (i) The institution submits to the Secretary the student's Payment 
Data for that award year in the manner and form prescribed in paragraph 
(a)(2) of this section by September 30 following the end of the award 
year in which the grant is made, or, if September 30 falls on a weekend, 
on the first weekday following September 30; and
    (ii) The Secretary accepts the student's Payment Data.
    (2) The Secretary accepts a student's Payment Data that is submitted 
in accordance with procedures established through publication in the 
Federal Register, and that contain information the Secretary considers 
to be accurate in light of other available information including that 
previously provided by the student and the institution.
    (3) An institution that does not comply with the requirements of 
this paragraph may receive a payment or reduction in accountability only 
as provided in paragraph (d) of this section.
    (b)(1) An institution shall report to the Secretary any change in 
enrollment status, cost of attendance, or other event or condition that 
causes a change in the amount of a Federal Pell Grant for which a 
student qualifies by submitting to the Secretary the student's Payment 
Data that discloses the basis and result of the change in award for each 
student. Through publication in the Federal Register, the Secretary 
divides the award year into periods and establishes the deadlines by 
which the institution shall report changes occurring during each period. 
The institution shall submit the student's Payment Data reporting a 
change to the Secretary by the end of that reporting period that next 
follows the reporting period in which the change occurred.
    (2) An institution shall submit in accordance with deadline dates 
established by the Secretary, through publication in the Federal 
Register, other reports and information the Secretary requires in 
connection with the funds advanced to it and shall comply with the 
procedures the Secretary finds necessary to ensure that the reports are 
correct.
    (3) An institution that timely submits, and has accepted by the 
Secretary, the Payment Data for a student in accordance with this 
section shall report a reduction in the amount of a Federal Pell Grant 
award that the student received when it determines that an overpayment 
has occurred, unless that overpayment is one for which the institution 
is not liable under Sec. 690.79(a).

[[Page 893]]

    (c) In accordance with 34 CFR 668.84 the Secretary may impose a fine 
on the institution if the institution fails to comply with the 
requirements specified in paragraphs (a) or (b) of this section.
    (d)(1) Notwithstanding paragraphs (a) or (b) of this section, if an 
institution demonstrates to the satisfaction of the Secretary that the 
institution has provided Federal Pell Grants in accordance with this 
part but has not received credit or payment for those grants, the 
institution may receive payment or a reduction in accountability for 
those grants in accordance with paragraphs (d)(4) and either (d)(2) or 
(d)(3) of this section.
    (2) The institution must demonstrate that it qualifies for a credit 
or payment by means of a finding contained in an audit report of an 
award year that was the first audit of that award year and that was 
conducted after December 31, 1988 and timely submitted to the Secretary 
under 34 CFR 668.23(c).
    (3) An institution that timely submits the Payment Data for a 
student in accordance with paragraph (a) of this section but does not 
timely submit to the Secretary, or have accepted by the Secretary, the 
Payment Data necessary to document the full amount of the award to which 
the student is entitled, may receive a payment or reduction in 
accountability in the full amount of that award, if--
    (i) A program review demonstrates to the satisfaction of the 
Secretary that the student was eligible to receive an amount greater 
than that reported in the student's Payment Data timely submitted to, 
and accepted by the Secretary; and
    (ii) The institution seeks an adjustment to reflect an underpayment 
for that award that is at least $100.
    (4) In determining whether the institution qualifies for a payment 
or reduction in accountability, the Secretary takes into account any 
liabilities of the institution arising from that audit or program review 
or any other source. The Secretary collects those liabilities by offset 
in accordance with 34 CFR part 30.

(Approved by the Office of Management and Budget under control number 
1840-0688)

(Authority: 20 U.S.C. 1070a, 1094, 1226a-1)

[60 FR 61816, Dec. 1, 1995; 61 FR 3776, Feb. 1, 1996]



PART 692--LEVERAGING EDUCATIONAL ASSISTANCE PARTNERSHIP PROGRAM--Table of Contents




    Subpart A--Leveraging Educational Assistance Partnership Program

                                 General

Sec.
692.1  What is the Leveraging Educational Assistance Partnership?
692.2  Who is eligible to participate in the LEAP Program?
692.3  What regulations apply to the LEAP Program?
692.4  What definitions apply to the LEAP Program?

        What is the Amount of Assistance and How May it Be Used?

692.10  How does the Secretary allot funds to the States?
692.11  For what purposes may a State use its payments under the LEAP 
          Program?

       How Does a State Apply To Participate in the LEAP Program?

692.20  What must a State do to receive an allotment under this program?
692.21  What requirements must be met by a State program?

 How Does a State Administer its Community Service-Learning Job Program?

692.30  How does a State administer its community service-learning job 
          program?

        How Does a State Select Students Under the LEAP Program?

692.40  What are the requirements for student eligibility?
692.41  What standards may a State use to determine substantial 
          financial need?

Subpart B--Special Leveraging Educational Assistance Partnership Program

                                 General

692.50  What is the Special Leveraging Educational Assistance 
          Partnership Program?

[[Page 894]]

692.51  What other regulations apply to the SLEAP Program?
692.52  What definitions apply to the SLEAP Program?
692.53  What requirements must a State satisfy to receive SLEAP Program 
          funds?
692.54  What eligibility requirements must a student satisfy to 
          participate in the SLEAP Program?

       How Does a State Apply To Participate in the SLEAP Program?

692.60  What must a State do to receive an allotment under the SLEAP 
          Program?

        What Is the Amount of Assistance and How May It Be Used?

692.70  How does the Secretary allot funds to the States?
692.71  What activities may be funded under the SLEAP Program?
692.72  May a State use the funds it receives under the SLEAP Program to 
          pay administrative costs?

  How Does a State Administer Its Community Service Work-Study Program?

692.80  How does a State administer its community service work-study 
          program?

    Authority: 20 U.S.C 1070c through 1070c-4, unless otherwise noted.

    Source: 52 FR 45433, Nov. 27, 1987, unless otherwise noted.



    Subpart A--Leveraging Educational Assistance Partnership Program

                                 General



Sec. 692.1  What is the Leveraging Educational Assistance Partnership?

    The Leveraging Educational Assistance Partnership (LEAP) Program 
assists States in providing grants and work-study assistance to eligible 
students who attend institutions of higher education and have 
substantial financial need. The work-study assistance is provided 
through campus-based community service work learning study programs, 
hereinafter referred to as community service-learning job programs.

(Authority: 20 U.S.C. 1070c-1070c-4)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38729, June 22, 2000]



Sec. 692.2  Who is eligible to participate in the LEAP Program?

    (a) State participation. A State that meets the requirements in 
Secs. 692.20 and 692.21 is eligible to receive payments under the LEAP 
program.
    (b) Student participation. A student must meet the requirements of 
Sec. 692.40 to be eligible to receive assistance from a State under the 
LEAP program.

(Authority: 20 U.S.C. 1070c-1)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38729, June 22, 2000]



Sec. 692.3  What regulations apply to the LEAP Program?

    The following regulations apply to the LEAP Program:
    (a) The regulations in this part 692.
    (b) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) 34 CFR 75.60-75.62 (Ineligibility of Certain Individuals to 
Receive Assistance).
    (2) 34 CFR part 76 (State-Administered Programs).
    (3) 34 CFR part 77 (Definitions That Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 82 (New Restrictions on Lobbying).
    (7) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants)).
    (8) 34 CFR part 86 (Drug and Alcohol Abuse Prevention).
    (c) The Student Assistance General Provisions in 34 CFR part 668.

(Authority: 20 U.S.C. 1070c-1070c-4)

[52 FR 45433, Nov. 27, 1987, as amended at 55 FR 21716, May 25, 1990; 59 
FR 4223, Jan. 28, 1994; 65 FR 38729, June 22, 2000]



Sec. 692.4  What definitions apply to the LEAP Program?

    The following definitions apply to the regulations in this part:
    (a) The definitions of the following terms under 34 CFR part 600:


[[Page 895]]


    Postsecondary vocational institution (Sec. 600.6).
    Public or private nonprofit institution of higher education 
(Sec. 600.4).
    Secretary (Sec. 600.2).
    State (Sec. 600.2).

    (b) The definitions of the following terms under 34 CFR part 668:

    Academic year (Sec. 668.2).
    Enrolled (Sec. 668.2).
    HEA (Sec. 668.2).
    Institution (Sec. 668.1(b)).

    (c) The definitions of the following terms also apply to the LEAP 
Program:
    Full-time student means a student carrying a full-time academic 
workload--other than by correspondence--as measured by both of the 
following:
    (1) Coursework or other required activities, as determined by the 
institution that the student attends or by the State.
    (2) The tuition and fees normally charged for full-time study by 
that institution.
    Nonprofit has the same meaning under this part as the same term 
defined in 34 CFR 77.1 of EDGAR.

(Authority: 20 U.S.C. 1070c-1070c-4)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38729, June 22, 2000]

        What Is the Amount of Assistance and How May It Be Used?



Sec. 692.10  How does the Secretary allot funds to the States?

    (a)(1) The Secretary allots to each State participating in the LEAP 
program an amount which bears the same ratio to the Federal LEAP funds 
appropriated as the number of students in that State who are ``deemed 
eligible'' to participate in the State's LEAP program bears to the total 
number of students in all States who are ``deemed eligible'' to 
participate in the LEAP program, except that no State may receive less 
than it received in fiscal year 1979.
    (2) If the Federal LEAP funds appropriated for a fiscal year are not 
sufficient to allot to each State the amount of Federal LEAP funds it 
received in fiscal year 1979, the Secretary allots to each State an 
amount which bears the same ratio to the amount of Federal LEAP funds 
appropriated as the amount of Federal LEAP funds that State received in 
fiscal year 1979 bears to the amount of Federal LEAP funds all States 
received in fiscal year 1979.
    (b) For the purpose of paragraph (a)(1) of this section, the 
Secretary determines the number of students ``deemed eligible'' to 
participate in a State's LEAP Program by dividing the amount of that 
State's LEAP expenditures, including both its Federal allotment and the 
State-appropriated funds matching the allotment, by the average grant 
award per student of all participating States. The Secretary determines 
the ``average grant award per student'' by dividing the total number of 
student recipients for all States into the total amount of LEAP 
expenditures for all States, including both the Federal allotments and 
the State-appropriated funds matching those allotments. In making this 
determination, the Secretary uses the most current available data 
reported by each State.

(Authority: 20 U.S.C. 1070c)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38730, June 22, 2000]



Sec. 692.11  For what purposes may a State use its payments under the LEAP Program?

    A State may use the funds it receives under the LEAP Program only to 
make grants to students and to pay wages or salaries to students in 
community service-learning jobs.

(Authority: 20 U.S.C. 1070c)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38730, June 22, 2000]

       How Does a State Apply To Participate in The LEAP Program?



Sec. 692.20  What must a State do to receive an allotment under this program?

    (a) For each fiscal year that it wishes to participate, a State 
shall submit an application that contains information that shows that 
its Leveraging Educational Assistance Partnership Program meets the 
requirements of Sec. 692.21.
    (b)(1) Except as provided in paragraph (b)(2) of this section, the 
State must submit its application through

[[Page 896]]

the State agency designated to administer its Leveraging Educational 
Assistance Partnership Program as of July 1, 1985.
    (2) If the Governor of the State so designates, and notifies the 
Secretary in writing, the State may submit its application under 
paragraph (a) of this section through an agency that did not administer 
its Leveraging Educational Assistance Partnership Program as of July 1, 
1985.

(Authority: 20 U.S.C. 1070c-2(a))

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38730, June 22, 2000]



Sec. 692.21  What requirements must be met by a State program?

    To receive a payment under the LEAP Program for any fiscal year, a 
State must have a program that--
    (a) Is administered by a single State agency;
    (b) Provides assistance only to students who meet the eligibility 
requirements in Sec. 692.40;
    (c) Provides that assistance under this program to a full-time 
student will not be more than $5,000 for each academic year;
    (d) Provides for the selection of students to receive assistance on 
the basis of substantial financial need determined annually by the State 
on the basis of standards that the State establishes and the Secretary 
approves;

    Cross-Reference: See Sec. 692.41.

    (e) Provides that no student or parent shall be charged a fee that 
is payable to an organization other than the State for the purpose of 
collecting data to make a determination of financial need in accordance 
with paragraph (d) of this section;
    (f) Provides that all public or private nonprofit institutions of 
higher education and all postsecondary vocational institutions in the 
State are eligible to participate unless that participation is in 
violation of--
    (1) The constitution of the State; or
    (2) A State statute that was enacted before October 1, 1978;
    (g) Provides that, if a State awards grants to independent students 
or to students who are less-than-full-time students enrolled in an 
institution, a reasonable portion of the State's allocation must be 
awarded to those students;
    (h) Provides that--
    (1) The State will pay an amount for grants and work-study jobs 
under this part for each fiscal year that is not less than the payment 
to the State under this part for that fiscal year; and
    (2) The amount that the State expends during a fiscal year for 
grants and work-study jobs under the LEAP Program represents an 
additional amount for grants and work-study jobs for students attending 
institutions over the amount expended by the State for those activities 
during the fiscal year two years prior to the fiscal year in which the 
State first received funds under the LEAP Program;
    (i) Provides for State expenditures under the State program of an 
amount that is not less than--
    (1) The average annual aggregate expenditures for the preceding 
three fiscal years; or
    (2) The average annual expenditure per full-time equivalent student 
for those years;
    (j) Provides that, to the extent practicable, the proportion of the 
funds awarded to independent students in the LEAP Program shall be the 
same proportion of funds awarded to independent students as is in the 
State program or programs of which the State's LEAP Program is a part; 
and
    (k) Provides for reports to the Secretary that are necessary to 
carry out the Secretary's functions under the LEAP Program.

(Authority: 20 U.S.C. 1070c-2)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38730, June 22, 2000]

 How Does a State Administer Its Community Service-Learning Job Program?



Sec. 692.30  How does a State administer its community service-learning job 
program?

    (a)(1) Each year, a State may use up to 20 percent of its allotment 
for a community service-learning job program that satisfies the 
conditions set forth in paragraph (b) of this section.

[[Page 897]]

    (2) A student who receives assistance under this section must 
receive compensation for work and not a grant.
    (b)(1) The community service-learning job program must be 
administered by institutions in the State.
    (2) Each student employed under the program must be employed in work 
in the public interest by an institution itself or by a Federal, State, 
or local public agency or a private nonprofit organization under an 
arrangement between the institution and the agency or organization.
    (c) Each community service-learning job must--
    (1) Provide community service as described in paragraph (d) of this 
section;
    (2) Provide participating students community service-learning 
opportunities related to their educational or vocational programs or 
goals;
    (3) Not result in the displacement of employed workers or impair 
existing contracts for services;
    (4) Be governed by conditions of employment that are considered 
appropriate and reasonable, based on such factors as type of work 
performed, geographical region, and proficiency of the employee;
    (5) Not involve the construction, operation, or maintenance of any 
part of a facility used or to be used for religious worship or sectarian 
instruction; and
    (6) Not pay any wage to a student that is less than the current 
Federal minimum wage as mandated by section 6(a) of the Fair Labor 
Standards Act of 1938.
    (d) For the purpose of paragraph (c)(1) of this section, ``community 
service'' means direct service, planning, or applied research that is--
    (1) Identified by an institution through formal or informal 
consultation with local nonprofit, governmental, and community-based 
organizations; and
    (2) Designed to improve the quality of life for residents of the 
community served, particularly low-income residents, in such fields as 
health care, child care, education, literacy training, welfare, social 
services, public safety, crime prevention and control, transportation, 
recreation, housing and neighborhood improvement, rural development, and 
community improvement.
    (e) For the purpose of paragraph (d)(2) of this section, ``low-
income residents'' means--
    (1) Residents whose taxable family income for the year before the 
year in which they are scheduled to receive assistance under the LEAP 
Program did not exceed 150 percent of the amount equal to the poverty 
level determined by using criteria of poverty established by the United 
States Census Bureau; or
    (2) Residents who are considered low-income residents by the State.

(Authority: 20 U.S.C. 1070c-2, 1070-4)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994; 65 
FR 38730, June 22, 2000]

        How Does a State Select Students Under the LEAP Program?



Sec. 692.40  What are the requirements for student eligibility?

    To be eligible for assistance, a student must--
    (a) Meet the relevant eligibility requirements contained in 34 CFR 
668.32; and
    (b) Have substantial financial need as determined annually in 
accordance with the State's criteria approved by the Secretary.

(Authority: 20 U.S.C. 1070c-2, 1091)

[52 FR 45433, Nov. 27, 1987, as amended at 65 FR 38730, June 22, 2000]



Sec. 692.41  What standards may a State use to determine substantial 
financial need?

    (a) A State determines whether a student has substantial financial 
need on the basis of criteria it establishes that are approved by the 
Secretary. A State may define substantial financial need in terms of 
family income, expected family contribution, and relative need as 
measured by the difference between the student's cost of attendance and 
the resources available to meet that cost. To determine substantial 
need, the State may use--
    (1) A system for determining a student's financial need under part F 
of title IV of the HEA;
    (2) The State's own needs analysis system if approved by the 
Secretary; or

[[Page 898]]

    (3) A combination of these systems, if approved by the Secretary.
    (b) The Secretary generally approves a need-analysis system under 
paragraph (a) (2) or (3) of this section only if the need-analysis 
system applies the term ``independent student'' as defined under section 
480(d) of the HEA. However, for good cause shown, the Secretary may 
approve, on a case-by-case basis, a State's need analysis system that 
uses a definition for ``independent student'' that varies from that term 
as defined in section 480(d) of the HEA.

(Authority: 20 U.S.C. 1070c-2)

[52 FR 45433, Nov. 27, 1987, as amended at 59 FR 4223, Jan. 28, 1994]



Subpart B--Special Leveraging Educational Assistance Partnership Program

    Source: 65 FR 65608, Nov. 1, 2000, unless otherwise noted.

                                 General



Sec. 692.50  What is the Special Leveraging Educational Assistance Partnership 
Program?

    The Special Leveraging Educational Assistance Partnership (SLEAP) 
Program assists States in providing grants, scholarships, and community 
service work-study assistance to eligible students who attend 
institutions of higher education and demonstrate financial need.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]



Sec. 692.51  What other regulations apply to the SLEAP Program?

    The regulations listed in Sec. 692.3 also apply to the SLEAP 
Program.

(Authority: 20 U.S.C. 1070c-3a)



Sec. 692.52  What definitions apply to the SLEAP Program?

    The definitions listed in Sec. 692.4 apply to the SLEAP Program.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]



Sec. 692.53  What requirements must a State satisfy to receive SLEAP Program 
funds?

    To receive SLEAP Program funds for any fiscal year, a State must--
    (a) Participate in the LEAP Program;
    (b) Meet the requirements in Sec. 692.60; and
    (c) Have a program that satisfies the requirements in 
Sec. 692.21(a), (b), (d), (e), (f), (g), (j), and (k).

(Authority: 20 U.S.C. 1070c-3a)

[65 FR 65608, Nov. 1, 2000, as amended at 66 FR 34039, June 26, 2001]



Sec. 692.54  What eligibility requirements must a student satisfy to 
participate in the SLEAP Program?

    To receive assistance under the SLEAP Program, a student must meet 
the eligibility requirements contained in Sec. 692.40.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]

       How Does a State Apply To Participate in the SLEAP Program?



Sec. 692.60  What must a State do to receive an allotment under the SLEAP Program?

    To receive an allotment under the SLEAP Program, a State must--
    (a) Submit an application in accordance with the provisions in 
Sec. 692.20;
    (b) Identify the activities in Sec. 692.71 for which it plans to use 
the SLEAP Federal and non-Federal funds;
    (c) Ensure that the non-Federal funds used as matching funds 
represent dollars that are in excess of the total dollars that a State 
spent for need-based grants, scholarships, and work-study assistance for 
fiscal year 1999, including the State funds reported as part of its LEAP 
Program;
    (d) Provide an assurance that for the fiscal year prior to the 
fiscal year for which the State is requesting Federal funds, the amount 
the State expended from non-Federal sources per student, or the 
aggregate amount the State expended, for all the authorized activities 
in Sec. 692.71 will be no less than the amount the State expended from 
non-Federal sources per student, or in the aggregate, for those 
activities for the

[[Page 899]]

second fiscal year prior to the fiscal year for which the State is 
requesting Federal funds; and
    (e) Ensure that the Federal share will not exceed one-third of the 
total funds expended under the SLEAP Program.

(Authority: 20 U.S.C. 1070c-3a)

[65 FR 65608, Nov. 1, 2000, as amended at 66 FR 34039, June 26, 2001]

        What Is the Amount of Assistance and How May It Be Used?



Sec. 692.70  How does the Secretary allot funds to the States?

    For each fiscal year, the Secretary allots to each eligible State 
that applies for SLEAP funds an amount in accordance with the provisions 
in Sec. 692.10.

(Authority: 20 U.S.C. 1070c-3a)



Sec. 692.71  What activities may be funded under the SLEAP Program?

    A State may use the funds it receives under the SLEAP Program for 
one or more of the following activities:
    (a) Supplement LEAP grant awards to eligible students who 
demonstrate financial need by--
    (1) Increasing the LEAP grant award amounts for students; or
    (2) Increasing the number of students receiving LEAP grant awards.
    (b) Supplement LEAP community service work-study awards to eligible 
students who demonstrate financial need by--
    (1) Increasing the LEAP community service work-study award amounts 
for students; or
    (2) Increasing the number of students receiving LEAP community 
service work-study awards.
    (c) Award scholarships to eligible students who demonstrate 
financial need and who--
    (1) Demonstrate merit or academic achievement; or
    (2) Wish to enter a program of study leading to a career in--
    (i) Information technology;
    (ii) Mathematics, computer science, or engineering;
    (iii) Teaching; or
    (iv) Other fields determined by the State to be critical to the 
State's workforce needs.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34039, June 26, 2001]



Sec. 692.72  May a State use the funds it receives under the SLEAP Program 
to pay administrative costs?

    A State may not use any of the funds it receives under the SLEAP 
Program to pay any administrative costs.

(Authority: 20 U.S.C. 1070c-3a)

[66 FR 34040, June 26, 2001]

  How Does a State Administer Its Community Service Work-Study Program?



Sec. 692.80  How does a State administer its community service work-study program?

    When administering its community service work-study program, a State 
must follow the provisions in Sec. 692.30, other than the provisions of 
paragraph (a)(1) of that section.

(Authority: 20 U.S.C. 1070c-3a)



PART 693--NATIONAL EARLY INTERVENTION SCHOLARSHIP AND PARTNERSHIP PROGRAM--
Table of Contents




                           Subpart A--General

Sec.
693.1  What is the National Early Intervention Scholarship and 
          Partnership Program?
693.2  Who is eligible to participate under this program?
693.3  What kinds of activities may be assisted under this program?
693.4  What regulations apply to this program?
693.5  What definitions apply to this program?

               Subpart B--How Does a State Obtain a Grant?

693.10  What must a State do to obtain a grant under this program?
693.11  What requirements must be met by the State under the program's 
          early intervention component?
693.12  What requirements must be met by the State under the program's 
          scholarship component?

[[Page 900]]

693.13  What information must a State provide in its annual application 
          to receive a grant under the NEISP Program?

       Subpart C--How Does the Secretary Make a Grant to a State?

693.20  What criteria does the Secretary use to determine whether a 
          State's proposed early intervention component meets the 
          requirements under this program as a formula grant program?
693.21  How does the Secretary allot funds to a State?
693.22  How does the Secretary allot funds to States on a competitive 
          basis?

  Subpart D--How Does a Student Participate in the Early Intervention 
                   Component Under the NEISP Program?

693.30  What are the requirements for a student to be a participant in 
          the early intervention component of this program?

      Subpart E--How Does a State Award a Scholarship to a Student?

693.40  What are the requirements for a student to receive a scholarship 
          under this program?

      Subpart F--What Postaward Conditions Must Be Met by a State?

693.50  What are allowable costs attributable to administration of the 
          early intervention component?
693.51  What are nonallowable costs that may not be charged to 
          administration of the early intervention component?
693.52  What requirements must a State meet in preparing and submitting 
          an evaluation report?

    Authority: 20 U.S.C. 1070a-21 through 1070a-27, unless otherwise 
noted.

    Source: 59 FR 24870, May 12, 1994, unless otherwise noted.



                           Subpart A--General



Sec. 693.1  What is the National Early Intervention Scholarship and 
Partnership Program?

    Under the National Early Intervention Scholarship and Partnership 
(NEISP) Program, the Secretary provides grants to States to--
    (a) Encourage the States to provide or maintain a guaranteed amount 
of financial assistance necessary to permit eligible low-income students 
who obtain high school diplomas or the equivalent to attend an 
institution of higher education; and
    (b) Provide financial incentives to enable States, in cooperation 
with local educational agencies, institutions of higher education, 
community organizations, and businesses, to provide--
    (1) Additional counseling, mentoring, academic support, outreach, 
and supportive services to preschool, elementary, middle, and secondary 
school students who are at risk of dropping out of school; and
    (2) Information to students and their parents about the advantages 
of obtaining a postsecondary education and their college financing 
options.

(Authority: 20 U.S.C. 1070a-21)



Sec. 693.2  Who is eligible to participate under this program?

    (a) States that meet the requirements of Secs. 693.10, 693.11, 
693.12, 693.13, 693.20 (formula grant program), 693.21, and 693.22 
(discretionary grant program) are eligible to receive grants under this 
program.
    (b) Under the early intervention component, students who meet the 
requirements of Sec. 693.30 are eligible to participate in the State-
administered programs under this part.
    (c) Under the scholarship component, students who meet the 
requirements of Sec. 693.40 are eligible to receive scholarships from 
States under this program.

(Authority: 20 U.S.C. 1070a-22 to 1070a-24)



Sec. 693.3  What kinds of activities may be assisted under this program?

    Under the NEISP Program, a State may use its allotment under 
Sec. 693.21 or Sec. 693.22 to--
    (a) Provide a variety of early intervention services such as 
comprehensive mentoring, counseling, outreach, and other supportive 
services to eligible students enrolled in preschool through grade 12, 
including prefreshman summer programs; and
    (b) Award scholarships to eligible low-income students for 
attendance at any institution of higher education participating in the 
Federal Pell Grant Program.

(Authority: 20 U.S.C. 1070a-22 to 1070a-24)

[[Page 901]]



Sec. 693.4  What regulations apply to this program?

    The following regulations apply to the NEISP Program:
    (a) The regulations in this part 693.
    (b) The Education Department General Administrative Regulations 
(EDGAR) as follows:
    (1) If the amount appropriated for the program is less than 
$50,000,000, 34 CFR part 75 (Direct Grant Programs).
    (2) If the amount appropriated for the program is $50,000,000 or 
more, 34 CFR part 76 (State-Administered Programs).
    (3) 34 CFR part 77 (Definitions That Apply to Department 
Regulations).
    (4) 34 CFR part 79 (Intergovernmental Review of Department of 
Education Programs and Activities).
    (5) 34 CFR part 80 (Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments).
    (6) 34 CFR part 82 (New Restrictions on Lobbying).
    (7) 34 CFR part 85 (Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants).
    (8) 34 CFR part 86 (Drug-Free Schools and Campuses).
    (c) Institutional Eligibility Under the Higher Education Act of 
1965, as Amended in 34 CFR part 600.
    (d) The Student Assistance General Provisions in 34 CFR part 668.

(Authority: 20 U.S.C. 1070a-21 through 1070a-27)



Sec. 693.5  What definitions apply to this program?

    (a) Definitions in EDGAR. The following terms used in this part are 
defined in 34 CFR 77.1:

Applicant
Application
Award
Budget
Budget Period
Department
Elementary school
Fiscal Year
Grant
Grantee
Local educational agency (LEA)
Private
Project
Project Period
EDGAR
Secretary
State

    (b) Definitions in subpart A of the Institutional Eligibility 
regulations, 34 CFR part 600. The following terms used in this part are 
defined in 34 CFR part 600:
    Award year
    Institution of higher education
    Recognized equivalent of a high school diploma
    (c) Definition in the Student Assistance General Provisions 
regulations, 34 CFR part 668. The following term used in this part is 
defined in 34 CFR part 668:
    Academic year
    (d) Other definitions that apply to this part. The following 
definitions also apply to this part:
    At-risk student means a preschool through grade 12 student whom a 
State identifies as being a potential dropout from secondary or 
postsecondary school.
    Disadvantaged student means a student who is either (1) a low-income 
individual who is also a first-generation college student; or (2) a 
student with disabilities.
    Early intervention program means a program that provides education-
related activities such as counseling, mentoring, academic support, 
outreach, and other supportive services, including providing information 
on opportunities for postsecondary student financial aid, to students 
enrolled in preschool through grade 12.
    First-generation college student means--
    (1) A student neither of whose parents completed a baccalaureate 
degree; or
    (2) A student who regularly resides with and receives support from 
only one parent who did not complete a baccalaureate degree.
    HEA means the Higher Education Act of 1965, as amended.
    Limited proficiency in English with reference to an individual, 
means an individual--
    (1)(i) Who was not born in the United States;
    (ii) Whose native language is other than English;
    (iii) Who comes from an environment in which a language other than 
English is most relied on for communication; or
    (iv) Who is an American Indian or Alaskan Native student and comes 
from an environment in which a language other than English has had a 
significant impact on his or her level of proficiency in English; and

[[Page 902]]

    (2) Who, as a result of the circumstances described in paragraph (1) 
of this definition, is unable to learn successfully in classrooms in 
which instruction is in English because he or she cannot adequately 
understand, speak, read, or write English.
    Low-income individual means an individual whose taxable family 
income for the year before the year in which he or she is scheduled to 
receive assistance under this part did not exceed 150 percent of an 
amount equal to the poverty level determined by using criteria of 
poverty established by the U.S. Bureau of the Census or a resident who 
is considered to be a low-income resident by the State in which he or 
she lives.
    Postsecondary education means a program of education beyond the 
secondary school level.
    Priority student means any student within a State in preschool 
through grade 12 who is eligible--
    (1) To be counted as attending an institution receiving Federal 
funds under chapter 1 of the Elementary and Secondary Education Act of 
1965;
    (2) To receive free or reduced-price meals under the National School 
Lunch Act; or
    (3) To receive assistance under the Aid to Families with Dependent 
Children Act.
    Scholarship means an award made to an individual under this part.
    Secondary school, as defined under section 1471(21) of the 
Elementary and Secondary Education Act of 1965, means a day or 
residential school that provides secondary education, as determined 
under State law, except that it does not include any education beyond 
grade 12.
    State educational agency (SEA), as defined under section 1471(23) of 
the Elementary and Secondary Education Act of 1965, means the officer or 
agency primarily responsible for the State supervision of public 
elementary and secondary schools.
    Student with a disability, as defined in section 3(2) of the 
Americans with Disabilities Act of 1990 (42 U.S.C. 12102(2)), means a 
student with a physical or mental impairment that substantially limits 
one or more of the major life activities of the student and thus 
requires special education and related services.

(Authority: 20 U.S.C. 1070a-21 through 1070a-27)



               Subpart B--How Does a State Obtain a Grant?



Sec. 693.10  What must a State do to obtain a grant under this program?

    (a) To obtain a grant, a State shall submit to the Secretary for 
review and approval an initial plan and annual application for carrying 
out the activities under the NEISP Program.
    (b) The Secretary approves a State plan that--
    (1) By direction of the State's Governor, designates as the State 
agency for administering the program under this part, either--
    (i) The State agency that administers the State Student Incentive 
Grant Program under title IV, part A, subpart 4 of the HEA;
    (ii) The State educational agency; or
    (iii) Another appropriate State agency approved by the Secretary;
    (2) Provides that the State program under this part shall be known 
as the ``[insert name of the State] National Early Intervention 
Scholarship and Partnership Program'' which may be referred to as the 
``[State name] NEISP Program,'';
    (3) Demonstrates to the satisfaction of the Secretary that the State 
will provide for the conduct under the State's NEISP Program of both--
    (i) An early intervention component meeting the requirements under 
Sec. 693.11 as evaluated by the Secretary under the criteria in 
Sec. 693.20 (formula grant program) and Sec. 693.22 (discretionary grant 
program); and
    (ii) A scholarship component meeting the requirements under 
Sec. 693.12;
    (4) Describes the administrative plan for implementing the State's 
NEISP Program, including those functions that will be carried out by 
public and private organizations; and
    (5) Provides assurances that the State will--
    (i) Ensure that the funds provided under this part supplement and do 
not supplant funds expended for State and local early intervention 
programs and State need- and non-need-based student

[[Page 903]]

financial grant assistance programs during the fiscal year 2 years prior 
to the fiscal year in which the State first received funds under this 
program;
    (ii) Expend, from State, local, or private funds or other acceptable 
funding methods, not less than one-half of the cost of the program under 
this part;
    (iii) Specify the methods by which such share of the costs will be 
paid;
    (iv) Not use less than 25 percent or more than 50 percent of its 
total NEISP Program funds for the early intervention component, unless 
the State can satisfactorily demonstrate in its plan submitted to the 
Secretary that the State has additional means to provide scholarships to 
students, in accordance with the waiver provision in Sec. 693.13(b);
    (v) Expend all of the NEISP Program funds under the scholarship 
component only to provide scholarships to eligible students; and
    (vi) Conduct and submit to the Secretary a biennial evaluation of 
the early intervention program assisted under this part in accordance 
with the requirements in Sec. 693.52.
    (c) With the exception of its initial year of participation when 
each State also must submit the application required under Sec. 693.13 
at the same time as the State plan under paragraph (b) of this section, 
the State shall submit annually an application to participate in the 
NEISP Program in accordance with the requirements in Sec. 693.13.

(Authority: 20 U.S.C. 1070a-22 and 1070a-26)

(Approved by the Office of Management and Budget under control number 
1840-0677)



Sec. 693.11  What requirements must be met by the State under the program's 
early intervention component?

    (a) A State shall demonstrate to the Secretary in its plan submitted 
according to Sec. 693.10(b) how its early intervention component 
provides services designed to meet the unique needs of the State's 
eligible students enrolled in preschool through grade 12. These services 
may include, but are not limited to, the following kinds of activities:
    (1) A continuing system of mentoring and advising that--
    (i) Is coordinated with the Federal and State community service 
initiatives; and
    (ii) Includes such support services as--
    (A) Instruction in reading, writing, study skills, mathematics, and 
other subjects necessary for success in education beyond secondary 
school;
    (B) After-school and summer tutoring;
    (C) Assistance in obtaining summer jobs;
    (D) Career mentoring;
    (E) Academic counseling and assistance in secondary school course 
selection;
    (F) Financial aid counseling that provides information on the 
opportunities for postsecondary student financial assistance;
    (G) Instruction designed to prepare students participating in the 
program for careers in which students from disadvantaged backgrounds are 
particularly underrepresented, as determined by the State; and
    (H) Programs and activities specifically designed for students with 
limited proficiency in English.
    (2) Activities designed to ensure high school completion and college 
enrollment of at-risk students by providing, in addition to the 
activities specified under paragraph (a) of this section, the following:
    (i) Assessment to identify at-risk students.
    (ii) Skills assessment.
    (iii) Activities to encourage volunteer and parent involvement in 
the activities planned under this section.
    (iv) Programs that involve the participation of former or current 
scholarship recipients as mentors or peer counselors.
    (v) Personal and family counseling, including home visits.
    (vi) Staff development to provide the services under this part.
    (3) Activities that encourage students to complete secondary school 
and pursue postsecondary education by requiring each student to enter 
into an agreement under which the State will provide postsecondary 
tuition assistance to a student, during a period of time to be 
established by the State, if

[[Page 904]]

the student agrees to achieve certain academic milestones, such as--
    (i) Completing the prescribed set of secondary courses required for 
an individual to be eligible for a Presidential Access Scholarship under 
chapter 3, subpart 2, part A, title IV of the HEA; and
    (ii) Maintaining satisfactory academic progress according to the 
requirements in 34 CFR 668.7 in a postsecondary education program.
    (4) Prefreshman summer programs that--
    (i) Are at institutions of higher education that also have academic 
support services for disadvantaged students through projects regulated 
by 34 CFR part 646, Student Support Services, or through comparable 
projects as certified by the SEA or other appropriate State agency 
funded by the State or other sources;
    (ii) Assure the participation of students who qualify as 
disadvantaged students or who are eligible for comparable programs 
funded by the State and certified under paragraph (a)(4)(i) of this 
section;
    (iii) Provide summer services, including--
    (A) Instruction in remedial, developmental, or supportive courses;
    (B) Counseling, tutoring, or orientation; and
    (C) Grant aid to students to cover prefreshman summer costs for 
books, supplies, living costs, and personal expenses; and
    (iv) Assure that participating students will receive financial aid 
during each academic year they are enrolled at the participating 
institution after the prefreshman summer.
    (5) Other activities as the State proposes and the Secretary 
approves as supportive of the purposes of the NEISP Program.
    (b) The State shall indicate to the Secretary which of the following 
permissible service providers will conduct the early intervention 
component activities:
    (1) Community-based organizations.
    (2) Elementary or secondary schools.
    (3) Institutions of higher education.
    (4) Public and private agencies.
    (5) Nonprofit and philanthropic organizations.
    (6) Businesses.
    (7) Institutions and agencies sponsoring programs authorized under 
the State Student Incentive Grant Program, subpart 4, part A, title IV 
of the HEA.
    (8) Institutions and agencies sponsoring programs authorized under 
the Federal TRIO Programs, chapter 1, subpart 2, part A, title IV of the 
HEA.
    (9) Religious organizations.
    (10) Other organizations proposed by the State that are subsequently 
deemed appropriate by the Secretary.
    (c) The State shall describe how the service providers listed in 
paragraph (b) of this section will administer the early intervention 
component activities.
    (d) The State shall propose for review by and approval of the 
Secretary the methods by which it will target its early intervention 
services on priority students.

(Authority: 20 U.S.C. 1070a-23)

(Approved by the Office of Management and Budget under control number 
1840-0677)



Sec. 693.12  What requirements must be met by the State under the program's 
scholarship component?

    A State shall provide for a scholarship component that--
    (a) As described in the State's plan approved by the Secretary under 
693.10, is closely coordinated with other Federal, State, local, and 
private scholarship programs within the State;
    (b) Awards scholarships only to students who meet the eligibility 
requirements in 693.40;
    (c) Places a priority on awarding scholarships to students who will 
receive Federal Pell Grant awards for the academic year in which the 
award is being made under this part by--
    (1) Selecting those eligible students who will receive Federal Pell 
Grants and who--
    (i) Have the lowest expected family contributions as calculated 
under part F of title IV of the HEA; or
    (ii) Are the neediest students as prioritized under the State's 
criteria for low-income students if the State's criteria are approved by 
the Secretary; and

[[Page 905]]

    (2) If the State has NEISP Program scholarship funds remaining after 
making NEISP awards to all of the eligible Federal Pell Grant 
recipients, awarding the remaining NEISP Program scholarship funds to 
those eligible students who will not receive Federal Pell Grant awards 
and who--
    (i) Have the lowest expected family contributions; or
    (ii) Are the neediest students as prioritized under the State's 
criteria for low-income students if the State's criteria are approved by 
the Secretary;
    (d) Awards continuation scholarships in successive award years to 
each student who received an initial scholarship and who continues to 
meet the student eligibility requirements under Sec. 693.40;
    (e) Establishes the maximum amount of a scholarship that each 
eligible student is to receive and ensures that no scholarship is less 
than the lesser of--
    (1) 75 percent of the average cost of attendance, as determined 
under section 472, part F of the HEA, for an in-State student in a 4-
year program of instruction at public institutions of higher education 
in the State; or
    (2) The maximum Federal Pell Grant award funded for that fiscal 
year;
    (f) Ensures that, for each recipient of a scholarship under this 
part who is eligible for and receiving other postsecondary student 
financial assistance, a Federal Pell Grant be awarded first, other 
public and private grant and scholarship assistance be awarded second, a 
scholarship under this part be awarded third, and then other financial 
assistance be awarded;
    (g) Ensures that no scholarship awarded under this part, combined 
with other title IV, HEA financial assistance and any other grant or 
scholarship assistance exceeds the student's total cost of attendance, 
as determined under section 472, part F of the HEA;
    (h) Expends all NEISP Program funds under the scholarship component, 
as determined according to Sec. 693.10(b)(5)(iv), on scholarships to 
students;
    (i) Notifies recipients of scholarships under this part that they 
are to be known as ``[insert name of the State] National Partnership 
Scholars''; and
    (j) Describes to the satisfaction of the Secretary the procedures 
the State will use to award scholarships to eligible students in the 
event that the State receives reduced or no Federal funding under the 
NEISP Program during any fiscal year.

(Authority: 20 U.S.C. 1070a-24)

(Approved by the Office of Management and Budget under control number 
1840-0677)



Sec. 693.13  What information must a State provide in its annual application 
to receive a grant under the NEISP Program?

    (a) Each State desiring to participate in the program under this 
part shall submit an application annually through the State agency 
designated to administer the NEISP Program under Sec. 693.10(b) that 
contains information required by the Secretary to demonstrate that the 
State meets its fund-matching assurances provided for in its plan, 
including--
    (1) The total amount of non-Federal funds, listed by each source, 
that the State expects to expend during the next award year that will 
total one-half or more of the cost of the NEISP Program such as--
    (i) The amount of the scholarships paid to students from State, 
local, or private funds under the NEISP Program;
    (ii) The amount of tuition, fees, room, or board waived or reduced 
for recipients of grants under the NEISP Program; and
    (iii) The amount expended on documented, targeted, long-term 
mentoring and counseling provided by volunteers or paid staff of 
nonschool organizations, including businesses, religious organizations, 
community groups, postsecondary educational institutions, nonprofit or 
philanthropic organizations, and other organizations proposed by the 
State and approved by the Secretary;
    (2) A description of the specific methods by which the State's share 
of the costs under the NEISP Program will be paid;
    (3) The percentage of the State's Federal allotment that it plans to 
expend for the early intervention component of its NEISP Program and, if 
the State requests a waiver from the Secretary

[[Page 906]]

under paragraph (b) of this section, the State shall submit supporting 
documentation, including the amount and source of its additional 
assistance;
    (4) The documentation that assures the Secretary that the amount of 
funds provided in paragraph (a)(1) of this section will supplement and 
not supplant funds expended for State and local early intervention 
programs and State need- and non-need-based student financial grant and 
scholarship assistance expended during the fiscal year 2 years prior to 
the fiscal year in which the State first received funds under this 
program; and
    (5)(i) Proposed changes to the initial State plan that was approved 
by the Secretary, according to Sec. 693.10(b), for the review and 
approval of the Secretary; or
    (ii) If no changes to its initial plan are proposed, an assurance 
that the State will continue to operate its NEISP Program according to 
the existing State plan approved by the Secretary under Sec. 693.10(b).
    (b) The Secretary waives the requirement in Sec. 693.10(b)(5)(iv) 
and allows the State to exceed the 50 percent limit on expenditure of 
its Federal allotment for the early intervention component if the State 
can demonstrate to the satisfaction of the Secretary that the State has 
another adequate means to provide scholarships to eligible students 
under the NEISP Program.

(Authority: 20 U.S.C. 1070a-22)

(Approved by the Office of Management and Budget under control number 
1840-0677)



       Subpart C--How Does the Secretary Make a Grant to a State?



Sec. 693.20  What criteria does the Secretary use to determine whether a 
State's proposed early intervention component meets the requirements under 
this program 
          as a formula grant program?

    The Secretary uses the following criteria to determine whether a 
State's early intervention component proposed under Sec. 693.10(b)(3)(i) 
meets the requirements of Sec. 693.11:
    (a) Plan of operation. (1) The Secretary reviews each State's plan 
for information that shows the quality of the operating plan of the 
early intervention component.
    (2) The Secretary looks for information that shows--
    (i) High quality in the design of the component;
    (ii) An effective plan of management that ensures proper and 
efficient administration of the component;
    (iii) A clear description of how the State's proposed early 
intervention component relates to the purpose of the program;
    (iv) The way that the State plans to use its resources and personnel 
to achieve the objectives of the component;
    (v) A clear description of the methods that the State will use to 
target early intervention services to priority students. The State must 
base the proposed methods on the latest available State data. The State 
may target services on priority students by----
    (A) Elementary and secondary schools with high concentrations of 
priority students within the State;
    (B) Appropriate identifiable geographic areas such as counties or 
school districts (including both public and private schools) with high 
concentrations of priority students within the State; or
    (C) Other methods proposed by a State and approved by the Secretary;
    (vi) A clear description of the comprehensive long-term mentoring 
and advising that the State plans to provide to eligible students; and
    (vii) The extent to which other State grant funds are available to 
eligible NEISP students for postsecondary educational scholarships if 
the Federal scholarship component of the program is unfunded or reduced.
    (b) Quality of key personnel. (1) The Secretary reviews each State 
plan for information that shows the qualifications of the key personnel 
the State plans to use to administer its early intervention component.
    (2) The Secretary looks for information that shows--
    (i) The qualifications of the director of the early intervention 
component;
    (ii) The qualifications of each of the other key personnel to be 
used in the component; and

[[Page 907]]

    (iii) The amount of time each person referred to in paragraphs 
(b)(2)(i) and (ii) of this section will spend working in the activities 
under this component.
    (3) To determine the qualifications of the key personnel, the 
Secretary considers evidence of past experience and training in fields 
related to the objectives of the early intervention component as well as 
other information the State provides.
    (c) Budget and cost effectiveness. (1) The Secretary reviews each 
State's plan for information that shows that the early intervention 
component has an adequate budget and is cost-effective.
    (2) The Secretary looks for information that shows--
    (i) The budget for the project is adequate to support the early 
intervention component activities; and
    (ii) Costs are reasonable in relation to the activities under the 
component.
    (3) The Secretary reviews the State's budget for the early 
intervention component to verify that not more than 50 percent of the 
State's allotment is projected to be spent on its early intervention 
component unless the State requests and is granted a waiver under 
Sec. 693.13(b).
    (d) Adequacy of resources. (1) The Secretary reviews each State's 
plan for information that shows that the State plans to devote adequate 
resources to its early intervention component.
    (2) The Secretary looks for information that shows--
    (i) The facilities that the State plans to use are adequate; and
    (ii) The equipment and supplies that the State plans to use are 
adequate.
    (e) Need for the program. (1) The Secretary reviews each State's 
plan for information that shows the need for the early intervention 
component and the methods for targeting its early intervention component 
activities on eligible students.
    (2) The Secretary looks for information that shows--
    (i) The number and percentage of students who are eligible to be 
served by the State's early intervention component, including students 
who are priority students and students who are disadvantaged;
    (ii) The extent to which the State documents its need for the 
services and activities that the State proposes to provide under its 
early intervention component;
    (iii) The ratio of secondary school counselors to all students and 
to early intervention eligible students, if the data is available;
    (iv) For each of the 3 preceding years, if available, the estimated 
dropout rates for the State, including the dropout rate for all students 
and for students eligible for the early intervention component as 
proposed by the State; and
    (v) For each of the 3 preceding years, if available, the estimated 
number and percentage of students in the State who enrolled in 
postsecondary institutions for--
    (A) All students who were eligible to enroll; and
    (B) Students who would have been eligible for the State's proposed 
early intervention component.
    (f) Likelihood for success. (1) The Secretary reviews each State 
plan for information that shows the likelihood of success of its early 
intervention component.
    (2) The Secretary looks for information that shows the extent to 
which the State's early intervention component is likely to--
    (i) Enable the participants to develop academic skills, such as 
reading, writing, mathematics, and study skills, that are essential for 
postsecondary education;
    (ii) Improve academic skills and motivate the participants to 
complete a secondary educational program and subsequently gain admission 
to postsecondary education institutions; and
    (iii) Increase the secondary and postsecondary readmission rates of 
those participants who have not completed secondary or postsecondary 
education.
    (3) The Secretary also looks for information that shows how 
comprehensively the State's proposed early intervention component--
    (i) Identifies and selects eligible participants;
    (ii) Diagnoses each participant's need for academic support in order 
to successfully pursue a program of postsecondary education;

[[Page 908]]

    (iii) Develops a plan of program support to improve each 
participant's skills; and
    (iv) Provides the services and activities listed in Sec. 693.11(a) 
that relate to the goals of the NEISP Program.
    (g) Public and private support. (1) The Secretary reviews each 
State's plan for information that shows how the State will put in place 
a partnership of public and private organizations within the State to 
administer the early intervention component of the program under this 
part.
    (2) The Secretary looks for information that shows--
    (i) The extent to which the State has received and has included in 
its plan written commitments by organizations that will provide early 
intervention services under Sec. 693.11(b); and
    (ii) The existence of a plan to inform the residents of the State of 
the NEISP Program services and eligibility criteria.
    (h) Coordination with other early intervention activities. (1) The 
Secretary reviews each State's plan for information that shows how the 
State will coordinate its early intervention component with existing 
early intervention activities within the State.
    (2) The Secretary looks for information that shows--
    (i) The extent to which the State has investigated early 
intervention program activity and included in its plan the number and 
types of currently operating public and private early intervention 
programs within the State;
    (ii) The extent to which the State's proposed plan will supplement 
existing Federal, State, local, and private early intervention programs 
within the State, such as the Federal Head Start, Chapter 1 Program in 
Local Educational Agencies, and TRIO programs; and
    (iii) The written plans and commitments submitted to the State by 
other early intervention program providers that the State plans to use 
as either early intervention service providers under Sec. 693.11(b) or 
as support organizations for those service providers.
    (i) Evaluation report plan. (1) The Secretary reviews each State's 
plan to evaluate the quality of the proposed biennial evaluation report 
of the early intervention component of the program.
    (2) The Secretary looks for information that shows--
    (i) The quality of the design of the component;
    (ii) The extent that the methods of evaluation are appropriate for 
the program and the extent they are objective and produce useful data 
that are quantifiable;
    (iii) The State's commitment to design an evaluation report to 
measure objectively performance against, at a minimum, the following 
standards:
    (A) The effectiveness of the State's program in meeting the purposes 
of the program.
    (B) The effect of the program on the student recipients being served 
by the program.
    (C) The barriers to the effectiveness of the program and 
recommendations for changes or improvements to the program.
    (D) The cost-effectiveness of the program.
    (E) The extent to which the student recipients comply with the 
requirements of the program; and
    (iv) Any other pertinent program measurements concerning the early 
intervention component that the State believes would be useful to the 
Secretary, which may be displayed through analytical charts, tables, and 
graphs.

(Authority: 20 U.S.C. 1070a-23)

(Approved by the Office of Management and Budget under control number 
1840-0677)



Sec. 693.21  How does the Secretary allot funds to a State?

    (a) If the amount appropriated for the program under this part for a 
fiscal year is $50,000,000 or more, the Secretary allots to each State 
that has submitted an approved plan under Sec. 693.10 and an approved 
application under Sec. 693.13, an amount that bears the same ratio to 
the total appropriation as the amount allocated to the LEAs in the State 
under 34 CFR part 200 bears to the total amount allocated to all LEAs in 
all States using the most recently available data.
    (b) If the amount appropriated for the program under this part for a 
fiscal

[[Page 909]]

year is less than $50,000,000, the Secretary allots funds to each State 
in accordance with the provisions in Sec. 693.22.
    (c) From the allotment calculated in this section, the Secretary 
disburses to a State an amount equal to not more than one-half of the 
total amount of funds from all sources the State projects that it will 
expend on its NEISP Program for a fiscal year as reported on its annual 
application under Sec. 693.13(a).
    (d) A State may expend from its Federal allotment no more than one-
half of the total amount of funds the State expends under its NEISP 
Program for that fiscal year.

(Authority: 20 U.S.C. 1070a-25)



Sec. 693.22  How does the Secretary allot funds to States on a competitive basis?

    (a) The Secretary allots funds to States under this program on a 
competitive basis if the program appropriation for a fiscal year is less 
than $50,000,000.
    (b) The Secretary conducts a grant competition for the States by 
means of a notice published in the Federal Register that contains the 
information needed by a State to apply for funds under a discretionary 
NEISP Program competition. The Secretary evaluates a State's application 
for funds under a discretionary NEISP Program competition on the basis 
of the extent to which the State fulfills the requirements listed in 
Secs. 693.10, 693.11, 693.12, and 693.13, and the selection criteria in 
this section.
    (c)(1) The Secretary uses the selection criteria in paragraph (d) of 
this section to evaluate applications for grants under this program.
    (2) The maximum score, not including prior grant recipient priority 
points in paragraph (d)(12) of this section, for all of these criteria 
is 140 points.
    (3) The maximum score for each criterion is indicated in parentheses 
in paragraph (d) of this section.
    (4) In the final selection of similarly rated applications, the 
Secretary considers the extent to which a State provides--
    (i) A comprehensive State-wide early intervention and postsecondary 
educational scholarship program;
    (ii) Eligible students with comprehensive long-term mentoring and 
advising; and
    (iii) Eligible students with State grant funds for their 
postsecondary education as compared to the other States who apply for 
grant funds.
    (d)(1) Need for the program. (20 points) The Secretary reviews each 
State's application for information that shows the need for the State-
wide early intervention component and the methods for targeting its 
early intervention component activities on eligible students including 
consideration of--
    (i) The number and percentage of students who are eligible to be 
served by the State's early intervention component, including students 
who are priority students and students who are disadvantaged;
    (ii) The extent to which the State documents its need for the 
services and activities that the State proposes to provide under its 
early intervention component;
    (iii) The ratio of secondary school counselors to all students and 
to early intervention eligible students, if the data is available;
    (iv) For each of the three preceding years, if available, the 
estimated dropout rates for the State, including the dropout rate for 
all students and for students eligible for the early intervention 
component as proposed by the State; and
    (v) For each of the three preceding years, if available, the 
estimated number and percentage of students in the State who enrolled in 
postsecondary institutions for--
    (A) All students who were eligible to enroll; and
    (B) Students who would have been eligible for the State's proposed 
early intervention component; and
    (vi) Describes the procedures the State will use to award 
postsecondary education scholarships to eligible students in the event 
that the State receives reduced or no Federal funding under the NEISP 
Program during any fiscal year.

[[Page 910]]

    (2) Plan of operation. (30 points) The Secretary reviews each 
State's application for information that shows the quality of the 
operating plan of the State-wide early intervention component, 
including--
    (i) (3 points) The quality of the design of the component;
    (ii) (3 points) An effective plan of management that ensures proper 
and efficient administration of the component;
    (iii) (3 points) A clear description of how the State's proposed 
early intervention component relates to the purpose of the program;
    (iv) (3 points) The way that the State plans to use its resources 
and personnel to achieve the objectives of the component;
    (v) (3 points) A clear description of the methods that the State 
will use to target early intervention services to priority students. The 
State must base the proposed methods on the latest available State data. 
The State may target services on priority students by--
    (A) Elementary and secondary schools with high concentrations of 
priority students within the State;
    (B) Appropriate identifiable geographic areas such as counties or 
school districts (including both public and private schools) with high 
concentrations of priority students within the State; or
    (C) Other methods proposed by a State and approved by the Secretary;
    (vi) (7 points) A clear description of the comprehensive long-term 
mentoring and advising that the State plans to provide to eligible 
students; and
    (vii) (8 points) The extent to which other State grant funds are 
available to eligible NEISP students for their postsecondary education 
if the Federal scholarship component of the program is unfunded or 
reduced.
    (3) Quality of key personnel. (10 points) (i) The Secretary reviews 
each State application for information that shows the qualifications of 
the key personnel the State plans to use to administer its State-wide 
early intervention component including--
    (A) The qualifications of the director of the early intervention 
component;
    (B) The qualifications of each of the other key personnel to be used 
in the component; and
    (C) The amount of time each person referred to in paragraphs 
(d)(3)(i) (A) and (B) of this section will spend working in the 
activities under this component.
    (ii) To determine the qualifications of the key personnel, the 
Secretary considers evidence of past experience and training in fields 
related to the objectives of the early intervention component as well as 
other information the State provides.
    (4) Budget and cost effectiveness. (5 points) The Secretary reviews 
each State's application for information that shows that the early 
intervention component has an adequate budget and is cost-effective 
including--
    (i) The budget for the project is adequate to support the early 
intervention component activities; and
    (ii) Costs are reasonable in relation to the activities under the 
component.
    (5) Adequacy of resources. (5 points) The Secretary reviews each 
State's application for information that shows that the State plans to 
devote adequate resources to its early intervention component including-
-
    (i) The facilities that the State plans to use are adequate; and
    (ii) The equipment and supplies that the State plans to use are 
adequate.
    (6) Likelihood for success. (20 points) The Secretary reviews each 
State application for information that shows the extent to which the 
State's early intervention component is likely to--
    (i) Enable the participants to develop academic skills, such as 
reading, writing, mathematics, and study skills, that are essential for 
postsecondary education;
    (ii) Improve academic skills and motivate the participants to 
complete a secondary educational program and subsequently gain admission 
to postsecondary education institutions;
    (iii) Increase the secondary and postsecondary readmission rates of 
those participants who have not completed secondary or postsecondary 
education;
    (iv) Identify and select eligible participants;

[[Page 911]]

    (v) Diagnose each participant's need for academic support in order 
to successfully pursue a program of postsecondary education; and
    (vi) Develop a plan of program support to improve each participant's 
skills.
    (7) Public and private support. (15 points) The Secretary reviews 
each State's application for information that shows how the State will 
put in place a partnership of public and private organizations within 
the State to administer the early intervention component of the program 
including--
    (i) The extent to which the State has received and has included in 
its plan written commitments by organizations that will provide early 
intervention services; and
    (ii) The existence of a plan to inform the residents of the State of 
the NEISP Program services and eligibility criteria.
    (8) Coordination with other early intervention activities. (15 
points) The Secretary reviews each State's application for information 
that shows how the State will coordinate its early intervention 
component with existing early intervention activities within the State 
including--
    (i) The extent to which the State has investigated early 
intervention program activity and included in its plan the number and 
types of currently operating public and private early intervention 
programs within the State;
    (ii) The extent to which the State's proposed plan will supplement 
existing Federal, State, local, and private early intervention programs 
within the State, such as the Federal Head Start, Chapter 1 Program in 
Local Educational Agencies, and TRIO programs; and
    (iii) The written plans and commitments submitted to the State by 
other early intervention program providers that the State plans to use 
as either early intervention service providers or as support 
organizations for those service providers.
    (9) Willingness to overmatch. (10 points) The Secretary reviews each 
State's application to determine whether the State is willing to 
contribute more than one-half the cost of the program and the extent to 
which the State will overmatch its Federal allotment.
    (10) Evaluation report plan. (10 points) The Secretary reviews each 
State's application to evaluate the quality of the proposed biennial 
evaluation report of the early intervention component of the program 
including--
    (i) The quality of the design of the component;
    (ii) The extent that the methods of evaluation are appropriate for 
the program and the extent they are objective and produce useful data 
that are quantifiable; and
    (iii) The State's commitment to design an evaluation report to 
measure objectively performance against, at a minimum, the following 
standards:
    (A) The effectiveness of the State's program in meeting the purposes 
of the program.
    (B) The effect of the program on the student recipients being served 
by the program.
    (C) The barriers to the effectiveness of the program and 
recommendations for changes or improvements to the program.
    (D) The cost-effectiveness of the program.
    (E) The extent to which the student recipients comply with the 
requirements of the program; and
    (iv) Any other pertinent program measurements concerning the early 
intervention component that the State believes would be useful to the 
Secretary, which may be displayed through analytical charts, tables, and 
graphs.
    (11) Prior experience. (20 points) In any award year subsequent to 
the 1994-95 award year, the initial year for which Federal funds were 
appropriated for this program, the Secretary gives priority to each 
State applicant that has conducted a NEISP Program within the fiscal 
year prior to the fiscal year for which the State applicant is applying 
in accordance with the following procedures:
    (i) To determine the number of priority points to be awarded each 
eligible State applicant, the Secretary considers the State's prior 
experience of program participation in accordance with paragraphs 
(d)(11) (ii) and (iii) of this section.

[[Page 912]]

    (ii) The Secretary may add from one to twenty points to the point 
score obtained on the basis of the selection criteria, based on the 
State applicant's success in meeting the administrative requirements and 
programmatic objectives of paragraph (d)(11)(iii) of this section.
    (iii) The Secretary--based on information contained in one or more 
of the following: Performance reports, audit reports, site visit 
reports, program evaluation reports, the previously funded application, 
the negotiated program plan or plans, previous State matching funds, and 
the application under consideration--considers information that shows--
    (A) (5 points) The extent to which the State's program has served 
the number of student participants it was funded to serve;
    (B) (5 points) The extent to which the State's program has achieved 
the goals and objectives as stated in the previously funded application 
or negotiated program plan;
    (C) (5 points) The extent to which the State has met the 
administrative requirements--including recordkeeping, reporting, and 
financial accountability--under the terms of the previously funded 
award; and
    (D) (5 points) The extent to which the State has provided funds to 
match its Federal allotment.
    (e) The Secretary disburses to each State selected in the 
competition conducted under paragraph (b) of this section an amount 
equal to not more than one-half of the total amount of funds from all 
sources the State projects that it will expend on its NEISP Program for 
a fiscal year as reported on its annual application under 
Sec. 693.13(a)(1).

(Authority: 20 U.S.C. 1070a-25)

(Approved by the Office of Management and Budget under control number 
1840-0677)



  Subpart D--How Does a Student Participate in the Early Intervention 
                   Component Under the NEISP Program?



Sec. 693.30  What are the requirements for a student to be a participant 
in the early intervention component of this program?

    The State agency administering the NEISP Program, as approved by the 
Secretary under Sec. 693.10(b)(1), shall select students in preschool 
through grade 12 to participate in the State's early intervention 
component, each of whom--
    (a)(1) Is a citizen or a national of the United States;
    (2) Is a permanent resident of the United States;
    (3) Provides evidence from the Immigration and Naturalization 
Service that he or she is in the United States for other than a 
temporary purpose with the intention of becoming a citizen or permanent 
resident; or
    (4) Is a permanent resident of the Trust Territory of the Pacific 
Islands;
    (b) Is, at the time of initial selection, a priority student, an at-
risk student, a disadvantaged student, or a student with a limited 
proficiency in English;
    (c) Has a need for academic support, as determined by the State, to 
pursue his or her education successfully;
    (d) Resides within the State;
    (e) Is not currently enrolled in a program of postsecondary 
education;
    (f) Meets such other criteria as the State includes in its plan in 
order to meet the unique needs of the State and that are approved by the 
Secretary; and
    (g) For an otherwise eligible student who is attending secondary 
school, is a student whom the State determines can reasonably be 
expected to meet the student eligibility requirements of 34 CFR 668.7 
for Federal student financial assistance and such other requirements as 
necessary to qualify for State, local, or private student financial 
assistance,

[[Page 913]]

at such time as the student enrolls in postsecondary education.

(Authority: 20 U.S.C. 1070a-23)



      Subpart E--How Does a State Award a Scholarship to a Student?



Sec. 693.40  What are the requirements for a student to receive a scholarship 
under this program?

    To be eligible for a scholarship under the scholarship component of 
this program, a student must--
    (a) Apply for the scholarship by following the application 
procedures and deadlines established by the State agency approved by the 
Secretary under Sec. 693.10(b)(1) to administer the NEISP Program in the 
State in which the individual resides;
    (b) Meet the relevant eligibility requirements contained in 34 CFR 
668.7;
    (c) Be less than 22 years old at the time his or her first 
scholarship is awarded;
    (d) Have a high school diploma or a certificate of high school 
equivalence received on or after January 1, 1993;
    (e) Be enrolled or accepted for enrollment in a program of 
instruction at an institution of higher education that is located within 
the State's boundaries, except that a State, at its option, may offer 
such a scholarship to a student who attends an eligible institution of 
higher education outside of the State;
    (f) If a State includes academic milestones in a student agreement 
under Sec. 693.11(a)(3) and requires the student to meet the milestones 
to be eligible for a scholarship, have met or exceeded the academic 
milestones to receive a scholarship; and
    (g)(1) Have participated in the early intervention component of the 
program under this part;
    (2) At the State's option, be a student whom the State documents as 
having successfully participated in a Federal Upward Bound Program 
funded under section 402C, chapter 1, subpart 2, part A of title IV of 
the HEA as determined by an administrator of the Federal Upward Bound 
program in which the student participated; or
    (3) At the State's option, be a student whom the State determines as 
having successfully participated in an early intervention program 
comparable to the early intervention component of the program under this 
part.

(Authority: 20 U.S.C. 1070a-24)



      Subpart F--What Postaward Conditions Must Be Met by a State?



Sec. 693.50  What are allowable costs attributable to administration of 
the early intervention component?

    A State may use its NEISP Program funds for the following allowable 
costs not specifically covered by 34 CFR parts 76 or 80 that are 
reasonably related to carrying out the early intervention component of 
the NEISP Program:
    (a) In-service training of project staff.
    (b) Transportation and meal costs for participants and staff for--
    (1) Approved visits to postsecondary educational institutions in the 
area;
    (2) Participation in ``College Days'' and ``College Fair'' 
activities; and
    (3) Field trips to observe and meet with people who are employed in 
various career fields and who can act as role models for early 
intervention participants.
    (c) Purchasing testing materials.
    (d) Admission fees, transportation, and other costs necessary to 
participate in field trips, attend educational activities, visit 
museums, and attend other events that have as their purpose the 
intellectual, social, and cultural development of early intervention 
participants.
    (e) Courses in English language instruction for participants with 
limited proficiency in English, if these classes are limited to early 
intervention component participants and if these classes are not 
otherwise available to those participants.
    (f) For participants in an early intervention residential summer 
activity, room and board--computed on a weekly basis--not to exceed the 
weekly rate a host institution charges regularly enrolled students at 
the institution.
    (g) Room and board for those people responsible for dormitory 
supervision

[[Page 914]]

of early intervention component participants during a residential summer 
activity.
    (h) Transportation costs of early intervention component 
participants for regularly scheduled component activities.
    (i) Transportation, meals, and overnight accommodations for staff 
members if they are required to accompany participants in program 
activities such as field trips.
    (j) Costs of remedial and special classes if--
    (1) These classes are limited to early intervention component 
participants; and
    (2) Identical instruction is not readily available through another 
Federal program or a State, local, or privately funded program.

(Authority: 20 U.S.C. 1070a-22)



Sec. 693.51  What are nonallowable costs that may not be charged to 
administration of the early intervention component?

    A State may not use its NEISP Program funds for costs incurred for 
the early intervention component of the NEISP Program such as--
    (a) Duplication of services that are available to participants 
through--
    (1) State, local, or private sources not included in the State plan 
under Sec. 693.11; or
    (2) Other Federal programs, such as projects under the Federal TRIO 
programs;
    (b) Research not directly related to the evaluation or improvement 
of the program;
    (c) Purchase of any equipment, unless the State demonstrates to the 
Secretary's satisfaction that purchase is less expensive than renting or 
leasing;
    (d) Meals for program staff except as provided in Sec. 693.50.
    (e) Clothing;
    (f) Construction, renovation, or remodeling of any facilities; or
    (g) Tuition, stipends, or any other form of student financial 
support for program staff.

(Authority: 20 U.S.C. 1070a-22)



Sec. 693.52  What requirements must a State meet in preparing and submitting 
an evaluation report?

    (a) Each State receiving an allotment under this part shall prepare 
and submit to the Secretary every two years an evaluation of the early 
intervention component of its NEISP Program. The report must summarize 
and evaluate a State's activities under the program and the performance 
of the student participants. Each State's evaluation report design must 
include measures that permit the State to track all participating 
students progress throughout each student's participation in the 
program.
    (b) The biennial evaluation report of the early intervention 
component of the program must include, but is not limited to--
    (1) Quantifiable information on the extent to which the State's 
program is fulfilling the program objectives;
    (2) The effect of the program on the student recipients being served 
by the program, including measurable outcomes such as improved academic 
performance, increased postsecondary education enrollment and retention, 
increased elementary and secondary school grade retention, reduced 
elementary and secondary school dropout rates, and reduced financial 
barriers to attendance at institutions of higher education;
    (3) The barriers to the effectiveness of the program and 
recommendations for changes or improvements to the program;
    (4) The cost-effectiveness of the program;
    (5) The extent to which the student recipients comply with the 
requirements of the program;
    (6) Key program information listed on an annual and biennial basis;
    (7) Other pertinent program measurements concerning the early 
intervention component that the State believes would be useful to the 
Secretary, which may be displayed through analytical charts, tables, and 
graphs; and

[[Page 915]]

    (8) Any other information required by the Secretary in order to 
carry out the evaluation report function.

(Authority: 20 U.S.C. 1070a-26)

(Approved by the Office of Management and Budget under control number 
1840-0677)



PART 694--GAINING EARLY AWARENESS AND READINESS FOR UNDERGRADUATE PROGRAMS 
(GEAR UP)--Table of Contents




Sec.
694.1  What is the maximum amount that the Secretary may award each 
          fiscal year to a Partnership or a State under this program?
694.2  Which students must a Partnership, or a State that chooses to use 
          the cohort approach in its project, serve under the program's 
          early intervention component?
694.3  What are the requirements for a cohort?
694.4  Which students must a State or Partnership serve when there are 
          changes in the cohort?
694.5  What requirements must be met by a Partnership or State that 
          chooses to provide services to private school students under 
          the program's early intervention component?
694.6  Who may provide GEAR UP services to students attending private 
          schools?
694.7  What are the matching requirements for a GEAR UP Partnership?
694.8  What are the requirements that a Partnership must meet in 
          designating a fiscal agent for its project under this program?
694.9  What is the maximum indirect cost rate for an agency of a State 
          or local government?
694.10  What are the requirements for awards under the program's 
          scholarship component under section 404E of the HEA?
694.11  Under what conditions may a Partnership that does not 
          participate in the GEAR UP scholarship component under section 
          404E of the HEA provide financial assistance for postsecondary 
          education to students under the GEAR UP early intervention 
          component?
694.12  How does a State determine which State agency will apply for, 
          and administer, a State grant under this program?
694.13  What requirements must be met by a Partnership or State 
          participating in GEAR UP with respect to 21st Century 
          Scholarship Certificates?
694.14  What requirements apply to a State that served students under 
          the National Early Intervention Scholarship and Partnership 
          program (NEISP) and that receives a GEAR UP grant?
694.15  What priorities may the Secretary establish for a GEAR UP grant?

    Authority: 20 U.S.C. 1070a-21 to 1070a-28.

    Source: 65 FR 24760, Apr. 27, 2000, unless otherwise noted.



Sec. 694.1  What is the maximum amount that the Secretary may award each 
fiscal year to a Partnership or a State under this program?

    (a) Partnership grants. The maximum amount that the Secretary may 
award each fiscal year for a GEAR UP Partnership grant is calculated by 
multiplying--
    (1) $800; by
    (2) The number of students the Partnership proposes to serve that 
year, as stated in the Partnership's plan.
    (b) State grants. The Secretary establishes the maximum amount that 
may be awarded each fiscal year for a GEAR UP State grant in a notice 
published in the Federal Register.

(Authority: 20 U.S.C. 1070a-23)



Sec. 694.2  Which students must a Partnership, or a State that chooses to 
use the cohort approach in its project, serve under the program's early 
intervention 
          component?

    A Partnership, or a State that chooses to use a cohort approach in 
its GEAR UP early intervention component, must, except as provided in 
Sec. 694.4--
    (a) Provide services to at least one entire grade level (cohort) of 
students (subject to Sec. 694.3(b)) beginning not later than the 7th 
grade;
    (b) Ensure that supplemental appropriate services are targeted to 
the students with the greatest needs; and
    (c) Ensure that services are provided through the 12th grade to 
those students.

(Authority: 20 U.S.C. 1070a-22)



Sec. 694.3  What are the requirements for a cohort?

    (a) In general. Each cohort to be served by a Partnership or State 
must be from a participating school--
    (1) That has a 7th grade; and
    (2) In which at least 50 percent of the students are eligible for 
free or reduced-price lunch under the National School Lunch Act; or

[[Page 916]]

    (b) Public housing exception. If the Partnership or State determines 
it would promote program effectiveness, a cohort may consist of all of 
the students in a particular grade level at one or more participating 
schools who reside in public housing, as defined in section 3(b)(1) of 
the United States Housing Act of 1937.

(Authority: 20 U.S.C. 1070a-22)



Sec. 694.4  Which students must a State or Partnership serve when there 
are changes in the cohort?

    (a) At the school where the cohort began. A Partnership or State 
must serve, as part of the cohort, any additional students who--
    (1) Are at the grade level of the students in the cohort; and
    (2) Begin attending the participating school at which the cohort 
began to receive GEAR UP services.
    (b) At a subsequent participating school. If not all of the students 
in the cohort attend the same school after the cohort completes the last 
grade level offered by the school at which the cohort began to receive 
GEAR UP services, a Partnership or a State--
    (1) May continue to provide GEAR UP services to all students in the 
cohort; and
    (2) Must continue to provide GEAR UP services to at least those 
students in the cohort that attend participating schools that enroll a 
substantial majority of the students in the cohort.

(Authority: 20 U.S.C. 1070-a22)



Sec. 694.5  What requirements must be met by a Partnership or State that 
chooses to provide services to private school students under the program's early 
          intervention component?

    (a) Secular, neutral, and nonideological services or benefits. 
Educational services or other benefits, including materials and 
equipment, provided under GEAR UP by a Partnership or State that chooses 
to provide those services or benefits to students attending private 
schools, must be secular, neutral, and nonideological.
    (b) Control of funds. In the case of a Partnership or State that 
chooses to provide services under GEAR UP to students attending private 
schools, the fiscal agent (in the case of a Partnership) or a State 
agency (in the case of a State) must--
    (1) Control the funds used to provide services under GEAR UP to 
those students;
    (2) Hold title to materials, equipment, and property purchased with 
GEAR UP funds for GEAR UP program uses and purposes related to those 
students; and
    (3) Administer those GEAR UP funds and property.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)



Sec. 694.6  Who may provide GEAR UP services to students attending private 
schools?

    (a) GEAR UP services to students attending private schools must be 
provided--
    (1) By employees of a public agency; or
    (2) Through contract by the public agency with an individual, 
association, agency, or organization.
    (b) In providing GEAR UP services to students attending private 
schools, the employee, individual, association, agency, or organization 
must be independent of the private school that the students attend, and 
of any religious organization affiliated with the school, and that 
employment or contract must be under the control and supervision of the 
public agency.
    (c) Federal funds used to provide GEAR UP services to students 
attending private schools may not be commingled with non-Federal funds.

(Authority: 1070a-21 to 1070a-28)



Sec. 694.7  What are the matching requirements for a GEAR UP Partnership?

    (a) In general. A Partnership must--
    (1) State in its application the percentage of the cost of the GEAR 
UP project the Partnership will provide for each year from non-Federal 
funds, subject to the requirements in paragraph (b) of this section; and
    (2) Comply with the matching percentage stated in its application 
for each year of the project period.
    (b) Matching requirements. (1) Except as provided in paragraph 
(b)(2) of this section, the non-Federal share of the cost of the GEAR UP 
project must be

[[Page 917]]

not less than 50 percent of the total cost over the project period.
    (2) A Partnership that has three or fewer institutions of higher 
education as members may provide less than 50 percent, but not less than 
30 percent, of the total cost over the project period if it includes--
    (i) A fiscal agent that is eligible to receive funds under Title V, 
or Part B of Title III, or section 316 or 317 of the HEA, or a local 
educational agency;
    (ii) Only participating schools with a 7th grade in which at least 
75 percent of the students are eligible for free or reduced-price lunch 
under the National School Lunch Act; and
    (iii) Only local educational agencies in which at least 50 percent 
of the students enrolled are eligible for free or reduced-price lunch 
under the National School Lunch Act.
    (3) The non-Federal share of the cost of a GEAR UP project may be 
provided in cash or in-kind.

(Authority: 20 U.S.C. 1070a-23)



Sec. 694.8  What are the requirements that a Partnership must meet in 
designating a fiscal agent for its project under this program?

    Although any member of a Partnership may organize the project, a 
Partnership must designate as the fiscal agent for its project under 
GEAR UP--
    (a) A local educational agency; or
    (b) An institution of higher education that is not pervasively 
sectarian.

(Authority: 20 U.S.C. 1070a-22)



Sec. 694.9  What is the maximum indirect cost rate for an agency of a 
State or local government?

    Notwithstanding 34 CFR 75.560-75.562 and 34 CFR 80.22, the maximum 
indirect cost rate that an agency of a State or local government 
receiving funds under GEAR UP may use to charge indirect costs to these 
funds is the lesser of--
    (a) The rate established by the negotiated indirect cost agreement; 
or
    (b) Eight percent of a modified total direct cost base.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)



Sec. 694.10  What are the requirements for awards under the program's 
scholarship component under section 404E of the HEA?

    (a) Amount of scholarship. (1) Except as provided in paragraph 
(a)(2) of this section, the amount of a scholarship awarded under 
section 404E of the HEA must be at least the lesser of--
    (i) 75 percent of the average cost of attendance, as determined 
under section 472 of the HEA, for in-State students in 4-year programs 
of instruction at public institutions of higher education in the State; 
or
    (ii) The maximum Federal Pell Grant award funded for the award year 
in which the scholarship will be awarded.
    (2) If a student who is awarded a GEAR UP scholarship attends an 
institution on a less than full-time basis during any award year, the 
State or Partnership awarding the GEAR UP scholarship may reduce the 
scholarship amount, but in no case shall the percentage reduction in the 
scholarship be greater than the percentage reduction in tuition and fees 
charged to that student.
    (b) Pell Grant recipient priority. A State, or a Partnership that 
chooses to participate in the scholarship component under section 404E 
of the HEA in its GEAR UP project--
    (1) Must award GEAR UP scholarships first to students who will 
receive, or are eligible to receive, a Federal Pell Grant during the 
award year in which the GEAR UP scholarship is being awarded and who are 
eligible for a GEAR UP scholarship under the eligibility requirements in 
section 404E(d) of the HEA; and
    (2) May, if GEAR UP scholarship funds remain after awarding 
scholarships to students under paragraph (b)(1) of this section, award 
GEAR UP scholarships to other eligible students (who will not receive a 
Federal Pell Grant) after considering the need of those students for 
GEAR UP scholarships.
    (c) Cost of attendance. A GEAR UP scholarship, in combination with 
other student financial assistance awarded under any title IV HEA 
program and any other grant or scholarship assistance, may not exceed 
the student's cost of attendance.

[[Page 918]]

    (d) Continuation scholarships. A State, or a Partnership that 
chooses to participate in the scholarship component in accordance with 
section 404E of the HEA in its GEAR UP project, must award continuation 
scholarships in successive award years to each student who received an 
initial scholarship and who continues to be eligible for a scholarship.
    (e) Other grant assistance. A GEAR UP scholarship may not be 
considered in the determination of a student's eligibility for other 
grant assistance provided under title IV of the HEA.

(Authority: 20 U.S.C. 1070a-25)

[65 FR 24760, Apr. 27, 2000, as amended at 67 FR 67083, Nov. 1, 2002]




Sec. 694.11  Under what conditions may a Partnership that does not participate 
in the GEAR UP scholarship component under section 404E of the HEA provide 
          financial assistance for postsecondary education to students 
          under the GEAR UP early intervention component?

    A GEAR UP Partnership that does not participate in the GEAR UP 
scholarship component may provide financial assistance for postsecondary 
education, either with funds under this chapter, (Under Chapter 2 of 
subpart 2 of Part A of Title IV of the HEA,) or with non-Federal funds 
used to comply with the matching requirement, to students who 
participate in the early intervention component of GEAR UP if--
    (a) The financial assistance is directly related to, and in support 
of, other activities of the Partnership under the early intervention 
component of GEAR UP; and
    (b) It complies with the requirements in Sec. 694.10.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)



Sec. 694.12  How does a State determine which State agency will apply for, 
and administer, a State grant under this program?

    The Governor of a State must designate which State agency applies 
for, and administers, a State grant under GEAR UP.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)



Sec. 694.13  What requirements must be met by a Partnership or State 
participating in GEAR UP with respect to 21st Century Scholarship Certificates?

    (a) A State or Partnership must provide, in accordance with 
procedures the Secretary may specify, a 21st Century Scholar Certificate 
from the Secretary to each student participating in the early 
intervention component of its GEAR UP project.
    (b) 21st Century Scholarship Certificates must be personalized and 
indicate the amount of Federal financial aid for college that a student 
may be eligible to receive.

(Authority: 20 U.S.C. 1070a-26)



Sec. 694.14  What requirements apply to a State that served students 
under the National Early Intervention Scholarship and Partnership program (NEISP) and that 
          receives a GEAR UP grant?

    Any State that receives a grant under this part and that served 
students under the NEISP program on October 6, 1998 must continue to 
provide services under this part to those students until they complete 
secondary school.

(Authority: 20 U.S.C. 1070a-21)



Sec. 694.15  What priorities may the Secretary establish for a GEAR UP 
grant?

    For any fiscal year, the Secretary may select one or more of the 
following priorities:
    (a) Projects by Partnerships or States that serve a substantial 
number or percentage of students who reside, or attend a school, in an 
Empowerment Zone, including a Supplemental Empowerment Zone, or 
Enterprise Community designated by the U.S. Department of Housing and 
Urban Development or the U.S. Department of Agriculture.
    (b) Partnerships that establish or maintain a financial assistance 
program that awards scholarships to students, either in accordance with 
section 404E of the HEA, or in accordance with Sec. 694.11, to 
strengthen the early

[[Page 919]]

intervention component of its GEAR UP project.

(Authority: 20 U.S.C. 1070a-21 to 1070a-28)

[[Page 921]]



      CHAPTER VII--OFFICE OF EDUCATIONAL RESEARCH AND IMPROVEMENT,






                         DEPARTMENT OF EDUCATION






                               [RESERVED]




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[[Page 923]]



               CHAPTER XI--NATIONAL INSTITUTE FOR LITERACY




  --------------------------------------------------------------------
Part                                                                Page
1100            National Institute for Literacy: Literacy 
                    Leader Fellowship Program...............         925

[[Page 925]]



PART 1100--NATIONAL INSTITUTE FOR LITERACY: LITERACY LEADER FELLOWSHIP 
PROGRAM--Table of Contents




                           Subpart A--General

Sec.
1100.1  What is the Literacy Leader Fellows Program?
1100.2  Who is eligible for a fellowship?
1100.3  What types of projects may a fellow conduct under this program?
1100.4  What regulations apply?
1100.5  What definitions apply?
1100.6  What priorities may the Director establish?

        Subpart B--How Does an Individual Apply for a Fellowship?

1100.10  What categories of fellowships does the Institute award?
1100.11  How does an individual apply for a fellowship?
1100.12  What applications are not evaluated for funding?

          Subpart C--How Does the Director Award a Fellowship?

1100.20  How is a fellow selected?
1100.21  What selection criteria does the Director use to rate an 
          applicant?
1100.22  How does the Director determine the amount of a fellowship?
1100.23  What payment methods may the Director use?
1100.24  What are the procedures for payment of a fellowship award 
          directly to the fellow?
1100.25  What are the procedures for payment of a fellowship award 
          through the fellow's employer?

           Subpart D--What Conditions Must Be Met by a Fellow?

1100.30  Where may the fellowship project be conducted?
1100.31  Who is responsible for oversight of fellowship activities?
1100.32  What is the duration of a fellowship?
1100.33  What reports are required?

    Authority: 20 U.S.C. 1213c(e).

    Source: 65 FR 11895, Mar. 7, 2000, unless otherwise noted.



Sec. 1100.1  What is the Literacy Leader Fellowship Program?

    (a) Under the Literacy Leader Fellowship Program, the Director of 
the National Institute for Literacy provides financial assistance to 
outstanding individuals who are pursuing careers in adult education, 
adult literacy or the adult components of family literacy, as defined in 
sections 1202(e)(3) (A), (B), and (C) of the Elementary and Secondary 
Education Act of 1965, as amended (20 USC 6362(e)(3) (A), (B), and (C)).
    (b) Fellowships are awarded to these individuals for the purpose of 
carrying out short-term, innovative projects that contribute to the 
knowledge base of the adult education or adult or family literacy field.
    (c) Fellowships are intended to benefit the fellow, the Institute, 
and the national literacy field by providing the fellow with the 
opportunity to interact with national leaders in the field and make 
contributions to federal policy initiatives that promote a fully 
literate adult population.



Sec. 1100.2  Who is eligible for a fellowship?

    (a) Only individuals are eligible to be recipients of fellowships.
    (b) To be eligible for a fellowship under this program, an 
individual must be--
    (1) A citizen or national of the United States, or a permanent 
resident of the United States, or an individual who is in the United 
States for other than temporary purposes and intends to become a 
permanent resident;
    (2) Eligible for Federal assistance under the terms of 34 CFR 75.60 
and 75.61; and
    (3) Either an adult or family literacy worker or an adult learner as 
defined in Sec. 1105.5.
    (c) An individual who has received a fellowship award in a prior 
year is not eligible for another award.
    (d) Several individuals may apply jointly for one award, if each 
individual will contribute significantly to the proposed project and if 
the proposed project will develop leadership for each individual.



Sec. 1100.3  What type of project may a fellow conduct under this program?

    (a) Under the auspices of the Institute, and in accordance with the 
Fellowship Agreement, a Literacy Leader Fellow may use a fellowship 
awarded under this part to engage in research,

[[Page 926]]

education, training, technical assistance, or other activities that 
advance the field of adult education, adult or family literacy, 
including the training of volunteer literacy providers at the national, 
State, or local level.
    (b) a Literacy Leader Fellow may not use a fellowship awarded under 
this part for any of the following:
    (1) Tuition and fees for continuing the education of the applicant 
where this is the sole or primary purpose of the project.
    (2) Planning and implementing fundraisers
    (3) General program operations and administration.
    (4) Activities that otherwise do not meet the purposes of the 
Literacy Leader Fellowship program, as described in paragraph (a) of 
this section.



Sec. 1100.4  What regulations apply?

    This program is governed by the regulations in this part and the 
following additional regulations:
    34 CFR 74.36, Intangible property;
    34 CFR 74.61, Termination
    34 CFR 75.60, Individuals ineligible to receive assistance
    34 CFR 75.61, Certification of eligibility
    34 CFR part 85, Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants).



Sec. 1100.5  What definitions apply?

    (a) The definitions in 34 CFR 77.1, except that the definitions of 
``Applicant''; ``Application'', ``Award'', and ``Project'' do not apply 
to this part.
    (b) Other definitions. The following definitions also apply to this 
part:
    Adult learner means an individual over 16 years old who is pursuing 
or has completed some form of literacy or basic skills training, 
including preparation for the G.E.D.
    Applicant means an individual (or more than one individual, if 
applying jointly) requesting a fellowship under this program.
    Application means a written request for a fellowship under this 
program.
    Award means an amount of funds provided for fellowship activities.
    Board means the National Institute for Literacy's Advisory Board 
established pursuant to section 242(e) of the Workforce Investment Act 
of 1998 (20 U.S.C. 9252(e)).
    Director means the Director of the National Institute for Literacy.
    Family literacy, for purposes of the Literacy Leader Fellowship 
Program, means any of the adult components of family literacy, as 
defined in sections 1202(e)(3)(A), (B), and (C) of the Elementary and 
Secondary Education Act of 1965, as amended (20 U.S.C. 6362(e)(3)(A), 
(B), and (C)), including interactive literacy activities between parents 
and their children, training for parents regarding how to be the primary 
teacher for their children and full partners in the education of their 
children, or parent literacy training that leads to economic self-
sufficiency.
    Fellow means a recipient of a fellowship.
    Fellowship means an award of financial assistance made by the 
Institute to an individual pursuant to section 242(d) of the Workforce 
Investment Act of 1998 (20 U.S.C. 9252(d)) to enable that individual to 
conduct research or other authorized literacy activities under the 
auspices of the Institute.
    Fellowship Agreement means a written agreement entered into between 
the Institute and a fellow, which, when executed, has the legal effect 
of obligating the fellowship award, and which states the rights and 
obligations of the parties.
    Institute means the National Institute for Literacy.
    Literacy worker means an individual who is pursuing a career in 
adult literacy or family literacy (as defined above) or a related field 
and who has a minimum of five years of relevant academic, volunteer or 
professional experience in the adult literacy, family literacy, adult 
education, or related field. Relevant experience includes teaching, 
policymaking, administration, or research.
    Project means the work to be engaged in by the fellow during the 
period of the fellowship.
    Research means one or more of the following activities in literacy 
or education or education related fields: basic

[[Page 927]]

and applied research, planning, surveys, assessments, evaluations, 
investigations, experiments, development and demonstrations.



Sec. 1100.6  What priorities may the Director establish?

    The Director may, through a notice published in the Federal 
Register, select annually one or more priorities for funding. These 
priorities may be chosen from the areas of greatest immediate concern to 
the Institute and may include, but are not limited to, the following 
areas:
    (a) Developing leadership in adult learners. Because adult learners 
are the true experts on literacy, they are an important resource for the 
field. Their firsthand experience as ``customers'' of the literacy 
system can be invaluable in assisting the field in moving forward, 
particularly in terms of raising public awareness and understanding 
about literacy.
    (b) Expanding the use of technology in literacy programs. One of the 
Institute's major projects is the Literacy Information aNd Communication 
System (LINCS), an Internet-based information system that provides 
timely information and abundant resources to the literacy community. 
Keeping the literacy community up to date in the Information Age is 
vital.
    (c) Improving accountability for literacy programs. Literacy 
programs must develop accountability systems that demonstrate their 
effectiveness in helping adult learners contribute more fully in the 
workplace, family and community. There is growing interest in results-
oriented literacy practice, especially as related to the Equipped for 
the Future (EFF) framework.
    (d) Raising public awareness about literacy. The Institute is 
leading a national effort to raise public awareness that literacy is 
part of the solution to many social concerns, including health, welfare, 
the economy, and the well-being of children. Projects that enhance this 
effort will be given priority consideration.



        Subpart B--How Does an Individual Apply for a Fellowship?



Sec. 1100.10  What categories of fellowships does the Institute award?

    The Institute awards two categories of Literacy Leadership 
Fellowships:
    (a) Literacy Worker Fellowships; and
    (b) Adult Learner Fellowships.



Sec. 1100.11  How does an individual apply for a fellowship?

    An individual shall apply to the Director for a fellowship award in 
response to an application notice published by the Director in the 
Federal Register. The application must describe a plan for one or more 
of the activities stated in Sec. 1100.3 that the applicant proposes to 
conduct under the fellowship. The application must indicate which 
category of fellowship, as described in Sec. 1100.10, most accurately 
describes the applicant. Applicants must also submit for letters for 
recommendation and certain forms, assurances and certifications, 
including the certification required under 34 CFR 75.61. For applicants 
who propose to conduct the fellowship project on a part-time basis while 
undertaking other paid employment, one of the four required letters of 
recommendation must be from the applicant's employer, and must include a 
statement that the applicant's workload will not exceed 100 percent of 
time.

(Approved by the Office of Management and Budget under OMB Control 
Number 3430-0003, Expiration Date 6/30/2000)



Sec. 1100.12  What applications are not evaluated for funding?

    The Director does not evaluate an application if--
    (a) The applicant is not eligible under Sec. 1100.2;
    (b) The applicant does not comply with all of the procedural rules 
that govern the submission of applications for Literacy Leader 
Fellowship funds;
    (c) The application does not contain the information required by the 
Institute;

[[Page 928]]

    (d) The application proposes a project for which a fellow may not 
use the fellowship funds, as described in Sec. 1100.3(b).
    (e) The application is not submitted by the deadline stated in the 
application notice.



          Subpart C--How Does the Director Award a Fellowship?



Sec. 1100.20  How is a fellow selected?

    (a) The Director selects applications for fellowships on the basis 
of the selection criteria in Sec. 1100.21 and any priorities that have 
been published in the Federal Register and are applicable to the 
selection of applications.
    (b)(1) The Director may use experts from the literacy field to rank 
applications according to the selection criteria in Sec. 1100.21, and 
then provide the top-ranked applications to the Institute's Advisory 
Board.
    (2) The Institute's Advisory Board evaluates these applications 
based on the selection criteria in Sec. 1100.21 and makes funding 
recommendations to the Director.
    (3) The Director then determines the number of awards to be made in 
each fellowship category and the order in which applications will be 
selected for fellowships, based on the initial rank order, 
recommendations by the board, and any other information relevant to any 
of the selection criteria, applicable priorities, or the purposes of the 
Literacy Leader Fellowship Program, including whether the selection of 
an application would increase the diversity of fellowship projects under 
this program.



Sec. 1100.21  What selection criteria does the Director use to rate an applicant?

    The Director uses the following criteria in evaluating each 
applicant for a fellowship:
    (a) Quality of plan. (45 points) The Director uses the following 
criteria to evaluate the quality of the proposed project:
    (1) The proposed project deals with an issue of major concern to the 
literacy field.
    (2) The design of the project is strong and feasible.
    (3) The project addresses critical issues in an innovative way.
    (4) The plan demonstrates a knowledge of similar programs and an 
intention, where appropriate, to coordinate with them.
    (5) The applicant describes adequate support and resources for the 
project.
    (6) The plan includes evaluation methods to determine the 
effectiveness of the project.
    (7) The project results are likely to contribute to the knowledge 
base in literacy or adult education, and to federal policy initiatives 
in these or related areas.
    (8) The project will enhance literacy or adult education practice.
    (9) The project builds research capacity or improves practice within 
the field.
    (b) Qualifications of applicant. (25 points) The Director uses the 
following criteria to evaluate the qualifications of the applicant:
    (1) The applicant has a strong background in the adult or family 
literacy field. (Include all relevant experience, which many include 
experience as a volunteer or an adult learner.)
    (2) The applicant has expertise in the proposed area of the project.
    (3) The applicant has demonstrated the ability to complete a quality 
project or has shown leadership in this area.
    (4) The applicant provides letters of recommendation that show 
strong knowledge by others in the literacy field of the applicant's 
background and past work.
    (c) Relevance to the Institute. (10 points) The Director uses the 
following criteria to evaluate the relevance of the applicant's proposal 
to the Institute:
    (1) The project significantly relates to the purposes and work of 
the Institute.
    (2) The applicant proposes a minimum of four visits to the Institute 
for quarterly meetings (this may be adjusted according to the number of 
months to be served in the fellowship) and, if necessary, depending on 
the nature and scope of the proposed project, to spend an additional 
portion of the project time at the Institute.

[[Page 929]]

    (d) Dissemination plan. (10 points) the Director uses the following 
criteria to evaluate the quality of the dissemination plan;
    (1) The applicant clearly specifies what information will be made 
available to the field and how this information will further the efforts 
of the field.
    (2) The applicant describes how this information will be shared with 
the field (e.g., print, on-line, presentations, video, etc.).
    (e) Budget. (10 points) The Director uses the following criteria to 
evaluate the budget:
    (1) The budget will adequately support the project.
    (2) The costs are clearly related to the objectives of the project.
    (3) The budget is cost effective.
    (4) The budget narrative clearly describes the budget and how costs 
are calculated.



Sec. 1100.22  How does the Director determine the amount of a fellowship?

    The amount of the fellowship will not exceed $70,000, and shall 
consist of--
    (a) A stipend, calculated on the basis of either--
    (1) The fellow's current annual salary, prorated for the length of 
the fellowship salary reimbursement; or
    (2) If a fellow has no current salary, the fellow's education and 
experience; and
    (b) A subsistence allowance, materials allowance (covering costs of 
materials and supplies directly related to the completion of the 
project), and travel expenses (including expenses to attend quarterly 
meetings in Washington, DC) related to the fellowship and necessary to 
complete the scope of work outlined in the proposal, consistent with 
Title 5 U.S.C. chapter 57.



Sec. 1100.23  What payment methods may the Director use?

    (a) Director will pay a fellowship award directly to the fellow or 
through the fellow's employer. The application should specify if the 
fellow wishes to be paid directly or through the fellow's employer.
    (b) The Director considers the preferences of the fellow in 
determining whether to pay a fellowship award directly to the fellow or 
through the fellow's employer; however, the Director pays a fellowship 
award through the fellow's employer only if the employer enters into an 
agreement with the Director to comply the provisions of Sec. 1100.25.



Sec. 1100.24  What are the procedures for payment of a fellowship award 
directly to the fellow?

    (a) If the Director pays fellowship award directly to the fellow 
after the Director determines the amount of a fellowship award, the 
fellowship recipient shall submit a payment schedule to the Director for 
approval. The Director advises the recipient of the approved schedule.
    (b) If a fellow does not complete the fellowship, or if the 
Institute terminates the fellowship, the fellow shall return to the 
Director a prorated portion of the stipend and any unused subsistence 
and materials allowance and travel funds at the time and in the manner 
required by the Director.



Sec. 1100.25  What are the procedures for payment of a fellowship award 
through the fellow's employer?

    (a) If the Director pays a fellowship award through the fellow's 
employer, the employer shall submit a payment schedule to the Director 
for approval.
    (b) The employer shall pay the fellow the stipend, subsistence and 
materials allowance, and travel funds according to the payment schedule 
approved by the Director. If the fellow does not complete the 
fellowship, the fellow shall return to the employer a prorated portion 
of the stipend and any unused subsistence and materials allowance and 
travel funds. The employer shall return the funds to the Director at the 
time and in the manner required by the Director. The employer shall also 
return to the Director any portion of the stipend, subsistence and 
materials allowance and travel funds not yet paid by the employer to the 
fellow.



           Subpart D--What Conditions Must Be Met by a Fellow?



Sec. 1100.30  Where may the fellowship project be conducted?

    (a) A fellow is encouraged to carry out all, or a portion of, the 
fellowship

[[Page 930]]

project at the Institute. At a minimum, a fellow is required to attend 
quarterly meetings at the National Institute for Literacy in Washington, 
D.C. (this may be adjusted according to the number of months served in 
the fellowship).
    (b) Office space and logistics will be provided by the Institute 
when fellows are in residence at the Institute.
    (c) the fellow may also be required to participate in meetings, 
conferences and other activities at the Departments of Education, Labor, 
or Health and Human Services, in Washington D.C., or in site visits to 
other locations, if deemed appropriate for the project being conducted.



Sec. 1100.31  Who is responsible for oversight of fellowship activities?

    (a) All fellowship activities are conducted under the direct or 
general oversight of the Institute. The Institute may arrange through 
written agreement for another Federal agency, or another public or 
private nonprofit agency or organization that is substantially involved 
in literacy research or services, to assume direct supervision of the 
fellowship activities.
    (b) Fellows may be assigned a peer mentor to orient them to the 
Federal System and Institute procedures.



Sec. 1100.32  What is the duration of a fellowship?

    (a) The Institute awards fellowships for a period of at least three 
and not more than 12 months of full-time or part-time activity. 
Applicants proposing part-time projects must devote at least 60 percent 
of time to the project. The 60 percent requirement may be waived at the 
Director's discretion. An award may not exceed 12 months in duration. 
The actual period of the fellowship will be determined at the time of 
award based on proposed activities.
    (b) In order to continue the fellowship to completion, the fellow 
must be making satisfactory progress as determined periodically by the 
Director.
    (c) A fellowship may be terminated under the terms of 34 CFR 74.61.



Sec. 1100.33  What reports are required?

    (a) A fellow shall submit fellowship results to the Institute in 
formats suitable for wide dissemination to policymakers and the public. 
These formats should include, as appropriate to the topic of the 
fellowship and the intended audience, articles for academic journals, 
newspapers, and magazines.
    (b) Each fellowship agreement will contain specific provisions for 
how, when, and in what format the fellow will report on results, and how 
and to whom the results will be disseminated.
    (c) A fellow shall submit a final performance report to the Director 
no later than 90 days after the completion of the fellowship. The report 
must contain a description of the activities conducted by the fellow and 
a thorough analysis of the extent to which, in the opinion of the 
fellow, the objectives of the project have been achieved. In addition, 
the report must include a detailed discussion of how the activities 
performed and results achieved could be used to enhance literacy 
practice in the United States.

(Approved by the Office of Management and Budget under OMB Control 
Number 3430-0003)

[[Page 931]]



               CHAPTER XII--NATIONAL COUNCIL ON DISABILITY




  --------------------------------------------------------------------
Part                                                                Page
1200            Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the National 
                    Council on Disability...................         933

[[Page 933]]



PART 1200--ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN 
PROGRAMS OR ACTIVITIES CONDUCTED BY THE NATIONAL COUNCIL ON DISABILITY--
Table of Contents




Sec.
1200.101  Purpose.
1200.102  Application.
1200.103  Definitions.
1200.104-1200.109  [Reserved]
1200.110  Self-evaluation.
1200.111  Notice.
1200.112-1200.129  [Reserved]
1200.130  General prohibitions against discrimination.
1200.131-1200.139  [Reserved]
1200.140  Employment.
1200.141-1200.148  [Reserved]
1200.149  Program accessibility: Discrimination prohibited.
1200.150  Program accessibility: Existing facilities.
1200.151  Program accessibility: New construction and alterations.
1200.152-1200.159  [Reserved]
1200.160  Communications.
1200.161-1200.169  [Reserved]
1200.170  Compliance procedures.
1200.171-1200.999  [Reserved]

    Authority: 29 U.S.C. 794.

    Source: 58 FR 57698, 57699, Oct. 26, 1993, unless otherwise noted.



Sec. 1200.101  Purpose.

    The purpose of this part is to effectuate section 119 of the 
Rehabilitation, Comprehensive Services, and Developmental Disabilities 
Amendments of 1978, which amended section 504 of the Rehabilitation Act 
of 1973 to prohibit discrimination on the basis of handicap in programs 
or activities conducted by Executive agencies or the United States 
Postal Service.



Sec. 1200.102  Application.

    This part (Secs. 1200.101--1200.170) applies to all programs or 
activities conducted by the agency, except for programs or activities 
conducted outside the United States that do not involve individuals with 
handicaps in the United States.



Sec. 1200.103  Definitions.

    For purposes of this part, the term--
    Assistant Attorney General means the Assistant Attorney General, 
Civil Rights Division, United States Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, and other similar services and devices. Auxiliary aids 
useful for persons with impaired hearing include telephone handset 
amplifiers, telephones compatible with hearing aids, telecommunication 
devices for deaf persons (TTD's), interpreters, notetakers, written 
materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the agency's alleged 
discriminatory action in sufficient detail to inform the agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Historic preservation programs means programs conducted by the 
agency that have preservation of historic properties as a primary 
purpose.
    Historic properties means those properties that are listed or 
eligible for listing in the National Register of Historic Places or 
properties designated as historic under a statute of the appropriate 
State or local government body.
    Individual with handicaps means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes--

[[Page 934]]

    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech, and hearing impairments, 
cerebral palsy, epilepsy, muscular dystrophy, multiple sclerosis, 
cancer, heart disease, diabetes, mental retardation, emotional illness, 
HIV disease (whether symptomatic or asymptomatic), and drug addiction 
and alcoholism.
    (2) Major life activities include functions such as caring for one's 
self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the agency as having such an impairment.
    Qualified individual with handicaps means--
    (1) With respect to preschool, elementary, or secondary education 
services provided by the agency, an individual with handicaps who is a 
member of a class of persons otherwise entitled by statute, regulation, 
or agency policy to receive education services from the agency;
    (2) With respect to any other agency program or activity under which 
a person is required to perform services or to achieve a level of 
accomplishment, an individual with handicaps who meets the essential 
eligibility requirements and who can achieve the purpose of the program 
or activity without modifications in the program or activity that the 
agency can demonstrate would result in a fundamental alteration in its 
nature;
    (3) With respect to any other program or activity, an individual 
with handicaps who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (4) Qualified handicapped person as that term is defined for 
purposes of employment in 29 CFR 1614.203(a)(6), which is made 
applicable to this part by Sec. 1200.140.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
(Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794)), as amended. As used in 
this part, section 504 applies only to programs or activities conducted 
by Executive agencies and not to federally assisted programs.
    Substantial impairment means a significant loss of the integrity of 
finished materials, design quality, or special character resulting from 
a permanent alteration.



Secs. 1200.104-1200.109  [Reserved]



Sec. 1200.110  Self-evaluation.

    (a) The agency shall, by November 28, 1994, evaluate its current 
policies and practices, and the effects thereof, that do not or may not 
meet the requirements of this part and, to the extent modification of 
any such policies and practices is required, the agency shall proceed to 
make the necessary modifications.
    (b) The agency shall provide an opportunity to interested persons, 
including individuals with handicaps or organizations representing 
individuals with handicaps, to participate in the self-evaluation 
process by submitting comments (both oral and written).
    (c) The agency shall, for at least three years following completion 
of the

[[Page 935]]

self-evaluation, maintain on file and make available for public 
inspection:
    (1) A description of areas examined and any problems identified; and
    (2) A description of any modifications made.



Sec. 1200.111  Notice.

    The agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the agency, and make such 
information available to them in such manner as the head of the agency 
finds necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this part.



Secs. 1200.112-1200.129  [Reserved]



Sec. 1200.130  General prohibitions against discrimination.

    (a) No qualified individual with handicaps shall, on the basis of 
handicap, be excluded from participation in, be denied the benefits of, 
or otherwise be subjected to discrimination under any program or 
activity conducted by the agency.
    (b)(1) The agency, in providing any aid, benefit, or service, may 
not, directly or through contractual, licensing, or other arrangements, 
on the basis of handicap--
    (i) Deny a qualified individual with handicaps the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified individual with handicaps an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified individual with handicaps with an aid, 
benefit, or service that is not as effective in according equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
individuals with handicaps or to any class of individuals with handicaps 
than is provided to others unless such action is necessary to provide 
qualified individuals with handicaps with aid, benefits, or services 
that are as effective as those provided to others;
    (v) Deny a qualified individual with handicaps the opportunity to 
participate as a member of planning or advisory boards;
    (vi) Otherwise limit a qualified individual with handicaps in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (2) The agency may not deny a qualified individual with handicaps 
the opportunity to participate in programs or activities that are no 
separate or different, despite the existence of permissibly separate or 
different programs or activities.
    (3) The agency may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
or effect of which would--
    (i) Subject qualified individuals with handicaps to discrimination 
on the basis of handicap; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with handicaps.
    (4) The agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would--
    (i) Exclude individuals with handicaps from, deny them the benefits 
of, or otherwise subject them to discrimination under any program or 
activity conducted by the agency; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
handicaps.
    (5) The agency, in the selection of procurement contractors, may not 
use criteria that subject qualified individuals with handicaps to 
discrimination on the basis of handicap.
    (6) The agency may not administer a licensing or certification 
program in a manner that subjects qualified individuals with handicaps 
to discrimination on the basis of handicap, nor may the agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified

[[Page 936]]

individuals with handicaps to discrimination on the basis of handicap. 
However, the programs or activities of entities that are licensed or 
certified by the agency are not, themselves, covered by this part.
    (c) The exclusion of nonhandicapped persons from the benefits of a 
program limited by Federal statute or Executive order to individuals 
with handicaps or the exclusion of a specific class of individuals with 
handicaps from a program limited by Federal statute or Executive order 
to a different class of individuals with handicaps is not prohibited by 
this part.
    (d) The agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with handicaps.



Secs. 1200.131-1200.139  [Reserved]



Sec. 1200.140  Employment.

    No qualified individual with handicaps shall, on the basis of 
handicap, be subjected to discrimination in employment under any program 
or activity conducted by the agency. The definitions, requirements, and 
procedures of section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 
791), as established by the Equal Employment Opportunity Commission in 
29 CFR part 1614, shall apply to employment in federally conducted 
programs or activities.



Secs. 1200.141-1200.148  [Reserved]



Sec. 1200.149  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 1200.150, no qualified 
individual with handicaps shall, because the agency's facilities are 
inaccessible to or unusable by individuals with handicaps, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the agency.



Sec. 1200.150  Program accessibility: Existing facilities.

    (a) General. The agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with handicaps. This paragraph 
does not--
    (1) Necessarily require the agency to make each of its existing 
facilities accessible to and usable by individuals with handicaps;
    (2) In the case of historic preservation programs, require the 
agency to take any action that would result in a substantial impairment 
of significant historic features of an historic property; or
    (3) Require the agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where agency personnel believe that the proposed action 
would fundamentally alter the program or activity or would result in 
undue financial and administrative burdens, the agency has the burden of 
proving that compliance with Sec. 1200.150(a) would result in such 
alteration or burdens. The decision that compliance would result in such 
alteration or burdens must be made by the agency head or his or her 
designee after considering all agency resources available for use in the 
funding and operation of the conducted program or activity, and must be 
accompanied by a written statement of the reasons for reaching that 
conclusion. If an action would result in such an alteration or such 
burdens, the agency shall take any other action that result in such an 
alteration or such burdens but would nevertheless ensure that 
individuals with handicaps receive the benefits and services of the 
program or activity.
    (b) Methods--(1) General. The agency may comply with the 
requirements of this section through such means as redesign of 
equipment, reassignment of services to accessible buildings, assignment 
of aides to beneficiaries, home visits, delivery of services at 
alternate accessible sites, alteration of existing facilities and 
construction of new facilities, use of accessible rolling stock, or any 
other methods that result in making its programs or activities readily 
accessible to and usable by individuals with handicaps. The agency is 
not required to make structural changes in existing facilities where 
other methods are effective in achieving compliance with this section. 
The agency, in making alterations to existing buildings,

[[Page 937]]

shall meet accessibility requirements to the extent compelled by the 
Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151-4157), 
and any regulations implementing it. In choosing among available methods 
for meeting the requirements of this section, the agency shall give 
priority to those methods that offer programs and activities to 
qualified individuals with handicaps in the most integrated setting 
appropriate.
    (2) Historic preservation programs. In meeting the requirements of 
Sec. 1200.150(a) in historic preservation programs, the agency shall 
give priority to methods that provide physical access to individuals 
with handicaps. In cases where a physical alteration to an historic 
property is not required because of Sec. 1200.150(a)(2) or (a)(3), 
alternative methods of achieving program accessibility include--
    (i) Using audio-visual materials and devices to depict those 
portions of an historic property that cannot otherwise be made 
accessible;
    (ii) Assigning persons to guide individuals with handicaps into or 
through portions of historic properties that cannot otherwise be made 
accessible; or
    (iii) Adopting other innovative methods.
    (c) Time period for compliance. The agency shall comply with the 
obligations established under this section by January 24, 1994, except 
that where structural changes in facilities are undertaken, such changes 
shall be made by November 26, 1996, but in any event as expeditiously as 
possible.
    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve program accessibility, the 
agency shall develop, by May 26, 1994, a transition plan setting forth 
the steps necessary to complete such changes. The agency shall provide 
an opportunity to interested persons, including individuals with 
handicaps or organizations representing individuals with handicaps, to 
participate in the development of the transition plan by submitting 
comments (both oral and written). A copy of the transition plan shall be 
made available for public inspection. The plan shall, at a minimum--
    (1) Identify physical obstacles in the agency's facilities that 
limit the accessibility of its programs or activities to individuals 
with handicaps;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for implementation of the 
plan.



Sec. 1200.151  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with handicaps. The definitions, requirements, and standards 
of the Architectural Barriers Act (42 U.S.C. 4151-4157), as established 
in 41 CFR 101-19.600 to 101-19.607, apply to buildings covered by this 
section.



Secs. 1200.152-1200.159  [Reserved]



Sec. 1200.160  Communications.

    (a) The agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The agency shall furnish appropriate auxiliary aids where 
necessary to afford an individual with handicaps an equal opportunity to 
participate in, and enjoy the benefits of, a program or activity 
conducted by the agency.
    (i) In determining what type of auxiliary aid is necessary, the 
agency shall give primary consideration to the requests of the 
individual with handicaps.
    (ii) The agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices

[[Page 938]]

for deaf persons (TDD's) or equally effective telecommunication systems 
shall be used to communicate with persons with impaired hearing.
    (b) The agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The agency shall provide signage at a primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and administrative 
burdens. In those circumstances where agency personnel believe that the 
proposed action would fundamentally alter the program or activity or 
would result in undue financial and administrative burdens, the agency 
has the burden of proving that compliance with Sec. 1200.160 would 
result in such alteration or burdens. The decision that compliance would 
result in such alteration or burdens must be made by the agency head or 
his or her designee after considering all agency resources available for 
use in the funding and operation of the conducted program or activity 
and must be accompanied by a written statement of the reasons for 
reaching that conclusion. If an action required to comply with this 
section would result in such an alteration or such burdens, the agency 
shall take any other action that would not result in such an alteration 
or such burdens but would nevertheless ensure that, to the maximum 
extent possible, individuals with handicaps receive the benefits and 
services of the program or activity.



Secs. 1200.161-1200.169  [Reserved]



Sec. 1200.170  Compliance procedures.

    (a) Except as provided in paragraph (b) of this section, this 
section applies to all allegations of discrimination on the basis of 
handicap in programs and activities conducted by the agency.
    (b) The agency shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1614 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791).
    (c) The Executive Director shall be responsible for coordinating 
implementation of this section. Complaints may be sent to the National 
Council on Disability, 800 Independence Avenue, SW., suite 814, 
Washington, DC 20591.
    (d) The agency shall accept and investigate all complete complaints 
for which it has jurisdiction. All complete complaints must be filed 
within 180 days of the alleged act of discrimination. The agency may 
extend this time period for good cause.
    (e) If the agency receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate Government 
entity.
    (f) The agency shall notify the Architectural and Transportation 
Barriers Compliance Board upon receipt of any complaint alleging that a 
building or facility that is subject to the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151-4157), is not readily accessible to 
and usable by individuals with handicaps.
    (g) Within 180 days of the receipt of a complete complaint for which 
it has jurisdiction, the agency shall notify the complainant of the 
results of the investigation in a letter containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found; and
    (3) A notice of the right to appeal.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 90 days of receipt from 
the agency of the letter required by Sec. 1200.170(g). The agency may 
extend this time for good cause.
    (i) Timely appeals shall be accepted and processed by the head of 
the agency.
    (j) The head of the agency shall notify the complainant of the 
results of

[[Page 939]]

the appeal within 60 days of the receipt of the request. If the head of 
the agency determines that additional information is needed from the 
complainant, he or she shall have 60 days from the date of receipt of 
the additional information to make his or her determination on the 
appeal.
    (k) The time limits cited in paragraphs (g) and (j) of this section 
may be extended with the permission of the Assistant Attorney General.
    (l) The agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.



Secs. 1200.171-1200.999  [Reserved]

[[Page 941]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 943]]

            Material Approved for Incorporation by Reference

                      (Revised as of July 1, 2003)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


34 CFR (PARTS 400 TO END )

OFFICE OF POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION
                                                                  34 CFR


American Educational Research Association, American Psychological 
Association, and National Council on Measurement in Education

  1200 17th Street, NW., Washington, DC 20036
Standards for Educational and Psychological                668.148(a)(2)
  Testing, 1985 Edition, with amendments dated 
  June 2, 1989.



[[Page 945]]



                    Table of CFR Titles and Chapters




                      (Revised as of July 1, 2003)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                          Title 2 [Reserved]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  General Accounting Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Part 2100)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Part 3201)
     XXIII  Department of Energy (Part 3301)
      XXIV  Federal Energy Regulatory Commission (Part 3401)
       XXV  Department of the Interior (Part 3501)
      XXVI  Department of Defense (Part 3601)

[[Page 946]]

    XXVIII  Department of Justice (Part 3801)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Part 4301)
      XXXV  Office of Personnel Management (Part 4501)
        XL  Interstate Commerce Commission (Part 5001)
       XLI  Commodity Futures Trading Commission (Part 5101)
      XLII  Department of Labor (Part 5201)
     XLIII  National Science Foundation (Part 5301)
       XLV  Department of Health and Human Services (Part 5501)
      XLVI  Postal Rate Commission (Part 5601)
     XLVII  Federal Trade Commission (Part 5701)
    XLVIII  Nuclear Regulatory Commission (Part 5801)
         L  Department of Transportation (Part 6001)
       LII  Export-Import Bank of the United States (Part 6201)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Part 6401)
      LVII  General Services Administration (Part 6701)
     LVIII  Board of Governors of the Federal Reserve System (Part 
                6801)
       LIX  National Aeronautics and Space Administration (Part 
                6901)
        LX  United States Postal Service (Part 7001)
       LXI  National Labor Relations Board (Part 7101)
      LXII  Equal Employment Opportunity Commission (Part 7201)
     LXIII  Inter-American Foundation (Part 7301)
       LXV  Department of Housing and Urban Development (Part 
                7501)
      LXVI  National Archives and Records Administration (Part 
                7601)
     LXVII  Institute of Museum and Library Services (Part 7701)
      LXIX  Tennessee Valley Authority (Part 7901)
      LXXI  Consumer Product Safety Commission (Part 8101)
    LXXIII  Department of Agriculture (Part 8301)
     LXXIV  Federal Mine Safety and Health Review Commission (Part 
                8401)
     LXXVI  Federal Retirement Thrift Investment Board (Part 8601)
    LXXVII  Office of Management and Budget (Part 8701)

                      Title 6--Homeland Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture

[[Page 947]]

         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy, Department of Agriculture (Parts 
                2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)

[[Page 948]]

    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--599)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1400)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 1000-
                -1099)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Part 1800)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

[[Page 949]]

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)

[[Page 950]]

        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  United States Customs Service, Department of the 
                Treasury (Parts 1--199)

[[Page 951]]

        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 800-
                -899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training, Department of Labor 
                (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)

[[Page 952]]

        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 1600-
                -1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)

[[Page 953]]

       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Part 1200)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--299)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 954]]

        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 0-
                -99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 200-
                -399)

[[Page 955]]

        IV  Secret Service, Department of the Treasury (Parts 400-
                -499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Corps of Engineers, Department of the Army (Parts 200-
                -399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)

[[Page 956]]

        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                        Title 35--Panama Canal

         I  Panama Canal Regulations (Parts 1--299)

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 300-
                -399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Part 1501)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

[[Page 957]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Rate Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--799)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
       201  Federal Information Resources Management Regulation 
                (Parts 201-1--201-99) [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)

[[Page 958]]

       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-70)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10005)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)

[[Page 959]]

        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Transportation (Parts 1--
                199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Transportation (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 300-
                -399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Department of Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)

[[Page 960]]

         7  United States Agency for International Development 
                (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        35  Panama Canal Commission (Parts 3500--3599)
        44  Federal Emergency Management Agency (Parts 4400--4499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399)
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

[[Page 961]]

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Research and Special Programs Administration, 
                Department of Transportation (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Transportation (Parts 400--
                499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Bureau of Transportation Statistics, Department of 
                Transportation (Parts 1400--1499)
       XII  Transportation Security Administration, Department of 
                Transportation (Parts 1500--1599)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR



[[Page 963]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of July 1, 2003)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development, United      22, II
     States
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 964]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Corporation for National and Community Service    45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs Service, United States                    19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 965]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 2
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   5, LIV; 40, I, IV, VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 966]]

  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
  Federal Acquisition Regulation                  48, 44
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Accounting Office                         4, I
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5

[[Page 967]]

  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          5, XLV; 45, Subtitle A
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V; 42, I
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Federal Emergency Management Agency             44, I
  Immigration and Naturalization                  8, I
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V; 42, I
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department

[[Page 968]]

  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                5, XXVIII; 28, I, XI; 40, 
                                                  IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II

[[Page 969]]

Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II
Micronesian Status Negotiations, Office for       32, XXVII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Bureau of Standards                      15, II
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
National Weather Service                          15, IX
Natural Resources Conservation Service            7, VI
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI

[[Page 970]]

Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Panama Canal Commission                           48, 35
Panama Canal Regulations                          35, I
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Postal Rate Commission                            5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Regional Action Planning Commissions              13, V
Relocation Allowances                             41, 302
Research and Special Programs Administration      49, I
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L

[[Page 971]]

  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Research and Special Programs Administration    49, I
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Security Administration          49, XII
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs Service, United States                  19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 973]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations which were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000,'' published in 
11 separate volumes.

                                  2001

34 CFR
                                                                   66 FR
                                                                    Page
Chapter VI
606.2  (b) revised..................................................1263
    Regulation at 66 FR 1263 eff. date delayed......................8519
674.9  (h)(1), (2) and (3) amended.................................44006
674.61  (b) amended; (b)(2) removed................................44007
675.26  (d)(2)(i)(A) and authority citation revised................34039
676.21  (b)(1) and authority citation revised......................34039
682.100  (b)(2)(i)(C) amended......................................34762
682.101  (b) amended...............................................34762
682.201  (a)(4)(ii), (6)(iii) and (b)(1)(iv) amended...............44007
682.202  (a)(2)(vi) and (3)(iv) added..............................34762
682.204  (f)(4) redesignated as (f)(3); (a)(1)(iii), (c)(2), (d), 
        (f)(2)(ii) and new (3)(ii) amended.........................34763
682.206  (e)(2) amended............................................34763
682.207  (b)(1)(ii)(B) amended.....................................34763
682.209  (a)(7)(viii)(C) amended...................................34763
682.210  (s)(6) introductory text amended..........................34763
682.211  (i)(4) amended............................................34763
    (f)(5) revised; (f)(6) through (10) redesignated as (f)(7) 
through (11); new (f)(6) and (i)(6) added; new (f)(7) amended......44007
682.215  (b), (e)(1), (i), (f)(2)(iii) and (3)(ii) amended.........34763
682.300  (b)(2)(viii) amended......................................34763
682.302  (b)(2)(iv), (c)(2), (3)(i), (4), (d)(2)(i) and (ii) 
        amended....................................................34763
682.401  (b)(5)(ii), (B) and (C) amended; (d)(4)(iii) revised......34763
682.402  (g)(1)(i), (i)(1)(iii), (l)(1), (2), (i), (ii), (4)(i)(A) 
        and (5)(vii)(A) amended....................................34763
    (l)(5)(vii)(B) amended.........................................34764
682.405  (b)(2) amended............................................34764
682.406  (a)(11) and (12)(v) amended...............................34764
682.410  (a)(2) amended; (a)(2)(iv) through (xii) redesignated as 
        (a)(2)(iii) through (xi)...................................34764
682.414  (a)(1)(ii)(D), (4)(i) and (ii)(J) amended; (a)(5)(ii) 
        redesignated as (a)(5)(iii); new (a)(5)(ii) added..........34764
682.415  (a)(6)(iii), (c)(2)(i), (4), (6)(i) and (d)(1) amended....34764
682.416  (f) amended...............................................34764
682.601  (c)(1)(ii) amended........................................34764
682.603  (f)(1), (2) and (g) revised; (i) amended; (i)(2) removed 
                                                                   34764
682.604  (a)(1), (b)(1), (c)(3) and (e)(1) amended; (c)(11) added 
                                                                   34764
682.610  (b)(5) amended............................................34764
682.705  (b)(2)(v) amended.........................................34764
682.707  (a) introductory text amended.............................34765
682  Appendix D amended............................................34765
685.102  (b)(2)(i)(C) and (iii) amended............................34765
685.200  (a)(1)(v) and (b)(1)(iii) amended.........................34765
    (a)(1)(iv)(A)(2) and (B)(2) amended............................44007
685.202  (a)(2)(i) revised; (a)(3)(i)(C) amended...................34765

[[Page 974]]

685.205  (c)(9) redesignated as (b)(9).............................34765
685.208  (f)(2) amended............................................34765
685.211  (c) heading amended.......................................34765
685.212  (d), (e) and (f) amended..................................34765
685.214  (c)(1)(i) amended.........................................34765
685.215  (c)(1)(i) amended.........................................34765
685.216  (a)(2)(i)(A) and (c)(1)(i)(A) amended.....................34765
685.220  (k) heading amended.......................................34765
685.301  (a)(9), (b)(3)(i) and (8)(iii) added; (b)(8)(ii) and (d) 
        revised....................................................34765
685.303  (b)(4)(ii) revised; (b)(4)(iii) added; (e) introductory 
        text amended...............................................34766
685.304  (a)(1) amended............................................34766
685.400  Heading revised...........................................34766
685.402  Heading revised...........................................34766
692.50  Revised....................................................34039
692.52  Revised....................................................34039
692.53  (c) revised................................................34039
692.54  Revised....................................................34039
692.60  (b) revised; (c) and (d) redesignated as (d) and (e); new 
        (c) added..................................................34039
692.71  Revised....................................................34039
692.72  Added......................................................34040

                                  2002

34 CFR
                                                                   67 FR
                                                                    Page
Chapter VI
600  Authority citation revised....................................67070
600.8  Amended.....................................................67070
600.21  (f) revised; OMB number....................................67070
600.31  (e) revised; OMB number....................................67070
668.2  (b) amended.................................................67071
668.3  Revised.....................................................67071
668.4  Revised.....................................................67071
668.8  (b)(3) revised; (b)(4) removed..............................67072
668.14  (b)(22) revised............................................67072
668.22  (a)(3), (4)(ii)(B), new (d)(2), new (3)(i), new (iii)(B) 
        and (j)(1) amended; (d)(1)(vii) and (2) removed; 
        (d)(1)(viii), (ix), (3) and (4) redesignated as 
        (d)(1)(vii), (viii), (2) and (3); (b)(3)(i), (d)(1)(vi) 
        and new (vii) revised......................................67073
668.32  (e)(2) amended.............................................67073
668.35  (b) through (f) redesignated as (d) through (h); (a)(2) 
        introductory text and new (b) and (c) added; new (e) 
        revised....................................................67073
668.46  (a) amended; (b)(12) added.................................66520
668.84  (a)(1) introductory text amended; Footnote 1 added.........69655
668.151  (a)(2) amended............................................67073
668.164  (g) revised...............................................67073
668.165  (a)(3) revised; OMB Number................................67074
668.171  (b)(2) and (4)(i) amended.................................67074
668.173  (a), (b) and (c) revised; (d) redesignated as (f); new 
        (d) and (e) added; OMB number..............................67074
668.174  (c)(4) revised............................................67075
668.183  (c)(1)(ii) amended; (c)(1)(iii) removed; (c)(1)(iv) 
        redesignated as (c)(1)(iii)................................67075
668.193  (d)(1) amended; (f)(3) removed............................67075
673.5  (f) revised.................................................67075
674.2  (b) amended.................................................67076
674.9  (g) removed; (h) through (l) redesignated as (g) through 
        (k); new (g)(3) amended; new (j) revised...................67076
674.16  (d)(2) revised; (d)(3) added...............................67076
674.17  (a)(2), (c), (d) and (e) removed; (a)(3) redesignated as 
        (a)(2); (a) introductory text, new (2) and (b) amended.....67076
674.19  (e)(4) revised.............................................67076
674.33  (b)(2) introductory text and (3) text revised..............67076
674.34  (e)(4) and (5) amended; (e)(10) revised....................67076
674.39  (a) introductory text and (2) amended; (a)(3) removed......67077
674.42  (a)(11) and (b)(2)(x) added; (b)(3) removed; (b)(4) and 
        (5) redesignated as (b)(3) and (4); (b)(2)(i), (v) through 
        (viiii), (ix) and new (4) amended; (a)(10), (b)(1), (2) 
        introductory text, (iii) and new (3) revised...............67077
674.43  (b)(2) introductory text amended...........................67077
674.45  (a)(1) amended.............................................67077
674.46  (a)(1) introductory text and (i) amended...................67077
674.47  (g)(1) removed; (g)(2), (i) and (ii) redesignated as (g) 
        introductory text, (1) and (2); new (g)(1) and (h) heading 
        amended; (h)(1) revised; (h)(3) added......................67077

[[Page 975]]

674.50  (e)(2)(ii), (3) and (g)(2) amended; (e)(4) removed.........67077
675.2  (b) amended.................................................67078
675.21  (b)(2)(i) revised..........................................67078
682.200  (b)(2)(i) amended.........................................67078
682.204  (a)(8), (9), (d)(7) and (8) added; (l) amended............67078
682.209  (a)(3)(ii)(A), (B), (C) and (8)(iv) amended; (a)(3)(iii) 
        added......................................................67078
682.210  (h)(2), (3)(iv), (4), (s)(6)(vii) and (ix) amended........67078
682.211  (b), (c), (e) and (f)(11) revised; (f) introductory text 
        and (2) amended; (h)(3) redesignated as (h)(4); new (h)(3) 
        added......................................................67079
682.401  (b)(4) amended............................................67079
682.402  (a)(2), (3) and (4) redesignated as (a)(3), (4) and (5); 
        new (a)(2) and (b)(6) added; new (a)(3) and (5)(iii) 
        amended; (f)(4), (g)(1)(i), (h)(1)(i), (3)(iii) and 
        (k)(2)(iii) revised........................................67079
682.405  (a)(1) and (b)(1) amended; (a)(4) removed.................67080
682.414  (a)(5)(ii) revised........................................67080
682.603  (f)(1)(ii)(B) and (2)(i) amended..........................67080
682.604  (f)(1), (2) introductory text, (iii), (3), (g)(1), (2) 
        and (3) revised; (f)(2)(iv) amended; (f)(2)(v) added.......67080
685.102  (b) amended...............................................67081
685.203  (a)(8), (9), (c)(2)(viii) and (ix) added; (h) amended.....67081
685.211  (f) revised...............................................67081
685.212  (a)(3) added..............................................67081
685.220  (l)(3) revised............................................67082
685.301  (a)(9)(i)(B)(2) and (ii)(A) amended.......................67082
685.304  (a)(1), (2), (3), (5), (b)(4) and (5) revised; (b)(1), 
        (2) and (3) amended; (b)(6) redesignated as (b)(7); new 
        (b)(6) added...............................................67082
690.61  (b) amended................................................67083
690.75  (a) revised................................................67083
690.79  Revised....................................................67083
694.10  (e) revised................................................67083
Chapter VII
700  Removed.......................................................78979
701  Removed.......................................................78979
702  Removed.......................................................78979

                                  2003

   (Regulations published from January 1, 2003, through July 1, 2003)

34 CFR
                                                                   68 FR
                                                                    Page
Chapter VI
668.8  (i) reinstated; CFR correction..............................19152
674  Waiver........................................................25821
682  Waiver........................................................25821
685  Waiver........................................................25821


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