[Federal Register Volume 59, Number 15 (Monday, January 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1460]


[[Page Unknown]]

[Federal Register: January 24, 1994]


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Part III





Department of Education





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34 CFR Part 667




State Postsecondary Review Program; Proposed Rule
DEPARTMENT OF EDUCATION

34 CFR Part 667

RIN: 1840-AB89

 
State Postsecondary Review Program

AGENCY: Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes regulations to implement the State 
Postsecondary Review Program (SPRP) authorized under title IV, part H, 
subpart 1 of the Higher Education Act of 1965, as amended (HEA). Under 
the SPRP, the Secretary enters into an agreement with a State in which 
the State designates a postsecondary review entity (SPRE) that is 
responsible for conducting or coordinating reviews of institutions of 
higher education referred to the State by the Secretary under specific 
statutory provisions. The purpose of the reviews is to determine 
whether those institutions should continue to participate in the Title 
IV, HEA programs. The SPRE reviews institutions on the basis of 
standards developed in consultation with institutions located in the 
State. The Secretary reimburses SPREs for costs they incur under the 
SPRP.

DATES: Comments must be received on or before March 21, 1994.

ADDRESSES: All comments concerning these proposed regulations should be 
addressed to John Kolotos, U.S. Department of Education, 400 Maryland 
Avenue, SW., room 4318, ROB-3, Washington, DC 20202-5244.
    A copy of any comments that concern information collection 
requirements should also be sent to the Office of Management and Budget 
at the address listed in the Paperwork Reduction Act section of this 
preamble.

FOR FURTHER INFORMATION CONTACT: John Kolotos. Telephone: (202) 708-
7888. Individuals who use a telecommunications device for the deaf 
(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-
877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through 
Friday.

SUPPLEMENTARY INFORMATION: In order to approve a postsecondary 
education institution to participate in the student financial 
assistance programs authorized under Title IV of the HEA (Title IV, HEA 
programs) and many other Federal programs, the Secretary must 
determine, in part, that the institution satisfies the statutory 
definition of an ``institution of higher education.'' Under the HEA and 
other Federal statutes, one element of that definition requires an 
eligible institution of higher education to be accredited or 
preaccredited by an accrediting agency recognized by the Secretary as a 
reliable authority as to the quality of the education or training 
provided by the institution. Another element requires an eligible 
institution to be legally authorized to provide an educational program 
beyond the secondary level in the State in which it is located. Thus, 
the statutory definition of an institution of higher education provides 
the framework for a shared responsibility among accrediting agencies, 
States, and the Federal government to ensure that the ``gate'' to the 
Title IV, HEA programs is opened to only those institutions that 
provide students with quality education or training worth the time, 
energy, and money they invest in it. The three ``gatekeepers'' sharing 
this responsibility have traditionally been referred to as ``the 
triad.'' While the concept of a triad of entities responsible for 
gatekeeping has had a long history, the triad has not always worked as 
effectively as it should to ensure educational quality, nor has it 
served as an effective deterrent to abuse by institutions participating 
in the Title IV, HEA programs. For several years, certain institutions 
participating in the Title IV, HEA programs have failed to provide 
students with education or training of an acceptable level of quality; 
they have also failed to treat students fairly. In addition, they have 
failed to meet acceptable standards of financial responsibility and 
administrative capability and to adequately protect Title IV, HEA 
program funds entrusted to them. The institutions that have engaged in 
these abusive practices are not restricted to a particular sector of 
higher education. Rather, the abuses have been found in all types of 
institutions participating in the Title IV, HEA programs, including 
those in the private non-profit and public sectors of higher education 
as well as those in the proprietary sector.
    At the same time, gatekeeping functions have not been carried out 
effectively. For example, some accrediting agencies have not taken 
sufficient care to ensure the quality of the education or training 
provided by the institutions or programs they accredit or to protect 
student interests when they accredit particular institutions or 
programs. Moreover, some States have also not taken sufficient care to 
ensure the quality of the education or training provided by the 
institutions they authorize or license to operate in the State or to 
protect student interests. Finally, the Federal government's management 
of its responsibilities to determine eligibility and to certify 
institutions to participate in the Title IV, HEA programs has not 
always been adequate to prevent abusive practices at institutions that 
participate in those programs.
    Consequently, in the Higher Education Amendments of 1992, Public 
Law 102-325, Congress amended the HEA to provide for a new part H of 
Title IV entitled ``Program Integrity Triad.'' Under that part, States 
and accrediting agencies are required to assume major new oversight 
responsibilities, and States, accrediting associations, and the 
Secretary are linked to create a stronger and more coordinated 
evaluation of institutions that participate or wish to participate in 
the Title IV, HEA programs. The Secretary believes that the most 
appropriate approach to this coordinated evaluation of institutions by 
the three components of the triad is a complementary one with each 
component focusing its evaluation on its obligations within the context 
of the HEA. Thus, the focus for accrediting agencies is the quality of 
education or training provided by the institutions or programs they 
accredit. For States, which already had responsibility for determining 
that institutions have the legal authority to operate within the State, 
the HEA added a new focus: reviewing institutions that trigger certain 
statutory review criteria. The focus of the Secretary's evaluation of 
institutions is the administrative and financial capacity of those 
institutions to participate in the Title IV, HEA programs.
    The statute allocates legal responsibility among the entities that 
compose the program integrity triad. While specific statutory 
responsibilities for the three triad entities may overlap, when viewed 
as a whole the triad brings together in a coordinated fashion three 
different but very important aspects of institutional review. Within 
this statutory scheme, the Secretary has sought to assure that the 
gatekeeping system operates as efficiently as possible, with maximum 
integration among the three triad entities and without unnecessary 
burden on postsecondary institutions. In order to assist the Secretary 
in designing a final regulation that achieve these goals, the Secretary 
specifically requests comment on the following questions:
    (1) In several areas, the statute specifically requires each triad 
entity to evaluate an institution under the same or similar standards. 
For example, a SPRE and an accrediting agency may establish different 
standards for evaluating the financial responsibility of an institution 
or for evaluating the success of an institution's educational program. 
Thus, a reviewed institution would need to satisfy the SPRE's and the 
accrediting agency's standards even though those standards address the 
same areas. How should final regulations be structured to both reduce 
the burden on institutions and enable the triad entities to carry out 
effectively their statutory functions?
    (2) Should the final regulations be more explicit in identifying 
levels, characteristics, or definitions for any of the assessment or 
review criteria that a triad entity is expected to consider in its 
evaluation of an institution?
    Subpart 1 of part H creates a new program, the State Postsecondary 
Review Program, or SPRP, under which State oversight of institutions 
participating in the Title IV, HEA programs is strengthened. Subpart 2 
of part H establishes procedures and criteria under which the Secretary 
recognizes an accrediting agency as a reliable authority as to the 
quality of the education or training offered by institutions that the 
agency accredits. Lastly, Subpart 3 specifies the procedures the 
Secretary uses to determine whether an institution meets the 
eligibility requirements and has the administrative capacity and 
financial responsibility to administer the Title IV, HEA programs.
    Along with this Notice of Proposed Rulemaking, the Secretary 
publishes in the Federal Register the NPRM to implement the accrediting 
agency provisions in Subpart 2 of part H of the HEA. This provides 
interested parties the opportunity to comment on the SPRP and 
accreditation NPRMs in a coordinated way. The Secretary also intends to 
publish in the Federal Register a NPRM implementing subpart 3 of part H 
of the HEA before the date the proposed regulations for Subparts 1 and 
2 of part H of the HEA become final regulations.
    Under the SPRP, each State designates a single SPRE that reviews 
institutions participating in the Title IV, HEA programs that are 
referred to the State for review by the Secretary under specific 
statutory provisions.
    The SPRE reviews referred institutions using standards that it must 
develop in consultation with institutions located in the State. Areas 
that those standards must cover are also set forth in specific 
statutory provisions. Before a SPRE may review an institution under 
those standards, the standards must be evaluated by the Secretary and 
not disapproved by the Secretary.
    If a SPRE finds that an institution it reviews does not satisfy the 
State's review standards, the SPRE may require the institution to take 
prompt actions to bring itself into compliance with the State's 
standards, or the SPRE may determine that the institution should no 
longer participate in the Title IV, HEA programs. The Secretary 
recognizes that, in the former case, an institution may have cause for 
not meeting the State's review standards. Therefore, the Secretary 
proposes that SPREs provide the institution the opportunity to present 
compelling evidence that demonstrates that its failure to meet the 
State's review standards does not warrant any further action by the 
SPRE.
    Where the SPRE determines that an institution should no longer 
participate in the Title IV, HEA programs, the SPRE notifies the 
Secretary of that determination; and, as required under section 494C(h) 
of the HEA, the Secretary immediately terminates the institution's 
participation in the Title IV, HEA programs.
    In implementing their role under the State Postsecondary Review 
Program, the Secretary expects States to develop rigorous educational, 
administrative, and financial review standards and to conduct thorough, 
impartial reviews of referred institutions under those standards. 
Therefore, the Secretary anticipates that SPRE reviews will lead to 
increases in the quality of education and training provided by 
institutions that comply with or ascribe to the State's review 
standards. The Secretary also anticipates that, through reviews of 
referred institutions, SPREs will help to reduce fraud, waste, and 
abuse in the Title IV, HEA programs by taking actions to effect the 
termination of institutions that (1) fail substantially to meet the 
State's review standards, and are recalcitrant in taking actions to 
come into compliance with those standards, or (2) are involved in 
fraudulent practices.
    These proposed regulations were subject to the negotiated 
rulemaking process in accordance with section 492 of the HEA. Under the 
negotiated rulemaking process, the Secretary convened four regional 
meetings in September 1992 to obtain public involvement in the 
development of these proposed regulations. The meetings were held in 
San Francisco, Atlanta, New York, and Kansas City. Before convening the 
meetings, the Secretary held a meeting in Washington, DC in August 1992 
to invite comments from interested parties as to the key issues that 
should be addressed at the regional meetings. At the four regional 
meetings, the Secretary provided attendees with a list of issues that 
needed to be addressed in these proposed regulations. A summary of the 
responses of the attendees is contained in Appendix A to these proposed 
regulations.
    Individuals and groups who attended the regional meetings nominated 
individuals to participate in the negotiated rulemaking process. The 
Secretary selected negotiators from the list of nominees to reflect all 
the groups that are involved in the Title IV, HEA programs. With regard 
to these proposed regulations, the Secretary chose negotiators who 
reflected the diversity of State higher education authorities, the 
interests of accrediting bodies, national organizations of student 
financial aid administrators, institutions of higher education, and 
students.
    In accordance with section 492(b) of the HEA, the Secretary 
prepared draft proposed regulations and negotiated provisions of the 
draft with the negotiators. Two negotiating sessions were held: one in 
April 1993 and one in June 1993. During the second session, the 
negotiators elected not to reach consensus on any of the provisions 
included in this notice of proposed rulemaking until they had an 
opportunity to review all the proposed regulations implementing the 
Program Integrity Triad. On September 20, 1993, the Secretary convened 
a meeting and distributed to the negotiators the proposed regulations 
for each part of the Program Integrity Triad. The negotiators who 
attended this meeting could not reach consensus on the provisions 
included in this proposed regulation. However, several negotiators 
submitted written comments on the draft regulations, and many of those 
comments were incorporated in this notice of proposed rulemaking.

Provisions Proposed by the Regulations

    The following discussion reflects the proposed provisions governing 
the State Postsecondary Review Program. The provisions are discussed in 
the order in which they appear in the proposed regulations. If a 
provision applies to more than one section or is included in more than 
one section, it is discussed the first time it appears with an 
appropriate cross-reference to its other appearances. In addition, each 
section of the proposed provisions references or contains a description 
of the applicable statutory requirements.
    In developing these provisions, the Secretary has regulated 
narrowly to the statute, except where the Secretary was required by the 
statute to promulgate specific regulations or where the Secretary 
determined that regulations were required to implement the statute. In 
this regard, the Secretary requests respondents to comment only on 
provisions where the Secretary has made a regulatory proposal that 
interprets or implements the statute, rather than on provisions that 
are statutorily required and cannot be changed by the Secretary.
Section 667.1  Scope and Purpose.
    The purpose of the State Postsecondary Review Program is to 
strengthen State oversight of institutions participating in the title 
IV, HEA programs through the development of State standards for those 
institutions, and State review of referred institutions using those 
standards. States will be reimbursed by the Secretary for developing 
these standards and conducting these reviews. However, a State will not 
be required to incur any cost or carry out any activity if the State 
will not be reimbursed for that cost or activity.
    Several negotiators were concerned that SPREs had the authority 
under the SPRP to select any institution for review. Reviews by a SPRE 
are limited to those institutions that currently participate in the 
title IV, HEA programs that the Secretary or a State identify as 
meeting one or more of the review criteria in section 494C(b) of the 
HEA, and those institutions a State has reason to believe are engaged 
in fraudulent practices. As provided in section 494C(a) of the HEA, a 
State must request approval from the Secretary before it may conduct a 
review of an institution the State determines either meets a statutory 
referral criterion or is engaged in fraudulent practices. If the 
Secretary approves the State's request or does not disapprove that 
request within 21 days, the SPRE may conduct a review of that 
institution under this part.
    Although the standards that a State develops will be used for the 
purpose of reviewing referred institutions under this program, nothing 
in this part or in the statute authorizing the SPRP, title IV, part H, 
subpart 1 of the HEA, precludes a State from using these developed 
standards for determining whether to grant a license to or otherwise 
authorize an institution to provide postsecondary education in the 
State. However, if a State reviews nonreferred institutions under the 
standards developed for the SPRP, reviews of those institutions will 
not be reimbursed. Moreover, the State may not take an action against 
nonreferred institutions under the SPRP.
Section 667.2  Definitions.
    Education and general expenditures. The proposed definition of this 
term was copied from the statutory definition set forth in section 
312(a) of part A of title III of the HEA. Part A of title III 
authorizes the Strengthening Institutions Program.
    Professional program. The definition of a professional program 
applies directly to the review standards described in sections 
494C(d)(8)(A) and (14)(C) of the HEA and Secs. 667.21(11)(1) and 
(18)(iii), respectively. The Secretary proposed to define a 
``professional program'' as an undergraduate or graduate educational 
program that prepares individuals for an occupation, if that 
occupation--
    (1) Is listed in a Federal educational program classification 
manual;
    (2) Requires at least an associate degree to qualify for entry;
    (3) Involves the independent practice or application of a defined 
or organized body of competencies that is unique to the occupation; and
    (4) Is formally recognized and regulated under a national or State 
licensure, accreditation, or permit system.
    Several negotiators argued that many educational programs that 
would satisfy this proposed definition of a ``professional program'' 
would also satisfy the proposed definition of a ``vocational program''. 
Those negotiators believed that, for purposes of developing standards 
under the SPRP, there should be a clear distinction between the 
classification of these programs.
    Vocational program. The definition of ``vocational program'' 
applies directly to two review standards a State must develop under 
section 494C(d) of the HEA and Sec. 667.21 of these regulations. Under 
the first standard, described in section 494C(d)(7) of the HEA and 
repeated in Sec. 667.21(a)(10), if an institution offers a program that 
is designed to prepare students for gainful employment, the State must 
develop a standard to determine whether the tuition and fees charged 
for that program by the institution are reasonable given the amount of 
money that a student who successfully completes that program may 
reasonably be expected to earn. Under the second review standard, 
described in section 494C(d)(14)(C) of the HEA and repeated in 
Sec. 667.21(a)(18)(iii), if an institution offers vocational or 
professional programs, the State must develop standards to determine if 
those programs are successful as measured, in part, by the placement 
rate of the graduates of those programs.
    During negotiated rulemaking, the Secretary proposed to define the 
term ``vocational program'' based on the statutory provision included 
in the definition of various types of eligible institutions of higher 
education. Thus, the Secretary proposed to define a vocational program 
as an ``undergraduate educational program that prepares students for 
gainful employment in a recognized occupation.'' (See, for example, 
section 481(b)(1) of the HEA for a ``proprietary institution of higher 
education''; section 481(c)(1) for a ``postsecondary vocational 
institution''; and the second sentence of section 1201(a) of the HEA 
for a ``public and private nonprofit institution of higher 
education.'')
    Several negotiators believed this proposed definition was too vague 
and were concerned that it could be interpreted to include all 
postsecondary undergraduate programs. Those negotiators contended that 
such a broad interpretation, if applied to the review standards 
discussed above, would cause unnecessary burden on all institutions, 
and argued for a more narrow definition of a vocational program.
    Some negotiators proposed that the term ``vocational program'' 
encompass only those educational programs below the baccalaureate 
degree level that are not classified as ``professional programs''. 
Other negotiators suggested that the term ``vocational program'' be 
limited further to apply only to nondegree vocational educational 
programs offered by institutions whose primary purpose is to prepare 
students for employment.
    The Secretary agrees that the proposed definition is too broad and 
thus, in Sec. 667.2, proposes to define the term ``vocational program'' 
as ``an educational program below the baccalaureate degree level, that 
is not classified as a professional program, that prepares students for 
gainful employment in a recognized occupation.''
    The Secretary acknowledges that the definition of ``vocational 
program'' in these proposed regulations differs from the definition of 
``vocational education'' as that term is defined in the proposed 
regulations for the Secretary's Procedures and Criteria for the 
Recognition or Accrediting Agencies (``education or training that 
prepares students for gainful employment in a recognized occupation''). 
The Secretary requests specific comment on whether the same definition 
should be used in both regulations and, if so, which definition should 
be used.
    The Secretary particularly invites public comments on the 
definitions of professional and vocational programs.
Section 667.3  State agreement
    Section 494 of the HEA authorizes the Secretary to enter into an 
agreement with each State to carry out the purposes of this part. As 
provided in sections 494A(b) and 494C of the HEA, the agreement between 
each State and the Secretary must contain the following elements--
    (1) A designation of a single SPRE which represents all entities in 
the State that are responsible for--
    (A) granting State authorization to each institution of higher 
education in the State for the purposes of this title; and
    (B) ensuring that each institution of higher education in the State 
remains in compliance with the standards developed pursuant to section 
494C of the HEA (these provisions are discussed below in greater 
detail);
    (2) Assurances that the SPRE has the authority under State law to 
make agreements between the State and the Federal Government;
    (3) Assurances that the SPRE will review institutions reported to 
the State by the Secretary under section 494C(a) of the HEA (referred 
institutions) for the purpose of determining whether those institutions 
should participate in the Title IV, HEA programs on a schedule to 
coincide with the dates set by the Secretary to certify or recertify 
those institutions as provided in sections 481 and 498 of the HEA;
    (4) Assurances that the SPRE will perform the functions authorized 
under this part and keep such records and provide such information as 
may be requested for financial and compliance audits and program 
evaluation, consistent with the responsibilities of the Secretary;
    (5) A description of the relationship between the SPRE and the 
State approving agency for Veterans Affairs, the State guaranty agency 
under the FFEL programs, and the State agency responsible for 
administering the SSIG program;
    (6) Provisions for SPRE contracts. The agreement must provide for 
the contracts the SPRE enters into with nationally recognized 
accrediting agencies or peer review systems as required under section 
494C(d)(15) of the HEA, and the contracts the SPRE enters into with 
private agencies, accrediting agencies, or peer review systems for 
assistance in performing SPRE review activities as provided in section 
494C(f) of the HEA; and
    (7) A plan for performing the functions described in section 494C 
of the HEA.
    With regard to element (1) paragraph (A), the SPRE must represent 
any State entity that provides a license to postsecondary institutions 
to operate in the State or otherwise legally authorizes institutions to 
provide postsecondary education in the State. The Secretary wishes to 
make clear that the statute does not provide the SPRE the authority 
under the SPRP to provide licenses to or legally authorize institutions 
to operate in a State; the SPRE merely represents State entities that 
perform those functions. Similarly, under element (1), paragraph (B), 
the SPRE must represent any State entity that is responsible for 
ensuring that all institutions in the State remain in compliance with 
the State's review standards. Again, the Secretary wishes to make clear 
that the statute does not provide the SPRE the authority under the SPRP 
to ensure that all institutions in the State remain in compliance with 
the State's review standards; rather the SPRE must merely represent any 
State entity that has that responsibility. Moreover, a State is not 
required, for the purposes of this part, to create an entity 
responsible for ensuring that all institutions in the State remain in 
compliance with the State's review standards if such an entity does not 
currently exist. These statutory provisions are repeated in Sec. 667.4.
    In addition to the entities listed in the statute under element 
(5), in Sec. 667.3(b)(4), the Secretary proposes to require the SPRE to 
describe its relationship with any State licensing body, any State-
level entity that approves service providers under the Job Training 
Partnership Act, and any State-level entity that certifies vocational 
education. The Secretary proposes this requirement to ensure that all 
entities in the State involved with postsecondary institutions or 
postsecondary educational programs coordinate with the SPRE actions 
taken regarding those institutions or programs. The agreements the 
Secretary signed with States to implement the SPRP in fiscal year 1993 
did not provide for a description of the SPRE's relationship with these 
additional entities. Thus, if any changes are required to be made to 
the agreement as a result of this proposal or other proposals in these 
regulations or as a result of public comment, States will be provided 
sufficient opportunity to execute new agreements. Any new terms will 
have a prospective effect.
    Except for the proposed requirement under element (5), that the 
agreement describe additional relationships between the SPRE and other 
State authorities, the requirements contained in section 494A(b) of the 
HEA described above are repeated in Sec. 667.3(a) and (b) and therefore 
cannot be changed by the Secretary.
    Section 494(c) of the HEA requires the Secretary to impose the 
following sanctions on a State if the State does not enter into an 
agreement with the Secretary or fails to comply with the terms of the 
agreement--
    (1) The Secretary may not designate as eligible for participation 
in a Title IV, HEA program any institution seeking initial 
participation in that program, any branch campus for which an 
institution seeks an initial designation of eligibility, or any 
institution that has undergone a change in ownership that results in a 
change in control, pursuant to section 481 of the HEA and subpart 3 of 
part H of the HEA;
    (2) The Secretary may grant only provisional certification to any 
institution in that State pursuant to subpart 3 of part H of the HEA; 
and,
    (3) The State is ineligible to receive any funds appropriated to 
carry out the SPRP, its allotment under the SSIG Program, and any funds 
appropriated to carry out the National Early Intervention Scholarship 
and Partnership Program (NEISP).
    The statutory sanctions described above are repeated in 
Sec. 667.3(e). The Secretary, also, proposes to impose the statutory 
sanctions on a State if the State ends its participation in the SPRP or 
fails to establish review standards within two years.
    First, in Sec. 667.3(d)(3), the Secretary proposes to impose the 
sanctions on a State that ends its participation in the SPRP by 
terminating its agreement with the Secretary. The only exception for 
not participating in the SPRP is provided in section 494A(c) of the 
HEA. That section specifies that ``no State shall be required to enter 
into an agreement with the Secretary under this subpart for performing 
review functions required by the agreement unless the Congress 
appropriates funds for this subpart''. (The Congress made $5.3 million 
of fiscal year 1993 funds available to initiate the SPRP and has 
appropriated $21.25 million for fiscal year 1994.)
    Secondly, in Sec. 667.3(d)(4), the Secretary proposes to impose the 
sanctions on a State that does not establish review standards under 
Sec. 667.21 that are not disapproved by the Secretary within two years 
from the time the State received Federal funds under this part. The 
Secretary believes that two years is a reasonable time for a State to 
establish review standards. Moreover, because a State must establish 
review standards before reviews of institutions can take place, the 
Secretary believes strongly that a State should not unreasonably delay 
the conduct of reviews and continue to receive Federal funds under this 
part.
    Finally, section 494(b) of the HEA provides that if a State 
declines to enter into an agreement with the Secretary to carry out the 
purposes of this part, the provisions of this part that refer to the 
State refer instead to the Secretary who may make appropriate 
arrangements with agencies or organizations of demonstrated competence 
in reviewing institutions to carry out the provisions of this part. The 
Secretary proposes to implement this section of the statute in 
Sec. 667.3(e)(2)(iii)(A) and (B). Thus, in paragraph (A) the Secretary 
may establish review standards for any State that declines to enter 
into an agreement with the Secretary, and in paragraph (B) the 
Secretary may carry out, or arrange to carry out, the State's other 
responsibilities under this part.
Section 667.4  State Postsecondary Review Entity
    Section 667.4 repeats the statutory provisions contained in section 
494A(b)(1) of the HEA. These provisions have previously been discussed.
Section 667.5  Criteria the Secretary Uses To Refer Institutions to a 
SPRE for Review
    Section 494C(a) of the HEA requires the Secretary to review all 
institutions in a State that participate in a Title IV, HEA program to 
determine if those institutions meet one or more of the review criteria 
contained in section 494C(b) of the HEA. If an institution meets one or 
more of the review criteria, the Secretary must refer the institution 
to a SPRE for review. The review criteria set forth in section 494C(b) 
are as follows--
    (1) A cohort default rate (as defined in section 435(m) of the HEA) 
equal to or greater than 25 percent;
    (2) A cohort default rate equal to or greater than 20 percent and 
either--
    (A) More than two-thirds of the institution's total undergraduates 
who are enrolled on at least a half-time basis receive assistance under 
the Title IV, HEA programs, excluding assistance received under the 
SSIG, NEISP, and Federal PLUS programs; or
    (B) Two-thirds or more of the institution's education and general 
expenditures are derived from funds provided to students enrolled at 
the institution from the Title IV, HEA programs, except funds provided 
from the SSIG, NEISP, and Federal PLUS programs;
    (3) Two-thirds or more of the institution's education and general 
expenditures are derived from funds provided to students enrolled at 
the institution from the Federal Pell Grant Program;
    (4) A limitation, suspension, or termination action by the 
Secretary against the institution pursuant to section 487 of the HEA 
during the preceding 5 years;
    (5) An audit finding during the 2 most recent audits of an 
institution's conduct of the Title IV, HEA programs that resulted in 
the repayment by the institution of amounts greater than 5 percent of 
the funds the institution received from the Title IV, HEA programs for 
any one year;
    (6) A citation of an institution by the Secretary for failure to 
submit audits required under Title IV of the HEA in a timely fashion;
    (7) A year-to-year fluctuation of more than 25 percent in the 
amounts received by students enrolled at the institution from either 
the Federal Pell Grant, Federal Stafford Loan, or Federal Supplemental 
Loans to Students programs, that are not accounted for by changes in 
those programs;
    (8) Failure to meet financial responsibility standards pursuant to 
Title IV, Part H, Subpart 3 of the HEA;
    (9) A change of ownership of the institution that results in a 
change of control which includes (but is not limited to)--
    (A) The sale of the institution or the majority of its assets;
    (B) The division of 1 or more institutions into 2 or more 
institutions;
    (C) The transfer of the controlling interest in stock of the 
institution or its parent corporation;
    (D) The transfer of the controlling interest of stock of the 
institution to its parent corporation; or
    (E) The transfer of the liabilities of the institution to its 
parent corporation;
    (10) Except with regard to any public institution that is 
affiliated with a State system of higher education, participation in 
the Federal Pell Grant, FFEL, FSEOG, FWS, or Federal Perkins Loan 
programs for less than 5 years;
    (11) A pattern of student complaints pursuant to section 494C(j) of 
the HEA related to the management or conduct of the Title IV, HEA 
programs or relating to misleading or inappropriate advertising and 
promotion of the institution's programs, that in the judgement of the 
Secretary are sufficient to justify review of the institution.
    The statutory review criteria described above are repeated in 
Sec. 667.5(b).
    The Secretary anticipates making referrals at least annually.
    Section 494C(a) as amended by the Higher Education Technical 
Amendments of 1993 (Pub. L. 103-208) further provides that the 
Secretary may determine not to refer to a SPRE for review an 
institution that meets only criterion (10) described above, if the SPRE 
previously reviewed that institution under this part and found no 
violations of the State's review standards. This provision is repeated 
in Sec. 667.5(d).
    Under a literal reading of review criteria (6) and (9), the 
Secretary would have to refer an institution to a SPRE in perpetuity 
for an event that happened once. However, the Secretary believes that 
it is wasteful to require a SPRE to continually review an institution 
for the same reason if the SPRE had previously reviewed that 
institution and found no violations of its standards. Therefore, in 
Sec. 667.5(c), the Secretary proposes to reserve whether to refer an 
institution to a SPRE for review under these two criteria if on the 
basis of an earlier referral, the SPRE conducted a review of the 
institution and found no significant violations of its standards as a 
result of that review.
    Section 494C(c) of the HEA provides that an institution may request 
confirmation of the data used by the Secretary to determine that the 
institution met one or more of the statutory review criteria. In 
Sec. 667.5(e), the Secretary proposes to rescind a referral if the 
Secretary confirms that the data used to make the referral were 
inaccurate and that a referral would not be made under accurate data.
    When confirming the accuracy of data, the Secretary will presume 
that records maintained in the ordinary course of business by the U.S. 
Department of Education, a guaranty agency under the FFEL programs, the 
SPRE, the State licensing agency, or another State agency are accurate 
unless the institution proves to the Secretary's satisfaction that the 
records are not properly maintained or are inaccurate.
Section 667.6  SPRE Selection of Institutions for Review
    In addition to those institutions referred to a State by the 
Secretary for review as a result of meeting one or more of the criteria 
set forth in section 494C(b), section 494C(a) of the HEA provides that 
a State may, subject to approval by the Secretary, review additional 
institutions that--
    (1) Meet one or more of the statutory review criteria based on more 
recent data available to the State; or
    (2) The State has reason to believe are engaged in fraudulent 
practices.
    The statute further provides that if the Secretary fails to approve 
or disapprove a State's request to review additional institutions 
within 21 days, the State may proceed to review those additional 
institutions as if approved by the Secretary.
    These statutory provisions are repeated in Sec. 667.6.
Section 667.7  Notice to SPRE of Federal Actions
    Section 494C(h)(2) of the HEA requires the Secretary to prescribe 
in regulations a time period within which the Secretary notifies a SPRE 
of any actions taken by the Secretary or another Federal agency against 
an institution located in the SPRE's State. Accordingly, in Sec. 667.7, 
the Secretary proposes to notify a SPRE within 10 days of taking or 
learning of an action against an institution.
Section 667.8  Institutions With Locations in More Than One State
    Section 667.8 deals with the situation when a referred institution 
has locations in more than one State. In proposing procedures for 
dealing with that situation, the Secretary had to decide which State 
standards would apply, which State would conduct the review, and, if 
more than one State had to conduct a review, how those reviews should 
be coordinated.
    In Sec. 667.8, the Secretary proposes the following. If an 
institution is referred for review, the Secretary will refer the 
institution to the SPRE in each State in which the institution is 
located. With the referral, the Secretary informs each SPRE of the 
other States in which the institution is located. The main campus of 
the institution or any branch campus or additional location of that 
institution is subject to the review standards of the State in which it 
is located.
    The proposed procedures place the principal responsibility for 
reviewing the institution on the SPRE of the State in which the main 
campus of the institution is located. The SPRE of a State in which a 
branch campus or additional location of the institution is located may 
choose among three options to determine when to review that branch 
campus or additional location or to determine if review of that branch 
or additional location is warranted. Under the first option, the SPRE 
may review that branch campus or additional location before a review is 
conducted of the main campus of that institution. The second option 
provides that the SPRE may delay its review of that branch campus or 
additional location until a review is conducted of the main campus of 
that institution. Under the last option, if the State's allotment will 
not allow the SPRE to review all referred institutions, the SPRE may 
choose not to review that branch campus or additional location if the 
SPRE of the State in which the main campus of that institution is 
located reviews that institution and makes no significant findings.
    Finally, the Secretary proposes that SPREs may agree among 
themselves to alter these review requirements. Thus, if the institution 
was located in a metropolitan area such as Washington, DC and had its 
main campus in Washington, DC and branch campuses in Virginia and 
Maryland, the Washington, DC, Virginia, and Maryland SPREs could agree 
among themselves that the Virginia SPRE would review all the 
institution's locations. However, the applicable review standards would 
not change. Therefore, to the extent that the three jurisdictions had 
different standards, the Washington, DC locations would be subject to 
the Washington, DC standards, the Maryland locations would be subject 
to the Maryland standards and the Virginia locations would be subject 
to the Virginia standards.

Subpart B--Allotment Formula and Funding Procedures

Section 667.11  Allotment Formula
    Section 494(a)(2) of the HEA authorizes the Secretary to provide 
Federal funds to a SPRE for performing the functions contained in the 
State's agreement with the Secretary. Accordingly, in Sec. 667.11, the 
Secretary proposes a funding formula under which the Secretary allots 
annually to each SPRE its share of the Federal funds appropriated for 
the SPRP. The following discusses the proposed funding formula.
    For each fiscal year that Federal funds are appropriated for the 
SPRP, the Secretary proposes to allot $20,000 to Guam, $20,000 to the 
Northern Mariana Islands, $20,000 to the Virgin Islands, $20,000 to the 
Trust Territory of the Pacific Islands (Palau), and $20,000 to American 
Samoa. The Secretary believes this amount is sufficient for these 
States to carry out SPRE activities because only three institutions are 
located in Guam, and only one institution is located in each of the 
other jurisdictions.
    The Secretary proposes to allot the remaining fiscal year 
appropriation so that each remaining State receives the greater of 
$50,000, or the amount determined under a formula that uses the 
following two variables--
    (1) The number of institutions located in a State that are 
certified to participate in the Title IV, HEA programs; and
    (2) The amount of Title IV, HEA program funds made available to 
students enrolled in those institutions during the latest year for 
which complete data is available.
    For purposes of the formula, the Title IV, HEA programs only 
include the Federal Pell Grant, Federal Family Education Loan (FFEL), 
Federal Direct Loan, Federal Supplemental Educational Opportunity Grant 
(FSEOG), Federal Work-Study (FWS), and Federal Perkins Loan programs.
    The Secretary proposes the formula described in greater detail in 
Sec. 667.11(a) because the Secretary believes that each State needs at 
least $50,000 to carry out SPRE activities. In addition, at least in 
the initial years of the program, the Secretary believes it equitable 
to allot Federal funds to States based on the relative exposure of 
Title IV, HEA program funds in each State as represented by the two 
variables in the proposed funding formula. However, after several 
years, when there is a history of referrals to States and SPRE reviews 
of institutions as a result of those referrals, the Secretary plans to 
reexamine the funding formula to determine whether to base the formula 
on the percentage of referrals each State receives, the number of 
reviews each State performs, or a combination of those two variables.
    In Sec. 667.11(b), the Secretary proposes to reallot Federal funds 
not expended by a State to other States in a manner that best carries 
out the purposes of the program. The Secretary proposes to reallot 
those funds the Secretary determines a State will not spend during the 
period for which those funds are available, and those funds a State 
does not spend by the end of the period for which those funds are made 
available.
Section 667.12  Application for Funds
    In Sec. 667.12, the Secretary proposes procedures under which a 
State applies to receive its allotment for each fiscal year in which 
Congress appropriates funds for the State Postsecondary Review Program. 
Under these procedures, a State's application for funds consists of a 
plan to carry out specific activities and a budget that accounts for 
those activities. The Secretary views these application procedures as 
satisfying the requirement in section 494A(b)(5) of the HEA that a 
State include in its agreement with the Secretary its plan to carry out 
SPRE activities.
    The Secretary proposes a two-phased State application process. In 
the first phase, a State applies for funds to develop review standards 
and to carry out other activities that are necessary before the SPRE 
conducts reviews of referred institutions. In the second phase, a State 
applies for funds to conduct reviews of referred institutions and to 
perform other allowable activities. A State may apply for funds in the 
second phase only after it has established review standards. The 
Secretary considers a State to have established review standards if 
those standards were developed in accordance with the requirements 
contained in Sec. 667.21 and those standards were not disapproved by 
the Secretary under Sec. 667.22.
    Application before standards are established. For this phase of the 
application process, in Sec. 667.12(b), the Secretary proposes that the 
State submit a plan to--
    (1) Develop the State review standards described in section 494C(d) 
of the HEA and discussed further in Secs. 667.21 and 667.22 of this 
preamble; and
    (2) Develop procedures for receiving and responding to complaints 
from students, faculty, and others regarding an institution, as 
required by section 494C(j) of the HEA.
    Both the standards and the complaint procedures must be developed 
in consultation with institutions in the State, as required under 
sections 494C(d) and 494C(j) of the HEA, respectively. In addition, the 
State may submit a plan to identify information systems maintained by 
institutions and State agencies that are relevant to developing State 
review standards. Finally, the plan may contain estimates of the costs 
of coordinating those information systems with an information system 
for the SPRE.
    The Secretary proposes these allowable activities because the SPRE 
cannot carry out a review of an institution to determine whether the 
institution is in compliance with State standards until the State has 
developed those standards in required consultation with institutions in 
that State. Similarly, a State cannot process complaints until it has 
developed procedures, in required consultation with institutions in the 
State, to respond to complaints. Finally, a State cannot determine 
whether it will be cost-effective to coordinate existing data systems 
without first determining the costs of coordinating those systems.
    Several negotiators suggested that the Secretary specify the manner 
in which States were to consult with institutions in their State while 
developing State standards and complaint procedures. The Secretary 
believes that each State is in a better position than the Secretary to 
determine the most appropriate consultation method for that State. 
Moreover, the Secretary believes that States should be able to select 
from a variety of consultation formats when developing its standards 
and complaint procedures with the institutions in its State. Therefore, 
the Secretary has not specified the type of required consultation under 
this section. However, the Secretary expects a State's consultation 
process to be thorough and inclusive of the range and types of 
institutions in the State.
    With its plan, the State must submit a budget for carrying out the 
allowable activities. In Sec. 667.12(b)(2), the Secretary proposes that 
a State carry out the allowable activities in a priority order if the 
State anticipates that the cost of carrying out all those activities 
will exceed its allotment. Specifically, the Secretary proposes that a 
State first use its allotment to develop review standards. If a portion 
of the allotment remains after the State has developed its review 
standards, the State may develop procedures for receiving and 
responding to complaints from students, faculty, and others regarding 
institutions in the State. Finally, the State may use any remaining 
portion of its allotment to provide costs estimates for the SPRE's 
information system after it has completed its review standards and 
complaint procedures.
    The Congress made $5.3 million of fiscal year 1993 funds available 
to initiate the State Postsecondary Review Program. Under a notice 
published in the Federal Register on July 14, 1993, 58 FR 38022-38025, 
the Secretary has allotted those funds to States for the purposes set 
forth in Sec. 667.12(b). Therefore, except for the following provision, 
the Secretary acknowledges that most States will have complied with the 
provisions contained in Sec. 667.12(b) when these provisions are 
published as final regulations.
    If a State does not establish review standards with its fiscal year 
1993 allotment, the Secretary proposes that the funds it may receive in 
any future fiscal year for those activities may not exceed the amount 
it received or was scheduled to receive in fiscal year 1993. The 
Secretary proposes this provision because the Secretary believes that 
the primary purpose of the State Postsecondary Review Program is SPRE 
reviews of institutions and that the funds allotted to States in fiscal 
year 1993 were adequate to develop review standards.
    Application after standards are established. For the second phase 
of the application process, the Secretary proposes in Sec. 667.12(c) 
that a State submit--
    (1) A plan to review referred institutions;
    (2) A plan to carry out the activities described in Sec. 667.14; 
and
    (3) A budget for those reviews and activities that does not exceed 
the State's allotment.
    The Secretary acknowledges that a State's allotment of funds may be 
inadequate to review all the institutions that must be reviewed under 
Secs. 667.5 and 667.6. Therefore, in Sec. 667.12(c)(2), the Secretary 
proposes that a SPRE submit, as part of its plan, a priority system for 
selecting institutions for review from among the referred institutions 
if the SPRE anticipates that the cost of reviewing all the referred 
institutions will exceed the State's allotment. The Secretary proposes 
to provide maximum flexibility to States in selecting institutions to 
review, except as limited by section 494A(b)(2) of the HEA. That 
section requires States to review referred institutions on a schedule 
that coincides with the dates set by the Secretary to recertify those 
institutions to participate in the Title IV, HEA programs. However, the 
Secretary expects States to establish review priorities that reflect 
the objectives of protecting students, saving tax dollars, and 
promoting educational quality.
    The Secretary requests public comment on the potential benefits of 
developing specific criteria for States to consider in determining 
their review priorities and the nature of those criteria.
Section 667.13  Approval of Funding Application
    Approval of funding application before a State establishes review 
standards. In Sec. 667.13(a), the Secretary proposes to approve a 
State's plan and budget for the first phase of the SPRP, the 
development of standards and complaint procedures in consultation with 
institutions in the State, if--
    (1) The State's plan provides a reasonable basis, and adequate 
budget justification, for conducting those activities;
    (2) The State's plan provides for conducting those activities in 
the priority order proposed in Sec. 667.12(b)(2); and
    (3) The State's budget includes only reasonable allowable costs 
within the State's fiscal year 1993 allotment. The Secretary proposes 
allowable costs in Sec. 667.14.
    Approval of funding application after a State establishes review 
standards. In Sec. 667.13(b), the Secretary proposes to approve a 
State's plan and budget for the second phase of the SPRP, primarily the 
review of referred institutions, if--
    (1) The State's plan provides adequate budget justification for 
carrying out the activities proposed and described in Sec. 667.14 
within its allotment,
    (2) The State's plan provides a reasonable scheme for reviewing 
referred institutions;
    (3) The State's plan includes a priority system for reviewing 
referred institutions; and
    (4) Any contract the State proposes to enter into with another 
agency to carry out SPRE functions, as provided in section 494C(f) of 
the HEA, is reasonable and appropriate.
    If a State that does not submit an application for funds under 
Sec. 667.12 or does not submit an approvable application, the Secretary 
proposes in Sec. 667.13(c) to impose on that State the sanctions 
described in section 494(c) of the HEA.
Section 667.14  Allowable Costs and Activities
    As required by sections 494A(c) and 494B of the HEA, a State is not 
required to expend any funds under the SPRP to carry out allowable 
activities unless the Secretary reimburses the State for the costs it 
incurs in carrying out those activities. To the extent appropriations 
are available the Secretary proposes to reimburse a State for the 
direct and indirect costs of carrying out allowable SPRE activities if 
those activities are included in a plan that is approved by the 
Secretary.
    The terms ``direct costs'' and ``indirect costs'' are defined in 
the Office of Management and Budget (OMB) Circular A-87. In addition, 
the Secretary proposes to rely on the cost principles described in OMB 
Circular A-87 for determining allowable costs under the State 
Postsecondary Review Program.
    The Secretary proposes to consider as allowable activities those 
activities that are directly related to--
    (1) Establishing State review standards in consultation with 
institutions in the State;
    (2) Publicizing and providing initial and continuing training to 
State and other personnel in the State, including personnel at the 
institution subject to review;
    (3) Establishing and implementing procedures for receiving and 
responding to complaints from students, faculty, and others regarding 
institutions in the State;
    (4) Reviewing referred institutions; and
    (5) Developing and maintaining an information system for SPRE 
review activities.
    In Sec. 667.14(d), the Secretary identifies a nonexhaustive list of 
direct costs associated with carrying out the proposed allowable 
activities.
Section 667.15  Fiscal Procedures and Records
    In Sec. 667.15, the Secretary proposes requirements regarding a 
State's use and accounting of the Federal funds it receives under this 
part. To minimize burden on States, the Secretary proposes that a State 
account for funds it receives under this part in accordance with the 
procedures it uses to account for its own funds.
    In addition, the Secretary proposes that a State keep fiscal and 
accounting records that support, on audit, its expenditure of funds 
under this part and maintain those records for five years. Finally, the 
Secretary proposes that a State must have an audit performed of the 
SPRE's activities under this part at least once every two years. An 
audit conducted under the Single Agency Audit Act satisfies this audit 
requirement.
Section 667.16  Supplement, Not Supplant, Requirement
    Section 494(B) of the HEA provides that the Secretary may reimburse 
a State for the costs of necessary SPRE activities ``which supplement, 
but do not supplant, existing licensing or review functions conducted 
by the State.'' This statutory provision is repeated in Sec. 667.16.
    The Secretary requests comments on what standards and measures 
would most accurately determine whether a State has satisfied the 
supplement but not supplant requirement.

Subpart C--State Review Standards, SPRE Reviews, and Termination of 
Institutional Participation

Section 667.21  State Review Standards
    Section 494C(d) of the HEA requires a State to develop review 
standards, in consultation with the institutions in the State, that are 
consistent with the laws and constitution of the State. A State's 
authority to develop review standards is further clarified in section 
494C(g) of the HEA. That section prohibits the Secretary from requiring 
a State to establish review standards that are unrelated to ensuring 
institutional or program integrity or that violate the provisions of 
the State's constitution or laws.
    The SPRE reviews referred institutions under the State-developed 
standards set forth in section 494C(d) of the HEA. In conducting its 
review, the SPRE must determine whether a referred institution has 
complied with standards that address the following areas--
    (1) The availability to students and prospective students of 
catalogs, admissions requirements, course outlines, schedules of 
tuition and fees, policies regarding course cancellations, and the 
rules and regulations of the institution relating to students and the 
accuracy of such catalogs and course outlines in reflecting the courses 
and programs offered by the institution;
    (2) Assurance that the institution has a method to assess a 
student's ability to successfully complete the course of study for 
which he or she has applied;
    (3) Assurance that the institution maintains and enforces standards 
relating to academic progress and maintains adequate student and other 
records;
    (4) Compliance by the institution with relevant safety and health 
standards, such as fire, building, and sanitation codes;
    (5) The financial and administrative capacity of the institution as 
appropriate to a specified scale of operations and the maintenance of 
adequate financial and other information necessary to determine the 
financial and administrative capacity of the institution;
    (6) For institutions financially at risk, the adequacy of 
provisions to provide for the instruction of students and to provide 
for the retention and accessibility of academic and financial aid 
records of students in the event the institution closes;
    (7) If the stated objectives of the courses or programs of the 
institution are to prepare students for employment, the relationship of 
the tuition and fees to the remuneration that can be reasonably 
expected by students who complete the course or program and the 
relationship of the courses or programs (including the appropriateness 
of the length of such courses) to providing the student with quality 
training and useful employment in recognized occupations in the State;
    (8) Availability to students of relevant information by 
institutions of higher education, including--
    (A) Information relating to market and job availability for 
students in occupational, professional, and vocational programs; and
    (B) Information regarding the relationship of courses to specific 
standards necessary for State licensure in specific occupations;
    (9) The appropriateness of the number of credit or clock hours 
required for the completion of programs or of the length of 600-hour 
courses;
    (10) Assessing the actions of any owner, shareholder, or person 
exercising control over the educational institution which may adversely 
affect eligibility for programs under Title IV of the HEA;
    (11) The adequacy of procedures for investigation and resolution of 
student complaints;
    (12) The appropriateness of advertising and promotion and student 
recruitment practices;
    (13) That the institution has a fair and equitable refund policy to 
protect students; and
    (14) The success of the program at the institution, including--
    (A) The rates of the institution's students' program completion and 
graduation, taking into account the length of the program at the 
institution and the selectivity of the institution's admissions 
policies;
    (B) The withdrawal rates of the institution's students;
    (C) with respect to vocational and professional programs, the rates 
of placement of the institution's graduates in occupations related to 
their course of study;
    (D) where appropriate, the rate at which the institution's 
graduates pass licensure examinations; and
    (E) the variety of student completion goals, including transfer to 
another institution of higher education, full-time employment in the 
field of study, and military service.
    Except for the following standard, the statutory provisions 
contained in section 494C(d) of the HEA are essentially repeated in 
Sec. 667.21(a).
    In Sec. 667.21(a)(4), the Secretary proposed to interpret the 
standard described in 494C(d)(2) of the HEA to require that a judgement 
be made regarding the effectiveness of an institution's method to 
assess a student's ability to complete successfully an educational 
program. The proposed standard would require a SPRE to measure the 
effectiveness of its assessment method by the completion rate of the 
assessed students enrolled in the institution's program.
    Several negotiators indicated that the proposed standard implies a 
highly predictive association between the institution's assessment 
method and the students' completion of the program. According to those 
negotiators, such a predictive association does not exist. Therefore, 
the negotiators suggested that the success of the institution's 
assessment method be judged by using measures other than completion 
rates. The Secretary invites comments on this suggestion and 
alternative approaches for evaluating the effectiveness of an 
institution's method to assess a student's ability to complete 
successfully an educational program.
    With regard to the standard described in section 494C(d)(4) of the 
HEA and Sec. 667.21(a)(7), the Secretary invites public comments on 
whether the SPRE's review of an institution should include a review of 
the institution's compliance with statutes and regulations governing 
access to disabled individuals.
    In Sec. 667.21(b), the Secretary has proposed a framework under 
which a State develops review standards. Under that framework the 
Secretary proposes--
    (1) To permit States to develop different standards for different 
types or categories of institutions and educational programs;
    (2) That States specify the records that referred institutions 
would need to maintain to satisfy State standards;
    (3) That States must quantify certain review standards; and
    (4) That States determine whether a Title IV, HEA program standard 
would be an adequate State standard.
    Negotiators disagreed among themselves with regard to the proposal 
in Sec. 667.22(b)(1), to provide latitude to States to develop 
different standards for different types or categories of institutions 
or educational programs. While many negotiators agreed strongly with 
this approach, others disagreed vociferously, arguing that States would 
use this latitude to establish unreasonably stringent standards for 
vocational and proprietary institutions.
    The Secretary believes the statute does not prohibit the 
establishment of different standards for different institutions and 
therefore does not wish to preclude a State from establishing such 
standards, provided the State can adequately justify that different 
standards are more appropriate than uniform standards for the 
institutions in its State.
    In Sec. 667.21(b)(2), the Secretary proposes that a State establish 
standards that specify the records and information a referred 
institution would need to maintain to demonstrate to a SPRE the 
institution's compliance with those standards. The Secretary wishes to 
make clear that technically, only a referred institution is subject to 
the recordkeeping requirements specified in the State's standards 
unless, as discussed previously in Sec. 667.3 of this preamble, the 
State has or creates an entity that is responsible for ensuring that 
all institutions in the State remain in compliance with those 
standards. Otherwise, a nonreferred institution may choose not to 
maintain the specified records. However, that institution would risk 
losing its participation in the Title IV, HEA programs if as a result 
of some future event it triggered a statutory review criterion, and was 
unable to produce the records required to demonstrate to the SPRE its 
compliance with the State's standards.
    In addition, concern has been raised regarding a State's authority 
to collect information from all institutions in the State for the 
purpose of establishing review standards. For example, a State may 
establish on an annual basis a student graduation rate standard that is 
equal to the average graduation rate of students at all institutions in 
the State. While the Secretary believes that this method of 
establishing review standards is reasonable and appropriate, a State 
does not have the authority under the SPRP to require all institutions 
in the State to report standards-related information to the SPRE. 
Notwithstanding this limitation, the Secretary encourages all 
institutions to comply with a request from a SPRE for this information, 
particularly if the only alternative available to the SPRE is to 
establish arbitrary standards. The Secretary wishes to make clear, 
however, that a SPRE has the authority under section 494C(d) of the HEA 
to require standards-related information from all referred institutions 
in the State. The Secretary notes that if a State standard is based 
upon an average, such as an average graduation rate, there must be a 
sufficient number of institutions providing data to support that rate, 
and the reporting institutions should be representative of the 
institutions located in the State.
    In Sec. 667.21(b)(4), the Secretary proposes that a State must 
quantify certain review standards. Thus, for the standard described in 
section 494C(d)(7) of the HEA and repeated in Sec. 667.21(a)(10), the 
Secretary proposes that a State establish an acceptable percentage for 
the relationship between the tuition and fees charged by an institution 
for an educational program and the amount of money that a student who 
successfully completes that program actually earns.
    Similarly, for the standard described in section 494C(d)(14) of the 
HEA and repeated in Sec. 667.21(a)(18), the Secretary proposes that a 
State establish acceptable percentages for--
    (1) The completion and graduation rates of students enrolled in 
educational programs offered by an institution;
    (2) The withdrawal rate of students at an institution;
    (3) With respect to an institution's vocational and professional 
programs, the placement rate of the institution's graduates in 
occupations related to their educational program; and
    (4) The rate or rates at which the institution's graduates pass 
licensure examinations.
    For each of these areas, the acceptable percentage sets the level 
above which a SPRE must consider an institution to be in compliance 
with the review standard, and below which a SPRE makes either a finding 
of noncompliance or conducts a further review of the institution to 
account for the reasons the institution failed to meet that percentage.
    The Secretary understands that developing such standards will be 
difficult and will therefore allow States great flexibility in 
developing these quantifiable standards, both in terms of the methods 
used to determine an acceptable percentage and the actual acceptable 
percentage. Moreover, the Secretary wishes to reiterate that the 
acceptable percentage that a State establishes should reflect whether 
an institution is successfully providing its educational programs to 
its students rather than whether the institution should automatically 
be terminated from participation in the Title IV, HEA programs solely 
because it failed to satisfy that standard. The Secretary also 
reiterates that a State need not recommend the termination of an 
institution's participation in the Title IV, HEA programs solely 
because the institution failed to meet any particular State standard.
    In Sec. 667.21(b)(5) the Secretary proposes to require a State to 
determine the extent to which it is appropriate to base a State review 
standard on a related Title IV, HEA program standard or requirement or 
to establish as the State's review standard the comparable Title IV, 
HEA standard or requirement.
    The Secretary believes it is imperative that States take into 
consideration the standards and requirements institutions must satisfy 
to participate in the Title IV, HEA programs before increasing the 
burden on those institutions by adopting entirely new standards for 
this part. In this regard, the Secretary expects States to avoid 
establishing standards that are weaker than similar Title IV, HEA 
program standards that an institution must otherwise satisfy to 
participate in those programs. In addition, when the Secretary 
publishes regulations implementing the Student-Right-to-Know provisions 
in section 485(a) of the HEA, the Secretary expects States to adopt the 
methodology contained in those regulations for calculating student 
completion and graduation rates.
    For the convenience of the reader, the following Title IV, HEA 
program standards and requirements are related or comparable to the 
State review standards described in Sec. 667.21--
    (1) With respect to the State review standards in paragraphs (a)(1) 
and (a)(2), the consumer information requirements in 34 CFR part 668, 
subpart D, 34 CFR 668.14, and 34 CFR 668.15; and the standards and 
rules in 34 CFR part 668, subpart F, under which the Secretary 
initiates an adverse action against an institution for any substantial 
misrepresentation made by that institution regarding its educational 
program, financial charges, or employability of its graduates;
    (2) With respect to the State review standards in paragraphs (a)(3) 
and (a)(4), the State process and testing requirements regarding 
students who do not have a high school diploma or its recognized 
equivalent in section 484(d) of the HEA;
    (3) With respect to the State review standards in paragraphs (a)(5) 
and (a)(6), the standards of satisfactory progress in 34 CFR 668.14; 
and the record retention and audit requirements in 34 CFR 668.23;
    (4) With respect to the State review standard in paragraph (a)(8), 
the standards and requirements in 34 CFR 668.13, 34 CFR 668.14, and 
subpart 3 of part H of the HEA regarding an institution's financial and 
administrative capability;
    (5) With respect to the State review standard in paragraph (a)(10), 
the standards and requirements in 34 CFR 668.14 regarding an 
institution's administrative capability, and 34 CFR part 600, subpart 
A, regarding an educational program offered by an institution that 
prepares students for gainful employment in recognized occupations; or 
an educational program that is designed to provide occupational skills 
to students for useful employment in recognized occupations;
    (6) With respect to the State review standards in paragraphs 
(a)(11) and (a)(16), the provisions in section 487(a)(8) of the HEA 
that require an institution that advertises job placement rates as a 
means of attracting students to provide to those students information 
concerning employment statistics, graduation statistics, other 
information necessary to substantiate the truthfulness of the 
advertisement, and any State licensing requirements for a job for which 
the institution's educational program prepares such students; and the 
provisions in section 487(a)(20) of the HEA prohibiting an institution 
from paying a commission, bonus, or other incentive based on securing 
enrollments to any person engaged in student recruiting or admission 
activities;
    (7) With respect to the State review standard in paragraphs (a)(12) 
and (a)(13), the formula in 34 CFR 668.8 and 34 CFR 668.9 that an 
institution that offers an educational program in credit hours must use 
to determine if that program satisfies the requirements of an eligible 
program;
    (8) With respect to the State review standard in paragraph (a)(14), 
the standards in 34 CFR 668.13, regarding an institution's financial 
responsibility; the provisions in 34 CFR 668.14 regarding an 
institution's administrative capability; and the standards in 34 CFR 
600.30 regarding a person's ability to affect substantially the actions 
of an institution;
    (9) With respect to the State review standard in paragraph (a)(17), 
the requirements in section 484B of the HEA regarding an institution's 
refund policy; and,
    (10) With respect to the State review standards in paragraph 
(a)(18), the provisions in section 485(a) of the HEA regarding the 
calculation of the completion or graduation rate of certificate- or 
degree-seeking, full-time undergraduate students; the standard in 34 
CFR 668.15 regarding the withdrawal rate of students at an institution; 
and, the provisions in section 481(e)(2) of the HEA regarding the 
placement rate and graduation rate of students enrolled in educational 
programs of less than 600 clock-hours.
    The Secretary recognizes that many of the referenced Title IV, HEA 
program standards will be revised or recodified in the near future as 
additional regulations are published implementing changes made in the 
HEA by the Higher Education Amendments of 1992.
    The Secretary invites public comment regarding the development of 
standards under the proposed framework and on alternative approaches 
that would assure the development of meaningful and rigorous standards. 
Specifically, the Secretary seeks comment on ways to establish common 
methodologies for computing quantitative standards, and common 
recordkeeping requirements associated with those standards, among 
institutions in all States, and among the three members of the 
Integrity triad in a manner that reduces the administrative burden on 
institutions and the triad. In addition, the Secretary invites comments 
on approaches that would minimize extreme disparities in standards 
between States.
Section 667.22  Disapproval of State Review Standards
    Under section 494C(d) of the HEA, State-developed standards are 
``subject to disapproval by the Secretary.'' In accordance with that 
section of the HEA, in Sec. 667.22, the Secretary proposes procedures 
under which the Secretary evaluates a State's review standards to 
determine whether to disapprove those standards.
    Specifically, in Sec. 667.22(a), a State must submit to the 
Secretary its review standards along with an explanation of how each 
standard was established, including--
    (1) A description of the manner in which institutions in the State 
were consulted in the development of the standards;
    (2) An explanation of the relationship between each of the State's 
review standards and the related or comparable Title IV, HEA program 
standards or requirements; and
    (3) If applicable, an explanation of the reasons for establishing 
different review standards for different types of institutions or 
educational programs.
    In Sec. 667.22(b), the Secretary proposes criteria to determine 
whether to disapprove a State's review standards. Specifically, the 
Secretary proposes to disapprove a State's review standards if--
    (1) The State does not assure the Secretary that the State's review 
standards are consistent with the laws and constitution of that State, 
as required by section 494C(d) of the HEA;
    (2) The State does not submit evidence that the State's review 
standards were developed in consultation with institutions in that 
State, as required in section 494C(d) of the HEA;
    (3) The State's review standards do not meet or exceed all of the 
requirements and cover all the areas described in section 494C(d) of 
the HEA and Sec. 667.21; or
    (4) The standards the State quantified under Sec. 667.21(b)(4) do 
not meet certain procedural and statistical requirements.
    Finally, in Sec. 667.22(c), if the Secretary disapproves a State's 
review standards, the Secretary proposes to give the State the reasons 
for that disapproval and proposes to provide the State an opportunity 
to either demonstrate why the Secretary's disapproval was incorrect or 
submit revised standards that address the reasons for the Secretary's 
disapproval.
    The Secretary invites public comment regarding the proposed 
evaluation criteria and on additional criteria the Secretary should use 
to evaluate a State's review standards.
Section 667.23  SPRE Reviews of Institutions
    In Sec. 667.23, the Secretary proposes procedures regarding SPRE 
reviews of referred institutions. In general, if the Secretary refers 
an institution to a SPRE for review under Sec. 667.5, or the SPRE 
selects an institution for review under Sec. 667.6 and the Secretary 
approves that selection, the SPRE reviews, or arranges for the review 
of, that institution to determine whether the institution is in 
compliance with the State review standards described in Sec. 667.21.
    To implement the part of section 494C(d) of the HEA that requires a 
SPRE to review referred institutions in accordance with published State 
standards, in Sec. 667.23(b), the Secretary proposes that the SPRE 
provide written notice of the State's established review standards to 
each institution in the State before the SPRE conducts reviews of 
referred institutions.
    In Sec. 667.23(c), the Secretary proposes that the SPRE issue a 
report of its findings and provide it to the institution no later than 
45 days after the SPRE completes its review. For each finding contained 
in the report, the SPRE must cite the standard violated and cite the 
nature of the violation. The SPRE may prescribe, if necessary, a course 
of action the institution must follow to correct the violation, or the 
SPRE may determine that the institution should no longer participate in 
the Title IV, HEA programs. If the SPRE chooses to prescribe a 
corrective action, the Secretary proposes to give the SPRE sole 
discretion to determine an appropriate period for the institution to 
correct the violation and bring itself into compliance with the State's 
review standards. Alternatively, if the SPRE determines that the 
institution should no longer participate in the Title IV, HEA programs, 
as provided in section 494C(h) of the HEA, the SPRE may initiate the 
process described in Sec. 667.25, under which the Secretary ultimately 
terminates the institution's participation in those programs.
    In Sec. 667.23(d), the Secretary proposes that the SPRE give the 
institution an opportunity to respond to its findings and required 
actions. If the institution chooses to respond within the time 
permitted by the SPRE, in Sec. 667.23(e), the Secretary proposes that 
the SPRE evaluate the institution's response and issue a final report 
to the institution that includes its findings and required action.
    Section 494C(h)(1) provides that a SPRE must notify the Secretary 
of its findings and the actions the SPRE is taking, or has taken, in 
response to those findings within a time period prescribed by the 
Secretary in regulations. Therefore, in Sec. 667.23(f), the Secretary 
proposes that the SPRE provide to the Secretary a copy of its final 
report to an institution within 30 days of its issuance to the 
institution. A final report includes the report that the SPRE produces 
after the institution responds to its initial findings. However, if the 
institution does not respond to the SPRE's initial report in the time 
permitted by the SPRE, the SPRE's initial report becomes its final 
report on the day after the deadline date provided to the institution 
for responding to that report.
    In Sec. 667.23(g), the Secretary proposes that a SPRE may determine 
that an institution should no longer participate in the Title IV, HEA 
programs for reasons other than the institution's failure to meet the 
State's review standards. Specifically, a SPRE may initiate a 
proceeding to effect the termination of the institution's participation 
in the Title IV, HEA programs under Sec. 667.25, if that institution--
    (1) Does not respond to the SPRE's findings or required actions 
within the time permitted by the SPRE and the SPRE's findings show 
serious violations of the State's standards; (2) Does not allow SPRE 
personnel at the institution; or (3) Fails to provide SPRE officials 
with prompt access to its documents and records.
    The Secretary wishes to make clear that these proposed regulations 
do not require a SPRE to take specific actions against an institution 
that fails to meet a State's review standards. The Secretary believes 
strongly that SPREs be afforded the latitude to prescribe appropriate 
corrective actions, or, if the SPRE finds that an institution has 
continuously or egregiously violated the State's standards, make the 
determination that the institution should no longer participate in the 
Title IV, HEA programs. On the other hand, the Secretary would be 
concerned if a SPRE failed consistently to prescribe appropriate and 
adequate corrective actions for institutions that did not satisfy the 
State's standards.
    Finally, the Secretary intends to add to this section a requirement 
that a SPRE establish performance standards that would enable the 
Secretary to evaluate the conduct and quality of the SPRE's reviews. 
Public comment is invited regarding the specific areas where SPRE 
performance standards should be established and how that performance 
should be evaluated.
Section 667.24  Peer Reviews of Institutions
    For each referred institution, section 494C(d)(15) of the HEA 
requires a SPRE to contract with a nationally recognized accrediting 
agency or other peer review system with demonstrated competence in 
assessing educational programs to carry out a review or provide 
information to the SPRE regarding that agency's or system's assessment 
of the quality and content of the institution educational programs.
    Under a literal reading of this provision, a SPRE could contract 
with the accrediting agency that had previously accredited the referred 
institution for the latter to conduct another, limited accreditation 
review. Under normal circumstances, the Secretary believes that use of 
SPRP funds for that activity would not be a prudent use of those funds. 
Therefore, under normal circumstances, the Secretary recommends that a 
SPRE satisfy the requirements of section 494C(d)(15) of the HEA by 
contracting with the referred institution's accrediting agency for the 
latter to provide a copy of the relevant information that was included 
in connection with its previous grant of accreditation.
    Except for the proposal that allows a SPRE to contract with a peer 
review system that it determines has competence in assessing 
educational programs, the provisions in section 494C(d)(15) are 
repeated in Sec. 667.24.
    Several negotiators argued that the Secretary should define the 
term ``peer review system'' or specify criteria to determine the 
competence of a peer review system. Those negotiators believed strongly 
that a peer review system selected by a SPRE would not be a credible 
authority in assessing postsecondary educational programs because that 
peer review system would not be subject to the requirements and 
standards imposed on accrediting agencies in subpart 2 of Part H of the 
HEA.
    One negotiator suggested specific criteria to determine the 
competence of a peer review system. In particular, that negotiator 
suggested that the Secretary approve a peer review system if that 
system demonstrates that--
    (1) The geographical scope of the system's activities covers a 
State, region, or the United States;
    (2) The system has the administrative and fiscal capability to 
carry out its activities in light of the system's objectives and scope;
    (3) The system has established standards and adequate experience to 
assess the quality and content of institutions' programs of 
instruction, training, or study in relation to achieving the stated 
objectives for which the courses or programs are offered;
    (4) The system has effective mechanisms for evaluating compliance 
with its standards and applying its standards consistently; and
     (5) The system's activities will meet the needs of the State and 
the Secretary in accomplishing the purposes of the SPRP and not 
unnecessarily duplicate the capabilities of a nationally recognized 
accrediting agency available to perform the assessment described in 
Sec. 667.24(b) of these regulations.
     The Secretary believes that a peer review system for purposes of 
this program does not, in effect, have to qualify as a recognized 
accrediting agency to be used under the SPRP. Nevertheless, the 
Secretary invites comment on these suggested criteria and alternative 
approaches for determining the competence of a peer review system.
Section 667.25  Termination of an Institution's Participation in the 
Title IV, HEA Programs
    In Sec. 667.25, the Secretary proposes the procedures a SPRE must 
follow to effect the termination of an institution's participation in 
the Title IV, HEA programs. Under those procedures, if a SPRE 
determines, based upon its review, that an institution is in violation 
of the State's review standards and should no longer continue to 
participate in the Title IV, HEA programs or violates one of the 
provisions proposed in Sec. 667.23(g), the SPRE provides the 
institution with the opportunity to contest that determination in 
accordance with procedures the Secretary has approved for that purpose 
under Sec. 667.26.
    If the SPRE concludes after affording the institution the 
opportunity to challenge the SPRE's findings and determination, that 
the institution should be terminated from participating in the Title 
IV, HEA Programs, the SPRE notifies the Secretary of those findings and 
that determination. Upon notice by the SPRE that the institution should 
no longer participate in the Title IV, HEA programs, the Secretary 
immediately terminates that institution's participation in those 
programs and notifies the institution and the SPRE of the effective 
date of that termination.
    Further, the Secretary proposes that an institution terminated 
under this part may not reapply to the Secretary to participate in a 
Title IV, HEA program until 18 months have expired from the effective 
date of its termination. This proposal is consistent with the 
provisions in 34 CFR 668.96. Under that section of the Title IV, HEA 
program regulations, an institution whose participation in the Title 
IV, HEA programs has been terminated may not seek reinstatement in 
those programs before the expiration of 18 months from the effective 
date of its termination. Moreover, section 494C(h)(1) of the HEA does 
not authorize any appeal to the Secretary of a termination 
determination.
Section 667.26 Due Process Requirements
    Section 494C(h)(3) of the HEA requires the Secretary to prescribe 
in regulations minimum procedural standards for the disapproval of 
institutions by a SPRE. Thus, in Sec. 667.26, the Secretary proposes 
due process criteria that a State must satisfy when permitting an 
institution to challenge a SPRE's finding that the institution is in 
violation of the State's review standards and should no longer continue 
to participate in the Title IV, HEA programs.
    Specifically, the Secretary proposes to approve the State's 
procedures if those procedures satisfy basic due process requirements. 
Therefore, the Secretary proposes procedures that require the SPRE to--
    (1) Notify an institution of any required action and the basis for 
that action;
    (2) Permit the institution the opportunity to challenge that 
adverse action in a hearing or in writing;
    (3) Notify the institution in writing of the result of its 
challenge, and the basis for that result; and
    (4) Follow other applicable procedural requirements of State law.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities. Because these proposed regulations would affect only States 
and State agencies, the regulations would not have an impact on small 
entities. State and State agencies are not defined as ``small 
entities'' in the Regulatory Flexibility Act.

Paperwork Reduction Act of 1980

     Sections 667.3, 667.4, 667.12, 667.15, 667.21, and 667.22 contain 
information collection requirements. As required by the Paperwork 
Reduction Act of 1980, the Department of Education will submit a copy 
of these sections to the Office of Management and Budget for its 
review. (44 U.S.C. 3504(h))
    These proposed regulations contain information collection 
requirements for States that apply to the Secretary to receive funds 
under this part and for States that develop review standards and submit 
those standards to the Secretary for approval. The Department needs and 
uses the information collected to determine whether to approve a 
State's application for funds.
    Annual public reporting burden for this collection of information 
is estimated to average 1480 hours for each of the 57 States that 
prepare plans to perform SPRE activities, prepare budgets that account 
for those activities, develop review standards, and submit those plans, 
budgets, and standards to the Secretary for approval.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, OMB, Room 3002, New Executive 
Office Building, Washington, DC 20503; Attention: Daniel J. Chenok.

Invitation To Comment

    Interested persons are invited to submit comments and 
recommendations regarding these proposed regulations.
    All comments submitted in response to these proposed regulations 
will be available for public inspection, during and after the comment 
period, in room 4318, ROB-3, 7th & D Streets, SW, Washington, D.C., 
between the hours of 8:30 a.m. and 4 p.m., Monday through Friday of 
each week except Federal holidays.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether the 
proposed regulations in this document would require transmission of 
information that is being gathered by or is available from any other 
agency or authority of the United States.

List of Subjects in 34 CFR Part 667

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

(Catalog of Federal Domestic Assistance Number: 84.267, State 
Postsecondary Review Program)

    Dated: January 14, 1994.
Richard W. Riley,
Secretary of Education.
    The Secretary proposes to amend title 34 of the Code of Federal 
Regulations by adding a new part 667 to read as follows:

PART 667--STATE POSTSECONDARY REVIEW PROGRAM

Subpart A--General

Sec.
667.1  Scope and purpose.
667.2  Definitions.
667.3  State agreement.
667.4  State postsecondary review entity.
667.5  Criteria the Secretary uses to refer institutions to a SPRE 
for review.
667.6  SPRE selection of institutions for review.
667.7  Notice to SPRE of Federal actions.
667.8  Institutions with locations in more than one State.

Subpart B--Allotment Formula and Funding Procedures

667.11  Allotment formula.
667.12  Application for funds.
667.13  Approval of funding application.
667.14  Allowable costs and activities.
667.15  Fiscal procedures and records.
667.16  Supplement, not supplant, requirement.
Subpart C--State Review Standards, SPRE Reviews, and Termination of 
Institutional Participation
667.21  State review standards.
667.22  Disapproval of State review standards.
667.23  SPRE reviews of institutions.
667.24  Peer reviews of institutions.
667.25  Termination of an institution's participation in the Title 
IV, HEA programs.
667.26  Due process requirements.

    Authority: 20 U.S.C. 1099a through 1099a-3, unless otherwise 
noted.

Subpart A--General


Sec. 667.1  Scope and purpose.

    (a)(1) This part establishes the rules and procedures that govern 
the State Postsecondary Review Program, which is authorized under Title 
IV, Part H, Subpart 1 of the Higher Education Act of 1965, as amended 
(HEA). The purpose of the program is to strengthen State oversight of 
institutions participating in the Title IV, HEA programs through the 
development of State standards for those institutions, and State review 
under those standards of institutions referred by the Secretary under 
Sec. 667.5 or selected by the State under Sec. 667.6.
    (2) Under this part, if a State finds that an institution it 
reviews does not satisfy the State standards, the State may--
    (i) Require the institution to take prompt actions to bring itself 
into compliance with the State's standards; or
    (ii) Determine that the institution should no longer participate in 
a Title IV, HEA program.
    (b) A State must carry out activities under this part only to the 
extent that the costs of those activities will be reimbursed by Federal 
funds.
    (c) 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.
    (d) The provisions in the Education Department General 
Administrative Regulations, State Administered Programs, 34 CFR Part 
76, do not apply to this part except for the provisions in--
    (1) 34 CFR 76.1, 76.2, and 76.50 of subpart A;
    (2) 34 CFR 76.500 through 76.534, 76.561, 76.563, and 76.580 
through 76.592 of Subpart F; and
    (3) 34 CFR 76.700 through 76.702, 76.707, 76.720, 76.730, 76.731, 
76.734, 76.760, and 76.761 of subpart G.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.2  Definitions.

    (a) The following terms used in this part are defined in the 
regulations governing Institutional Eligibility under the Higher 
Education Act of 1965, as amended, 34 CFR Part 600:

Branch campus
Educational program
Federal Family Education Loan (FFEL) programs
Nationally recognized accrediting agency
Recognized occupation
Regular student
Secretary

    (b) The following terms used in this part are defined in the 
Student Assistance General Provisions regulations, 34 CFR part 668:

Award year
Clock hour
Eligible program
Enrolled
Federal Pell Grant Program
Federal Perkins Loan Program
Federal PLUS Program
Federal Stafford Loan Program
Federal Supplemental Educational Opportunity Grant (FSEOG) Program
Federal Supplemental Loans for Students (SLS) Program
Federal Work-Study (FWS) Program
National Early Intervention Scholarship and Partnership (NEISP) 
Program
State
State Student Incentive Grant (SSIG) Program

    (c) The following definitions apply to terms used in this part:
    Classification of Instructional Programs (CIP): A manual published 
by the U.S. Department of Education, National Center for Education 
Statistics, that lists the codes, titles, and descriptions of 
instructional programs used by institutions and States for reporting 
and analyzing education data at the national level.
    Education and general expenditures: The total amount expended by an 
institution 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.
    National Occupational Information Coordinating Committee (NOICC): 
An agency jointly sponsored by the Departments of Education and Labor 
to facilitate comparisons between educational programs and related 
occupations and to provide information to State employment counseling 
services.
    Professional program: An undergraduate or graduate educational 
program that prepares individuals for an occupation, if that 
occupation--
    (i) Is listed in SOC or CIP;
    (ii) Requires at least an associate degree to qualify for entry;
    (iii) Involves the independent practice or application of a defined 
or organized body of competencies that is unique to the occupation; and
    (iv) Is formally recognized and regulated under a national or State 
licensure, accreditation, or permit system.
    Referred institution: An institution that a SPRE reviews as a 
result of--
    (i) A referral by the Secretary under Sec. 667.5; or
    (ii) State selection under Sec. 667.6.
    Standard Occupational Classification (SOC) Manual: A manual 
published by the U.S. Department of Commerce, used for reporting 
national statistics on occupations and employment projections, compiled 
from data collected through the census and other Federal surveys.
    State Postsecondary Review Entity (SPRE): The entity described in 
Sec. 667.4.
    Title IV, HEA program: One of the programs identified in 34 CFR 
668.1.
    Vocational program: An educational program below the baccalaureate 
degree level, that is not classified as a professional program, that 
prepares students for gainful employment in a recognized occupation.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.3  State agreement.

    (a) To participate in the State Postsecondary Review Program, a 
State must enter into an agreement with the Secretary.
    (b) In the agreement, the State--
    (1) Designates a SPRE;
    (2) Describes the organizational structure of the SPRE;
    (3) Assures that--
    (i) The SPRE has the legal authority under State law to carry out 
the functions required of it under this part;
    (ii) The SPRE will perform the functions required of it under this 
part;
    (iii) The SPRE will keep records or have access to records and 
provide information to the Secretary as may be requested for financial 
and compliance audits, and program evaluations;
    (iv) The SPRE will review referred institutions on a schedule that 
coincides with the Secretary's schedule for recertifying those 
institutions to participate in the Title IV, HEA programs;
    (4) Describes the relationship between the SPRE, the State 
approving agency for Veterans Affairs, the State guaranty agency under 
the FFEL programs, the State agency responsible for administering the 
SSIG Program, any State entity that provides a license to institutions 
to operate in the State or otherwise legally authorizes institutions to 
provide postsecondary education in the State, any State-level entity 
that approves service providers under the Job Training Partnership Act, 
and any State-level entity that certifies vocational education;
    (5) Indicates that the SPRE--
    (i) Shall contract with a nationally recognized accrediting agency 
or a peer review system for purposes of Sec. 667.23; and
    (ii) May contract with a private agency, nationally recognized 
accrediting agency, or peer review system for assistance in performing 
the SPRE's functions; and
    (6) Includes the SPRE's plan for performing the functions described 
in Sec. 667.12.
    (c) The agreement between the State and the Secretary goes into 
effect when it is signed by the Secretary and remains in effect until 
it is terminated by the Secretary or the State. The Secretary or the 
State terminates an agreement under the provisions of that agreement.
    (d) The sanctions set forth in paragraph (e) of this section follow 
if the State--
    (1) Does not enter into an agreement with the Secretary;
    (2) Fails to comply with the terms of the agreement and the 
Secretary terminates that agreement;
    (3) Terminates the agreement with the Secretary; or
    (4) Does not establish review standards under Sec. 667.21 that are 
approved by the Secretary by the end of the second year for which the 
State received an allotment under Sec. 667.11.
    (e) If any of the events listed in paragraph (d) of this section 
occur--
    (1) The State is ineligible to receive--
    (i) Any funds appropriated to carry out this program;
    (ii) Its allotment of any funds appropriated under the SSIG 
Program; and
    (iii) Any funds appropriated to carry out the NEISP Program; and
    (2) The Secretary--
    (i) Does not designate as eligible for participation in a Title IV, 
HEA program any institution seeking initial participation in that 
program, any branch campus for which an institution seeks an initial 
designation of eligibility under 34 CFR part 600, or any institution 
that has undergone a change in ownership that results in a change in 
control as determined in 34 CFR part 600, that is located in that 
State;
    (ii) Grants only provisional certification, as determined in 34 CFR 
part 668, to an institution in that State not described in paragraph 
(e)(2)(i) of this section; and
    (iii) May--
    (A) Establish the review standards for that State described in 
Sec. 667.21; and
    (B) Carry out, or arrange to carry out, the State's other 
responsibilities and requirements under this part.

(Authority: 20 U.S.C. 1099a-1)


Sec. 667.4  State postsecondary review entity.

    The SPRE is the entity designated by the State in the agreement 
between the State and the Secretary under Sec. 667.3, to--
    (a) Represent all existing State entities that are, and all future 
State entities that will be, responsible for--
    (1) Granting State authorization to provide postsecondary education 
in that State; and
    (2) Ensuring that all institutions in the State that participate in 
a Title IV, HEA program remain in compliance with the State review 
standards established under Sec. 667.21;
    (b) Perform the functions required of it under this part; and
    (c) Keep records or have access to records and provide information 
to the Secretary as may be requested for financial and compliance 
audits, and program evaluations.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.5  Criteria the Secretary uses to refer institutions to a SPRE 
for review.

    (a)(1) The Secretary refers an institution that participates in a 
Title IV, HEA program to a SPRE for review if the institution meets one 
or more of the criteria contained in paragraph (b) of this section.
    (2) In determining whether an institution meets one or more of the 
criteria contained in paragraph (b) of this section, the Secretary uses 
the most recently available data.
    (b) Except as provided in paragraphs (c), (d), and (e) of this 
section, the Secretary refers an institution to a SPRE if--
    (1) The institution has a cohort default rate (defined in 34 CFR 
668.15) equal to or greater than 25 percent;
    (2)(i) The institution has a cohort default rate equal to or 
greater than 20 percent; and
    (ii) During the latest completed award year for which data are 
available--
    (A) More than two-thirds of the institution's regular undergraduate 
students who were enrolled as at least half-time students received 
assistance under any Title IV, HEA program, excluding assistance 
received from the SSIG, NEISP, and Federal PLUS Programs; or
    (B) The amount that the institution's students received under the 
Title IV, HEA programs, excluding funds from the SSIG, NEISP, and 
Federal PLUS Programs, is equal to or greater than two-thirds of the 
institution's education and general expenditures;
    (3) The amount that the institution's students received under the 
Federal Pell Grant Program is equal to or greater than two-thirds of 
the institution's education and general expenditures;
    (4) The Secretary initiated a limitation, suspension, or 
termination action against the institution under 34 CFR part 668, 
subpart G, within the preceding 5 years;
    (5) An audit finding in the institution's two most recent audits 
under 34 CFR 668.23 resulted in a required repayment by the institution 
of an amount greater than 5 percent of the funds the institution 
received under the Title IV, HEA programs for any one award year 
covered by those audits;
    (6) The Secretary cited the institution for its failure to submit 
an audit report by the deadlines established under 34 CFR 668.23;
    (7)(i) The amount that the institution's students received under 
the Federal Pell Grant Program during any award year differed by more 
than 25 percent from the amount those students received under that 
program in the award year that preceded that award year, unless the 
differences can be accounted for by changes in that program;
    (ii) The amount that the institution's students received under the 
Federal Stafford Loan Program during any award year differs by more 
than 25 percent from the amount those students received under that 
program in the award year that preceded that award year, unless the 
differences can be accounted for by changes in that program; or
    (iii) The amount that the institution's students received under the 
Federal SLS Program during any award year differs by more than 25 
percent from the amount those students received under that program in 
the award year that preceded that award year, unless the differences 
can be accounted for by changes in that program;
    (8) The institution failed to meet the financial responsibility 
standards in 34 CFR part 668, subpart B;
    (9) The institution underwent a change in ownership that resulted 
in a change of control as defined in 34 CFR 600.31;
    (10) Except with regard to any public institution affiliated with a 
State system of higher education, the institution has participated for 
less than 5 years in--
    (i) The Federal Pell Grant Program;
    (ii) The FFEL programs;
    (iii) The FSEOG Program;
    (iv) The FWS Program; or
    (v) The Federal Perkins Loan Program; or
    (11) The institution has been subject to a pattern of complaints 
from students, faculty, or others, including information provided to 
the Secretary by the SPRE, related to its management or conduct of the 
Title IV, HEA programs or to misleading or inappropriate advertising 
and promotion of the institution's educational programs, that in the 
Secretary's judgment are sufficient to warrant review.
    (c) If the Secretary refers an institution to the SPRE under 
paragraph (b)(9) with regard to the same change of ownership or (b)(6) 
of this section, and the SPRE conducts a review of the institution as a 
result of that referral and finds no significant violations of the 
State's standards, the Secretary reserves whether to refer that 
institution again to the SPRE for the same reason that resulted in the 
initial referral.
    (d) The Secretary reserves whether to refer again to the SPRE an 
institution that meets only the conditions of paragraph (b)(10) of this 
section, if the SPRE previously conducted a review of that institution 
and found no violations of the State's standards.
    (e)(1) An institution may request the Secretary to confirm the data 
used by the Secretary in referring that institution to a SPRE.
    (2) The Secretary rescinds a referral if confirmation reveals that 
the data used to make a referral was inaccurate and a referral would 
not be required under accurate data.
    (3) The Secretary does not rescind a referral if the Secretary--
    (i) Confirms that the data are accurate; or
    (ii) Is unable to confirm the data.
    (4) In confirming data, the Secretary presumes that records 
maintained in the normal course of business by the U.S. Department of 
Education, a guaranty agency under the FFEL programs, a SPRE, a State 
licensing agency, or another State agency are accurate unless the 
institution proves to the Secretary's satisfaction that the records are 
not properly maintained or are inaccurate.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.6  SPRE selection of institutions for review.

    A SPRE may review an institution under this part that was not 
referred by the Secretary if--
    (a) The SPRE--
    (1)(i) Determines that the institution meets a referral criterion 
in Sec. 667.5 based on more recent data available to the SPRE; or
    (ii) Has reason to believe the institution is engaged in fraudulent 
practices; and
    (2) Requests the Secretary to approve its review of that 
institution; and
    (b) The Secretary--
    (1) Approves that request; or
    (2) Does not respond to the SPRE's request within 21 days after the 
date the Secretary receives that request.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.7  Notice to SPRE of Federal actions.

    (a) If the Secretary takes an action against an institution, the 
Secretary notifies the SPRE of the State in which the institution is 
located within 10 days of taking that action.
    (b) If the Secretary is informed that another Federal agency is 
taking an action against an institution, the Secretary notifies the 
SPRE of the State in which the institution is located as soon as 
possible but not later than 10 days after learning of that action.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.8  Institutions with locations in more than one State.

    (a) If an institution that is subject to a referral has locations 
in more than one State, the Secretary refers the institution to the 
SPRE in each State in which the institution is located and informs each 
SPRE of the other States in which the institution is located.
    (b) The SPRE of the State in which the main campus of the 
institution is located has the principal responsibility for reviewing 
that institution.
    (c) If a branch campus or additional location of an institution is 
in a State other than the State in which the institution's main campus 
is located, the SPRE of the State in which that branch campus or 
additional location is located--
    (1) May review that branch campus or additional location before a 
SPRE review is conducted of the main campus of that institution;
    (2) May delay its review of that branch campus or additional 
location until a SPRE review is conducted of the main campus of that 
institution; or
    (3) May choose not to review that branch campus or additional 
location if--
    (i) The SPRE of the State in which the main campus of that 
institution is located reviews that institution and makes no 
significant findings; and
    (ii) The State's allotment is insufficient to allow the SPRE to 
review all referred institutions.
    (d) An institution, its branch campuses, and additional locations 
are subject to the review standards of the State in which they are 
located.
    (e) Notwithstanding paragraphs (b) and (c) of this section, to 
review a referred institution that has locations in more than one 
State, the SPREs of those States may enter into an agreement under 
which the SPREs may alter the review responsibilities set forth in 
paragraphs (b) and (c) of this section.

(Authority: 20 U.S.C. 1099a-3)

Subpart B--Allotment Formula and Funding Procedures


Sec. 667.11  Allotment formula.

    (a) For each fiscal year for which funds are appropriated to carry 
out this part:
    (1) The Secretary--
    (i) Allots $20,000 to Guam, $20,000 to American Samoa, $20,000 to 
the Northern Mariana Islands, $20,000 to the Virgin Islands, and 
$20,000 to the Trust Territory of the Pacific Islands;
    (ii) Calculates each remaining State's allotment of the remaining 
funds under paragraph (a)(2) of this section; and
    (iii) Notifies each State of its allotment.
    (2) Except for Guam, American Samoa, the Northern Mariana Islands, 
the Virgin Islands, and the Trust Territory of the Pacific Islands, the 
Secretary allots those funds to a State by--
    (i) Determining the percentage of institutions participating in a 
Title IV, HEA program in the State by dividing the number of 
institutions located in that State that are certified to participate in 
a Title IV, HEA program by the total number of institutions that are 
certified to participate in all States;
    (ii) For the latest award year for which information is available, 
determining the percentage of Title IV, HEA program funds by dividing 
the total amount of Title IV, HEA program funds that were made 
available to students who enrolled in the institutions in that State 
that participate in a Title IV, HEA program, or to those students' 
parents, by the total amount of Title IV, HEA program funds that were 
made available to students, or to those student's parents, who enrolled 
in institutions that participate in a Title IV, HEA program in all 
States;
    (iii) Averaging the two percentages determined in paragraph 
(a)(2)(i) and (ii) of this section;
    (iv) Calculating an ``initial distribution'' by multiplying the 
average percentage determined in paragraph (a)(2)(iii) of this section 
by the amount appropriated to carry out this part less the total amount 
allotted to Guam, American Samoa, the Northern Mariana Islands, the 
Virgin Islands, and the Trust Territory of the Pacific Islands;
    (v)(A) Determining which States receive less than $50,000 under the 
initial distribution;
    (B) Providing each of those States with $50,000; and
    (C) Calculating the difference between the $50,000 provided to each 
of those States and those States' initial distribution;
    (vi)(A) Determining which States receive more than $50,000 under 
the initial distribution; and
    (B) Calculating the difference between each of those States' 
initial distribution and $50,000;
    (vii) Calculating a ``reduction percentage'' by dividing the total 
amount obtained in paragraph (a)(2)(v)(C) of this section by the total 
amount obtained in paragraph (a)(2)(vi)(B) of this section; and
    (viii) Reducing the initial distribution of each State in paragraph 
(a)(2)(vi)(A) of this section by the product of the amount obtained in 
paragraph (a)(2)(vi)(B) of this section and the reduction percentage in 
paragraph (a)(2)(vii) of this section.
    (b) If the Secretary determines that a SPRE will not spend its 
entire allotment during the period for which those funds are made 
available, or if a SPRE does not spend its allotment by the end of the 
period for which those funds are made available, the Secretary reallots 
those funds to other SPREs in a manner that the Secretary determines 
best carries out the purposes of the State Postsecondary Review 
Program.
    (c) SSIG and NEISP Program Federal and State matching funds are 
excluded from the calculations in this section.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.12  Application for funds.

    (a)(1) General. For each fiscal year for which funds are 
appropriated to carry out this part, a State that has entered into an 
agreement with the Secretary under Sec. 667.3 shall apply to the 
Secretary to receive its allotment. The State's application must 
contain the information required in paragraph (b), (c), or (d) of this 
section, as appropriate. The Secretary publishes in the Federal 
Register the date by which a State must submit its application.
    (2) Established review standards. A State has established review 
standards if those standards met the requirements in Sec. 667.21 and 
the Secretary did not disapprove those standards under Sec. 667.22.
    (b) Application before standards are established.
    (1) If a State has not established review standards, to receive its 
allotment the State--
    (i) Must submit a plan to develop--
    (A) The review standards described in Sec. 667.21, in consultation 
with the institutions in that State, which shall describe the manner in 
which consultation will take place; and
    (B) The procedures for receiving and responding to complaints from 
students, faculty, and others regarding institutions in the State, in 
consultation with institutions in that State, which shall describe the 
manner in which consultation will take place;
    (ii) May submit a plan to identify information maintained by 
institutions and State agencies, other than the information 
institutions are required to maintain under the Student Right-to-Know 
and Campus Security Act, that is relevant to developing the State 
review standards, to identify systems in which this information is 
maintained, and to provide estimates of the costs of coordinating the 
institutions' and State's information systems with an information 
system developed by the SPRE; and
    (iii) Must submit a budget for developing the standards and the 
complaint procedures and for providing cost estimates for the SPRE's 
information system, if relevant, that does not exceed the State's 
fiscal year 1993 allotment.
    (2) If the State's fiscal year 1993 allotment is less than the 
State's anticipated cost of carrying out the activities described in 
paragraphs (b)(1) (i) and (ii) of this section, the State shall first 
use its allotment to develop the review standards. If a portion of the 
allotment remains after the State develops its review standards, the 
State may develop procedures for receiving and responding to complaints 
from students, faculty, and others regarding institutions in the State. 
The State may use any remaining portion of its allotment to provide 
cost estimates for the SPRE's information system only after it has 
completed developing its review standards and complaint procedures.
    (c) Application after standards are established. (1) If the 
Secretary has not disapproved the State's review standards under 
Sec. 667.22, to receive its allotment, the State must submit to the 
Secretary--
    (i) Its plan to review referred institutions; and
    (ii) A budget for those reviews that does not exceed the State's 
allotment calculated under Sec. 667.11 less any amount expended by the 
SPRE in carrying out the activities under paragraph (b) of this 
section.
    (2) If a SPRE anticipates that the cost of reviewing all the 
referred institutions will exceed the State's allotment, the SPRE 
shall, as part of its plan, submit a priority system for selecting 
institutions to review from among the referred institutions.
     (3) The SPRE shall have discretion in developing its priority 
system, except that the SPRE must make its top priority for review, 
referred institutions that the Secretary has scheduled for 
recertification under 34 CFR part 668, subpart B.
    (d) If a State first applies to the Secretary to receive an 
allotment after fiscal year 1993, the State must submit the information 
and documentation required under paragraph (b) of this section, and may 
submit the information required in paragraph (c) of this section.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.13  Approval of funding application.

    (a) Before standards are established. The Secretary approves a 
State's plan and budget submitted before the State establishes review 
standards if--
    (1) The plan provides a reasonable basis, and adequate budget 
justification, for carrying out the activities described in 
Sec. 667.12(b)(1);
    (2) If applicable, the plan includes a priority system for using 
the State's allotment as described in Sec. 667.12(b)(2); and
    (3) The budget includes only reasonable allowable costs within the 
State's fiscal year 1993 allotment.
    (b) After standards are established. After the State establishes 
review standards, the Secretary approves a State's plan and budget for 
the allowable activities described in Sec. 667.14 if--
    (1) The plan provides adequate budget justification for those 
activities;
    (2) The plan provides for a reasonable scheme for reviewing 
referred institutions;
    (3) The plan includes a priority system for review as described in 
Sec. 667.12(c)(3);
    (4) The proposed contracts with private agencies, accrediting 
agencies, or peer review systems to carry out SPRE functions included 
in the plan are reasonable and appropriate; and
    (5) The budget includes only reasonable allowable costs within the 
State's allotment.
    (c) Failure to submit an acceptable application. If a State does 
not submit an application for funds under Sec. 667.12 or its 
application is not approved under this section--
     (1) The State is ineligible to receive--
    (i) Any funds appropriated to carry out this program;
    (ii) Its allotment of any funds appropriated under the SSIG 
Program; and
    (iii) Any funds appropriated to carry out the NEISP Program; and
    (2) The Secretary--
    (i) Does not designate as eligible for participation in a Title IV, 
HEA program any institution seeking initial participation in that 
program, any branch campus for which an institution seeks an initial 
designation of eligibility under 34 CFR part 600, or any institution 
that has undergone a change in ownership that results in a change in 
control as determined in 34 CFR part 600, that is located in that 
State; and
    (ii) Grants only provisional certification, as determined in 34 CFR 
part 668, to an institution in that State not described in paragraph 
(c)(2)(i) of this section.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.14  Allowable costs and activities.

     (a) If included in a State's approved plan, the Secretary pays, by 
reimbursement, direct costs, in paragraph (c) and described in Office 
of Management and Budget (OMB) Circular A-87, and indirect costs as 
determined in paragraph (b) of this section, of--
    (1) Establishing State review standards in consultation with 
institutions in the State, publicizing the State review standards, and 
providing initial and continuing training to State and other personnel 
in the State, including personnel at the institution subject to review;
     (2) Establishing and implementing the procedures for receiving and 
responding to complaints from students, faculty, and others regarding 
institutions in the State, in consultation with institutions in that 
State;
    (3) Reviewing referred institutions; and
    (4) Developing and maintaining an information system for SPRE 
review activities.
    (b) If a State seeks reimbursement for indirect costs, the State 
shall--
    (1) Use the restricted indirect cost rate, computed under 34 CFR 
75.564, and approved by the Secretary under 34 CFR 75.561; and
    (2) Not charge as a direct cost any cost that qualifies as an 
indirect cost.
    (c) The direct costs of carrying out the activities described in 
paragraph (a) of this section include, but are not limited to--
    (1) The salary of State employees engaged in allowable activities;
    (2) Travel costs incurred--
    (i) Consulting with institutions in developing standards and 
complaint procedures; and
    (ii) Reviewing referred institutions;
    (3) Training for--
    (i) State employees to perform reviews of referred institutions; 
and
    (ii) Institutional and other personnel regarding the State review 
standards;
    (4) Contracting with private organizations, accrediting agencies, 
and peer review systems to carry out required activities; and
    (5) Costs incurred by the State for administrative actions and 
legal proceedings.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.15  Fiscal procedures and records.

     (a) A State must account for the funds it received under this part 
in accordance with the procedures it uses to account for the 
expenditure of its own funds and must keep fiscal and accounting 
records that support, on audit, its expenditure of funds under this 
part.
     (b) (1) Except as provided in paragraph (b)(2) of this section, 
the State must keep intact and accessible records relating to its 
activities under this part for five years after the end of the period 
for which funds were provided.
     (2) The State shall keep records on any claim or expenditure 
questioned on audit until any audit question is resolved.
    (c) A State must have an audit performed of the SPRE's activities 
under this part at least once every two years and must submit that 
audit to the Secretary. An audit conducted under the Single Audit Act 
satisfies this requirement.

(Authority: 20 U.S.C. 1099a-1099a-3)


Sec. 667.16  Supplement, not supplant, requirement.

     The Secretary reimburses a State for the costs of necessary SPRE 
activities which supplement, but do not supplant, existing licensing or 
review functions conducted by the State.

(Authority: 20 U.S.C. 1099a-2)

Subpart C--State Review Standards, SPRE Reviews, and Termination of 
Institutional Participation.


 Sec. 667.21  State review standards.

    (a) Each State participating under this part must develop 
standards, in consultation with institutions in the State, under which 
the SPRE reviews referred institutions. The State-developed review 
standards must evaluate, with regard to a referred institution--
    (1) The extent to which the institution makes available to its 
students and prospective students its catalogs, admission requirements, 
course outlines, tuition and fee schedules, refund policy, course 
cancellation policy, its rules and regulations, and its enrollment 
agreement if appropriate;
    (2) Whether the institution's descriptions of its courses and 
programs are accurate;
    (3) Whether the institution has a method to assess that a student 
has the ability to complete successfully the educational program for 
which he or she applies;
    (4) The extent to which the institution's method to assess that a 
student has the ability to complete successfully the educational 
program for which he or she applies accurately assesses that ability as 
measured by the completion rate of that program;
    (5) Whether the institution maintains and enforces standards 
relating to satisfactory progress;
    (6) Whether the institution maintains adequate student and other 
records;
    (7) Whether the institution complies with relevant safety, and 
health standards, such as fire, building, and sanitation codes;
    (8) The extent to which the institution's financial and 
administrative capacity is appropriate to its scale of operations, and 
whether the institution maintains adequate financial and other 
information to determine the adequacy of its financial and 
administrative capacity;
    (9) For an institution that the SPRE determines is at financial 
risk, the adequacy of the institution's plans to provide for, if the 
institution closes--
    (i) Instruction to enrolled students; and
    (ii) Retention of and access to academic and financial aid records;
    (10) If an institution provides an educational program that is 
designed to prepare students for gainful employment--
    (i) Whether the tuition and fees charged for that educational 
program are reasonable given the amount of money that a student who 
successfully completes the program may reasonably be expected to earn; 
and
    (ii) Whether the educational program provides students with quality 
training that leads to useful employment in an occupation recognized in 
that State. In making this evaluation, one of the factors the SPRE 
shall consider is the appropriateness of the length of the educational 
program in terms of both the number of days of instruction and the 
number of credit or clock hours the program offers;
    (11) The extent to which the institution provides to its students 
relevant information regarding--
    (i) Market and job availability for students in its occupational, 
professional, and vocational programs; and
    (ii) The relationship between the institution's educational 
programs and State licensing standards for specific occupations;
    (12) The appropriateness of the number of semester, trimester, or 
quarter credit or clock hours required for the completion of an 
educational program;
    (13) The appropriateness of the length of 600-hour educational 
programs;
    (14) Whether, and the extent to which, the actions of any owner or 
shareholder of the institution, or any person exercising control over 
the institution may adversely affect its participation in a Title IV, 
HEA program;
    (15) The extent to which the institution's procedures for 
investigating and resolving student complaints are adequate;
    (16) The extent to which the institution's advertising promotion, 
and student recruiting practices are appropriate;
    (17) Whether the institution has a fair and equitable refund 
policy; and
    (18) The extent to which the institution's educational programs are 
successful as measured by--
    (i) The completion and graduation rates of the students enrolled in 
those programs, taking into account the length of the program and the 
selectivity of the institution's admissions policy (for the purpose of 
this provision, a completion rate is the same as a graduation rate);
    (ii) The institution's withdrawal rate;
    (iii) With respect to the institution's vocational and professional 
programs, the placement rate of the institution's graduates in 
occupations related to their educational programs, with related 
programs and occupations determined by reference to the NOICC CIP/DOT 
Master Crosswalk;
    (iv) Where appropriate, the rate at which the institution's 
graduates pass licensure examinations; and
    (v) The success of the institution's students who express other 
completion goals, such as transferring to another institution, full-
time employment in their field of study, or military service, in 
meeting those goals.
    (b) In developing the review standards in paragraph (a) of this 
section, a State--
    (1) May establish different standards for different types or 
categories of institutions or educational programs;
    (2) Shall specify the records and information an institution would 
need to maintain to demonstrate to a SPRE the institution's compliance 
with those standards;
    (3) Except for standards regarding prospective students in 
paragraph (a)(1) of this section, shall establish standards that apply 
at least to all regular students;
    (4) Shall quantify the standards described in paragraphs (a)(10)(i) 
and (a)(18) (i), (ii), (iii), and (iv) of this section by 
establishing--
    (i) An acceptable percentage for the relationship between the 
tuition and fees charged by an institution for an educational program 
and the amount of money that a student who successfully completes that 
program actually earns;
    (ii) Acceptable completion and graduation rates of students 
enrolled in educational programs offered by an institution;
    (iii) An acceptable withdrawal rate of students at an institution;
    (iv) With respect to an institution's vocational and professional 
programs, an acceptable placement rate of the institution's graduates 
in occupations related to their educational program; and
    (v) An acceptable rate or rates at which the institution's 
graduates pass licensure examinations; and
    (5) Shall determine the extent to which it is appropriate to base a 
State review standard on a related Title IV, HEA program standard or 
requirement or establish as the State's review standard the comparable 
Title IV, HEA program standard or requirement.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.22  Disapproval of State review standards.

    (a) (1) Each State shall submit to the Secretary for his evaluation 
the review standards it developed under Sec. 667.21.
    (2) The State shall also submit to the Secretary an explanation of 
how each standard was established, including--
    (i) An explanation of the relationship between each of the State's 
review standards and the related or comparable Title IV, HEA standards 
and requirements;
    (ii) If applicable, an explanation of the reasons for establishing 
different review standards for different types of institutions or 
educational programs; and
    (iii) A description of the manner in which institutions were 
consulted in developing the review standards.
    (b) The Secretary disapproves a State's review standards if--
    (1) The State does not assure the Secretary that the State's review 
standards are consistent with the laws and constitution of that State;
    (2) The State does not submit evidence that the State's review 
standards were developed in consultation with the institutions in that 
State;
    (3) The State's review standards do not meet or exceed all of the 
requirements and cover all the areas described in Sec. 667.21; or
    (4) The standards developed under Sec. 667.21(b)(4)--
    (i) Do not specify the methods and procedures that an institution 
must use to calculate--
    (A) The relationship between the tuition and fees charged by an 
institution for an educational program and the amount of money that a 
student who successfully completes that program actually earns; and
    (B) The graduation or completion rates, withdrawal rates, placement 
rates, and licensure examination pass rates of the institution's 
students or graduates; and
    (ii) Do not specify statistically valid methods and procedures that 
an institution must use if that institution conducts surveys of its 
graduates to obtain data regarding the type of employment, placement, 
earnings, or licensure examination pass rates of the institution's 
graduates;
    (c) If the Secretary disapproves a State's review standards, the 
Secretary gives the State the reasons for that disapproval and gives 
the State an opportunity to--
    (1) Demonstrate why the Secretary's disapproval was incorrect; or
    (2) Submit revised review standards that address the reasons for 
the Secretary's disapproval.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.23  SPRE reviews of institutions.

    (a) If the Secretary refers an institution to a SPRE for review 
under Sec. 667.5 or the SPRE selects an institution for review under 
Sec. 667.6 and the Secretary approves that selection, the SPRE reviews, 
or arranges for the review of that institution, to determine whether 
the institution is in compliance with the State review standards 
described in Sec. 667.21.
    (b) The SPRE shall provide written notice to all institutions in 
the State of the review standards approved by the Secretary under 
Sec. 667.22 before it may conduct reviews of referred institutions.
    (c) The SPRE must issue an initial report of its findings and 
provide it to the institution no later than 45 days after the SPRE 
completes its review. If the SPRE finds that the institution is in 
violation of a standard, for each finding, the SPRE--
    (1) Must cite the standard violated and the nature of the 
violation; and
    (2) May--
    (i) Prescribe, if necessary, a course of action the institution 
must follow to correct the violation. The SPRE has sole discretion to 
determine an appropriate period for the institution to correct the 
violation and bring itself into compliance with the State's review 
standards; or
    (ii) Initiate a proceeding under Sec. 667.25 to effect the 
termination of the institution's participation in the Title IV, HEA 
programs.
    (d) The SPRE must give the institution an opportunity to respond to 
its findings and required actions.
    (e) If the institution chooses to respond within the time permitted 
by the SPRE, the SPRE must evaluate the institution's response and 
issue a final report to the institution that includes its findings and 
required action.
    (f) (1) The SPRE must provide to the Secretary a copy of its final 
report to an institution within 30 days of its issuance to the 
institution; or
    (2) If the institution did not respond to the SPRE's initial report 
by the date permitted by the SPRE, the SPRE must provide to the 
Secretary a copy of its initial report. The SPRE's initial report 
becomes its final report on the day after the date provided to the 
institution for responding to that report; and
    (3) If the SPRE did not prescribe a course of action the 
institution must follow to correct a violation of the State's standards 
under paragraph (c) of this section, the SPRE must include in its 
report to the Secretary an explanation of why no action was prescribed.
    (g) In addition to the reasons for initiating a proceeding to 
effect the termination an institution's participation in the Title IV, 
HEA programs under paragraph (c) of this section, the SPRE may 
determine that the institution should no longer participate in the 
Title IV, HEA programs if that institution--
    (1) Does not respond to the SPRE's findings or required actions 
within the time permitted by the SPRE and the SPRE's findings show 
serious violations of the State's standards;
    (2) Does not allow SPRE personnel at the institution; or
    (3) Fails to provide SPRE officials with prompt access to its 
documents and records.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.24  Peer reviews of institutions.

    (a) To carry out a review of a referred institution, the SPRE must 
contract with a nationally recognized accrediting agency or other peer 
review system the SPRE determines demonstrates competence in assessing 
educational programs.
    (b) (1) Under the contract described in paragraph (a) of this 
section, the accrediting agency or peer review system shall carry out a 
review or provide information from its previous grant of accreditation 
or previous review to the SPRE regarding the agency's or system's 
assessment of the quality and content of the institution's educational 
programs in relation to achieving the stated objectives for which the 
programs were offered.
    (2) In making its assessment under paragraph (b)(1) of this 
section, for each educational program, the agency or system shall take 
into account the adequacy of the space, equipment, instructional 
materials, staff, and student support services, including student 
orientation and counseling provided for each program, and any other 
areas specified in the agency's contract with the SPRE.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.25  Termination of an institution's participation in the Title 
IV, HEA programs.

    (a) (1) If a SPRE determines that an institution should no longer 
participate in a Title IV, HEA program, based upon its review, because 
the institution is in violation of State standards or has not complied 
with the SPRE requirements such as those listed in Sec. 667.23(g), the 
SPRE must provide the institution with the opportunity to contest that 
determination in accordance with procedures the Secretary has approved 
for that purpose under Sec. 667.26.
    (2) If the SPRE still concludes after affording the institution the 
opportunity to challenge the SPRE's initial determination that the 
institution is in violation of the State's review standards and should 
no longer continue to participate in a Title IV, HEA program, the SPRE 
notifies the Secretary of those findings and that determination.
    (b) (1) Upon notice by the SPRE that the institution should no 
longer participate in a Title IV, HEA program, the Secretary 
immediately terminates that institution's participation in that program 
and notifies the institution and the SPRE of the effective date of that 
termination.
    (2) If an institution's participation in a Title IV, HEA program is 
terminated under this section--
    (i) The institution may not appeal that termination to the 
Secretary; and
    (ii) The institution may not reapply to the Secretary to 
participate in that program until 18 months have expired from the 
effective date of its termination.

(Authority: 20 U.S.C. 1099a-3)


Sec. 667.26  Due process requirements.

    (a) Each State shall submit to the Secretary for approval the 
procedures it uses to allow an institution to challenge a SPRE's 
finding that the institution is in violation of the State's review 
standards and should no longer continue to participate in a Title IV, 
HEA program.
    (b) The Secretary approves a State's procedures described in 
paragraph (a) of this section if--
    (1) The State review standards are in writing; and
    (2) The procedures require the SPRE to--
    (i) Notify an institution of any required action and the basis for 
that action;
    (ii) Permit the institution the opportunity to challenge that 
adverse action in a hearing or in writing;
    (iii) Notify the institution in writing of the result of its 
challenge, and the basis for that result; and
    (iv) Follow other applicable procedural requirements of State law.

(Authority: 20 U.S.C. 1099a-3)

    Note: This appendix will not appear in the Code of Federal 
Regulations.

Appendix A to Preamble.--Major Issues Discussed at the Regional 
Meetings

    The Department convened four regional meetings in September 1992 to 
obtain public involvement in the development of regulations to 
implement Title IV, part H, subpart 1 of the Higher Education Act of 
1965, as amended by the Higher Education Amendments of 1992, Public Law 
102-325. This subpart describes the rules and procedures that govern 
the State Postsecondary Review Program.
    The Department invited individuals and representatives of groups 
involved in student financial assistance programs to the four regional 
meetings. At each meeting, the Department provided for a comprehensive 
discussion and exchange of information regarding the implementation of 
subpart 1 by providing participants with an issue paper that raised 
issues and questions with regard to the statutory provisions included 
in subpart 1. The following is a summary of the information provided to 
the Department by participants at the regional meetings. The section of 
the proposed regulations that is the subject of the information is 
provided as a reference.
    Time requirement for development of State review standards--
Sec. 667.3.
    Participants in the regional meetings discussed whether the 
Secretary should require States to develop review standards within a 
specified time. The participants agreed that the Secretary should 
specify a time period but disagreed on what that time period should be.
    Allotment formula--Sec. 667.11.
    Participants discussed how Federal funds should be divided among 
the States that have entered into an agreement with the Secretary and 
suggested a funding scheme under which each participating State would 
receive (1) an allotment sufficient to carry out minimum SPRE 
activities, and (2) a supplemental allotment based on the number of 
institutions in the State, the total Title IV, HEA program funds made 
available to students attending institutions in the State, or the 
number institutions referred to the State by the Secretary.
    Allowable costs and activities--Sec. 667.14.
    Participants discussed the extent to which a State should be 
reimbursed for the costs of performing reviews and other activities and 
suggested that the Secretary reimburse the State for the direct and 
indirect costs of SPRE review activities, including salaries and fringe 
benefits, travel and other review costs, costs for developing State 
review standards and complaint procedures, and litigation costs.
    Consultation with institutions--Sec. 667.12.
    Participants discussed whether the Secretary should establish 
procedures that a State must use to consult with institutions in its 
State in the development of State review standards. They recommended 
that the Secretary suggest, but not establish, consultation procedures.
    Federal minimum review standards--Sec. 667.21.
    Participants discussed whether the Secretary should establish 
Federal minimum standards and whether a State could establish standards 
that are weaker than comparable standards that govern an institution's 
eligibility and participation in the Title IV, HEA programs. The 
participants were divided on the first issue; the majority argued that 
Federal minimums would not be appropriate because they could not be 
developed in a manner that would adequately account for the mission and 
diversity of all postsecondary institutions. With respect to the second 
issue, some participants felt that a State should have the flexibility 
to develop weaker standards, while others felt that no distinction 
should be made between a ``weaker'' standard or a ``different'' 
standard. Those participants felt that a State should be able to 
develop different standards for different types of institutions.
    Quantifiable standards--Sec. 667.21.
    Participants discussed whether a State should quantify review 
standards and suggested that, to the extent that standards could be 
quantified, they should be quantified. However, most participants felt 
that the State should have the flexibility to establish the level at 
which an institution would be considered to be in violation of the 
quantified standard.
    SPRE review findings--Sec. 667.23.
    Participants discussed whether a SPRE should be required to 
determine that an institution should no longer participate in the Title 
IV, HEA programs based on the institution's failure to satisfy a 
particular State standard. Most participants felt that a SPRE could, 
but should not be required to, make that determination. The 
participants suggested that, based on the nature and severity of an 
institution's violations, the SPRE should have the latitude to take an 
adverse action against the institution or to require the institution to 
take actions to bring itself into compliance with the State's 
standards.
    Disapproval of State review standards--Sec. 667.22.
    Participants discussed the basis under which the Secretary should 
disapprove a State's review standards. Most participants felt that the 
Secretary should disapprove a State's standards only if those standards 
did not adequately address the statutory requirements.

[FR Doc. 94-1460 Filed 1-21-94; 10:00 am]
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