[Federal Register Volume 59, Number 28 (Thursday, February 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2863]


[[Page Unknown]]

[Federal Register: February 10, 1994]


_______________________________________________________________________

Part III





Department of Education





_______________________________________________________________________



30 CFR Part 600




Institutional Eligibility Under the Higher Education Act of 1965, as 
Amended; Proposed Rule
DEPARTMENT OF EDUCATION

34 CFR Part 600
RIN 1840-AB87

 
Institutional Eligibility Under the Higher Education Act of 1965, 
as Amended

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary proposes to amend the regulations governing 
institutional eligibility under the Higher Education Act of 1965, as 
amended (HEA). The proposed regulations would implement new HEA 
statutory provisions that were added by the Higher Education Amendments 
of 1992 and the Higher Education Technical Amendments of 1993. In 
general, these new statutory provisions tightened the eligibility 
requirements for institutions participating in the student financial 
assistance programs authorized under Title IV of the HEA (Title IV, HEA 
programs). The proposed regulations also would clarify existing 
provisions, and, in keeping with the statutory changes, tighten 
procedures governing institutional eligibility determinations.

DATES: Comments must be received on or before March 14, 1994.

ADDRESSES: All comments concerning these proposed regulations should be 
addressed to Cheryl Leibovitz, U.S. Department of Education, 400 
Maryland Avenue, SW. (Regional Office Building 3, room 4318), 
Washington, DC 20202-5346.
    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: Cheryl Leibovitz. 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: The Higher Education Amendments of 1992, 
Public Law 102-325 and the Higher Education Technical Amendments of 
1993, Public Law 103-208, amended the HEA in several areas relating to 
institutional eligibility. These areas include, among others: The 
definition and treatment of a ``branch campus,'' a ``correspondence 
course,'' and a ``telecommunications course;'' the enrollment of 
incarcerated students and ability-to-benefit students; the percentage 
of its revenues that an eligible proprietary institution of higher 
education can derive from Title IV, HEA program funds; and the filing 
of an institution for bankruptcy. The Secretary discusses each of these 
subjects in more detail later in the preamble.
    These proposed regulations were subject to a regulations 
negotiation process as required by section 492 of the HEA. Under that 
process, the Secretary convened four regional meetings to obtain public 
involvement in the development of these proposed regulations. These 
meetings were held in San Francisco, Atlanta, New York, and Kansas 
City. At these 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.
    Groups that attended the regional meetings nominated individuals to 
participate in regulation negotiations. The Secretary selected 
regulation negotiators from the names nominated and chose negotiators 
to reflect all the groups that participate in the Title IV, HEA 
programs, such as students, student financial aid administrators, and 
various types of eligible institutions.
    In accordance with section 492(b) of the HEA, the Secretary 
prepared draft proposed regulations and negotiated the provisions of 
that draft with the negotiators. Consensus was reached regarding 
Sec. 600.7(c)(3)(ii), the proposed requirement for a degree-granting 
institution to demonstrate a 50% completion rate for incarcerated 
students enrolled in the institution's nonassociate or nonbachelor 
degree programs if the institution wishes to qualify those programs for 
a waiver from the provision that limits an institution's enrollment of 
incarcerated regular students to less than 25 percent. This and other 
related provisions are discussed in greater detail in the discussion on 
Sec. 600.7. The remaining regulatory provisions reflect the agreement 
of the great majority of the negotiators.
    The following discussion reflects proposed significant changes to 
the existing Institutional Eligibility regulations. Proposed changes 
are discussed in the order in which they appear in the proposed 
regulations text. 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 reference to its other appearances.

Section 600.2  Definitions

    ``Award year.'' The Secretary proposes to this definition to these 
regulations from the Student Assistance General Provisions regulations 
because the term ``award year'' now applies to these regulations as 
well.
    ``Branch campus.'' Section 498(j) of the HEA directs the Secretary 
to define this term. For consistency, the Secretary proposes to adopt 
the existing definition set forth in 34 CFR 607.7(b) of the 
Strengthening Institutions Program regulations authorized under Title 
III, Part A, of the HEA.
    ``Correspondence course'' and ``telecommunications course.'' The 
definition of a telecommunications course essentially restates the 
statutory definition contained in section 484(m)(4) of the HEA. As 
provided in section 484(m)(1) of the HEA, as a general rule a 
telecommunications course is not considered a correspondence course. 
However, as further indicated in that section, a telecommunications 
course offered at an institution would be considered a correspondence 
course if the sum of telecommunications courses and correspondence 
courses offered by the institution equals or exceeds 50 percent of the 
total courses offered at the institution.
    In addition, as reflected in section 484(m)(4) of the HEA, a home 
study course that is offered by an institution through video cassette 
or video disc recordings in an award year would qualify as a 
telecommunications course rather than a correspondence course only if 
the institution also delivers the instruction on the cassettes or discs 
to students in person, i.e., to students physically attending classes 
at the institution, during that same award year.
    If a course is part residential and part correspondence, the 
Secretary considers the course to be a correspondence course. This 
straightforward interpretation eliminates the need for the Secretary to 
address all the troublesome issues involving the quantity of education 
that an institution claims to provide in a correspondence program.
    ``Educational program.'' Under the HEA, a community college may 
qualify as an eligible institution of higher education if it offers a 
two-year educational program that is acceptable for full credit toward 
a bachelor's degree at a four-year institution. Therefore, the 
Secretary wishes to clarify that under the definition of an educational 
program, which requires that such a program lead to a degree, 
certificate, or other educational credential, the Secretary considers 
that a transcript that a student receives for successfully completing 
the two-year program is a recognized educational credential.
    ``Incarcerated student.'' The Secretary proposes to define this 
term to mean a student who is confined in a correctional facility. 
However, the Secretary proposes that students who are in less formal 
arrangements, such as half-way houses, home detention, or sentenced to 
serve only weekends, would not be considered incarcerated. 
(Incarcerated students have limited costs of attendance under the Title 
IV, HEA programs, they are ineligible to receive loans under Title IV 
of the HEA, their enrollment may affect the eligibility of an 
institution if more than 25 percent of that institution's enrollment 
consists of incarcerated students, and certain incarcerated students 
are ineligible for Federal Pell Grants.)
    In general, if incarcerated students attend an institution of 
higher education, they attend under a specific arrangement between the 
institution and the facility in which they are incarcerated. Thus, 
institutions are aware of the identity and number of enrolled 
incarcerated students. By being so aware, institutions will be able to 
abide by the limitations imposed on those students when awarding Title 
IV, HEA program funds, and the institutions themselves will be able to 
avoid becoming ineligible as a result of admitting too many 
incarcerated students.
    By defining incarcerated students to exclude students in halfway 
houses and home detention, or serving weekend sentences, the admission 
of those students would not affect an institution's eligibility, and 
the students would not be subject to the special conditions described 
above. Thus, the Secretary's proposed definition would eliminate a 
burden on institutions of identifying these students as incarcerated 
students and would allow the students access to Federal Pell Grant 
funds and loans under Title IV of the HEA. However, if an institution 
is aware that a student is living in a halfway house, is under home 
detention or is serving a weekend sentence, and believes it is 
inappropriate for that student to obtain a FFEL program loan, the 
institution is free to refrain from certifying the FFEL program 
application of the student.
    ``One-academic-year training program.'' The Secretary proposes to 
revise the definition of a ``one-year training program'' to be 
consistent with the definition of an ``academic year'' in section 
481(d) of the HEA. Under the statutory definition, an academic year 
must include at least ``30 weeks of instructional time.'' The Secretary 
will more fully define an ``academic year'' in proposed regulations to 
be published shortly after these regulations.
    ``Recognized equivalent of a high school diploma.'' Under the 
Secretary's current policy, this term includes (1) the academic 
transcript of a student who has successfully completed at least a two-
year program that is acceptable for full credit toward a bachelor's 
degree; or (2) documentation that a student has excelled academically 
in high school and has met the formalized, written admission policies 
of the institution. This latter criterion addresses the ``academically 
gifted'' early admission student at a college or university. The 
Secretary proposes to amend the regulatory definition of a recognized 
equivalent of a high school diploma to include those criteria. Based on 
negotiated rulemaking, the Secretary is considering requiring that a 
student be in at least the upper quartile of his or her high school 
class to have ``excelled academically in high school''.

Section 600.3  Special Conditions

    The Secretary proposes to delete this section because it is no 
longer needed. The requirements contained in paragraphs (a) and (b) are 
no longer needed because institutions offering only correspondence 
courses are no longer eligible institutions. The requirement that an 
institution be legally authorized to provide postsecondary education in 
the State in which it is physically located is now contained in 
Secs. 600.4, 600.5, and 600.6.
    The Secretary proposes to delete paragraph (c)(1) because that 
paragraph restates the requirement in section 1201(a)(2) of the HEA, 
i.e. an institution must be legally authorized to provide postsecondary 
education in its State, that is made applicable to proprietary 
institutions of higher education under section 481(b)(2) of the HEA, 
and made applicable to postsecondary vocational institutions by section 
481(c)(2) of the HEA. Institutions are required to abide by those 
statutory requirements regardless of whether they are repeated in 
regulations. Thus, the Secretary wishes to reiterate that it is the 
Secretary's view that if the State in which an institution is 
physically located requires an institution to provide its programs in 
clock hours in order to be legally authorized to provide postsecondary 
education in that State, that institution satisfies section 1201(a)(2) 
of the HEA only if it provides its programs in clock hours. The 
elimination of Sec. 600.3(c)(1) does not affect that result.
    The Secretary proposes to delete paragraph (d)(1) in view of the 
regulations published in the Federal Register of July 23, 1993 (58 FR 
39618-39623) that established a relationship between credit hours and 
clock hours for Title IV, HEA program purposes. The Secretary proposes 
to delete paragraphs (c)(2) and (d)(2) because ``vocational schools'' 
are no longer eligible institutions under the HEA.

Section 600.4  Institution of Higher Education

    Section 496(e) of the HEA provides that the Secretary may not 
recognize the accreditation or preaccreditation of an institution 
unless the institution agrees to submit any dispute involving the final 
denial, withdrawal, or termination of its accreditation to arbitration 
before initiating any other legal action. The Secretary, in this 
section and Secs. 600.5 and 600.6, proposes that the referenced 
arbitration be binding arbitration so that any legal action after 
arbitration would be limited to whether the arbitrator's decision was 
arbitrary or capricious. The Secretary believes that this approach best 
carries out the purpose of section 496(e) by limiting, to the maximum 
extent possible, litigation in this area. This same provision is also 
included in Secs. 600.5 and 600.6.
    The Higher Education Amendments of 1992 removed the transfer-of-
credit alternative to accreditation from the definition of an 
institution of higher education in section 1201(a) of the HEA. However, 
section 2(n) of the Higher Education Technical Amendments of 1993 
provides that unaccredited institutions that lost their institutional 
eligiblity because the transfer-of-credit alternative was removed from 
section 1201(a) of the HEA may regain that institutional eligibility, 
for a limited time, provided they meet certain conditions. Because 
section 2(n) affects only a dozen institutions and the provision for 
regaining eligibility is only temporary, the Secretary proposes to 
remove the references to the transfer-of-credit alternative to 
accreditation in this section. Under section 2(n), an unaccredited 
institution that satisfied the transfer-of-credit alternative to 
accreditation on July 22, 1992 will be considered to meet the 
requirements of section 1201(a)(5) of the HEA (concerning accreditation 
or preaccreditation) if--
    (1) By February 18, 1994, the institution has applied for 
accreditation to a nationally recognized accrediting agency or 
association;
    (2) By December 20, 1995, the institution is fully accredited by 
that accrediting agency or association or, if not so fully accredited, 
is preaccredited by that agency or association if that agency or 
association has been recognized by the Secretary to grant 
preaccreditation status; and
    (3) The institution otherwise satisfies the requirements of section 
1201 (a)(1) through (a)(4).
    The Higher Education Technical Amendments of 1991 (Pub. L. 102-26, 
enacted on April 9, 1991) amended the requirements for admitting 
students who do not have a high school diploma or its recognized 
equivalent. As a result of Public Law 102-26, to maintain its 
eligibility an institution is no longer required to demonstrate that a 
student who does not possess a high school diploma or its recognized 
equivalent has met certain requirements. Any references to these 
previous requirements have been removed from this section and also from 
Secs. 600.5 and 600.6.
    Currently, the regulations provide that an institution is not 
eligible to participate in the Part B loan programs if the institution 
uses or employs commissioned salespersons to promote the availability 
of Part B loan program loans at that institution. The Higher Education 
Amendments of 1992 added several provisions to the institutional 
program participation agreement. One of these provisions is that, with 
the exception of recruiting foreign students residing in foreign 
countries who are not eligible for Title IV, HEA program assistance, an 
institution may not pay a commission, bonus, or other incentive payment 
based directly or indirectly on success in securing enrollments or 
financial aid to a person or entity engaged in recruiting, admission, 
or making decisions regarding student financial assistance.
    As a result of this new program participation agreement requirement 
(which is broader in nature than the provision in current regulations), 
the Secretary proposes to remove all references in this section to 
commissioned salespersons in the current regulations. Instead, 
provisions pertaining to the use of commissioned salespersons will be 
proposed when the Secretary publishes, shortly after these proposed 
regulations, a notice of proposed rulemaking for the Student Assistance 
General Provisions regulations that deal with the program participation 
agreement.

Section 600.5  Proprietary Institution of Higher Education

    The statute requires that in order for an educational institution 
to qualify as a proprietary institution of higher education, it must 
have been in existence for at least two years. Under current 
regulations, the Secretary considers an institution to have been in 
existence for two years only if it has been legally authorized to 
provide, and has provided, during the 24 months (except for normal 
vacation periods) preceding the date of application for eligibility, a 
continuous training program to prepare students for gainful employment 
in a recognized occupation. The Secretary is proposing to make two 
changes to this provision. Conforming proposals are also included in 
Secs. 600.6 and 600.7.
    Under the first proposed change, during the two-year period 
preceding the institution's date of application, the institution will 
not be penalized if it failed to provide training because it 
temporarily closed due to a natural disaster that affected the 
institution or its students. This proposed change represents the 
Secretary's current policy.
    The purpose of the two-year rule is to have an institution 
establish that it is a viable institution that offers quality 
educational programs for which students will pay their own money before 
students can receive Title IV, HEA Program funds to enroll in those 
programs. The Secretary believes that this purpose is strengthened if 
the programs that the institution offers when it applies for 
institutional eligibility are substantially the same as the programs 
that the institution offered during the preceding two-year period. The 
Secretary further believes that this purpose is not served if an 
institution merely offers one very short program for two years and then 
applies for institutional eligibility offering a host of much longer 
and substantially different programs. Therefore, under the second 
proposed change, the Secretary has proposed that to satisfy the two-
year rule, an institution must offer over the two-year period a 
training program that is substantially the same in subject matter and 
length of program as the training program it offers at the time of 
application.
    Section 481(b)(6) of the HEA adds a new eligibility criterion to 
the definition of a proprietary institution of higher education. That 
section requires that a proprietary institution must derive at least 
fifteen percent of its revenues from non-Title IV, HEA program funds. 
Put another way, the section prohibits a proprietary institution of 
higher education from deriving more than 85 percent of its revenues 
from Title IV, HEA program funds. Using this latter approach, the 
Secretary proposes the fraction contained in Sec. 600.5(d)(1) to 
measure this criterion, i.e., the ``85 percent rule.''
    In proposing this rule, the Secretary had to interpret the term 
``revenue.'' In general, at least three interpretations are possible. 
One interpretation would limit revenues to those funds received by the 
institution from tuition and fees; the second would allow an 
institution to include revenues received by the institution from any 
source for any purpose; the third would limit revenues to tuition and 
fees plus revenues from other activities carried out by the institution 
that are necessary to the education or training programs offered by the 
institution.
    These three interpretations are illustrated in the following 
example. A cosmetology institution owns several beauty salons. In one 
of the salons, students perform all the hair cutting as part of their 
program of training. Under the first interpretation, the only revenues 
that the institution could count would be the tuition and fees it 
charged its students. Under the second interpretation, the institution 
could count all revenues it received from all its beauty salons plus 
the tuition and fees it charged to its students. Under the third 
interpretation, the institution could count the tuition and fees it 
charged plus revenues it received from the one beauty salon at which 
the students performed the service.
    The Secretary believes that the purpose of the new statutory 
criterion is to require proprietary institutions to attract students 
based upon the quality of their programs, not solely because the 
institutions offer Federal student financial assistance. Thus, under 
the statute, these institutions must attract students who will pay for 
their programs with funds other than Title IV, HEA program funds. On 
the other hand, the Secretary recognizes that many institutions, 
because of their locations, provide educational opportunities to 
students in low-income areas who cannot attend postsecondary education 
without Title IV, HEA program funds. The Secretary considered these two 
factors, as well as the fact that the criterion relates to whether an 
institution qualifies as an educational institution, in selecting his 
proposed interpretation of the term ``revenue.''
    The Secretary believes that counting only the income received from 
students' tuition and fees is too limiting; on the other hand, the 
Secretary believes it is inappropriate to count as revenues income from 
businesses that are owned and operated by the institution, regardless 
of the relationship between the educational institution and the 
businesses. The Secretary chose the third interpretation because the 
permitted revenues generated by the institution relate to the purpose 
of the institution, providing training to students, and are generated 
as a necessary part of that training. The Secretary recognizes that the 
third interpretation will make the rule more difficult to administer 
because it will be necessary for an institution to determine which of 
its revenue-producing activities are ``necessary'' for its students' 
education or training.
    In proposed Sec. 600.5(d)(2)(vi), the Secretary has listed criteria 
that would have to be satisfied to make a determination that activities 
are necessary for students' education or training. Examples of revenue-
producing activities provided by an institution that are necessary for 
its students' education or training are provided below:
     Revenues produced by a restaurant that is owned and 
operated by a culinary institution where the institution's students 
purchase the food, cook the meals, or wait on the tables.
     Revenues produced by a theater that is owned and operated 
by an institution that provides training in acting, music, or dance 
where the artistic endeavors that produce the revenues are performed by 
the institution's students or where the theater is run by the 
institution's students.
     Revenues produced by an auto mechanic shop that is owned 
and operated by an institution providing auto mechanic training where 
the institution's students repair vehicles.
    To avoid inappropriate manipulation of information under the 85 
percent rule, the Secretary proposes special rules regarding the 
calculation of the correct percentage. Thus, Title IV, HEA program 
funds provided to a student would be considered to be used to pay that 
student's institutional charges regardless of whether the institution 
credits the student's account with those funds or provides those funds 
directly to the student. Of course, Title IV, HEA program funds would 
be considered to satisfy a student's institutional charges only to the 
extent of those charges. Thus, if total institutional charges are 
$5,000, and the student received $6,000 of Title IV, HEA program funds, 
only $5,000 would be considered to be used to satisfy institutional 
charges. In addition, the Title IV, HEA program funds included in the 
numerator and the revenue described in the denominator would not 
include any refunds paid to or on behalf of students under the 
institution's refund policy since the institution does not have access 
to these funds.
    The Secretary proposes two exceptions to the first rule. The 
Secretary wishes to encourage proprietary institutions to obtain non-
Federal, non-loan student aid funds from independent outside sources. 
As a result, under the first exception, the Secretary would not 
consider that Title IV, HEA program funds were used to satisfy 
institutional charges to the extent that those charges were satisfied 
by grant funds received from non-Federal public agencies or from 
private sources that are independent of the institution.
    For example, if total institutional charges are $5,000, and the 
student received $5,000 of Title IV, HEA program funds and a $1,000 
scholarship from a local business, only $4,000 of the Title IV, HEA 
program funds would be considered to be used to satisfy institutional 
charges.
    Under the second exception, the Secretary proposes that Federal 
Work-Study (FWS) and State Student Incentive Grant (SSIG) program funds 
not be counted as Title IV, HEA program funds. The Secretary proposes 
to exclude FWS Program funds because (1) the Federal share of FWS 
Program payments to students must be paid directly to the student and 
cannot be applied to a student's account for institutional charges; (2) 
not all FWS Program earnings are necessarily applied to a student's 
cost of attendance, i.e., there may be job-related costs; and (3) FWS 
Program earnings are derived from Federal, institutional, and other 
sources. The Secretary proposes to exclude SSIG Program funds because a 
significant portion of SSIG Program awards come from State funds, and 
in many cases, an institution will not be able to determine the portion 
that comes from Federal sources.
    Finally, the Secretary proposes to determine whether an institution 
satisfies the 85 percent rule, as well as the requirements contained in 
Sec. 600.7(a)(1)(i), by evaluating an institution over a period of time 
rather than at one particular point in time. Title IV, HEA program 
funds, other than FFEL program funds, are generally measured over an 
award year (July 1 of one year through June 30 of the next year). Thus, 
with regard to the numerator of the fraction contained in 
Sec. 600.5(d)(1), the Title IV, HEA program funds that would have to be 
reported are those funds that were used to pay institutional charges 
over a complete award year.
    Under accounting principles, revenues received by an institution 
are reported on a ``financial statement'' that is prepared on a fiscal 
year basis. Therefore, in order to audit the revenue that an 
institution includes in the denominator of the fraction in 
Sec. 600.5(d)(1), it is necessary to have those revenues reported on a 
fiscal year basis.
    The Secretary proposes not to require an institution to change its 
fiscal year to coincide with an award year. As a result, if an 
institution's fiscal year is not on a July 1 to June 30 basis, and the 
institution chooses not to change its fiscal year, the reporting period 
for the numerator in Sec. 600.5(d)(1) would not be same as the 
reporting period for the denominator. Consequently, the Secretary 
proposes special rules to address this possibility.
    Each year, an institution would have to determine the revenues it 
received for its latest fiscal year, and would have to determine the 
Title IV, HEA program funds it received for institutional charges for 
the award year that most closely corresponds to that fiscal year. For 
example, if an institution's fiscal year runs from October 1, 1993 
through September 30, 1994, that fiscal year overlaps two award years: 
October 1, 1993 through June 30, 1994 is in the 1993-94 award year, and 
July 1, 1994 through September 30, 1994 is in the 1994-95 award year. 
Since nine months of the institution's fiscal year are in the 1993-94 
award year, that is the award year that would be used to determine the 
amount in the numerator. Moreover, the institution would have to 
determine the Title IV, HEA program funds that were used to pay 
institutional charges for that entire award year, including the period 
of July 1, 1993 to September 30, 1993. Similarly, if an institution's 
fiscal year runs from May 1, 1994 through April 30, 1995, the 
institution would use the Title IV, HEA program funds it received 
during the 1994-95 award year because 10 months of that award year, 
July 1, 1994 through April 30, 1995 fell in that institution's fiscal 
year.
    If the institution's fiscal year is January through December, the 
fiscal year would fall equally into two award years, i.e., a fiscal 
year of January 1, 1993 through December 31, 1993 would have six months 
in the 1992-93 award year (January 1, 1993 through June 30, 1993) and 
six months in the 1993-94 award year (July 1, 1993 through December 31, 
1993). In such a case, the Secretary intends the institution to 
initially elect to be counted in either the earlier or later award 
year, and that election would be permanent for future years.
    The Secretary also proposes reporting requirements to accommodate 
the different reporting periods. In the first example where the 
institution's fiscal year runs from October 1, 1993 through September 
30, 1994, the appropriate award year, 1993-94, would be completed 
before the institution's fiscal year. Under this circumstance, the 
Secretary proposes that the institution would have to report to the 
Secretary within 60 days from the end of its fiscal year, e.g., 
November 29, 1994, if it derived more than 85 percent of its revenues 
from Title IV, HEA program funds. A 60-day reporting period would be 
allowed in this instance to provide time for the institution to submit 
an audited financial statement.
    In the second example, where the institution's fiscal year runs 
from May 1, 1994 through April 30, 1995, the fiscal year would be 
completed before the award year was completed. Under this circumstance, 
the Secretary proposes that the institution would have to report to the 
Secretary within 31 days from the end of the relevant award year i.e., 
July 31, 1995, if it derived more than 85 percent of its revenues from 
Title IV, HEA program funds. As institutions are tracking their use of 
Title IV funds throughout the award year, they should be prepared to 
have year-end data available shortly after the end of the award year.
    An institution that determines that its Title IV, HEA Program 
revenues did not exceed 85 percent of its revenues for the relevant 
periods need not report that information to the Secretary. However, it 
must have the certified public accountant who performs its annual 
audited financial statement certify to the accuracy of the information 
used in that calculation and the calculation itself, and have the 
accountant submit that certification to ED with the audited financial 
statement.
    Under Sec. 600.41, Loss of eligibility, the Secretary proposes that 
if an institution derived more than 85 percent of its revenues from 
Title IV, HEA program funds, it would become ineligible on the last day 
of the award year used in the institution's calculation, if the award 
year is completed after the fiscal year used in that calculation. The 
institution would become ineligible on the last day of the fiscal year 
used in that calculation if the award year used in that calculation was 
completed on or before the fiscal year. Thus, in the first example, the 
loss of eligibility would be effective on September 30, 1994, while in 
the second example, the loss of eligibility would be effective on June 
30, 1995. As a result, because the institution would generally be 
considered eligible until the end of the applicable award or fiscal 
year, the institution would not be liable for the Title IV, HEA program 
funds it disbursed or delivered during that year. However, the 
Secretary expects an institution to keep track of its revenues at all 
times. Therefore, the institution would be liable for the Title IV, HEA 
program funds it disbursed or delivered after the relevant award or 
fiscal year.
    The Secretary proposes that if an institution loses its eligibility 
as a result of failing to satisfy the 85 percent rule, to regain its 
eligibility it would have to demonstrate that it satisfied all the 
relevant eligibility requirements for a complete award year if it 
became ineligible on the last day of an award year, or for a complete 
fiscal year if it became ineligible on the last day of its fiscal year.
    The Secretary proposes that an institution initially self-report 
that it derived more than 85 percent of its revenues from Title IV, HEA 
program funds. If the Secretary determines that an institution made 
little or no effort to comply with this requirement over the reporting 
period, the Secretary anticipates imposing a fine on the institution.
    If the institution does not report that its Title IV, HEA program 
revenues exceeded 85 percent of its revenues for the relevant period, 
and the Secretary learns of this situation when the audited financial 
statement is submitted or through other means, the Secretary 
anticipates terminating the institution's eligibility and imposing a 
fine on the institution. The Secretary requests comments on the manner 
in which the fine amount should be determined, including whether the 
fine should equal the Title IV, HEA Program funds the institution 
received after the date it should have notified the Secretary that the 
Title IV, HEA program funds exceeded 85 percent of its revenues.

Section 600.7  Conditions of Institutional Ineligibility

    Section 481(a)(3) of the HEA provides that an otherwise eligible 
institution loses that eligibility if certain conditions are met. One 
of those conditions relates to the type of courses that the institution 
offers. The other three conditions relate to the type of students the 
institution admits.
    With regard to the first condition, an otherwise eligible 
institution loses that eligibility if more than 50 percent of its 
courses are correspondence courses. With regard to the latter three 
conditions, an otherwise eligible institution loses its eligibility if 
50 percent or more of its students are enrolled in correspondence 
courses, 25 percent or more of its students are incarcerated students, 
or, for an institution that does not offer programs for which at least 
an associate or bachelor's degree is offered, 50 percent or more of its 
students are ``ability to benefit'' students. However, if an 
institution satisfies the provisions of section 521(4)(C) of the 
Perkins Act, it does not lose its eligibility if more than 50 percent 
of its courses are correspondence courses or if 50 percent or more of 
the students are correspondence students.
    As indicated in the discussion regarding the 85 percent rule for 
proprietary institutions, the Secretary proposes to determine whether 
an institution becomes ineligible under these conditions by evaluating 
an institution over a period of time rather than at one particular 
point in time. The period of time the Secretary proposes for these 
additional conditions is a complete award year. Moreover, as with the 
85 percent rule for proprietary institutions, institutions would be 
required to report to the Secretary if these conditions rendered them 
ineligible. Furthermore, each institution's compliance with these 
provisions would be confirmed through the institution's required 
compliance audit.
    The Secretary proposes that institutions report to the Secretary by 
July 31 following the end of each award year if they have failed to 
meet one of the conditions listed in this section. For purposes of 
these conditions, if as a result of an institution's calculations, any 
of the resulting percentages is within 10 percent of the applicable 
percentage, the institution would have to have performed, for the 
applicable award year or fiscal year, a financial and compliance audit 
of its Title IV, HEA programs. The certified public accountant who 
prepares the audit would have to certify the accuracy of the 
institution's calculations. The institution would have to retain the 
report of that audit and all relevant supporting documentation in 
accordance with 34 CFR 668.23(h) (governing the establishment and 
maintenance of an institution's records). The institution would only 
have to submit the report to the Secretary if the certified public 
accountant determined that the institution had failed to meet any of 
the allowable percentages.
    If an institution loses its eligibility under one of these 
conditions, to regain its eligibility it would have to demonstrate that 
it did not fall within one of these conditions for a subsequent 
complete award year. The institution would also have to demonstrate 
that it has appropriately revised its administrative policies and 
procedures to prevent the institution from meeting one of these 
conditions in the future.
    If an institution becomes ineligible as a result of one of the 
conditions in this section, the Secretary proposes that the date of 
ineligibility be the last day of the award year for which the 
calculation resulting in that condition is used. As a result, the 
institution would not generally be liable for the Title IV, HEA program 
funds it disbursed or delivered during the applicable award year but it 
would be responsible for any funds it disbursed or delivered during any 
subsequent award year. Furthermore, the Secretary anticipates imposing 
a fine on the institution if it is determined that the institution made 
no or little effort to comply with these provisions during the relevant 
award year.
    With regard to whether more than 50 percent of an institution's 
courses are correspondence courses, the Secretary proposes special 
rules dealing with telecommunications courses and the number of courses 
an institution offers. The rule dealing with telecommunications courses 
is derived from section 484(m)(1) of the HEA, and provides that if the 
sum of correspondence and telecommunications courses equals or exceeds 
50 percent of the total courses offered by the institution for an award 
year, the telecommunications courses would be considered correspondence 
courses.
    As a result of the 1993 Technical Amendments, the Secretary may 
waive the requirement that an institution may not have 50 percent or 
more of its students enrolled in correspondence students, for an 
institution that offers a 2-year associate-degree or 4-year bachelor's-
degree program or both, for good cause. The Secretary solicits comments 
from the public as to what should be considered ``good cause''.
    With regard to the counting of students, the Secretary proposes 
that institutions should count only ``regular students,'' and should 
count those students on the basis of a ``head count,'' rather than on 
the basis of full-time equivalency. Thus, if an institution enrolls 500 
regular full-time students and 500 regular half-time students, the 
number of regular students considered enrolled would be 1,000. 
Moreover, the Secretary proposes that institutions count a student only 
once during an award year regardless of the number of times he or she 
enrolls or reenrolls during that period.
    Section 481(a)(3)(C) of the HEA authorizes the Secretary to waive 
the 25 percent incarcerated student provision for public or nonprofit 
private institutions that offer two- or four-year programs that result 
in an associate or bachelor's degree. The Secretary proposes to 
exercise this waiver authority under the following circumstances: If 
the institution requesting the waiver only offers two- or four-year 
programs leading to an associate, bachelor's or more advanced degree, 
the Secretary would waive the ``incarcerated student'' provision for 
the entire institution. However, based on negotiated rulemaking, if the 
institution also offers other educational programs, the Secretary would 
grant the waiver for the two- or four-year programs that result in 
associate, bachelor's, or more advanced degrees, but would grant a 
waiver for those other educational programs only if the incarcerated 
students enrolled in those other programs have at least a 50 percent 
completion rate. The Secretary proposes a formula for calculating that 
completion rate in Sec. 600.7(d)(1)(iii).
    Section 481(a)(3)(D) of the HEA, as amended by the Higher Education 
Technical Amendments of 1993, allows the Secretary to waive the 
limitation on the percentage of students without a high school diploma 
or its recognized equivalent enrolled at a nondegree institution if the 
institution is a nonprofit institution that demonstrates to the 
satisfaction of the Secretary that it exceeds the limitation because it 
serves, through contracts with Federal, State, or local government 
agencies, significant numbers of those students. The Secretary requests 
comments regarding the conditions under which the Secretary will grant 
this waiver. Issues for which comments are requested are: the purpose 
of the referenced contracts, what constitutes a ``significant'' number 
of students, and the duration of a waiver.
    Section 481(a)(4) of the HEA provides that an institution loses its 
eligibility if it files for bankruptcy, or if its owner or chief 
executive officer is convicted of or pleads guilty to a crime involving 
the acquisition, use, or expenditure of Title IV, HEA program funds, or 
has been judicially determined to have committed fraud involving Title 
IV, HEA program funds.
    With regard to bankruptcy, the Secretary proposes to define a 
filing institution for purposes of this provision to include--(1) any 
entity affiliated with the institution that seeks protection in a 
bankruptcy court against an actual or prospective action against the 
institution by the Secretary, a State, an accrediting agency or a 
guaranty agency under the FFEL programs; and (2) any entity whose 
resources were provided to the Secretary to enable the Secretary to 
certify that the institution was financially responsible and 
administratively capable. The Secretary proposes this expansive 
definition of a filing institution to prevent an institution from 
indirectly obtaining bankruptcy protection while avoiding the 
consequences under the HEA of filing for bankruptcy.

Section 600.8  Treatment of a Branch Campus

    Under section 498(j) of the HEA, as amended by the 1993 Technical 
Amendments, the Secretary is charged with defining a ``branch campus.'' 
Moreover, under that section, a branch campus has to be certified by 
the Secretary before it may participate as part of the institution in a 
Title IV, HEA program. A branch of a proprietary institution or a 
postsecondary vocational institution does not have to satisfy the 
``two-year rule.'' However, such a branch campus is required to be in 
existence for at least two years before it may seek certification as a 
main campus or free-standing institution.

Section 600.9  Written Agreements Between an Eligible Institution and 
Another Institution or Organization

    This section has been revised to reflect the fact that as of 
October 1, 1992, institutions that are not accredited or preaccredited 
are no longer eligible institutions under the HEA.
    The Secretary proposes to add a provision to this section that 
would prevent an eligible institution from entering into an agreement 
with an ineligible institution if that ineligible institution had its 
eligibility terminated by the Secretary. The purpose of this proposal 
is to prevent an institution that has lost its eligibility from 
continuing to participate in the Title IV, HEA programs through a 
contractual relationship with an eligible institution.

Section 600.10  Date, Extent, Duration, and Consequence of Eligibility

    If an institution wishes to participate in the Title IV, HEA 
programs, it has to satisfy the definitional requirements of an 
eligible institution, and also has to satisfy the standards of 
financial responsibility and administrative capability required for 
that participation. In the past, the Secretary made separate, 
independent determinations with regard to those two requirements. 
However, the Secretary is now proposing to merge the procedures under 
which those determinations are made.
    Accordingly, the Secretary proposes that if an institution applies 
to participate in the Title IV, HEA programs, the date on which the 
institution would be eligible to so participate is the date on which 
the Secretary signs that institution's program participation agreement 
required under section 487 of the HEA. The execution of that agreement 
represents the Secretary's determination that the institution satisfies 
both the institutional eligibility requirements and the standards of 
financial responsibility and administrative capability contained in 34 
CFR, part 668, subpart B. In other words, on the date that the 
Secretary signs an institution's program participation agreement, the 
institution becomes both eligible for and a full participant in the 
applicable Title IV, HEA programs.
    With regard to an HEA program other than a Title IV, HEA program, 
the Secretary would continue the current practice of designating an 
institution as an eligible institution as of the date the Secretary 
receives all the information necessary to make that determination. 
However, designation as an eligible institution does not make the 
institution a participant in any non-Title IV, HEA program. Instead, 
that eligibility designation would continue to mean that the 
institution is eligible to apply to participate in non-Title IV, HEA 
programs.
    Under Sec. 600.10(b) of the current regulations, if an institution 
adds a location after the institution received its eligibility 
designation from the Secretary, that new location is not included 
within that designation. The Secretary proposes to amend that provision 
so that a location added after the institution receives its eligibility 
designation, or an existing location not previously included in that 
designation, would be considered part of that eligibility designation 
if the institution offers less than 50 percent of an educational 
program at that location.
    Under Sec. 600.10(c) of the current regulations, an institution may 
add an educational program and have that program included in the 
institution's eligibility without notifying the Secretary. Further, the 
institution may provide Title IV, HEA program funds to students 
enrolled in that program based upon the institution's determination 
that the program qualified as an eligible program under applicable 
statutes and regulations.
    In view of the expanded certification requirements contained in 
title IV, part H, subpart 3, of the HEA, the Secretary proposes that, 
except as provided below, an institution would have to notify the 
Secretary each time it adds an educational program and would have to 
have that program designated as an eligible program by the Secretary 
before students enrolled in that program may receive Title IV, HEA 
program funds.
    The exceptions proposed by the Secretary would allow an institution 
to add an educational program, without notice and approval by the 
Secretary, if (1) the program leads to an associate, bachelor's, or 
more advanced degree; or (2) the program prepares students for gainful 
employment in the same or related recognized occupation as a previously 
designated eligible program at that institution, and the program is at 
least 8 semester or trimester hours, 12 quarter hours, or 600 clock 
hours. In effect, under these proposed regulations, an institution will 
have to get approval from the Secretary only for two types of new 
vocational programs. One type includes new vocational programs that are 
not similar to the vocational programs already offered by the 
institution; the other type includes vocational programs that are 
similar to the vocational programs already offered by the institution 
but provide between 300 and 599 clock hours of instruction. These 
latter programs are the ones described in section 481(e)(2) of the HEA. 
For them to become eligible programs, the institution must demonstrate 
that students enrolled in those programs have a 70 percent completion 
rate and a 70 percent placement rate. Moreover, if the institution can 
make those demonstrations, students enrolled in those programs are 
eligible only for loans under the FFEL programs. In a future NPRM, the 
Secretary will propose regulations implementing the provisions 
governing eligible programs as defined in section 481(e) of the HEA, 
including provisions governing the calculation of placement and 
completion rates.
    However, there will be no change with regard to an institution's 
incorrect determination of program eligibility. Under this 
circumstance, the institution continues to be liable for all Title IV, 
HEA program funds received by the institution or its students for 
attendance in that ineligible program.
    The changes in Sec. 600.10 (d) and (e) will be discussed with the 
changes in Sec. 600.20, 600.21, and 600.30.
    In accordance with section 498(g) of the HEA, Sec. 600.11(d) 
provides that an institution's period of eligibility expires four years 
after the date that the Secretary determines that the institution is 
eligible, except that the Secretary may specify a shorter period of 
time.
    The Secretary proposes changes to Sec. 600.21, ``Eligibility 
notice,'' that are necessary to reflect these proposed changes.

Section 600.11  Special Rules Regarding Institutional Accreditation

    The provisions of this section would paraphrase sections 496(h) 
through 496(j) of the HEA. Thus, the Secretary will not recognize an 
institution's change of accrediting agency unless the institution 
provides the Secretary with a reasonable basis for making the change. 
The Secretary also will not recognize accreditation or preaccreditation 
by more than one accrediting agency unless the institution demonstrates 
the need for multiple accreditation or preaccreditation, and the 
institution will have to choose one agency to be used to establish its 
eligibility under the HEA.
    If an accrediting agency terminates an institution's accreditation 
or preaccreditation for cause, or if an institution voluntarily 
withdraws its accreditation or preaccreditation under a show cause or 
suspension order, the institution will be considered ineligible for 24 
months unless the accrediting agency that terminated the institution 
for cause or issued the show cause or suspension order rescinds its 
action. Finally, if an institution loses its accreditation or 
preaccreditation for religious reasons, the Secretary will consider 
that institution to be otherwise eligible for an additional 18 months, 
during which time the institution may obtain alternative accreditation 
or preaccreditation. If the institution does not obtain that 
alternative accreditation or preaccreditation during that 18-month 
period, it would lose its eligibility under the HEA because of its lack 
of accreditation or preaccreditation at the end of that 18-month 
period.
    The Secretary proposes the 18-month period for obtaining 
alternative accreditation or preaccrediation under the religious 
provision to be consistent with section 498(h)(2) of the HEA that has a 
maximum 18-month period for an institution to obtain alternative 
accreditation or preaccreditation when the institution's accrediting 
agency has its recognition withdrawn by the Secretary.

Section 600.31  Change in Ownership Resulting in a Change in Control

    This section would be revised to reflect changes required by 
section 498(i) of the HEA. Section 498(i) of the HEA adopted the list 
in current regulations of examples of changes of control. The statute 
went one step further, however, in allowing the Secretary to exclude 
from treatment as changes of control certain changes, including a 
change resulting from the death of an owner of an institution, if the 
owner's ownership interest is sold or transferred to either a family 
member or a current stockholder in the corporation that owns the 
institution. Similarly, the Secretary could exclude from that treatment 
a change that the Secretary determines to be the result of a routine 
business practice. The Secretary proposes to add these options to these 
regulations without elaboration.
    Section 498(i) of the HEA requires an eligible institution that 
undergoes a change in ownership that results in a change of control to 
be treated, for purposes of establishing its eligibility, as if it were 
a new institution. A new institution, of course, is not an eligible 
institution until it demonstrates to the Secretary that it satisfies 
eligibility requirements and has the requisite administrative and 
financial capability to merit certification to participate in the Title 
IV, HEA programs. Thus, two consequences of the statutory change are 
that (1) an eligible institution loses its eligibility and its 
participation in any HEA program on the date that the institution 
undergoes the change of ownership that results in a change in control, 
and (2) the provisions of current Sec. 600.31(a) allowing the 
institution to be treated as the same institution, provided that the 
new owner satisfies the conditions contained therein, are superseded by 
the requirement that an institution may not participate in a Title IV, 
HEA program after it undergoes a change in ownership and control until 
it reestablishes its eligibility.
    Therefore, the Secretary would remove current paragraphs (a)(1) 
through (a)(6) of Sec. 600.31, that provide that for an eligible 
institution to be treated as the same institution, the new owner has to 
agree to be liable, or the old and new owners have to agree to be 
jointly and severally liable, for HEA program funds received and 
improperly used before the change in ownership resulting in a change of 
control.
    Also, under those provisions of current regulations, which are 
being deleted from these regulations, the new owner is required to 
honor all student enrollment contracts in effect before the date of the 
change; the institution is required to submit to the Secretary 
financial information on the new owner and on the institution for its 
most recent complete fiscal year together with other financial 
information that the Secretary might request; the institution is 
required to provide for the retention of records relevant to the 
institution's eligibility for and participation in HEA programs; and, 
for an institution that divided into two or more institutions, all 
resulting institutions are required to submit jointly to the Secretary 
a statement designating the successor to the original institution.
    Because under section 498(i) of the HEA an eligible institution 
that changes ownership resulting in a change of control must 
reestablish its eligibility, that institution would have to satisfy all 
the applicable requirements of this part after that change, including 
the applicable institutional definition or definitions and the 
requirement to reapply for eligibility. Section 498(i) exempts the 
institution, in qualifying to meet the definition of a proprietary 
institution of higher education or a postsecondary vocational 
institution, from the requirement to be in existence for at least two 
years, unless the institution was in existence as a branch campus for 
less than two years. Paragraph (a)(2) of Sec. 600.31 would reflect the 
exemption from the ``two-year rule.''
    Because under section 498(i) the eligibility of an institution that 
changes ownership resulting in a change of control and the 
institution's certification for participation in any Title IV, HEA 
program lapse on the date of the change, the Secretary cannot, in 
entering into a new program participation agreement with the new owner 
for any program, continue to make the agreement effective on the date 
of the change, as has been past practice. Under the new law, the 
institution becomes eligible and able to participate in a Title IV, HEA 
program only when a new agreement is executed after a change of 
ownership. In a separate NPRM, the Secretary will propose a revision to 
34 CFR 668.12 to reflect this change in the controlling statute.
    Current regulations authorize a substantial, if limited, degree of 
continued Title IV, HEA funding for students enrolled at an institution 
that has undergone a change of ownership resulting in a change of 
control. Under 34 CFR 668.25 (governing loss of participation in a 
Title IV, HEA program), an institution that does not close may continue 
to deliver or disburse Title IV, HEA program funds to students who were 
enrolled on the date of the end of participation and who had received 
commitments of Title IV, HEA program aid or, under the FFEL programs, 
the proceeds of an initial FFEL program disbursement prior to that 
date. This provision reduces the negative impact of the lapse of 
eligibility that occurs on the date of the change of ownership. 
Students enrolled after the change of ownership takes place, however, 
qualify for Title IV, HEA program funds only if they are still enrolled 
on the date on which the institution receives a new program 
participation agreement and regains its status as an eligible, 
participating institution.
    The Secretary recognizes that it may be desirable to clarify in the 
regulations the standards for identifying the ``parent'' of an 
institution, and for determining what constitutes a change in 
``control,'' within the meaning of section 498(i). The Secretary 
invites comment on what those standards should be. Some institutions 
owned by publicly traded corporations are already subject to, and 
presumably conversant with, Securities and Exchange Commission (SEC) 
rules that rely on regulatory definitions of ``control'' and ``parent'' 
at 17 CFR 230.405; those definitions could prove useful to adopt 
generally in these and related Title IV, HEA program regulations. For 
those institutions that are owned by closely held corporations, the 
Secretary invites comment on whether the Secretary should by regulation 
treat the acquisition of, or relinquishment of, a 50 percent ownership 
interest in the corporation as the bright line for recognizing a change 
of ownership and control of that entity. For those institutions owned 
or controlled by corporations that are not closely held or institutions 
not owned by publicly traded corporations required to be registered 
with the SEC, the Secretary invites comment on whether the acquisition 
of, or relinquishment of, a 25 percent interest in the respective 
corporations together with control of the corporation should be viewed 
as a change of ownership and control within the meaning of this section 
of the regulations, in the same way it is viewed in 34 CFR 
668.13(d)(3). The Secretary also invites comment on whether a change in 
organization from for-profit to nonprofit status should be regarded as 
a change of ownership that results in a change of control within the 
meaning of section 498(i).
    Section 498(h) of the statute authorizes the Secretary to 
provisionally certify an institution that undergoes a change in 
ownership for participation in a Title IV, HEA program for not more 
than three award years. The implementation of that provision will be 
discussed in another NPRM. The Secretary notes that in many, if not 
most, changes of ownership and control, the successor institution 
remains liable for financial obligations incurred under the prior 
ownership, whether or not the institution formally assumed or 
reaffirmed its liability. This continued obligation follows as a matter 
of course in those instances in which the change of ownership occurs in 
a transaction such as a sale of a controlling interest in the stock of 
the corporation that owns the institution. In those instances in which 
the change of ownership occurs through an asset sale by the corporate 
owner of the institution, the Secretary regards the purchaser as liable 
for the financial obligations associated with the institution prior to 
the change of ownership when there is a continuity of management, 
personnel, facilities, and general business operations of the 
institution through the sale, and the seller effectively ceases 
business operations as a school after the sale. However, for purposes 
of this discussion, it should be noted that if an institution of sound 
reputation undergoes a change of ownership and demonstrates a full and 
persuasive commitment to honor all obligations and liabilities incurred 
under the prior ownership (including those commitments currently 
provided for in paragraph (a) (1) through (6) of Sec. 600.31), the 
Secretary may use that provisional certification to permit that 
institution to resume participation after an accelerated Department 
review.
    A consequence of this provisional certification is that an 
institution that is certified is not entitled to the procedural 
advantages of section 487(c)(1)(F) of the HEA, which would otherwise 
apply to administrative action to terminate the participation in a 
Title IV, HEA program of the institution. Thus, the Secretary would 
provide an opportunity for an institution that has changed ownership to 
minimize the interruption between its loss of eligibility and 
participation under the old ownership and its new eligibility and 
participation under the new ownership in exchange for the institution's 
agreeing to be provisionally certified.

Section 600.32  Eligibility of Additional Locations

    The Secretary proposes to add to this section the requirement that 
an ``acquiring'' institution be responsible for the payment of refunds 
of the institution it is acquiring. This addition is consistent with 
the treatment of this situation in the Student Assistance General 
Provisions regulations, 34 CFR part 668.

Section 600.40  Loss of Eligibility

    The Secretary proposes to revise this section to indicate the date 
on which an institution loses its eligibility if it loses that 
eligibility under the 85 percent rule in Sec. 600.5 or under the 
conditions contained in Sec. 600.7(a)(1)(i). The rules for each of 
those circumstances were discussed previously and are clearly stated in 
the proposed regulations. The section makes explicit that an 
institution loses its eligibility as a result of its violation of the 
provisions of Sec. 600.5 or Sec. 600.7, regardless of its status on the 
date a hearing is held to terminate that eligibility.

Section 600.41  Termination and Emergency Action Proceedings

    The Secretary proposes a simpler, faster show-cause procedure for 
terminating an institution's eligibility if the loss of eligibility 
results from: statutory changes that made a previously eligible 
institution ineligible; the loss of accreditation, preaccreditation, or 
State legal authority to provide postsecondary education; or the 
provisions of Sec. 600.5(a)(8) or Sec. 600.7(a). The Secretary proposes 
this simpler, faster show-cause proceeding because neither the facts 
nor the law would be in dispute in the proceeding.
    If an institution no longer qualifies as an eligible institution 
because it is in violation of a statutory or regulatory provision 
governing institutional eligibility, or its type of eligibility 
designation has been repealed, its status as an eligible institution 
would be terminated. Moreover, since the institution itself would 
report to the Secretary that it was not in compliance with the 
applicable eligibility requirements of Sec. 600.5 or Sec. 600.7, there 
would also be no question of fact in dispute. Similarly, there would be 
no dispute that an institution lost its State license or its 
accreditation since that status would be confirmed by a written 
statement by the State or the accrediting agency.
    Under the show-cause procedures, the Secretary would inform the 
institution that it is no longer an eligible institution and the reason 
for that loss of eligibility. If the institution wished to contest that 
determination, it would have to provide the Secretary with 
documentation supporting its continuing eligibility. In general, the 
Secretary would base a final decision on written submissions. The 
institution could request an oral evidentiary hearing, but the 
Secretary would grant that request only if the institution could 
demonstrate that its eligibility could not be decided by written 
submissions. However, given the matter at issue in this type of 
proceeding, the Secretary anticipates that a request for an oral 
evidentiary hearing would rarely be justified.
    The 1993 Technical Amendments amended section 487(c)(1)(F). Before 
the amendment, the Secretary was required to provide a hearing before 
terminating ``the eligibility for any (Title IV, HEA program) of any 
otherwise eligible institution * * *'' After the amendment, section 
487(c)(1)(F) provides that the Secretary must provide a hearing before 
terminating the ``participation in any [Title IV, HEA program] of an 
eligible institution * * *'' As a result of this change, the Secretary 
requests comments as to whether he should remove an institution's 
designation of eligibility solely through a show-cause proceeding.

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. The small entities that would be affected by these proposed 
regulations are institutions of postsecondary education. These 
regulations make a number of modifications and reduce potential abuse 
in the Title IV, HEA programs. These changes will result in a minimal 
increase in the recordkeeping burden. However, these changes would not 
significantly increase institutions' workloads or costs associated with 
administering the Title IV, HEA programs and therefore would not have a 
significant economic impact on a substantial number of small entities.

Paperwork Reduction Act of 1980

    Sections 600.4, 600.5, 600.7, 600.8, 600.10, 600.20, 600.30, and 
600.31, 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 
(OMB) for its review. (44 U.S.C. 3504(h)).
    These proposed regulations contain records that would affect 
postsecondary institutions that wish to participate in the Title IV, 
HEA programs. An estimate of the total annual reporting and 
recordkeeping burden that would result from the collection of the 
information is 15,900 burden hours for this package.
    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, Regional Office Building 3, 7th and D Streets, 
SW., Washington, DC, 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 600

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

    Dated: February 2, 1994.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Number: does not apply)

    The Secretary proposes to amend title 34 of the Code of Federal 
Regulations by revising part 600 to read as follows:

PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT 
OF 1965, AS AMENDED

Subpart A--General

Sec.
600.1  Scope.
600.2  Definitions.
600.3  [Reserved].
600.4  Institution of higher education.
600.5  Proprietary institution of higher education.
600.6  Postsecondary vocational institution.
600.7  Conditions of institutional ineligibility.
600.8  Treatment of a branch campus.
600.9  Written agreement between an eligible institution and another 
institution or organization.
600.10  Date, extent, duration, and consequence of eligibility.
600.11  Special rules regarding institutional accreditation or 
preaccreditation.

Subpart B--Procedures for Establishing Eligibility

600.20  Application procedures.
600.21  Eligibility notification.

Subpart C--Maintaining Eligibility

600.30  Institutional notification requirements.
600.31  Change in ownership resulting in a change of control.
600.32  Eligibility of additional locations.

Subpart D--Loss of Eligibility

600.40  Loss of eligibility.
600.41  Termination and emergency action proceedings.

    Authority: 20 U.S.C. 1088, 1091, 1094, 1099b, 1099c, and 1141, 
unless otherwise noted.

Subpart A--General


Sec. 600.1  Scope.

    This part establishes the rules and procedures that the Secretary 
uses to determine whether an educational institution qualifies in whole 
or in part as an eligible institution under the Higher Education Act of 
1965, as amended (HEA). An eligible institution may apply to 
participate in programs authorized by the HEA (HEA programs).

(Authority: 20 U.S.C. 1088, 1094, 1099b, 1099c, and 1141)


Sec. 600.2  Definitions.

    The following definitions apply to terms used in this part:
    Accredited: The status of public recognition that a nationally 
recognized accrediting agency grants to an institution or educational 
program that meets certain established qualifications and educational 
standards.
    Award year: The period of time from July 1 of one year through June 
30 of the following year.
    Branch Campus: A location of an institution that is geographically 
apart and independent of the main campus of the institution. The 
Secretary considers a location of an institution to be independent of 
the main campus if the location--
    (1) Is permanent in nature;
    (2) Offers courses in educational programs leading to a degree, 
certificate, or other recognized educational credential;
    (3) Has its own faculty and administrative or supervisory 
organization; and
    (4) Has its own budgetary and hiring authority.
    Clock hour: A period of time consisting of--
    (1) A 50- to 60-minute class, lecture, or recitation in a 60-minute 
period;
    (2) A 50- to 60-minute faculty-supervised laboratory, shop 
training, or internship in a 60-minute period; or
    (3) Sixty minutes of preparation in a correspondence course.
    Correspondence course: (1) A ``home study'' course provided by an 
institution under which the institution provides instructional 
materials, including examinations on the materials, to students who are 
not physically attending classes at the institution. When students 
complete a portion of the instructional materials, the students take 
the examinations that relate to that portion of the materials, and 
return the examinations to the institution for grading.
    (2) A home study course that provides instruction in whole or in 
part through the use of video cassettes or video discs in an award year 
is a correspondence course unless the institution also delivers the 
instruction on the cassette or disc to students physically attending 
classes at the institution during the same award year.
    (3) A course at an institution that may otherwise satisfy the 
definition of a ``telecommunications course'' is a correspondence 
course if the sum of telecommunications and other correspondence 
courses offered by that institution equals or exceeds 50 percent of the 
total courses offered at that institution.
    (4) If a course is part correspondence and part residential 
training, the Secretary considers the course to be a correspondence 
course.
    Educational program: A legally authorized postsecondary program of 
organized instruction or study that leads to an academic or 
professional degree, vocational degree or certificate, or other 
recognized educational credential. However, the Secretary does not 
consider that an institution provides an educational program if the 
institution does not provide instruction itself (including a course of 
independent study), but merely gives credit for one or more of the 
following: instruction provided by other institutions or schools; 
examinations provided by agencies or organizations; or other 
accomplishments such as ``life experience.''
    Eligible institution: An institution that--(a) Is one or more of 
the following:
    (1) An institution of higher education, as defined in Sec. 600.4.
    (2) A proprietary institution of higher education, as defined in 
Sec. 600.5.
    (3) A postsecondary vocational institution, as defined in 
Sec. 600.6; and
    (b) Meets all the other applicable provisions of this part.
    Federal Family Education Loan (FFEL) programs: The loan programs 
(formerly called the Guaranteed Student Loan (GSL) Programs) authorized 
by Title IV-B of the HEA, including the Federal Stafford Loan, Federal 
PLUS, Federal Supplemental Loans for Students (Federal SLS), and 
Federal Consolidation Loan programs, in which lenders use their own 
funds to make loans to enable students or their parents to pay the 
costs of the student's attendance at eligible institutions. The Federal 
Stafford Loan, Federal PLUS, Federal Supplemental Loans for Students 
(Federal SLS), and Federal Consolidation Loan programs are defined in 
34 CFR part 668.
    Incarcerated student: A student who is serving a criminal sentence 
in a Federal, State, or local penitentiary, prison, jail, reformatory, 
work farm, or other similar correctional institution. A student is not 
considered incarcerated if that student is in a half-way house or home 
detention or is sentenced to serve only weekends.
    Legally authorized: The legal status granted to an institution 
through a charter, license, or other written document issued by the 
appropriate agency or official of the State in which the institution is 
physically located.
    Nationally recognized accrediting agency: An agency or association 
that the Secretary recognizes as a reliable authority to determine the 
quality of education or training offered by an institution or a program 
offered by an institution. The Secretary recognizes these agencies and 
associations under the provisions of 34 CFR part 602 and publishes a 
list of the recognized agencies in the Federal Register.
    Nonprofit institution: An institution that--
    (1) Is owned and operated by one or more nonprofit corporations or 
associations, no part of the net earnings of which benefits any private 
shareholder or individual;
    (2) Is legally authorized to operate as a nonprofit organization by 
each State in which it is physically located; and
    (3) Is determined by the U.S. Internal Revenue Service to be an 
organization to which contributions are tax deductible in accordance 
with section 501(c)(3) of the Internal Revenue Code.
    One-academic-year training program: An educational program that is 
at least one academic year as defined under section 481(d)(2) of the 
HEA.
    Preaccredited: A status that a nationally recognized accrediting 
agency or association, recognized by the Secretary to grant that 
status, has accorded an unaccredited public or private nonprofit 
institution that is progressing toward accreditation within a 
reasonable period of time.
    Recognized equivalent of a high school diploma:
    (1) A General Education Development Certificate (GED);
    (2) A State certificate received by a student after the student has 
passed a State authorized examination that the State recognizes as the 
equivalent of a high school diploma;
    (3) An academic transcript of a student who has successfully 
completed at least a two-year program that is acceptable for full 
credit toward a bachelor's degree; or
    (4) For a person who is seeking enrollment in an educational 
program that leads to at least an associate degree or its equivalent 
and who has not completed high school but who excelled academically in 
high school, documentation that the student excelled academically in 
high school and has met formalized, written admission policies of the 
institution.
    Recognized occupation: An occupation that is--
    (1) Listed in an ``occupational division'' of the latest edition of 
the Dictionary of Occupational Titles, published by the U.S. Department 
of Labor; or
    (2) Determined by the Secretary in consultation with the Secretary 
of Labor to be a recognized occupation.
    Regular student: A person who is enrolled or accepted for 
enrollment at an institution for the purpose of obtaining a degree, 
certificate, or other recognized educational credential offered by that 
institution.
    Secretary: The Secretary of the Department of Education or an 
official or employee of the Department of Education acting for the 
Secretary under a delegation of authority.
    State: A State of the Union, American Samoa, the Commonwealth of 
Puerto Rico, the District of Columbia, Guam, the Trust Territory of the 
Pacific Islands (Palau), the Virgin Islands, and the Commonwealth of 
the Northern Mariana Islands.
    Telecommunications course: A course offered in an award year 
principally through the use of television, audio, or computer 
transmission, including open broadcast, closed circuit, cable, 
microwave, or satellite, audio conferencing, computer conferencing, or 
video cassettes or discs. The term does not include a course that is 
delivered using video cassettes or disc recordings unless that course 
is delivered to students physically attending classes at an institution 
providing the course during the same award year. If the course does not 
qualify as a telecommunications course it is considered to be a 
correspondence course, as provided for in paragraph (3) of the 
definition of correspondence course in this section.
    Title IV, HEA program: Any of the student financial assistance 
programs listed in 34 CFR 668.1(c).

(Authority: 20 U.S.C. 1071 et seq.; 1078-2, 1085, 1088, 1099b, 
1099c, and 1141 and 26 U.S.C. 501(c))


Sec. 600.3  [Reserved]


Sec. 600.4  Institution of higher education.

    (a) An institution of higher education is a public or private 
nonprofit educational institution that--
    (1) Is in a State, or for purposes of the Federal Pell Grant, 
Federal Supplemental Educational Opportunity Grant, Federal Work-Study, 
and Federal TRIO programs may also be located in the Federated State of 
Micronesia or the Marshall Islands;
    (2) Admits as regular students only persons who--
    (i) Have a high school diploma;
    (ii) Have the recognized equivalent of a high school diploma; or
    (iii) Are beyond the age of compulsory school attendance in the 
State in which the institution is physically located;
    (3) Is legally authorized to provide an educational program beyond 
secondary education in the State in which the institution is physically 
located;
    (4) Provides an educational program--
    (i) For which it awards an associate, baccalaureate, graduate, or 
professional degree;
    (ii) That is at least a two-academic-year program acceptable for 
full credit toward a baccalaureate degree; or
    (iii) That is at least a one-academic-year training program that 
leads to a certificate, degree, or other recognized educational 
credential and prepares students for gainful employment in a recognized 
occupation; and
    (5) Is--
    (i) Accredited or preaccredited; or
    (ii) Approved by a State agency listed in the Federal Register in 
accordance with 34 CFR part 603, if the institution is a public 
postsecondary vocational educational institution that seeks to 
participate only in Federal assistance programs.
    (b) An institution is physically located in a State if it has a 
campus or other instructional site in that State.
    (c) The Secretary does not recognize the accreditation or 
preaccreditation of an institution unless the institution agrees to 
submit any dispute involving the final denial, withdrawal, or 
termination of accreditation to binding arbitration before initiating 
any other legal action.

(Authority: 20 U.S.C. 1094 and 1141(a))


Sec. 600.5  Proprietary institution of higher education.

    (a) A proprietary institution of higher education is an educational 
institution that--
    (1) Is not a public or private nonprofit educational institution;
    (2) Is in a State;
    (3) Admits as regular students only persons who--
    (i) Have a high school diploma;
    (ii) Have the recognized equivalent of a high school diploma; or
    (iii) Are beyond the age of compulsory school attendance in the 
State in which the institution is physically located;
    (4) Is legally authorized to provide an educational program beyond 
secondary education in the State in which the institution is physically 
located;
    (5) Provides an eligible program of training, as defined in 34 CFR 
668.8, to prepare students for gainful employment in a recognized 
occupation;
    (6) Is accredited;
    (7) Has been in existence for at least two years; and
    (8) Has no more than 85 percent of its revenues derived from Title 
IV, HEA program funds, as determined under paragraph (d) of this 
section.
    (b)(1) The Secretary considers an institution to have been in 
existence for two years only if it has been legally authorized to 
provide, and has provided, during the 24 months (except for normal 
vacation periods and periods when the institution temporarily closes 
due to a natural disaster that affects the institution or the 
institution's students) preceding the date of application for 
eligibility, a continuous training program to prepare students for 
gainful employment in a recognized occupation that is substantially the 
same in length and subject matter as the educational program it is 
currently providing.
    (2) In determining whether an applicant institution satisfies the 
requirement contained in paragraph (b)(1) of this section, the 
Secretary does not count any period during which the applicant 
institution was a part of another eligible proprietary institution of 
higher education, postsecondary vocational institution, or vocational 
school.
    (c) An institution is physically located in a State if it has a 
campus or other instructional site in that State.
    (d)(1) An institution satisfies the requirement contained in 
paragraph (a)(8) of this section by examining its revenues under the 
following formula:

    Title IV, HEA program funds the institution used to satisfy 
tuition, fees, and other institutional charges to students.
    Revenue generated by the institution from tuition, fees, and 
other institutional charges, plus revenue generated by the 
institution from other activities conducted by the institution, to 
the extent not included in tuition, fees, or other institutional 
charges, that are necessary for its students' education or training.

    (2) Under the fraction contained in paragraph (d)(1) of this 
section--
    (i) The revenue included in the denominator is from the 
institution's last complete fiscal year;
    (ii) The Title IV, HEA program funds included in the numerator are 
from the award year that most closely corresponds to the fiscal year 
reported in the denominator and do not include State Student Incentive 
Grant (SSIG) and Federal Work-Study program funds. (The SSIG and FWS 
programs are defined in 34 CFR 668.2);
    (iii) The Title IV, HEA program funds in the numerator and the 
revenue described in the denominator do not include any refunds paid to 
or on behalf of students under the institution's refund policy;
    (iv) The amount charged for books, supplies, and equipment is not 
included in the numerator or the denominator unless the amount is 
included in tuition, fees, or other institutional charges;
    (v) With regard to the numerator, any Title IV, HEA program funds 
disbursed or delivered to or on behalf of a student shall be presumed 
to be used to pay the student's tuition, fees, or other institutional 
charges, to the extent that those tuition, fees, and other charges were 
not satisfied by grant funds provided by non-Federal public agencies or 
private sources independent of the institution, regardless of whether 
the institution credits those funds to the student's account or pays 
those funds directly to the student; and
    (vi) With regard to the denominator, revenue generated by the 
institution from other activities conducted by the institution that are 
necessary for its students' education or training includes only revenue 
for those activities that--
    (A) Are conducted on campus or at a facility under the control of 
the institution;
    (B) Are performed under the supervision of a member of the 
institution's faculty; and
    (C) Are required to be performed by all students in a specific 
educational program at the institution.
    (3) Notwithstanding paragraph (d)(2) of this section, for the 1992-
93 award year, the institution may not include in the numerator or 
denominator of the fraction contained in paragraph (d)(1) of this 
section, the Title IV, HEA program funds it disbursed or delivered to 
its students before October 1, 1992.
    (e) For purposes of the calculation required in paragraph (a)(8) of 
this section, the institution shall substantiate the required 
calculations by having the certified public accountant who prepares its 
audited financial statement required under 34 CFR 668.23 certify the 
accuracy of the institution's calculation, and include that 
certification as part of the audited financial statement.
    (f) An institution shall notify the Secretary if it fails to 
satisfy the requirement contained in paragraph (a)(8) of this section 
by the later of--
    (1) Sixty days following the end of the fiscal year used in the 
fraction contained in paragraph (d) of this section, if the award year 
used in the fraction was completed on or before the end of that fiscal 
year; or
    (2) Thirty-one days following the end of the award year used in the 
fraction contained in paragraph (d) of this section, if that award year 
was completed after the fiscal year used in the fraction.
    (g) If an institution loses its eligibility because it failed to 
satisfy the requirement contained in paragraph (a)(8) of this section, 
to regain its eligibility it must demonstrate compliance with all 
eligibility requirements--
    (1) For at least the fiscal year following the fiscal year used in 
the fraction contained in paragraph (d) of this section, if the award 
year used in that fraction was completed on or before the end of that 
fiscal year; or
    (2) For at least one award year following the award year used in 
the fraction contained in paragraph (d) of this section, if the award 
year was completed after the fiscal year used in that fraction.
    (h) The Secretary does not recognize the accreditation or 
preaccreditation of an institution unless the institution agrees to 
submit any dispute involving the final denial, withdrawal, or 
termination of accreditation to binding arbitration before initiating 
any other legal action.

(Authority: 20 U.S.C. 1088)


Sec. 600.6  Postsecondary vocational institution.

    (a) A postsecondary vocational institution is a public or private 
nonprofit educational institution that--
    (1) Is in a State;
    (2) Admits as regular students only persons who--
    (i) Have a high school diploma;
    (ii) Have the recognized equivalent of a high school diploma; or
    (iii) Are beyond the age of compulsory school attendance in the 
State in which the institution is physically located;
    (3) Is legally authorized to provide an educational program beyond 
secondary education in the State in which the institution is physically 
located;
    (4) Provides an eligible program of training, as defined in 34 CFR 
668.8, to prepare students for gainful employment in a recognized 
occupation;
    (5) Is--
    (i) Accredited or preaccredited; or
    (ii) Approved by a State agency listed in the Federal Register in 
accordance with 34 CFR part 603, if the institution is a public 
postsecondary vocational educational institution that seeks to 
participate only in Federal assistance programs; and
    (6) Has been in existence for at least two years.
    (b)(1) The Secretary considers an institution to have been in 
existence for two years only if it has been legally authorized to 
provide, and has provided, during the 24 months (except for normal 
vacation periods and periods when the institution temporarily closes 
due to a natural disaster that directly affects the institution or the 
institution's students) preceding the date of application for 
eligibility, a continuous training program to prepare students for 
gainful employment in a recognized occupation that is substantially the 
same in length and subject matter as the educational program it is 
currently providing.
    (2) In determining whether an applicant institution satisfies the 
requirement contained in paragraph (b)(1) of this section, the 
Secretary--
    (i) Counts any period during which the applicant institution 
qualified as an eligible institution of higher education;
    (ii) Counts any period during which the applicant institution was 
part of another eligible institution of higher education, provided that 
the applicant institution continues to be part of an eligible 
institution of higher education; and
    (iii) Does not count any period during which the applicant 
institution was a part of another eligible proprietary institution of 
higher education or postsecondary vocational institution.
    (c) An institution is physically located in a State if it has a 
campus or instructional site in that State.
    (d) The Secretary does not recognize the accreditation or 
preaccreditation of an institution unless the institution agrees to 
submit any dispute involving the final denial, withdrawal, or 
termination of accreditation to binding arbitration before initiating 
any other legal action.

(Authority: 20 U.S.C. 1088 and 1094(c)(3))


Sec. 600.7  Conditions of institutional ineligibility.

    (a) General rule. (1) For purposes of Title IV of the HEA, an 
educational institution that otherwise satisfies the requirements 
contained in Secs. 600.4, 600.5, or 600.6 nevertheless does not qualify 
as an eligible institution under this part if--
    (i) For its latest complete award year--
    (A) More than 50 percent of the institution's courses were 
correspondence courses as calculated under paragraph (b) of this 
section;
    (B) Fifty percent or more of the institution's enrolled regular 
students were enrolled in correspondence courses;
    (C) Twenty-five percent or more of the institution's regular 
enrolled students were incarcerated;
    (D) Fifty percent or more of its enrolled regular students had 
neither a high school diploma nor the recognized equivalent of a high 
school diploma, and the institution did not provide a four-year or two-
year educational program for which it awards a bachelor's degree or 
associate degree, respectively;
    (ii) The institution, or an affiliate of an institution that has 
the power, by contract or ownership interest, to direct or cause the 
direction of the management or policies of the institution, files for 
bankruptcy; or
    (iii) The institution, its owner, or its chief executive officer--
    (A) Has pled guilty to, has pled nolo contendere to, or is found 
guilty of, a crime involving the acquisition, use, or expenditure of 
Title IV, HEA program funds; or
    (B) Has been judicially determined to have committed fraud 
involving Title IV, HEA program funds.
    (2) For purposes of paragraph (a)(1)(ii) of this section--
    (i) The institution includes any entity affiliated with the 
institution if that entity seeks specific judicial relief in a 
bankruptcy court with regard to an action taken or to be taken against 
the institution by the Secretary, a State agency, an accrediting 
agency, or a lender or guaranty agency under the FFEL programs; and
    (ii) The institution includes all the entities whose financial 
resources were presented to the Secretary, either through a combined or 
consolidated balance sheet or other document, to demonstrate that the 
institution was financially responsible and administratively capable 
under the standards contained in 34 CFR part 668, subpart B.
    (b) Special provisions regarding correspondence courses and 
students--(1) Treatment of telecommunications courses. For purposes of 
paragraphs (a)(1)(i) (A) and (B) of this section, the Secretary 
considers a telecommunications course to be a correspondence course if 
the sum of telecommunications courses and other correspondence courses 
the institution provided during that award year equaled or exceeded 50 
percent of the total number of courses it provided during that year.
    (2) Calculating the number of courses. For purposes of paragraphs 
(a)(1)(i) (A) and (B) of this section--
    (i) A correspondence course may be a complete educational program 
offered by correspondence, or one course provided by correspondence in 
an on-campus (residential) educational program;
    (ii) A course must be considered as being offered once during an 
award year regardless of the number of times it is offered during that 
year; and
    (iii) A course that is offered both on campus and by correspondence 
must be considered two courses for the purpose of determining the total 
number of courses the institution provided during an award year.
    (3) Exception. The provisions contained in paragraphs (a)(1)(i) (A) 
and (B) of this section do not apply to an institution that qualifies 
as a ``technical institute or vocational school used exclusively or 
principally for the provision of vocational education to individuals 
who have completed or left high school and who are available for study 
in preparation for entering the labor market'' under section 521(4)(C) 
of the Carl D. Perkins Vocational and Applied Technology Education Act.
    (c) Special provisions regarding incarcerated students--(1) 
Exception. The Secretary may waive the prohibition contained in 
paragraph (a)(1)(i)(C) of this section, upon the application of an 
institution, if the institution is a nonprofit institution that 
provides four-year or two-year educational programs for which it awards 
bachelor's or associate degrees, respectively.
    (2) If the nonprofit institution that applies for a waiver consists 
solely of four-year or two-year educational programs for which it 
offers bachelor's or associate degrees, respectively, or both types of 
programs, the Secretary waives the prohibition contained in paragraph 
(a)(1)(i)(C) of this section for the entire institution.
    (3) If the nonprofit institution that applies for a waiver does not 
consist solely of four-year or two-year educational programs for which 
it offers bachelor's or associate degrees, respectively, or both types 
of programs, the Secretary waives the prohibition contained in 
paragraph (a)(1)(iii) of this section--
    (i) For the four-year and two-year programs that lead, 
respectively, to bachelor's and associate degrees; and
    (ii) For the other programs the institution offers, if the 
incarcerated regular students enrolled in those other programs have a 
completion rate of 50 percent or greater.
    (d) Special provisions for students who do not have a high school 
diploma or the recognized equivalent. The Secretary may waive the 
limitation contained in paragraph (a)(1)((i)(D) of this section if a 
nonprofit institution demonstrates to the satisfaction of the Secretary 
that it exceeds that limitation because it serves, through contracts 
with Federal, State, or local government agencies, significant numbers 
of students who do not have a high school diploma or its recognized 
equivalent.
    (e) Special provisions. (1) For purposes of paragraph (a)(1)(i) of 
this section, when counting regular students, the institution shall--
    (i) Count each regular student without regard to the full-time or 
part-time nature of the student's attendance (i.e., ``head count'' 
rather than ``full-time equivalent'');
    (ii) Count a regular student once regardless of the number of times 
the student enrolls during an award year; and
    (iii) Determine the number of regular students who enrolled in the 
institution during the relevant award year by--
    (A) Calculating the number of regular students who enrolled during 
that award year; and
    (B) Excluding from the number of students in paragraph 
(d)(1)(iii)(A) of this section, the number of regular students who 
enrolled but subsequently withdrew or were expelled from the 
institution and were entitled to receive a 100 percent refund of their 
tuition and fees less any administrative fee that the institution is 
permitted to keep under its fair and equitable refund policy;
    (2) For the purpose of calculating a completion rate under 
paragraph (c)(3)(ii) of this section, the institution shall--
    (i) Determine the number of regular incarcerated students who 
enrolled in the other programs during the last completed award year;
    (ii) Exclude from the number of regular incarcerated students 
determined in paragraph (d)(2)(i) of this section, the number of those 
students who enrolled but subsequently withdrew or were expelled from 
the institution and were entitled to receive a 100 percent refund of 
their tuition and fees, less any administrative fee the institution is 
permitted to keep under the institution's fair and equitable refund 
policy;
    (iii) Exclude from the total obtained in paragraph (d)(2)(ii) of 
this section, the number of those regular incarcerated students who 
remained enrolled in the programs at the end of the applicable award 
year; and
    (iv) From the total obtained in paragraphs (d)(2)(iii) of this 
section, determine the number of regular incarcerated students who 
received, during the applicable award year, the degree, certificate, or 
other recognized educational credential awarded for successful 
completion of the program;
    (v) Divide the total obtained in paragraph (d)(2)(iv) of this 
section by the total obtained in paragraph (d)(2)(iii) of this section 
and multiply by 100.
    (3)(i) For purposes of paragraph (a)(1)(i) of this section, the 
institution shall substantiate the required calculations by having the 
certified public accountant who prepares its audit report required 
under 34 CFR 668.23 certify to the accuracy of the institution's 
calculations. That certification must be included with the 
institution's audit report.
    (ii) For purposes of paragraph (a)(1)(i) of this section, 
notwithstanding 34 CFR 668.23, as a result of the institution's 
calculation, if the resulting percentage is within 10 percent of the 
applicable percentage specified in paragraph (a)(1)(i) of this section, 
the institution shall have performed for the applicable award year or 
fiscal year, a financial and compliance audit of its Title IV, HEA 
programs. The certified public accountant who prepares the audit shall 
certify the accuracy of the institution's calculation. The institution 
shall retain the report of that audit and all relevant supporting 
documentation in accordance with 34 CFR 668.23(h) (governing the 
establishment and maintenance of an institution's records) but, except 
in accordance with paragraph (g) of this section, need not submit the 
report to the Secretary.
    (f) Notice to the Secretary. An institution shall notify the 
Secretary--
    (1) By July 31 following the end of an award year if it falls 
within one of the prohibitions contained in paragraph (a)(1)(i) of this 
section; or
    (2) Within 10 days if it falls within one of the prohibitions 
contained in paragraphs (a)(1)(ii) or (iii) of this section.
    (g) Regaining eligibility. (1) If an institution loses its 
eligibility because of one of the prohibitions contained in paragraph 
(a)(1)(i) of this section, to regain its eligibility, it must 
demonstrate--
    (i) Compliance with all eligibility requirements;
    (ii) That it did not fall within any of the prohibitions contained 
in paragraph (a)(1) of this section for at least one award year; and
    (iii) That it changed its administrative policies and practices to 
ensure that it will not fall within any of the prohibitions contained 
in paragraph (a)(1)(i) of this section.
    (2) If an institution loses its eligibility because of one of the 
prohibitions contained in paragraphs (a)(1)(ii) or (iii) of this 
section, this loss is permanent. The institution's eligibility cannot 
be reinstated.


(Authority: 20 U.S.C. 1088 and 1091)


Sec. 600.8  Treatment of a branch campus.

    To obtain eligibility under this part, a branch campus of an 
institution shall satisfy, in its own right, all the applicable 
institutional eligibility requirements except the ``two-year'' rule 
contained in Sec. 600.5(a)(7) or 600.6(a)(6).

(Authority: 20 U.S.C. 1099c)


Sec. 600.9  Written agreement between an eligible institution and 
another institution or organization.

    (a) Without losing its eligibility under this part, an eligible 
institution may enter into a written agreement with another institution 
or organization under which the latter provides all or a part of the 
educational program of students enrolled in the eligible institution 
if--
    (1) The eligible institution gives credit to students enrolled in 
that program on the same basis as if it provided that program itself; 
and
    (2) The other provisions of this section are satisfied.
    (b) If an eligible institution enters into a written agreement with 
another eligible institution, there is no limit on the portion of a 
student's educational program that may be provided under the agreement.
    (c) If an eligible institution enters into an agreement with an 
institution or organization that is not an eligible institution--
    (1) The ineligible institution or organization may provide up to 25 
percent of the educational program of a student enrolled in the 
eligible institution; or
    (2) The ineligible institution or organization may provide more 
than 25 percent but not more than 50 percent of the educational program 
of a student enrolled in the eligible institution if--
    (i) The eligible institution and the ineligible institution or 
organization are not owned or controlled by the same individual, 
partnership, or corporation;
    (ii) The eligible institution's accrediting agency, or if the 
institution is a public postsecondary vocational educational 
institution, state agency listed in the Federal Register in accordance 
with 34 CFR part 603, specifically determines that the institution's 
agreement meets the agency's standards for the contracting out of 
educational services; and
    (iii) The ineligible institution has not had its eligibility 
terminated by the Secretary.

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


Sec. 600.10  Date, extent, duration, and consequence of eligibility.

    (a) Date of eligibility. (1) If the Secretary determines that an 
applicant institution satisfies all the statutory and regulatory 
eligibility requirements, the Secretary considers the institution to be 
an eligible institution as of the date--
    (i) For purposes of participating in any Title IV, HEA program, the 
Secretary has signed the institution's program participation agreement 
described in 34 CFR part 668, subpart B; and
    (ii) For purposes other than participating in any Title IV, HEA 
program, the Secretary has received all the information necessary to 
make that determination.
    (2) If an eligible institution seeks eligibility, for purposes of a 
Title IV, HEA program, for a location or educational program not 
previously designated eligible, and the Secretary determines that the 
location or educational program satisfies all the statutory and 
regulatory eligibility requirements, the Secretary considers the 
location or program to be eligible to participate in that Title IV, HEA 
program as of the date the Secretary certifies that location or program 
to so participate.
    (b)(1) Extent of eligibility. If the Secretary determines that the 
entire applicant institution, including all its locations and all its 
educational programs, satisfies the applicable requirements of this 
part, the Secretary extends eligibility to all educational programs and 
locations identified on the institution's application for eligibility.
    (2) If the Secretary determines that only certain educational 
programs or certain locations of an applicant institution satisfy the 
applicable requirements of this part, the Secretary extends eligibility 
only to those educational programs and locations that meet those 
requirements and identifies the eligible educational programs and 
locations in the eligibility notice sent in accordance with 
Sec. 600.21.
    (3) Eligibility does not extend to any location that an institution 
establishes after it receives its eligibility designation if the 
institution provides at least 50 percent of an educational program at 
that location.
    (c) Subsequent additions of educational programs. (1) Except as 
provided in paragraph (c)(2) of this section, if an eligible 
institution adds an educational program after it has been designated as 
an eligible institution by the Secretary, the institution must apply to 
the Secretary to have that additional program designated as an eligible 
program of that institution.
    (2) An eligible institution that adds an educational program after 
it has been designated as an eligible institution by the Secretary does 
not have to apply to the Secretary to have that additional program 
designated as an eligible program of that institution if the additional 
program--
    (i) Leads to an associate, baccalaureate, professional or graduate 
degree; or
    (ii)(A) Prepares students for gainful employment in the same or 
related recognized occupation as an educational program that has 
previously been designated as an eligible program by the Secretary; and
    (B) Is at least 8 semester hours, 12 quarter hours, or 600 clock 
hours.
    (3) If an institution incorrectly determines under paragraph (a)(2) 
of this section that an educational program satisfies the applicable 
statutory and regulatory eligibility provisions without applying to the 
Secretary for approval, the institution is liable to repay to ED all 
the student financial assistance and other ED program funds it or its 
students received who were enrolled in that educational program.
    (d) Duration of eligibility. (1) If an institution participates in 
a Title IV, HEA program, the Secretary's designation of the institution 
as an eligible institution under the HEA expires when the institution's 
program participation agreement, as described in 34 CFR part 668, 
subpart B, expires.
    (2) If an institution does not participate in any Title IV, HEA 
program, the Secretary's designation of the institution as an eligible 
institution under the HEA does not expire as long as the institution 
continues to satisfy the statutory and regulatory requirements 
governing its eligibility.
    (e) Consequence of eligibility. (1) If, as a part of its 
institutional eligibility application, an institution indicates that it 
wishes to participate in the Title IV, HEA programs and the Secretary 
determines that the institution satisfies the applicable statutory and 
regulatory requirements governing institutional eligibility, the 
Secretary will determine whether the institution satisfies the 
standards of administrative capability and financial responsibility 
contained in 34 CFR part 668, subpart B.
    (2) If, as part of its institutional eligibility application, an 
institution indicates that it does not wish to participate in any Title 
IV, HEA program and the Secretary determines that the institution 
satisfies the applicable statutory and regulatory requirements 
governing institutional eligibility, the institution is eligible to 
apply to participate in any HEA program listed by the Secretary in the 
eligibility notice it receives under Sec. 600.21. However, the 
institution is not eligible to participate in those programs, or 
receive funds under those programs, merely by virtue of its designation 
as an eligible institution under this part.

(Authority: 20 U.S.C. 1088 and 1141)


Sec. 600.11  Special rules regarding institutional accreditation or 
preaccreditation.

    (a) Change of accrediting agencies. For purposes of 
Secs. 600.4(a)(5)(i), 600.5(a)(6), and 600.6(a)(5)(i), the Secretary 
does not recognize the accreditation or preaccreditation of an 
otherwise eligible institution if that institution is in the process of 
changing its accrediting agency, unless the institution provides to the 
Secretary--
    (1) All materials related to its prior accreditation or 
preaccreditation; and
    (2) Materials demonstrating reasonable cause for changing its 
accrediting agency.
    (b) Multiple accreditation. The Secretary does not recognize the 
accreditation or preaccreditation of an otherwise eligible institution 
if that institution is accredited or preaccredited as an institution by 
more than one accrediting agency, unless the institution--
    (1) Provides to each such accrediting agency and the Secretary the 
reasons for that multiple accreditation or preaccreditation;
    (2) Demonstrates to the Secretary reasonable cause for that 
multiple accreditation or preaccreditation; and
    (3) Designates to the Secretary which agency's accreditation or 
preaccreditation the institution uses to establish its eligibility 
under this part.
    (c) Loss of accreditation or preaccreditation. (1) An institution 
may not be considered eligible for 24 months after it has had its 
accreditation or preaccreditation withdrawn, revoked, or otherwise 
terminated for cause, unless the accrediting agency that took that 
action rescinds that action.
    (2) An institution may not be considered eligible for 24 months 
after it has withdrawn from its accreditation or preaccreditation 
voluntarily under a show-cause or suspension order issued by an 
accrediting agency, unless that agency rescinds its order.
    (d) Religious exception. (1) If an institution loses its 
accreditation or preaccreditation, the Secretary permits the 
institution to be considered eligible for purposes of complying with 
the provisions of Secs. 600.4, 600.5, and 600.6 if the Secretary 
determines that its loss of accreditation or preaccreditation--
    (i) Is related to the religious mission or affiliation of the 
institution; and
    (ii) Is not related to its failure to satisfy the accrediting 
agency's standards.
    (2) If the Secretary permits an unaccredited institution to be 
considered eligible under the provisions of paragraph (d)(1) of this 
section, the Secretary considers that unaccredited institution to be 
eligible for a period sufficient to allow the institution to obtain 
alternative accreditation or preaccreditation, except that period may 
not exceed 18 months.

(Authority: 20 U.S.C. 1099b)

Subpart B--Procedures for Establishing Eligibility


Sec. 600.20  Application procedures.

    (a) An institution that wishes to establish its eligibility to 
apply to participate in any program authorized by the HEA must first 
apply to the Secretary for a determination that it qualifies as an 
eligible institution.
    (b) A previously designated eligible institution must apply to the 
Secretary for a determination that the institution continues to meet 
the standards in this subpart upon the request of the Secretary or if 
the institution wishes to--
    (1) Continue to be eligible beyond the scheduled expiration of the 
institution's current of eligibility designation;
    (2) Include in the institution's eligibility--
    (i) A branch campus that is not currently included in the 
institution's eligibility; or
    (ii) A location that is not currently included in the institution's 
eligibility, if--
    (A) The institution at that location offers 100 percent of an 
educational program; or
    (B) The institution at that location offers at least 50 percent of 
an educational program and the Secretary requires the institution to 
apply for eligibility under Sec. 600.30(c)(2);
    (3) Continue to be eligible following a change in its name, 
location, or address of the institution or continue to include in the 
institution's eligibility--
    (i) A branch campus that has changed its name, location, or 
address; or
    (ii) Another location that has changed its name, location, or 
address, if--
    (A) That location offers 100 percent of an educational program; or
    (B) The Secretary requires the institution to apply for eligibility 
under Sec. 600.30(c)(2)(ii)(B); or
    (4) Reestablish eligibility following a change in ownership that 
results in a change in control according to the provisions of 
Sec. 600.31.
    (c) An institution applying for designation as an eligible 
institution shall--
    (1) Apply on the form prescribed by the Secretary; and
    (2) Provide all the information and documentation requested by the 
Secretary to make a determination of its eligibility.

(Authority: 20 U.S.C. 1088 and 1141)


Sec. 600.21  Eligibility notification.

    (a) The Secretary notifies an institution in writing--
    (1) Whether the applicant institution qualifies in whole or in part 
as an eligible institution under the appropriate provisions in 
Secs. 600.4, 600.5, 600.6 and 600.7;
    (2) Whether the institution is certified to participate in the 
Title IV, HEA programs if the institution applied to participate in 
those programs; and
    (3) Of the HEA programs in which it is eligible to participate, and 
the HEA programs for which it is eligible to apply to participate.
    (b) If only a portion of the applicant qualifies as an eligible 
institution, the Secretary specifies in the notice the locations or 
educational programs that qualify as the eligible institution.
    (c) If the Secretary receives a notice from an institution as a 
result of Sec. 600.30(a)(3), the Secretary--
    (1) Notifies the institution that the location is an eligible 
location of that institution, identifies the HEA programs in which the 
institution may participate without further action, and that the 
extension of eligibility and participation is effective on the date 
that the Secretary received the institution's notice; or
    (2) Notifies the institution that the institution must apply for 
eligibility of that location under Sec. 600.20.
    (d) In making the determination under paragraph (c) of this 
section, the Secretary takes into account the institution's ability 
adequately to provide education or training at the location, including 
such factors as--
    (1) The percentage of an educational program offered at the 
location; and
    (2) The financial and administrative capability of the institution.

(Authority: 20 U.S.C. 1088, 1099c, and 1141)

Subpart C--Maintaining Eligibility


Sec. 600.30  Institutional notification requirements.

    (a) Except as provided in paragraph (b) of this section, an 
eligible institution shall notify the Secretary in writing, at an 
address specified by the Secretary in a notice published in the Federal 
Register, no later than 10 days after the change occurs, of any change 
in the following information provided in the institution's eligibility 
application:
    (1) Its name.
    (2) Its address.
    (3) The name, number, and address of locations other than the main 
campus at which it offers at least 50 percent of an educational program 
and the percentages of the educational program that it provides at each 
location.
    (4) The way the institution measures program length (e.g. a change 
from clock hours to credit hours).
    (5) Its ownership, if that ownership change results in a change in 
control of the institution.
    (6) Its status, as a proprietary, nonprofit, or public institution.
    (7) The exercise of a person's substantial control over the 
institution, if the person did not previously exercise that control. 
The Secretary generally considers a person to exercise substantial 
control over an institution if the person--
    (i) Directly or indirectly holds at least a 25 percent ownership 
interest in the institution;
    (ii) Holds, together with another member or other members of his or 
her family, at least a 25 percent ownership interest in the 
institution;
    (iii) Represents, either alone or together with other persons, 
under a voting trust, power of attorney, proxy, or similar agreement 
one or more persons who hold either individually or in combination with 
the other persons represented or the person representing them, at least 
a 25 percent ownership in the institution;
    (iv) Is a member of the board of directors, the chief executive 
officer, or other executive officer of--
    (A) The institution; or
    (B) An entity that holds at least a 25 percent ownership interest 
in the institution.
    (b) An eligible institution that is owned by a publicly traded 
corporation shall notify the Secretary in writing, at an address 
specified by the Secretary in a notice published in the Federal 
Register, of any change in the information that is described in 
paragraphs (a) (5) through (7) of this section at the same time that 
the institution notifies the institution's accrediting agency, but no 
later than 10 days after the corporation learns of the change.
    (c) The Secretary notifies the institution in writing if any 
reported change affects the institution's eligibility, and the 
effective date of that change.
    (d) The institution's failure to inform the Secretary of the 
information described in paragraph (a) of this section within the time 
period stated in that paragraph may result in adverse action against 
it, including its loss of eligibility.
    (e)(1) For the purposes of this section, an ownership interest is a 
share of the legal or beneficial ownership or control of, or a right to 
share in the proceeds of the operation of, an institution or 
institution's parent corporation.
    (2) The term ownership interest includes, but is not limited to--
    (i) An interest as tenant in common, joint tenant, or tenant by the 
entireties;
    (ii) A partnership; and
    (iii) An interest in a trust.
    (3) The term ownership interest does not include any share of the 
ownership or control of, or any right to share in the proceeds of the 
operation of--
    (i) A mutual fund that is regularly and publicly traded;
    (ii) An institutional investor; or
    (iii) A profit-sharing plan, provided that all employees are 
covered by the plan.
    (f) For the purposes of this section, the Secretary considers a 
member of a person's family to be a parent, sibling, spouse or child; 
spouse's parent or sibling; or sibling's or child's spouse.

(Authority: 20 U.S.C. 1088 and 1141)


Sec. 600.31  Change in ownership resulting in a change of control.

    (a)(1) If an eligible institution undergoes a change of ownership 
that results in a change in control, the institution shall reestablish 
its status as an eligible institution after the change.
    (2) To establish its status as an eligible institution under this 
part, an institution that undergoes a change of ownership and control 
must satisfy all the applicable requirements contained in Secs. 600.4, 
600.5, and 600.6, except that if the institution is a proprietary 
institution of higher education or postsecondary vocational 
institution, it need not have been in existence for two years before 
seeking eligibility, unless it was in existence as a branch campus for 
less than two years.
    (b) For the purposes of this part, a change in ownership of an 
institution that results in a change of control means any action by 
which a person or corporation obtains new authority to control the 
actions of that institution. That action may include, but is not 
limited to--
    (1) The sale of the institution or the majority of its assets;
    (2) The transfer of the controlling interest of stock of the 
institution or its parent corporation;
    (3) The merger of two or more eligible institutions;
    (4) The division of one institution into two or more institutions;
    (5) The transfer of the controlling interest of stock or assets of 
the institution to its parent corporation; or
    (6) The transfer of the liabilities of an institution to its parent 
corporation.
    (c) Except as provided in paragraph (d) of this section, an action 
that may be treated as not resulting in a change in control includes, 
but is not limited to--
    (1) The death or retirement of an owner of an institution, when the 
owner's interest is sold or transferred to either a family member or a 
current stockholder of the corporation; or
    (2) Another action determined by the Secretary to be a routine 
business practice.

(Authority: 20 U.S.C. 1099c)


Sec. 600.32  Eligibility of additional locations.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
to qualify as an eligible location, an additional location of an 
eligible institution must satisfy the applicable requirements of this 
section and Secs. 600.4 through 600.6.
    (b) To qualify as an eligible location, an additional location is 
not required to satisfy the two-year requirement of Secs. 600.5(a)(7) 
or 600.6(a)(6), unless--
    (1) The location was a facility of another institution that has 
closed or ceased to provide educational programs for a reason other 
than a normal vacation period or a natural disaster that directly 
affects the institution or the institution's students;
    (2) The applicant institution acquired, either directly from the 
institution that closed or ceased to provide educational programs, or 
through an intermediary, the assets at the location; and
    (3) The institution from which the applicant institution acquired 
the assets of the location--
    (i) Owes a liability for a violation of an HEA program requirement; 
and
    (ii) Is not making payments in accordance with an agreement to 
repay that liability.
    (c) Notwithstanding paragraph (b) of this section, an additional 
location is not required to satisfy the two-year requirement of 
Secs. 600.5(a)(7) or 600.6(a)(6) if the applicant institution agrees--
    (1) To be liable for all improperly expended or unspent HEA program 
funds received by the institution that has closed or ceased to provide 
educational programs;
    (2) To be liable for all unpaid refunds owed to students who 
received Title IV, HEA program funds; and
    (3) To abide by the policy of the institution that has closed or 
ceased to provide educational programs regarding refunds of 
institutional charges to students in effect before the date of the 
acquisition of the assets of the additional location for the students 
who were enrolled before that date.
    (d) For purposes of this section, an ``additional location'' is a 
location of an institution that was not designated as an eligible 
location in the eligibility notification provided to an institution 
under Sec. 600.21.

(Authority: 20 U.S.C. 1088 and 1141)

Subpart D--Loss of Eligibility


Sec. 600.40  Loss of eligibility.

    (a)(1) Except as provided in paragraphs (a) (2) and (3) of this 
section, an institution or a location or educational program of an 
institution loses its eligibility on the date that--
    (i) The institution, location, or educational program fails to meet 
any of the eligibility requirements of this part;
    (ii) The institution or location permanently closes; or
    (iii) The institution or location ceases to provide educational 
programs, for a reason other than a normal vacation period or a natural 
disaster that directly affects the institution or a location or the 
students of the institution or location.
    (iv) The institution's period of participation, as specified under 
Sec. 668.13, expires, or the institution's provisional certification is 
revoked under Sec. 668.13; or
    (v) The Secretary receives a notice from the appropriate State 
Postsecondary Review Entity designated under Subpart 1 of Part H of 
Title IV of the HEA that the institution's participation should be 
withdrawn.
    (2) If an institution loses its eligibility because it violated the 
requirements of Sec. 600.5(a)(8), as evidenced by the determination 
under provisions contained in Sec. 600.5(d), it loses its eligibility--
    (i) On the last day of the fiscal year used in the fraction 
contained in Sec. 600.5(d), if the award year used in the fraction was 
completed on or before the end of that fiscal year; or
    (ii) On the last day of the award year used in the fraction 
contained in Sec. 600.5(d), if that award year was completed after the 
fiscal year used in the fraction.
    (3) If an institution loses its eligibility under the provisions of 
Sec. 600.7(a)(1)(i), it loses its eligibility on the last day of the 
award year being evaluated under that provision.
    (b) If the Secretary undertakes to terminate the eligibility of an 
institution because it violated the provisions of Sec. 600.5(a)(8) or 
600.7(a), the presiding official, if a hearing is requested, must 
terminate the institution's eligibility if it violated those 
provisions, notwithstanding its status at the time of the hearing.
    (c)(1) If the Secretary designates an institution or any of its 
educational programs or locations as eligible on the basis of 
inaccurate information or documentation, the Secretary's designation is 
void from the date the Secretary made the designation, and the 
institution or program or location, as applicable, never qualified as 
eligible.
    (2) If an institution closes its main campus or stops providing any 
educational programs on its main campus, it loses its eligibility as a 
whole, or for the programs no longer offered at its main campus, 
respectively, at all its locations on the date it closes that campus or 
stops providing any educational program at that location.
    (d) Except as otherwise provided in this part, if an institution 
ceases to satisfy any of the requirements for eligibility under this 
part--
    (1) It must notify the Secretary within 30 days of the date that it 
ceases to satisfy that requirement; and
    (2) It becomes ineligible to continue to participate in any HEA 
program as of the date it ceases to satisfy any of the requirements.

(Authority: 20 U.S.C. 1085, 1088, and 1141)


Sec. 600.41  Termination and emergency action proceedings.

    (a) If the Secretary believes that a previously designated eligible 
institution as a whole, or at one or more of its locations, does not 
satisfy the statutory or regulatory requirements that define that 
institution as an eligible institution, the Secretary may--
    (1) Terminate the institution's eligibility designation in whole or 
as to a particular location--
    (i) Under the procedural provisions applicable to terminations 
contained in 34 CFR 668.81, 668.83, 668.86, 668.87, 668.88, 668.89, 
668.90(a)(1), (a)(4), and (c)-(f), and 668.91; or
    (ii) Under a show-cause hearing, if the institution's loss of 
eligibility results from--
    (A) Its previously qualifying as an eligible vocational school;
    (B) Its previously qualifying as an eligible institution, 
notwithstanding its unaccredited status, under the transfer-of-credit 
alternative to accreditation (as that alternative existed in 20 U.S.C. 
1085, 1098, and 11412 and Sec. 600.8 until July 23, 1992);
    (C) Loss of accreditation or preaccreditation;
    (D) Loss of legal authority to provide postsecondary education in 
the State in which it is physically located; or
    (E) Violations of the provisions contained in Sec. 600.5(a)(8) or 
600.7(a);
    (2) Limit, under the provisions of 34 CFR 668.86, the authority of 
the institution to disburse, deliver, or cause the disbursement or 
delivery of funds under one or more Title IV, HEA programs as otherwise 
provided under 34 CFR 668.25 for the benefit of students enrolled at 
the ineligible institution or location prior to the loss of eligibility 
of that institution or location; and
    (3) Initiate an emergency action under the provisions contained in 
34 CFR 668.83 with regard to the institution's participation in one or 
more Title IV, HEA programs.
    (b) If the Secretary believes that an educational program offered 
by an institution that was previously designated by the Secretary as an 
eligible institution under the HEA does not satisfy relevant statutory 
or regulatory requirements that define that educational program as part 
of an eligible institution, the Secretary may in accordance with the 
procedural provisions described in paragraph (a) of this section--
    (1) Undertake to terminate that educational program's eligibility 
under one or more of the Title IV, HEA programs under the procedural 
provisions applicable to terminations described in paragraph (a) of 
this section;
    (2) Limit the institution's authority to deliver, disburse, or 
cause the delivery or disbursement of funds provided under that Title 
IV, HEA program to students enrolled in that educational program, as 
otherwise provided in 34 CFR 668.25; and
    (3) Initiate an emergency action under the provisions contained in 
34 CFR 668.83 with regard to the institution's participation in one or 
more Title IV, HEA programs with respect to students enrolled in that 
educational program.
    (c)(1) An action to terminate and limit the eligibility of an 
institution as a whole or as to any of its locations or educational 
programs is initiated in accordance with 34 CFR 668.86(b) and becomes 
final 20 days after the Secretary notifies the institution of the 
proposed action, unless the designated department official receives by 
that date a request for a hearing or written material that demonstrates 
that the termination and limitation should not take place.
    (2) Once a termination under this section becomes final, the 
termination is effective with respect to any commitment, delivery, or 
disbursement of funds provided under an applicable Title IV, HEA 
program by the institution--
    (i) Made to students enrolled in the ineligible institution, 
location, or educational program; and
    (ii) Made on or after the date of the act or omission that caused 
the loss of eligibility as to the institution, location, or educational 
program.
    (3) Once a limitation under this section becomes final, the 
limitation is effective with regard to any commitment, delivery, or 
disbursement of funds under the applicable Title IV, HEA program by the 
institution--
    (i) Made after the date on which the limitation became final; and
    (ii) Made to students enrolled in the ineligible institution, 
location, or educational program.
    (d) After a termination under this section of the eligibility of an 
institution as a whole or as to a location or educational program 
becomes final, the institution may not certify applications for, make 
awards of or commitments for, deliver, or disburse funds under the 
applicable Title IV, HEA program, except--
    (1) In accordance with the requirements of 34 CFR 668.25(c) with 
respect to students enrolled in the ineligible institution, location, 
or educational program;
    (2) After satisfaction of any additional requirements, imposed 
pursuant to a limitation under paragraph (a)(2) of this section, which 
may include the following:
    (i) Completion of the actions required by 34 CFR 668.25 (a) and 
(b).
    (ii) Demonstration that the institution has made satisfactory 
arrangements for the completion of actions required by 34 CFR 668.25 
(a) and (b).
    (iii) Securing the confirmation of a third party selected by the 
Secretary that the proposed disbursements or delivery of Title IV, HEA 
program funds meet the requirements of the applicable program.
    (iv) Using institutional funds to make disbursements permitted 
under this paragraph and seeking reimbursement from the Secretary for 
those disbursements.

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

Appendix A--Summary of Attendees' Responses at Regional Meetings on 
Part 600--Institutional Eligibility Under the Higher Education Act 
of 1965, as Amended

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

    I. Sections 481(a)(3) and (4) of the HEA provide that an 
institution is no longer an eligible institution if--
     It offers more than 50 percent of its courses by 
correspondence, unless the institution is an institution that meets 
the definition in section 521(4)(C) of the Carl D. Perkins 
Vocational and Applied Technology Education Act;
     It enrolls 50 percent or more of its students in 
correspondence courses (unless the institution meets the definition 
in section 521(4)(C) of the Carl D. Perkins Vocational and Applied 
Technology Education Act);
     More than 25 percent of its students are incarcerated 
(except that the Secretary may waive this prohibition for a 
nonprofit institution that provides a 2-year or 4-year degree);
     It admits more than 50 percent of its students under 
ability-to-benefit provisions in section 484(d) of the HEA and does 
not provide a 2-year or 4-year degree program;
     The institution has filed for bankruptcy; or
     The institution, its owner, or its chief executive 
officer committed a crime or fraud involving Title IV, HEA program 
funds.
    Issues that the community was asked to address and the 
community's views:
    1. How should the appropriate percentages be calculated?
     Offers more than 50 percent of its courses by 
correspondence. This issue was only addressed at two of the regional 
meetings, where the consensus was that the calculation should be 
made by dividing the number of courses offered at the institution by 
correspondence by the total number of courses offered at the 
institution.
     Enrolls 50 percent or more of its students in 
correspondence courses. This issue was only addressed at one of the 
regional meetings where the consensus was that the calculation 
should be made by dividing the number of students enrolled in 
correspondence courses by the number of students enrolled at the 
institution.
     More than 25 percent of its students are incarcerated. 
This issue was not addressed at any of the regional meetings.
     Admits more than 50 percent of its students under 
ability-to-benefit provisions in section 484(d) of the HEA and does 
not provide a 2-year or a 4-year degree program. This issue was only 
addressed at one of the regional meetings, where the consensus was 
that the calculation should be made by dividing the number of 
ability-to-benefit students admitted by the total number of students 
admitted to the institution.
     What courses should be considered in calculating the 
correspondence percentages? This issue was only addressed at two of 
the regional meetings. At one of the regional meetings, the 
consensus was that only those courses offered solely by 
correspondence should be counted for these purposes. At the other 
regional meeting the consensus was that only courses in an eligible 
program under Title IV of the HEA should be counted.
    2. How should the Department collect this information?
     This issue was only addressed at one of the regional 
meetings, where the consensus was that a determination of compliance 
with this provision should be made by the Department during a 
program review and should be based on information on file at the 
institution.
    3. How often should the percentage be calculated or requested by 
the Secretary?
     There was a consensus in all four regional meetings 
that the percentages should be calculated annually.
    4. How should ``incarcerated students'' be defined? Should the 
definition include residents of halfway houses or those under home 
restriction?
     There was a consensus in all four regional meetings 
that an ``incarcerated student'' should be defined as an individual 
confined to a penal institution and should not include individuals 
in halfway houses or in home restriction.
    5. What criteria should be used to determine if an institution 
qualifies for a waiver of the provision governing the percentage of 
incarcerated students?
     This issue was addressed by three of the four regional 
meetings, where the consensus appeared to be that the Secretary 
should not consider waiving this provision for any institution not 
already covered by the statute.
    II. Section 481(b) provides that a proprietary institution must, 
pursuant to regulations, obtain at least 15 percent of its revenue 
from non-Title IV, HEA program sources to be an eligible 
institution.
    Issues that the community was asked to address and the 
community's views:
    1. How should the term ``revenue'' be defined?
     The majority opinion in three of the four regional 
meetings was that all income should be considered in calculating an 
institution's revenue. The majority opinion in the fourth regional 
meeting was that the term revenue should include income derived from 
educational sources.
    2. What process should be used to monitor compliance?
     The consensus in all four regional meetings was that 
the institution's annual financial statement should be used to 
monitor compliance with this requirement.
    3. How often should the percentage be calculated or requested by 
the Department?
     The consensus in three of the regional meetings was 
that the percentage should be calculated and requested annually. The 
consensus in the fourth regional meeting was that while the 
percentage should be calculated annually, the determination of 
whether an institution was in compliance with this provision should 
be based on a two-year average.
    4. How should FFEL program proceeds that have been delivered 
directly to a student be considered in determining this percentage?
     There was a consensus in all four regional meetings 
that FFEL program proceeds that have been delivered directly to a 
student should not be considered as revenue for purposes of this 
provision.
    III. Section 498(i) provides that an institution that undergoes 
a change in ownership that results in a change in control may not be 
considered the same institution and must be considered a new 
institution for the purpose of being certified as eligible to 
participate in the Title IV programs. However, the new institution 
is not required to have been in existence for two years prior to 
seeking that certification, unless the institution was in existence 
as a branch for less than two years. The statute lists examples of 
changes of ownership that result in a change in control, and allows 
certain changes resulting from the death of an owner or changes from 
routine business practices to be treated as changes in control.
    Issues that the community was asked to address and the 
community's views:
    1. Should the Secretary seek by regulations to define 
circumstances that do or do not constitute a change in control in 
addition to those listed in the statute, or should the Secretary be 
permitted to make that decision on a case-by-case basis?
     This issue was only addressed at two of the regional 
meetings, where the consensus was that the Secretary should not 
define circumstances that do or do not constitute a change in 
control in addition to those listed in the statute. Instead, the 
Secretary should make the decision on a case-by-case basis.
    2. What are the ``routine business practices'' that do not 
produce a change in control?
     This issue was only addressed at two of the regional 
meetings. The consensus at one of the regional meetings was that 
regulations should permit changes of ownership that result because 
of dissolutions of marriages and any transfers to family members not 
to be treated as changes in control. At the other regional meeting 
the consensus was that situations should be reviewed on a case-by-
case basis.
    IV. Section 498(j) provides that a branch of an eligible 
institution is a separate institution and shall separately meet all 
the requirements of Title IV of the HEA, except that the institution 
may not be required (under sections 481(b)(5) or 481(c)(3) to be in 
existence for 2 years prior to seeking that certification unless the 
institution was in existence as a branch for less than 2 years.
    Issues that the community was asked to address and the 
community's views:
    1. How should the term ``branch'' be defined?
     A precise definition was only offered at one of the 
regional meetings, where a branch campus was defined as a location 
that contains an administrative staff, student services, and 
instructional staff, and offers an entire educational program 
leading to a degree, certificate, or diploma at that site.
    2. Should a branch be specifically and separately licensed by 
the State in which it is located as a branch campus?
     This issue was only addressed at two of the regional 
meetings, where the consensus was that a branch should be separately 
licensed by the State in which it is located.
    3. Should a branch be specifically accredited by its accrediting 
agency?
     This issue was addressed at two of the regional 
meetings, where the consensus was that a branch should be 
specifically accredited by its accrediting agency.

[FR Doc. 94-2863 Filed 2-9-94; 8:45 am]
BILLING CODE 4000-01-P