[Federal Register Volume 61, Number 23 (Friday, February 2, 1996)]
[Proposed Rules]
[Pages 4198-4201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2262]
[[Page 4197]]
_______________________________________________________________________
Part IX
Department of Education
_______________________________________________________________________
34 CFR Chapter VI
Federal Student Assistance Programs; Improved Oversight; Proposed Rule
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 /
Proposed Rules
[[Page 4198]]
DEPARTMENT OF EDUCATION
34 CFR Chapter VI
Federal Student Assistance Programs Under Title IV of the Higher
Education Act of 1965, as Amended
AGENCY: Department of Education.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Secretary invites comments on the Department of
Education's proposal for improved oversight of the student aid programs
authorized by Title IV of the Higher Education Act of 1965, as amended
(HEA). An early draft of the proposal was posted on the World Wide Web
on December 6, 1995. The Secretary particularly invites comments on the
Department's plans to provide regulatory relief to institutions of
higher education that have consistently demonstrated a very high level
of performance in administering Title IV programs and strong financial
responsibility.
The Secretary intends to develop a notice of proposed rulemaking,
with an opportunity for further public comment, to implement parts of
the draft proposal after considering the comments received in response
to this advance notice. Other parts of the proposal may be implemented
through administrative actions by the Department. Still others may
require statutory changes.
DATES: Comments may be submitted until March 4, 1996.
ADDRESSES: Adam Ochlis, U.S. Department of Education, 600 Independence
Avenue, SW (Room 4050, ROB-3), Washington, DC 20202 or, by e-mail,
[email protected]
FOR FURTHER INFORMATION CONTACT: Adam Ochlis, telephone (202) 708-9104.
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:
Background
The Department of Education has recently undertaken a series of
initiatives to simplify regulations and administrative processes for
the Federal student aid programs authorized by Title IV of the HEA and
to ensure compliance with the requirements of those programs. In an
effort to provide regulatory relief, on April 25, 1995, the Secretary
invited institutions of higher education to submit proposals to
reinvent the administration of those programs through the use of the
experimental sites authority in section 487A(d) of the HEA. 60 FR
20326. In June 1995, the Secretary completed a page-by-page review of
all student financial aid regulations to identify those that should be
eliminated or improved and reported the results of the review to the
President.
On August 8, 1995, the Secretary announced his intention to expand
the Quality Assurance Program under section 487A of the HEA by
increasing the number of participating institutions and using the
experimental sites authority to encourage management innovation. 60 FR
40446.
In late November and early December 1995, the Secretary published
several sets of regulations that will (1) reduce administrative and
paperwork burdens on schools, students, and their families; (2)
strengthen the Department's oversight of the student aid programs by
focusing compliance efforts; (3) ensure that better consumer
information is disclosed by schools to students and their families; and
(4) make further improvements in the William D. Ford Federal Direct
Loan Program. The Secretary will also consider whether to develop
proposals for statutory amendments to eliminate unnecessary
administrative burden.
At the same time, the Department has undertaken management
initiatives to ensure that institutions participating in the student
aid programs comply with administrative and fiscal requirements. Since
January 1993, the Department has terminated the participation of more
than 300 institutions--nearly twice the number of the previous seven
years combined. The Secretary believes the Department's strengthened
enforcement has both deterred unqualified institutions from applying to
participate and improved compliance by participating institutions. The
Department is developing a risk analysis system and case management
techniques to further improve its ability to focus its monitoring and
enforcement activities on institutions that pose the greatest risk to
Federal funds.
Proposal for Improved Oversight in Federal Student Aid
The draft proposal on which the Secretary invites comments builds
upon the Department's actions to date. Under the proposal, the
Department would adopt regulations to provide further relief from
administrative burden, particularly to institutions that have records
of outstanding performance in administering Title IV programs and
strong financial responsibility. Because such regulatory relief would
permit a redeployment of resources, the Department would focus its
monitoring and oversight activities on institutions that present a high
risk to Federal funds. Finally, the Department would work to improve
the ability of students to obtain information about the educational
programs they are considering for enrollment.
On December 6, 1995, the Department posted the draft proposal on
its World Wide Web home page under the subheading of the Office of
Postsecondary Education. The Department has also presented the proposal
to some national higher education associations and the National
Advisory Committee on Institutional Participation and Oversight.
Further presentations are planned for the National Advisory Committee
on Student Financial Assistance and representatives of institutions,
States, accrediting agencies, national higher education associations,
and other members of the higher education community.
The Secretary welcomes comments on all aspects of the Proposal for
Improved Oversight in Federal Student Aid. An updated version of the
proposal appears immediately after the questions below. In particular,
the Secretary requests comments on the following questions:
1. The proposal states the Department's intention to provide
extensive regulatory relief to institutions that have consistently
demonstrated outstanding administration of Title IV programs and strong
financial responsibility.
(a) What criteria should the Department use to determine that an
institution has consistently demonstrated outstanding administration of
Title IV programs?
(b) What criteria should the Department use to determine that an
institution is financially strong? How should the criteria for
financial strength vary by sector (public institutions, private non-
profit institutions, and private for-profit institutions)?
2. The proposal suggests examples of areas in which regulatory
relief could be provided to institutions with outstanding records in
administering Title IV programs and strong financial responsibility. In
what other areas could administrative burden on these institutions be
eased? How much lead time would institutions need before this relief
was provided?
3. How should the Department ensure the continued administrative
excellence and financial strength of the institutions that are provided
extensive regulatory relief?
[[Page 4199]]
4. The proposal cites examples of administrative relief that the
Department has provided and will provide to all participating
institutions. In what other areas could administrative burden be
reduced without statutory change or diminished accountability for
Federal funds?
5. The proposal describes the Department's efforts to provide
regulatory relief to institutions participating in the Quality
Assurance program. Should the Department propose regulations to set
eligibility criteria for specific forms of relief related to
institutional performance in specific administrative areas?
6. The proposal describes management practices and possible
statutory changes that the Department is considering to improve its
oversight of institutions that pose a high risk to Federal funds. What
other administrative and regulatory measures within current statutory
authority should the Department consider to prevent unqualified
institutions from participating in Title IV programs in the first
instance and to terminate the participation of those that should not
continue? What additional statutory changes should the Department
consider for these purposes?
7. The proposal describes some characteristics of an institution
that might indicate that it should be subjected to greater monitoring
and oversight. Are there other indicators (for example, an adverse
opinion on a financial statement, or a material finding on a compliance
audit) that the Department should consider for this purpose?
8. The proposal describes efforts undertaken by the Department to
improve students' access to information about educational programs.
What other steps should the Department take to accomplish this
objective? Should the Department use such student consumer information
about performance, such as completion and graduation rates, in
identifying institutions for regulatory relief or for heightened
scrutiny?
An updated version of the draft proposal follows.
Proposal for Improved Oversight in Federal Student Aid (Draft--
Updated January 1996)
The Department of Education is proposing to strengthen and
restructure its oversight of institutions that are participating in
Title IV student aid programs. Under this proposal, the Department
would continue to increase its oversight of institutions that pose
significant risks to Federal funds and of new institutions, which may
experience problems in administering Title IV programs. The Department
would also provide regulatory relief to institutions that have
consistently demonstrated a very high level of performance in
administering Title IV programs and strong financial responsibility.
Because increased regulatory relief would reduce the Departmental
resources needed to monitor institutions that pose little risk to
Federal funds, the Department could concentrate its monitoring
resources on institutions that pose greater risk. This proposal builds
upon regulatory relief initiatives and efforts to strengthen the
monitoring and oversight of at-risk institutions that are already
underway in the Department.
The Department will use this proposal to advance discussions with
Congress and the higher education community on the role of the Federal
government in managing Title IV programs and providing better
information to students. The Department requests comments and
suggestions on this proposal and other ideas for improving the system
of oversight of Federal student aid programs. The Department will work
closely with the higher education community to develop the specifics of
the proposal, including administrative and financial performance
criteria to identify institutions eligible for regulatory relief and
institutions needing increased oversight and support.
Regulatory Relief
Under the proposal, the Department would engage in regulatory
relief on two levels. First, the Department would continue to reinvent
its regulations to reduce administrative and paperwork burden on all
institutions where overly restrictive requirements do not improve
accountability or protect the Federal fiscal interest. The Department
has already streamlined the recertification application and revised the
FAFSA form to include all statutorily-required student certifications
that were previously on separate forms. The Department is also
developing a less complex refund policy for all institutions;
ultimately, statutory changes would be necessary to simplify the refund
policy to the extent desired.
Second, under this proposal, institutions that have consistently
demonstrated outstanding administration of Title IV programs and strong
financial responsibility would be eligible for additional regulatory
relief. The Department would use its experimental sites authority to
provide this flexibility.
Possible criteria for determining that an institution has
demonstrated outstanding administration of Title IV programs could
include--
An unqualified opinion on financial statements;
No material findings in compliance audits for the previous
five years;
Demonstrably sound internal controls (such as accounting,
financial, and internal management controls);
Low default rates (adjustments would be made for
institutions with a small percentage of students borrowing);
A history of successful participation in Title IV
programs, as indicated by such factors as the duration and extent of
participation in different kinds of Title IV programs (such as the
student loan, Pell grant, and campus-based programs) and the quality of
administrative performance in those programs;
Full unqualified certification; and
No adverse actions by accrediting agencies during the
institution's last two full accreditation reviews.
To assess financial responsibility, the Department would develop
different financial responsibility standards for different sectors.
Because different accounting standards are applicable to different
sectors, financial statements are not consistent across sectors. The
Department would develop financial indicators that, although different,
nevertheless measure financial health across all three sectors.
Institutions that met the criteria for strong administrative and
financial performance would be eligible for such regulatory relief as
less frequent recertification, less frequent submission of compliance
audits, and exemption from certain regulatory requirements (such as
those relating to multiple and delayed disbursement, verification, and
entrance and exit counseling). A significant percentage of the
departmental resources currently used to oversee and monitor the
requirements for strong institutions would be used to focus more
resources on at-risk institutions.
Institutions that did not meet all the criteria for strong Title IV
administrative and financial performance would still be able to apply
for selective regulatory relief. The Department is already providing
regulatory relief on a case-by-case basis to a large number of
institutions under the April 25, 1995 experimental sites initiative
referred to earlier in this notice. Under the August 8, 1995 Quality
Assurance Program initiative, also referred to earlier, participating
institutions may request specific regulatory relief on the basis of
their improved administrative capability.
[[Page 4200]]
Increased Monitoring and Oversight of At-Risk Institutions
Under the proposal, the Department would increase monitoring and
oversight of at-risk institutions. At-risk institutions might include
those subjected to a limitation, suspension, or termination action in
the previous several years; those on provisional certification
(including all new institutions); those on reimbursement; or those
subject to termination because of high default rates (including
institutions appealing these rates). At-risk institutions would be
subject to the full set of Department regulations and increased
oversight and would receive increased technical assistance from the
Department. Examples of increased regulation and oversight for at-risk
institutions that the Department could implement through changes in
administrative practices include--
At-risk institutions would face a higher probability of
intensive program reviews by the Department;
At-risk institutions with a history of deficiencies would
be subject to termination actions by the Department unless they
improved their performance in the administration of Title IV programs
to adequate levels within specific time frames;
At-risk institutions that had two or three major program
review findings, such as failure to implement satisfactory progress
standards or failure to adhere to the refund policy, would be
terminated from participation in all Title IV programs; and
New institutions that did not demonstrate good performance
would remain on provisional certification for five years rather than
for three years, as is currently required.
Some changes could be effected only by statutory amendments.
Possible statutory changes that the Department is considering include--
Requiring a personal financial guarantee against
liabilities from the owner of any proprietary institution placed on
provisional certification and holding individuals with financial
authority and responsibility at proprietary institutions personally
liable for an institution's unpaid refunds;
Holding institutions that unsuccessfully appeal high
default rates liable for the default costs and subsidies that are paid
by the Department on loans to that school during the appeal process.
The Department could also require a school that chooses to receive
loans during the appeal process to post surety in an amount sufficient
to cover these costs;
Extending to all non-degree vocational programs the
current requirement that short-term vocational programs graduate and
place 70 percent of their students; and
Permitting the Department to establish a new expiration
date for a Program Participation Agreement for at-risk institutions and
thus require a full application for recertification and enable the
Department to make decisions based on current information.
The Department is developing the administrative and information
systems needed to carry out the improved oversight of at-risk
institutions. These will include a system of risk analysis
incorporating a variety of factors (for example, high default rates and
material findings in compliance audits or program reviews) that will
help identify administrative and financial problems. The risk analysis
system will enable the Department to improve its targeting of
institutions for compliance reviews based on administrative and
financial performance and concentrate resources on institutions with
potentially serious problems. Making this system viable will require
improvement of information in the Department's databases such as the
National Student Loan Data System, the full development of the
Postsecondary Education Participants System, and the development of
good tracking systems. The Department is taking steps to increase data
integrity and is committed to providing the systems required.
To improve its oversight of at-risk institutions, the Department is
moving toward a new approach for monitoring institutional performance
in Title IV programs. Currently, the Department reviews institutional
performance through four largely independent processes--
recertification, analysis of financial statements, review of compliance
audits, and program review. While recertification requires some cross-
analysis of these different areas, the system does not otherwise
facilitate decisions based on all the information the Department has
concerning an institution. The new system will consolidate these
processes as much as possible by using case management as the core
process. This will allow decision-making based on all information
concerning a school that may be relevant to Title IV compliance,
including information supplied by outside entities such as accrediting
agencies.
Student Information
The improved oversight system would also ensure that institutions
provide better information about educational programs for students to
use in making informed decisions about where to enroll. This
information would help ensure that market forces work better to
eliminate inadequate institutions and programs from participation in
Title IV programs and help students make better decisions.
Under the Student Right to Know Act, all institutions must make
their completion and graduation rates available in their catalogs or
other material readily available to all prospective students who
request this information. The provision of this information should
allow a prospective student to consider the likelihood of completing
the program at an institution, the potential benefit to be derived from
investing the required time and money in that program, and similar
information about programs at other institutions. Final regulations to
implement the Student Right to Know Act were published on December 1,
1995. 60 FR 61776. These regulations require institutions to begin
disclosing completion and graduation rates for students who enter the
institution after July 1, 1996. Completion and graduation rates will be
calculated for full-time, undergraduate certificate- or degree-seeking
students.
In addition to information required under the Student Right to Know
Act, the Administration has proposed legislation that would require
institutions that offer non-degree programs to report information about
these programs and information on the outcomes of previous students to
one-stop career centers that would provide this information to
prospective students. This information could include completion rates,
placement rates, licensure exam pass rates, or the percentage of
graduates that meet certain skill standards. Although the specific
provisions included in the Administration bill were not passed, the two
versions of the job training bill being discussed by the Congress in
late January included related provisions.
The Department will continue to develop and support legislation and
efforts to improve information for students and families on the
outcomes of both degree and non-degree programs at institutions
participating in the Title IV student aid programs. The Department
plans to continue this focus in specific proposals included in the next
reauthorization of the HEA.
Invitation to Comment
Interested persons are invited to submit comments and
recommendations regarding this draft proposal. Comments will be
available for public inspection, during and after the comment period,
in Room 4050, Regional Office Building 3,
[[Page 4201]]
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.
Dated: January 29, 1996.
Richard W. Riley,
Secretary of Education.
[FR Doc. 96-2262 Filed 2-1-96; 8:45 am]
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