[Federal Register Volume 64, Number 151 (Friday, August 6, 1999)]
[Proposed Rules]
[Pages 43024-43042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20352]



[[Page 43023]]

_______________________________________________________________________

Part III





Department of Education





_______________________________________________________________________



34 CFR Parts 668 and 682



Student Assistance General Provisions, Federal Family Education Loan 
Program; Proposed Rule

  Federal Register / Vol. 64, No. 151 / Friday, August 6, 1999 / 
Proposed Rules  

[[Page 43024]]



DEPARTMENT OF EDUCATION

34 CFR Parts 668 and 682

RIN 1845-AA02


Student Assistance General Provisions, Federal Family Education 
Loan Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary proposes to amend the Student Assistance General 
Provisions regulations governing participation in the student financial 
assistance programs authorized under Title IV of the Higher Education 
Act of 1965, as amended (Title IV, HEA programs) and the Federal Family 
Education Loan (FFEL) Program regulations. The student financial 
assistance programs include the Federal Pell Grant Program, the campus-
based programs (Federal Perkins Loan, Federal Work-Study (FWS), and 
Federal Supplemental Educational Opportunity Grant (FSEOG) Programs), 
the William D. Ford Federal Direct Loan (Direct Loan) Program, the 
Federal Family Education Loan (FFEL) Program, and the Leveraging 
Educational Assistance Partnership (LEAP) Program (formerly called the 
State Student Incentive Grant (SSIG) Program). The Federal Family 
Education Loan Program regulations govern the Federal Stafford Loan 
Program (subsidized and unsubsidized), the Federal Supplemental Loans 
for Students Program (no longer active), the Federal PLUS Program, and 
the Federal Consolidation Loan Program (formerly collectively known as 
the Guaranteed Student Loan Programs).
    These proposed regulations implement statutory changes made to the 
Higher Education Act of 1965, as amended (HEA), by the Higher Education 
Amendments of 1998 Public Law 105-244, (the 1998 Amendments) for the 
treatment of Title IV, HEA program funds when a student withdraws from 
an institution.

DATES: We must receive your comments on or before September 15, 1999.

ADDRESSES: Address all comments about these proposed regulations to 
Wendy Macias, U.S. Department of Education, P.O. Box 23272, Washington, 
DC 20202-3272. If you prefer to send your comments through the 
Internet, use the following address: [email protected]
    If you want to comment on the information collection requirements 
you must send your comments to the Office of Management and Budget at 
the address listed in the Paperwork Reduction Act section of this 
preamble. You may also send a copy of these comments to the Department 
representative named in this section.

FOR FURTHER INFORMATION CONTACT: Wendy Macias, U.S. Department of 
Education, 7th and D Street, SW, ROB-3, Room 3013, Washington, DC 
20202. Telephone: (202) 708-8242. If you use a telecommunications 
device for the deaf (TDD), you may call the Federal Information Relay 
Service (FIRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternate format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed in the preceding 
paragraph.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

    We invite you to submit comments regarding these proposed 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to identify clearly the 
specific section or sections of the proposed regulations that each 
comment addresses and to arrange comments in the same order as the 
proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the program.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations in Room 3045, Regional Office 
Building 3, 7th and D Streets, SW, Washington, DC, between the hours of 
8:30 a.m. and 4 p.m., Eastern time, Monday through Friday of each week 
except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the 
Rulemaking Record

    On request, we will supply an appropriate aid, such as a reader or 
print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking record for these proposed regulations. If you want to 
schedule an appointment for this type of aid, you may call (202) 205-
8113 or (202) 260-9895. If you use a TDD, you may call the Federal 
Information Relay Service at 1-800-877-8339.

Negotiated Rulemaking Process

    Section 492 of the HEA requires that, before publishing any 
proposed regulations to implement programs under Title IV of the Act, 
the Secretary obtain public involvement in the development of the 
proposed regulations. After obtaining advice and recommendations, the 
Secretary must conduct a negotiated rulemaking process to develop the 
proposed regulations. All published proposed regulations must conform 
to agreements resulting from the negotiated rulemaking process unless 
the Secretary reopens the negotiated rulemaking process or provides a 
written explanation to the participants in that process why the 
Secretary has decided to depart from the agreements.
    To obtain public involvement in the development of the proposed 
regulations, we published a notice in the Federal Register (63 FR 
59922, November 6, 1998) requesting advice and recommendations from 
interested parties concerning what regulations were necessary to 
implement Title IV of the HEA. We also invited advice and 
recommendations concerning which regulated issues should be subjected 
to a negotiated rulemaking process. We further requested advice and 
recommendations concerning ways to prioritize the numerous issues in 
Title IV, in order to meet statutory deadlines. Additionally, we 
requested advice and recommendations concerning how to conduct the 
negotiated rulemaking process, given the time available and the number 
of regulations that needed to be developed.
    In addition to soliciting written comments, we held three public 
hearings and several informal meetings to give interested parties an 
opportunity to share advice and recommendations with the Department. 
The hearings were held in Washington, DC, Chicago, and Los Angeles, and 
we posted transcripts of those hearings to the Department's Information 
for Financial Aid Professionals website (http://ifap.ed.gov).
    We then published a second notice in the Federal Register (63 FR 
71206, December 23, 1998) to announce the Department's intention to 
establish four negotiated rulemaking committees to draft proposed 
regulations implementing Title IV of the HEA. The notice announced the 
organizations or groups believed to represent the interests that should 
participate in the negotiated rulemaking process and announced that the 
Department would select participants for the process from nominees of 
those organizations or

[[Page 43025]]

groups. We requested nominations for additional participants from 
anyone who believed that the organizations or groups listed did not 
adequately represent the list of interests outlined in section 492 of 
the HEA. Once the four committees were established, they met to develop 
proposed regulations, over the course of several months, beginning in 
January.
    The proposed regulations contained in this notice of proposed 
rulemaking (NPRM) reflect the final consensus of negotiating Committee 
III on the issues addressed in this package of proposed rules. 
Committee III was made up of the following members:

Accrediting Commission of Career Schools and Colleges of Technology
American Association of Collegiate Registrars and Admissions Officers
American Association of Community Colleges
American Association of Cosmetology Schools
American Association of State Colleges and Universities
American Council on Education
Association of American Universities
Career College Association
Coalition of Higher Education Assistance Organizations
Education Finance Council
Legal Services Counsel (a coalition)
National Association for Equal Opportunity in Higher Education
National Association of College and University Business Officers
National Association of Graduate/Professional Students
National Association of Independent Colleges and Universities
National Association of State Student Grant and Aid Programs/National 
Council of Higher Education Loan Programs (a coalition)
National Association of State Universities and Land-Grant Colleges
National Association of Student Financial Aid Administrators
National Direct Student Loan Coalition
The College Board
The College Fund/United Negro College Fund
United States Department of Education
United States Student Association
US Public Interest Research Group

As stated in the committee protocols, consensus means that there must 
be no dissent by any member in order for the committee to be considered 
to have reached agreement. Consensus was reached on all of the proposed 
regulations in this document, except for the proposed implementation of 
the ``50% discount'' on Title IV, HEA program grant funds that a 
student must return in Sec. 668.22(h)(3)(ii).

Background

    Section 485 of the Higher Education Amendments of 1998, Public Law 
105-244, enacted October 7, 1998 (the 1998 Amendments) substantially 
revised the requirements of section 484B of the Higher Education Act of 
1965, as amended (the HEA).
    Prior to the 1998 Amendments, section 484B required all schools 
participating in the Title IV, HEA programs to use specific refund 
policies when a student who receives Title IV, HEA program funds ceases 
attendance. The refund policies determined the amount of institutional 
charges that an institution had earned when a student withdrew, and the 
amount that was unearned and had to be refunded. In addition, section 
485(a) of the HEA specified an order of return of unearned funds from 
all sources of financial aid, not just the Title IV, HEA programs.
    Under the 1998 Amendments, section 484B of the HEA does not dictate 
an institutional refund policy. Instead, section 484B prescribes the 
amount of Title IV, HEA program assistance a student has earned as of 
the time he or she ceases attendance. The amount of Title IV, HEA 
program assistance earned is based on the amount of time the student 
spent in academic attendance; it has no relationship to the student's 
incurred institutional charges.
    Because section 484B now deals with only the earning of Title IV, 
HEA program funds, the order of return of unearned funds no longer 
includes funds from sources other than the Title IV, HEA programs.
    The new requirements do not prohibit an institution from developing 
its own refund policy or complying with refund policies required by 
outside agencies.

Summary of Proposed Changes

    A summary of the proposed changes to the regulations to implement 
these statutory changes and issues on which the Secretary particularly 
invites comments follows.

Section 668.22(a)  General

    The statute requires that if a recipient of Title IV grant or loan 
funds withdraws from an institution after beginning attendance, the 
amount of Title IV, HEA program assistance earned by the student must 
be determined. If the amount the student was disbursed is greater than 
the amount the student earned, unearned funds have to be returned. If 
the amount the student was disbursed is less than the amount the 
student earned, the student is eligible to receive a late disbursement 
in the amount of the earned aid that the student had not received.
    At the negotiated rulemaking sessions, the Department's negotiator 
stated the Department's belief that this change to the statute makes 
clear that Title IV, HEA program funds are awarded to a student under 
the assumption that the student will attend an institution for the 
entire period for which the assistance is awarded. When a student 
ceases academic attendance prior to the end of that period, the student 
may no longer be eligible for the full amount of Title IV, HEA program 
funds that the student was originally scheduled to receive.

Title IV Grants and Loans

    The statute requires that the calculation of earned Title IV, HEA 
program assistance include all Title IV grant and loan funds that were 
disbursed or that could have been disbursed to a student. The statute 
specifies that Federal Work-Study (FWS) funds are not included in the 
calculation. These proposed regulations would clarify when Federal 
Supplemental Educational Opportunity Grant (FSEOG) program funds should 
and should not be included in the calculation.
    The committee agreed that only funds that are clearly Title IV, HEA 
grant or loan funds must be included in the calculation. These proposed 
regulations would exclude from the calculation the non-Federal share of 
FSEOG awards when an institution meets its FSEOG matching share by 
either the individual recipient method or the aggregate method. In 
other words, if an institution meets its matching share requirement by 
putting funds in the FSEOG fund (otherwise known as the fund-specific 
matching method), those funds must be included in the calculation; 
otherwise, the non-Federal share of FSEOG awards is excluded from the 
calculation.
    Several negotiators asked for clarification of the treatment of 
funds from the Leveraging Education Assistance Partnership (LEAP) 
program, formerly known as the State Student Incentive Grant (SSIG) 
program. The Department's negotiator stated the Department's view that 
the guidance of Dear Colleague Letter GEN-89-38, which addresses the 
treatment of LEAP funds when a student withdraws, is still applicable. 
Although not specified in the proposed regulations, this longstanding 
policy provides that, if a State agency specifically identifies a 
student's State grant as LEAP funds, the State grant funds must be 
considered Title IV, HEA grant funds for purposes of this calculation. 
If an institution does not know whether a particular student's State 
grant contains LEAP funds, the

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grant would not have to be included in the calculation. The committee 
agreed that this policy facilitates the accurate identification of 
Federal funds and agreed that the continuation of this policy was 
reasonable. The Department will provide updates to the guidance of GEN-
89-38 once these regulations are final.

Title IV Aid Disbursed

    For consistency and administrative clarity, the committee agreed 
that it is necessary to identify a point in time that institutions 
would use for all students who withdraw to determine the amount of aid 
that was disbursed, since this amount is critical to determining if a 
return of Title IV, HEA program assistance is required. During 
negotiated rulemaking, the committee discussed whether this ``snap 
shot'' should occur as of the student's withdrawal date. Some 
negotiators pointed out that an institution sometimes inadvertently 
disburses funds to a student who is no longer in attendance. For 
example, a student drops out on Friday. Because the institution is 
unaware that the student is no longer in attendance, the institution 
makes a scheduled disbursement of aid to the student on the next 
Monday. Some negotiators felt that this inadvertent overpayment should 
be included as disbursed aid in the calculation of the amount of aid 
earned. They felt it was unduly burdensome to require an institution to 
immediately return the inadvertent overpayment since a portion of those 
funds may have been earned and would have to be re-disbursed. If any of 
the overpayment were not earned, they suggested that it could be 
returned in accordance with the requirements of this section for the 
return of unearned funds.
    The committee agreed to move the snap-shot point to the date of the 
institution's determination that the student withdrew to allow such 
inadvertent overpayments to be counted as disbursed aid. (The proposed 
definition of the ``date of the institution's determination that the 
student withdrew'' is addressed in the discussion of Sec. 668.22(l).) 
Institutions are expected to have the administrative capability to 
prevent these types of overpayments on a routine basis, particularly if 
funds are being paid to the student rather than credited to a student's 
account. A pattern or practice of making these inadvertent overpayments 
would be questioned in a program review. The Secretary agreed to 
include these overpayments in the calculation of total aid disbursed 
only for purposes of easing an institution's administrative burden in 
what should be a very limited number of circumstances. This provision 
would not supercede the requirements of Sec. 668.164(b)(1) and the 
applicable program regulations which require that an institution may 
disburse Title IV, HEA program funds only if the student is enrolled 
for classes for the payment period and is eligible to receive those 
funds.
    In keeping with this snap-shot approach, when a return of Title IV, 
HEA program funds is due, these proposed regulations would prohibit 
additional disbursements to the student after the date of the 
institution's determination that the student withdrew. The negotiators 
discussed the possibility of permitting an institution to adjust a 
student's disbursed aid by making late disbursements of aid before 
applying the requirements for determining and returning any unearned 
Title IV, HEA program assistance. Some negotiators felt that this could 
benefit the student in some cases. For example, if the institution had 
disbursed loan funds before the student withdrew and could have also 
disbursed grant funds, the institution could disburse the grant funds 
after becoming aware that the student withdrew in order to replace the 
loan funds, thereby reducing the student's loan debt.
    After much discussion by the committee, it was decided that there 
are too many variables involved to permit institutions to make case-by-
case determinations of whether post-withdrawal adjustments to a 
student's aid disbursement are appropriate. The committee agreed that 
it is not appropriate for an institution to disburse additional funds 
to a student or to a student's account after the institution becomes 
aware that the student has withdrawn, unless the institution determines 
that more funds were earned than had been disbursed. The Title IV, HEA 
program funds were made available to the student with the expectation 
that the student would complete the period for which the funds were 
provided, and that expectation is no longer present once a student has 
withdrawn. Before disbursing any additional funds on behalf of a 
withdrawn student, the proposed regulations would require the 
institution to determine that the student has earned those funds under 
the provisions of these proposed regulations.

Late Disbursements

    The committee agreed that the requirements for a late disbursement 
due under section 484B of the HEA should be as similar as possible to 
the requirements under Subpart K--Cash Management of the Student 
Assistance General Provisions regulations. However, in some cases, the 
committee acknowledged that the existing cash management provisions are 
inappropriate in this context, or are superceded by section 484B of the 
HEA.
    These proposed regulations contain a provision that any late 
disbursement due under this section must meet the current required 
conditions for late disbursements found in Sec. 668.164(g)(2). This 
cash management provision lists the conditions that must have been met 
prior to the date that the student became ineligible in order for an 
institution to make a late disbursement. For example, the institution 
must have received the student's Student Aid Report (SAR) or 
Institutional Student Information record (ISIR) with an official 
expected family contribution (EFC).
    The committee agreed that Sec. 668.164(g)(1) and (g)(3) are not 
applicable to a late disbursement resulting from a student's 
withdrawal. Section 668.164(g)(1) currently states that an institution 
may make a late disbursement to a student who became ineligible solely 
because of a change in enrollment status. The requirements of section 
484B remove the discretion that is provided in Sec. 668.164(g)(1) for 
an institution to determine whether a late disbursement should be made.
    Section 668.164(g)(3) currently specifies that a late disbursement 
must be for incurred educational costs, and must be made within 90 days 
of the date that the student becomes ineligible. The committee agreed 
that this provision was inapplicable because, as mentioned previously, 
the determination of the amount of Title IV, HEA program assistance 
that the student has earned has no relationship to incurred educational 
costs. The committee agreed that 90 days is a reasonable amount of time 
for an institution to make a late disbursement. However, the committee 
believed that a late disbursement made as the result of a withdrawal 
should be made within 90 days of the date of the institution's 
determination that the student withdrew, rather than within 90 days of 
the date that the student becomes ineligible. This proposed timeframe 
is addressed later in this discussion.
    These proposed regulations would reflect the cash management 
requirements for disbursing Title IV, HEA program funds. Specifically, 
these proposed regulations would allow an institution to credit a 
student's account with a late disbursement without the

[[Page 43027]]

student's (or parent's, in the case of a PLUS loan) permission for 
current charges for tuition, fees, and room and board (if the student 
contracts with the institution) up to the amount of outstanding 
charges. For other current charges for educationally-related 
activities, the institution would need a student's (or parent's for 
PLUS loan funds) authorization to credit the student's account. These 
proposed regulations would allow an institution to use a student's or 
parent's authorization that is obtained prior to the student's 
withdrawal date for this purpose, so long as that authorization meets 
the requirements of Sec. 668.165(b). If the institution did not obtain 
authorization prior to the student's withdrawal, the institution would 
have to obtain authorization in accordance with Sec. 668.165(b)(2) 
before the institution could credit the student's account for other 
current charges for educationally-related activities. The institution's 
request for the student's or parent's authorization must make clear 
that if the student or parent does not give permission for the 
institution to credit the student's account with the Title IV, HEA 
program funds, these funds will be disbursed directly to the student or 
parent, as applicable, if the student or parent accepts the funds.
    The committee considered whether to require an institution to make 
a late disbursement directly to a student. They also discussed whether 
prior authorizations from the student to permit the institution to 
credit his or her account would apply or if the institution would have 
to obtain authorization from the student after the student's 
withdrawal. However for consistency between this section and the 
existing cash management requirements, the committee decided that the 
proposed regulation should generally mirror the current cash management 
requirements for the disbursement of funds.
    However, these proposed regulations would deviate from the cash 
management provisions in Subpart K for the disbursement of Title IV, 
HEA program funds by not permitting an institution to credit a 
student's account for any prior award year charges. This is because 
section 484B of the HEA specifies that earned Title IV, HEA program 
funds must be determined for the payment period or period of enrollment 
in which a student withdraws. Therefore, Title IV, HEA program funds 
that are earned under section 484B are earned for current charges only.
    These proposed regulations would mirror the current cash management 
provisions in Sec. 668.165 that require an institution to provide 
notice to a student, or parent in the case of a PLUS loan, when the 
institution credits a student's account with Direct Loan, FFEL or 
Federal Perkins Loan Program funds.
    The statute requires that earned funds in excess of those credited 
to a student's account must be provided to the student. However, in 
recognition of the difficulty an institution may have in trying to 
locate a student who has ceased attendance at the institution, these 
proposed regulations would require that an institution would have to 
offer in writing to the student (or parent for PLUS loan funds) any 
amount of a late disbursement that is not credited to a student's 
account. The committee agreed that the written notification must 
include the information necessary for the student or parent to make an 
informed decision as to whether the student or parent would like to 
accept any of the disbursement. These proposed regulations would base 
the requirements for notification on the cash management requirements 
for an institution's notification to a student or parent when an 
institution credits a student's account with Title IV, HEA loan funds 
(Sec. 668.165(a)). This notification would have to be provided for late 
disbursements of both Title IV grant and loan funds that are available 
for direct disbursement. The Secretary specifically requests comments 
on whether the proposed timeframes discussed below, which are based on 
the timeframes established in the cash management regulations, are 
appropriate for a student who has withdrawn from school.
    The committee agreed that, although a student or parent always has 
the option of declining a direct disbursement of loan funds by 
returning or not endorsing the loan check, it is essential that this 
option be brought to the student's or parent's attention when the 
student has ceased attendance and may have compromised his or her 
ability to earn the funds necessary to repay additional loan debt.
    Under these proposed regulations, an institution would be expected 
to send the notification as soon as possible, but no later than 30 
calendar days after the date that the institution determines that the 
student withdrew. The notice would have to identify the type and amount 
of the Title IV, HEA program funds that make up the late disbursement, 
and explain that the student or parent may decline all or a portion of 
those funds. This information must be provided to permit a student or 
parent to determine which funds, if any, he or she wishes to decline.
    The institution would have to advise the student or parent in the 
notification that the student or parent would have 14 calendar days 
from the date that the institution sent the notification to accept a 
late disbursement. The notification would have to make it clear that if 
the student or parent did not respond to the notification within the 
timeframe, the institution would not be required to make the late 
disbursement. However, an institution could choose to make a late 
disbursement based on acceptance by a student or parent after the 14 
calendar days. Fourteen days is the same period of time that is 
permitted for a student or parent to respond to a notification of the 
ability to cancel a loan disbursement that is credited to the student's 
account. The committee agreed that this period of time provides 
sufficient response time for a student or parent and also meets the 
administrative needs of the institution.
    This NPRM proposes that if a student or parent submits a timely 
response accepting all or a portion of a late disbursement, the 
institution must disburse the funds within 90 days of the date of the 
institution's determination that the student withdrew. The committee 
agreed that an institution's responsibility for paying a late 
disbursement should start when the institution first becomes aware that 
a student has ceased attendance at the institution. The proposed 
definition of the term ``date of the institution's determination that 
the student withdrew'' is addressed in the discussion of 
Sec. 668.22(l). The Secretary notes that the date of the institution's 
determination that the student withdrew is the same date that would 
trigger the 30-day period that the institution has for notifying the 
student or parent of any late disbursement available for direct 
disbursement. Consequently, under this proposal, the sooner an 
institution sends the notification to a student or parent, the more 
time the institution would have to make any accepted late disbursement.
    The Secretary believes that it would be reasonable to permit an 
institution to use one notification to (1) notify the student or parent 
that loan funds were credited to the student's account; (2) request 
permission to credit the student's account for other current charges 
for educationally-related activities, if prior authorization had not 
been obtained; and (3) notify the student or parent of the availability 
of any remaining earned Title IV, HEA program assistance.

[[Page 43028]]

    To keep the student or parent properly informed about the Title IV, 
HEA program assistance that he or she received or did not receive, this 
NPRM proposes that an institution must inform a student or parent in 
writing or electronically concerning the outcome of any late 
disbursement request. For example, an institution must inform a student 
if it will not make a late disbursement because the student's request 
was not received within the 14-day timeframe.
    Finally, this NPRM proposes that a late disbursement, whether 
credited to the student's account or disbursed to the student or parent 
directly, must be made from available grant funds before available loan 
funds since it is in the best interest of the student to minimize loan 
debt. ``Available'' grant or loan funds refers to Title IV, HEA program 
assistance that could have been disbursed to the student, but was not 
disbursed as of the date of the institution's determination that the 
student withdrew. For example, if a student is due a late disbursement 
of $500, and the student has received $400 of $1,000 in Federal Pell 
Grant funds that could have been disbursed, and $1,200 of the $2,000 in 
Federal Stafford Loan funds that could have been disbursed, the 
available undisbursed funds are $600 in Federal Pell Grant funds, and 
$800 in Federal Stafford loan funds. Any portion of the $500 late 
disbursement that the institution makes must be made from the $600 in 
available Federal Pell Grant funds.
    The following example illustrates the major principles of the 
proposed late disbursement procedures. Michael drops out of school on 
November 5. On November 10, the institution becomes aware that Michael 
ceased attendance. Using these proposed regulations, the institution 
determines that because Michael has earned $900 in Title IV, HEA 
program assistance that he has not received, Michael is due a late 
disbursement of $900. When Michael withdrew, only $600 of the $1,000 in 
Federal Pell Grant funds that could have been disbursed to him had been 
disbursed. Of the $2,000 in Federal Stafford Loan funds that could have 
been disbursed, only $1,200 had been disbursed. The institution 
determines that Michael has $50 in outstanding tuition charges and $100 
in outstanding parking fines for the payment period. The institution 
credits Michael's account with $50 of Michael's Federal Pell Grant 
funds. The institution wants to use another $100 of Michael's late 
disbursement to cover the outstanding parking fines. However, the 
institution has not received permission from Michael prior to his 
withdrawal to credit his account for educationally-related charges 
other than tuition and fees and room and board.
    On November 12, the institution sends a notification to Michael 
that states that (1) he is due a late disbursement of $900, that 
comprises $400 in Federal Pell Grant funds and $500 in Federal Stafford 
Loan funds; (2) $50 of the Federal Pell Grant funds were credited to 
his account for tuition charges, so Michael has a remaining potential 
late disbursement of $850; (3) Michael may accept all, a portion, or 
none of the $850; (4) the institution is obligated to make a late 
disbursement of funds only if Michael accepts the funds by November 26, 
14 days after the institution sent the notification; (5) the 
institution is requesting Michael's permission to credit his account 
with an additional $100 of the Federal Pell Grant funds to cover his 
unpaid parking fines; and (6) if Michael does not authorize the 
institution to credit his account with the $100 of Federal Pell Grant 
funds, those funds will be disbursed to Michael if he chooses to accept 
them. The institution could have sent the notification no later than 
December 10; that is, 30 days after the date of the institution's 
determination that the student withdrew.
    Michael responds on November 19. Michael authorizes the institution 
to apply $100 of the Federal Pell Grant funds to his outstanding 
parking fines. Michael accepts the remaining $250 in Federal Pell Grant 
funds, but declines the $500 in Federal Stafford Loan funds to minimize 
his overall loan debt.
    The institution sends Michael a check for the $250 in Federal Pell 
Grant funds and a letter confirming that $100 of the Federal Pell Grant 
funds will be credited to his account and no additional loan funds will 
be disbursed. The institution has until February 8, which is 90 days 
from the date of the institution's determination that the student 
withdrew, to disburse the $250 in Federal Pell Grant funds to Michael 
and to credit his account with the $100 of Federal Pell Grant funds to 
cover his outstanding parking fines.

Section 668.22(b)  Determining a Student's Withdrawal Date at an 
Institution That Is Required To Take Attendance

    These proposed regulations would limit the definitions of 
withdrawal date in Sec. 668.22(b) and (c) to the determination of the 
amount of Title IV, HEA program assistance that a student has earned 
upon withdrawal. An institution would not be required to use these 
withdrawal dates for their own institutional refund policies or for any 
other purpose. The committee agreed that this approach is consistent 
with the view that an institution's refund policy and other academic 
procedures are separate from these new procedures for determining the 
amount of Title IV, HEA program assistance earned when a student 
withdraws.
    This proposed definition of withdrawal date (and the proposed 
definition of withdrawal date in Sec. 668.22(c)) is for purposes of 
determining the amount of aid a student has earned. It is not 
necessarily the date that ``starts the clock'' for the return of the 
Title IV, HEA program funds by the institution. In Sec. 668.22(j), this 
NPRM proposes a timeframe, beginning on the date of the institution's 
determination that the student withdrew, for the return of unearned 
Title IV, HEA program funds. The term ``date of the institution's 
determination that the student withdrew'' is discussed under 
Sec. 668.22(l).

Last Date of Academic Attendance

    Section 484B(c)(1)(B) of the HEA provides that, for institutions 
that are required to take attendance, the day the student withdrew is 
determined by the institution from the institution's attendance 
records. These proposed regulations would define this withdrawal date 
as the last date of academic attendance, as determined by the 
institution from its attendance records.
    The committee discussed whether the statute could be interpreted to 
allow an institution to use a student's last date of attendance from 
the institution's attendance records as a basis for determining the 
student's withdrawal date, rather than as the actual withdrawal date. 
For example, if an institution's records show that a student's last 
date of academic attendance is November 15, but the institution is not 
aware that the student left until November 22, the institution might 
use November 22 as the student's withdrawal date. One negotiator felt 
that this approach was more equitable because it would take into 
account costs that are incurred by the student after the student's last 
date of attendance.
    At the negotiated rulemaking sessions, the Department's negotiator 
made clear that the Department's view is that the goal in defining a 
student's withdrawal date is to identify the date that most accurately 
reflects the point when the student ceased academic attendance, and 
that this goal is best met by using the student's last date of academic 
attendance. The amount of Title IV, HEA program assistance that is

[[Page 43029]]

earned is a reflection of the amount of time a student spent in 
academic attendance, not a reflection of institutional costs that are 
incurred by the student. The committee agreed to define the withdrawal 
date for an institution that is required to take attendance as the last 
date of academic attendance as determined by the institution from its 
attendance records. Thus, in the example just cited, the withdrawal 
date would be November 15, not November 22.

Required To Take Attendance

    At the negotiated rulemaking sessions, the committee discussed 
whether an institution that elects to take attendance should be 
considered an institution that is required to take attendance for 
purposes of calculating the amount of Title IV, HEA program assistance 
when a student withdraws. The committee decided that only an 
institution that is required to take attendance by an outside entity 
would be considered an institution that is required to take attendance. 
Examples of outside agencies that may require an institution to take 
attendance are an institution's accrediting agency or an institution's 
state licensing agency.
    At the negotiated rulemaking sessions, the Department's negotiator 
also suggested that an institution that is required to take attendance 
for even a portion of the payment period or period of enrollment should 
be considered an institution that is required to take attendance. Some 
negotiators thought that the Department's interpretation was too 
restrictive. The negotiators cited an example in which an institution's 
State agency requires the institution to take attendance for the first 
two weeks of a program to establish a census of students. The 
negotiators did not believe that attendance records for census purposes 
would be appropriate for determining a student's withdrawal date. For 
this reason, the committee agreed that the proposed regulations should 
not include a reference to institutions that are required to take 
attendance for only a portion of the period. The Secretary requests 
comment on whether an institution that is required to take attendance 
for a longer portion of the payment period or period of enrollment 
should be considered an institution that is required to take attendance 
for purposes of determining a student's withdrawal date under these 
proposed regulations. For example, should an institution that is 
required to take attendance just beyond the 60 percent point of the 
period (the point at which the student would earn 100 percent of his or 
her Title IV, HEA program assistance) have to use its attendance 
records to determine a student's withdrawal date?

Student Does Not Return From a Leave of Absence

    The committee agreed that if a student does not return to the 
institution at the expiration of an approved leave of absence, the most 
appropriate withdrawal date for the student is also the last date of 
academic attendance as determined by the institution from its 
attendance records. Leaves of absence are addressed in the discussion 
of proposed Sec. 668.22(d).

Section 668.22(c)  Determining a Student's Withdrawal Date at an 
Institution That Is Not Required To Take Attendance

    As mentioned in the discussion of proposed Sec. 668.22(b), this 
NPRM proposes that the definitions of withdrawal date in 
Secs. 668.22(b) and (c) apply only to the determination of the amount 
of Title IV, HEA program assistance that a student has earned upon 
withdrawal.
    The statute lists four types of withdrawal situations for students 
who withdraw from institutions that are not required to take attendance 
and defines a withdrawal date for each type. The four situations are: 
(1) the student began the withdrawal process prescribed by the 
institution; (2) the student otherwise provided official notification 
to the institution of his or her intent to withdraw; (3) the student 
leaves without beginning the institution's withdrawal process or 
otherwise providing official notification of his or her intent to 
withdraw (an ``unofficial withdrawal''); and (4) the student does not 
return to the institution by the expiration of a leave of absence. In 
addition, the statute contains a ``special rule'' definition of 
withdrawal date for withdrawals that occur because of circumstances 
that are beyond the student's control.

Last Date of Attendance at an Academically-Related Activity

    The statute does not specifically allow an institution to use an 
earlier or later date than those described above, except in the case of 
a student who withdraws without providing official notification, in 
which case the midpoint is the withdrawal date (situation number 3, 
discussed above). In such cases, the statute allows an institution to 
document and use a date that is later than the midpoint of the period. 
However, as stated previously, the Secretary believes that a student's 
withdrawal date should reflect as accurately as possible the point when 
the student ceased academic attendance. The Secretary also believes 
that an institution should base its determination of that point on the 
best information available. Therefore, the committee agreed that these 
proposed regulations should allow an institution that is not required 
to take attendance always to be able to use a student's last date of 
attendance at an academically-related activity, as documented by the 
institution, as the student's withdrawal date, in lieu of the 
withdrawal dates listed above. Thus, if a student begins the 
institution's withdrawal process or otherwise provides official 
notification of his or her intent to withdraw and then attends an 
academically-related activity after that date, the institution would 
have the option of using that last actual attendance date as the 
student's withdrawal date provided that the institution documents that 
the student attended the activity. Similarly, an institution could 
choose to use an earlier date if it believes the last documented date 
of attendance at an academically-related activity is a more accurate 
reflection of the student's withdrawal date than the date on which that 
student began the institution's withdrawal process or otherwise 
provided official notification of his or her intent to withdraw.
    The concept of using a last date of attendance at an academically-
related activity as a student's withdrawal date is a longstanding one 
for the Title IV programs. Consistent with this longstanding policy, 
the proposed regulations would not require an institution to take class 
attendance in order to demonstrate academic attendance for this 
purpose. The regulations would define ``academically-related activity'' 
and list several examples of activities that meet the definition. An 
institution would be permitted to use documentation of a student's 
attendance at other activities if those activities met the definition 
of an academically-related activity.
    An institution would be responsible for determining that the 
activity that the student attended is, in fact, academically-related. 
The committee agreed that an institution has demonstrated this 
responsibility if an employee of the school confirms that the activity 
is academically-related. The Secretary does not consider proof that a 
student is living in institutional housing nor proof that a student is 
participating in a student organized study group to be proof of 
academic attendance.
    The Secretary notes that activities that meet this definition of an 
academically-related activity would not necessarily count as 
instructional time for purposes

[[Page 43030]]

of the ``12-hour rule'' found in the definition of ``academic year'' in 
Sec. 668.2(b)(2) and in the definition of an eligible program in 
Sec. 668.8(b).

Withdrawal Process Prescribed by the Institution

    During negotiated rulemaking, the committee discussed whether to 
regulate the concept of ``began the withdrawal process.'' Some 
negotiators felt that the statute gave the institutions discretion to 
define the beginning of their own withdrawal procedure. The committee 
agreed to leave the definition of this term up to each institution. The 
Secretary notes that section 485(a)(1)(F) of the HEA, as modified by 
the 1998 Amendments, requires an institution to make available to 
students a statement of the requirements for officially withdrawing 
from the institution. The Secretary expects an institution to identify 
the beginning of its process as a part of this information. The 
Secretary also expects an institution to be able to demonstrate 
consistent application of its process, including its determination of 
the beginning of the process.

Official Notification

    These proposed regulations would define ``official notification to 
the institution.'' The committee agreed that ``official notification to 
the institution'' occurs when a student notifies an office of the 
institution of his or her intent to withdraw. However, the committee 
noted that it could be administratively burdensome for an institution 
to have to track withdrawal notifications that could be made to any 
unspecified office of the institution. Therefore, these proposed 
regulations would allow an institution to designate the office or 
offices that a student must notify in order for the notification to 
count as official notification. An institution would have to designate 
at least one office for this purpose. For example, an institution could 
designate a dean's, registrar, or financial aid office.
    Under these proposed regulations, official notification from the 
student could be written or oral. Under this proposal, acceptable 
notification would include notification by a student via telephone, 
through a designated web site, or notification that is provided orally 
in person. If provided orally, the Secretary would expect the 
institution to document the conversation with the student.

Resolving Instances Where Student Triggers Two Dates

    During the negotiations, the Department's negotiator noted that a 
student might both begin the institution's withdrawal process and 
otherwise provide official notification to the institution of his or 
her intent to withdraw. For example, on November 1, a student calls the 
institution's designated office and states his or her intent to 
withdraw. Later, on December 1, the student begins the institution's 
withdrawal process by submitting a withdrawal form. The Department's 
negotiator stated that it is the Department's view that the earlier 
date more accurately reflects when the student withdrew. Ultimately, 
the committee agreed that if both dates are triggered, the earlier date 
would be the student's withdrawal date.
    Several negotiators felt that the institution should have the 
discretion to choose the more appropriate date. The negotiators felt it 
was unfair to require the earlier date if the student continued to 
attend the institution after the first notification. Although the 
proposed regulations would permit an institution to document a later 
``last date of academically-related attendance,'' negotiators felt that 
in this situation it was unreasonable to require the institution to 
confirm and document the later attendance. The committee agreed to 
extend negotiations beyond the five originally-scheduled sessions in 
order to continue to address this issue (and the issue of the 
determination of the amount of unearned aid to be returned). The 
committee agreed that the extension was necessary to continue its 
attempts to resolve differences between the Department's negotiator and 
other negotiators. After extensive discussions and consideration of 
several alternatives, the committee ultimately agreed to the original 
interpretation that the withdrawal date should be the earlier of the 
two dates (unless the institution chooses to document another last date 
of attendance at an academically-related activity), in conjunction with 
a provision that clarifies how a student's rescission of his or her 
notification of intent to withdraw would be treated (discussed below).

Student Does Not Return From a Leave of Absence

    This NPRM proposes that if a student does not return to the 
institution at the expiration of an approved leave of absence, the 
student's withdrawal date is the date that the student began the leave 
of absence. The committee agreed that the date that the student began 
the leave of absence most accurately reflects the point when a student 
who does not return from the leave ceases academic attendance. Leaves 
of absence are addressed in the discussion of proposed Sec. 668.22(d).

Circumstances Beyond the Student's Control

    The committee's view was that the special rule that defines a 
withdrawal date for students who withdraw due to circumstances beyond 
the student's control should apply in two circumstances: (1) a student 
who would have provided official notification to the institution of his 
or her intent to withdraw was prevented from doing so due to those 
circumstances; and (2) a student withdrew due to circumstances beyond 
the student's control and a second party provided notification of the 
student's withdrawal on the student's behalf.
    The committee agreed that for such students the institution should 
determine the withdrawal date that most accurately reflects when the 
student ceased academic attendance due to the circumstances beyond the 
student's control. This date would not necessarily have to be the date 
of the occurrence of the circumstance beyond the student's control. For 
example, if a student is assaulted, he or she may continue to attend 
school, but ultimately not be able to complete the period because of 
the trauma experienced. Because the student's withdrawal was the result 
of the assault, the withdrawal date would be the date that the student 
actually left the institution, not the date of the assault. The 
Secretary would expect the institution to document that the student 
left at the later date because of issues related to the assault.

Rescission of Intent To Withdraw

    These proposed regulations would specify how a student's rescission 
of an intent to withdraw would affect the withdrawal date. A student's 
rescission would be valid only if the student attends through the end 
of the payment period or period of enrollment. As part of the 
rescission notification, a student would have to attest that he or she 
was continuing academic attendance and that he or she intends to 
complete the period. If the student did not complete the payment period 
or period of enrollment after the rescission, the withdrawal date would 
be the date when the student first provided notification to the school 
or began the withdrawal process, unless an institution chooses to use a 
documented last date of attendance at an academically-related activity 
as the student's withdrawal date.
    This language was added to the proposed regulations to clarify how 
a

[[Page 43031]]

student's rescission would be treated. The negotiation of this proposed 
regulatory language occurred through discussions within a subgroup of 
the committee, including the Department's negotiator, after the final 
negotiating session (but prior to the reaching of consensus). Although 
the committee reached consensus on the proposed regulatory language, 
the Secretary wishes to explain the reasons for this provision. The 
Secretary is particularly concerned with a situation in which a student 
notified the institution of an intent to withdraw, decided to continue 
to attend the school, and then withdrew without providing further 
notification. The Secretary believes that a student who provides 
official notification of his or her intent to withdraw and actually 
withdraws should never be treated as a student who left the institution 
without providing notification, even if there was a rescission of the 
first notification.
    Likewise, the Secretary does not believe that a student who 
provided notification, decided to continue to attend the school, and 
then provided subsequent notification of an intent to withdraw should 
have earned aid determined based on the later notification date.
    The Secretary is concerned that some students, either on their own 
or in response to encouragement by the institution, would attend for a 
short period of time after their first notification and then drop out 
or provide a second notification in order to increase artificially the 
amount of Title IV, HEA program assistance earned.

Acceptable Documentation

    During the negotiated rulemaking sessions, the committee considered 
whether to specify in the regulations what documentation would be 
acceptable to support an institution's determination of a student's 
withdrawal date. Several of the negotiators felt that institutions 
should have the flexibility to determine the type of documentation that 
would best support their determination of the student's withdrawal 
date. The negotiating committee agreed that acceptable documentation 
should not be delineated in the regulations. However, an institution 
would still be required to document all withdrawal dates and maintain 
the documentation. The committee agreed that it is reasonable to expect 
an institution to have such documentation available as of the date of 
the institution's determination that the student withdrew. The proposed 
definition of the ``date of the institution's determination that the 
student withdrew'' is addressed in the discussion of Sec. 668.22(l).

Unapproved Leave of Absence

    The Secretary notes that neither the statute nor the proposed 
regulations specify a withdrawal date for a student who takes an 
unapproved leave of absence. The Secretary requests comment on whether 
such a date should be specified in the regulations.

Section 668.22(d)  Treatment of Leaves of Absence

    The statute provides that a leave of absence must meet certain 
conditions to be counted as a temporary interruption in a student's 
education, rather than as a withdrawal. If a leave of absence does not 
meet the conditions, the student is considered to have ceased 
attendance at the institution (and therefore to have withdrawn from the 
institution) and the requirements of section 484B of the HEA would 
apply.
    For purposes of Sec. 668.22, a leave of absence refers to 
circumstances in which a student is not in academic attendance for a 
period for which academic attendance is scheduled as part of the 
student's program. It does not refer to non-attendance for a scheduled 
break in a student's program.
    These proposed regulations refer to a leave of absence that does 
not have to be considered a withdrawal as an ``approved leave of 
absence.'' The statute gives an institution discretion in determining 
whether to treat an approved leave of absence as a withdrawal. That is, 
a student's leave of absence may meet all the requirements for an 
approved leave of absence, but the institution may still treat the 
leave of absence as a withdrawal.
    The committee noted that term-based credit hour schools allow 
students to receive an ``incomplete'' status for coursework that can 
be, and is expected to be, completed within a reasonable timeframe 
after the term is over. For example, a student may request and receive 
an ``incomplete'' because the student failed to turn in an assigned 
paper. If a student is assigned an ``incomplete'' status but the 
institution determines that the student will likely complete the 
required coursework, the student could be considered not to have 
withdrawn. If the institution assigns a student a leave status other 
than a leave of absence as defined in these proposed regulations just 
to keep the student from having to re-apply the next semester, the 
student would be considered to have withdrawn, unless he or she was 
granted an approved leave of absence under the provisions of this 
section. The Secretary notes that under these proposed regulations, a 
student on an approved leave of absence must be permitted to complete 
the coursework he or she began prior to the leave of absence.
    The Secretary specifically requests comment on whether the proposed 
definition of a leave of absence for purposes of this section should 
apply for purposes of determining whether a student's in-school status 
continues for Title IV, HEA program loan purposes.

Number of Leaves of Absence

    The statute refers to a student who takes ``a'' leave of absence 
from an institution. The committee considered whether a student should 
be granted only one leave of absence in a 12-month period or whether 
the statute permits a student to take multiple leaves of absence in a 
12-month period, as long as the total number of days did not exceed 
180. The committee agreed that in some limited instances, it may be 
appropriate to permit a student to take more than one leave of absence 
within a 12-month period, as long as the total number of days of the 
leaves of absence does not exceed 180. This proposal seeks to strike a 
balance recognizing that it is often not in the best interest of most 
students to have multiple interruptions to their education, but that 
one leave of absence may not be sufficient to address the needs of some 
students. These proposed regulations do not specify the reasons for 
which a single leave of absence may be granted; rather, the institution 
would determine if the student's reason for requesting a single leave 
of absence is appropriate. Generally, the committee agreed that more 
than one leave of absence should be granted for unforeseen 
circumstances only. For example, an institution would be able to grant 
more than one leave of absence to a student who is unexpectedly called 
up for military-reserve duty, or for a student who meets the criteria 
covered under the Family and Medical Leave Act of 1993 (FMLA) (Public 
Law 103-3), enacted February 5, 1993.
    The circumstances that are covered under the FMLA, as applied to 
students, are:
     Birth of a son or daughter of the student and the need to 
care for that son or daughter (for 12 months beginning from the date of 
birth of the child),
     Placement of a son or daughter with the student for 
adoption or foster care (for 12 months beginning on the date of the 
placement),
     Need to care for the student's spouse, or a son, daughter, 
or parent, if the spouse, son, daughter, or parent has a serious health 
condition, and

[[Page 43032]]

     Serious health condition that makes the student unable to 
function as a student.
    These proposed regulations would use definitions of terms taken 
from the FMLA and its implementing regulations (29 CFR part 825). The 
statutory language, with links to the implementing regulations, can be 
found on the Internet at http://www.dol.gov/dol/esa/public/regs/
statutes/whd/fmla.htm
    The Secretary specifically requests comments on other categories 
that commenters believe would warrant the granting of more than one 
approved leave of absence in a 12-month period.
    The Secretary believes that it would be appropriate for a student 
to make only one request for multiple leaves of absence when those 
leaves are all requested for the same reason. For example, a student 
who will be receiving multiple chemotherapy treatments over the course 
of the student's enrollment could submit one request to cover the 
recovery time needed for each session.

12-Month Period

    The statute requires that the leave of absence not exceed 180 days 
in any 12-month period. This NPRM proposes that the 12-month period 
would begin on the first day of the student's leave of absence. This 
proposal reflects the view that the use of a calendar year or academic 
year would not be appropriate. For example, if the use of a calendar 
year was permitted, an institution could grant one leave of absence of 
180 days from July to December of one year and another leave of absence 
for 180 days from January to June of the following year. The committee 
did not believe that it would be appropriate to give a student more 
than 180 days on a leave of absence within any 12-month period.

Reasonable Expectation of Return

    These proposed regulations set conditions for an approved leave of 
absence in addition to the minimum conditions required by the statute. 
The committee agreed that a leave of absence is an approved leave of 
absence if there is a reasonable expectation on the part of the 
institution that the student will be able to return to the institution. 
It was agreed that it is necessary to specify this condition in the 
regulations to prevent an institution from granting a student a leave 
of absence merely to delay the return of unearned Title IV, HEA program 
funds.

No Additional Charges

    This NPRM proposes that an approved leave of absence may not 
involve additional charges by the institution. A leave of absence is a 
temporary break in the student's attendance during which, for purposes 
of determining if the provisions of this proposed rule apply, the 
student is considered to be enrolled. Since students are not assessed 
additional charges for continuing enrollment, any additional charges to 
a student, even de minims re-entry charges, indicate that the student 
is not considered to be on an approved leave of absence.

Completion of Coursework Upon Return

    This NPRM proposes that in order for a leave of absence to be an 
approved leave of absence, the institution must permit the student to 
complete the coursework that he or she began prior to the leave of 
absence. Approved leaves of absence are viewed as temporary 
interruptions in a student's attendance. Therefore, when a student 
returns from a leave of absence, the student should be continuing his 
or her education where he or she left off.

Formal Policy

    The statute provides that in order for a leave of absence not to be 
treated as a withdrawal, the institution has to have a formal policy 
regarding leaves of absence, the student has to follow the 
institution's policy in requesting a leave of absence, and the 
institution has to approve the student's request in accordance with the 
institution's policy.
    For documentation purposes, these proposed regulations would 
further define a ``formal policy'' as one that requires a student to 
provide a written, signed, and dated request for a leave of absence 
prior to the leave of absence, unless unforeseen circumstances prevent 
the student from doing so. The committee agreed that, in most cases, it 
is possible to obtain a written request from a student prior to a leave 
of absence. However, in some cases, a student will not be able to 
provide a written, signed, and dated request prior to the beginning of 
the leave of absence. For example, if a student was injured in a car 
accident and needed a few weeks to recover before returning to school, 
the student would not have been able to request the leave of absence in 
advance. The regulations would permit the institution to grant the 
leave of absence if the institution documents its decision and collects 
the request from the student at a later date.
    In addition, these proposed regulations would require that the 
institution put the policy in writing and publicize it to students. 
Because of the consequences of withdrawal, the committee agreed it is 
essential to provide students with the information they need to request 
and receive approval for an approved leave of absence. This requirement 
would be met by including the policy with the one-time dissemination of 
other consumer information under Sec. 668.41.

Section 668.22(e)  Calculation of Amount of Title IV, HEA Program Funds 
Earned by the Student

    These proposed regulations would repeat (with minor changes for 
clarity) the statutory language that delineates the calculation of the 
amount of Title IV, HEA program funds earned, with the modifications 
discussed below.
    The most significant modification is the addition of language in 
the calculation of the percentage earned to make clear that a student 
in a clock hour program cannot earn 100 percent of his or her Title IV, 
HEA program assistance unless the student actually completes more than 
60 percent of the total clock hours in the payment period or period of 
enrollment. This is addressed in detail in the discussion of the 
percentage of the payment period or period of enrollment completed for 
a clock hour program in Sec. 668.22(f).

Unearned Title IV Assistance To Be Returned

    These proposed regulations would clarify the intent of the statute 
by defining the ``total amount of unearned Title IV assistance to be 
returned.'' The statute defines the percentage and amount of Title IV, 
HEA program assistance that is unearned. The statute requires that the 
unearned amount must be returned to the Title IV, HEA programs. 
However, the statute defines the total amount unearned by applying the 
percentage unearned to the total amount of program assistance that was 
disbursed or that could have been disbursed.
    Negotiators pointed out that in situations in which all the Title 
IV, HEA program assistance that could have been disbursed was not 
disbursed, the only amount that needs to be returned is the amount of 
disbursed aid that exceeds the amount of earned aid. For example, a 
student's total ``disburseable aid'' (aid that was disbursed or could 
have been disbursed) is $3,250. It includes a $1,500 Pell Grant and 
$1,750 in a subsidized Stafford loan. When the student withdraws, the 
full amount of the loan ($1,750) has been disbursed, but only $1,000 of 
the Pell Grant has been disbursed. The total Title IV, HEA

[[Page 43033]]

program assistance that is earned by the student is calculated by 
multiplying total disburseable aid ($3,250) by the percentage earned. 
Assuming a percentage earned of 25%, the total earned Title IV, HEA 
program assistance would be $813 ($3,250 x 25%). If all the disbursable 
aid had been disbursed, the total unearned amount of Title IV, HEA 
program assistance of $2,437 ($3,250-$813) would have to be returned to 
the Title IV, HEA programs. However, because only $1,000 of the $1,500 
Pell Grant was actually disbursed, only $2,750 in Title IV, HEA program 
assistance was actually disbursed, so only $1,937 would have to be 
returned to the Title IV, HEA programs. This amount, $1,937, is the 
amount actually disbursed that exceeds the amount of Title IV, HEA 
program assistance that was earned by the student ($2,750-$813).
    The committee agreed that replacing total unearned aid with the 
total amount of unearned Title IV assistance to be returned clarifies 
that the only amount that needs to be returned is the amount of aid 
that was actually disbursed that exceeded the amount of earned aid.

Payment Period or Period of Enrollment

    For students who withdraw from term-based educational programs, 
this NPRM proposes that an institution would always have to determine 
the treatment of the student's Title IV, HEA program assistance on a 
payment period basis. For students who withdraw from a non-term based 
educational program, the institution would have the choice of 
determining the treatment of the student's Title IV, program assistance 
on either a payment period basis or a period of enrollment basis. The 
committee believed that allowing an institution a choice of a period 
for non-term based educational programs only is consistent with the 
conference report language for the 1998 Amendments. The conference 
report states that the choice of using a period of enrollment, rather 
than a payment period, was added ``to provide that the earned amount 
may be the proportion of the period of enrollment at non-term based 
institutions.'' The Department's negotiator stated in negotiated 
rulemaking the Department's view that, generally, a payment period is 
the most appropriate period for most educational programs, including 
non-term based programs, because Title IV, HEA program funds are 
disbursed on a payment period basis. However, the committee recognized 
that in some cases, for an institution with non-term based programs, a 
period of enrollment may be the most appropriate period.
    This NPRM proposes that an institution would have to choose either 
a payment period or period of enrollment for each non-term based 
educational program and use that period consistently for all students 
in the program. This provision is intended to prevent the potential for 
abuse that could otherwise occur if a school were permitted to choose a 
period on a student-by-student basis. If this were permitted, a payment 
period could be used when it results in the most aid earned for the 
students, but a period of enrollment could be used when that is the 
period that maximizes the amount of aid earned. For example, absent 
this provision, a school with a 900 clock hour program of two payment 
periods of 450 clock hours could choose to use payment periods for 
students who withdraw in the first payment period so that the point 
beyond 60 percent of the period (the point at which a student would 
earn 100 percent of his or her Title IV, HEA program assistance) occurs 
at hour 271. However, the institution could then choose to use the 
period of enrollment of 900 hours for all students who withdraw in the 
second payment period, so that the point beyond 60 percent for those 
students occurs at hour 541 of the program, rather than hour 721 (the 
point beyond the 60 percent point for the second payment period of 450 
hours plus the first payment period of 450 hours). This approach could 
artificially inflate the amount of Title IV, HEA program assistance 
that a student has earned upon withdrawal from the institution.
    The Secretary believes that the regulations implementing section 
484B of the HEA should provide for accurately determining when a 
student ceased academic attendance and the corresponding amount of 
Title IV, HEA program assistance earned; not maximize that assistance. 
This approach requires that the same period be used for all students 
who withdraw from the same program.
    The Secretary specifically requests comment on how the calculation 
of earned Title IV, HEA program assistance should be determined for 
students who transfer-in or re-enter an institution. For example, 
Matthew transfers into a 900 clock hour program. The payment periods 
for the program are two periods of 450 clock hours. Because of transfer 
credits, Matthew has only 300 hours to complete the program. Matthew 
withdraws from the program on the same date as Thomas, who had been in 
attendance since the beginning of the program. If the institution uses 
payment periods for determining earned Title IV, HEA program funds, 
what clock hours should be used to calculate Matthew's earned aid?
    When discussing a non-term based institution's use of a period of 
enrollment, some of the negotiators pointed out that it was not 
possible to use the entire amount of Title IV, HEA program funds that 
the student would receive for the period of enrollment in the 
calculation if the withdrawal occurred during any payment period other 
than the last payment period of the period of enrollment. This is 
because Title IV, HEA program assistance that could have been disbursed 
does not include assistance that the student was not otherwise eligible 
to receive at the time he or she withdrew (the term ``could have been 
disbursed'' is addressed in the discussion of Sec. 668.22(d)). If a 
student does not begin attendance in a subsequent payment period, the 
student is not eligible to receive Title IV, HEA program assistance for 
that payment period. For example, if a student withdrew in the first of 
two payment periods, the Title IV, HEA program assistance that the 
student would have received for the second payment period would not be 
included in the calculation of earned Title IV, HEA program assistance 
because the student did not begin attendance in the second payment 
period. Under these restrictions, the percentage of Title IV, HEA 
program assistance earned would be based on the period of enrollment, 
but that percentage would be applied only to the Title IV, HEA program 
funds that were disbursed or that could have been disbursed for the 
payment periods in which the student began attendance. The committee 
discussed this issue and acknowledged that using the full period of 
enrollment for determining the percentage of Title IV aid earned, but a 
shorter period (payment period(s)) for calculating the amount of Title 
IV aid that was disbursed or could have been disbursed, produces an 
``apples and oranges'' situation and limits the desirability for an 
institution to choose to use a period of enrollment when calculating 
the amount of Title IV, HEA program assistance earned.
    Some negotiators believed that the statute's use of aid ``awarded'' 
in some places allows an institution to use the amount awarded for the 
entire period of enrollment in the determination of the earned amount 
of Title IV, HEA program funds. The Department's negotiator pointed out 
that the statutory language that delineates how earned Title IV, HEA 
program assistance is calculated requires that the percentage earned be 
applied to ``the total amount of such grant and loan assistance that 
was

[[Page 43034]]

disbursed (and that could have been disbursed).'' As discussed above, 
aid that ``could have been disbursed'' does not include assistance that 
the student was not otherwise eligible to receive at the time of 
withdrawal.
    The committee also discussed how institutional charges incurred for 
a payment period would be determined when the institution charges for a 
longer period. This issue is addressed in the discussion of proposed 
Sec. 668.22(f).

Section 668.22(f)  Percentage of Payment Period or Period of Enrollment 
Completed

    The percentage of the payment period or period of enrollment 
completed determines the percentage of aid earned by the student.

Credit Hour Programs

    The statute defines the calculation of the percentage of the period 
completed for a credit hour program as the number of calendar days 
completed in the payment period or period of enrollment divided by the 
total number of calendar days in the same period, as of the day the 
student withdrew. The simplest approach would be to include all days in 
the period in the total number of calendar days. However, the committee 
agreed to exclude extended breaks when the institution had not 
scheduled academic attendance for the student.
    Accordingly, this NPRM proposes that the total number of calendar 
days in a payment period or period of enrollment includes all days 
within the period, except for scheduled breaks of at least five 
consecutive days. Days in which the student was on an approved leave of 
absence would also be excluded. Scheduled breaks of at least five 
consecutive days and days in which a student was on an approved leave 
of absence would be excluded from both the number of calendar days 
completed in the payment period or period of enrollment (the 
numerator), and from the total number of calendar days in the same 
period (the denominator).

Clock Hour Programs

    The statute provides two calculations for determining the 
percentage of the period completed for a student who withdraws from a 
clock hour program. The denominator, the total number of clock hours in 
the payment period or period of enrollment, is the same for both 
calculations. The numerator is the number of clock hours completed by 
the student in that period as of the day the student withdrew, or, if 
the clock hours completed are not less than a certain percentage, it is 
the hours that were scheduled to be completed by the student in the 
period. The statute specifies that this percentage is to be determined 
by the Secretary in regulations.
    The determination of this percentage was the subject of intense 
negotiations by the committee. The NPRM is proposing to establish an 
attendance threshold that will permit students who withdraw from clock 
hour institutions to earn Title IV, HEA program funds based upon the 
hours that were scheduled to be completed at the time they withdrew, so 
long as the actual hours attended were at least 70 percent of the hours 
that were scheduled to have been completed at the time they withdrew.
    The Department's negotiator initially proposed that 90 percent be 
the measure used to determine whether scheduled hours could be used. 
Some negotiators argued for an alternative application of this portion 
of the law, under which a student would be paid for all scheduled hours 
at the time the student withdrew, provided that a specified minimum 
percentage of the total hours in the program were completed. Some 
negotiators described this measure as a type of ``cooling-off'' period 
for a student because the student would be paid only for completed 
hours during the early part of the payment period. For example, if the 
threshold were 10 percent, any student completing at least 45 hours of 
a 450 hour payment period would be paid for the hours scheduled to be 
completed at the time the student withdrew.
    The Department's negotiator pointed out that this proposal would 
permit students with very low attendance rates to be paid a bonus for 
the scheduled hours they had not attended simply because the student 
managed to complete the relatively low number of hours during the time 
the student was enrolled. A student completing the 10 percent minimum 
number of hours would therefore continue earning Title IV, HEA program 
funds without further class attendance until he or she withdrew or was 
terminated by the institution. Some of the negotiators felt that this 
was not likely to happen because satisfactory academic progress 
requirements and accrediting agency oversight would limit the potential 
for abuse. The committee used a workgroup to focus on these issues, and 
the workgroup and committee reached agreement on the use of the 70 
percent proposal.
    Under this proposal, students who complete at least 70 percent of 
their scheduled hours before they withdraw would earn Title IV, HEA 
funds based upon their total scheduled hours for the time they were 
enrolled, rather than the hours the student completed. However, only 
students who actually completed more than 60 percent of the hours in 
the payment period or period of enrollment would earn 100 percent of 
the Title IV, HEA program funds. For example, if a student withdrew 
after completing 230 hours in a 450 clock hour payment period, and the 
student was scheduled to have completed 280 hours of the program at the 
time he or she withdrew, that student would have completed 82 percent 
of the scheduled hours (230/280) for the time he or she was enrolled. 
In this case, the student met the attendance threshold of 70 percent 
and, therefore, the institution would use the 280 scheduled hours, 
rather than the 230 hours that were actually completed, in the 
calculation of the percentage the period completed. If the same student 
had completed 230 clock hours while he or she was scheduled to have 
completed 335 hours at the point of withdrawal, the student's 
attendance rate would have been less than 70 percent (230/335=69 
percent) and only the 230 completed hours would be used in the 
calculation.
    The committee also considered an alternative proposal whereby the 
point for earning all of the Title IV, HEA program assistance (that is, 
the point beyond the 60 percent point) would have been based upon 
scheduled clock hours rather than completed clock hours. This alternate 
method was ultimately rejected by the committee because it would have 
effectively lowered the threshold for earning 100 percent of the aid by 
coupling it with the attendance percentage, and would have resulted in 
a student being able to earn 100 percent of the Title IV, HEA program 
assistance for a payment period or period of enrollment by exceeding as 
little as 42 percent of the total hours (60 percent  x  70 percent = 42 
percent).
    The proposal in the regulations reflects the determination that the 
trigger for earning the last 40 percent of the Title IV, HEA program 
funds for a payment period or period of enrollment should be tied to 
the actual hours completed. In the example above in which the 
institution determined that the student may be paid for 280 scheduled 
hours in the 450 clock hour payment period, the percentage of the 
payment period completed would be 62 percent (280/450), even though the 
student actually completed only 51 percent of the total hours (230/
450). However, the student would not earn 100 percent of the Title IV, 
HEA program funds because the 230 clock hours completed were less than 
60 percent of the 450 clock hours in the

[[Page 43035]]

payment period, even though the 280 scheduled clock hours at the time 
of withdrawal were above the 60 percent point. The student would earn 
62 percent of the Title IV, HEA program funds that were disbursed or 
that could have been disbursed.
    The issue of whether excused absences should be counted as 
completed hours was not discussed with the committee during the 
negotiated rulemaking sessions. The Secretary believes that excused 
absences should not be counted as completed hours. The Secretary 
believes that the 70 percent scheduled to completed ratio measure is an 
extremely tolerant threshold and no additional adjustments should be 
made. The Secretary specifically requests comments on the treatment of 
excused absences.
    The Secretary specifically requests comments on whether the 
proposed definitions of the percentage of the payment period or period 
of enrollment completed create problems for non-term credit hour 
programs, correspondence programs, or non-traditional programs.

Section 668.22(g)  Responsibility of an Institution To Return Unearned 
Title IV, HEA Program Funds

    When there is an amount of Title IV, HEA program assistance to be 
returned, the statute requires that the responsibility for the return 
be shared by the institution and the student. The statute defines the 
amount due from the institution as the lesser of the total unearned 
amount of aid, or the institutional charges incurred by the student 
multiplied by the percentage of unearned Title IV, HEA program 
assistance.
    The committee considered whether an institution should be allowed 
to decide whether the institution or the student should return funds 
first. Some negotiators believed that this would allow the institution 
to minimize some students' immediate grant overpayment when a student 
has unearned Title IV, HEA program funds that must be returned. They 
also noted that many students will not have the immediate cash to repay 
the grant overpayment and will be prevented from receiving additional 
Title IV assistance if the students return to school. They further 
noted that if the student was permitted to return Title IV, HEA program 
funds before the institution, the student would be responsible for 
returning funds to the loan, which he or she would pay back over time 
in accordance with the promissory note, as specified in the statute. 
The institution would pay off, or pay down, the student's grant 
overpayment. These negotiators argued that a grant overpayment is more 
of a hardship for a student because there is a more immediate demand 
for repayment.
    The Department's negotiator noted that the statute provides that 
the student's responsibility is the amount of unearned Title IV, HEA 
program funds minus the amount that the institution is required to 
return. The Department's negotiator explained that the statute 
therefore requires the student's repayment obligation to be determined 
after the institution's share is calculated. The committee ultimately 
agreed that the institution is required to return funds before the 
student. As a result, because the institution will return loan funds 
first, in some cases, a student must return grant funds in an 
overpayment situation rather than paying back loans in accordance with 
the terms of the promissory note. The Department believes this result 
is also consistent with the law, because the 50 percent ``discount'' of 
the grant repayment (discussed under Sec. 668.22(h)) is available only 
to students and could not be used if the institution were required to 
return excess grant funds.
    Although the statute and these proposed regulations use the term 
``return of funds,'' the committee also agreed that an institution was 
not required to actually return its share before the student; rather, 
the amount of assistance that the institution is responsible for 
returning must be allocated between the Title IV, HEA program accounts 
first.

Institutional Charges

    On January 7, 1999, the Secretary published guidance on the 
definition of institutional charges for the purpose of refund 
calculations. This guidance was published in the form of a policy 
bulletin on the Education Department's Information for Financial Aid 
Professionals (IFAP) web site. The guidance was initially developed to 
address requests for clarification of the definition of institutional 
charges as used in the pre-1998 Amendments refund requirements.
    Some of the negotiators noted that in the pre-1998 Amendments 
requirements in section 484B of the HEA, refund provisions are used to 
determine the portion of institutional charges that an institution must 
return when a student withdraws. In the 1998 Amendments, institutional 
charges are used only to determine the portion of unearned Title IV, 
HEA program assistance that the institution is responsible for 
returning. Institutional charges do not affect the amount of Title IV, 
HEA program assistance that a student earns when he or she withdraws.
    Some negotiators suggested that, because the impact of 
institutional charges is different under the new law, the guidance on 
the definition of institutional charges should be modified. The 
Secretary agreed to revisit the current guidance to determine whether 
revisions would be appropriate. Until further guidance is issued, the 
guidance of the January 7, 1999, policy bulletin remains in effect.
    As stated in the discussion of Sec. 668.22(e), for students who 
withdraw from a non-term based educational program, the institution 
would have the choice of determining the treatment of the student's 
Title IV, HEA program assistance on either a payment period basis or a 
period of enrollment basis. The committee also considered the situation 
in which an institution chooses to calculate the treatment of Title IV, 
HEA program assistance on a payment period basis for a non-term 
program, but the institution charges for a period longer than the 
payment period (most likely the period of enrollment) and there may not 
be a specific amount that reflects the actual institutional charges 
incurred by the student for the payment period.
    These proposed regulations would address this issue by defining the 
institutional charges incurred by the student for the payment period 
when the student is charged for a period that is longer than the 
payment period. In general, a pro-rated amount of institutional charges 
for the longer period would most accurately reflect the charges 
incurred by the student for the payment period. However, the committee 
agreed that if an institution has retained Title IV, HEA program funds 
in excess of the pro-rated amount to cover institutional charges, then 
those charges are attributable to the payment period and are a better 
indicator of the student's incurred institutional charges. For example, 
institutional charges are $8,000 for a non-term based program that 
spans two payment periods of 450 clock hours each. The institution 
chooses to calculate the treatment of Title IV, HEA program funds on a 
payment period basis. A student withdraws in the first payment period. 
The pro-rated amount of institutional charges for each payment period 
is $4,000. However, the institution has retained $5,000 of the Title 
IV, HEA program funds for institutional charges for the payment period. 
Therefore, the institutional charges for the payment period are $5,000.
    Several negotiators asked the Department to clarify the meaning of 
the

[[Page 43036]]

phrase, ``institutional charges incurred by the student.'' For purposes 
of this section, ``institutional charges incurred by the student'' 
would be charges for which the student was responsible that were 
initially assessed by the institution for the payment period or period 
of enrollment.

Section 668.22(h)  Responsibility of a Student To Return Unearned Title 
IV, HEA Program Funds

    The statute specifies that the student is responsible for all 
unearned Title IV, HEA program assistance that the institution is not 
required to return. Although this NPRM proposes that an institution 
must pay back any amount due to a Title IV loan program within the 
timeframe established in paragraph (j), the statute allows a student to 
pay back his or her portion of any unearned loan funds in accordance 
with the terms of the promissory note. In other words, the student will 
be repaying any unearned loan funds in the same manner that he or she 
will be repaying earned loan funds. These proposed regulations would 
not require the student to provide any additional assurances or 
affirmations.
    The statute states that a student's unearned grant funds are an 
overpayment and are subject to repayment arrangements satisfactory to 
the institution or overpayment collection procedures prescribed by the 
Secretary. The negotiators reached consensus that these proposed 
regulations would apply the current regulatory requirements and 
corresponding sub-regulatory guidance for the collection of Federal 
Pell Grant and FSEOG overpayments for this purpose. Additional 
subregulatory guidance may be issued if further clarification is needed 
when institutions start applying these existing regulations in the 
return of funds context. Any future changes to these requirements will 
be made by proposing changes to the Federal Pell Grant and FSEOG 
regulations in accordance with applicable requirements of the 
Administrative Procedures Act.

Fifty Percent Discount

    Section 484B(b)(2)(C) of the HEA states, ``a student shall not be 
required to return 50 percent of the grant assistance received by the 
student under this title, for a payment period or period of enrollment, 
that is the responsibility of the student to repay under this 
section.''
    The implementation of this provision was the subject of extensive 
discussion among the negotiators. Because the difference between the 
Department's interpretation of the statute and most of the other 
negotiators' interpretation of the statute was so great, the committee 
agreed to exclude this provision from the call for consensus on the 
draft regulations. Because no consensus was reached on this issue, the 
proposed regulatory provision on this issue reflects the Secretary's 
view.
    The Secretary interprets the statute to provide that a student does 
not have to repay 50 percent of the student's grant repayment amount. 
The Secretary believes that 50 percent of the student's grant repayment 
amount provides the level of relief to the student that the statute 
intended, while it requires a student to return a portion of the 
unearned grant assistance.
    Some negotiators felt that the statute provided a student with a 
higher level of relief. These negotiators read the statute to relieve 
the student of 50 percent of the amount of grant funds that were 
originally disbursed or that could have been disbursed to the student.
    The Secretary did not agree with the negotiators' reading of the 
statute because he believes that it is inconsistent with the conference 
report for the 1998 Amendments which states that this statutory 
provision was added to ``[reduce] by half the amount of unearned grant 
assistance the student is responsible for returning.''
    The following example illustrates the Secretary's interpretation of 
the statute. When Amanda withdrew, the amount of Title IV assistance 
that was disbursed or that could have been disbursed was $1,000 in 
Federal Pell Grant funds. Total Title IV funds to be returned is $750. 
The institution is responsible for returning $300 to the Federal Pell 
Grant. Amanda is responsible for returning the balance of the unearned 
funds, which is $450. However, because Amanda must return these funds 
to a Title IV grant program, she is not required to return 50 percent 
of the grant assistance received that it is her responsibility to 
repay. Under the Secretary's proposal, Amanda would have to repay $225 
to the Federal Pell Grant program (50 percent of the amount that she is 
initially required to repay [$450]).
    If the interpretation supported by several of the negotiators was 
used, Amanda's repayment amount would be ``discounted'' by 50 percent 
of the amount of Pell Grant funds that was disbursed or that could have 
been disbursed, 50 percent of $1,000, which is $500. Because this 
discount exceeds the initial amount that Amanda is required to repay 
($450), she would not have to return any funds to the Federal Pell 
Grant program.

Section 668.22(i)  Order of Return of Title IV, HEA Program Funds

    The statute specifies by program the order in which an institution 
and a student must return Title IV, HEA program funds. Unearned Title 
IV, HEA program assistance is returned first to the Title IV loan 
programs (first to unsubsidized loans, then subsidized, Federal 
Perkins, and PLUS), and then to the Title IV grant programs. This 
provision continues the approach of the pre-1998 Amendments 
requirements of section 485(a) of the HEA that a student's Title IV 
loan debt should be reduced first when returning funds to the Title IV, 
HEA programs when a student withdraws.

Section 668.22(j)  Timeframe for the Return of Title IV, HEA Program 
Funds.

    The statute does not specify a timeframe for the return of Title 
IV, HEA program funds. However, the committee agreed that such a 
timeframe should be specified in the regulations. This NPRM proposes 
that an institution have 30 days from the date that the institution 
determines that the student withdrew to return all unearned funds for 
which it is responsible. Under the existing refund regulations, an 
institution must return Title IV funds within 30 days for all Title IV, 
HEA program funds except for most FFEL program funds, which must be 
returned within 60 days. The committee agreed that it is reasonable to 
expect institutions to return all Title IV, HEA program funds, 
including all FFEL funds, within 30 days because most FFEL funds are 
now delivered electronically.
    These proposed regulations would set a timeframe for an institution 
to determine the withdrawal date for a student who withdrew without 
providing notification to the institution. An institution would have 30 
days from the earlier of (1) the end of the payment period or period of 
enrollment as, applicable, (2) the end of the academic year, or (3) the 
end of the student's educational program. These proposed regulations 
would mirror the provisions of the current Sec. 668.22 to recognize 
that some institutions may not know about drop-outs until the 
institution checks its records at the end of an academic period. 
However, the committee agreed that a timeframe is necessary so that 
unearned funds will be returned within a reasonable period of time.

Section 668.22(k)  Consumer Information

    The 1998 Amendments made modifications to section 485(a)(F) of the

[[Page 43037]]

HEA to address the changes to section 484B. Section 485(a)(F) describes 
the consumer information that an institution must provide to its 
students regarding the requirements of section 484B, any refund 
policies that the institution uses, and the requirements for officially 
withdrawing from the institution. The proposed regulations implementing 
section 485(a)(F) are included in a separate NPRM proposing changes to 
Subpart D-Institutional and Financial Assistance Information for 
Students of the Student Assistance General Provisions. These proposed 
regulations for Sec. 668.22 would cross-reference the regulations for 
Subpart D.

Section 668.22(l)  Definitions

Aid That Could Have Been Disbursed

    The statute requires an institution to calculate the amount of 
earned Title IV, HEA program funds by applying a percentage to the 
total amount of Title IV, HEA program assistance that was disbursed, or 
that could have been disbursed. The committee agreed that the term 
``could have been disbursed'' should be defined in the regulations. The 
amount of Title IV, HEA program funds that could have been disbursed 
does not include Title IV, HEA program funds that the student was not 
otherwise eligible to receive at the time he or she withdrew. For 
example, a first-year, first-time borrower who withdraws before the 
30th day of the student's program of study would not have been eligible 
to receive any FFEL or Direct Loan funds at the time he or she withdrew 
(unless the institution is exempt from the ``30-day delay'' provisions 
in section 428G of the HEA). Therefore, for this student, no amount of 
an FFEL or Direct Loan may be included in the calculation of the 
treatment of Title IV, HEA program assistance.
    The committee agreed that the amount of Title IV, HEA program funds 
that could have been disbursed would not include second or subsequent 
disbursements of FFEL or Direct loans that are prohibited under 
Sec. 668.164(g)(2)(ii). Section 668.164(g)(2)(ii) prohibits late second 
or subsequent disbursements of FFEL or Direct Loan funds unless the 
student has graduated or successfully completed the period of 
enrollment for which the loan was intended.
    In addition, the committee agreed that Title IV, HEA program funds 
that could have been disbursed would not include a second disbursement 
of a Title IV, HEA FFEL or Direct loan that is prohibited under 
Sec. 682.604(c)(7) or (8) or Sec. 685.301(b)(5) or (6). These sections 
provide that an institution may not make a second disbursement of a 
loan for attendance in a clock hour or non-standard term credit hour 
educational program until the later of the calendar midpoint of the 
loan period or the date that the student has completed half of the 
academic coursework or clock hours (as applicable) in the loan period.
    The committee agreed that Title IV, HEA program funds would also 
not include subsequent disbursements of Federal Pell Grant funds that 
are prohibited under Sec. 690.75(a). Section 690.75(a) prohibits 
subsequent disbursements of Federal Pell Grant funds for attendance in 
a clock hour or non-term credit hour program until the student has 
completed the required clock hours or credit hours for which he or she 
has already been paid a Federal Pell Grant.

Period of Enrollment

    For consistency, the committee agreed that the term ``period of 
enrollment'' should be defined in the same manner as the term is 
defined for the FFEL and Direct Loan programs in Sec. 682.200(b) and 
Sec. 685.102.

Date of the Institution's Determination That the Student Withdrew

    As noted in the discussion of the determination of a student's 
withdrawal date, some aspects of the withdrawal process cannot occur 
until the institution is aware that the student has withdrawn. For 
example, an institution cannot be expected to return Title IV funds for 
a withdrawn student unless the institution knows that the student is no 
longer in attendance. This NPRM proposes to define the ``date of the 
institution's determination that the student withdrew'' for all 
possible types of withdrawals. As noted previously, the ``date of the 
institution's determination that the student withdrew'' is not 
necessarily the same as a student's withdrawal date. The proposed 
definition of withdrawal date in Sec. 668.22(b) and (c) is for purposes 
of determining the percentage of the payment period or period of 
enrollment completed and thus the amount of aid a student has earned. 
The ``date of the institution's determination that the student 
withdrew'' is the date that is used to determine the amount of Title IV 
aid that has been disbursed. The amount of Title IV assistance that had 
been earned is subtracted from the amount disbursed or could have been 
disbursed in order to determine the amount of Title IV assistance that 
is to be returned. The ``date of the institution's determination that 
the student withdrew'' is also the date that ``starts the clock'' for 
the return of the Title IV, HEA program funds by the institution.
    For a student who provided notification of his or her withdrawal, 
the date of the institution's determination that the student withdrew 
would be the later of the student's withdrawal date or the date of 
notification of withdrawal. For a student who did not provide 
notification of his of her withdrawal, this date would be the date that 
the institution becomes aware that the student has ceased attendance. 
For a student who does not return from an approved leave of absence, 
this date would be the earlier of the date of the expiration of the 
leave of absence or the date the student notifies the institution that 
he or she will not be returning. For a student who rescinds his or her 
intent to withdraw, but does not complete the payment period or period 
of enrollment, this date would be the date the institution becomes 
aware that the student did not, or will not, complete the payment 
period or period of enrollment. (These withdrawal situations are 
addressed in the discussions of Secs. 668.22(b) and (c)). The committee 
believes that this proposed definition of the date of the institution's 
determination that the student withdrew captures the point when an 
institution could reasonably be expected to know that a student has 
ceased attendance.

Section 682.207  Due Diligence in Disbursing a Loan

    Foreign institutions that participate in the Title IV, HEA programs 
are also subject to the requirements of section 484B of the HEA for the 
treatment of Title IV, HEA program funds when a student withdraws. 
However, the statute allows lenders to make FFEL program loan 
disbursements directly to a student who is attending a foreign school. 
As a result, a foreign school may not know if an FFEL program loan has 
been disbursed to a student. These proposed regulations would require a 
lender making a direct disbursement to a student attending a foreign 
school to notify the foreign school that the disbursement was made. 
These proposed regulations also would require that the notification 
provide the information necessary for the institution to determine the 
amount of Title IV, HEA program funds that the student has earned if 
the student withdraws.

Executive Order 12866

1. Potential Costs and Benefits
    Under Executive Order 12866, we have assessed the potential costs 
and benefits of this regulatory action.

[[Page 43038]]

    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those we have 
determined as necessary for administering this program effectively and 
efficiently.
    In assessing the potential costs and benefits of this regulatory 
action--both quantitative and qualitative--we have determined that the 
benefits would justify the costs.
    We have also determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    We note that, as these proposed regulations were subject to 
negotiated rulemaking, the costs and benefits of the various 
requirements were discussed thoroughly by negotiators. The resultant 
consensus reached on a particular requirement generally reflected 
agreement on the best possible approach to that requirement in terms of 
cost and benefit.
    To assist the Department in complying with the specific 
requirements of Executive Order 12866, the Secretary invites comments 
on whether there may be further opportunities to reduce any potential 
costs or to increase any potential benefits resulting from these 
proposed regulations without impeding the effective and efficient 
administration of the Title IV, HEA programs.
2. Clarity of the Regulations
    Executive Order 12866 and the President's Memorandum of June 1, 
1998 on ``Plain Language in Government Writing'' require each agency to 
write regulations that are easy to understand.
     The Secretary invites comments on how to make these 
proposed regulations easier to understand, including answers to 
questions such as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec. '' and a numbered heading; for example, 
Sec. 668.22 Treatment of Title IV funds when a student withdraws.)
     Could the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    Send any comments that concern how the Department could make these 
proposed regulations easier to understand to the person listed in the 
ADDRESS section of the preamble.

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.
    Entities affected by these regulations are institutions of higher 
education that participate in the Title IV, HEA programs and individual 
recipients of Title IV, HEA program funds. Institutions are defined as 
small entities, according to the U.S. Small Business Administration, if 
they are for-profit or nonprofit entities with total revenue of 
$5,000,000 or less, or entities controlled by governmental entities 
with populations of 50,000 or less. Individuals are not considered 
small entities for this purpose. These proposed regulations would not 
have a significant economic impact on small institutions. These 
proposed regulations would incorporate clarifying definitions and 
provisions, and institute timeframes consistent, to the maximum extent 
possible, with existing program rules, for the most practical and 
uniform implementation of the new statutory requirements for the return 
of Title IV aid when a student withdraws.
    These proposed regulations would specify when FSEOG program funds 
must be included in the calculation of the amount of title IV, HEA 
program assistance earned by a student as of the time he or she ceases 
enrollment. The regulations would define ``the date of the 
institution's determination that the student withdrew'' to simplify the 
institution's calculation of total aid disbursed. To minimize 
administrative burden, these regulations would adopt late disbursement 
procedures fundamentally consistent with current Cash Management rules 
when a student is determined to have earned more title IV, HEA program 
assistance than had been disbursed at the time the institution 
determines the student withdrew. These regulations would also provide 
flexibility in the granting of approved leaves of absence for 
exceptional circumstances, for military service, and for circumstances 
covered by the Family and Medical Leave Act of 1993.
    The proposed regulations would enable the Secretary to better 
safeguard the Federal fiscal interest and the interests of students 
without imposing administrative burden or having a significant economic 
impact on small institutions.
    The Secretary invites comments from small institutions as to 
whether the proposed changes would have a significant economic impact 
on them.

Paperwork Reduction Act of 1995

    Sections 668.22 and 682.207 contain information collection 
requirements. Under the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)), the Department of Education has submitted a copy of these 
sections to the Office of Management and Budget (OMB) for its review.

Collection of Information

    If you want to comment on the information collection requirements, 
please send your comments to the Office of Information and Regulatory 
Affairs, OMB, Room 10235, New Executive Office Building, Washington, 
DC, 20503; Attention: Desk Officer for U.S. Department of Education. 
You may also send a copy of these comments to the Department 
representative named in the ADDRESSES section of this preamble.
    We consider your comments on these proposed collection(s) of 
information in--
     Deciding whether the proposed collection(s) is [are] 
necessary for the proper performance of the functions, including 
whether the information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collection(s), including the validity of the methodology 
and assumptions;
     Enhancing the quality, usefulness, and clarity of the 
information we collect; and
     Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives the comments within 30 days of 
publication. This does not affect the deadline for your comments to us 
on the proposed regulations.

[[Page 43039]]

Intergovernmental Review

    The campus-based programs (Federal Perkins Loan, Federal Work-Study 
(FWS), and Federal Supplemental Opportunity Grant (FSEOG) programs), 
the William D. Ford Federal Direct Loan (Direct Loan) Program, the 
Federal Family Education Loan (FFEL) programs, the Federal Pell Grant 
Program, and the LEAP Program are not subject to the requirements of 
Executive Order 12372 and the regulations in 34 CFR part 79.

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 gathers or makes available.

Electronic Access to This Document

    You may view this document in text or Adobe Portable Document 
Format (PDF) on the Internet at the following sites:

http://ocfo.ed.gov/fedreg.htm
http://ifap.ed.gov/csb_html/fedlreg.htm
http://www.ed.gov/legislation/HEA/rulemaking/

To use the PDF you must have the Adobe Acrobat Reader Program with 
Search, which is available free at the first of the previous sites. If 
you have questions about using the PDF, call the U.S. Government 
Printing Office (GPO), toll free, at 1-888-293-6498; or in the 
Washington, DC, area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://
www.access.gpo.gov/nara/index.html

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 
Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032 
Federal PLUS Program; 84.032 Federal Supplemental Loans for Students 
Program; 84.033 Federal Work-Study Program; 84.038 Federal Perkins 
Loan Program; 84.063 Federal Pell Grant Program; 84.069 LEAP; 84.268 
William D. Ford Federal Direct Loan Programs; and 84.272 National 
Early Intervention Scholarship and Partnership Program)

List of Subjects in 34 CFR parts 668 and 682

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

    Dated: August 3, 1999.
Richard W. Riley,
Secretary of Education.

    The Secretary proposes to amend parts 668 and 682 of title 34 of 
the Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

    1. The authority citation for part 668 is revised to read as 
follows:

    Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092, 
1094, 1099c-1, unless otherwise noted.

    2. Section 668.22 is revised to read as follows:


Sec. 668.22  Treatment of title IV funds when a student withdraws.

    (a) General. (1) When a recipient of title IV grant or loan 
assistance withdraws from an institution during a payment period or 
period of enrollment in which the recipient began attendance, the 
institution must determine the amount of title IV grant or loan 
assistance (not including Federal Work-Study or the non-Federal share 
of FSEOG awards when an institution meets its matching share by the 
individual recipient method or the aggregate method) that the student 
earned as of the student's withdrawal date in accordance with paragraph 
(e) of this section.
    (2) If the amount of title IV grant and/or loan assistance that the 
student earned as calculated under paragraph (e)(1) of this section is 
less than the amount of title IV grant or loan assistance that was 
disbursed to the student or on behalf of the student in the case of a 
PLUS loan, as of the date of the institution's determination that the 
student withdrew--
    (i) The difference between these amounts must be returned to the 
title IV programs in accordance with paragraphs (g) and (h) of this 
section in the order specified in paragraph (i) of this section; and
    (ii) No additional disbursements may be made to the student for the 
payment period or period of enrollment.
    (3) If the amount of title IV grant or loan assistance that the 
student earned as calculated under paragraph (e)(1) of this section is 
greater than the amount of title IV grant or loan assistance that was 
disbursed to the student or on behalf of the student in the case of a 
PLUS loan, as of the date of the institution's determination that the 
student withdrew, the difference between these amounts must be treated 
as a late disbursement in accordance with paragraph (a)(4) of this 
section and Sec. 668.164(g)(2).
    (4)(i)(A) If outstanding current charges exist on the student's 
account, the institution may credit the student's account in accordance 
with Sec. 668.164(d)(1), (d)(2)(i), and (d)(3) with all or a portion of 
the late disbursement described in paragraph (a)(3) of this section, up 
to the amount of the outstanding charges.
    (B) If Direct Loan, FFEL, or Federal Perkins Loan Program funds are 
used to credit the student's account, the institution must notify the 
student, or parent in the case of a PLUS loan, and provide an 
opportunity for the borrower to cancel all or a portion of the loan, in 
accordance with Sec. 668.165(a)(2), (a)(3), (a)(4) and (a)(5).
    (ii)(A) The institution must offer any amount of a late 
disbursement that is not credited to the student's account in 
accordance with paragraph (a)(4)(i) of this section to the student, or 
the parent in the case of a PLUS loan, within 30 days of the date of 
the institution's determination that the student withdrew, as defined 
in paragraph (l)(3) of this section, by providing a written 
notification to the student, or parent in the case of PLUS loan funds. 
The written notification must--
    (1) Identify the type and amount of the title IV funds that make up 
the late disbursement that is not credited to the student's account in 
accordance with paragraph (a)(4)(i) of this section;
    (2) Explain the ability of the student or parent to accept or 
decline some or all of the late disbursement that is not credited to 
the student's account in accordance with paragraph (a)(4)(i) of this 
section; and
    (3) Advise the student or parent that no late disbursement will be 
made to the student or parent if the student or parent does not respond 
within 14 days of the date that the institution sent the notification, 
unless the institution chooses to make a late disbursement in 
accordance with paragraph (a)(4)(ii)(D) of this section.
    (B) If the student or parent submits a timely response that 
instructs the institution to make all or a portion of the late 
disbursement, the institution must disburse the funds in the manner 
specified by the student or parent within 90 days of the date of the 
institution's determination that the student withdrew, as defined in 
paragraph (l)(3) of this section.
    (C) If the student or parent does not respond to the institution's 
notice, no portion of the late disbursement that is not credited to the 
student's account in

[[Page 43040]]

accordance with paragraph (a)(4)(i) of this section may be disbursed.
    (D) If a student or parent submits a late response to the 
institution's notice, the institution may make the late disbursement as 
instructed by the student or parent or decline to do so in accordance 
with applicable program regulations.
    (E) An institution must inform a student or parent electronically 
or in writing concerning the outcome of any late disbursement request.
    (iii) A late disbursement must be made from available grant funds 
before available loan funds.
    (b) Withdrawal date for a student who withdraws from an institution 
that is required to take attendance. (1) For purposes of this section, 
for a student who ceases attendance or for a student who does not 
return from an approved leave of absence, as defined in paragraph (d) 
of this section, at an institution that is required to take attendance, 
the student's withdrawal date is the last date of academic attendance 
as determined by the institution from its attendance records.
    (2) An institution must document a student's withdrawal date 
determined in accordance with paragraph (b)(1) of this section and 
maintain the documentation as of the date of the institution's 
determination that the student withdrew, as defined in paragraph (l)(3) 
of this section.
    (3) An institution is ``required to take attendance'' if the 
institution is required to take attendance by an entity outside of the 
institution (such as the institution's accrediting agency or state 
agency).
    (c) Withdrawal date for a student who withdraws from an institution 
that is not required to take attendance. (1) For purposes of this 
section, for a student who ceases attendance at an institution that is 
not required to take attendance, the student's withdrawal date is--
    (i) The date, as determined by the institution, that the student 
began the withdrawal process prescribed by the institution;
    (ii) The date, as determined by the institution, that the student 
otherwise provided official notification to the institution of his or 
her intent to withdraw;
    (iii) If the student ceases attendance without providing official 
notification to the institution of his or her withdrawal in accordance 
with paragraph (c)(1)(i) or (c)(1)(ii) of this section, the mid-point 
of the payment period (or period of enrollment, if applicable);
    (iv) If the institution determines that a student did not begin the 
institution's withdrawal process or otherwise provide official 
notification (including notice from an individual acting on the 
student's behalf) to the institution of his or her intent to withdraw 
because of illness, accident, grievous personal loss, or other such 
circumstances beyond the student's control, the date that the 
institution determines is related to such circumstance; or
    (v) If a student does not return from an approved leave of absence 
as defined in paragraph (d) of this section, the date that the 
institution determines the student began the leave of absence.
    (2)(i)(A) An institution may allow a student to rescind his or her 
official notification to withdraw under paragraph (c)(1)(i) or (ii) by 
filing a written statement that he or she is continuing to participate 
in academically-related activities and intends to complete the payment 
period or period of enrollment.
    (B) If the student subsequently ceases to attend the institution 
prior to the end of the payment period or period of enrollment, the 
student's rescission is negated and the withdrawal date is the 
student's original date under paragraph (c)(1)(i) or (ii), unless a 
later date is determined under paragraph (c)(3).
    (ii) If a student both begins the withdrawal process prescribed by 
the institution and otherwise provides official notification of his or 
her intent to withdraw in accordance with paragraphs (c)(1)(i) and 
(c)(1)(ii) of this section respectively, the student's withdrawal date 
is the earlier date unless a later date is determined under paragraph 
(c)(3) of this section.
    (3)(i) Notwithstanding paragraphs (c)(1) and (2) of this section, 
an institution that is not required to take attendance may use as the 
student's withdrawal date a student's last date of attendance at an 
academically-related activity as documented by the institution.
    (ii) An ``academically-related activity'' is one that has been 
confirmed by an employee of the school (such as an exam, a tutorial, 
computer-assisted instruction, academic counseling, academic 
advisement, turning in a class assignment or attending a study group 
that is assigned by the institution);
    (4) An institution must document a student's withdrawal date 
determined in accordance with paragraph (c)(1), (2), and (3) of this 
section and maintain the documentation as of the date of the 
institution's determination that the student withdrew, as defined in 
paragraph (l)(3) of this section.
    (5)(i) ``Official notification to the institution'' is a notice of 
intent to withdraw that a student provides to an office designated by 
the institution.
    (ii) An institution must designate one or more offices at the 
institution that a student may readily contact to provide official 
notification of withdrawal.
    (d) Approved Leave of Absence. (1) For purposes of this section, an 
institution does not have to treat a leave of absence as a withdrawal 
if it is an approved leave of absence. A leave of absence is an 
approved leave of absence if--
    (i) It is the only leave of absence granted to the student in a 12-
month period;
    (ii) The leave of absence does not exceed 180 days in any 12-month 
period;
    (iii) The institution has a formal policy regarding leaves of 
absence;
    (iv) The student followed the institution's policy in requesting 
the leave of absence;
    (v) The institution determines that there is a reasonable 
expectation that the student will be able to return to the school;
    (vi) The institution approved the student's request in accordance 
with the institution's policy;
    (vii) The leave of absence does not involve additional charges by 
the institution; and
    (viii) Upon the student's return from the leave of absence, the 
student is permitted to complete the coursework he or she began prior 
to the leave of absence.
    (2) Notwithstanding paragraph (d)(1)(i), an institution may treat 
subsequent leaves of absence as approved leaves of absence if the 
institution documents that the leaves of absence are granted for 
military reasons or circumstances covered under the Family and Medical 
Leave Act of 1993.
    (3) If a student does not resume attendance at the institution on 
or before the expiration of a leave of absence that meets the 
requirements of paragraph (d)(1) of this section, the institution must 
treat the student as a withdrawal in accordance with the requirements 
of this section.
    (4) For purposes of this paragraph--
    (i) The number of days in a leave of absence are counted beginning 
with the first day of the student's leave of absence.
    (ii) A ``12-month period'' begins on the first day of the student's 
leave of absence.
    (iii) An institution's leave of absence policy is a ``formal 
policy'' if the policy--
    (A) Is in writing and publicized to students; and
    (B) Requires students to provide a written, signed, and dated 
request for a leave of absence prior to the leave of

[[Page 43041]]

absence. However, if unforeseen circumstances prevent a student from 
providing a prior written request, the institution may grant the 
student's request for a leave of absence, provided that the institution 
documents its decision and collects the request at a later date.
    (e) Calculation of the Amount of title IV assistance earned by the 
student.
    (1) General. The amount of title IV grant or loan assistance that 
is earned by the recipient is calculated by--
    (i) Determining the percentage of title IV grant or loan assistance 
that has been earned by the student, as described in paragraph (e)(2) 
of this section; and
    (ii) Applying this percentage to the total amount of title IV grant 
or loan assistance that was disbursed (and that could have been 
disbursed, as defined in paragraph (l)(1) of this section) to the 
student, or on the student's behalf, for the payment period or period 
of enrollment as of the student's withdrawal date.
    (2) Percentage earned. The percentage of title IV grant or loan 
assistance that has been earned by the student is--
    (i) Equal to the percentage of the payment period or period of 
enrollment that the student completed (as determined in accordance with 
paragraph (f) of this section) as of the student's withdrawal date, if 
this date occurs on or before completion of 60 percent of the--
    (A) Payment period or period of enrollment for a program that is 
measured in credit hours, or
    (B) Clock hours completed during the payment period or period of 
enrollment for a program that is measured in clock hours; or
    (ii) 100 percent, if the student's withdrawal date occurs after 
completion of 60 percent of the--
    (A) Payment period or period of enrollment for a program that is 
measured in credit hours, or
    (B) Clock hours completed during the payment period or period of 
enrollment for a program measured in clock hours.
    (3) Percentage unearned. The percentage of title IV grant or loan 
assistance that has not been earned by the student is calculated by 
determining the complement of the percentage of title IV grant or loan 
assistance earned by the student as described in paragraph (e)(2) of 
this section.
    (4) Total Amount of Unearned title IV Assistance to be Returned. 
The unearned amount of title IV assistance to be returned is calculated 
by subtracting the amount of title IV assistance earned by the student 
as calculated under paragraph (e)(1) of this section from the amount of 
title IV aid that was disbursed to the student as of the date of the 
institution's determination that the student withdrew.
    (5) Use of payment period or period of enrollment. (i) The 
treatment of title IV grant or loan funds when a student withdraws must 
be determined on a payment period basis for a student who attended a 
term-based educational program.
    (ii)(A) The treatment of title IV grant or loan funds when a 
student withdraws may be determined on either a payment period basis or 
a period of enrollment basis for a student who attended a non-term 
based educational program.
    (B) An institution must consistently use either a payment period or 
period of enrollment for all purposes of this section for all students 
who withdraw from the same non-term based education program.
    (f) Percentage of Payment Period or Period of Enrollment Completed. 
(1) For purposes of paragraph (e)(2)(i) of this section, the percentage 
of the payment period or period of enrollment completed is determined--
    (i) In the case of a program that is measured in credit hours, by 
dividing the total number of calendar days in the payment period or 
period of enrollment into the number of calendar days completed in that 
period as of the student's withdrawal date; and
    (ii) In the case of a program that is measured in clock hours, by 
dividing the total number of clock hours in the payment period or 
period of enrollment into the number of clock hours--
    (A) Completed by the student in that period as of the student's 
withdrawal date; or
    (B) Scheduled to be completed as of the student's withdrawal date, 
if the clock hours completed in the period are not less than 70 percent 
of the hours that were scheduled to be completed by the student as of 
the student's withdrawal date.
    (2)(i) The total number of calendar days in a payment period or 
period of enrollment includes all days within the period except for 
scheduled breaks of at least five consecutive days.
    (ii) The total number of calendar days in a payment period or 
period of enrollment does not include days in which the student was on 
an approved leave of absence.
    (g) Return of Unearned Aid, Responsibility of the Institution. (1) 
The institution must return, in the order specified in paragraph (i) of 
this section, the lesser of--
    (i) The total amount of unearned title IV assistance to be returned 
as calculated under paragraph (e)(4) of this section; or
    (ii) An amount equal to the total institutional charges incurred by 
the student for the payment period or period of enrollment multiplied 
by the percentage of title IV grant or loan assistance that has not 
been earned by the student, as described in paragraph (e)(3) of this 
section.
    (2) For purposes of this section, ``institutional charges'' are 
tuition, fees, room and board (if the student contracts with the 
institution for the room and board) and other educationally-related 
expenses assessed by the institution.
    (3) If, for a non-term program an institution chooses to calculate 
the treatment of title IV assistance on a payment period basis, but the 
institution charges for a period that is longer than the payment 
period, ``total institutional charges incurred by the student for the 
payment period'' is the greater of--
    (i) The pro rated amount of institutional charges for the longer 
period; or
    (ii) The amount of title IV assistance retained for institutional 
charges as of the student's withdrawal date.
    (h) Return of Unearned Aid, Responsibility of the Student. (1) 
After the institution has returned the unearned funds for which it is 
responsible in accordance with paragraph (g) of this section, the 
student must return assistance for which the student is responsible in 
the order specified in paragraph (i) of this section.
    (2) The amount of assistance that the student is responsible for 
returning is calculated by subtracting the amount of unearned aid that 
the institution is required to return under paragraph (g) of this 
section from the total amount of unearned title IV assistance to be 
returned under paragraph (e)(4) of this section.
    (3) The student (or parent in the case of funds due to a PLUS Loan) 
must return or repay, as appropriate, the amount determined under 
paragraph (h)(1) of this section to--
    (i) Any title IV loan program in accordance with the terms of the 
loan; and
    (ii) Any title IV grant program as an overpayment of the grant; 
however, a student is not required to return 50 percent of the grant 
assistance received by the student for a payment period or period of 
enrollment that is the responsibility of the student to repay under 
this section.
    (4)(i) An overpayment must be repaid to the institution or to the 
title IV, HEA programs and is subject to--

[[Page 43042]]

    (A) Repayment arrangements satisfactory to the institution; or
    (B) Overpayment collection procedures prescribed by the Secretary.
    (ii) An institution must make reasonable efforts to contact the 
student and recover the overpayment in accordance with program 
regulations (34 CFR 673.5 for Federal SEOG funds and 34 CFR 690.79 for 
Federal Pell Grant funds).
    (i) Order of Return of title IV funds. (1) Loans. Unearned funds 
returned by the institution or the student, as appropriate, in 
accordance with paragraphs (g) or (h) of this section respectively, 
must be credited to outstanding balances on title IV loans made to the 
student or on behalf of the student for the payment period or period of 
enrollment for which a return of funds is required. Such funds shall be 
credited to outstanding balances for the payment period or period of 
enrollment for which a return of funds is required in the following 
order:
    (i) Unsubsidized Federal Stafford loans.
    (ii) Subsidized Federal Stafford loans.
    (iii) Unsubsidized Federal Direct Stafford loans.
    (iv) Subsidized Federal Direct Stafford loans.
    (v) Federal Perkins loans.
    (vi) Federal PLUS loans received on behalf of the student.
    (vii) Federal Direct PLUS received on behalf of the student.
    (2) Remaining funds. If unearned funds remain to be returned after 
repayment of all outstanding loan amounts, the remaining excess shall 
be credited to any amount awarded for the payment period or period of 
enrollment for which a return of funds is required in the following 
order:
    (i) Federal Pell Grants.
    (ii) Federal SEOG Program aid.
    (iii) Other grant or loan assistance authorized by title IV of the 
HEA.
    (j) Timeframe for the return of title IV funds. (1) An institution 
must return the amount of title IV funds for which it is responsible 
under paragraph (g) of this section as soon as possible but no later 
than 30 days after the date that the institution determines that the 
student withdrew as defined in paragraph (l)(3) of this section.
    (2) An institution must determine the withdrawal date for a student 
who withdraws without providing notification to the institution no 
later than 30 days after the expiration of the earlier of the--
    (i) Payment period or period of enrollment;
    (ii) Academic year in which the student withdrew; or
    (iii) Educational program from which the student withdrew.
    (k) Consumer Information. An institution must provide students with 
information about the requirements of this section in accordance with 
Sec. 668.44.
    (l) Definitions. For purposes of this section--
    (1) Title IV grant or loan funds that ``could have been disbursed'' 
are determined in accordance with the late disbursement provisions in 
Sec. 668.164(g).
    (2) A ``period of enrollment'' is the academic period established 
by the institution for which institutional charges are generally 
assessed (i.e. length of the student's program or academic year).
    (3) The ``date of the institution's determination that the student 
withdrew'' is--
    (i) For a student who provided notification to the institution of 
his or her withdrawal, the student's withdrawal date as determined 
under paragraph (c) of this section or the date of notification of 
withdrawal, whichever is later;
    (ii) For a student who did not provide notification of his of her 
withdrawal to the institution, the date that the institution becomes 
aware that the student ceased attendance;
    (iii) For a student who does not return from an approved leave of 
absence, the earlier of the date of the expiration of the leave of 
absence or the date the student notifies the institution that he or she 
will not be returning to the institution; or
    (iv) For a student whose rescission is negated under paragraph 
(c)(2)(i)(B) of this section, the date the institution becomes aware 
that the student did not, or will not, complete the payment period or 
period of enrollment.

(Authority: 20 U.S.C. 1091b)

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

    3. The authority citation for part 682 continues to read as 
follows:

    Authority: 20 U.S.C. 1071, to 1087-2, unless otherwise noted.

    4. Section 682.207 is amended by adding a new paragraph 
(b)(1)(v)(E) to read as follows:


Sec. 682.207  Due diligence in disbursing a loan.

* * * * *
    (b) * * *
    (1) * * *
    (v) * * *
    (E) If a lender disburses a loan directly to the borrower for 
attendance at an eligible foreign school, as provided in paragraph 
(b)(1)(v)(D)(1) of this section, the lender must, at the time of 
disbursement, notify the school of--
    (1) The name and social security number of the student;
    (2) The name of the parent borrower, if the loan disbursed is a 
PLUS loan;
    (3) The type of loan;
    (4) The amount of the disbursement, including the amount of any 
fees assessed the borrower;
    (5) The date of the disbursement; and
    (6) The name, address, telephone and fax number or electronic 
address of the lender, servicer, or guaranty agency to which any 
inquiries should be addressed.

[FR Doc. 99-20352 Filed 8-5-99; 8:45 am]
BILLING CODE 4000-01-U