[Federal Register Volume 65, Number 155 (Thursday, August 10, 2000)]
[Proposed Rules]
[Pages 49134-49154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20207]



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Part IV





Department of Education





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34 CFR Part 600, et al.



Institutional Eligibility; Student Assistance General Provisions; 
Federal Work-Study Programs; Federal Family Education Loan Program; 
William D. Ford Federal Direct Loan Program; and the Federal Pell Grant 
Program; Proposed Rule

  Federal Register / Vol. 65, No. 155 / Thursday, August 10, 2000 / 
Proposed Rules  

[[Page 49134]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, 675, 682, 685, and 690

RIN 1845-AA19


Institutional Eligibility; Student Assistance General Provisions; 
Federal Work-Study Programs; Federal Family Education Loan Program; 
William D. Ford Federal Direct Loan Program; and the Federal Pell Grant 
Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the Institutional Eligibility, 
the Student Assistance General Provisions, the Federal Work-Study, the 
William D. Ford Federal Direct Loan, the Federal Family Education Loan, 
and the Federal Pell Grant regulations. These proposed regulations 
implement changes negotiated with the financial aid, higher education, 
and other related community members in the negotiated rulemaking 
process mandated by Congress under section 492 of the Higher Education 
Act of 1965, as amended, (HEA). These changes would streamline the 
application, reapplication and certification processes for institutions 
that wish to participate in the title IV, HEA programs; reduce burden, 
under specific circumstances, for the reporting of additional 
locations; clarify the reporting responsibilities for institutions that 
experience a change in ownership that results in a change of control; 
expand the possibilities for institutions to create written agreements 
with certain other entities to have part or all of their eligible 
programs provided by those entities; revise the process for determining 
a transfer student's financial aid history; recognize electronic 
certification and record retention options for FWS program 
administration; add flexibility to the training requirements for 
institutional certification; change loan proceeds disbursement rules 
for programs using non-standard terms; clarify notification 
requirements when title IV loan proceeds are credited to a student's 
institutional account; and add flexibility to lender disbursement 
requirements and eligibility determinations for students receiving loan 
proceeds.

DATES: We must receive your comments on or before September 25, 2000.

ADDRESSES: Address all comments about these proposed regulations to: 
Mark Washington, U.S. Department of Education, P.O. Box 23272, 
Washington, DC 20026-3272. If you prefer to send your comments through 
the Internet please use the following address: [email protected]
    You must use the term, ``Team 2--General Provisions'' in the 
subject line of your electronic mail message.
    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: Mark Washington, U.S. Department of 
Education, 400 Maryland Avenue, SW, Room 3045, ROB-3, Washington, DC 
20202-5447. Telephone: (202)-260-9321.
    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 above.

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 of 
your comments addresses, and to arrange your 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 programs.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations in Room 3045, Regional Office 
Building 3, 7th & D Streets, SW, Washington, DC, between the hours of 
8:30 a.m. and 4:00 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

    Section 492 of the HEA requires that, before publishing any 
proposed regulations to implement programs under title IV of the HEA, 
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. To the extent that agreements are reached during 
that process, all published proposed regulations must conform to those 
agreements unless the Secretary reopens the negotiated rulemaking 
process or provides a written explanation to the participants in that 
process outlining the reasons why the Secretary has decided to depart 
from the agreements.
    To obtain public involvement in the development of the proposed 
regulations, we held listening sessions in Washington, DC, Atlanta, 
Chicago and San Francisco. Four half-day sessions were held on 
September 13 and 14, 1999, in Washington, DC. In addition, we held 
three regional sessions in Atlanta on September 17, in Chicago on 
September 24, and in San Francisco on September 27, 1999. The Office of 
Student Financial Assistance's Customer Service Task Force also 
conducted listening sessions to obtain public involvement in the 
development of our regulations.
    We then published a notice in the Federal Register (64 FR 73458, 
December 30, 1999) to announce our intention to establish two 
negotiated rulemaking committees to draft proposed regulations 
affecting title IV of the HEA. The notice requested nominations for 
participants from anyone who believed that his or her organization or 
group should participate in this negotiated rulemaking process. The 
notice announced that we would select participants for the process from 
the nominees of those organizations or

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groups. The notice also announced a tentative list of issues each 
committee was likely to address.
    Once the two committees were established they met to develop 
proposed regulations over the course of several months, beginning in 
February.
    Committee I--This notice of proposed rulemaking (NPRM) includes two 
proposed provisions that were discussed as part of negotiated 
rulemaking by Committee I (Loan Issues). They would make changes to the 
Federal Family Education Loan (FFEL) Program regulations by providing 
flexibility to schools and lenders in the disbursement of loan funds. 
Since the proposed changes would affect both schools and lenders, they 
have been included in this NPRM. Including these proposed changes in 
this NPRM will allow all affected parties a better opportunity to 
review and provide comment on these issues. For a listing of the 
members of Committee I please see the NPRM published in the Federal 
Register (65 FR 46316) on July 27, 2000 that relates to guaranty agency 
and other FFEL issues.
    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 not achieved on the 
proposed changes that would provide flexibility to schools and lenders 
in the disbursement of loan funds during the negotiated rulemaking 
process for Committee I.
    A full discussion of these proposed provisions are included in the 
section of this document titled ``SIGNIFICANT PROPOSED REGULATIONS'' 
under the discussion of changes to Secs. 682.207 and 682.604.
    Committee II--Except as noted, the proposed regulations contained 
in this notice of proposed rulemaking (NPRM) reflect the final 
consensus of Committee II, which was made up of the following members:

American Association of Collegiate Registrars and Admissions 
Officers
American Association of Cosmetology Schools
American Association of State Colleges and Universities (in 
coalition with American Association of Community Colleges)
American Council on Education
Association of Jesuit Colleges and Universities
Career College Association
Coalition of Higher Education Assistance Organizations
Coalition of Publicly Traded Educational Institutions
Consumer Bankers Association
Legal Services
NAFSA: Association of International Educators
National Accrediting Commission of Cosmetology Arts and Sciences, 
Inc.
National Association of College and University Business Officers
National Association of Independent Colleges and Universities
National Association of Student Financial Aid Administrators
National Association for State Student Grant and Aid Programs
National Association of State Universities and Land-Grant Colleges
National Council of Higher Education Loan Programs
National Direct Student Loan Coalition
Sallie Mae, Inc.
Student Loan Servicing Alliance
The College Fund/United Negro College Fund
United States Department of Education
United States Student Association
United States Public Interest Research Group
University Continuing Education Association.

    Consensus was reached on all of the proposed regulations in this 
document that were discussed by Committee II, except for three issues, 
two of which allow certain exemptions for public institutions. The 
other addressed incentive compensation related to securing student 
enrollments.
    The first item in Committee II where consensus was not reached is 
proposed Sec. 600.20(d)(1) which exempts public institutions from the 
requirement to apply for approval of their additional locations, if 
those locations are licensed and accredited, and are in the same State 
as the main campus. The second item where consensus was not reached is 
in proposed Sec. 600.31(c)(7), which states that we do not consider a 
change in governance at a public institution to be a change in 
ownership resulting in a change of control, if the institution remains 
a public institution after that change in governance. These two issues 
will be examined more fully in the following section. Since the 
committee did not reach consensus on these two provisions, any 
references to them which may be contained within topics where the 
committee reached agreement do not represent agreement by the non-
federal negotiators with the two regulatory provisions where consensus 
was not reached. Finally, no consensus was reached regarding whether, 
or to what extent, we should modify the regulations in 
Sec. 668.14(b)(22) governing incentive compensation payments made by 
institutions, related to securing student enrollments. Subsequent to 
the negotiations, we have decided not to propose regulatory changes in 
this area.

Significant Proposed Regulations

    We discuss substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
regulatory provisions that are technical or otherwise minor in effect. 
The following paragraphs are organized by topic, and in some cases 
divided further into subtopics, with appropriate headings. Statutory 
provisions that apply to a particular topic may not be restated after 
the subtopical categories.

Section 600.10(b)--Additional Locations

    Statute: Section 498 of the HEA authorizes the Secretary to 
determine whether an institution meets the qualifications to be 
designated as an eligible institution for purposes of the programs 
authorized by the HEA. This section also outlines the procedures the 
Secretary uses to certify an institution to participate in the title 
IV, HEA programs.
    Current Regulations: As provided in Sec. 600.10(b)(3)(i) and (ii), 
when a participating institution wishes to add a location that was not 
previously eligible where it offers fifty percent or more of an 
eligible program, it must notify us about the new additional location, 
and may be required to submit an application for eligibility of the new 
location. We consider such a location to be eligible to participate 
only as of the date we certify it to participate.
    Proposed Regulations: The proposed regulations revise the 
provisions that currently exist in Sec. 600.10(b)(3)(i) and (ii).
    The revisions clarify that an institution's eligibility does not 
extend to an additional location it establishes after the institution 
is designated as eligible if that location provides at least 50 percent 
of an educational program, unless we approve the location under 
proposed Sec. 600.20(f)(5) or if the institution is not required to 
report it to us under proposed Sec. 600.20(d).
    Reasons: This section clarifies that an institution must apply for 
approval to have its eligibility extended to additional locations that 
are not included in its most recent certification if the institution 
will offer 50% or more of an education program at those locations. Such 
additional locations are not considered eligible until the Secretary 
has approved them as eligible or they meet the exemptions provided in 
proposed Sec. 600.20(d).

Section 600.20--Application Procedures for Establishing, 
Reestablishing, Maintaining, or Expanding Institutional Eligibility and 
Certification

Initial Eligibility Application
    Statute: Section 498(b) of the HEA states that the Secretary shall 
prepare a single application for institutions to

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request eligibility, and specifies the information that must be 
collected from applicant institutions.
    Current Regulations: Section 600.20 establishes the procedures for 
an institution to apply for participation in any title IV, HEA program. 
Initially, the institution must apply to us to be designated as an 
eligible institution. Additional requirements for certification to 
participate in the title IV, HEA programs are described in part 668, 
subpart B. However, the requirements in the regulations related to 
eligibility and those related to certification, found in Sec. 600.20(a) 
and Sec. 668.13, respectively do not make clear that (1) determination 
of eligibility and certification are separate processes, and (2) an 
institution may apply for both determinations at the same time by using 
the Department's application for approval to participate.
    Proposed Regulations: These proposed regulations set forth the 
administrative procedures necessary for submitting the eligibility 
application, as well as obtaining certification for participation in 
the title IV, HEA programs.
    Section 600.20(a), as proposed, also clearly indicates that 
eligibility and certification are separate distinguishable processes, 
requiring specific actions for successful completion.
    This revision also clarifies that we determine whether an applicant 
institution meets the participation standards (in part 668, subpart B) 
and the financial responsibility standards (in part 668, subpart L), of 
the current regulations, before we certify the institution. As required 
under current regulations, our internal administrative processes 
already include these standards, but the proposed regulation clarifies 
that the review is based upon the regulatory requirements.
    Reasons: We are consolidating related provisions for eligibility 
and certification mandated by the HEA and current regulations. We 
believe a more uniform construction will make these regulations easier 
to understand and to implement.
Reapplication Process
    Statute: Section 498(g) of the HEA addresses issues regarding the 
renewal of institutional eligibility. Section 498(i) outlines the 
requirements that must be met when an institution experiences a change 
in ownership that results in a change of control.
Eligible But Not Participating Institutions
    Current Regulations: Section 600.20(b) provides that all eligible 
institutions, whether they participate in the title IV HEA programs or 
not, must reapply if they want to continue their eligibility, and 
certification to participate if applicable, under conditions specified 
in the regulation (e.g., adding a new location or change of ownership).
    Proposed Regulations: We propose in Sec. 600.20(b)(1) that a 
currently designated eligible institution that is not participating in 
the title IV, HEA programs, is only required to apply to us for a 
determination that it continues to be eligible, if we request the 
institution to reapply.
    Reasons: In discussions regarding the reapplication process, we 
proposed to continue the current requirement in Sec. 600.20(b) that all 
institutions would be required to reapply if we so requested. However, 
we suggested that eligible but non-participating institutions would not 
need to automatically reapply for any of the current reasons provided 
in Sec. 600.20. These institutions may qualify to participate in 
certain non-title IV, HEA programs, and their students may qualify for 
loan deferments. Since they are not administering federal student aid, 
they are only required to reapply for their eligibility determination 
upon our request, otherwise their eligibility status continues 
indefinitely.
Participating Institutions
    Current Regulations: As noted above, Sec. 600.20 provides that all 
participating institutions must apply if they want to continue their 
eligibility and certification to participate. Included among the 
reasons why a participating institution must reapply is where we 
request it to do so (Sec. 600.20(b)(1)). Additionally, Sec. 600.20(c) 
includes a number of other conditions under which an institution must 
reapply.
    Proposed Regulations: Proposed Sec. 600.20(b)(2) would require a 
currently eligible institution that participates in title IV, HEA 
programs to apply for a determination that it continues to meet the 
requirements of 34 CFR parts 600 and 668 as provided in paragraphs 
(b)(2)(i) through (iii) of Sec. 600.20.
    Section 600.20(b)(2)(i) of the proposed regulations would apply 
when a participating institution wishes to continue its participation 
beyond the expiration of the current eligibility and certification. 
Section 600.20(b)(2)(ii) would require a participating institution to 
reapply to reestablish its eligibility and certification as a private 
nonprofit or private for-profit institution, after a change in 
ownership that results in a change of control, as described in 
Sec. 600.31. Section 600.20(b)(2)(iii) would require a reapplication if 
the participating institution experienced any changes in its status as 
a proprietary, nonprofit, or public institution (e.g., changed its 
status from for-profit to nonprofit).
    Reasons: In order to clarify and to make easier for institutions to 
comply with the rules, we propose to consolidate the regulatory 
requirements for the reapplication process into one section, 
Sec. 600.20(b).
    We initially proposed to continue the current requirements that 
prescribe when a participating institution must reapply for a 
determination that it continues to meet the standards necessary to 
participate in the title IV, HEA programs. One of these requirements 
was when the Secretary, at his discretion, required reapplication. 
Although this proposed regulation was substantially equivalent to the 
existing regulation found at Sec. 600.20(b)(1), several members of the 
committee objected to what they believed was an overly broad extension 
of the Secretary's authority to regulate, beyond the scope of authority 
expressly granted or intended by the HEA.
    While affirming that we would not use this authority to require 
reapplication in a capricious or arbitrary manner, we explained that 
the Secretary must reserve the right to require a review of any 
institution that gives cause for concern. We indicated that the 
reapplication process affords us an opportunity for such a review. 
Various committee members believed we already have that authority under 
other existing regulations.
    The committee ultimately agreed that a narrower regulatory approach 
that differentiated application requirements between eligible, non-
participating institutions and eligible participating institutions, 
would accommodate concerns regarding fair and consistent application of 
our authority to review. The proposed regulation makes clear that the 
Secretary may request reapplication from eligible non-participating 
institutions at any time, because they are not subject to the ordinary 
reapplication cycle.
    In proposed Sec. 600.20(b)(2)(ii), we would not require a public 
institution to reapply for approval if its governance changed and that 
change included an acknowledgment by the new governing entity, on 
behalf of the institution, of the institution's continuing 
responsibilities under its program participation agreement. Other 
changes in governance that do not acknowledge the public institution's 
ongoing responsibilities under its program participation agreement 
would be changes of ownership that require reapplication. Additional 
information on the effect of

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the change of governance for public institutions can be found under the 
discussion of Sec. 600.31(c)(7).
    Finally, several of the non-federal negotiators expressed concern 
about the corporate and legal interpretations of ``ownership'', and 
whether such terms or phrases as ``a change of ownership'' even apply 
to certain types of educational institutions.
    Several non-federal negotiators contested the notion that a 
``change in ownership'' applies to a nonprofit entity. They felt 
strongly that those in the nonprofit sector do not identify with the 
concept of ``ownership.'' Moreover, one committee member suggested that 
many nonprofit institutions might fail to comply with the change in 
ownership regulations, because those institutions may not believe that 
the regulations apply to them, by virtue of their nonprofit status. We 
note that the HEA does not exempt non-profit institutions from the 
change of ownership provisions. However, we understand that clarity in 
this matter is needed.
    To resolve any confusion on this issue the committee evaluated 
various terms to convey the unique nature and organization of nonprofit 
entities. One proposal sought to uniformly replace the existing phrase, 
``change of ownership'' with ``change in structure, governance, or 
ownership.'' Although we appreciate that nonprofit entities may not 
consider the existing regulatory language as properly describing their 
legal structure and operations, we cautioned that adopting a new phrase 
for one sector might actually be confused with other commonly accepted 
terms used in other sectors. Using the phrase ``change of governance'', 
for example, could possibly indicate something totally different for 
public institutions.
    Ultimately, the committee agreed to use the phrase ``changes its 
status'' in Sec. 600.20(b)(2)(iii), signaling an organizational change 
so substantial that it would be a change of ownership resulting in a 
change in control under the HEA.
Application to Expand Eligibility
    Statute: Sections 498(b) and (j) of the HEA outline the application 
requirements when an institution wishes to expand its eligibility, 
particularly to branch campuses.
    Current Regulations: Section 600.30(a) requires an institution to 
notify the Secretary of any significant changes it has experienced 
since its most recent eligibility application. Section 600.20 lists 
various instances where an institution must make an application to 
expand its designated eligibility and certification to include 
additional locations and programs.
    Proposed Regulations: Proposed Sec. 600.20(b)(2) lists the events 
that require an institution to submit a new application. Proposed 
Sec. 600.20(c) describes the events that require an application to 
expand eligibility. Except for two new provisions under proposed 
Sec. 600.20(c), the proposed regulations are very similar to current 
regulations.
    First, at Sec. 600.20(c)(2), we would require an institution to 
report any increase in the level of program offerings it adds. Second, 
Sec. 600.20(c)(5) clarifies that an institution must apply for approval 
if it wishes to convert an existing location to a branch campus.
    Reasons: We believe the proposed regulations offer greater clarity 
on this topic by consolidating all of the related regulations into one 
section. The current regulations that address expansion of an 
institution's designated eligibility status are within Secs. 600.20 and 
600.30, and are not as detailed.
    The expansion of an institution's eligibility through the increase 
of the level of program offerings in Sec. 600.20 (c)(2) was added as 
one of the requirements for reapplication because this type of change 
often requires an institution to modify its financial aid and other 
administrative processes. For example, a change in level of program 
offerings could affect the institution's determination of program 
length because of the requirements for ``credit hour conversions''. 
Similarly, such a change could impact the institution's ability to use 
the multi-year features of the new master promissory notes in the FFEL 
and Direct Loan programs.
    Finally, the non-federal negotiators suggested that the conversion 
of an otherwise eligible location to a branch campus be added as 
Sec. 600.20(c)(5) to address this type of expansion of institutional 
eligibility.
Exemptions From Applying for Additional Locations
    Exemption for public institutions:
    Current Regulations: Under Sec. 600.20(c)(3) an institution must 
apply to add a location not currently a part of its eligibility 
designation. Those rules do not distinguish among the types of 
institutions that must apply.
    Proposed Regulations: We have proposed in Sec. 600.20(d)(1) that 
public institutions do not have to apply to the Secretary for approval 
of an additional location under Sec. 600.20(c)(1), if the additional 
location is properly licensed and accredited, and is located within the 
same State as the main campus of the currently designated eligible 
institution.
    Reasons: As noted earlier, the committee did not reach consensus on 
this issue. During the negotiated rulemaking sessions, we noted that we 
are not aware of any problems that placed federal funds at risk when a 
public institution has added additional locations. The public entities 
that govern these institutions generally apply responsible oversight 
and systems of control over these institutions, especially with regard 
to the establishment of additional locations. The additional level of 
planning, approval, and review generally required by public entities 
helps to limit rapid growth that could adversely impact educational 
quality or cause fiscal instability in the administration of title IV 
funds. Moreover, we believe that the extent of fiscal resources 
generally made available to public institutions by the public entities 
that govern them are likely to be substantial enough to safeguard the 
taxpayers from any potential losses in title IV, HEA program funds.
    This exemption only applies to additional locations that are in the 
same State as the main campus of the public institution, because those 
locations share the same oversight entities. These additional locations 
must, of course, be licensed and accredited.
    We believe these proposed regulations will enhance efficiency and 
provide administrative relief for a sizable segment of the population 
of eligible institutions, by not requiring them to report locations 
they add until the next scheduled recertification.
    Some members of the committee saw this proposed exemption as a 
benefit unfairly and unduly afforded to a select segment of eligible 
institutions. One committee member considered the sector-based 
distinction to be discriminatory, and questioned the legality of the 
proposed regulations on this basis.
    A few committee members suggested that any institution, regardless 
of its structure or control, that meets the licensing and accreditation 
standards, and whose additional location was in the same State as the 
main campus, should receive the same exemption as that being proposed 
for public institutions.
    Several non-federal negotiators added that many private nonprofit 
and private for-profit institutions have maintained stellar performance 
records in their administration of the title IV, HEA programs. They 
also believed that many of these institutions were subject to 
reasonable oversight from States, accrediting agencies, and industry 
associations. They argued that any

[[Page 49138]]

school that demonstrated consistent compliance with our regulations, 
and had sufficient systems to meet administrative and financial 
capability standards should be entitled to the same exemption being 
offered to the public institutions.
    We maintained that it was neither novel nor extraordinary for a 
federal agency to rely upon the oversight and financial backing 
provided to public institutions. We believe that this governmental 
oversight over public institutions limits risks to federal funds.
    While it is true that some non-public institutions administer their 
programs in a way that does not pose any fiscal risk to the federal 
taxpayers, that is not the case for all such institutions. On the other 
hand, all public institutions have considerable financial support 
available to help them meet their title IV, HEA program obligations.
    Non-public institutions operate in environments that pose 
significantly higher financial risks than do public institutions. Our 
experience includes situations where some non-public institutions grew 
so rapidly that the integrity of their educational and student aid 
programs was compromised. The level of growth and expansion strained 
those institutions' financial resources and administrative capability 
and, ultimately, they failed, causing great harm to students and losses 
to taxpayers of title IV student assistance funds.
    During the discussion on this exemption for public institutions, 
the amount of burden associated with reporting additional locations was 
considered. While the actual reporting of proposed additional locations 
does not involve much burden (the school simply uses our web-based 
application screens), the school representatives on the committee 
pointed out that the need to wait for our approval of the new location 
before title IV aid could be disbursed could create an unnecessary 
delay. Even though we generally provide our response within about 35 
days, the representatives of public institutions noted that, since we 
have virtually always approved such sites, there is no need for a 
public institution to report its addition of new locations. Conversely, 
it was noted by some other members of the committee that, since the 
burden to report is not significant, all institutions should be 
required to report so that the Secretary has knowledge of all locations 
where students are receiving title IV funds.
    Again, this specific provision--an exemption for public 
institutions from the requirement to report additional locations--was 
one where consensus was not reached by the negotiated rulemaking 
committee. Consistent with the committee's protocols addressing the 
issuance of proposed rules when consensus is not reached, we are 
including in these proposed rules the full exemption for public 
institutions. However, in addition to soliciting general comments on 
the issue of the proposed exemption for public institutions, we 
especially wish to receive comment on whether the proposal should be 
modified to require public institutions to notify the Secretary of a 
new additional location, but exempt them from the requirement to wait 
for our approval before making disbursements of title IV aid to 
students enrolled at the new location.
    Exemptions for temporary additional locations:
    Proposed Regulations: The proposed Sec. 600.20(d)(2) would exempt 
non-public institutions from applying for approval of licensed and 
accredited temporary locations if the following specific conditions are 
met: (1) The institution intends to use the location for not more than 
12 months; (2) the institution has not added more than six locations 
offering at least fifty percent of an educational program since it was 
last certified; (3) the institution does not have any outstanding title 
IV, HEA program liabilities; (4) the institution did not acquire the 
assets of another institution that formerly provided educational 
programs at that location (and that participated in title IV, HEA 
programs at that location) within the preceding year; (5) the 
institution would, if it adds that location, not be subject to a loss 
of eligibility under proposed Sec. 668.188 (Proposed Sec. 668.188 would 
apply a loss of eligibility, due to high loan cohort default rates, 
that was previously imposed against one institution to another 
institution following a change in status.); and (6) we do not currently 
prohibit the institution from adding locations without advance notice.
    Paragraph (d)(3) of Sec. 600.20 explains what happens when an 
institution that did not apply for approval of a new location because 
it did not intend to conduct business longer than twelve months 
realizes that it will continue for more than one year at that location. 
The institution must apply as soon as it determines it will be at a 
location for more than 12 months, but not later than 35 days before the 
end of the initial twelve-month period. In any case, the institution 
may not disburse title IV, HEA program funds for attendance at that 
location beyond the twelve-month period without our approval of that 
location.
    We especially request comment on whether an institution that has 
provided notification to us that it intends to remain at an additional 
location for more than one year should immediately stop making title IV 
disbursements until it receives our approval of that location, as would 
be the case with any other notification of a permanent additional 
location.
    Reasons: An institution may provide training on a temporary basis 
at off-campus sites, in order to be responsive to the needs of its 
community. The negotiators agreed that allowing institutions to open a 
limited number of temporary training locations without reapplication 
assists the community in meeting its goal of partnering with 
institutions to accommodate the workforce training requirements of 
business and industry. We believe that the specific conditions in the 
proposed rule provide assurance that temporary additional locations 
will not adversely affect the institution.
    When discussing this issue of providing a limited exemption to the 
reporting of temporary additional locations for non-public 
institutions, the committee considered several options. We ultimately 
agreed upon language that provides that a non-public institution does 
not have to apply to the Secretary for approval of a licensed and 
accredited temporary additional location under certain conditions. 
Among those conditions is that the institution has not added more than 
six locations at which it offered more than 50 percent of an 
educational program since it was last certified to participate in the 
title IV, HEA programs.
    We are interested in receiving specific comment on whether the six 
locations proposed is the proper number. Also, since the period between 
certifications could be up to six years, we also wish to receive 
comment on whether there should be a limit on the number of such 
locations added during any one year.
    While we are proposing this limited exception to the requirement 
that institutions report and get our approval of new additional 
locations before they disburse title IV aid, we do have some concerns 
about the impact this exception might have on our oversight 
responsibility. One issue is whether we, as the agency responsible for 
administering title IV funds, should know about all locations at which 
these funds are being disbursed. Another concern is whether all non-
public institutions should be able to add temporary locations without 
prior approval, including institutions that may not meet the standards 
of administrative capability or financial

[[Page 49139]]

responsibility. An additional concern is that the proposed temporary 
location exception could be used by schools that would otherwise be 
unable to obtain our approval to establish new permanent locations or 
that had been denied such approval in the past.
    While the proposed exception requires that the new location be 
accredited and licensed, some institutions are licensed or accredited 
by agencies that do not require affirmative prior approval to add new 
locations. In such cases, therefore, a school would be able to disburse 
title IV funds to students enrolled at a location that had not received 
approval from any of the three entities that normally provide 
oversight--the Department of Education, the State licensing agency, and 
the accreditation agency. In such cases there would be no external 
record that the temporary location existed.
    In light of the concerns, we are interested in receiving comment on 
whether requiring notice to the Department, but not prior approval, 
would create an undue burden, and whether there are certain categories 
of institutions that should not be able to take advantage of the 
proposed exception due to problems with their past performance. In 
addition, we are considering obtaining information on temporary 
locations through the annual compliance audit and invite comment on 
such an approach.
Secretary's Responses to Applications
    Current Regulations: Under Sec. 600.21(a), (b) and (c), we notify 
the institution in writing as to its eligibility status.
    Proposed Regulations: Proposed Sec. 600.20(f) discusses our various 
responses to an institution's application (or reapplication) for 
eligibility or certification. It describes the range of notifications 
that we will send in response to an institution's application, based 
upon the type or reason of the application.
    Reasons: While the existing Sec. 600.21(a), (b), and (c) address 
the notifications we provide, the level of specificity is more precise 
in the proposed regulations. We believe that a clearer connection 
between the specific reason for the institution's application and the 
related notification from the Secretary responding to that application 
will be very useful and practical for applicant institutions.
Disbursement Rules
    Current Regulations: Under Sec. 600.40 an institution becomes 
ineligible to continue to participate in any title IV, HEA program as 
of the day the institution's period of participation under Sec. 668.13 
expires, or if the institution's provisional certification is revoked 
under Sec. 668.26. However, the current regulations provide certain 
exemptions and timeframes that allow an ineligible institution to 
continue to make disbursements of title IV aid funds.
    Proposed Regulations: These proposed regulations restate and 
clarify the existing regulations in Sec. 600.40 and Sec. 668.13 that 
address the impact of a loss of eligibility and certification on an 
institution's ability to disburse student financial assistance.
    Generally, if an institution's eligibility lapses the institution 
may not continue to disburse title IV, HEA program funds until it 
receives our notification that it is eligible to participate in the 
programs again. However, an institution may make lawful disbursements 
if it has submitted a materially complete renewal application to us at 
least ninety days prior to the expiration of its current program 
participation agreement, and is awaiting our determination of 
eligibility on its reapplication.
    Likewise, a private nonprofit or private for-profit institution may 
not continue to make lawful disbursements if it experiences a change in 
ownership or change in status that causes a change in control. But, 
such an institution may continue to make disbursements lawfully, if it 
has submitted a materially complete renewal application, received a 
temporary program participation agreement, and is awaiting our final 
determination.
    Also, when an institution is required to make application to add a 
program or location, or increase the level of program offering, it may 
not make any disbursements for that program or location until it 
receives our notification that the program or location is eligible to 
participate.
    An institution would be permitted to continue making title IV, HEA 
program disbursements when the institution is simply applying to 
convert an eligible location to a branch, as permitted under the 
proposed Sec. 600.20(c)(5).
    Finally, if an institution is required to submit an application or 
reapplication or certification and participation and does not, or has a 
program that is not determined to be an eligible program, or has added 
a location that is not approved, the institution is liable for all 
title IV, HEA program funds disbursed to students enrolled at that 
institution, in that program, or at that location or branch.
    Reasons: We do not want students or institutions to experience any 
adverse impact from an abrupt disruption of programs, services, or 
financial assistance, caused by an institution's temporary loss of 
eligibility to participate in our programs. We also want to limit such 
impact from the expiration of an institution's program participation 
agreement if a new application is being reviewed. Acceptance of a 
timely submitted, materially complete application assures a consistent 
flow of funds and program services for the students who depend upon 
them.
Section 600.21--Updating Application Information
    Current Regulations: Section 600.30 requires an institution to 
notify us no later than 10 days after changes occur in the information 
it provided to us in its last eligibility application.
    Proposed Regulations: The proposed regulations would remove 
Sec. 600.30, but keep most of its core elements, and expand them in a 
newly revised Sec. 600.21. The expanded section would require 
additional information about changes relating to an institution's other 
locations, as well as, the main campus itself. Included in the proposed 
language is a requirement that a decrease in the level of program 
offered requires the institution to notify the Secretary.
    Reasons: While much of proposed Sec. 600.21 remains unchanged from 
the current regulations in Sec. 600.30, the proposed regulations 
slightly alter a number of things. For instance, the proposed 
regulation would amend the list of positions or persons that are now 
deemed to substantially affect the actions of the institution, 
eliminating members of an institution's board of directors or trustees. 
However, those regulations would now clearly identify the chief 
executive officer, chief financial officer, and the individual 
designated as the lead program administrator for title IV, HEA programs 
at the institution. We believe that this approach more effectively 
identifies those individuals that have the ability to substantially 
affect an institution's administration of the title IV, HEA programs.
    Discussion occurred regarding when an institution owned by a 
publicly-traded corporation could be expected to know about and report 
changes that occur, particularly related to change of ownership issues. 
Currently, a publicly-traded institution is required to notify us when 
it notifies its accrediting agency, but no later than 10 days after the 
corporation learns of the change. Some committee members questioned how 
these institutions could be held

[[Page 49140]]

responsible to notify us within ten days after a change occurs, since 
the institution's administration might not always have current 
information to identify changes in the position of the major 
shareholders. Others contended that it was likely that the institutions 
would be aware of material changes to the corporations that owned them.
    Ultimately, we decided to require in Sec. 600.21(b) that the 
institution must notify us of the material changes described in 
Sec. 600.21 (a)(5) when it notifies its accrediting agency, but no 
later than 10 days after the change is known to the institution.
    Section 600.21(d) clarifies the consequences of an institution's 
failure to notify the Secretary as required.
Section 600.31--Change in Ownership Resulting in a Change in Control 
for Private Nonprofit and Private for-Profit Institutions
    Statute: Section 498(i) of the HEA provides that an institution 
that undergoes a change in ownership resulting in a change in control 
ceases to qualify as an eligible institution after the change in 
control until it establishes that it meets eligibility and 
certification requirements.
Publicly-Traded Corporations
    Current Regulations: Section 600.31(c)(2) treats a change in 
ownership and control of a publicly-traded corporation as occurring 
when a transaction takes place that causes the filing of a Form 8-K 
with the Securities and Exchange Commission (SEC).
    Proposed Regulations: The proposed rule at Sec. 600.31(c)(2) would 
clarify the circumstances in which a reduction in an ownership interest 
in a publicly-traded corporation results in a change of control within 
the meaning of section 498(i) of the HEA.
    Currently, those changes are predicated upon an event that requires 
a publicly-traded corporation to file a Form 8-K with the SEC. The 
proposed regulations would augment that condition with another, which 
would consider such a change to have occurred if one who was a 
controlling shareholder of the corporation ceases to be a controlling 
shareholder.
    For these purposes, we would consider a controlling shareholder to 
be a person who holds or controls twenty-five percent or more of the 
total outstanding voting stock of the corporation. This proposed 
regulation would use that percentage as a ``bright line'' in 
determining whether a person is in fact a controlling shareholder. This 
definition would not apply to ``institutional investors'' or to 
shareholders whose sole stock ownership is held in mutual funds, 
profit-sharing plans, or Employee Stock Option Plans (ESOPs).
    Reasons: Although changes in ownership and control that occur when 
a person acquires a controlling interest in the corporate owner of an 
institution seem to be readily identified, other transactions may cause 
a change impacting which person holds a controlling interest, without 
that person having acquired new stock that would have triggered a Form 
8-K filing with the SEC.
    For example, stock sales by other shareholders or stock repurchases 
by the parent corporation may alter the currently largest shareholder's 
majority position so that that person is no longer the largest 
shareholder. Other corporate actions, such as the spin-off of a 
subsidiary corporation, may cause a significant change in the identity 
of the persons who can control the corporation, even if the transaction 
results in no single person holding enough of an interest to be easily 
identified as a controlling shareholder.
    We continue to believe that the eligibility of institutions must be 
reassessed when these changes occur, just as current regulations 
require for those institutions owned by closely held and other 
corporations. However, for institutions owned by publicly-traded 
corporations, identifying the circumstances in which a reduction in an 
ownership interest actually causes a change in ownership and control to 
occur poses significant practical difficulties. The change proposed 
here would adopt a ``bright line'' test to identify those ownership 
interests that are large enough to be considered controlling interests 
in a publicly-traded corporate owner of an institution. This proposed 
change will only apply to situations where a change in controlling 
interests does not arise through the traditional stock acquisition that 
would trigger a Form 8-K filing with the SEC. The changes in control 
arising from the acquisition of an ownership interest that trigger the 
Form 8-K filing will continue to be identified by the facts specific to 
that corporation. Current rules regarding acquisition of an ownership 
interest, except as specifically noted here, are not affected by these 
changes.
    The proposed ``bright line'' test only applies to controlling 
shareholders that own or control at least 25 percent of the 
corporation. We considered that some generally accepted accounting 
principles (GAAP) treat a 20 percent ownership interest as sufficient 
to create a presumption of control of a publicly-traded corporation. 
See, Accounting Practices Board Opinion 18, para.17.
    Using that standard, a reduction in ownership interest to less than 
20 percent would also create a presumption of loss of control. However, 
this accounting benchmark would be used to create a rebuttable 
presumption that a change of control had occurred; more analysis would 
sometimes be needed to tell whether control had actually been lost at 
the point when ownership interest fell below that threshold.
    As a result of the negotiated rulemaking meetings, we listened to 
representatives from the institutions who argued that the 20 percent 
threshold might be too low for a ``bright line'' test, and agreed to 
simplify the measure by raising the threshold to 25 and changing it to 
be a ``bright line'' test.
    Therefore, since our current regulations already associate 
controlling interests with ownership of at least 25 percent of a 
publicly-traded corporation, the proposed rule will treat a 25 percent 
interest as giving rise to a conclusive presumption of control, for 
purposes of analyzing reductions in control, if that holding is also 
the largest ownership interest in the corporation.
    Under the proposed rule, any transaction that causes the holder of 
at least a 25 percent ownership interest that is also the largest 
interest in the corporation to reduce that interest to less than 25 
percent, or less than the interest of any other shareholder, 
constitutes a change in ownership and control within the meaning of 
section 498(i) of the HEA.
    In addition, we recognize that when an institution undergoes a 
complete or partial change in ownership and control, it must apply to 
reestablish its eligibility and certification to participate in the 
title IV, HEA programs, and if approved, may remain provisionally 
certified for not more than three years. In that application, the 
institution must identify those shareholders with substantial interests 
in the institution. The provisional certification gives us an 
opportunity to conduct some assessment of the potential influence of 
those shareholders on institutional affairs.
    Therefore, if a reduction in ownership interest of the controlling 
shareholder causes a change in ownership to occur within the term of 
this provisional certification, the institution must reapply for 
certification, but the term of the following provisional certification 
will not extend beyond the term of the initial provisional 
certification, if the person who thereby becomes the

[[Page 49141]]

controlling shareholder was identified on the prior application.
    Recognizing that publicly traded corporations currently file 
financial reports with the SEC, a publicly-traded institution that 
undergoes a change in ownership due to a reduction in ownership 
interest may submit its most recent quarterly financial statement filed 
with the SEC, together with copies of all other SEC filings made since 
the close of the fiscal year for which the institution last submitted a 
compliance audit, when the prospects of obtaining a ``same day'' 
balance sheet are impractical.
Public Institutions
    Current Regulations: Section 600.31(c)(7) provides that an 
institution that is owned by a public entity changes ownership and 
control when that entity is transferred to another governmental entity 
or other person.
    Proposed Regulations: The proposed regulation provides that a 
change in governance at a public institution is not a change in 
ownership, if the institution's new governing body is in the same State 
included in the public institution's program participation agreement 
and the new governing body has acknowledged the institution's 
continuing responsibilities under its program participation agreement.
    Reasons: Our original position on this issue was met with 
significant opposition from some of the non-federal negotiators, as we 
related earlier in our discussions on proposed Sec. 600.20(d)(1), and 
the committee did not reach consensus on this point. We are including 
in these proposed rules, substantially the same proposal we submitted 
to the negotiating committee. The only difference is the inclusion of a 
provision that makes it clear that we would not consider a change in 
governance at a public institution to be a change of ownership only if 
the new governing authority is in the same State included in the public 
institution's program participation agreement and the new governing 
body has acknowledged the institution's continuing responsibilities 
under its program participation agreement.
    As we stated there, we believe the fiscal resources available to 
public institutions and their history of compliance allows us to 
provide this limited regulatory relief.
    A change of governance at a public institution is not a change in 
ownership if the institution's new governing body is in the same State 
included in the program participation agreement and the new governance 
has acknowledged that the institution continues to be bound by its 
program participation agreement. Under such circumstances, we believe 
the possibilities for fiscal or administrative instability to occur are 
remote, and there is virtually no threat to taxpayers' funds.
    A change in ownership resulting in a change of control would occur, 
however, if a public institution's governance changes, and that new 
governing body is not located in the same State identified in the 
institution's program participation agreement or the new governing body 
has not acknowledged the institution's continuing obligations under the 
terms of the institution's program participation agreement. In such 
cases, the institution would be required to comply with the change of 
ownership provisions of Sec. 600.20(b)(2)(iii).
    Several non-federal negotiators felt that our position was biased 
in favor of public institutions. One committee member suggested that as 
more State and municipal governments create partnerships with corporate 
or non-profit entities, the traditional attributes of public governance 
are often lost, and therefore, the stabilizing factors that we rely 
upon for our position will be undermined.
    Another non-federal negotiator suggested that the trend of 
privatization and divestiture of public units and institutions should 
give us reason for caution, in terms of the reliance we have placed on 
the history of compliance of such entities. He suggested that some 
schools might actually decrease the level or extent of compliance, 
based upon its governance by a different entity that might have lower 
thresholds or standards for compliance.
    We considered these arguments, but noted that the situations 
described by the negotiators would not result from the proposed 
exception. The provision does not apply to a change in governance in a 
public entity that involves the transfer of the institution to any 
hybrid entity, such as a special corporation with limited liability, a 
public-private partnership, or that results in joint ownership with any 
out-of-state entities. Also, the exemption is not available if the new 
governing body does not, in the process of gaining control of the 
public institution, acknowledge the institution's continuing 
responsibilities under its program participation agreement with us.
    We understand that a change in governance at a public institution 
could arise in many different ways. Such a change could come from a 
directive by an executive agency, a change in law by a State 
legislature, through a voter referendum, or through a contractual 
agreement between two governmental entities. The proposed regulation 
does not require the governing bodies or the institution to notify us 
of a change in governance, so long as the conditions set out in the 
regulation are satisfied.
    The regulation requires the new governing body to have acknowledged 
the institution's continuing responsibilities under its program 
participation agreement, but does not specify any particular format for 
the acknowledgment. The acknowledgment that the institution continues 
to be responsible for meeting its obligations in its program 
participation agreement must be written, and must be a part of the 
documents that transfer control to the new governing body.
    Where the formal transfer of governing authority did not 
acknowledge this requirement, the institution under its new governance 
could submit a written notice to us advising that it was acknowledging 
its continuing responsibilities under its program participation 
agreement. This separate notice to us would also satisfy the 
requirement. We invite comment on whether a particular form of 
acknowledgment should be required under any of these situations.

Section 668.2--General Definitions (Academic Year); and Section 668.8--
Eligible Program

    Statute: Section 481 of the HEA requires an academic year to have 
at least 30 weeks of instructional time. For certain program 
eligibility purposes, the HEA requires a minimum of ten or fifteen 
weeks of instructional time.
    Current Regulations: Sections 668.2(b) and 668.8 reflect the 
statutory requirement that, in order for an educational program to meet 
the definition of both an academic year and an eligible program, it has 
to include a minimum number of weeks of instructional time. The 
existing regulations provide criteria that address what activity, and 
what amount of that activity, is needed to determine a week of 
instructional time.
    An educational program that uses a semester, trimester, or quarter 
system, (or one that measures academic progress in clock hours) must 
have at least one day of instructional time in a week for that week to 
count as a week of instructional time. This requirement is often 
referred to as the ``one-day rule''. Full-time students at schools with 
programs offered in semesters, trimesters and quarters are generally 
presumed to be in class for 12 hours each week. For purposes of 
consistency, an educational program that measures

[[Page 49142]]

academic progress in credit hours but does not use a semester, 
trimester, or quarter system, must have at least 12 hours of 
instructional time in a week for that week to count as a week of 
instructional time. This requirement is generally referred to as the 
``twelve-hour rule''.
    Proposed Regulations: The proposed regulations would amend 
Sec. 668.2(b)(2)(ii) in the definition of an academic year, and 
Sec. 668.8(b) (3) and (4) to clarify that homework does not count as 
instructional time, and that, in terms of ``preparation for 
examinations'', only study for final examinations that occurs after the 
last scheduled day of classes for a payment period would count as 
instructional time.
    Reasons: Several negotiators pointed out that the current 
regulatory approach does not adequately address newer, non-traditional 
approaches to the delivery of postsecondary education to students, such 
as distance education. They urged us to eliminate or substantially 
modify our current regulations in this area, especially the so-called 
``twelve-hour rule.'' While we understood and appreciated the comments 
of the non-federal negotiators, we remained concerned about possible 
abuse if institutions that did not use semester, trimester or quarter 
systems were, without any other controlling factor, able to construct 
academic programs that included only a minimal amount of instructional 
time each week. Thus, after considerable discussion during the 
negotiations we decided that we did not have enough information on 
alternative measures to responsively propose substantive changes in 
these regulations at this time. No changes were proposed to the current 
regulatory requirement. We invited the negotiators and other interested 
parties to participate in future discussions to address the issues 
surrounding the one-day and twelve-hour rules, and other related 
issues. The efforts of this workgroup may result in recommended changes 
to the HEA or our regulations, subject to a future negotiated 
rulemaking process.
    Consequently, the only modifications to the definition of an 
academic year and an eligible program that are proposed here are 
clarifications of: (1) Homework in the determination of weeks of 
instructional time; and, (2) study for final examinations that occurs 
after the last scheduled day of classes for a payment period.
    It was never intended that homework should count as instructional 
time in determining whether a program meets the definition of an 
academic year, since the 12-hour rule was designed to quantify the in-
class component of an academic program. For that reason, the only time 
spent in ``preparation for exams'' that could count as instructional 
time was the preparation time that some institutions schedule as study 
days in lieu of scheduled classes between the end of formal class work 
and the beginning of final exams.

Section 668.5--Written Arrangements To Provide Educational Programs

    Statute: Section 484(a) of the HEA provides that a recipient of 
title IV program funds must be enrolled in an eligible academic program 
leading to a degree or certificate at an eligible institution.
    Current Regulations: Read literally, the statutory language could 
suggest that a student may only receive title IV funding for academic 
work offered by the eligible institution that has accepted the student 
into a degree or certificate program. However, in order to provide 
flexibility to both students and institutions and to allow for the 
benefits that can accrue when a student takes classes at different 
institutions, the regulations include provisions whereby students may 
receive title IV aid while taking a part of their academic program 
outside of the institution that admitted them.
    Section 600.9 of the Institutional Eligibility regulations and 
Sec. 690.9 of the Federal Pell Grant Program regulations govern written 
agreements between an eligible institution and another institution or 
organization when all or part of a student's educational program is 
provided by the other school or organization. These agreements are 
commonly referred to as consortium and contractual agreements.
    Proposed Regulations: We propose to delete Secs. 600.9 and 690.9 
and consolidate most of the provisions currently contained in those 
sections into a new Sec. 668.5 of the Student Assistance General 
Provisions regulations.
    In addition, we propose a new provision in Sec. 668.5(b) to provide 
that an eligible institution may have a written arrangement with a 
study abroad organization that represents one or more foreign 
institutions instead of separate agreements directly with each foreign 
institution its students are attending.
    Finally, we would create a new provision in Sec. 668.5(d) that, in 
cases of a written arrangement between eligible institutions, would 
allow any of the institutions participating in the written arrangement 
to make title IV, HEA program calculations and disbursements without 
that institution being considered to be a third-party servicer for the 
institution at which the student is enrolled as a regular student.
    Reasons: One reason for proposing the consolidation of the 
provisions covering these arrangements is to simplify the title IV, HEA 
program regulations. This consolidation, in addition to making the 
regulations easier to use, will also make it clear that the provisions 
apply to all of the title IV student assistance programs and not just 
to the Federal Pell Grant Program which is regulated in part 690.
    The main reason for proposing that institutions may enter into 
written agreements with study abroad organizations instead of directly 
with a foreign institution is to provide more flexibility to 
institutions in structuring their study abroad programs.
    Currently, if an eligible institution wants to enter into a written 
arrangement with one or more foreign institutions under which those 
foreign institutions provide part of the educational program for 
students enrolled in the eligible institution, the eligible institution 
must have a written agreement directly with each foreign institution 
its students will be attending. However, in many cases study abroad 
organizations represent foreign institutions by facilitating enrollment 
arrangements, including managing required student payments to the 
foreign institution.
    Under proposed Sec. 668.5(b), if an eligible institution has a 
written agreement with a study abroad organization that represents one 
or more foreign institutions that provide part of the educational 
program of students enrolled in the eligible institution, the eligible 
institution would no longer be required to have an agreement directly 
with the foreign institutions. The written agreement between the 
eligible institution and the study abroad organization would be 
sufficient for purposes of the administration of the title IV, HEA 
programs, provided that the written agreement between the eligible 
institution and the study abroad organization, adequately describes the 
duties and responsibilities of each entity and meets the requirements 
of the regulations.
    Consistent with current regulations, proposed Sec. 668.5(d)(2) 
would allow an eligible institution that enters into an arrangement 
with one or more other eligible institutions to choose which of them 
calculates and disburses title IV, HEA aid. However, under existing 
regulations the student must be taking courses at the institution that 
calculates and disburses the aid. The proposed regulations would allow 
any of the

[[Page 49143]]

eligible institutions in the arrangement to calculate and disburse the 
aid, even if the student is not taking courses at the institution that 
is calculating and disbursing the aid. This is to allow and support the 
diverse ways in which institutions are partnering to enable students to 
have greater access to postsecondary education. We support these 
arrangements and wish to facilitate these partnerships by allowing them 
to choose who best to administer their aid programs.

Section 668.13--Certification Procedures [Training Requirements]

    Current Regulations: Section 668.13(a)(4) requires that, under 
certain circumstances (e.g., a new institution or change of ownership, 
participation in a new title IV, HEA program), specified institutional 
staff must attend and complete title IV, HEA program training. Under 
those circumstances, all institutions must send their financial aid 
administrator to the training. Additionally, institutions that are 
nonprofit must send either their chief administrator, or someone he or 
she designates to this training. In addition to the financial aid 
administrator, for-profit institutions are required to send the chief 
administrator of the school for training. The regulations allow for an 
on-site certification review as an alternative to meeting the training 
requirement, if one or more of the required individuals has previously 
completed such training.
    Proposed Regulations: In addition to a restructuring of paragraph 
(a) of Sec. 668.13, the proposed regulations modify and simplify the 
certification training requirements for chief executive officers and 
financial aid administrators.
    First, the proposed regulations limit the conditions under which 
this training is required to only when an institution wishes to 
participate in the title IV, HEA programs for the first time and when 
there is a change of ownership. We propose to remove the current 
requirement that training is also required when a currently 
participating institution wishes to participate in a new title IV, HEA 
program.
    Second, these proposed regulations provide that, for all 
institutions the chief executive may elect to send for title IV 
certification training another executive level officer of the 
institution in his or her stead. Both the chief financial aid 
administrator and the chief executive of the institution, or designee, 
must attend the certification training within twelve months after the 
institution executes its program participation agreement. In addition, 
the institution may request a waiver of the training requirement for 
either the financial aid administrator or the chief administrator.
    The proposed rules provide that we may grant or deny the waiver for 
the required individual, require another official to take the training, 
or require alternative training.
    Reasons: We believe that it is unnecessary to require senior 
administrators from institutions that already participate in some of 
our programs to attend specialized training, simply because the 
institution wishes to add a title IV, HEA program in which they do not 
currently participate.
    We recognized and agreed with the non-federal negotiators that the 
current regulations could, in some cases, impose an impractical burden 
on the chief administrators of for-profit institutions by requiring 
their attendance at the title IV certification training. Thus, we now 
propose to give those chief administrators the same ability to 
designate another senior institutional official to attend the training, 
as is now allowed for nonprofit institutions.
    Also, if the chief administrator or his designee, or the person 
designated as the title IV administrator has recently completed the 
required title IV HEA program certification training, there currently 
is no training alternative for the participating institution to 
otherwise meet the training requirement. As proposed, Sec. 668.13(a) 
allows the institution to request a waiver of the training requirement 
and provides that we may either grant the waiver or require alternative 
training that would be more beneficial.

Section 668.19--Financial Aid History

    Statute: Section 484 of the HEA contains a number of student 
eligibility provisions that a student must satisfy, or not violate, to 
receive aid under any of the title IV, HEA programs. Included are 
provisions that deny additional title IV, HEA program assistance to a 
student who is in default on a title IV loan or owes an overpayment of 
title IV aid. In addition, most of the title IV, HEA student aid 
programs have annual or aggregate maximum amounts, or both, that a 
student may not exceed.
    Current Regulations: Section 668.19 requires institutions to obtain 
student eligibility information for transfer students by either 
requesting a financial aid transcript (FAT) from each institution the 
student previously attended or, under certain conditions, obtaining 
information from the National Student Loan Data System (NSLDS). Use of 
NSLDS, while allowed is not required. Thus, institutions that receive 
FAT requests from other institutions or from students must complete and 
return them.
    Additionally, current requirements distinguish between two types of 
transfer students: a student who attended another institution in a 
prior award year (prior-year transfer) and a student who transfers from 
one institution to another institution during the same award year 
(current-year transfer). For a prior-year transfer, an institution may 
use the Institutional Student Information Record (ISIR) information it 
receives for that student or obtain that information by requesting a 
paper FAT from the other institutions attended by the prior-year 
transfer student. Generally, for a current-year transfer student an 
institution must request a paper FAT from the institution the student 
previously attended during the award year.
    In all cases where an institution or student requests a paper FAT, 
the regulations require the other institution to complete and promptly 
return the FAT.
    Proposed Regulations: The proposed regulations eliminate the paper 
FAT requirement for all students and mandate the use of NSLDS data for 
purposes of obtaining financial aid history information. However, the 
proposed regulations make a distinction between the two types of 
transfer students. Thus, for a prior-year transfer, an institution 
could continue to rely on the ISIR financial aid history information it 
receives for that student. But, for a current-year transfer student, 
instead of requesting a paper FAT from the other institution, an 
institution would request updated student eligibility information from 
NSLDS.
    In addition, the proposed regulations would replace the various 
certification, origination, and disbursement provisions in the current 
rules with only one requirement: an institution may not make a 
disbursement of title IV, HEA program funds to a current-year transfer 
student for seven days after it requests updated information from 
NSLDS. The proposed rules would, however, allow an institution to make 
a disbursement to a student who is otherwise eligible if, within the 
seven-day period, NSLDS provides the updated information to the 
institution, or the institution obtains the information itself directly 
from NSLDS.
    Finally, the proposed regulations eliminate the requirement that an 
institution that receives a request for the completion of a paper FAT, 
must respond to that request.
    Reasons: We believe that it is no longer necessary for an 
institution to

[[Page 49144]]

request student eligibility information from another institution when 
that information is available from NSLDS, particularly in view of the 
burden imposed on an institution in complying with the paper FAT 
requirements.
    During the negotiations we submitted a draft proposal to the 
committee under which an institution would obtain student eligibility 
information for a current-year transfer directly from NSLDS. However, 
because institutions and guaranty agencies report student aid 
disbursement data to NSLDS only periodically, we wanted to limit the 
number of instances where NSLDS could not provide accurate data at the 
time an institution would seek that data for a current-year transfer. 
Therefore, we proposed than an institution had to query NSLDS no 
earlier than 30 days before it could disburse aid to a current-year 
transfer in order to ensure, to the greatest extent possible, that 
NSLDS would have the aid disbursement data from prior institutions at 
that time.
    Although the non-federal negotiators appreciated our effort to 
eliminate the paper FAT requirements, most believed that the draft fell 
short of its intended benefits. Several negotiators suggested that 
requiring an institution to query NSLDS within the 30-day period was 
too restrictive, particularly in view of the current rules where an 
institution may request an FAT at any time. Moreover, some negotiators 
felt the draft plan would create rather than reduce burden, because for 
many institutions the query and subsequent review of the NSLDS data 
would occur at a time between terms when a financial aid staff is at 
its busiest. Another negotiator believed that eliminating the burden 
now imposed on institutions in responding to FAT requests outweighed 
the burden of query and review of NSLDS data. The negotiators suggested 
that the we find a way to provide student eligibility data directly to 
an institution that needs it, rather than requiring institutions to 
request and review information for all current-year transfer students 
within a very specific timeframe.
    We adopted the non-federal negotiators' suggestions. Under proposed 
Sec. 668.19, an institution would, at any time, request NSLDS to 
provide it with eligibility data for a current-year transfer. We 
expect, but do not require, that this request would be made as soon as 
the institution determines that a student is interested in transferring 
during the current year. In making its request, the institution would 
provide information identifying the student, such as name, social 
security number, and date of birth. After receiving the institution's 
request, NSLDS would compare the disbursement data it has at that time 
to the most recent ISIR generated for the student that contained 
disbursement data. If NSLDS has more recent disbursement data, or later 
acquires disbursement data for that student, it would provide that 
updated information directly to the requesting institution. Thus, NSLDS 
would provide updated disbursement data that was not previously 
provided to the institution whenever it acquires that data from other 
institutions or guaranty agencies. We believe that this will greatly 
reduce burden on institutions, because once they submit the identifiers 
for their current-year transfers, they will only receive NSLDS 
information for those students that had current year disbursements not 
already reported to the institution.
    The proposed rules provide that, after making its request, an 
institution has to wait seven days before it could make a disbursement 
of title IV, HEA programs funds to a student. This timeframe was 
established to ensure that NSLDS could process the requests, query its 
database, and report back to an institution before aid is disbursed. 
However, if the student is otherwise eligible, an institution is 
allowed to make a disbursement within the seven-day period if it 
receives the updated information from NSLDS, or queries NSLDS on-line 
to obtain that information.
    The negotiators supported this proposal and agreed that we should 
hold further discussions with institutions, outside of the negotiated 
rulemaking process, over the next several months regarding the 
following administrative matters:

     The way or ways an institution would request NSLDS to 
provide it with updated data;
     The types of data changes within NSLDS that would 
generate a record to the school;
     The way or ways NSLDS would provide the data to 
institutions and the contents and format of that data; and
     The period for which NSLDS would continue to provide 
updated data for a student.

Section 668.165--Notices and Authorizations

    Current Regulations: Section 668.165(a)(3)(ii) requires an 
institution to provide a notice to a student or parent borrower when 
title IV, HEA program loan proceeds are used to credit the student's 
account at the institution. The regulation allows this notice to be 
sent electronically, but with the requirement that the institution must 
require the student or parent to confirm receipt of the notice and the 
institution must maintain a copy of that confirmation.
    Proposed Regulations: Under the proposed regulation, the 
institution must confirm receipt by the student or parent of the 
electronic notification and must maintain documentation of that 
confirmation. This is a change from the requirement that the 
institution require the student or parent to confirm receipt.
    Reasons: During negotiated rulemaking some of the non-federal 
negotiators suggested that the current regulations in this area did not 
support their constituents' efforts to take advantage of advances in 
electronics.
    They specifically objected that, with regard to the notice required 
when loan funds are credited to a student's account, if the school 
notified the borrower electronically, the school was required to obtain 
and maintain a copy of the confirmation of receipt from the student or 
parent. They pointed out that this level of confirmation and 
documentation was not required when the same notice was sent via the 
U.S. Postal Service. They asked why they could not simply send the 
required notification electronically, and monitor any ``returned 
mail'', just as they do with mail sent through the U.S. Postal Service.
    We noted the long-standing precedent that mail deposited with the 
U.S. Postal Service is presumed to have been delivered unless it is 
returned to the sender. We shared our concern about the lack of a 
standard for the handling of undeliverable electronic messages in the 
different email systems that schools use. Just because a school sends a 
message electronically does not assure that it was received. For 
example, some email systems report as ``undeliverable'' any message 
that does not make it all the way to the intended recipient's email 
account. However, other systems may only send an ``undeliverable'' 
message if the transmission does not make it to the recipient's email 
provider, regardless of whether the provider is able to deliver the 
mail to the recipient's account. In other instances, an 
``undeliverable'' message might not be sent to the institution even if 
the message never reaches the email provider. Thus, relying only upon 
the lack of an ``undeliverable'' message, would not be sufficient to 
ensure that these important consumer protection messages were actually 
received by the borrower. Therefore, we declined to make the changes 
suggested by the non-federal negotiators.
    At the last round of the negotiations we were asked to at least 
change the retention requirement so that all an institution needed to 
do was to

[[Page 49145]]

demonstrate that it had used a system that monitored receipt. The 
presenter of that proposal suggested that, while she would prefer a 
more drastic relaxation of the requirement, at least this suggestion 
would not require schools to create and maintain a system that tracks 
and retains these electronic transmissions for several years.
    We believe that ensuring that these important messages were 
actually delivered to the recipients' email account requires confirming 
that the individual messages are sent and received, rather than simply 
monitoring the presence of a reliable notification system. Thus, we do 
not feel that changing the current requirement to simply require 
documentation of a school process can be made at this time.
    However, in reviewing this issue we decided that some 
clarifications could be made to reflect policy guidance that has been 
provided in this area. Specifically, the current rule states that the 
institution must require the recipient of the message to confirm that 
the message has been received. We have consistently interpreted that 
provision to only require confirmation that the notice was received by 
the student or parent, that is, that the electronic mail was delivered 
to the correct address.
    Therefore, we are proposing that the regulation simply require the 
school to confirm receipt by the student or parent of the electronic 
notification and maintain documentation of that confirmation.

Federal Work-Study Program

Section 675.19--Fiscal Procedures and Records

    Current Regulations: Section 675.19(b)(2)(i) requires an 
institution to establish and maintain program and fiscal records that 
include, among other things, a certification that each FWS student has 
worked and earned the amount being paid. This certification must be 
signed by the FWS student's supervisor, who is either an official of 
the institution or off-campus agency. For students paid on an hourly 
basis, this certification must be part of, or supported by, a time 
record showing the hours each student worked in clock time sequence or 
the total hours worked per day.
    Proposed Regulations: These proposed regulations would amend 
Sec. 675.19(b)(2)(i) by removing the requirement that the certification 
must have the handwritten signature of the FWS student's supervisor. 
This change provides flexibility to institutions by allowing the use of 
an electronic certification or a certification through other 
appropriate means. The proposed regulation still allows institutions 
the option of continuing to have the FWS student's supervisor sign his 
or her name on a paper certification.
    We expect an institution that chooses to use a system that 
incorporates an electronic certification to adopt reasonable safeguards 
against possible fraud and abuse. The institution should provide a 
secure electronic certification through an electronic payroll system 
that includes:

     Password protection;
     Password changes at set intervals;
     Access revocation for unsuccessful log-ins;
     User identification and entry point tracking;
     Random audit surveys with supervisors; and
     Security tests of the code access.

    Reasons: The current requirement for a handwritten signature from 
the FWS student's supervisor predates the development of electronic 
alternatives to indicate that the supervisor certified the time record. 
A number of institutions have expressed the desire to implement an 
electronic system that can process time records for all its employees, 
including FWS students.
    However, the current requirement of collecting a handwritten 
signature from an FWS student's supervisor on a paper certification 
often prevents, or at least diminishes, the effectiveness of an 
automated electronic payroll system.
    The proposed regulatory change does not remove the certification 
requirement. The certification requirement helps ensure that the 
supervisor is reviewing the time record prior to paying an FWS student. 
This is an important safeguard to help maintain the integrity of the 
FWS Program by paying only students who worked and by paying only the 
correct amount of funds earned by the students.

Federal Family Education Loan Programs and Federal Direct Loan 
Program

Section 682.201 and 685.200--Eligible Borrowers

    Statute: Section 428B(a)(1)(A) of the HEA states, among other 
things, that parents of dependent students are eligible to borrow PLUS 
loans in the FFEL and Direct Loan programs, if they do not have an 
adverse credit history.
    Current Regulations: Sections 682.201(b)(1) and 685.200(b)(1) list 
the criteria that a parent borrower must meet to be eligible to borrow 
a PLUS Program loan. One criterion for a Federal PLUS loan made on or 
after July 1, 1993, is that the parent borrower must not have an 
adverse credit history.
    The regulation further indicates that, unless the lender determines 
that extenuating circumstances exist, the lender must consider that an 
applicant has an adverse credit history based on several enumerated 
reasons that may appear in the applicant's credit report.
    If the lender does determine that extenuating circumstances exist, 
the regulation requires the lender to retain documentation 
demonstrating its basis for making that determination.
    Proposed Regulations: The proposed regulation would amend 
Sec. 682.201(b)(1)(vii)(F) to require that the lender retain a record 
(instead of documentation) demonstrating its basis for determining that 
extenuating circumstances exist in such a situation. Similarly, where 
the regulation indicates what that documentation may include, the 
proposed regulation would indicate what such a record may include.
    Reasons: This change in the two places noted to the word ``record'' 
in place of the word ``documentation,'' is a clarification of the 
existing regulation.
    A lender has never had to maintain original documents that showed 
what its basis was for determining that extenuating circumstances 
existed, although it could do so.
    The proposed regulation provides some examples of what the record 
of such a determination may include (an updated credit report, a 
statement from the creditor that the borrower has made satisfactory 
arrangements to repay the debt, or a satisfactory statement from the 
borrower explaining any delinquencies with outstanding balances of less 
than $500). This record that demonstrates the lender's determination 
that extenuating circumstances existed could be the original applicable 
document. However, it could also be an electronic (or other type of) 
copy of such a document.

Section 682.207--Due Diligence in Disbursing a loan

    Statute: Section 428G of the HEA establishes the requirements for 
the disbursement of student loans under the FFEL Program.
    Current Regulations: Under Sec. 682.207(b)(1) and (c)(3), a lender 
is required to disburse loan proceeds to a school in accordance with 
the disbursement schedule provided by the school.
    Proposed Regulations: Proposed changes to Sec. 682.207(b)(1) and 
(C)(3) would explicitly allow a lender to disburse loan proceeds either 
in accordance with the disbursement schedule or in accordance with 
another request made by a school that modifies that schedule.

[[Page 49146]]

    Reasons: Under proposed Sec. 682.207(b)(1) and (c)(3), a lender 
could continue to provide loan proceeds to a school based solely on the 
disbursement schedule provided by the school on a loan certification. 
Or, the school and the lender could agree that loan proceeds would be 
provided at the school's request under an alternate process like the 
current ``hold and release'' process used by some FFEL lenders and 
guaranty agencies. Under the hold and release process, a school 
instructs the lender not to provide the loan funds for a borrower 
according to the disbursement schedule provided in the loan 
certification. Rather, the lender holds the funds until the school 
requests the lender to release those funds for that borrower.
    Although the current regulations do not prohibit schools and 
lenders from using the hold and release process, we wish to make 
explicit in the regulations that schools have the flexibility to 
request a modification to the original disbursement schedule, and 
lenders have the authority to provide FFEL loan proceeds, in a manner 
that best meets their administrative needs. Thus, the proposal would 
allow FFEL lenders to release loan funds upon the specific request of 
the school to modify the original schedule, rather than according to 
the disbursement schedule originally presented in the loan 
certification.
    Current Regulations: Section 682.207(f) allows a lender to disburse 
loan proceeds after the student has ceased to be enrolled on at least a 
half-time basis if, among other things, the school certifies the 
borrower's loan eligibility before the date the borrower became 
ineligible and the loan funds will be used to pay educational costs 
that the school determines the student incurred for the period in which 
the student was enrolled and eligible. The regulation requires the 
lender to give notice to the school that the loan proceeds are being 
disbursed based on the above noted situation.
    Proposed Regulations: The proposed regulation would amend 
Sec. 682.207(f) by dropping the requirement for the lender to give 
notice to the school of the reason that the loan proceeds are being 
disbursed in this situation.
    Reasons: In order for the lender to disburse the loan proceeds in 
this situation, the school must determine that there are educational 
costs (that are intended to be covered by the loan) that the student 
incurred for the period in which the student was enrolled and eligible. 
Therefore, since it makes the determination about the student's 
incurred educational costs, the school will know the reason that the 
loan proceeds are being disbursed by the lender in this situation. 
Thus, requiring the lender to give notice of that fact is not 
necessary.

Section 682.604(b)--Releasing Loan Proceeds

    Current Regulations: Before a school may release FFEL Program loan 
proceeds to a student, it must determine that the student has 
continuously maintained eligibility, as provided in Sec. 682.201. The 
current regulations specifically require the school to make this 
determination after it receives the loan proceeds from the lender.
    Proposed Regulations: Proposed Sec. 682.604(b)(2)(i) would not 
require a school to determine a student's eligibility after it receives 
loan proceeds from a lender.
    Reasons: As part of the negotiations of Committee I, the FFEL 
industry recommended that the regulations be revised in several ways to 
better accommodate the processes under which lenders and the Secretary 
provide title IV program funds to schools. In response, we submitted a 
proposal to Committee I describing a new payment method that 
incorporated many of the FFEL industry's recommendations.
    We and the non-federal negotiators reached tentative agreements on 
many of the provisions of the proposed payment method. However, 
consensus was not reached on our entire proposal, nor on alternatives 
to that proposal that were put forth by some non-federal negotiators. 
Under the protocols adopted by the committee, when consensus is not 
reached we may publish proposed regulations that may or may not reflect 
any tentative agreements, or that address all or some of the issues 
discussed during the negotiated rulemaking sessions. Consistent with 
these protocols, we propose to make a revision to Sec. 682.604(b)(2) of 
the FFEL Program regulations.
    Under the General Provisions regulations, and in each of the 
program regulations, a school may disburse Title IV, HEA program funds 
only to, or on behalf of, an eligible student. The specific provision 
in the FFEL Program regulation at Sec. 682.604(b)(2) is the only one in 
the regulations that requires a school to make an eligibility 
determination after it receives program funds. Under all of the other 
regulations, a school has the flexibility to implement policies and 
procedures that ensure that a student meets all of the eligibility 
requirements before it disburses funds. This proposed change would 
extend this flexibility to FFEL Program funds as well.
    In addition, the proposed change would eliminate a conflict between 
the current provisions in Sec. 682.604(b)(2) and the General Provisions 
regulations in Sec. 668.164(a). Under Sec. 668.164(a), a school makes a 
disbursement of Title IV, HEA program funds whenever it credits a 
student's account, regardless of whether the school has received 
program funds from the Secretary or a lender. As discussed above, a 
school must ensure that it only disburses Title IV, HEA program funds 
to eligible students. However, under current Sec. 682.604(b)(2) a 
school that makes a disbursement of FFEL Program funds to, or on behalf 
of, an eligible student by crediting the student's account before it 
receives the funds from a lender, must make another eligibility 
determination after it receives those funds from the lender. We are 
proposing to modify the current regulation to make clear that since the 
General Provisions regulations in Sec. 668.164(a) apply to 
disbursements of all program funds, the school in the example above 
does not need to make another eligibility determination.

Section 682.604(c)(6)--Processing the Borrower's Loan Proceeds and 
Counseling Borrowers; and Section 685.301--Origination of a Loan by a 
Direct Loan Program School

    Statute: Section 428G(a)(2) of the HEA provides that FFELP loans 
generally must be disbursed in at least two installments. The second 
installment cannot be made any earlier than half-way through the loan 
period except for semester, quarter, or similar term situations. Then 
the second installment is allowed to be made at the beginning of the 
second semester, quarter, or similar term. Federal Direct Loan Program 
loans are made under the same conditions pursuant to section 455 of the 
HEA.
    Current Regulations: In the FFEL Program, except for the situation 
in which the date of one or more scheduled disbursements has passed 
before a lender makes a disbursement, Sec. 682.604(c)(6) requires, 
among other things, that the school deliver loan proceeds at least once 
in each payment period when a loan period is more than one payment 
period. Section 682.604(c)(7) states that in cases where a school uses 
credit hours and terms other than semesters, trimesters, or quarters, 
it may not deliver a second loan disbursement until the later of the 
calendar midpoint of the loan period or the date when the student has 
completed half of the academic coursework in the loan period. Section 
685.301(b) has similar provisions for the Direct Loan Program.

[[Page 49147]]

    Proposed Regulations: In the FFEL Program, the proposed change to 
Sec. 682.604(c)(6) adds Sec. 682.604(c)(7) as one exception to the rule 
that a school deliver loan proceeds at least once in each payment 
period. In the Direct Loan Program, Sec. 685.301(b)(2) already includes 
a reference to a provision corresponding to Sec. 682.604(c)(7).
    In addition, in the FFEL Program and in the Direct Loan Program, 
the proposed regulations would amend Secs. 682.604(c)(7) and 
685.301(b)(5) so that they do not preclude a school from delivering 
loan proceeds in each term in those situations in which the school 
measures progress in credit hours and uses terms other than semesters, 
trimesters, or quarters as long as those non-standard terms are 
substantially equal in length throughout the loan period.
    Credit hour schools that do not use terms, or use terms that are 
not substantially equal in length, would continue to be required to 
wait until the later of the calendar midpoint of the loan period or the 
date that the student has completed half of the academic coursework in 
the loan period before delivering the second disbursement of the loan.
    Terms within a loan period would be considered to be substantially 
equal in length if no term in the period was more than two weeks 
shorter than any other term in the period.
    Reasons: Since all terms in which a school uses credit hours are 
considered to be payment periods according to Sec. 668.4 of the Student 
Assistance General Provisions regulations, there is an inconsistency in 
the FFEL Program regulations between Secs. 682.604(c)(6) and (c)(7) in 
some situations. This inconsistency does not exist in the Direct Loan 
Program regulations as noted above.
    In the FFEL Program for example, if a school uses credit hours and 
has five terms in its academic year, Sec. 682.604(c)(6) indicates that 
the school should deliver loan proceeds at least once each term. But, 
Sec. 682.604(c)(7) indicates that the school may not deliver a second 
disbursement until the later of the calendar midpoint of the loan 
period or the date by which the student has completed half of the 
academic coursework in the loan period. We have removed that 
inconsistency.
    With regard to the change in the treatment of terms other than 
semesters, trimesters, or quarters, that are of substantially equal 
length, we have proposed the same treatment for those terms as is 
currently provided for semesters, trimesters, or quarters. We have done 
this because it appears reasonable to treat all terms in the same 
manner, without regard to the number of terms that a school has, as 
long as all of the terms in the loan period are substantially equal in 
length.
    However, for terms that are not substantially equal in length, we 
have retained the current requirement that there be two disbursements, 
with the second disbursement being made at the later of the calendar 
midpoint of the loan period or the date that the student has completed 
half of the academic coursework of the loan period. We have done this 
to prevent a second or subsequent disbursement from being made too 
early in a student's loan period when the earlier disbursement would be 
for an amount that substantially exceeds the amount that would be 
proportional to the period for which it is made.
    For example, if a school had two terms in a 30-week academic year, 
one of which was 10 weeks and the other was 20 weeks long, we would not 
want the second disbursement (equal to half of the loan amount) to be 
made in the eleventh week, the beginning of the second term.

Executive Order 12866

1. Potential Costs and Benefits

    Under Executive Order 12866, we have assessed the potential costs 
and benefits of this regulatory action.
    The potential costs associated with the proposed regulations are 
those resulting from statutory requirements and those we have 
determined as necessary for administering these programs effectively 
and efficiently.
    As more fully described elsewhere in this preamble, these proposed 
regulations, developed through a negotiated rulemaking process with the 
higher education community, would implement a variety of streamlining 
and clarifying provisions to provide institutions additional 
flexibility in the administration of the title IV, HEA programs. 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.

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.
    We invite 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. 675.19 Fiscal procedures and records.)
     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 
ADDRESSES 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. The 
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. These 
proposed regulations would not impose a significant economic impact on 
a substantial number of small entities. The regulations would benefit 
both small and large institutions by providing additional flexibility 
in the administration of: the Institutional Eligibility requirements; 
the certification procedures for institutions; the financial aid 
history verification requirements; the cash management requirements; 
the written arrangements requirements; the FFEL Programs; Direct Loan 
Program and Federal Work-Study Programs, without requiring significant 
changes to current institutional system operations.
    These proposed regulations would ease administrative burden and 
augment

[[Page 49148]]

student benefits by: consolidating and streamlining procedures for 
establishing, reestablishing, maintaining or expanding institutional 
eligibility and certification; expanding options for institutions that 
enter contractual agreements with other entities for the delivery of 
eligible programs and title IV, HEA program funds disbursement; 
improving the process to verify the financial aid history of title IV, 
HEA program fund recipients; streamlining the disbursement rules for 
non-traditional programs that participate in either the FFEL or Direct 
Loan programs; expanding electronic options for notifications in cash 
management; providing flexibility to schools and lenders in the 
disbursement of loan funds; and streamlining the collection of hours 
worked by FWS Program hourly employees through allowing institutions to 
implement an automated timekeeper system using electronic signatures to 
verify hours worked.
    We invite comments from small institutions as to whether the 
proposed changes would have a significant economic impact on them.

Paperwork Reduction Act of 1995

    Proposed Secs. 600.20, 600.21, 600.31, 668.13, 668.19 and 675.19 
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. These sections contain the recordkeeping 
and reporting provisions for various title IV, HEA programs, detailed 
in the following paragraph.
    Collection of information: Student Assistance General Provisions--
Sec. 600.20--Application procedures for establishing, reestablishing, 
maintaining, or expanding institutional eligibility and certification. 
The proposed regulations would streamline the application and 
reapplication procedures that institutions must follow to obtain 
eligibility and certification to participate in the title IV, HEA 
programs. New flexibility is proposed regarding the format of the 
application, the process of adding additional and temporary locations, 
and an institution's ability to make disbursements after its 
eligibility or certification has expired.
    Section 600.21--Updating application information. The proposed 
regulations in this section clarify the instances requiring 
notification of updated information, and the procedures for making such 
notification. The reporting timeframes for institutions owned by 
publicly traded corporations are significantly altered in these 
proposed regulations.
    Section 600.31--Change in ownership resulting in a change in 
control for private nonprofit and private for-profit institutions. 
These regulations specifically address procedures and requirements 
institutions must follow when they have experienced a change in 
ownership, resulting in a change of the people or entities that govern 
those institutions. Generally, schools must reapply when such a change 
occurs. These proposed regulations modify the criteria an institution 
must consider to determine if, or to what extent, such a change 
occurred.
    Section 668.13--Certification procedures [training requirements]. 
The proposed regulations offer alternatives to the training 
requirements for institutional certification, and the option to request 
a waiver from the training.
    Section 668.19--Financial Aid History. The proposed regulations 
amend the process for confirming a transfer student's financial aid 
history, eliminating the need to use paper forms to meet the 
requirements.
    Federal Work-Study Program--Sec. 675.19--Fiscal procedures and 
records. The proposed regulations allow a FWS student's supervisor to 
certify electronically or through other means, that each student has 
worked and earned the amount being paid. This proposed change 
eliminates the restriction that the FWS certification must have a 
handwritten signature and reduces the administrative burden for 
certifying FWS time records.
    Federal Family Education Loan Program and William D. Ford Direct 
Loan Program--Sec. 682.201--Eligible borrowers. The proposed 
regulations revise this section to allow greater flexibility to FFEL 
Program lenders in record retention regarding the documentation 
required to establish an adverse credit history for a parent borrower.
    Section 682.207--Due diligence in disbursing a loan. We propose to 
change this section to allow a lender in the FFEL Program to disburse 
funds to a school based upon the school's modification to the 
disbursement schedule originally provided in the loan certification. 
Another proposed change to this section eliminates the requirement that 
a lender in the FFEL Program provide notice to the school when it 
disburses funds to the school after the student is no longer enrolled 
on at least a half-time basis.
    Section 682.604--Processing the borrower's loan proceeds and 
counseling borrowers and Sec. 685.301--Origination of a loan by a 
Direct Loan Program school. These proposed changes clarify and 
eliminate a regulatory contradiction in the loan disbursement rules for 
nontraditional programs under the FFEL and Direct Loan programs.
    Our current estimate is that the existing total annual 
recordkeeping and reporting burden hours for all of the affected 
sections listed above will not change. We do not anticipate any 
significant changes in these hours as a result of the proposed 
regulations that would result in an increase in the current estimates. 
We believe the additional flexibilities these regulations propose may 
reduce the annual recordkeeping and burden hours for many institutions.
    We will monitor the impact of the proposed flexibilities to 
determine the nature and extent of any impact upon institutions.
    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 collections of 
information in--
     Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our 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 the collections 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 49149]]

Intergovernmental Review

    These title IV, HEA program funds 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 would require transmission of information that any 
other agency or authority of the United States gathers or makes 
available.

Electronic Access to This Document

    You may view this document, as published in the Federal Register, 
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

    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 Number: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 Federal 
Family Education Loan Program; 84.032 Consolidation Program; 84.032 
Federal PLUS Program; 84.032 Federal Supplemental Loans for Students 
Program; 84.033 Federal Work-Study Program; 84.037 Federal Perkins 
Loan Cancellation Program; 84.038 Federal Perkins Loan Program; 
84.063 Federal Pell Grant Program; 84.069 Leveraging Educational 
Assistance Partnership Program; 84.268 Federal William D. Ford 
Federal Direct Loan Program)

List of Subjects

34 CFR Part 600

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

34 CFR Part 668

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

34 CFR Part 675

    Colleges and universities, Employment, Grant programs--education, 
Reporting and recordkeeping requirements, Student aid.

34 CFR Part 682

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

34 CFR Part 685

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

34 CFR Part 690

    Grant programs--education, Reporting and recordkeeping 
requirements, Student aid.

    Dated: August 4, 2000.
Richard W. Riley,
Secretary of Education.
    For the reasons stated in the preamble, the Secretary proposes to 
amend title 34 of the Code of Federal Regulations by amending parts 
600, 668, 675, 682, 685 and 690 as follows:

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

    1. The authority citation for part 600 continues to read as 
follows:

    Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b, 
and 1099c, unless otherwise noted.


Secs. 609.9 and 600.30  [Removed]

    2. Sections 600.9 and 600.30 are removed.
    3. Section 600.10 is amended by removing and reserving paragraph 
(a)(2) and by revising paragraphs (b)(3)(i) and (b)(3)(ii) to read as 
follows:


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

* * * * *
    (b) * * *
    (3) * * *
    (i) The Secretary approves that location under Sec. 600.20(f)(5); 
or
    (ii) The location is licensed and accredited and the institution 
does not have to notify the Secretary about that location under 
Sec. 600.20(d).
* * * * *
    4. Section 600.20 is revised to read as follows:


Sec. 600.20  Application procedures for establishing, reestablishing, 
maintaining, or expanding institutional eligibility and certification.

    (a) Initial eligibility application. An institution that wishes to 
establish its eligibility to participate in any HEA program must submit 
an application to the Secretary for a determination that it qualifies 
as an eligible institution under this part. If the institution also 
wishes to be certified to participate in the title IV, HEA programs, it 
must indicate that intent on the application, and submit all the 
documents indicated on the application to enable the Secretary to 
determine that it satisfies the relevant certification requirements 
contained in 34 CFR part 668, subparts B and L.
    (b)(1) Reapplication. A currently designated eligible institution 
that is not participating in the title IV, HEA programs must apply to 
the Secretary for a determination that the institution continues to 
meet the requirements in this part if the Secretary requests the 
institution to reapply.
    (2) A currently designated eligible institution that participates 
in the title IV, HEA programs must apply to the Secretary for a 
determination that the institution continues to meet the requirements 
in this part and 34 CFR part 668 if the institution wishes to--
    (i) Continue to participate in the title IV, HEA programs beyond 
the scheduled expiration of the institution's current eligibility/
certification designation;
    (ii) Reestablish eligibility/certification as a private nonprofit 
or private for-profit institution following a change in ownership that 
results in a change in control as described in Sec. 600.31; or
    (iii) Reestablish eligibility/certification after the institution 
changes its status as a proprietary, nonprofit, or public institution.
    (c) Application to expand eligibility. A currently designated 
eligible institution that wishes to expand the scope of its 
eligibility/certification and disburse title IV, HEA Program funds to 
students enrolled in that expanded scope must apply to the Secretary 
for approval to--
    (1) Add a location at which the institution offers 50 percent or 
more of an educational program, unless the institution is exempt from 
this requirement under paragraph (d) of this section;
    (2) Increase its level of program offerings (e.g., adding graduate 
degree programs when it previously offered only baccalaureate degree 
programs);
    (3) Add an educational program if the institution is required to 
apply to the Secretary for approval under Sec. 600.10(c);

[[Page 49150]]

    (4) Add a branch campus at a location that is not currently 
included in the institution's eligibility/certification designation; or
    (5) Convert an eligible location to a branch campus.
    (d) Exemptions from applying for additional locations--(1) 
Exemption for public institutions. A public institution does not have 
to apply to the Secretary for approval of a licensed and accredited 
additional location under paragraph (c)(1) of this section if the 
additional location is in the same State as the main campus. The 
institution must report those locations in its next recertification 
application.
    (2) Exemption for temporary additional locations for non-public 
institutions. A non-public institution does not have to apply to the 
Secretary for approval of a licensed and accredited temporary 
additional location under paragraph (c)(1) of this section if--
    (i) The institution intends to use that location for not more than 
12 months and has not yet used that location for more than 12 months;
    (ii) The institution has not added more than six locations at which 
it offered more than 50 percent of an educational program since it was 
last certified to participate in the title IV, HEA programs;
    (iii) The institution does not have any outstanding title IV, HEA 
program liability;
    (iv) The institution did not acquire the assets of an institution 
that provided educational programs at that location during the 
preceding year and participated in the title IV, HEA programs during 
that year;
    (v) The institution would not be subject to a loss of eligibility 
under 34 CFR 668.188 if it adds that location; and
    (vi) The Secretary does not currently preclude the institution from 
opening additional locations without notice to the Secretary.
    (3) More than one year at a temporary location. If an institution 
does not apply to the Secretary for approval of a temporary additional 
location under the provisions of paragraph (c)(1) of this section 
because it did not intend to operate at that location for more than 12 
months, and the institution will stay at that location for more than 12 
months, the institution--
    (i) Must apply to the Secretary for approval of that additional 
location as soon as it determines that it will stay at that location 
for more than 12 months, but not later than 35 days before the end of 
that 12-month period; and
    (ii) May not disburse title IV, HEA program funds after the 12-
month period has expired to students enrolled at that location until 
the Secretary approves that location.
    (e) Application format. To satisfy the requirements of paragraphs 
(a), (b), and (c) of this section, an institution must apply in a 
format prescribed by the Secretary for that purpose and provide all the 
information and documentation requested by the Secretary to make a 
determination of its eligibility and certification.
    (f) Secretary's response to applications. (1) If the Secretary 
receives an application under paragraph (a) or (b)(1) of this section, 
the Secretary notifies an institution--
    (i) Whether the applicant institution qualifies in whole or in part 
as an eligible institution under the appropriate provisions in 
Secs. 600.4 through 600.7; and
    (ii) The locations and educational programs that qualify as the 
eligible institution if only a portion of the applicant qualifies as an 
eligible institution;
    (2) If the Secretary receives an application under paragraph (a) of 
this section and that institution applies also to participate in the 
title IV, HEA programs, the Secretary notifies the institution--
    (i) Whether the institution is certified to participate in those 
programs;
    (ii) The title IV, HEA programs in which it is eligible to 
participate;
    (iii) The title IV, HEA programs in which it is eligible to apply 
for funds;
    (iv) The effective date of its eligibility to participate in those 
programs; and
    (v) The conditions under which it may participate in those 
programs;
    (3) If the Secretary receives an application under paragraph (b)(2) 
of this section, the Secretary notifies the institution whether it 
continues to be certified, or whether it reestablished its eligibility/
certification, to participate in the title IV, HEA programs.
    (4) If the Secretary receives an application to have a branch 
campus certified to participate in the title IV, HEA programs as a 
branch campus, the Secretary notifies the institution whether that 
branch campus is certified to participate and the date that the branch 
campus is eligible to begin participation;
    (5) If the Secretary receives an application under paragraph (c)(1) 
of this section for an additional location, the Secretary notifies the 
institution whether the location is eligible or ineligible to 
participate in the title IV, HEA programs, and the date of eligibility 
if the location is determined eligible; and
    (6) If the Secretary receives an application under paragraph (c)(2) 
of this section for an increase in the level of program offerings, or 
for an additional educational program under Sec. 600.10(c) and 
paragraph (c)(3) of this section, the Secretary notifies the 
institution whether the program qualifies as an eligible program, and 
if the program qualifies, the date of eligibility.
    (g) Disbursement rules related to applications. (1)(i) Except as 
provided under paragraph (g)(1)(ii) of this section and 34 CFR 668.26, 
if an institution submits an application under paragraph (b)(2)(i) of 
this section because its participation period is scheduled to expire, 
after that expiration date the institution may not disburse title IV, 
HEA program funds to students attending that institution until the 
institution receives the Secretary's notification that the institution 
is again eligible to participate in those programs.
    (ii) An institution described in paragraph (g)(1)(i) of this 
section may disburse title IV, HEA program funds to its students if the 
institution submits to the Secretary a materially complete renewal 
application in accordance with the provisions of 34 CFR 668.13(b)(2), 
and has not received a final decision from the Secretary on that 
application.
    (2)(i) Except as provided under paragraph (g)(2)(ii) of this 
section and 34 CFR 668.26, if a private nonprofit or private for-profit 
institution submits an application under paragraph (b)(2)(ii) or 
(b)(2)(iii) of this section because it has undergone or will undergo a 
change in ownership that results in a change of control or a change in 
status, the institution may not disburse title IV, HEA program funds to 
students attending that institution after the change of ownership or 
status until the institution receives the Secretary's notification that 
the institution is eligible to participate in those programs.
    (ii) An institution described in paragraph (g)(2)(i) of this 
section may disburse title IV, HEA program funds to its students if the 
Secretary approves the institution's materially complete application 
under paragraph (i) of this section, and has not received a final 
decision from the Secretary on that application.
    (3) If an institution must apply to the Secretary under paragraphs 
(c)(1) through (c)(4) of this section, the institution may not disburse 
title IV, HEA program funds to students attending the subject location, 
program, or branch before the institution receives the Secretary's 
notification that the location, program, or branch is eligible

[[Page 49151]]

to participate in the title IV, HEA programs.
    (4) If an institution applies to the Secretary under paragraph 
(c)(5) of this section to convert an eligible location to a branch 
campus, the institution may continue to disburse title IV, HEA program 
funds to students attending that eligible location.
    (5) If an institution does not apply to the Secretary to obtain the 
Secretary's approval of a new location, program, increased level of 
program, or branch, and the location, program, or branch does not 
qualify as an eligible location, program, or branch of that institution 
under this part and 34 CFR part 668, the institution is liable for all 
title IV, HEA program funds it disburses to students enrolled at that 
location or branch or in that program.

(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)

    5. Section 600.21 is revised to read as follows:


Sec. 600.21  Updating application information.

    (a) Notice requirements. Except as provided in paragraph (b) of 
this section for the information described in paragraph (a)(5) of this 
section, an eligible institution must notify the Secretary in a manner 
prescribed by the Secretary, no later than 10 days after the change 
occurs, of any change in the following:
    (1) Its name, the name of a branch, or the name of a previously 
reported location.
    (2) Its address, the address of a branch, or the address of a 
previously reported location.
    (3) The way it measures program length (e.g., from clock hours to 
credit hours, or from semester hours to quarter hours).
    (4) A decrease in the level of program offerings (e.g. the 
institution drops its graduate programs).
    (5) A person's ability to affect substantially the actions of the 
institution if that person did not previously have this ability. The 
Secretary considers a person to have this ability if the person--
    (i) Holds alone or together with another member or members of his 
or her family, at least a 25 percent ``ownership interest'' in the 
institution as defined in Sec. 600.31(b);
    (ii) Represents or holds, either alone or together with other 
persons, under a voting trust, power of attorney, proxy, or similar 
agreement at least a 25 percent ``ownership interest'' in the 
institution, as defined in Sec. 600.31(b); or
    (iii) Is a general partner, the chief executive officer, or chief 
financial officer of the institution.
    (6) The individual the institution designates under 34 CFR 
668.16(b)(1) as its title IV, HEA Program administrator.
    (b) Institution's notice to the Secretary. An institution that is 
owned by a publicly traded corporation must notify the Secretary of any 
change in the information described in paragraph (a)(5) of this section 
when it notifies its accrediting agency, but no later than 10 days 
after the institution learns of the change.
    (c) Secretary's response to notice. The Secretary notifies an 
institution if any reported change affects the institution's 
eligibility, and the effective date of that change.
    (d) Consequence of failure to notify. An institution's failure to 
inform the Secretary of a change described in paragraph (a) of this 
section within the time period stated in that paragraph may result in 
adverse action against the institution.
    (e) Definition. For purposes of this section, the Secretary 
considers a member of a person's family to be his or her--
    (1) Parent, sibling, spouse or child;
    (2) Spouse's parent or sibling;
    (3) Child's spouse; and
    (4) Sibling's spouse.

(Authority: 20 U.S.C. 1001, 1002, 1088, and 1099c)

    6. Section 600.31 is amended by:
    A. Revising the section heading.
    B. Revising the first sentence of paragraph (a)(1).
    C. Redesignating paragraph (a)(2) as paragraph (a)(3) and adding a 
new paragraph (a)(2).
    D. Removing the definition of ``ownership'' in paragraph (b) and 
adding, in its place, the definition of ``ownership or ownership 
interest''.
    E. Revising paragraphs (c)(2), (c)(6), and (c)(7).
    F. Removing the word ``or'' at the end of paragraph (d)(6).
    G. Revising paragraph (d)(7) and adding paragraph (d)(8).
    The additions and revisions read as follows:


Sec. 600.31  Change in ownership resulting in a change in control for 
private nonprofit and private for-profit institutions.

    (a) * * *
    (1) Except as provided in paragraph (a)(2) of this section, a 
private nonprofit or private for-profit institution that undergoes a 
change in ownership that results in a change in control ceases to 
qualify as an eligible institution upon the change in ownership and 
control. * * *
    (2) If a private nonprofit or private for-profit institution has 
undergone a change in ownership that results in a change in control, 
the Secretary may, under the provisions of Sec. 600.20(h) and (i), 
continue the institution's participation in the title IV, HEA programs 
on a provisional basis, provided that the institution submits under the 
provisions of Sec. 600.20(h) a materially complete application--
    (i) No later than 10 business days after the change occurs; or
    (ii) For an institution owned by a publicly traded corporation, no 
later than 10 business days after the institution knew, or should have 
known of the change based upon SEC filings, that the change occurred.
* * * * *
    (b) * * *
    Ownership or ownership interest. (1) Ownership or ownership 
interest means a legal or beneficial interest in an institution or its 
corporate parent, or a right to share in the profits derived from the 
operation of an institution or its corporate parent.
    (2) Ownership or ownership interest does not include an ownership 
interest held by--
    (i) A mutual fund that is regularly and publicly traded;
    (ii) An institutional investor, such as a pension fund or insurance 
company;
    (iii) A profit-sharing plan of the institution or its corporate 
parent, provided that all full-time permanent employees of the 
institution or corporate parent are included in the plan; or
    (iv) An Employee Stock Ownership Plan (ESOP).
* * * * *
    (c) * * *
    (2) Publicly traded corporations required to be registered with the 
Securities and Exchange Commission (SEC). A change in ownership and 
control occurs when--
    (i) A person acquires such ownership and control of the corporation 
so that the corporation is required to file a Form 8K with the SEC 
notifying that agency of the change in control; or
    (ii)(A) A person who is a controlling shareholder of the 
corporation ceases to be a controlling shareholder. A controlling 
shareholder is a shareholder who holds or controls through agreement 
both 25 percent or more of the total outstanding voting stock of the 
corporation and more shares than any other shareholder. A controlling 
shareholder for this purpose does not include a shareholder whose sole 
stock ownership is held as an institutional investor, held in mutual 
funds, held through a profit-sharing plan, or held in an Employee Stock 
Ownership Plan (ESOP).

[[Page 49152]]

    (B) When a change of ownership occurs as a result of paragraph 
(c)(2)(ii)(A) of this section, the institution may submit its most 
recent quarterly financial statement as filed with the SEC, along with 
copies of all other SEC filings made after the close of the fiscal year 
for which a compliance audit has been submitted to the Department of 
Education, instead of the ``same day'' balance sheet.
    (C) If a publicly traded institution is provisionally certified due 
to a change in ownership under paragraph (c)(2)(ii) of this section, 
and that institution experiences another change of ownership under 
paragraph (c)(2)(ii) of this section, an approval of the subsequent 
change in ownership does not extend the original expiration date for 
the provisional certification provided that any current controlling 
shareholder was listed on the change of ownership application for which 
the original provisional approval was granted.
* * * * *
    (6) Nonprofit institution. A nonprofit institution changes 
ownership and control when a change takes place that is described in 
paragraph (d) of this section.
    (7) Public institution. The Secretary does not consider that a 
public institution undergoes a change in ownership that results in a 
change of control if there is a change in governance and the 
institution after the change remains a public institution, provided:
    (i) The new governing authority is in the same State as approved in 
the institution's program participation agreement; and
    (ii) The new governing authority has acknowledged the public 
institution's continued responsibilities under its program 
participation agreement.
    (d) * * *
    (7) A change in status from a for-profit to a nonprofit 
institution; or
    (8) A change in status from a nonprofit to a for-profit 
institution.
* * * * *

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

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

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

    8. Section 668.2(b) is amended by revising paragraphs (2)(ii) and 
(iii) and adding paragraph (2)(iv) to the definition of the term 
``academic year'' to read as follows:


Sec. 668.2  General  definitions.

* * * * *
    (b) * * *
    Academic year: * * *
    (2) * * *
    (ii) If an institution provides an educational program using a 
semester, trimester, or quarter system, or in clock hours, the 
Secretary considers that the institution provides one week of 
instructional time in that program during any week the institution 
provides for that program--
    (A) At least one day of regularly scheduled instruction or 
examinations; or
    (B) After the last scheduled day of classes for a term, at least 
one day of study for final examinations.
    (iii) If an institution provides an educational program using 
credit hours but not a semester, trimester, or quarter system, the 
Secretary considers that the institution provides one week of 
instructional time in that program during any week the institution 
provides for that program--
    (A) At least 12 hours of regularly scheduled instruction or 
examinations; or
    (B) After the last scheduled day of classes for a payment period, 
at least 12 hours of study for final examinations.
    (iv) Instructional time does not include any vacation periods, 
homework, or periods of orientation or counseling.
* * * * *
    9. A new Sec. 668.5 is added to read as follows:


Sec. 668.5  Written arrangements to provide educational programs.

    (a) Written arrangements between eligible institutions. If an 
eligible institution enters into a written arrangement with another 
eligible institution, or with a consortium of eligible institutions, 
under which the other eligible institution or consortium provides all 
or part of the educational program of students enrolled in the former 
institution, the Secretary considers that educational program to be an 
eligible program if it otherwise satisfies the requirements of 
Sec. 668.8.
    (b) Written arrangements for study abroad. Under a study abroad 
program, if an eligible institution enters into a written arrangement 
with a foreign institution, or an organization acting on behalf of a 
foreign institution, under which the foreign institution provides part 
of the educational program of students enrolled in the eligible 
institution, the Secretary considers that educational program to be an 
eligible program if it otherwise satisfies the requirements of 
paragraphs (c)(1) through (c)(3) of this section.
    (c) Written arrangements between an eligible institution and an 
ineligible institution or organization. If an eligible institution 
enters into a written arrangement with an institution or organization 
that is not an eligible institution under which the ineligible 
institution or organization provides part of the educational program of 
students enrolled in the eligible institution, the Secretary considers 
that educational program to be an eligible program if--
    (1) The ineligible institution or organization has not had its 
eligibility to participate in the title IV, HEA programs terminated by 
the Secretary, or has not voluntarily withdrawn from participation in 
those programs under a termination, show-cause, suspension, or similar 
type proceeding initiated by the institution's State licensing agency, 
accrediting agency, guarantor, or by the Secretary;
    (2) The educational program otherwise satisfies the requirements of 
Sec. 668.8; and
    (3)(i) The ineligible institution or organization provides not more 
than 25 percent of the educational program; or
    (ii)(A) The ineligible institution or organization provides more 
than 25 percent but not more than 50 percent of the educational 
program;
    (B) The eligible institution and the ineligible institution or 
organization are not owned or controlled by the same individual, 
partnership, or corporation; and
    (C) The eligible institution's accrediting agency, or if the 
institution is a public postsecondary vocational educational 
institution, the State agency listed in the Federal Register in 
accordance with 34 CFR part 603, has specifically determined that the 
institution's arrangement meets the agency's standards for the 
contracting out of educational services.
    (d) Administration of title IV, HEA programs. (1) If an institution 
enters into a written arrangement as described in paragraph (a), (b), 
or (c) of this section, except as provided in paragraph (d)(2) of this 
section, the institution at which the student is enrolled as a regular 
student must determine the student's eligibility for title IV, HEA 
program funds, and must calculate and disburse those funds to that 
student.
    (2) In the case of a written arrangement between eligible 
institutions, the institutions may agree in writing to have any 
eligible institution in the written arrangement make those calculations 
and disbursements, and the Secretary does not consider that institution 
to be a

[[Page 49153]]

third party servicer for that arrangement.
    (3) The institution that calculates and disburses a student's title 
IV, HEA program assistance under paragraph (d)(1) or (d)(2) of this 
section must--
    (i) Take into account all the courses in which the student enrolls 
at each institution that apply to the student's degree or certificate 
when determining the student's enrollment status and cost of 
attendance; and
    (ii) Maintain all records regarding the student's eligibility for 
and receipt of title IV, HEA program funds.

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

    10. Section 668.8 is amended by revising paragraphs (b)(3) and 
(b)(4) to read as follows:


Sec. 668.8  Eligible program.

* * * * *
    (b) * * *
    (3)(i) If an institution provides an educational program using a 
semester, trimester, or quarter system, or in clock hours, the 
Secretary considers that the institution provides one week of 
instructional time in that program during any week the institution 
provides--
    (A) At least one day of regularly scheduled instruction or 
examinations; or
    (B) After the last scheduled day of classes for a term, at least 
one day of study for final examinations.
    (ii) If an institution provides an educational program using credit 
hours but not a semester, trimester, or quarter system, the Secretary 
considers that the institution provides one week of instructional time 
in that program during any week the institution provides--
    (A) At least 12 hours of regularly scheduled instruction or 
examinations; or
    (B) After the last scheduled day of classes for a payment period, 
at least 12 hours of study for final examinations.
    (4) Instructional time does not include any vacation periods, 
homework, or periods of orientation or counseling.
* * * * *


Sec. 668.12  [Amended]

    11. Section 668.12 is amended by:
    A. Redesignating paragraphs (f) and (g) as paragraphs (h) and (i) 
of Sec. 600.20.
    B. In newly redesignated paragraph (h)(1) of Sec. 600.20, removing 
``an institution'' and adding, in its place, ``a private nonprofit 
institution or private for-profit institution'' the first time 
``institution'' appears.
    C. In newly redesignated paragraph (h)(2) of Sec. 600.20, removing 
``an institution'' and adding, in its place, ``a private nonprofit 
institution or private for-profit institution''.
    D. In newly redesignated paragraph (i)(2)(iii) of Sec. 600.20, 
removing ``(f)(3)'' and adding, in its place, ``(h)(3)''.
    E. Removing the remainder of Sec. 668.12.
    12. Section 668.13 is amended by revising paragraph (a) to read as 
follows:


Sec. 668.13  Certification procedures.

    (a) Requirements for certification. (1) The Secretary certifies an 
institution to participate in the title IV, HEA programs if the 
institution qualifies as an eligible institution under 34 CFR part 600, 
meets the standards of this subpart and subpart L of 34 CFR part 668, 
and satisfies the requirements of paragraph (a)(2) of this section.
    (2) Except as provided in paragraph (a)(3) of this section, if an 
institution wishes to participate for the first time in the title IV, 
HEA programs or has undergone a change in ownership that results in a 
change in control as described in 34 CFR 600.31, the institution must 
require the following individuals to complete title IV, HEA program 
training provided or approved by the Secretary no later than 12 months 
after the institution executes its program participation agreement 
under Sec. 668.14:
    (i) The individual the institution designates under 
Sec. 668.16(b)(1) as its title IV, HEA program administrator.
    (ii) The institution's chief administrator or a high level 
institutional official the chief administrator designates. (3)(i) An 
institution may request the Secretary to waive the training requirement 
for any individual described in paragraph (a)(2) of this section.
    (ii) When the Secretary receives a waiver request under paragraph 
(a)(3)(i) of this section, the Secretary may grant or deny the waiver, 
require another institutional official to take the training, or require 
alternative training.
* * * * *
    13. Section 668.19 is revised to read as follows:


Sec. 668.19  Financial aid history.

    (a) Before an institution may disburse title IV, HEA program funds 
to a student who previously attended another eligible institution, the 
institution must use information it obtains from the Secretary, through 
the National Student Loan Data System (NSLDS) or its successor system, 
to determine--
    (1) Whether the student is in default on any title IV, HEA program 
loan;
    (2) Whether the student owes an overpayment on any title IV, HEA 
program grant or Federal Perkins Loan;
    (3) For the award year for which a Federal Pell Grant is requested, 
the student's scheduled Federal Pell Grant and the amount of Federal 
Pell Grant funds disbursed to the student;
    (4) The outstanding principal balance of loans made to the student 
under each of the title IV, HEA loan programs; and
    (5) For the academic year for which title IV, HEA aid is requested, 
the amount of, and period of enrollment for, loans made to the student 
under each of the title IV, HEA loan programs.
    (b)(1) If a student transfers from one institution to another 
institution during the same award year, the institution to which the 
student transfers must request from the Secretary, through NSLDS, 
updated information about that student so it can make the 
determinations required under paragraph (a) of this section; and
    (2) The institution may not make a disbursement to that student for 
seven days following its request unless it receives the information 
from NSLDS in response to its request or obtains that information 
directly by accessing NSLDS, and the information it receives allows it 
to make that disbursement.

(Authority: 20 U.S.C. 1091 and 1094)

    14. Section 668.165(a)(3)(ii) is revised to read as follows:


Sec. 668.165  Notices and authorizations.

    (a) * * *
    (3) * * *
    (ii) Either in writing or electronically. If the institution sends 
the notice electronically, it must confirm receipt by the student or 
parent of the electronic notification and must maintain documentation 
of that confirmation.
* * * * *

PART 675--FEDERAL WORK-STUDY PROGRAMS

    15. The authority citation for part 675 continues to read as 
follows:

    Authority: 42 U.S.C. 2751-2756b, unless otherwise noted.
    16. Section 675.19 is amended by revising paragraphs (b)(1) and 
(b)(2) to read as follows:


Sec. 675.19  Fiscal procedures and records.

* * * * *
    (b) * * *
    (1) An institution must follow the record retention and examination 
provisions in this part and in 34 CFR 668.24.
    (2) The institution must also establish and maintain program and 
fiscal records that--
    (i) Include a certification by the student's supervisor, an 
official of the institution or off-campus agency, that each student has 
worked and earned the

[[Page 49154]]

amount being paid. The certification must include or be supported by, 
for students paid on an hourly basis, a time record showing the hours 
each student worked in clock time sequence, or the total hours worked 
per day;
    (ii) Include a payroll voucher containing sufficient information to 
support all payroll disbursements;
    (iii) Include a noncash contribution record to document any payment 
of the institution's share of the student's earnings in the form of 
services and equipment (see Sec. 675.27(a)); and
    (iv) Are reconciled at least monthly.
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN PROGRAM

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

    Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
    18. Section 682.201 is amended by revising paragraph (b)(1)(vii)(F) 
to read as follows:


Sec. 682.201  Eligible borrowers.

* * * * *
    (b) * * *
    (1) * * *
    (vii) * * *
    (F) The lender must retain a record of its basis for determining 
that extenuating circumstances existed. This record may include, but is 
not limited to, an updated credit report, a statement from the creditor 
that the borrower has made satisfactory arrangements to repay the debt, 
or a satisfactory statement from the borrower explaining any 
delinquencies with outstanding balances of less than $500.
* * * * *
    19. Section 682.207 is amended by:
    A. Revising paragraph (b)(1)(i)(B).
    B. Revising paragraph (c)(3).
    C. Removing ``(1)'' after the paragraph designation ``(f)''; 
removing paragraph (f)(2); and redesignating paragraphs (f)(1)(i), 
(f)(1)(ii), and (f)(1)(iii) as paragraphs (f)(1), (f)(2), and (f)(3), 
respectively.
    The revisions read as follows:


Sec. 682.207  Due diligence in disbursing a loan.

* * * * *
    (b)(1) * * *
    (i) * * *
    (B) Must disburse a Stafford or PLUS loan in accordance with the 
disbursement schedule provided by the school or any request made by the 
school modifying that schedule.
* * * * *
    (c) * * *
    (3) Disbursement must be made on a payment period basis in 
accordance with the disbursement schedule provided by the school or any 
request made by the school modifying that schedule.
* * * * *
    20. Section 682.604 is amended by:
    A. Revising paragraph (b)(2)(i).
    B. Revising paragraph (c)(6).
    C. Revising paragraph (c)(7).
    The revisions read as follows:


Sec. 682.604  Processing the borrower's loan proceeds and counseling 
borrowers.

* * * * *
    (b) * * *
    (2)(i) Except in the case of a late disbursement under paragraph 
(e) of this section or as provided in paragraph (b)(2)(iii) or (iv) of 
this section, a school may release the proceeds of any disbursement of 
a loan only to a student whom the school determines continuously has 
maintained eligibility in accordance with the provisions of 
Sec. 682.201 for the loan period certified by the school on the 
student's loan application.
* * * * *
    (c) * * *
    (6) Unless the provision of Sec. 682.207(d) or the provisions of 
paragraph (c)(7) of this section apply--
    (i) If a loan period is more than one payment period, the school 
must deliver loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make 
at least two deliveries of loan proceeds during that payment period. 
The school may not make the second delivery until the calendar midpoint 
between the first and last scheduled days of class of the loan period.
    (7)(i) If a school measures academic progress in an educational 
program in credit hours and either does not use terms or does not use 
terms that are substantially equal in length for a loan period, the 
school may not deliver a second disbursement until the later of--
    (A) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (B) The date, as determined by the school, that the student has 
completed half of the academic coursework in the loan period.
    (ii) For purposes of paragraph(c)(7) of this section, terms in a 
loan period are substantially equal in length if no term in the loan 
period is more than two weeks shorter than any other term in that loan 
period.
* * * * *

PART 685--FEDERAL WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

    22. The authority citation for part 685 is revised to read as 
follows:

    Authority: 20 U.S.C. 1087a through 1087j, unless otherwise 
noted.
    23. Section 685.301 is amended by revising paragraph (b)(5) to read 
as follows:


Sec. 685.301  Origination of a loan by a Direct Loan Program school.

* * * * *
    (b) * * *
    (5)(i) If a school measures academic progress in an educational 
program in credit hours and either does not use terms or does not use 
terms that are substantially equal in length for a loan period, the 
school may not make a second disbursement until the later of--
    (A) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (B) The date, as determined by the school, that the student has 
completed half of the academic coursework in the loan period.
    (ii) For purposes of this paragraph, terms in a loan period are 
substantially equal in length if no term in the loan period is more 
than two weeks longer than any other term in that loan period.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

    24. The authority citation for part 690 continues to read as 
follows:

    Authority: 20 U.S.C. 1070a, unless otherwise noted.


Sec. 690.9  [Removed]

    25. Section 690.9 is removed.


Sec. 690.75  [Amended]

    26. Section 690.75 is amended by removing the words ``financial aid 
transcript'' in paragraph (a); and by removing the reference to ``34 
CFR 668.7'' in paragraph (a)(1) and adding, in its place, ``34 CFR part 
668, subpart C''.

[FR Doc. 00-20207 Filed 8-9-00; 8:45 am]
BILLING CODE 4000-01-U