[Federal Register Volume 65, Number 212 (Wednesday, November 1, 2000)]
[Rules and Regulations]
[Pages 65662-65676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27894]



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Part IX





Department of Education





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34 CFR Parts 600, 668, 675, and 690



Institutional Eligibility; Student Assistance General Provisions; 
Federal Work-Study Programs; and the Federal Pell Grant Program; Final 
Rule

  Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / 
Rules and Regulations  

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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, 675, and 690

RIN 1845-AA19


Institutional Eligibility; Student Assistance General Provisions; 
Federal Work-Study Programs; and the Federal Pell Grant Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Institutional Eligibility, the 
Student Assistance General Provisions, the Federal Work-Study (FWS) 
Programs, and the Federal Pell Grant Program regulations. These final 
regulations implement changes negotiated under the negotiated 
rulemaking process mandated by Congress under section 492 of the Higher 
Education Act of 1965, as amended, (HEA). These changes streamline the 
application, reapplication, and certification processes for 
institutions that wish to participate in the title IV, HEA programs and 
provide simplification and flexibility in other provisions of the 
regulations that apply to the title IV HEA programs.

DATES: Effective Date: These regulations are effective July 1, 2001.
    Implementation Date: The Secretary has determined, in accordance 
with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), that 
institutions that administer title IV, HEA program funds may, at their 
discretion, choose to implement Secs. 600.31, 668.5 and 675.19 on or 
after November 1, 2000. For further information see ``Implementation 
Date of These Regulations'' under the SUPPLEMENTARY INFORMATION section 
of this preamble.

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 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: On August 10, 2000 the Secretary published a 
notice of proposed rulemaking (NPRM) for Institutional Eligibility, 
Student Assistance General Provisions, Federal Work-Study Programs 
(FWS), Federal Family Education Loan (FFEL) Program, William D. Ford 
Direct Loan (Direct Loan) Program; and the Federal Pell Grant Program, 
in the Federal Register (65 FR 49134).
    In the preamble to the NPRM, the Secretary discussed on pages 49135 
through 49147 the major changes proposed in that document. These 
included the following:
     Revising Secs. 600.20 and 600.21, amending Secs. 600.10 
and 600.31, and removing Secs. 600.9 and 600.30 to streamline the 
application, reapplication and certification processes for institutions 
that wish to participate in the title IV, HEA programs (pages 49149-
49152).
     Revising Sec. 600.31 to clarify the reporting 
responsibilities for institutions that undergo a change of ownership 
that results in change of control (pages 49151-49152).
     Revising Sec. 668.5 to 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 (pages 49152-49153).
     Adding flexibility in Sec. 668.13 to the training 
requirements for institutional certification (page 49153).
     Revising in Sec. 668.19 the process for obtaining a 
transfer student's financial aid history (page 49153).
     Revising Sec. 675.19 to permit additional certification 
and record retention options for FWS program administration (pages 
49153-49154).
     Providing in Secs. 682.604 and 685.301 additional 
flexibility in the loan disbursement rules for students enrolled in 
non-traditional programs (page 49154).
     Clarifying in Sec. 668.165 the notification requirements 
when title IV loan proceeds are credited to a student's institutional 
account (page 49154).
     Adding flexibility in Sec. 682.207 to lender disbursement 
requirements and eligibility determinations for students receiving loan 
proceeds under the FFEL Program (page 49154).
    In these final regulations, we make two significant changes from 
the regulations that we proposed in the NPRM published on August 10, 
2000. First, we will require all institutions to report to us of their 
intent to add a location offering 50 percent or more of an eligible 
program, regardless of the type of institution. A small number of 
institutions--those that meet one or more of the specified conditions 
discussed later in the analysis of comments--will have to await our 
approval of the new location before disbursing title IV, HEA program 
funds to students at that location. Other institutions must report to 
us their intent to add additional locations, but are not required to 
wait for our approval of those locations.
    Second, public institutions must report changes in governance to us 
within 10 days of their occurrence.
    The Secretary published an NPRM on July 27, 2000, for parts 682 and 
685 in the Federal Register (65 FR 46316). In the preamble to that 
NPRM, the Secretary discussed (on pages 46317-46320) proposed changes 
to the FFEL and Direct Loan regulations. In order to consolidate the 
final regulations for the FFEL and Direct Loan programs into a single 
Federal Register publication, those proposed provisions of parts 682 
and 685 that were published in the August 10, 2000 NPRM are now 
included as a part of the final regulations that respond to the July 
27, 2000 NPRM. We strongly encourage the reader to refer to the 
preambles from both of the NPRMs for a full discussion of these 
regulations.

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under title IV of the HEA be published in final form by 
November 1 prior to the start of the award year (which begins July 1) 
to which they apply. However, that section of the HEA also permits the 
Secretary to designate any regulation as one that an entity subject to 
the regulation may choose to implement earlier. If the Secretary 
designates a regulation for early implementation, he may specify when 
and under what conditions the entity may implement it. Under this 
authority, the Secretary has designated the following regulations for 
early implementation:

Section 600.31--Change of Ownership Resulting in a Change of Control 
for Private Nonprofit, Private For-Profit and Public Institutions

    These regulations may be implemented upon publication of this final 
rule. This means that if an institution is subject to loss of 
eligibility due to a change in ownership that results in a change of 
control, it may ask the Secretary to permit it to continue to 
participate in the title IV, HEA programs on a provisional basis, 
provided that the institution submits a materially complete 
application.
    This early implementation also changes the definition of 
``ownership interests'' to exclude certain institutional investors, and 
clarifies when a shareholder would be deemed a

[[Page 65663]]

controlling shareholder for change of control issues.
    Early implementation means that public institutions that experience 
a change in governance will not be considered to have undergone a 
change in ownership resulting in a change of control, but these 
institutions must report such changes within ten days of the 
occurrence.
    Finally, early implementation means that the provisions that define 
more clearly ownership in a publicly-traded institution will be in 
effect.

Section 668.5--Written Arrangements To Provide Educational Programs

    These regulations may be implemented by institutions upon 
publication of this final rule. This means that a school may use a 
single written arrangement with a study-abroad organization to 
represent agreements between the school and one or more foreign 
schools. Also, any of the eligible institutions that are parties to a 
written arrangement may make title IV calculations and disbursements 
and will not be considered third-party servicers.

Section 675.19--Fiscal Procedures and Records

    These regulations may be implemented upon publication of this final 
rule. Institutions that administer the Federal Work-Study (FWS) 
Programs will now have the option to certify FWS timesheets in writing 
or electronically. If an institution elects to use an electronic 
certification option, it should be certain to use the appropriate 
safeguards, as outlined in the NPRM at page 49145.

Analysis of Comments and Changes

    The regulations in this document were developed through the use of 
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.
    These regulations were published in proposed form on August 10, 
2000, following the completion of the negotiated rulemaking process. 
The Secretary invited comments on the proposed regulations that were 
due by September 25, 2000, and we received thirty-three comments.
    An analysis of the comments we received and of the changes we made 
in the regulations since publication of the NPRM follows.
    We group major issues according to subject. We discuss other 
substantive issues under the sections of the regulations to which they 
pertain. Generally, we do not address technical and other minor 
changes--and suggested changes the law does not authorize the Secretary 
to make.

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

Applying for Additional Locations (Permanent and Temporary)
    Comments: Many commenters supported exempting public institutions 
from applying for approval to add an additional location at which 50 
percent or more of an eligible program will be offered, if the 
additional location is properly licensed and accredited, and located 
within the same state as the main campus. Commenters opined that the 
exemption is warranted because the Federal government's interests are 
generally protected by sufficient oversight and systems of control at 
public institutions. Additionally, most of these commenters believed 
that sufficient financial backing by those governing public entities, 
and monitoring by accrediting agencies are suitable to ensure the 
academic quality of the location and to protect students who rely upon 
title IV assistance.
    One commenter believed the exemption is appropriate because public 
institutions that have added locations in the past have not placed 
Federal funds at risk.
    Another commenter generally supported the proposed exemption, but 
believed that the exemption should apply to an additional location even 
if the location is not in the same state as the main campus. That 
commenter believed that the reasons given by the Department for the 
proposed exemption for public institutions (sufficient oversight and 
financial backing by a public entity) are valid, regardless of whether 
the additional location is located in the same state as the main 
campus.
    Six commenters did not support requiring public institutions to 
report a new location. The commenters contended that, because we have 
virtually always approved additional locations for public institutions, 
required reporting would create unnecessary paperwork and a potential 
for delay. Some of the commenters also believed that the minimal risk 
represented by public institutions delivering title IV, HEA assistance 
made reporting unnecessary.
    Another commenter supported requiring public institutions to inform 
us of a new location. That commenter felt that six years between 
recertification cycles for participation in the student aid programs is 
too long for locations to go unreported. The commenter believed that 
those entities charged with oversight will improve the quality of such 
oversight, by having an awareness of such locations. The commenter 
noted that these benefits appear to outweigh the minimal burden of 
reporting the locations.
    Several commenters opposed our proposal exempting public 
institutions from applying for approval of an additional location. 
These commenters felt that treating public institutions differently 
from other institutions is unwarranted, and would give an unfair 
advantage to public institutions by eliminating potential delays. The 
commenters believed that one set of criteria should be developed for 
all institutions.
    Two commenters felt that the unfair competitive advantage referred 
to above would not serve the needs of students nor the public interest, 
because it would not produce the best range of educational offerings or 
encourage the most efficient use of resources. Another commenter noted 
that in some highly competitive disciplines, such as computer science, 
information technology, and business administration or executive 
management, even a 35 day head start (our stated goal for the length of 
time within which we will process applications for approval) 
constitutes a significant advantage in terms of public relations and 
market share.
    Three commenters believed that there are many poorly performing 
public institutions and that such an exemption would unnecessarily put 
taxpayer funds at risk. One of these commenters was specifically 
concerned that the proposed exemption for public institutions would 
permit higher-risk public institutions, such as those on provisional 
certification or the reimbursement payment method, to open new 
locations and disburse title IV aid without our approval. The commenter 
felt that this scenario would contradict the purpose of provisional 
certification and reimbursement, which is to permit us to more closely 
monitor higher-risk institutions. The commenter felt that it was 
arbitrary and capricious to allow such high-risk public institutions to 
open additional locations without our approval, while denying this 
benefit to non-public institutions with strong

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records of administrative capability and regulatory compliance.
    Another commenter stated that there was no publicly available 
evidence to support the contention that all public institutions provide 
better oversight and control, plan better, and have more fiscal 
resources than institutions in other sectors. The commenter was 
convinced that there is evidence to the contrary, such as the placement 
of public institutions on provisional certification, the failure of 
public institutions to meet their unique financial responsibility 
standards, and those public institutions with high student loan default 
rates.
    Some commenters that did not support the exemption for public 
institutions suggested a number of general criteria that should be used 
in determining whether any institution qualifies for an exemption. One 
commenter suggested that the criteria should reward those institutions 
that have demonstrated appropriate administrative capability. Another 
commenter felt that the Federal interest in additional locations should 
focus on an institution's maintenance of quality in their educational 
programs. The commenter stated that we seemed to acknowledge that the 
quality of programs is the issue by our statement in the preamble to 
the NPRM that, ``some non-public institutions grew so rapidly that the 
integrity of their educational and student aid programs was 
compromised''.
    Other commenters offered specific ideas about criteria that should 
be used to determine if any institution should be granted an exemption 
from reporting additional locations. One commenter suggested that an 
exemption should be given to an institution that: satisfies the 
criteria we proposed in Sec. 600.20(d)(2) for temporary locations, is 
fully certified, meets the general standards of financial 
responsibility, has no late audits or significant audit findings in the 
last two years, has no significant program review liabilities, and was 
not subject to a limitation, suspension, or termination action within 
the last three years. Another commenter generally agreed with the 
suggested criteria but instead of supporting the proposed criteria in 
Sec. 600.20(d)(2), suggested the following criteria: the institution 
has full regional or national accreditation, would not be subject to a 
loss of eligibility under Sec. 668.188 if it adds a new location, and 
has not added more than 10 locations at which it offered 50 percent or 
more of an educational program since it was last certified to 
participate in the title IV programs. The commenter also believed that 
to qualify for an exemption, an institution should have no late audits 
or significant audit findings in the last five years and never have 
been subject to a program review liability.
    Another commenter believed that it is appropriate for us to learn 
about temporary locations that have been opened through annual 
compliance audits. The commenter did not feel that a separate 
notification would be needed.
    However, another commenter representing the largest professional 
association of certified public accountants disagreed. In particular, 
the commenter stated that we should require institutions to submit 
information on temporary locations directly to us. The commenter noted 
that if we want independent third-party assurances on an institution's 
management's assertions regarding the institution's compliance with 
such a requirement, compliance objectives and associated auditor 
reporting could be developed as part of the annual compliance audit.
    One commenter supported the provision that would exempt a non-
public institution from applying for approval of licensed and 
accredited temporary locations if it met the proposed criteria, 
including the limitation on adding no more than six locations offering 
50 percent or more of a program since it was last certified. Another 
commenter felt that it is more appropriate to focus on the number of 
such locations established in a short period of time rather than over 
the entire certification period. The commenter recommended that no more 
than two such locations should be added during any 12-month period, and 
that for any more locations an institution should be required to obtain 
our approval prior to disbursing any title IV funds to students 
attending those locations.
    Another commenter suggested that the criteria for exemption of 
temporary locations should include a certification from the 
institution's Chief Executive Officer that the institution currently 
meets all applicable federal requirements regarding financial and 
administrative capability (based on the institution's most recent 
audited financial statement and compliance audit, recent regulatory 
reviews, and program participation agreement). The commenter believed 
that no more title IV funds should be disbursed to students at a 
temporary location after the end of the first year, until we have 
approved the location, unless the institution submitted a materially 
complete application for our approval at least 35 days before the end 
of the period.
    The commenter also felt that the proposed requirement that the 
institution must not have acquired the assets of another institution 
that formerly provided programs at that site was stated in an overly 
broad manner. Instead, the commenter recommended that the institution 
must not have acquired a substantial amount of the assets of another 
institution that formerly provided programs at that site within the 
past 12 months. The commenter believed that this would address 
significant, recent acquisitions or transfers of assets that we need to 
be aware of without providing for unnecessary scrutiny of insignificant 
transactions that do not pose concern.
    Finally, one commenter noted inconsistencies between the proposed 
regulatory language for Sec. 600.20(d)(2)(ii) (which refers to 
locations at which more than 50 percent of a program is added) and the 
description of the proposed provision (which refers to locations as 
``offering at least 50 percent of an educational program'' in one place 
and ``offered more than 50 percent of an educational program'' in 
another). The commenter believed that the correct wording is ``at least 
50 percent''.
    Discussion: We appreciate the careful analysis and consideration 
given to these issues by the commenters. With regard to the last 
comment, the commenter is correct that we inadvertently used imprecise 
language in describing the requirement when we published the NPRM. The 
correct term, and the one used in the regulations is ``50 percent or 
more''.
    We carefully considered the comments received on both the proposal 
to exempt public institutions from applying for approval of an 
additional location where the institution will offer 50 percent or more 
of an eligible program, and the proposal to exempt all institutions 
from the requirement to apply for approval of an additional location if 
it will be in operation for less than 12 months.
    We agree that the approach to additional locations in the NPRM had 
the potential to bar some high performing, non-public institutions from 
the benefits and incentives we desire to make available to those who 
administer our programs properly.
    We stated in the NPRM our belief that the proposed regulations 
would 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. Upon

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consideration of the comments, we believe there is an opportunity to 
meet that objective in a manner that may benefit more schools than we 
initially anticipated. This is possible if we focus on reviewing and 
approving those institutions that give us clear reasons for special 
attention, while allowing others that demonstrate good compliance and 
stability to merely report to us of their actions. Thus, we can 
preserve our desire to provide regulatory and administrative relief 
where merited by compliance and performance. This flexibility is 
supported by a set of standards that identifies those schools that we 
should review before approving their ability to disburse title IV, HEA 
funds at a new location, regardless of the type of institution.
    Based upon the comments received on these issues and our plans to 
improve the efficiency of the reporting process, we are persuaded that 
it is prudent and not particularly burdensome, to require all 
institutions report to us if they wish to disburse title IV, HEA 
program funds to students enrolled at a new additional location, at 
which 50 percent or more of an eligible program will be offered.
    For the purposes of these regulations, reporting consists of 
submitting an electronic application which provides specific 
information and required supporting documentation regarding the new 
location.
    While all institutions must report their new locations, only those 
that meet certain criteria are required to wait for our approval before 
disbursing title IV, HEA program funds to eligible students at those 
locations. A full explanation of those criteria follows later in this 
discussion. For the purposes of these regulations, approval consists of 
the Secretary's written response to an application, granting specific 
permission to an institution to disburse funds to students enrolled at 
the specified location. If an institution is not required to wait for 
our approval, it must simply report to us through the electronic 
application process prior to disbursing title IV, HEA program funds.
    These provisions replace the proposed across-the-board exemption 
from reporting or approval for public institutions and the exemption 
for temporary locations included in the NPRM.
    Under these new provisions, no distinction is made between 
temporary and permanent locations. All institutions are required to 
report to us any new location where 50 percent or more of an eligible 
program is offered. The report must include supporting documentation 
and be provided before the institution disburses title IV, HEA funds to 
students at that location. Those institutions that are only required to 
report to us before they disburse federal student aid need not wait for 
our approval. However, those institutions that meet any of the criteria 
discussed below must report to us and then wait for our approval before 
they can disburse title IV, HEA program funds to eligible students at 
the new location.
    We will only require an institution to apply and wait for our 
approval to disburse title IV, HEA program funds at locations where 
they offer 50 percent or more of an eligible location if the 
institution: (1) Is provisionally certified, (2) is on the 
reimbursement or cash monitoring system of payment, (3) has acquired 
the assets of another institution that provided educational programs at 
that location during the preceding year, and the other institution 
participated in the title IV, HEA programs during that year, (4) would 
be subject to a loss of eligibility under the cohort default rate 
regulations at Sec. 688.188 if it adds that location, or if (5) the 
Secretary previously prohibited it from disbursing title IV, HEA 
program funds to students enrolled at an additional location before the 
Secretary notifies it that the location is eligible to participate in 
the title IV, HEA programs.
    Under the last criteria we may preclude an institution from adding 
locations due to financial, administrative, compliance or other 
concerns about an institution. In this case, the institution will 
receive a written notice that sets out the reason it will be required 
to apply for approval for additional locations. The institution may 
request reconsideration of that decision if it shows there are material 
errors in the facts we considered in making our determination.
    With regard to the criteria related to provisional certification, 
the Secretary plans to publish a change to the provision in 34 CFR 
668.16(m) that relates to placing an institution on provisional 
certification if it has a cohort default rate in the FFEL and/or Direct 
Loan programs of 25 percent or greater. That change will provide more 
flexibility to the Secretary in choosing whether or not to place such 
an institution on provisional certification.
    We believe that many more institutions will benefit from the 
provision that they must only report to us and not await our approval, 
since it allows them to begin disbursing aid at these new locations 
immediately upon their reporting to us. We anticipate the number of 
institutions that qualify for this flexibility will be much greater 
than the number of institutions that will be required to await our 
approval before disbursing title IV, HEA program funds to eligible 
students at those locations. Also, the minimal reporting burden 
required of an institution enables us to maintain accurate and updated 
records of all locations where students who are receiving title IV, HEA 
funds are enrolled.
    Institutions are responsible for knowing whether they need to 
obtain our approval to disburse title IV, HEA program funds to eligible 
students at the new location. If an institution is unsure whether it 
meets the criteria requiring it to wait for our approval, it may 
contact us for specific guidance. Institutions that add locations 
without obtaining our approval when they knew, or should have known, 
that they were required to wait may be subject to administrative 
repayments and other sanctions.
    Changes: We are revising Sec. 600.20(c) to eliminate the exemptions 
for public institutions and for temporary additional locations that 
were proposed in Sec. 600.20(d) of the NPRM and any related references 
to those exemptions. Under Sec. 600.21(a)(3), all institutions are 
required to report to us if they wish to add an additional location 
where they offer or will offer 50 percent or more of an eligible 
program. Section 600.20(c) provides that an institution must apply to 
us for approval if it has added an additional location and must await 
the Secretary's approval before disbursing title IV, HEA program funds 
at that location if it meets one or more of the conditions described 
above and included in the regulation at Sec. 600.20(c)(1)(i)-(v).
    Comments: One commenter, in focusing on the Secretary's possible 
responses to an application as proposed in Sec. 600.20(f)--
Sec. 600.20(e) in these final rules --, asked us to clarify the 
difference between a ``program in which it is eligible to participate'' 
versus ``programs in which it is eligible to apply for funds'' in 
Sec. 600.20(f)(2) --Sec. 600.20(e)(2) in these final rules --. The 
commenter also asked for clarification of the reference to a branch 
campus in Sec. 600.20(f)(4)-Sec. 600.20(e)(6) in these final rules.
    Discussion: Section 600.20(e)(2) reflects the current regulations 
at Sec. 600.21(a), which identifies the conditions and applications to 
which the Secretary will respond. Section 600.20(e)(2)(i) states that 
the Secretary will notify an institution whether it is eligible to 
participate in the title IV, HEA programs. Section 600.20(e)(2)(ii) 
states that the notification will enumerate the specific title IV, 
student aid programs in which the institution is

[[Page 65666]]

eligible to participate. Section 600.20(e)(2)(iii) states that the 
Secretary notifies the institution of the specific title IV, student 
aid programs for which the institution must submit an additional 
application to receive funding. For example, the campus-based programs 
require submission of an annual application (FISAP) before funds are 
allocated to an institution.
    Notices sent according to Sec. 600.20(e)(2)(iv) and 600.20(e)(2)(v) 
will indicate the effective dates of eligibility, and any conditions, 
related to that eligibility respectively.
    We agree with the commenter that Sec. 600.20(f)(4) in the NPRM does 
not provide a reference to Sec. 600.20(c)(4) and (5). We will make the 
necessary corrections.
    Changes: Section 600.20(e) has been revised to identify how the 
Secretary responds to applications for branch campuses.

Section 600.31--Change in Ownership Resulting in a Change in Control 
for Private Nonprofit and Private For-Profit Institutions

Publicly-Traded Corporations
    Comments: A commenter recommended that we include a succinct 
definition of the term ``institutional investor'' that specifically 
mentions the following types of investors: investment companies, 
registered investment advisors, business development companies, 
employee benefit plans, banks, insurance companies, pension funds, and 
securities dealers.
    Discussion: We agree that our definition of the term 
``institutional investor'' should be clarified. However, we find that 
definitions of this industry term are often more descriptive of 
entities to be included, rather than exhaustive of the characteristics 
of such entities. Therefore, we defer to the Securities and Exchange 
Commission's (SEC) regulatory definition of a U.S. institutional 
investor, with which publicly-traded corporations and most investors 
can be expected to be familiar.
    Changes: We have added a cross-reference from the SEC regulations 
in 17 CFR 240.15a-6(b)(7) to the reference ``U.S. institutional 
investor'' in the definitions at Sec. 600.31(b)(2)(ii) and 
600.31(c)(2)(ii)(A). Although illustrative of the entities that will be 
considered institutional investors under this regulation, the reference 
is not intended to be exhaustive.
    Comments: One commenter felt that the proposed definition of a 
``controlling shareholder'' equates ``voting stock'' with ``shares''. 
The commenter noted that voting stock is not always equivalent to the 
number of shares of stock an individual may own in a corporation, as in 
the case where non-voting stock has been issued. The commenter believed 
that if this definition is based on other regulatory provisions that 
raise the same issue, we should address all occurrences of this in the 
final regulations.
    Another commenter suggested clarifying in proposed 
Sec. 600.31(c)(2)(ii)(A) that the controlling shareholder be determined 
through measuring only the voting stock, by adding the phrase ``of the 
voting stock'' after the word ``shares'' to read: ``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 of the voting stock than any other 
shareholder.''
    Discussion: We agree that the term ``share'' is not synonymous with 
actual voting stock. The integral element of this topic relates to a 
shareholder's ability to significantly impact or control the actions of 
a corporation, or its management. Thus, we agree that revising the 
regulation to focus on ownership and control of voting stock is 
appropriate.
    Changes: Section 600.31(c)(2)(ii)(A) has been changed to add the 
words ``of voting stock'' after the word ``shares'', signaling that the 
regulation applies to stock that contains voting privileges.
    Comments: A commenter believed that the proposed wording used to 
describe who is not a controlling shareholder in 
Sec. 600.31(c)(2)(ii)(A) should be modified. The commenter suggested 
that the regulation should exclude from consideration all shares held 
in the categories listed, rather than only excluding such stock if it 
represents the individual's sole holdings in that corporation. The 
commenter recommended revising the third sentence to exclude all of the 
shares held in the excluded capacities in determining whether the 
shareholder is a controlling shareholder to read: ``Any shares of the 
corporation's voting stock held by a shareholder (1) as an 
institutional investor, (2) in mutual funds, (3) through a profit-
sharing plan or (4) in an Employee Stock Ownership Plan (ESOP) are 
excluded for purposes of determining whether the shareholder is a 
controlling shareholder.''
    Discussion: We disagree. When identifying those shareholders whose 
ability to influence a corporation's management of student assistance 
merits scrutiny, we believe that it is reasonable to exclude large, 
institutional investors whose only investment with a specific 
corporation exists solely for the investment value. We consider these 
investors generally to have investment objectives that differ from 
other investors who take a controlling position in a corporation. The 
objectives of the institutional investor normally prompt a lesser 
interest in influencing management policies that may affect the 
administration of student assistance than those of other controlling 
shareholders. It is reasonable to infer that a shareholder who acquires 
control of the voting rights of stock held by others who qualify as 
institutional investors does not show this same lack of interest in 
those management policies.
    Therefore, a person who controls 25 percent or more of the 
outstanding voting stock of a company and more stock than any other 
person by a combination of personal investment ownership and 
representation of institutional investors uniquely classifies one as a 
controlling shareholder, who can reasonably be expected to exercise 
real influence over management and its policies. The effect of this 
kind of shareholder's control on the corporation deserves the same 
scrutiny as that of any other shareholder who can control corporate 
policies.
    Thus, to determine whether a shareholder is a controlling 
shareholder under the bright-line test, the rule counts all voting 
stock held or controlled by a shareholder, unless all stock held by 
that shareholder is held as an institutional investor.
    Changes: None.
    Comments: One commenter disagreed with our proposal to suspend 
eligibility by defining a change of ownership resulting in a change of 
control to occur when a stockholder's ownership share crosses what he 
believed to be an arbitrary ``bright line''. He thought it was unfair 
to define a decrease in stock ownership by a controlling shareholder in 
a way that caused the negative result of suspending an institution's 
eligibility until a new application has been reviewed and approved. The 
commenter noted that, while the SEC and GAAP may require certain 
reporting activities for certain events, they do not cause immediate 
suspension of business activities or licenses. The commenter 
recommended that eligibility should be continued if financial 
responsibility and administrative capability has already been 
demonstrated and has not been downgraded by the ownership change. The 
commenter felt that the 25 percent threshold is arbitrary. The 
commenter contended that, while 25 percent may be a large enough 
percentage of stock to allow an individual to influence a corporation, 
more than 50 percent of the

[[Page 65667]]

stock must be owned for an individual to have control of the 
corporation. The commenter also noted that control does not necessarily 
change with purchase or sale of stock. He stated that control is 
exercised by a corporation's Board of Directors, which does not 
automatically change with purchase and sale of stock. He felt that any 
review or suspension of an institution's eligibility should be 
predicated on a precipitous change in Directors, not stock ownership.
    Discussion: We disagree with the commenter's notion that the use of 
a clear threshold in determining ownership and control is unfair or 
arbitrary. Quite the contrary, we sought to avoid such treatment by 
referencing established standards and guidelines of the accounting 
industry, which are accepted and adopted by most publicly-traded 
corporations.
    Since most financial transactions are accounted for in accordance 
with the established system of accounting principles, we patterned our 
``bright line'' threshold directly after Accounting Principles Board 
Opinion No. 18, which defines for GAAP purposes the percentage of 
ownership that can reasonably be presumed to give an investor the 
ability to exercise significant influence over an investee.
    GAAP provides that control of 20 percent of the voting stock of a 
corporation raises a rebuttable presumption of control of the 
corporation and conversely, that control of a smaller percentage of a 
corporation's stock raises a rebuttable presumption that the holder 
lacks control. We chose that adoption of an irrebutable ``bright line'' 
test was desirable both to allow institutions to plan their financial 
affairs with greater predictability, and to eliminate the burden of our 
examining the circumstances surrounding each significant diminution in 
ownership interest of an institution owned by a publicly-traded 
corporation. We believe that a higher threshold than 20 percent should 
be used in return for adoption of a ``bright line'' standard. The 
choice of 25 percent as the threshold is not compelled by statute or 
regulation, but is a reasonable choice. We therefore choose to retain 
25 percent as the ``bright line'' measure of control.
    We also disagree that while 25 percent ownership of stock may be 
influential, 50 percent is required to control an entity. For publicly-
traded corporations, the opposite inference is compelling: The more 
widely held the stock of a corporation, the smaller the percentage of 
its stock that need be controlled by a person in order to allow that 
person to ``direct or cause the direction of the management and 
policies'' of the corporation (see, Sec. 600.31(b) definition of 
``control''). The investing public and the accounting profession 
recognize that a shareholder can control a corporation while owning or 
controlling far less than 50 percent of its stock. There is no reason 
that we should ignore that same conclusion.
    Finally, the position that eligibility and certification lapse upon 
a change in ownership that results in a change in control is not a 
position that we arbitrarily adopted, but is required by the HEA. 
Section 498(i) mandates that eligibility must be reestablished after a 
change in ownership resulting in a change in control, and that the 
transfer of the controlling interest of stock of the institution is an 
action that results in such a change in control.
    Changes: None.
    Comments: Another commenter supported adding specific references to 
``private nonprofit and private for-profit institutions''. The 
commenter believed that these terms help nonprofit institutions 
recognize that certain change of ownership provisions apply to them, 
because the words ``change of ownership'' could suggest applicability 
only to the for-profit sector. The commenter did not feel that the 
proposed changes to Sec. 600.31(c)(7) are an appropriate recognition of 
differences among the sectors in postsecondary education, and believes 
that the change of ownership regulations for independent nonprofit 
institutions should be reconsidered in negotiated rulemaking in the 
near future. The commenter believed that some mergers between 
institutions should be allowed without triggering a change of ownership 
resulting in a change of control, such as the merger of two independent 
nonprofit institutions, both of which are participating in good 
standing in the title IV programs. The commenter believed that such a 
merger could serve the best interest of students and society by 
allowing distinctive educational programs to continue to be available 
to students, supported by the stronger financial and administrative 
base of the merged institution.
    Discussion: We believe Congress considered similar arguments when 
it deliberated the latest reauthorization of the HEA. While the 
specific terminology suggested by the commenter may not appear in the 
statute, the very example that the commenter provides regarding a 
merger between institutions is specifically addressed in section 
498(i)(2)(C) of the HEA. We considered suggestions that we should 
implement certain labels to clarify the full extent and application of 
this section to all institutions, regardless of unique sectors. Thus we 
included the terms ``private nonprofit'' and ``private for-profit'' as 
descriptive modifiers where appropriate. We disagree with the notion 
that certain entities are disadvantaged by general labels or the lack 
of more specific ones.
    Changes: None.
Public Institutions
    Comments: Nine commenters supported the proposed provision that 
does not regard a change in governance at a public institution as a 
change in ownership, if the institution's new governing body is in the 
same State included in the institution's program participation 
agreement and the new governing body has acknowledged the institution's 
responsibilities under its program participation agreement. The 
commenters felt this exemption was appropriate for the same reasons 
that some commenters supported exempting public institutions from 
applying for our approval of an additional location: sufficient 
oversight and systems of control by governing public entities, 
sufficient financial backing of the governing public entity, and 
monitoring by the institution's accrediting agency to ensure that the 
Federal government's interests are protected.
    One commenter supported the provision that would provide that a 
change in governance at a public institution is not a change in 
ownership. Additionally, the commenter did not believe that it was 
necessary to limit this to changes in governance in the same state 
included in the program participation agreement. The commenter felt 
that the same assurances associated with the fact that public oversight 
of the institution exists would also apply in the rare instance that 
the governance of a public institution switched from one state to 
another. The commenter also did not believe that it would be necessary 
to require the new governing authority to acknowledge the institution's 
responsibilities under its program participation agreement. The 
commenter noted that the institution remains the same institution and, 
therefore, retains the responsibilities it acquired by signing its 
program participation agreement.
    Five commenters did not believe that a particular form of 
acknowledgement should be required for institutions that must 
acknowledge their continuing responsibilities under the program 
participation agreement because the formal transfer of governing 
authority might not include such an acknowledgement. These commenters 
felt it would be more useful for

[[Page 65668]]

institutions to tailor their acknowledgement to reflect the specific 
circumstances of the transfer of governance. One commenter felt that a 
letter or statement from the institutional authority would be 
sufficient.
    Three commenters did not support the proposed provision allowing a 
change in governance at a public institution to not be considered a 
change in ownership if the institution's new governing body is in the 
same State. The commenters contended that there are several 
circumstances where a public institution should be considered to have 
had a change in ownership.
    The commenters also believed that a change in ownership has 
occurred when a public institution is transferred from control from a 
higher level of governmental authority (such as a State) to a lower one 
(such as a county) which may not have the same level of resources to 
commit to the institution. One commenter believed that in such a case 
there was no guarantee of continuing operational effectiveness. The 
commenter felt that such an exemption for all public schools would put 
taxpayers' funds at risk. Two of the commenters believed that, at the 
very least, the institution should be required to inform us of the 
change so that we can determine whether it meets the requirements for 
the exemption.
    One commenter felt that new types of ``quasi public'' institutions, 
such as charter colleges are not likely to have the same level of 
oversight and financial stability as a traditional public institution, 
and should not be given broad regulatory exemptions. The commenter also 
felt that we should retain an interest in approving a change in which 
an institution, for the first time, will be administering the Federal 
financial aid programs. The commenter gave an example of several two-
year colleges in a state that have been managed by four-year 
institutions, but may be given autonomy to operate (and presumably, 
participate in the title IV, HEA programs) on their own. The commenter 
concluded by noting that all of the public institutions in that state 
may have their state funding tied to meeting specific performance 
goals.
    Discussion: We explained in the NPRM and in the earlier discussion 
related to additional locations that there has been a consistent 
history of stability, compliance and accountability in the operation of 
public institutions that supports the proposal to exempt certain 
governance changes within the State from being considered changes of 
ownership resulting in changes of control. Moreover, this level of 
accountability has been present at every level of government that 
operates public institutions. For that reason, we are not persuaded 
that the level of oversight or the systems of control that monitor the 
performance of these institutions will change drastically because of a 
transfer in control between governing public entities within a State.
    We are not persuaded to extend the scope of the proposal to permit 
a public institution in one State to acquire a public institution in 
another State without having that change considered a change of 
ownership resulting in a change in control, and thus requiring the 
institution to apply for approval of a change of ownership. In such an 
instance, the ownership and control of the institution would be 
changing from one State to another, so that an entirely different 
public constituency would be assuming responsibility for the 
institution. This type of structure would also raise questions about 
State licensing, since the public institution owned by one State would 
be operating under the State licensing requirements of a different 
State. We have considered the suggestions from commenters that public 
institutions should be required to report to us when a change of 
governance takes place even if that change is not considered a change 
in ownership resulting in a change in control, and we agree. Such 
information will permit us to examine the transaction to ensure that it 
meets the definitional requirements and to determine if there are any 
other issues involving the institution warranting further action.
    We agree with the comments that cautioned against exempting changes 
of governance at a public institution that is transferred to a ``quasi 
public'' entity such as a charter college or other hybrid entity. As we 
stated in the NPRM, the provision does not apply if a change in 
governance involves a hybrid entity, such as a corporation with limited 
liability, public-private partnerships, or joint ownership with out-of-
State entities.
    Changes: Section 600.21(a)(9) has been added to require public 
institutions to report to us within 10 days of when they experience a 
change in governance.
    Comments: A commenter asked us to clarify the manner in which the 
institution's continuing responsibilities must be acknowledged. The 
commenter noted that in the preamble to the NPRM (page 49141), we 
stated that the acknowledgment must be written and must be a part of 
the documents that transfer control to the new governing body. The 
commenter felt that the next sentence confuses the meaning of the 
previous sentence by stating that the written acknowledgment, if not 
included in the documents transferring control, can be submitted 
separately to us. The commenter believed that we intended to say that 
notification without acknowledgment suffices if that acknowledgment is 
included in the official transfer documents; otherwise, notification of 
the change (not simply acknowledgement of its official records) is 
required.
    Discussion: As explained above, the regulation is being changed to 
require public institutions to report to us within 10 days of 
undergoing a change in governance. If documentation transferring the 
governance from one public entity to another within the State 
explicitly acknowledges the institution's continuing responsibilities 
under its Program Participation Agreement, that documentation is 
sufficient, and no additional acknowledgment must be provided in the 
notice, or separately. Such an acknowledgment may be based on the 
circumstances of the transfer, and simply included in the official 
transfer documentation. If the documentation transferring control of 
the public institution to another in-State public entity does not 
acknowledge the institution's continuing responsibilities under its 
Program Participation Agreement, the institution must acknowledge its 
continuing responsibilities by separate letter or in the notice 
advising us of the change in governance.
    Changes: None.

Section 668.5--Written Arrangements To Provide Educational Programs

    Comments: One commenter from a public institution noted that the 
proposed flexibilities that would extend to institutions participating 
in study-abroad programs would eliminate many current deterrents for 
students trying to gain access to aid for those programs. He believed 
that the existing guidance regarding contractual and consortium 
agreements often causes confusion. The commenter stated that the 
proposed regulation would clarify the required procedures and 
effectively minimize such confusion. The commenter noted the 
clarification the proposed regulation makes by defining third-party 
providers and study-abroad organizations as appropriate constituent 
groups in study-abroad programs.
    Another commenter representing a large, private university 
supported the proposed revisions, and expected a significant reduction 
in the administrative burden experienced, as schools currently must 
obtain and maintain separate agreements with each

[[Page 65669]]

foreign institution that its students are attending. The commenter 
believed that the ability to make agreements with study-abroad 
organizations will enhance the quality and consistency of information 
shared between home and host institutions, and will likely create more 
expedient delivery of the title IV, HEA program funds to students in 
these programs.
    Discussion: We appreciate the positive responses to this proposal. 
We anticipate that these regulations will make it substantially easier 
for students to receive financial aid while enrolled in eligible 
domestic programs away from their home institutions. We believe that 
the ability for either home or host institutions to pay the student's 
title IV, HEA program funds is a significant feature that will enhance 
and expand diverse learning opportunities.
    Changes: None.

Section 668.13--Certification Procedures

    Comments: One commenter agreed with our proposal to permit the 
chief executive of an institution to designate another executive level 
officer to serve as an alternate for certification training purposes. 
The commenter also thought it made sense not to require schools to 
attend training when a participating institution was merely adding a 
new title IV, HEA program.
    Discussion: We believe that all eligible, participating 
institutions should receive basic training about the federal 
regulations and procedural requirements that pertain to administering 
the title IV, HEA programs. We want to assure students and taxpayers 
that they can expect an accurate application of the program 
requirements and a consistent level of proficiency on the part of the 
institutions we authorize to deliver title IV assistance.
    We regularly review the training requirements to ensure that 
relevance, accuracy, and practicality are reflected in the subject 
matter. We also seek to continually simplify the training requirements 
without diluting the core content, to encourage institutions to make 
use of these resources when assessing and maintaining the technical 
readiness of their staffs.
    Changes: None.

Section 668.19--Financial Aid History

    Comments: Several commenters supported the proposal to eliminate 
the paper financial aid transcript (FAT) requirements for all transfer 
students in favor of a process under which the National Student Loan 
Data System (NSLDS) provides financial aid history information about 
current-year transfer students directly to schools that need it for one 
or more of their transfer students.
    Discussion: We appreciate the support of the commenters.
    Changes: None.
    Comments: One commenter asked whether the school or the student is 
liable for an overpayment of title IV aid based on the financial aid 
history information the school receives from NSLDS after the seven day 
timeframe.
    Discussion: Once a school receives information that limits a 
student's eligibility, it may not disburse additional title IV, HEA aid 
to that student until the problem is revolved. As currently provided in 
Dear Colleague Letter GEN-96-13, a school that follows the procedures 
in obtaining financial aid history information from NSLDS may rely on 
that information in making eligibility and award determinations. The 
school is not liable for any overpayments. The same is true under this 
rule. A school that notifies NSLDS and either waits seven days or 
checks NSLDS on-line before it disburses title IV, HEA program funds is 
not liable for any overpayments based on information it receives from 
NSLDS at a later date.
    However, a student may be liable for any overpayment that is the 
result of information the school receives after it follows the 
procedures in these rules. This concept is explained more fully in Dear 
Colleague Letter GEN-96-13.
    Changes: None.
    Comments: One commenter suggested that the Secretary designate this 
regulation as one that a school may implement as soon as it is 
published as a final rule instead of waiting until it normally takes 
effect on July 1, 2001.
    Discussion: We are currently discussing with schools and other 
partners various administrative approaches that could be used to 
implement this rule. After we complete those discussions, system 
improvements and enhancements need to be made to NSLDS before schools 
can use it for this purpose. Therefore, it is unlikely that we will 
have the systems support needed to implement the new provisions before 
July 1, 2001.
    Changes: None.
    Comments: One commenter stated that the NSLDS information on an 
Institutional Student Information Record (ISIR) should be current with 
all financial aid transactions contained in NSLDS. This case requires 
no distinction between current-year and prior-year transfer students 
with respect to the ISIR information a school uses to make eligibility 
and award determinations. The commenter further stated that if the 
information on an ISIR is not the same as that in NSLDS, as implied in 
the preamble discussion, we should provide current NSLDS information to 
schools via the ISIR process.
    Discussion: The financial aid history information on an ISIR 
reflects NSLDS information as of the date that the ISIR is created. 
Currently, an ISIR is not updated solely to reflect disbursements of 
title IV aid that are reported by an NSLDS data provider. This is 
because, under such a process, every school that a student listed on 
the FAFSA would be required to receive an updated ISIR every time new 
disbursements were reported to NSLDS, including the school that 
reported those disbursements. Certainly, there is no benefit in 
providing to schools, at considerable costs to the taxpayers and 
institutions, millions of updated ISIR records that contain information 
they do not need.
    On the other hand, we agree with the commenter's general view that 
there should be a single process under which a school receives updated 
financial aid history information for all transfer students. However, 
in many cases (particularly for prior-year transfer students) the 
updated information will not affect those students' current year 
eligibility or award amounts. Moreover, currently we have no way of 
determining which school a transfer student is attending until after 
NSLDS receives disbursement information identifying that school.
    For these reasons, we proposed a targeted approach under which a 
school would inform NSLDS of the transfer students that are attending 
(or planning to attend) their school and NSLDS would provide, directly 
to that school, updated information about those students. Although 
these rules apply only to current-year transfer students, a school may 
use the new NSLDS process to receive updated information for any 
transfer student.
    Changes: None.

Section 668.165--Notices and Authorizations

    Comments: Two commenters representing a large coalition in the 
higher education community stated that requiring confirmation and 
retention of electronic notices is counter-productive, and diminishing 
to the efficiencies inherent in constantly advancing technologies. By 
comparison they noted that we do not require similar tracking and 
confirmation of receipt for mail sent via the U.S. Postal Service 
(USPS).
    Discussion: After many discussions regarding the practical 
complications of documenting receipt of electronic mail,

[[Page 65670]]

we agree that some schools may experience an impractical, although 
unintended, burden to maintain copies of the student's or parent's 
confirmation of a disbursement notice. Given the range and diversity of 
capabilities in various e-mail and other electronic applications, we 
believe that institutions should determine the best way for them to 
confirm that a student or parent received an electronic notice. Thus, 
the language in the NPRM, and in the final rule, allows electronic 
notices, while only requiring that institutions confirm that those 
notices reached the intended parties.
    We noted in the NPRM that we support the presumption recognized in 
the law that mail deposited with the USPS is delivered. Certainly, 
there are documented cases where this presumption fails because of the 
potential for error that accompanies any system dependent upon human 
interaction. However, we see the differences between an established, 
federally supported, national delivery system and an electronic 
delivery method that operates independently and through many different 
private software providers without a uniform standard, as very 
significant.
    The USPS has several proven methods and systems that it may use to 
track mail deposited in its system. It also utilizes uniform automated 
systems that process mail throughout the nation. The USPS also sets 
coherent operating standards and employs a system of quality assurance 
to monitor the application and effectiveness of those standards.
    On the contrary, both the software applications and the hardware 
upon which they operate generally limit e-mail capabilities. There are 
no observed standards or mandated features inherent in all e-mail 
software applications that provide the quality assurance or maintain a 
similar level of consistency that parallels that of the USPS.
    Changes: None.

Section 675.19--Fiscal Procedures and Records

    Comments: One commenter strongly supported our proposal to allow 
electronic certification of Federal Work-Study (FWS) timesheets. The 
commenter believed that this option alleviates some of the 
inconvenience of loss, damage, forgery and other complications that may 
occur when using paper certifications. The commenter also felt that the 
proposed regulations will enhance the timeliness of the delivery of FWS 
funds, and will improve the security and retention of the related 
records.
    Another commenter was also supportive of our proposal to allow 
electronic certification by a supervisor to approve FWS hours recorded 
on a student's time record. The commenter noted that many of the 
departments at her school have several hundred employees each. 
Accordingly, the commenter was aware that several of these departments 
have implemented electronic timekeeping systems, which have vastly 
improved the accuracy of the timekeeping function for such a large 
number of employees. The commenter also felt that being able to move 
the FWS payroll employees to a more technologically advanced system 
would be less burdensome, and would avoid having to keep a separate 
time system for FWS students. The commenter believed that these 
regulations would improve the utilization of FWS in both on-campus jobs 
and increasingly, in off-campus employment.
    Discussion: We appreciate the support for these regulations. Just 
as we do with manual certification systems, we continue to urge 
institutions to assess the adequacy of their systems and internal 
controls, to assure that reasonable safeguards exist to secure 
certifications that will be completed electronically.
    We refer those who administer the FWS Program to page 49145 of the 
August 10, 2000 NPRM for a full discussion of the safeguards we expect 
schools to include in any electronic certification process they 
implement.
    Changes: None.

Executive Order 12866

    We have reviewed these final regulations in accordance with 
Executive Order 12866. Under the terms of the order we have assessed 
the potential costs and benefits of this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those we have determined to 
be necessary for administering these programs effectively and 
efficiently.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these final regulations, we have determined that 
the benefits of the regulations justify the costs.
    We have also determined that this regulatory action does not unduly 
interfere with state, local, and tribal governments in the exercise of 
their governmental functions.
    We discussed the potential costs and benefits of these final 
regulations in the preamble to the NPRM under Executive Order 12866 
(see page 49147 of the NPRM) Potential Costs and Benefits.

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 does not require you to respond 
to a collection of information unless it displays a valid Office of 
Management and Budget (OMB) control number. We display the valid OMB 
control numbers assigned to the collections of information in these 
final regulations at the end of the affected sections of the 
regulations.

Assessment of Educational Impact

    In the NPRM we requested 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.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not 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 well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at either of the 
following sites:

http://ocfo.ed.gov/fedreg.htm
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    To use PDF you must have Adobe Acrobat Reader, which is available 
free at either of the previous sites. If you have questions about using 
PDF, call the U.S. Government Printing Office (GPO), toll free, at 1-
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    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: 84.033 Federal Work-
Study Program; 84.063 Federal Pell Grant Program)

List of Subjects

34 CFR Part 600

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

[[Page 65671]]

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 690

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

    Dated: October 25, 2000.
Richard W. Riley,
Secretary of Education.

    For the reasons stated in the preamble, the Secretary amends title 
34 of the Code of Federal Regulations by amending parts 600, 668, 675, 
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. 600.9 and 600.30  [Removed and reserved]

    2. Sections 600.9 and 600.30 are removed and reserved.
    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(e)(4); 
or
    (ii) The location is licensed and accredited, the institution does 
not have to apply to the Secretary for approval of that location under 
Sec. 600.20(c), and the institution has reported to the Secretary that 
location under Sec. 600.21.

(Approved by Office of Management and Budget under control number 
1845-0098)

    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 
documentation 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) Reapplication. (1) 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. If the institution wishes to be certified to 
participate in the title IV, HEA programs, it must submit an 
application to the Secretary and must submit all the supporting 
documentation indicated on the application to enable the Secretary to 
determine that it satisfies the relevant certification requirements 
contained in subparts B and L of 34 CFR part 668.
    (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 in 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 and 
certification designation;
    (ii) Reestablish eligibility and certification as a private 
nonprofit, private for-profit, or public institution following a change 
in ownership that results in a change in control as described in 
Sec. 600.31; or
    (iii) Reestablish eligibility and 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 
and certification and disburse title IV, HEA Program funds to students 
enrolled in that expanded scope must apply to the Secretary and wait 
for approval to--
    (1) Add a location at which the institution offers or will offer 50 
percent or more of an educational program if one of the following 
conditions applies, otherwise it must report to the Secretary under 
Sec. 600.21:
    (i) The institution participates in the title IV, HEA programs 
under a provisional certification, as provided in 34 CFR 668.13.
    (ii) The institution receives title IV, HEA program funds under the 
reimbursement or cash monitoring payment method, as provided in 34 CFR 
part 668, subpart K.
    (iii) The institution acquires the assets of another institution 
that provided educational programs at that location during the 
preceding year and participated in the title IV, HEA programs during 
that year.
    (iv) The institution would be subject to a loss of eligibility 
under 34 CFR 668.188 if it adds that location.
    (v) The Secretary previously notified the institution that it must 
apply for approval of an additional location.
    (2) Increase its level of program offering (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);
    (4) Add a branch campus at a location that is not currently 
included in the institution's eligibility and certification 
designation; or
    (5) Convert an eligible location to a branch campus.
    (d) 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.
    (e) Secretary's response to applications. (1) If the Secretary 
receives an application under paragraph (a) or (b)(1) of this section, 
the Secretary notifies the 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) Of 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 paragraphs (a) 
or (b) of this section and that institution applies to participate in 
the title IV, HEA programs, the Secretary notifies the institution--
    (i) Whether the institution is certified to participate in those 
programs;

[[Page 65672]]

    (ii) Of the title IV, HEA programs in which it is eligible to 
participate;
    (iii) Of the title IV, HEA programs in which it is eligible to 
apply for funds;
    (iv) Of the effective date of its eligibility to participate in 
those programs; and
    (v) Of 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 
and certification to participate in the title IV, HEA programs and the 
scope of such approval.
    (4) 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;
    (5) If the Secretary receives an application under paragraph (c)(2) 
of this section for an increase in the level of program offering, or 
for an additional educational program under 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; and
    (6) If the Secretary receives an application under paragraphs 
(c)(4) or (c)(5) of this section 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.
    (f) Disbursement rules related to applications. (1)(i) Except as 
provided under paragraph (f)(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 (f)(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 Department on that 
application.
    (2)(i) Except as provided under paragraph (f)(2)(ii) of this 
section and 34 CFR 668.26, if a private nonprofit, private for-profit, 
or public 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 (f)(2)(i) of this 
section may disburse title IV, HEA program funds to its students if the 
Secretary issues a provisional extension of certification under 
paragraph (g) of this section.
    (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 until the institution receives the Secretary's 
notification that the location, program, or branch is eligible 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 offering, 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.
    (g) Application for provisional extension of certification. (1) If 
a private nonprofit institution, a private for-profit institution, or a 
public institution participating in the title IV, HEA programs 
undergoes a change in ownership that results in a change of control as 
described in 34 CFR 600.31, the Secretary may continue the 
institution's participation in those programs on a provisional basis, 
if the institution under the new ownership submits a ``materially 
complete application'' that is received by the Secretary no later than 
10 business days after the day the change occurs.
    (2) For purposes of this section, a private nonprofit institution, 
a private for-profit institution, or a public institution submits a 
materially complete application if it submits a fully completed 
application form designated by the Secretary supported by--
    (i) A copy of the institution's State license or equivalent 
document that--as of the day before the change in ownership--authorized 
or will authorize the institution to provide a program of postsecondary 
education in the State in which it is physically located;
    (ii) A copy of the document from the institution's accrediting 
association that--as of the day before the change in ownership--granted 
or will grant the institution accreditation status, including approval 
of any non-degree programs it offers;
    (iii) Audited financial statements of the institution's two most 
recently completed fiscal years that are prepared and audited in 
accordance with the requirements of 34 CFR 668.23; and
    (iv) Audited financial statements of the institution's new owner's 
two most recently completed fiscal years that are prepared and audited 
in accordance with the requirements of 34 CFR 668.23, or equivalent 
information for that owner that is acceptable to the Secretary.
    (h) Terms of the extension. (1) If the Secretary approves the 
institution's materially complete application, the Secretary provides 
the institution with a provisional Program Participation Agreement 
(PPA). The provisional PPA extends the terms and conditions of the 
program participation agreement that were in effect for the institution 
before its change of ownership.
    (2) The provisional PPA expires on the earlier of--
    (i) The date on which the Secretary signs a new program 
participation agreement;
    (ii) The date on which the Secretary notifies the institution that 
its application is denied; or
    (iii) The last day of the month following the month in which the 
change of ownership occurred, unless the provisions of paragraph (h)(3) 
of this section apply.
    (3) If the provisional PPA will expire under the provisions of 
paragraph (h)(2)(iii) of this section, the Secretary extends the 
provisional PPA on a month-to-month basis after the expiration date 
described in paragraph (h)(2)(iii) of this section if, prior to that 
expiration date, the institution provides the Secretary with--

[[Page 65673]]

    (i) A ``same day'' balance sheet showing the financial position of 
the institution, as of the date of the ownership change, that is 
prepared in accordance with Generally Accepted Accounting Principles 
(GAAP) published by the Financial Accounting Standards Board and 
audited in accordance with Generally Accepted Government Auditing 
Standards (GAGAS) published by the U.S. General Accounting Office;
    (ii) If not already provided, approval of the change of ownership 
from the State in which the institution is located by the agency that 
authorizes the institution to legally provide postsecondary education 
in that State;
    (iii) If not already provided, approval of the change of ownership 
from the institution's accrediting agency; and
    (iv) A default management plan unless the institution is exempt 
from providing that plan under 34 CFR 668.14(b)(15).

(Approved by the Office of Management and Budget under control 
number 1845-0098)

(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) Reporting requirements. Except as provided in paragraph (b) of 
this section, an eligible institution must report to 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) Its establishment of an accredited and licensed additional 
location at which it offers or will offer 50 percent or more of an 
educational program if the institution wants to disburse title IV, HEA 
program funds to students enrolled at that location, under the 
provisions in paragraph (d) of this section.
    (4) The way it measures program length (e.g., from clock hours to 
credit hours, or from semester hours to quarter hours).
    (5) A decrease in the level of program offering (e.g. the 
institution drops its graduate programs).
    (6) 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.
    (7) The individual the institution designates under 34 CFR 
668.16(b)(1) as its title IV, HEA Program administrator.
    (8) The closure of a branch campus or additional location that the 
institution was required to report to the Secretary.
    (9) The governance of a public institution.
    (b) Additional reporting from institutions owned by publicly-traded 
corporations. An institution that is owned by a publicly-traded 
corporation must report to the Secretary any change in the information 
described in paragraph (a)(6) 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 reporting. The Secretary notifies an 
institution if any reported changes affects the institution's 
eligibility, and the effective date of that change.
    (d) Disbursement rules related to additional locations. When an 
institution must report to the Secretary about an additional location 
under paragraph (a)(3) of this section, the institution may not 
disburse title IV, HEA funds to students at that location before it 
reports to the Secretary about that location. Unless it is an 
institution that must apply to the Secretary under Sec. 600.20(c)(1), 
once it reports to the Secretary about that location, the institution 
may disburse those funds to those students if that location is licensed 
and accredited.
    (e) Consequence of failure to report. 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.
    (f) Definition. 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.

(Approved by the Office of Management and Budget under control 
number 1845.0098)

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


    6. Section 600.31 is amended by:
    A. Revising the section heading.
    B. Revising 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. Revising paragraph (d)(7).
    The additions and revisions read as follows:


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

    (a)(1) Except as provided in paragraph (a)(2) of this section, a 
private nonprofit, private for-profit, or public 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. A change in ownership that results in a change 
in control includes any change by which a person who has or thereby 
acquires an ownership interest in the entity that owns the institution 
or the parent corporation of that entity, acquires or loses the ability 
to control the institution.
    (2) If a private nonprofit, private for-profit, or public 
institution has undergone a change in ownership that results in a 
change in control, the Secretary may, under the provisions of 
Sec. 600.20(g) and (h), 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(g), 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) A U.S. institutional investor, as defined in 17 CFR 240.15a-
6(b)(7);

[[Page 65674]]

    (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 of voting stock than any other shareholder. 
A controlling shareholder for this purpose does not include a 
shareholder whose sole stock ownership is held as a U.S. institutional 
investor, as defined in 17 CFR 240.15a-6(b)(7), held in mutual funds, 
held through a profit-sharing plan, or held in an Employee Stock 
Ownership Plan (ESOP).
    (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 included 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 as a for-profit, nonprofit, or public 
institution.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0098)

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 initial 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

[[Page 65675]]

    (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 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 hours 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.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0537)


Sec. 668.12   [Removed and reserved]

    11. Section 668.12 is removed and reserved.

    12. Section 668.13 is amended by revising paragraph (a) 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 34 CFR part 668, subpart L, 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.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0537)


    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.

(Approved by the Office of Management and Budget under control 
number 1845-0537)

(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) * * *

[[Page 65676]]

    (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.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0697)

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

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 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.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0535)
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

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

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


Sec. 690.9  [Removed]

    18. Section 690.9 is removed.

    19. Section 690.75 is amended by removing the words ``financial aid 
transcript'' in paragraph (a); by removing the reference to ``34 CFR 
668.7'' in paragraph (a)(1) and adding, in its place, ``34 CFR part 
668, subpart C''; and by revising the OMB control number to read as 
follows:


Sec. 690.75  Determination of eligibility for payment.

* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0681)

[FR Doc. 00-27894 Filed 10-31-00; 8:45 am]
BILLING CODE 4000-01-P