[Federal Register Volume 75, Number 209 (Friday, October 29, 2010)]
[Rules and Regulations]
[Pages 66832-66975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26531]



[[Page 66831]]

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Part II





Department of Education





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34 CFR Parts 600, 602, 603, et al.



 Program Integrity Issues; Final Rule

  Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / 
Rules and Regulations  

[[Page 66832]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 602, 603, 668, 682, 685, 686, 690, and 691

[Docket ID ED-2010-OPE-0004]
RIN 1840-AD02


Program Integrity Issues

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary is improving integrity in the programs 
authorized under title IV of the Higher Education Act of 1965, as 
amended (HEA), by amending the regulations for Institutional 
Eligibility Under the HEA, the Secretary's Recognition of Accrediting 
Agencies, the Secretary's Recognition Procedures for State Agencies, 
the Student Assistance General Provisions, the Federal Family Education 
Loan (FFEL) Program, the William D. Ford Federal Direct Loan Program, 
the Teacher Education Assistance for College and Higher Education 
(TEACH) Grant Program in part 686, the Federal Pell Grant Program, and 
the Academic Competitiveness Grant (AGC) and National Science and 
Mathematics Access to Retain Talent Grant (National Smart Grant) 
Programs.

DATES: These regulations are effective July 1, 2011 with the exception 
of the revision of subpart E of part 668, Verification and Updating of 
Student Aid Application Information. Revised subpart E of part 668 is 
effective July 1, 2012. The incorporation by reference of certain 
publications listed in the rule is approved by the Director of the 
Federal Register as of July 1, 2011.

FOR FURTHER INFORMATION CONTACT: For information related to the 
provisions on high school diplomas and verification of information on 
the Free Application for Federal Student Aid (FAFSA), Jacquelyn Butler. 
Telephone: (202) 502-7890 or via the Internet at: 
[email protected].
    For information related to the return of title IV, HEA funds 
calculation provisions for term-based modules or taking attendance, 
Jessica Finkel or Wendy Macias. Telephone: (202) 502-7647 or via the 
Internet at: [email protected]. Telephone: (202) 502-7526 or via 
the Internet at: [email protected].
    For information related to the provisions on retaking coursework, 
Vanessa Freeman. Telephone: (202) 502-7523 or via the Internet at: 
[email protected].
    For information on the provisions related to incentive 
compensation, Marty Guthrie. Telephone: (202) 219-7031 or via the 
Internet at: [email protected].
    For information related to the provisions on satisfactory academic 
progress, Marty Guthrie or Marianna Deeken. Telephone: (202) 219-7031 
or via the Internet at: [email protected]. Telephone: (206) 615-2583 
or via the Internet at: [email protected].
    For information related to the provisions on ability to benefit, 
Dan Klock. Telephone: (202) 377-4026 or via the Internet at 
[email protected].
    For information related to gainful employment in a recognized 
occupation, John Kolotos. Telephone: (202) 502-7762 or via the Internet 
at: [email protected].
    For information related to the provisions for written agreements 
between institutions, Carney McCullough. Telephone: (202) 502-7639 or 
via the Internet at: [email protected].
    For information related to the provisions on misrepresentation, 
Carney McCullough or Vanessa Freeman. Telephone: (202) 502-7639 or via 
the Internet at: [email protected]. Telephone: (202) 502-7523 or 
via the Internet at: [email protected].
    For information related to the provisions on timeliness and method 
of disbursement, Harold McCullough. Telephone: (202) 377-4030 or via 
the Internet at: [email protected].
    For information related to the provisions related to the definition 
of credit hour, Fred Sellers. Telephone: (202) 502-7502 or via the 
Internet at: [email protected].
    For information related to provisions on State authorization, Fred 
Sellers. Telephone: (202) 502-7502 or via the Internet at: 
[email protected].
    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., braille, large print, audiotape, or computer 
diskette) on request to one of the contact persons listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: On June 18, 2010, the Secretary published a 
notice of proposed rulemaking (NPRM) for program integrity issues in 
the Federal Register (75 FR 34806).
    In the preamble to the NPRM, the Secretary discussed on pages 34808 
through 34848 the major regulations proposed in that document to 
strengthen and improve the administration of programs authorized under 
the HEA. These proposed regulations included the following:
     Requiring institutions to develop and follow procedures to 
evaluate the validity of a student's high school diploma if the 
institution or the Secretary has reason to believe that the diploma is 
not valid or was not obtained from an entity that provides secondary 
school education;
     Expanding eligibility for title IV, HEA program assistance 
to students who demonstrate they have the ability to benefit by 
satisfactorily completing six credits of college work, or the 
equivalent amounts of coursework, that are applicable toward a degree 
or certificate offered by an institution;
     Amending and adding definitions of terms related to 
ability to benefit testing, including ``assessment center,'' 
``independent test administrator,'' ``individual with a disability,'' 
``test,'' ``test administrator,'' and ``test publisher'';
     Consolidating into a single regulatory provision the 
approval processes for ability to benefit tests developed by test 
publishers and States;
     Establishing requirements under which test publishers and 
States must provide descriptions of processes for identifying and 
handling test score abnormalities, ensuring the integrity of the 
testing environment, and certifying and decertifying test 
administrators;
     Requiring test publishers and States to describe any 
accommodations available for individuals with disabilities, as well as 
the process a test administrator would use to identify and report to 
the test publisher instances in which these accommodations were used;
     Revising the test approval procedures and criteria for 
ability to benefit tests, including procedures related to the approval 
of tests for speakers of foreign languages and individuals with 
disabilities;
     Revising the definitions and provisions that describe the 
activities that constitute substantial misrepresentation by an 
institution of the nature of its educational program, its financial 
charges, or the employability of its graduates;
     Removing the ``safe harbor'' provisions related to 
incentive compensation for any person or entity engaged in any student 
recruitment or admission activity, including making decisions regarding 
the award of title IV, HEA program assistance;
     Clarifying what is required for an institution of higher 
education, a

[[Page 66833]]

proprietary institution of higher education, and a postsecondary 
vocational institution to be considered legally authorized by the 
State;
     Defining a credit hour and establishing procedures that 
certain institutional accrediting agencies must have in place to 
determine whether an institution's assignment of a credit hour is 
acceptable;
     Modifying provisions to clarify whether and when an 
institution must award student financial assistance based on clock or 
credit hours and the standards for credit-to-clock-hour conversions;
     Modifying the provisions related to written arrangements 
between two or more eligible institutions that are owned or controlled 
by the same person or entity so that the percentage of the educational 
program that may be provided by the institution that does not grant the 
degree or certificate under the arrangement may not exceed 50 percent;
     Prohibiting written arrangements between an eligible 
institution and an ineligible institution that has had its 
certification to participate in title IV, HEA programs revoked or its 
application for recertification denied;
     Expanding provisions related to the information that an 
institution with a written arrangement must disclose to a student 
enrolled in a program affected by the arrangement, including, for 
example, the portion of the educational program that the institution 
that grants the degree or certificate is not providing;
     Revising the definition of unsubsidized student financial 
aid programs to include TEACH Grants, Federal PLUS Loans, and Direct 
PLUS Loans;
     Codifying current policy that an institution must complete 
verification before the institution may exercise its professional 
judgment authority;
     Eliminating the 30 percent verification cap;
     Retaining the ability of institutions to select additional 
applicants for verification;
     Replacing the five verification items for all selected 
applicants with a targeted selection from items included in an annual 
Federal Register notice published by the Secretary;
     Allowing interim disbursements when changes to an 
applicant's FAFSA information would not change the amount that the 
student would receive under a title IV, HEA program;
     Codifying the Department's IRS Data Retrieval System 
Process, which allows an applicant to import income and other data from 
the IRS into an online FAFSA;
     Requiring the processing of changes and corrections to an 
applicant's FAFSA information;
     Modifying the provisions related to institutional 
satisfactory academic progress policies and the impact these policies 
have on a student's eligibility for title IV, HEA program assistance;
     Expanding the definition of full-time student to allow, 
for a term-based program, repeated coursework taken in the program to 
count towards a full-time workload;
     Clarifying when a student is considered to have withdrawn 
from a payment period or period of enrollment for the purpose of 
calculating a return of title IV, HEA program funds;
     Clarifying the circumstances under which an institution is 
required to take attendance for the purpose of calculating a return of 
title IV, HEA program funds;
     Modifying the provisions for disbursing title IV, HEA 
program funds to ensure that certain students can obtain or purchase 
books and supplies by the seventh day of a payment period;
     Updating the definition of the term recognized occupation 
to reflect current usage;
     Establishing requirements for institutions to submit 
information on students who attend or complete programs that prepare 
students for gainful employment in recognized occupations; and
     Establishing requirements for institutions to disclose on 
their Web site and in promotional materials to prospective students, 
the on-time completion rate, placement rate, median loan debt, program 
cost, and other information for programs that prepare students for 
gainful employment in recognized occupations.

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 (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulation may 
choose to implement earlier and to specify the conditions under which 
the entity may implement the provisions early.
    The Secretary has not designated any of the provisions in these 
final regulations for early implementation. As indicated in the DATES 
section, the regulations contained in subpart E of part 668, 
Verification and Updating of Student Aid Application Information are 
effective July 1, 2012.
    While the Secretary has designated amended Sec.  600.9(a) and (b) 
as being effective July 1, 2011, we recognize that a State may be 
unable to provide appropriate State authorizations to its institutions 
by that date. We are providing that the institutions unable to obtain 
State authorization in that State may request a one-year extension of 
the effective date of these final regulations to July 1, 2012, and if 
necessary, an additional one-year extension of the effective date to 
July 1, 2013. To receive an extension of the effective date of amended 
Sec.  600.9(a) and (b) for institutions in a State, an institution must 
obtain from the State an explanation of how a one-year extension will 
permit the State to modify its procedures to comply with amended Sec.  
600.9.

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 must 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. The negotiated rulemaking 
committee did not reach consensus on the proposed regulations that were 
published on June 18, 2010. The Secretary invited comments on the 
proposed regulations by August 2, 2010. Approximately 1,180 parties 
submitted comments, a number of which were substantially similar. An 
analysis of the comments and of the changes in the regulations since 
publication of the NPRM follows.
    We group major issues according to subject, with appropriate 
sections of the regulations referenced in parentheses. We discuss other 
substantive issues under the sections of the regulations to which they 
pertain. Generally, we do not address minor, nonsubstantive changes, 
recommended changes that the law does not authorize the Secretary to 
make, or comments pertaining to operational processes. We also do not 
address comments pertaining to issues that were not within the scope of 
the NPRM.

General Comments

    Comment: We received a significant number of comments that 
expressed support for the Secretary's proposed regulations. Many of the 
commenters noted that the proposed regulations would protect taxpayer 
investments in

[[Page 66834]]

higher education by helping to curtail fraud and abuse and would 
protect the interests of a diverse population of students who are 
seeking higher education for personal and professional growth. Some of 
the commenters also stated that the Secretary's proposed regulations 
would provide a level playing field that benefits the majority of 
institutions of higher education that are committed to sound academic 
and administrative practices.
    Discussion: The Department appreciates the numerous comments we 
received in support of the proposed regulations.
    Changes: None.
    Comment: Several commenters disagreed with the process by which the 
Department developed the proposed regulations. The commenters believe 
that the Department did not negotiate in good faith and did not follow 
faithfully the Federal negotiated rulemaking process. These commenters 
believed that the Department excluded important members of the 
proprietary school sector from the process and failed to provide 
adequate time for review of and comment on the proposed regulations. 
Because of the complexity of the proposed regulations, these same 
commenters also requested that the Department delay the effective date 
for implementation of the final regulations. Several other commenters 
believed that before negotiating proposed regulations with such a broad 
scope, the Department should have conducted studies to assess the 
impact the proposed regulations would have on affected institutions. 
Lastly, one commenter expressed the view that the Department began 
negotiations without presenting examples of abuse or data that 
supported additional regulation and that many of the Department's 
concerns about program integrity could have been better addressed by 
enforcing current regulations.
    Discussion: We disagree with the commenters who said that the 
Department did not act in good faith in negotiating the proposed 
regulations or that we did not follow the negotiated rulemaking 
process. In conducting the negotiated rulemaking for these proposed 
regulations, the Department followed the requirements in section 492 of 
the HEA, which govern the negotiated rulemaking process and require the 
Department to choose non-Federal negotiators from the groups involved 
in the student financial assistance programs authorized by title IV of 
the HEA. As addressed earlier in this preamble, all of these groups 
were represented during the negotiations.
    We believe that the 45-day public comment period was an adequate 
period of time for interested parties to submit comments, especially in 
light of the fact that prior to issuing the proposed regulations, the 
Department conducted public hearings and three negotiated rulemaking 
sessions, where stakeholders and members of the public had an 
opportunity to weigh in on the development of much of the language 
reflected in the proposed regulations. In addition, we believe that the 
45-day public comment period is necessary in light of the HEA's master 
calendar requirements. Under those requirements, the Department must 
publish final regulations by November 1, 2010, in order for them to be 
effective on July 1, 2011. The Department must adhere to the master 
calendar set forth by Congress and does not have the statutory 
authority to amend it.
    We also do not agree that, except for certain provisions of the 
regulations such as those that may involve systems changes that require 
adequate lead time to make, implementation of the final regulations 
should be delayed. For example, the proposed regulations on FAFSA 
verification cannot be implemented by the July 1, 2011 effective date 
because the changes would require system updates that will not be in 
place by that date. We discuss the implementation delay of regulations 
that involve these system changes elsewhere in this preamble. Absent 
these system-related or similar issues, however, we believe a delay in 
implementing the final regulations will undermine the Department's goal 
of protecting taxpayers and students by ensuring the integrity of the 
title IV, HEA programs.
    Lastly, we disagree with the commenters who stated that the 
Department should have conducted a study to assess the impact of the 
proposed regulations on institutions of higher education before 
negotiating the proposed changes and those commenters who stated that 
the Department did not present examples of abuse or data to support the 
proposed regulations. The Department's decision to improve program 
integrity by strengthening the regulations was based on many factors, 
including feedback we received from the public. Specifically, the 
Department developed a list of proposed regulatory provisions based on 
advice and recommendations submitted by individuals and organizations 
as testimony in a series of three public hearings in June of 2009, as 
well as written comments submitted directly to the Department. 
Department staff also identified issues for discussion and negotiation. 
The proposed regulations that were negotiated during negotiated 
rulemaking and included in the proposed regulations were developed for 
one or more of the following reasons:
     To implement provisions of the HEA, as amended by the 
Higher Education Opportunity Act of 2008 (HEOA).
     To update current regulations that had not been updated in 
some time so that they more accurately reflect the state of the law as 
well as the Department's current practices and policies (e.g., aligning 
the regulations with the Department's FAFSA simplification initiative).
     To respond to problems identified by students and 
financial aid advisors about the aggressive sales tactics used by some 
institutions.
     To respond to a report from the United States Government 
Accountability Office published in August of 2009 that raised concerns 
about proprietary institutions and recommended stronger Department 
oversight to ensure that only eligible students receive Federal student 
aid.
    We believe that all of these factors provided ample support for the 
Department to immediately propose stronger regulations to protect 
students and prevent fraud and abuse in the title IV, HEA programs.
    Changes: None.
    Comment: Many commenters expressed concern about what they argued 
would be a negative impact of the proposed regulations on institutions 
of higher education, particularly proprietary institutions. These 
commenters stated that the proposed regulations are too complex and too 
broad in scope and that, as a result, they would disproportionately 
impose burdens on the institutions that serve many of the students who 
need the most financial assistance. Other commenters stated that, in 
these trying economic times, institutions simply do not have the 
resources to administer the disclosure, reporting, and implementation 
requirements included in the proposed regulations. Some of these 
commenters stated that they feared that the cost of compliance with 
these regulations, which many argued were ambiguous or inconsistent, 
would drive their small proprietary institutions out of business.
    Several commenters stated that the proposed regulations target the 
entire proprietary school sector of higher education, while the actions 
of only a few proprietary institutions are cause for concern. These 
commenters decried the Department's ``one-size-fits-all'' approach to 
ensuring program integrity.

[[Page 66835]]

Lastly, one commenter requested that the Department indicate in each 
section of the final regulations the types of institutions to which 
that specific section applies.
    Discussion: The Department is aware that some institutions may have 
limited resources to implement some provisions of the final regulations 
and is committed to assisting these institutions in every way possible 
to ensure that all institutions can comply with program requirements. 
Several of the changes are to discrete areas of existing regulations 
rather than wholly new requirements. As such, institutions wishing to 
continue to participate in the title IV, HEA programs have already 
absorbed many of the administrative costs related to implementing these 
final regulations. Any additional costs are primarily due to new 
procedures that, while possibly significant in some cases, are a cost 
of continued program participation.
    The Department believes that the benefits of these regulations for 
students, consumers, and taxpayers justify the burdens of institutional 
compliance, as discussed, in the Regulatory Impact Analysis in Appendix 
A. These regulations strengthen the Federal student aid programs by 
protecting students from aggressive or misleading recruiting practices 
and clarifying State oversight responsibilities, providing consumers 
with better information about the effectiveness of career colleges and 
training programs, and ensuring that only eligible students or programs 
receive aid.
    We do not believe it is necessary to specifically indicate in each 
section which institutions are covered by a particular regulation 
because all provisions of these regulations apply to all postsecondary 
institutions, unless otherwise specified.
    Changes: None.
    Comment: A number of commenters stated that the proposed 
regulations would harm students who are already disadvantaged, 
underserved, and not adequately represented in postsecondary 
institutions because they would limit their choice of educational 
programs and their chances of getting a quality education. Other 
commenters noted that the proposed regulations could become a barrier 
to access for needy students, as well as adult students who work full-
time, because aid may be discontinued for programs that do not meet new 
regulatory requirements. Finally, one commenter urged the Department to 
ensure that the final regulations further the objectives of student 
access and success, and promote quality educational programs.
    Discussion: We are confident that the regulations strengthening 
program integrity are in the best interest of students, consumers, and 
taxpayers, and will improve the quality of the programs offered at 
institutions by ensuring that all programs meet a threshold of quality. 
We believe that students, particularly disadvantaged, high-need 
students who are the most vulnerable, are not well served by enrollment 
in programs that leave them with limited or low-paying job prospects 
and with crushing debt that they are unable to repay. Students who 
complete their educational programs should not expect results that 
leave them in a worse situation than when they began their educational 
programs. We believe the regulations will hold institutions accountable 
and ensure that students can have confidence in the quality of the 
educational programs in which they invest their time, energy, and 
money. The Department has a fiscal responsibility to American taxpayers 
to ensure the value of education provided by all institutions and 
programs that are eligible for Federal student aid, regardless of 
whether they are public, private nonprofit, or proprietary 
institutions, and these regulations will aid the Department in 
achieving the best possible return on taxpayers' investment.
    Changes: None.

Gainful Employment in a Recognized Occupation (Sec. Sec.  600.2, 600.4, 
600.5, 600.0, 668.6, and 668.8) Gainful Employment Reporting and 
Disclosure Requirements (Sec.  668.6)

General

    Comment: Many commenters believed that the proposed reporting and 
disclosure requirements should apply to all programs, regardless of the 
type of institution or credential awarded, or whether the programs are 
otherwise subject to the gainful employment provisions. Alternatively, 
other commenters maintained that since these requirements were targeted 
to prevent known abuses in the for-profit sector, they should apply 
only to those institutions.
    A number of commenters supported the proposed requirements and Web-
based disclosure approach. Some of the commenters urged the Department 
to require institutions to provide the information under Sec.  668.6(b) 
in a clear, prominent, user-friendly, and easily understood manner. The 
commenters also recommended that this information be given directly to 
prospective students prior to enrolling or making a verbal or written 
commitment to enroll. Other commenters made similar suggestions 
including making the information available in a prominent, clear, and 
conspicuous location in the first promotional materials conveyed to 
prospective students. Another commenter believed that disclosures could 
be helpful if they are offered early in the process and are clear and 
conspicuous. However, the commenter opined that there is virtually no 
evidence that disclosures impact consumer decision making in a 
meaningful way. The commenter further stated that the fiction that 
disclosures are sufficient to regulate markets is especially apparent 
for low-literate consumers, citing an example where a client was 
pressured to enroll in a medical assisting program at a for-profit 
institution even though she dropped out of school in the 9th grade and 
had a 6th grade reading level. The student did not complete the 
program, never found work, and defaulted on her loans. The commenter 
concluded that disclosures are not an adequate counterweight to school 
overreaching and are useful only in conjunction with substantive 
standards.
    Discussion: As we noted in the NPRM for these regulations (75 FR 
34808-34809), the reporting and disclosure requirements in Sec.  668.6 
apply only to programs that prepare students for gainful employment, as 
provided under sections 102(b) and (c) and 101(b)(1) of the HEA.
    With regard to the comments on how an institution should disclose 
on its Web site the information required in Sec.  668.6(b), and when it 
would be most beneficial to students to receive this information, we 
expect institutions to abide by the intent of the provisions--to enable 
students to make an informed choice about a program--by making the 
disclosures in a clear, timely, and meaningful manner. To this end, and 
to help ensure that the disclosures are easily accessible, an 
institution must prominently provide the required information on the 
home page of its program Web site and provide a prominent and direct 
link to this page on any other Web page about a program. The 
information displayed must be in an open format that can be retrieved, 
downloaded, indexed, and searched by commonly used Web search 
applications. An open format is one that is platform-independent, is 
machine-readable, and is made available to the public without 
restrictions that would impede the reuse of that information.
    In addition, we agree with the suggestion that an institution 
should be required to make this information available in the 
promotional materials

[[Page 66836]]

conveyed to prospective students. To promote the goal of facilitating 
informed choice, the disclosure must be simple and meaningful.
    The Department intends to develop in the future a disclosure form 
and will be seeking public comment about the design of the form through 
the information collection process under the Paperwork Reduction Act of 
1995 (PRA). While the form will be developed through that process, the 
regulations require institutions to provide clear and prominent notice, 
delivered to students at appropriate times and in promotional materials 
prior to enrollment. Until a form is developed and approved under the 
PRA process, institutions must comply with these disclosure 
requirements independently. In addition, we agree with the comments 
that disclosures alone are likely to be inadequate and have proposed to 
establish program performance standards in our NPRM on Program 
Integrity--Gainful Employment that was published in the Federal 
Register on July 26, 2010 (75 FR 43616).
    Changes: Section 668.6(b) has been revised to provide that an 
institution must prominently provide the information it is required to 
disclose about a program in a simple and meaningful manner on the home 
page of its program Web site, and provide prominent and direct links to 
this page on any other Web page containing general, academic, or 
admissions information about the program. The revised provision also 
states that an institution must use the disclosure form developed by 
the Secretary when it becomes available and the disclosure information 
must be displayed on the institution's Web site in an open format that 
can be retrieved, downloaded, indexed, and searched by commonly use Web 
search applications. An open format is one that is platform-
independent, is machine-readable, and is made available to the public 
without restrictions that would impede the reuse of that information.
    Finally, Sec.  668.6(b) has been revised to provide that an 
institution must make the information available in the promotional 
materials conveyed to prospective students.

Placement Rates

    Comment: Many commenters objected to using the placement rate 
calculation in Sec.  668.8(g) arguing that it is overly burdensome and 
administratively complex. The commenters opined that tracking a student 
for 180 days after graduation for a period of 13 weeks was too long and 
believed that it would be virtually impossible for the Department or 
any other auditor to affirm the accuracy of the placement data because 
the tracking period represents nothing more than a snap-shot of how 
many students were employed for 13 weeks at the time the data was 
collected. The commenters asserted that if the Department requires 
placement information to be disclosed to students, the information that 
an institution currently provides to its accrediting agency, which 
routinely assesses that information, would be more accurate. In 
addition, the commenters were concerned about potential conflicts with 
the misrepresentation provisions in subpart F of part 668 on the 
grounds that any placement rate disclosed to students would be obsolete 
as soon as it was posted to an institution's Web site. Some of the same 
commenters objected to the proposed alternative of relying on State-
sponsored workforce data systems arguing that there is no consistency 
between the States that maintain employment outcome data, and that in 
many cases the data collected fails to provide a full and accurate 
depiction of the demand, growth, and earnings of key occupations.
    A number of commenters opposed using the placement rate calculation 
in Sec.  668.8(g) arguing that it is a highly restrictive measure 
developed solely for extremely short programs offered by a few 
institutions. The commenters noted that an institution is already 
required under Sec.  668.41(d)(5) to disclose any placement rates it 
calculates and that it would be confusing to students to disclose any 
additional rates beyond those that it is required to calculate under 
accrediting agency or State requirements. Some of these commenters 
suggested that in cases where an institution is not required by its 
accrediting agency to calculate placement rates, the institution should 
calculate the rates using a methodology from a national accrediting 
agency or the State in which the institution is authorized to operate. 
Under either the agency or State methodology, the commenters requested 
flexibility in determining the rates for degree programs because 
employment opportunities for graduates of degree programs are much more 
diverse than for graduates of occupationally specific training 
programs.
    One commenter stated that its institution's mission of educating 
working adults is at odds with the concept of placement rates--many of 
the institution's students are already employed and enroll to enhance 
their careers through further education. In addition, the commenter 
stated that it would be impractical to administer a job placement 
regime for students taking online programs who reside throughout the 
world. The commenter recommended that placement rates be calculated in 
accordance with an institution's accrediting agency or State 
requirements, but that the proposed disclosures should not apply where 
there are no agency or State requirements. As an alternative, the 
commenter suggested that regionally accredited institutions, which are 
not required to track employment outcomes, conduct post graduation 
surveys asking program graduates if they are working in their field. An 
affirmative response would count as a ``placement'' even if the 
graduate maintained the same employment he or she had while attending 
the institution. Along the same lines, another commenter suggested that 
the Department allow an institution that is not required by an outside 
agency to calculate placement rates, to develop and implement a method 
that best reflects the make-up of its student body, including surveys, 
collecting employer documentation, or other methods.
    One commenter objected to using the placement rate calculation 
intended for short-term programs in Sec.  668.8(g) because all of its 
programs were at or above the baccalaureate level. While the commenter 
stated that requiring public disclosure of relevant outcomes puts 
pressure on an institution to ensure that it is providing a good 
education to its students, the commenter suggested that unless an 
institution's accrediting agency or State requires it to disclose 
placement rates, the institution should only disclose rates that it 
calculates on an annual basis for internal purposes or any employment 
or placement information it receives from surveying its students. 
Another commenter made the same suggestions and asked the Department to 
clarify that placement rates would only need to be updated annually.
    Another commenter argued that the placement rate methodology in 
Sec.  668.8(g) was never intended for gainful employment purposes and 
made several recommendations including:
    (1) Excluding from the total number of students who completed a 
program during an award year, the students who are unable to seek 
employment due to a medical condition, active military duty, 
international status, continuing education, incarceration, or death. In 
addition, an institution could exclude those graduates who certify they 
are not seeking employment or those that it is unable to locate. The 
commenter specified the documentation an

[[Page 66837]]

institution would have to obtain for each of these exclusions.
    (2) Removing the requirement in Sec.  668.8(g)(1)(iii) that a 
student must be employed, or have been employed, for 13 weeks and 
allowing students to find employment within 6 months from the last 
graduation date in the award year.
    (3) Replacing the employer certification, income tax form, and 
Social Security provisions in Sec.  668.8(g)(3) with other ways that an 
institution would verify that a student obtained gainful employment.
    Several commenters suggested using the methodology developed by a 
national accrediting agency because the proposed method in Sec.  
668.8(g) does not take into consideration circumstances that would 
prevent graduates from seeking employment, such as health issues, 
military deployment or continuing education, or practical issues 
related to the employment of international or foreign students.
    Several commenters stated it would be difficult, if not impossible, 
for these institutions to obtain the data needed to calculate placement 
rates. Some of these commenters supported the use of State-sponsored 
workforce data systems, but cautioned that many community colleges 
would not be able to obtain sufficiently detailed placement information 
through data matches with these systems to satisfy the proposed 
requirements. Other commenters noted that some States do not have 
workforce data systems, so institutions in those States would have to 
use the non preferred placement rate methodology under Sec.  668.8(g). 
Many of the commenters believed the requirement to document employment 
on a case-by-case basis under Sec.  668.8(g)(2) would be overly 
burdensome and labor intensive. Others opined that the placement 
provisions are counterproductive, claiming that a substantial number of 
community colleges eschewed participating in programs under the 
Workforce Investment Act because of placement rate requirements. On the 
other hand, another commenter supported the placement rate provisions 
and recommended that all institutions in a State participate in a 
workforce data system, if the State has one. The commenter asked the 
Department to clarify how the data obtained from a workforce data 
system would be used to meet the placement rate requirements and the 
timeline for reporting those rates. In addition, the commenter 
suggested revising the placement rate provisions in Sec.  668.8(g) to 
more closely align those provisions with practices used by State data 
systems.
    One commenter stated that in order to receive Federal funding under 
the Carl D. Perkins Career and Technical Education Act, a program must 
receive State approval that entails a review of documentation requiring 
that the program be high demand, high wage or in an emerging field. As 
part of the State review, the institution provides documentation of 
potential placement. The commenter recommended that the Department 
waive the gainful employment provisions for all certificate programs 
approved by the State under this review process.
    A commenter supported disclosing placement rate data, but noted 
that the institution would only be able to report on graduates who are 
employed in the State or continued their education. The institution 
would not be able to provide occupationally specific placement data, or 
data about graduates who find employment outside the State, because the 
State's labor data base only tracks (1) the type of business a graduate 
is employed by, not the occupation of the graduate, and (2) graduates 
who are employed in the State.
    Several other commenters supported the proposed placement rate 
disclosures, but believed that the provisions in Sec.  668.8(g) were 
inadequate. The commenters made several suggestions, including:
    (1) Expanding the category of students who complete a program 
(currently in Sec.  668.8(g)(1)(i)) to include students who are 
eligible for a degree or certificate. The commenters stated they are 
aware of institutions that delay providing the degree or certificate to 
students, which omits these students from the placement rate 
calculation.
    (2) Specifying that the time standards in Sec.  668.8(g) 
(employment within 180 days of completing a program and employment for 
13 weeks) also apply to rates calculated from State workforce data 
systems.
    (3) Specifying that employment must be paid. The commenters stated 
they are aware of institutions that have counted students in unpaid 
internships as being employed.
    (4) To be counted in the placement rate, providing that a student 
must find employment in one of the SOC codes identified for the program 
unless the student finds a job that pays more than any of the 
identified SOC codes. The commenters believed that some institutions 
stretch the concept of a ``related'' comparable job as currently 
provided in Sec.  668.8(g)(1)(ii). For example, an institution might 
include any job at a hospital, including the lowest paying jobs, when 
the student was trained for a skilled job such as an x-ray technician. 
The higher earnings recommendation would condition a successful 
placement but allow an institution to count a student employed in an 
unrelated SOC.
    (5) To address the situation where a student cannot qualify for 
employment until he or she passes a licensing or certification 
examination, providing that the 180-day period during which the student 
would otherwise have to find employment should start after the results 
of the examination are available.
    (6) To be counted in the placement rate, specifying that a student 
must work for at least 32 hours per week. The commenters stated that 
they are aware of institutions that include as successful placements 
any student that works at any time during a week, even if it is only 
for a few hours per week.
    (7) Specifying that institutions must use a State data system if it 
is available to ensure accurate reporting.
    (8) If the institution chooses to demonstrate placement rates by 
salary, providing that documentation must include signed copies of tax 
returns, W-4s or paystubs to document earnings.
    (9) To more thoroughly substantiate placement rates, requiring the 
auditor who performs the institution's compliance audit under Sec.  
668.23 to directly contact former students and employers whose 
statements were obtained by the institution.
    Discussion: We are persuaded by the comments that using the 
methodology in Sec.  668.8(g) may not be the most appropriate method 
for determining the placement rate for the majority of the programs 
that are subject to the gainful employment provisions. Moreover, in 
view of the varied suggestions for how the rate should be calculated, 
documented, and verified, in early 2011 we will begin the process for 
developing the method to calculate placement rates for institutions 
through the National Center for Education Statistics (NCES). These 
final regulations establish some reporting requirements using existing 
placement data as explained below, with a transition in a later period 
for institutions to disclose placement rates obtained from the NCES 
methodology. NCES will develop a placement rate methodology and the 
processes necessary for determining and documenting student employment 
and reporting placement data to the Department using the Integrated 
Postsecondary Education Data System (IPEDS).
    NCES employs a collaborative process that affords the public 
significant opportunities to participate in making, and commenting on, 
potential changes to IPEDS. Potential changes are

[[Page 66838]]

examined by the IPEDS Technical Review Panel (TRP), which is a peer 
review panel that includes individuals representing institutions, 
education associations, data users, State governments, the Federal 
government, and other groups. The TRP meets to discuss and review 
IPEDS-related plans and looks at the feasibility and timing of the 
collection of proposed new items, added institutional burden, and 
possible implementation strategies. After each meeting, a meeting 
report and suggestions summary is posted to the IPEDS Web site. The 
postsecondary education community then has 30 days to submit comments 
on the meeting report and summary. After those comments are considered, 
the Department requests the Office of Management and Budget (OMB) to 
include the changes in the next IPEDS data collection. This request for 
forms clearance is required by the Paperwork Reduction Act of 1995, as 
amended. A description of the changes and the associated institutional 
reporting burden is included in the request which is then published by 
OMB as a notice in the Federal Register, initiating a 60-day public 
comment period. After that, a second notice is published in the Federal 
Register, initiating a 30-day public comment period. Issues raised by 
commenters are resolved, and then OMB determines whether to grant forms 
clearance. Only OMB cleared items are added to the IPEDS data 
collection.
    Although we agree with the commenters that the data maintained or 
processes used by workforce data systems may vary State by State, and 
that the data systems are not available to all institutions or in all 
States, we continue to believe that these data systems afford 
participating institutions an efficient and accurate way of obtaining 
employment outcome information. However, because of State-to-State 
variances and in response to comments about how employment outcome data 
translate to a placement rate, NCES will develop the methods needed to 
use State employment data to calculate placement rates under its 
deliberative process for IPEDS.
    Until the IPEDS-developed placement rate methodology is 
implemented, an institution that is required by its accrediting agency 
or State to calculate a placement rate, or that otherwise calculates a 
placement rate, must disclose that rate under the current provisions in 
Sec.  668.41(d)(5). However, under new Sec.  668.6(b), the institution 
must disclose on its Web site and promotional materials the placement 
rate for each program that is subject to the gainful employment 
provisions if that information is available or can be determined from 
institutional placement rate calculations. Consequently, to satisfy the 
new disclosure requirements, an institution that calculates a placement 
rate for one or more programs would disclose that rate under Sec.  
668.6(b) by identifying the accrediting agency or State agency under 
whose requirements the rate was calculated. Otherwise, if an 
accrediting agency or State requires an institution to calculate a 
placement rate only at the institutional level, the institution must 
use the agency or State methodology to calculate the placement rate for 
each of its programs from information it already collects and must 
disclose the program-specific placement rates in accordance with Sec.  
668.6(b).
    Changes: Section 668.6(b) has been revised to specify that an 
institution must disclose for each program the placement rate 
calculated under a methodology developed by its accrediting agency, 
State, or the National Center for Education Statistics (NCES). The 
institution must disclose the accrediting agency or State-required 
placement rate beginning on July 1, 2011 and must identify the 
accrediting agency or State agency under whose requirements the rate 
was calculated. The NCES-developed placement rate would have to be 
disclosed when the rates become available.

On-Time Completion Rate

    Comment: Many commenters asked the Department to clarify the 
meaning of ``on-time'' completion rate. Other commenters assumed that 
``on-time'' completion referred to the graduation rate currently 
calculated under the Student Right to Know requirements in Sec.  
668.45, or encouraged the Department to either (1) adopt the current 
requirements in Sec.  668.45 for gainful employment purposes, or (2) 
use a completion rate methodology from an accrediting agency or State, 
to minimize confusion among students and burden on institutions. One of 
the commenters suggested that if the Department intended ``on-time'' to 
mean 100 percent of normal time for completion, then the proposed rate 
should be calculated in the same manner as the completion rate in Sec.  
668.45 for normal time and incorporate the exclusions for students 
transferring out of programs and other exceptions identified in Sec.  
668.45(c) and (d). Another commenter opined that absent significant 
enforcement to ensure that all institutions consistently use the same 
definition of ``on-time'' completion rate, students will be unfairly 
led to believe that institutions who report conservatively have less 
favorable outcomes than institutions who report aggressively. One 
commenter cautioned that it may be misleading to focus heavily on 
graduation and placement rates, particularly for institutions whose 
students are employed while seeking a degree.
    A number of commenters supported the ``on-time'' completion 
requirement, and in general all of the proposed disclosures, stating 
that providing outcome data would allow prospective students to make 
more informed decisions. The commenters believed that better outcome 
data will help to ensure that the taxpayer investment is well spent, 
and that students are protected from programs that overcharge and 
under-deliver.
    A commenter stated that under State licensing requirements for 
cosmetology schools a student must be present, typically for 1,500 
hours, to qualify for graduation and to complete the program. Taking 
attendance and ensuring that a student is present for these hours is 
typically required. The commenter reasoned that for a student to 
complete the program ``on-time'' the student could not miss a single 
day or even be late for classes as opposed to a credit hour program 
where a student does not have to attend classes 100 percent of the time 
but will still be considered to satisfy the on-time requirement. To 
mitigate the difference between clock and credit hour programs and 
account for legitimate circumstances where a student would miss 
classes, the commenter suggested that the standard for ``on-time'' 
incorporate the concept of a maximum timeframe under the satisfactory 
academic progress provisions that allow a student to complete a program 
at a specified rate.
    Discussion: In proposing the on-time completion rate requirement, 
the Department intended to include all students who started a program 
to determine the portion of those students who completed the program no 
later than its published length. This approach differed significantly 
in two ways from the completion rate under the Student Right to Know 
(SRK) provisions in Sec.  668.45. First, in calculating the completion 
rate the SRK methodology includes in the cohort only full-time, first-
time undergraduate students, not all students. Second, the SRK rate is 
based on 150 percent of normal time, not the actual length of the 
program. However, in view of the comments suggesting that we use the 
SRK methodology, or a modified version, we examined whether the cohort 
of students under SRK could be expanded to include all students and 
from that,

[[Page 66839]]

whether a completion rate could be calculated based on normal time, as 
defined in Sec.  668.41(a). We concluded that doing this would be 
difficult and too complex for institutions and the Department.
    We believe prospective students should know the extent to which 
former students completed a program on time, not only to ground their 
expectations but to plan for the time they will likely be attending the 
program--an important consideration for many students who cannot afford 
to continue their education without earnings from employment. 
Therefore, to minimize burden on institutions while providing 
meaningful information to prospective students, an institution must 
calculate an on-time completion rate for each program subject to the 
gainful employment provisions by:
    (1) Determining the number of students who completed the program 
during the most recently completed award year.
    (2) Determining the number of students in step (1) who completed 
the program within normal time, regardless of whether the students 
transferred into the program or changed programs at the institution. 
For example, the normal time to complete an associate degree is two 
years. The two-year timeframe would apply to all students who enroll in 
the program. In other words, if a student transfers into the program, 
regardless of the number of credits the institution accepts from the 
student's attendance at the prior institution, the transfer credits 
have no bearing on the two-year timeframe. This student would still 
have two years to complete from the date he or she began attending the 
two-year program. To be counted as completing on time, a student who 
enrolls in the two-year program from another program at the institution 
would have to complete the two-year program in normal time beginning 
from the date the student started attending the prior program.
    (3) Dividing the number of students who completed within normal 
time in step (2) by the total number of completers in step (1) and 
multiplying by 100.
    With regard to the commenter who believed that a student could not 
miss a single day of classes to complete a program on time, we note 
that under Sec.  668.4(e) a student can be excused from attending 
classes. Under this section, a student may be excused for an amount of 
time that does not exceed the lesser of (1) any thresholds established 
by the institution's accrediting agency or State agency, or (2) 10 
percent of the clock hours in a payment period. Absent any State or 
accrediting agency requirements, for a typical payment period of 450 
clock hours a student could miss 45 hours. In the commenter's example 
of a 1,500 clock hour program, the student could miss 150 hours and 
still complete on time for this requirement. Also, under Sec.  
668.41(a), normal time for a certificate program is the time published 
in the institution's catalog and that time may include make-up days. 
So, an institution could schedule make-up days, as part of normal time, 
to enable students who missed classes to complete the number of hours 
required for State licensing purposes.
    Changes: Section 668.6(b) has been revised to specify how an 
institution calculates an on-time completion rate for its programs.

Median Loan Debt

    Comment: Many commenters objected strongly to the requirement in 
proposed Sec.  668.6(a)(4) that an institution report annually to the 
Department, for each student attending a program that leads to gainful 
employment, the amount each student received from private education 
loans and institutional financing plans.
    With regard to private education loans taken out by students, the 
commenters argued that because the loans are self-certified, in many 
cases an institution is not aware of the loans and should only have to 
report the amount of the private loans it knows about or the amount of 
those loans that were paid directly to the institution. Commenters 
representing students and consumer advocacy groups contended that most 
institutions have preferred lender lists, help students arrange private 
loans, recommend a lender, receive student payments from a lender, or 
otherwise have information about the lender. Consequently, to clarify 
that an institution cannot avoid reporting on private loans by feigned 
ignorance, the commenters suggested that an institution report any 
private loan it knows about or should reasonably know about. To clarify 
the meaning of ``private education loan'' one commenter suggested that 
the Department reference the definition in Sec.  601.2.
    With regard to institutional financing plans, many commenters, 
argued that an institution should only be required to report the amount 
of any remaining institutional loans or debt obligations owed by a 
student after he or she completes the program, not the amount of the 
loan or credit extended to the student at the start of, or during, the 
program.
    Many commenters asked the Department to clarify whether median loan 
debt would include only loan debt incurred by students who completed a 
particular program or loan debt incurred from previously attended 
programs or institutions. Some of the commenters argued that it would 
be difficult to determine the relevant loan debt of students who enroll 
in postbaccalaureate certificate programs and end up concurrently 
pursuing an associated master's degree. The commenters argued that 
extracting the portion of debt that applies to the certificate would be 
difficult, but reporting based on the total debt accumulated during the 
graduate-level enrollment period would overstate the amount borrowed if 
the intent was to report on the certificate program. They also believed 
that an institution would have to track loan debt pertaining to credits 
accepted for a program that were not necessarily earned by students who 
continue in a graduate program, including transfer credits accepted 
from other institutions. In addition, the commenters believed that for 
any undergraduate work that ``transfers up,'' the portion of the loan 
debt from that period would have to be identified. In view of these 
complexities and considering that two-year transfer programs are 
excluded from the reporting requirements, the commenters requested a 
similar exclusion for graduate certificate programs where the credits 
apply directly to a graduate degree. Along the same lines, other 
commenters requested that postbaccalaureate certificate programs or 
courses such as a certification as a school principal, district 
superintendent, or director of instruction be exempted from these 
regulations.
    A commenter requested an exemption for four-year degree-granting 
institutions stating that such institutions only have a handful of 
certificate programs that would be of no concern to the Department.
    A few commenters believed that institutions should either (1) be 
allowed to disclose separately the amount of loan debt students 
accumulate for institutional charges and the amount incurred for living 
expenses, or (2) not be required to disclose loan debt incurred for 
living expenses because that debt is incurred at the student's 
discretion and not be required to disclose loan debt incurred by a 
student at prior, unrelated institutions.
    Other commenters urged the Department to use the mean instead of 
the median loan debt arguing that using median debt would unjustly 
penalize students attending institutions with larger numbers of 
borrowers by

[[Page 66840]]

providing a competitive advantage to institutions with smaller 
populations of student loan borrowers.
    Many commenters supported the proposed requirement for disclosing 
the median debt of students who complete a program, but suggested that 
institutions should also disclose the median debt of noncompleters. The 
commenters stated that it was one thing for students to be told that 40 
percent graduate with $20,000 in loan debt, but it's another for them 
to understand that the majority of students who don't complete have 
$15,000 in loan debt they would have to repay. The commenters believed 
that separating the disclosures by completers and noncompleters would 
enable better comparisons between programs, and would not create the 
appearance of low median debt for programs with low completion rates. 
In addition, to minimize burden the commenters suggested that 
collecting the data needed to calculate the median loan debt could 
appropriately be limited to programs in which a significant share of 
students borrow. According to the commenters, this approach would 
ensure that potential students and the Department know when a program 
has high student borrowing rates and low completion rates.
    Discussion: We agree with the commenters that the debt an 
institution reports under Sec.  668.6(a)(4) for institutional financing 
plans is the amount a student is obligated to repay upon completing the 
program. Under this same section, an institution must also report the 
amount of any private education loans it knows that students received.
    The HEOA amended both the HEA and the Truth-in-Lending Act (TILA) 
to require significant new disclosures for borrowers of private 
education loans. The HEOA also requires private education lenders to 
obtain a private loan self-certification form from every borrower of 
such a loan before the lender may disburse the private education loan.
    Although the term ``private education lender'' is defined in the 
TILA, the Federal Reserve Board considers an entity to be a private 
education lender, including an institution of higher education, if it 
meets the definition of ``creditor.'' The term ``creditor'' is defined 
by the Federal Reserve Board in 12 CFR 226.2(a)(17) as a person who 
regularly extends consumer credit that is subject to a finance charge 
or is payable by written agreement in more than four installments (not 
including a down payment), and to whom the obligation is initially 
payable, either on the face of the note or contract, or by agreement 
when there is no note or contract. A person regularly extends consumer 
credit only if it extended credit more than 25 times (or more than 5 
times for transactions secured by a dwelling) in the preceding calendar 
year. If a person did not meet these numerical standards in the 
preceding calendar year, the numerical standards must be applied to the 
current calendar year.
    The term private education loan is defined in 12 CFR 226.46(b)(5) 
as an extension of credit that:
     Is not made, insured, or guaranteed under title IV of the 
HEA;
     Is extended to a consumer expressly, in whole or in part, 
for postsecondary educational expenses, regardless of whether the loan 
is provided by the educational institution that the student attends;
     Does not include open-end credit or any loan that is 
secured by real property or a dwelling; and
     Does not include an extension of credit in which the 
covered educational institution is the creditor if (1) the term of the 
extension of credit is 90 days or less (short-term emergency loans) or 
(2) an interest rate will not be applied to the credit balance and the 
term of the extension of credit is one year or less, even if the credit 
is payable in more than four installments (institutional billing 
plans).
    Examples of private education loans include, but are not limited 
to, loans made expressly for educational expenses by financial 
institutions, credit unions, institutions of higher education or their 
affiliates, States and localities, and guarantee agencies.
    As noted previously, the HEOA requires that before a creditor may 
consummate a private education loan, it must obtain a self-
certification form from the borrower. The Department, in consultation 
with the Federal Reserve Board, developed and disseminated the private 
loan self-certification form in Dear Colleague Letter GEN 10-01 
published in February of 2010.
    The Department's regulations in 34 CFR 601.11(d), published on 
October 28, 2009, require an institution to provide the self-
certification form and the information needed to complete the form upon 
an enrolled or admitted student applicant's request. An institution 
must provide the private loan self-certification form to the borrower 
even if the institution already certifies the loan directly to the 
private education lender as part of an existing process. An institution 
must also provide the self-certification form to a private education 
loan borrower if the institution itself is the creditor. Once the 
private loan self-certification form and the information needed to 
complete the form are disseminated by the institution, there is no 
requirement that the institution track the status of a borrower's 
private education loan.
    The Federal Reserve Board, in 12 CFR 226.48, built some flexibility 
into the process of obtaining the self-certification form for a private 
education lender. The private education lender may receive the form 
directly from the consumer, the private education lender may receive 
the form from the consumer through the institution of higher education, 
or the lender may provide the form, and the information the consumer 
will require to complete the form, directly to the borrower. However, 
in all cases the information needed to complete the form, whether 
obtained by the borrower or by the private education lender, must come 
directly from the institution.
    Thus, even though an institution is not required to track the 
status of its student borrowers' private education loans, the 
institution will know about all the private education loans a student 
borrower receives, with the exception of direct-to-consumer private 
education loans, because most private education loans are packaged and 
disbursed through the institution's financial aid office. The 
institution must report these loans under Sec.  668.6(a)(4). Direct-to-
consumer private education loans are disbursed directly to a borrower, 
not to the school. An institution is not involved in a certification 
process for this type of loan.
    We wish to make clear that any loan, extension of credit, payment 
plan, or other financing mechanism that would otherwise not be 
considered a private education loan but that results in a debt 
obligation that a student must pay to an institution after completing a 
program, is considered a loan debt arising from an institutional 
financing plan and must be reported as such under Sec.  668.6(a)(4).
    The Department will use the debt reported for institutional 
financing plans and private education loans along with any FFEL or 
Direct Loan debt from NSLDS that was incurred by students who completed 
a program to determine the median loan debt for the program. In 
general, median loan debt for a program at an institution does not 
include debt incurred by students who attended a prior institution, 
unless the prior and current institutions are under common ownership or 
control, or are otherwise related entities. In cases where a student 
changes programs while attending an institution or matriculates to a 
higher credentialed program at the institution, the Department will 
associate the total

[[Page 66841]]

amount of debt incurred by the student to the program the student 
completed. So, in the commenter's example where a student enrolls in a 
postbaccalaureate certificate program and is concurrently pursuing a 
master's degree, the debt the student incurs for the certificate 
program would be included as part of the debt the student incurs for 
completing the program leading to a master's degree. If the student 
does not complete the master's degree program, but completes the 
certificate program, then only the debt incurred by the student for the 
certificate program would be used in determining the certificate 
program's median loan debt.
    The Department will provide the median loan debt to an institution 
for each of its programs, along with the median loan debt identified 
separately for FFEL and Direct Loans, and for private education loans 
and institutional financing plans. The institution would then disclose 
these debt amounts, as well as any other information the Department 
provides to the institution about its gainful employment programs, on 
its Web site and in its promotional materials to satisfy the 
requirements in Sec.  668.6(b)(5).
    While we generally agree with the suggestion that disclosing the 
median loan debt for students who do not complete a program may be 
helpful to prospective students, determining when or whether students 
do not complete is problematic for many programs even for students who 
withdraw or stop attending during a payment period--those students may 
return the following payment period. Because further review and 
analysis are needed before we could propose a requirement along these 
lines, institutions will need to report the CIP code for every student 
who attends a program subject to the gainful employment provisions and 
the total number of students who are enrolled in each of its programs 
at the end of an award year.
    In cases where a student matriculates from one program to a higher 
credentialed program at the same institution, the Department will 
associate all the loan debt incurred by the student at the institution 
to the highest credentialed program completed by the student. To do 
this, the institution must inform the Department that even though a 
student completed a program, the student is continuing his or her 
education at the institution in another program. We wish to make clear 
that an institution would still need to provide the information under 
Sec.  668.6(a) about each program the student completes. The Department 
will include the student's loan debt in calculating the median loan 
debt for the program the student most recently completed, or delay 
including the student's associated loan debt in calculating the median 
loan debt for the higher credentialed program. The Department will 
include the student's associated debt for the higher credentialed 
program when the student completes that program. If the student does 
not complete the higher credentialed program, then only the loan debt 
incurred by the student for completing the first program would be used 
in calculating the median loan debt for the first program.
    Similarly, in cases where a student transfers from school A to 
school B, the Department will delay including the loan debt incurred by 
a student attending a program at school A pending the student's success 
at school B. If the student completes a higher credentialed program at 
school B, the median loan debt for that program includes only the 
student's loan debt incurred at school B. If the student does not 
complete the program at school B, then only the student's loan debt 
incurred for completing the program at school A is included in 
calculating the median loan debt for the program at school A. In other 
words, a student who completes a program and continues his or her 
education at the same institution or at another institution is 
considered to be in an in-school status and we will delay using the 
student's loan debt until the student completes a higher credentialed 
program or stops attending. The following chart and discussion 
illustrate this process.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                      School A                                                                     School B
--------------------------------------------------------------------------------------------------------------------------------------------------------
            Student                                  Loan debt                                          Loan debt
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 Certificate.......     $3,000  Completed.........  Degree............     $4,000  Completed.........  Gainful
                                                                                                                                       Employment
                                                                                                                                       Program?
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..............................  ..................  .........  Yes...............  ..................  .........  Yes...............  Yes.
2..............................  ..................  .........  Yes...............  ..................  .........  No................  Yes.
3..............................  ..................  .........  Yes...............  ..................  .........  Yes...............  No.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Same School
--------------------------------------------------------------------------------------------------------------------------------------------------------
4..............................  ..................  .........  Yes...............  ..................  .........  Yes...............  Yes.
5..............................  ..................  .........  Yes...............  ..................  .........  No................  Yes.
6..............................  ..................  .........  Yes...............  ..................  .........  Yes...............  No.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Student 1. Student is in an in-school status until the degree 
program is completed at School B. School A and B would report loan debt 
for each of their programs. Only the $4,000 debt incurred by the 
student at School B would be included in the median loan debt 
calculation for the degree program (highest credential completed). The 
student's loan debt at School A would not be included in calculating 
the median loan debt for the certificate program.
    Student 2. Student is in an in-school status while attending School 
B, but does not complete the degree program. Only the $3,000 debt 
incurred by the student at School A would be included in the median 
loan debt calculation for the certificate program. The student's loan 
debt at School B would not be included in calculating the median loan 
debt for the degree program because the student did not complete that 
program.
    Student 3. Student is in an in-school status while attending School 
B, but the degree program at School B is not subject to the gainful 
employment provisions. When the student completes the degree program, 
none of the student's debt would be included in the median loan debt 
calculation for the certificate program and no calculation would be 
performed for the degree program because it is not subject to the 
gainful employment provisions.
    Student 4. Student is in an in-school status until the degree 
program is completed. All of the student's debt at

[[Page 66842]]

the school is associated to the degree program and included in the 
median loan debt calculation for the degree program. None of the 
student's debt is included in calculating the median loan debt of the 
certificate program.
    Student 5. Student is in an in-school status while attending the 
degree program, but does not complete that program. Only the $3,000 
debt incurred by the student for completing the certificate program 
would be included in the median loan debt calculation for that program. 
None of the student's debt would be included in the median loan debt 
calculation for the degree program because the student did not complete 
that program.
    Student 6. Student is in an in-school status while attending the 
degree program, but the degree program is not subject to the gainful 
employment provisions. When the student completes the degree program, 
none of the student's debt would be included in the median loan debt 
calculation for the certificate program and no calculation would be 
performed for the degree program because it is not subject to the 
gainful employment provisions.
    The Department disagrees with the suggestions that an institution 
should not be required to disclose loan debt incurred by students for 
living expenses because many students cannot afford to enroll in a 
program without borrowing to pay for living expenses and other 
education-related costs. Identifying only a portion of the loan debt 
that a student is likely to incur not only defeats the purpose of the 
disclosure but also may be misleading. With respect to the comments 
that loan debt related to living expenses should be disclosed 
separately from loan debt tied directly to institutional charges, we 
are concerned about how institutions would make or portray these 
disclosures and believe that separating the debt amounts would be 
confusing to prospective students.
    We find little merit in the argument that using median loan debt, 
instead of mean loan debt, would provide a competitive advantage to 
institutions with fewer student loan borrowers. Assuming that an 
institution with fewer borrowers has the same enrollment as an 
institution with a large number of borrowers, then regardless of 
whether the mean or the median is used, the loan debt will be lower for 
an institution with fewer borrowers because all of the students who do 
not borrow would reduce its mean or median loan debt.
    When these regulations take effect on July 1, 2011, the Department 
will require institutions to report no later than October 1, 2011 the 
information described in Sec.  668.6(a) for the 2006-07, 2007-08, and 
2008-09 award years. In accordance with the record retention 
requirements under Sec.  668.24(e), most institutions should have the 
required information. We note that many institutions may have an 
existing practice of keeping student records for longer periods, or do 
so for State or accrediting purposes. If an institution has the records 
for the earlier periods, it must report the information described in 
Sec.  668.6(a). Institutions that are not otherwise required to 
maintain the information for the 2006-07 award year described in Sec.  
668.6(a) at the time this regulation goes into effect on July 1, 2011, 
should consider doing so for their own purposes. In any case, if an 
institution is unable to report all or some the required information, 
it must provide an explanation of why the missing information is not 
available.
    Changes: Section 668.6(a) has been revised to provide that in 
accordance with procedures established by the Secretary, an institution 
must provide (1) information for the award year beginning on July 1, 
2006 and subsequent award years, (2) information about whether a 
student matriculated to a higher credentialed program at the 
institution, (3) if it has evidence, information that a student 
transferred to a higher credentialed program at another institution, 
and (4) if the institution is unable to report required information, an 
explanation of why the missing information is not available.

Student Information Database

    Comment: Several commenters questioned the Department's ability to 
collect data under section 134 of the HEA which prohibits the 
Department from developing, implementing, or maintaining a Federal 
database of personally identifiable information. The commenters claimed 
that obtaining identifying information on program completers by CIP 
code and program completion date would constitute a violation of 
section 134 of the HEA. Some of the commenters suggested that 
institutions provide only aggregate information for individuals by CIP 
code and opined that the completion date was not necessary and should 
be removed. These commenters reasoned that the Department should use 
existing information, such as enrollment and loan repayment data in 
NSLDS and in any other systems, to determine when students are enrolled 
or have completed their program. Another commenter cited section 134 of 
the HEA as a reason why an institution should not be required to 
provide information on private or institutional loans.
    Because section 134 of the HEA exempts existing systems that are 
needed to operate the student aid programs, some commenters asked the 
Department to clarify which current systems would be used to gather the 
information requested under proposed Sec.  668.6(a). Several of the 
commenters did not believe that institutions should have to collect and 
report information for students who completed their programs in the 
past three years and requested that the information be prospective 
(students who begin attending a program after July 1, 2011).
    Discussion: Section 134 of the HEA places restrictions on the 
Department's ability to develop, implement, or maintain a new database 
of personally identifiable information about individuals attending 
institutions and receiving title IV, HEA program funds, including 
systems that track individual students over time. It does not prohibit 
the Department from including such information in an existing system 
that is necessary for the operation of the Federal student aid 
programs. In this case, the information being reported is already a 
part of the information that is maintained by institutions in their 
student financial aid and academic records, and is subject to 
compliance and program reviews. Institutions reporting that students 
have started or completed a program for which those students received 
title IV, HEA program funds will augment the existing information in 
the Department's systems that are used to monitor and maintain the 
operations for the title IV, HEA programs. The information is also 
being compiled to create aggregate information to evaluate whether a 
program demonstrates that it leads to gainful employment for its 
students, rather than to monitor the individual students attending 
those programs over time. For those reasons, the reporting and use of 
this information is not prohibited under the law.
    Changes: None.

Links to O*Net

    Comment: Several commenters agreed it was important to inform 
students and the public about possible job opportunities that could 
result from enrolling in a program, but were concerned that the 
proposed requirement would not serve to accurately inform students. 
Some of the commenters believed that the proposed requirements might 
work for some programs like teaching and nursing. However, for 
graduate-level programs, like MBAs and PhDs in Psychology, institutions 
would be required to provide an unwieldy amount of data.

[[Page 66843]]

For example, it would be impossible for an institution to identify and 
disclose the full range and number of job opportunities that might 
exist for MBA graduates. As an alternative, the commenters suggested 
that the Department require schools to disclose the types of employment 
found by their graduates in the preceding three years. Other commenters 
had similar concerns and suggested that instead of disclosing all 
occupations by name and SOC code, the Department should allow an 
institution to disclose a sampling or representative set of links for 
the occupations stemming from its programs. Otherwise, the commenters 
were concerned that an institution would run afoul of the 
misrepresentation provisions unless it fully and completely listed all 
of the SOC and O*NET codes related to each program offered at the 
institution. Another commenter suggested that an institution should 
only list those occupations in which a majority of its program 
completers were placed.
    A commenter claimed that it would be confusing and misleading to 
provide information on hundreds of jobs. To illustrate this point, the 
commenter stated that entering a CIP code of 52 for ``Business, 
Management, Marketing and Related Support Services'' would lead to 86 
codes representing more than 300 occupational profiles. To avoid 
confusing students, the commenter suggested that an institution provide 
links only to those careers where its students have typically found 
employment.
    One commenter thought that the link to O*Net was unnecessary 
because students could use search engines to research potential jobs.
    Another commenter supported the O*NET disclosures because the 
additional administrative burden was not significant and the change was 
long overdue.
    Discussion: In general, we do not believe that the links to O*NET 
will lead to an unwieldy amount of information when the full 6-digit 
CIP code is entered on the SOC crosswalk at http://online.onetcenter.org/crosswalk/. For example, entering the full 6 
digit CIP code, 52.9999, for Business, Management, Marketing and 
Related Support Services, identifies only nine related occupations 
(SOCs). As shown below, it is these links to, and the names of, the 
nine occupations that an institution must post on its Web site.

52.9999 Business, Management, Marketing, & Related Support Services, 
Other
11-9151.00 Social and Community Service Managers
11-9199.00 Managers, All Other
13-1199.00 Business Operations Specialists, All Other
41-1011.00 First-Line Supervisors/Managers of Retail Sales Workers
41-1012.00 First-Line Supervisors/Managers of Non-Retail Sales Workers
41-3099.00 Sales Representatives, Services, All Other
41-4011.00 Sales Representatives, Wholesale and Manufacturing, 
Technical and Scientific Products
41-4012.00 Sales Representatives, Wholesale and Manufacturing, Except 
Technical and Scientific Products
41-9099.00 Sales and Related Workers, All Other

    However, for 6-digit CIP codes that yield more than ten 
occupations, an institution may, in lieu of providing links to all the 
identified SOCs, provide links to a representative sample of the SOCs 
for which its graduates typically find employment within a few years 
after completing a program.
    Changes: Section 668.6(b) has been revised to allow an institution 
to provide prospective students with Web links to a representative 
sample of the SOCs for which its graduates typically find employment 
within a few years after completing the program.

Disclosing Program Costs

    Comment: Many commenters supported the proposal to disclose program 
costs. The commenters lauded this information as more useful to 
students than disclosing costs by credit hour or by semester and 
several commenters encouraged the Department to make this section of 
the regulations effective as soon as possible.
    Some commenters indicated that the program costs in proposed Sec.  
668.6(b)(2) differ from the costs an institution makes available under 
Sec.  668.43(g). The commenters suggested that all costs that a student 
may incur should be disclosed including charges for full-time and part-
time students, estimates of costs for necessary books and supplies as 
well as estimated transportation costs. Other commenters asked the 
Department to clarify how program costs under the proposed Web site 
disclosures would be calculated differently than those required in the 
student consumer information section of the regulations. In addition, 
some of these commenters noted that although Sec.  668.43 requires an 
institution to disclose program cost upon request, many students do not 
know to ask for it, or the information is not currently presented in a 
clear manner. Another commenter noted that the phrase ``institutional 
costs'' could be interpreted to mean only those costs payable to the 
institution and recommended that the phrase be changed to ``cost of 
attendance.''
    Several commenters opined that providing program costs would 
confuse students. One of the commenters recommended using just the net 
price calculator as that would also ease institutional burden.
    Discussion: Although we recently revised Sec.  668.43(a) to provide 
that an institution must make program cost information readily 
available, not just upon the request of a student, that section does 
not require the institution to disclose program costs on its Web site. 
All of the disclosures in Sec.  668.6(b), including the disclosure of 
program costs, must be on the same Web page to enable a prospective 
student to easily obtain pertinent information about a program and 
compare programs. Along these lines, and in view of the recent GAO 
investigation (see http://www.gao.gov/new.items/d10948t.pdf) raising 
concerns over program cost information, Sec.  668.6(b) specifically 
requires an institution to disclose on the same Web page (1) Links to 
O*NET identifying the occupations stemming from a program or Web links 
to a representative sample of the SOCs for which its graduates 
typically find employment within a few years after completing the 
program, (2) the on-time graduation rate of students completing the 
program, (3) the placement rate for students completing the program, 
(4) the median loan debt incurred by students completing the program, 
and (5) the costs of that program. The institution must disclose the 
total amount of tuition and fees it charges a student for completing 
the program within normal time, the typical costs for books and 
supplies (unless those costs are included as part of tuition and fees), 
and the cost of room and board if the institution provides it. The 
institution may include information on other costs, such as 
transportation and living expenses, but in all cases must provide a Web 
link, or access, to the institutional information it is required to 
provide under Sec.  668.43(a).
    Changes: Section 668.6(b) has been revised to provide that an 
institution must disclose, for each program, all of the required 
information in its promotional materials and on a single Web page. The 
institution must provide a prominent and direct link to this page on 
the program home page of its Web site or from any other page containing 
general, academic, or admissions information about the program. In 
addition, this section is revised to specify that an institution must 
disclose the total amount of tuition and fees it charges a student for 
completing the

[[Page 66844]]

program within normal time, the typical costs for books and supplies 
(unless those costs are included as part of tuition and fees), and the 
amount of room and board, if applicable. The institution may include 
information on other costs, such as transportation and living expenses, 
but must provide a Web link, or access, to the program cost information 
it makes available under Sec.  668.43(a).

One-Year Program

    Comment: A commenter supported removing references to degree 
programs in proposed Sec.  600.4(a)(4)(iii) believing it would avoid 
confusion and misrepresentation of the programs subject to the proposed 
regulations on gainful employment. Another commenter noted that for 
technical reasons the Department should have instead revised Sec.  
600.4(a)(4)(i)(C).
    To better understand which programs would be subject to the 
reporting and disclosure requirements in proposed Sec.  668.6, another 
commenter asked the Department to clarify whether the phrase ``fully 
transferable to a baccalaureate degree'' means that every credit must 
be transferable to that degree.
    Discussion: A program is fully transferable to a baccalaureate 
degree if it meets the requirements in Sec.  668.8(b)(1)(ii) and 
qualifies a student for admission into a third year of a bachelors 
degree program.
    We agree that proposed Sec.  600.4(a)(4)(iii) should be removed in 
order to avoid confusion and misrepresentation of the programs subject 
to the regulations on gainful employment. We also agree that Sec.  
600.4(a)(4)(i)(C) should be revised to state that an institution of 
higher education provides an educational program that is at least a one 
academic year training program that leads to a certificate, or other 
nondegree recognized credential, and prepares students for gainful 
employment in a recognized occupation.
    Changes: Proposed Sec.  600.4(a)(4)(iii) has been removed and Sec.  
600.4(a)(4)(i)(C) has been revised as noted in the discussion above.

Definition of a Credit Hour (Sec. Sec.  600.2, 602.24, 603.24, and 
668.8)

General

    Comment: Several commenters supported the Secretary's proposed 
definition of a credit hour, including a commenter representing 
institutional registrars and admissions officers. A few commenters 
believed that institutions are already using this definition. One 
commenter believed that the Secretary's definition aligned with New 
York State's regulatory definition of a semester hour.
    Discussion: We appreciate the support of those commenters who 
approved of the definition of a credit hour. Like some commenters, we 
believe that many institutions and others, including States, are 
already following the definition of a credit hour or a reasonably 
comparable standard that would require minimal or no adjustment for 
purposes of participating in Federal programs.
    Changes: None.
    Comment: Several commenters believed that during the negotiated 
rulemaking process, Federal and non-Federal negotiators reached 
tentative agreement on proposed credit-hour regulations that did not 
include a definition of a credit hour. A few commenters believed that 
during the negotiated rulemaking process, most non-Federal negotiators 
were opposed to a Federal credit-hour definition. Several of these 
commenters believed that the Department should adhere to the proposed 
regulations agreed upon during the negotiated rulemaking process and 
should remove the credit-hour definition from the regulations.
    Other commenters believed that the Federal and non-Federal 
negotiators agreed to proposed regulations that relied more heavily on 
accrediting agencies and institutions to determine credit assignment 
policies. These commenters believed that the proposed regulations did 
not appropriately reflect this position.
    Discussion: The commenters are correct in noting that during the 
negotiated rulemaking process tentative agreement was reached on the 
proposal related to credit hours that did not include a definition of a 
credit hour as proposed by the Department. Tentative agreement was 
reached by removing the definition from the proposals to satisfy one 
non-Federal negotiator. The Federal and non-Federal negotiators 
tentatively agreed to proposed credit hour regulations that relied 
heavily on accrediting agencies and institutions in determining the 
appropriate credit hours that represented a student's academic work. We 
also agree with the commenters who proposed continuing this reliance to 
a significant degree, and we believe that this reliance is reflected in 
the final regulations. We note that tentative agreements reached during 
the negotiated rulemaking meetings are not binding on the Department in 
form or substance. It is not unusual for most if not all of the 
substance of a tentative agreement to be included in a proposed 
regulation because the Department sees the benefits that are realized 
through the discussion process. In some cases, though, changes may be 
made upon further reflection, or to reinstate concepts that may have 
been removed in furtherance of an overall consensus that was not 
achieved. In the case of the definition of a credit hour we determined 
that the proposed definition of a credit hour is necessary to establish 
a basis for measuring eligibility for Federal funding. This standard 
measure will provide increased assurance that a credit hour has the 
necessary educational content to support the amounts of Federal funds 
that are awarded to participants in Federal funding programs and that 
students at different institutions are treated equitably in the 
awarding of those funds.
    Changes: None.

Institutional Determination and Flexibility

    Comment: Many commenters believed that institutions and accrediting 
agencies should have the ultimate responsibility for determining 
academic credit. Several commenters believed that institutions must 
have the discretion to use their existing systems of self-review and 
faculty involvement to determine the appropriate credit to assign to 
academic activities. Some of these commenters also believed that 
institutional processes are solely capable of considering the unique 
qualities of each class, program, professor, and institution. Two 
commenters believed that any problems with credit assignment can be 
addressed through existing institutional review procedures.
    A few commenters agreed with the provision in proposed paragraph 
(3) of the credit-hour definition allowing institutions to provide 
reasonable ``equivalencies'' for the amount of work specified in 
proposed paragraph (1) of the definition. Two of these commenters 
believed that this provision allows institutions to use alternative 
methods of instruction and measures of credit that are more appropriate 
for institutions with nontraditional students entering the modern 
workforce. These commenters suggested making proposed paragraph (3) the 
first paragraph in the credit-hour definition in Sec.  600.2. Another 
of these commenters believed that this provision would allow 
institutions the flexibility to use and develop innovative forms of 
course content delivery.
    Several commenters believed that a Federal definition of a credit 
hour would undermine the integrity of the American higher education 
system

[[Page 66845]]

which they believed has been effective at assigning credit for over 100 
years. One commenter noted that the education community has been able 
to reach consensus on credit determinations despite the lack of a 
uniform definition.
    Many commenters believed that credit hours are fundamentally 
measurements of academic achievement and others believed that the 
Secretary's only reason for defining a credit hour is to have a 
standard measure for determining eligibility for and distribution of 
title IV, HEA program funds. The commenters believed that credit hours 
should not be treated as fiscal units. One of these commenters 
contended that the systems of assigning academic credit and determining 
the distribution of title IV, HEA program funds are different and 
should be kept separate. Another commenter expressed concern that 
treating credit hours as fiscal units would cause the Federal 
Government to give consideration to fiscal matters above all others.
    Several commenters believed that the Secretary's proposed 
definition of a credit hour is too restrictive and does not account for 
institutional or programmatic variances. These commenters believed that 
a Federal credit-hour definition is inapplicable to a diverse 
educational system composed of different types of institutions, 
programs, and course formats.
    One commenter expressed concern that the proposed credit-hour 
definition did not account for events that may occur within 
institutions' academic calendars, such as Federal and religious 
holidays, natural disasters, or campus safety issues. This commenter 
believed that these events may prohibit institutions' compliance with 
proposed paragraph (1) of the credit-hour definition because 
institutions may not meet the requirements for classroom instruction or 
minimum weeks in a semester.
    A few commenters believed that the proposed credit-hour definition 
needed more specificity in proposed paragraph (1) with regard to the 
quantity of time that constitutes a credit hour. One commenter 
suggested revising the proposed definition to specifically state that a 
credit hour consists of 50 minutes of instructor contact for every 
credit earned in a 16 week semester and two hours of out-of-class work 
for each credit. Another commenter suggested defining a credit hour in 
proposed paragraph (1) of the definition in terms of clock hours.
    One commenter suggested generalizing the proposed definition of a 
credit hour to state: (1) A credit hour is a unit of measure associated 
with the achievement of prescribed learning outcomes for a particular 
course of study, regardless of instructional delivery, (2) each 
institution participating in title IV, HEA programs must define, 
document, and consistently apply its process for the determination of 
credit for the achievement of learning outcomes, and (3) some 
institutions may also adhere to a standard academic credit conversion 
rate as defined by their accrediting agency or State agency.
    One commenter believed that all accrediting agencies should be 
required to use a more general definition of a credit hour wherein a 
semester hour consists of at least 15 hours of classroom contact; 30 
hours of supervised laboratory instruction, shop instruction, or 
documented independent study activities; or not fewer than 45 hours of 
externship, internship, or work related experience. This commenter 
believed that a quarter hour should consist of at least 10 hours of 
classroom contact; 20 hours of supervised laboratory instruction, shop 
instruction, or documented independent study activities; or not fewer 
than 30 hours of externship, internship, or work related experience.
    One commenter believed that the proposed credit-hour definition 
provided institutions with too much autonomy to determine an equivalent 
amount of work as defined in proposed paragraph (1) because there are 
no standard measures for student learning outcomes. This commenter 
suggested revising proposed paragraph (1) to equate classroom time with 
direct faculty instruction and three hours of laboratory work with one 
hour of classroom time and two hours of out-of-class work. The 
commenter also suggested revising proposed paragraphs (2) and (3) to 
require institutions to establish and document academic activities 
equivalent to the work defined in proposed paragraph (1) and revising 
proposed paragraph (3) to require institutions to compare student 
achievement to the intended outcomes assigned and student achievement 
attained for credit hours measured under proposed paragraph (1).
    Discussion: The credit-hour definition in Sec.  600.2 and the 
provisions in Sec. Sec.  602.24(f) and 603.24(c) were designed to 
preserve the integrity of the higher education system by providing 
institutions, accrediting agencies, and State agencies recognized under 
34 CFR part 603 with the responsibility for determining the appropriate 
assignment of credit hours to student work. Under proposed Sec. Sec.  
602.24(f) and 603.24(c), the institution's accrediting agency, or 
recognized State agency if, in lieu of accreditation, the institution 
is approved by one of the four State agencies recognized under 34 CFR 
part 603, would be responsible for reviewing and evaluating the 
reliability and accuracy of an institution's assignment of credit hours 
in accordance with the definition of credit hour in Sec.  600.2. These 
final regulations employ these basic principles of reliance on 
institutions and on accrediting agencies or, if appropriate, recognized 
State agencies, for ensuring institutions' appropriate determinations 
of the credit hours applicable to students' coursework.
    The credit-hour definition in Sec.  600.2 is intended to establish 
a quantifiable, minimum basis for a credit hour that, by law, is used 
in determining eligibility for, and the amount of, Federal program 
funds that a student or institution may receive. We believe that the 
definition of a credit hour in Sec.  600.2 is consistent with general 
practice, provides for the necessary flexibilities, and may be used by 
institutions in their academic decision-making processes and 
accrediting agencies and recognized State agencies in their evaluation 
of institutions' credit assignments.
    We note, however, that institutions, accrediting agencies 
recognized under 34 CFR part 602, and State agencies recognized under 
34 CFR part 603 are required to use the definition in Sec.  600.2 for 
Federal program purposes such as determining institutional eligibility, 
program eligibility, and student enrollment status and eligibility. We 
believe that in most instances the definition will generally require no 
or minimal change in institutional practice to the extent an 
institution adopts the definition for its academic purposes rather than 
maintaining a separate academic standard.
    The provisions in Sec. Sec.  600.2, 602.24, and 603.24 neither 
limit nor prescribe the method or manner in which institutions may 
assign credits to their courses for academic or other purposes apart 
from Federal programs. These regulations do not require institutions to 
adopt the definition of a credit hour in Sec.  600.2 in lieu of 
existing institutional measurements of academic achievement, but rather 
to quantify academic activity for purposes of determining Federal 
funding. An institution will be able to continue using the long-
standing credit-assignment practices that it has found to be most 
effective for determining credit hours or equivalent measures for 
academic purposes, so long as it either ensures conformity, or uses a 
different

[[Page 66846]]

measure, for determining credit hours for Federal purposes. This 
position is consistent with the application of other Federal program 
requirements. For example, an institution may choose to define full-
time enrollment status in a semester for academic purposes as 15 
semester hours while it defines full-time for title IV, HEA program 
purposes as 12 semester hours under the minimum requirements of the 
definition of full-time in Sec.  668.2.
    We do not agree that the proposed definition is too restrictive or 
is inapplicable in a diverse educational system. Nor do we believe that 
the definition would prevent institutions from taking into 
consideration events such as Federal and religious holidays or campus 
safety issues. In the event of natural disasters, the Department has 
consistently provided guidance on how the regulations may be applied in 
such exceptional circumstances. The credit-hour definition allows an 
institution to establish an academic calendar that meets its needs and 
its students' needs, while ensuring a consistent measure of students' 
academic engagement for Federal purposes.
    We do not agree with the commenters that paragraph (1) of the 
proposed credit-hour definition needs more specificity of the term 
``one hour.'' We believe that it is unnecessary to define one hour as 
either 50 minutes or one clock hour because the primary purpose of 
paragraph (1) of the proposed credit-hour definition is to provide 
institutions with a baseline, not an absolute value, for determining 
reasonable equivalencies or approximations for the amount of academic 
activity defined in the paragraph.
    We do not agree that the proposed definition should be more 
generalized or that differing standards should be adopted. A credit 
hour is a basic unit for determining the eligibility of recipients for, 
and the amount of, Federal assistance that may be provided to parties 
participating in Federal programs. We believe the proposed definition 
provides a consistent basis for the equitable treatment of participants 
and recipients.
    Changes: We have revised the definition of credit hour to clarify 
the basic principles applied in the proposed definition of a credit 
hour to delineate further that it is an institution's responsibility to 
determine the appropriate credit hours or equivalencies. The revision 
requires that, except as provided in Sec.  668.8(k) and (l), an 
institution determines the credit hours applicable to an amount of work 
represented in intended learning outcomes and verified by evidence of 
student achievement that reasonably approximates not less than the 
amount of work described in paragraph (1) or (2) of the definition of 
credit hour in Sec.  600.2 of the final regulations. The final 
regulations also continue to provide that institutions may establish 
other measures that approximate the minimum standards in paragraph (1) 
or (2) of the definition in Sec.  600.2, thus permitting each 
institution to consider the unique characteristics of its course and 
program offerings, as well as, its distinctive student populations.
    Comment: Many commenters believed that credit hours do not 
represent a reasonable assessment of student learning. Many commenters 
believed that the Secretary's proposed definition of a credit hour 
dictates that the outdated concept of ``seat time'' is the main metric 
by which program substance should be judged rather than the appropriate 
focus on student learning outcomes.
    A few commenters believed that a credit hour, and in particular, 
the Carnegie Unit, does not account for academic rigor. These 
commenters believed that a student's completion of a specified number 
of hours of direct instruction and out-of-class work does not provide 
assurance that the student has acquired a certain level of competency.
    Two commenters believed that the proposed credit-hour definition 
does not consider the actual behavior of students in American higher 
education. One commenter believed that the typical student does not 
spend two hours on out-of-class work for every hour of instruction. The 
other commenter believed that there has not been enough research into 
the amount of time that students are engaged in academic activities.
    One commenter believed that the Secretary's proposed credit-hour 
definition put too much emphasis on work outside of class instead of 
student learning outcomes.
    A few commenters believed that credit hours are measurements of 
educational inputs. One commenter stated that credit hours, when used 
to determine eligibility for financial aid, are only proximate 
preconditions for student learning and are equivalent to other input 
measures such as scores on standardized tests, high school GPAs, or 
faculty degrees.
    One commenter believed that the credit-hour definition would force 
institutions to treat all students the same, regardless of ability, as 
long as they are in class for the specified number of hours.
    One commenter expressed concern that the Secretary's proposed 
credit-hour definition does not consider current efforts in higher 
education to increase institutional accountability. This commenter 
believed that the proposed credit-hour definition would undermine 
institutional efforts to assess student learning outcomes.
    Discussion: We do not agree with the commenters that the credit-
hour definition emphasizes the concept of ``seat-time'' as the primary 
metric for determining student work. We believe that the definition of 
a credit hour in Sec.  600.2 in these final regulations emphasizes that 
institutions may award credit to courses for an amount of work 
represented by verifiable student achievement of institutionally 
established learning outcomes.
    Eligibility for Federal programs requires that institutions are 
able to demonstrate that the amount of work in a course assigned credit 
for Federal purposes will constitute a reasonable approximation of the 
amount of academic activity defined in paragraph (1) of the definition 
of credit hour in Sec.  600.2. Institutions are responsible and 
accountable for demonstrating that each course has the appropriate 
amount of educational content to receive credit for Federal program 
purposes and for students to achieve the level of competency defined by 
institutionally established course objectives.
    Changes: None.
    Comment: Many commenters believed that a Federal credit-hour 
definition will stifle institutions' ability to develop new and 
innovative education models, especially with regard to delivery 
methods. Several commenters believed that institutions' ability to 
respond creatively to changing pedagogies, circumstances, and student 
needs would be limited under the proposed credit-hour definition.
    A few commenters believed that the proposed credit-hour definition 
would limit innovation in education at a critical time. One of these 
commenters believed that because of the economic recession, 
institutions need to be more innovative in developing alternative 
delivery methods. One commenter believed that institutions must be able 
to respond to the rapidly changing education sector. Another commenter 
believed that other nations are currently developing new educational 
models and the United States will fall behind these nations in 
education.
    Many commenters believed that the Secretary's proposed credit-hour 
definition would have a negative impact on alternative delivery methods 
such as compressed and accelerated programs,

[[Page 66847]]

online and distance education programs, and hybrid programs with online 
and in-class components. A few commenters believed that the proposed 
credit-hour definition would particularly suppress innovation of 
delivery methods because institutions would be focused on ensuring they 
meet the Federal definition of a credit hour and not on the desired 
academic outcomes. These commenters believed that institutions would 
not be able to respond to changing student populations by diversifying 
delivery methods. A few commenters noted that minority students and 
nontraditional students such as veterans, active military personnel, 
and working adults would be particularly harmed because they rely on 
programs offered through alternative delivery methods.
    Several commenters believed that the proposed credit-hour 
definition is not applicable to alternative delivery methods. A few 
commenters believed that credit hours are not compatible with 
technological advancements in education. These commenters believed that 
the proposed credit-hour definition would minimize the use of 
technology in education. Some commenters believed that proposed 
paragraph (1) assumed a classroom or lecture based model of instruction 
and was not applicable to online or hybrid programs.
    A few commenters questioned how to measure direct faculty 
instruction with regard to an online or hybrid program when no physical 
classroom exists. Two commenters noted that in distance education and 
hybrid programs, the concept of contact hours does not apply. The 
commenters recommended expanding paragraph (3) of the proposed 
definition to specifically address that institutions offering 
nontraditional programs including distance delivery programs and 
accelerated programs may provide institutionally established 
equivalencies for the amount of work required in paragraph (1) within 
the discretion of the institution.
    Several commenters believed that the Secretary's proposed credit-
hour definition would negatively impact how earned credits are 
calculated for online and hybrid courses.
    One commenter believed that the Secretary's proposed credit-hour 
definition represented an effort by the Secretary to reinstate a 
regulation that had been removed in 2002 which required higher 
education programs that did not operate in a standard semester, 
trimester, or quarter system to offer a minimum of 12 hours of course 
work per week to maintain eligibility for title IV, HEA program funds.
    Two commenters believed that the Secretary's proposed credit-hour 
regulations would legitimize institutions' use of the Carnegie Unit, 
which generally consists of a ratio of two hours of work outside of 
class for every hour of classroom time, and increase scrutiny on 
institutions that do not currently use the Carnegie Unit. These 
commenters believed that under the proposed regulations, an 
institutional credit system that is not currently based on the Carnegie 
Unit would be undervalued because these institutions would have a 
significant burden to develop and demonstrate student achievement of 
learning outcomes that their peers using the Carnegie Unit would not 
have.
    Discussion: We do not agree with the commenters that the credit-
hour definition in Sec.  600.2 will limit institutions' flexibility to 
creatively respond to innovations in educational delivery methods and 
changing student needs. A fundamental component of the credit-hour 
definition in Sec.  600.2 provides that institutions must determine the 
academic activity that approximates the amount of work defined in 
paragraph (1) based on institutionally established learning outcomes 
and verifiable student achievement. The definition allows institutions 
that have alternative delivery methods, measurements of student work, 
or academic calendars to determine intended learning outcomes and 
verify evidence of student achievement.
    All institutions participating in title IV, HEA programs have a 
responsibility to ensure appropriate treatment of Federal funds, 
regardless of course format or educational delivery method. The 
definition in Sec.  600.2 provides institutions with a baseline for 
determining the amount of student work necessary for title IV, HEA 
program eligibility, but does not specify the particular program 
formats or delivery methods that institutions must use.
    The credit-hour definition is not a reinstatement of the old ``12-
hour rule,'' that was removed from the Department's regulations in 
2002. The 12-hour rule required programs that did not operate in 
standard semester-, trimester-, or quarter-term systems to offer a 
minimum of 12 hours of course work per week to maintain eligibility for 
Federal programs. The credit-hour definition in these final regulations 
applies to all institutions, regardless of whether they operate on a 
standard-term academic calendar. In addition, while the old 12-hour 
rule required 12 hours of instruction, examination, or preparation 
offered by an institution per week, the credit-hour provisions in Sec.  
600.2 require institutions to provide students with an amount of work 
equivalent to the amount of work described in paragraph (1) of the 
credit-hour definition.
    Changes: None.
    Comment: Several commenters objected to proposed paragraph (3) of 
the credit-hour definition. A few commenters believed that paragraph 
(3) of the proposed credit-hour definition is vague regarding the 
entity responsible for determining ``reasonable equivalencies.'' A few 
commenters believed that the proposed credit-hour provisions did not 
provide enough guidance on what academic activities the Department 
would accept as reasonable equivalencies for the amount of work defined 
in proposed paragraph (1). A few commenters believed that the term 
``reasonable'' put the Department in the position of final arbiter on 
the determination of reasonable equivalencies.
    One commenter believed that proposed paragraph (3) created 
uncertainty and the potential for litigation related to whether an 
institution's proposed equivalency for the work defined in paragraph 
(1) is reasonable. This commenter expressed concern that institutions 
would be liable for using equivalencies that the Department viewed as 
unacceptable. One commenter asked for clarification on the types of 
corrective actions that the Department can take to enforce the 
provisions of the credit-hour definition in proposed Sec.  600.2.
    Discussion: Institutions have a responsibility to ensure that the 
use of Federal program funds is in accordance with applicable 
regulations. In addition, the Department has the oversight 
responsibility to determine that institutions are acting in accordance 
with the definition of a credit hour in these final regulations to 
ensure the appropriate use of Federal program funds. It is therefore 
necessary and appropriate for the Secretary to review an institution's 
assignment of credit for Federal purposes and an accrediting agencies' 
or State agencies' evaluations of an institution's credit polices and 
their implementation to determine whether an institution is assigning 
credit hours for Federal program purposes in accordance with these 
final regulations. If an institution is found to be out of compliance 
for Federal program purposes with the credit-hour definition in Sec.  
600.2, the amount or Title IV, HEA funds awarded under the incorrect 
assignment of credit hours may be recalculated to establish a repayment 
liability owed by the

[[Page 66848]]

institution. In cases where the amount of credit hours assigned to a 
program is significantly overstated, the Secretary may fine the 
institution or limit, suspend, or terminate its participation in 
Federal programs.
    Changes: None.
    Comment: Some commenters believed that the proposed credit-hour 
definition would alter institutions' current credit assignments and 
courses. A few of these commenters believed that a Federal definition 
of a credit hour sets an expectation that institutions should assign 
additional credit to courses if the work exceeds the amount defined in 
the proposed definition. One commenter believed that the proposed 
definition would increase the amount of class time that students are 
required to complete in order to earn credit. Another commenter 
believed that the proposed definition could cause institutions to 
increase courses' lecture or theory content and decrease hands-on 
training.
    One commenter believed that the proposed credit-hour definition 
would force accrediting agencies to impose homework requirements on 
vocational institutions.
    Discussion: The credit-hour definition does not require 
institutions to alter their assignment of credit to courses for 
academic purposes; however, institutions have the responsibility to 
demonstrate that credit hours assigned to courses for Federal program 
purposes adhere to the minimum standards of the credit-hour definition 
in Sec.  600.2. If an institution determines that its current 
assignment of credits to its programs for Federal program purposes does 
not satisfy the minimum standards in the regulation, the institution 
will either have to reduce the credits associated with the program, 
increase the work required for the program, or both.
    There is no requirement for institutions to assign additional 
credit to courses if the amount of work exceeds the amount described in 
paragraph (1) of the credit-hour definition. We have revised the 
credit-hour definition in Sec.  600.2 to clarify that the amount of 
work described in paragraph (1) represents a minimum acceptable level 
of academic activity for which credit can be awarded to constitute a 
credit hour for Federal purposes. Institutions may use their discretion 
to assign additional credit if the amount of work for a course 
justifies such an assignment of credit in accordance with Sec.  600.2.
    There is no requirement under the credit-hour definition that would 
force accrediting agencies to impose homework requirements on 
vocational institutions. In general, institutions will be assessed to 
determine if they have established credit hours for title IV, HEA 
program purposes that meet at least the minimum standards in the 
regulation. Unless the program is subject to the credit-to-clock-hour 
conversion requirements in Sec.  668.8(l) and (k), an institution would 
be required to determine the appropriate credit hours in accordance 
with paragraphs (1) and (2) of the credit-hour definition in Sec.  
600.2 of these final regulations for a program or coursework in a 
program that has no student work outside the classroom.
    Changes: We have revised the credit-hour definition in Sec.  600.2 
to clarify that the amount of work specified in paragraph (1) is a 
minimum standard and that there is no requirement for the standard to 
be exceeded.
    Comment: One commenter believed that the proposed provisions in 
Sec.  600.2 did not appropriately address faculty workloads or faculty 
time in class.
    Discussion: We do not believe that Sec.  600.2 should address 
faculty workloads or faculty time in class as these issues are 
institutional administrative considerations outside the scope of these 
final regulations which set minimum standards for the measurement of 
credit hours.
    Changes: None.
    Comment: One commenter questioned why the proposed credit-hour 
regulations did not address Sec.  668.9 which provides in paragraph (b) 
that a public or private nonprofit hospital-based school of nursing 
that awards a diploma at the completion of the school's program of 
education is not required to apply the formula contained in Sec.  
668.8(l) to determine the number of semester, trimester, or quarter 
hours in that program for purposes of calculating Title IV, HEA program 
funds. This commenter questioned whether for-profit hospital-based 
nursing programs would be subject to the proposed provisions in Sec.  
668.8(k) and (l).
    Discussion: Section 481A of the HEA and Sec.  668.9(b) specify that 
any regulations promulgated by the Secretary concerning the 
relationship between clock hours and semester, trimester, or quarter 
hours in calculating student grant, loan, or work assistance under the 
title IV, HEA programs do not apply to a public or private nonprofit 
hospital-based school of nursing that awards a diploma at the 
completion of the school's program of education.
    Changes: None.
    Comment: One commenter believed that institutions would need an 
accrediting or State agency's review of their programs' compliance with 
the proposed credit-hour definition in Sec.  600.2. The commenter 
believed that the regulations are unclear on how programs should 
operate in the interim.
    One commenter expressed concern that waiting for accrediting 
agencies to revise their standards after the proposed regulations are 
finalized would be detrimental to institutions offering programs in 
alternative formats.
    One commenter believed that institutions will be developing new 
credit policies and should be afforded an adjustment period to receive 
and react to guidance from State agencies on their credit assignment 
policies.
    Discussion: The provisions in Sec. Sec.  602.24 and 603.24 provide 
that an institution must have a process for assigning credit that meets 
its accrediting agency's or State agency's standards, as well as, the 
credit-hour definition in Sec.  600.2. An institution's credit 
assignment process is subject to review by its accrediting agency or, 
in some cases, a State agency recognized under 34 CFR part 603. We 
believe that institutions already have processes for assigning credit 
and, to the extent that these existing processes do not comply with 
these final regulations, institutions will need to revise their credit 
assignments to comply with the credit-hour definition in these final 
regulations for Federal program purposes. During the interim period 
between the effective date of these regulations and an accrediting 
agency's or State agency's review of institutions' compliance with the 
credit-hour definition in Sec.  600.2, an institution is responsible 
and accountable for ensuring that its credit-hour assignments conform 
to the provisions of the credit-hour definition in Sec.  600.2 of these 
final regulations and that its processes are in accord with its 
designated accrediting agency's or recognized State agency's 
requirements.
    Changes: None.

Out-of-Class Student Work

    Comment: Several commenters did not agree with the component of 
proposed paragraph (1) of the credit-hour definition related to student 
work outside of class. A few commenters believed that an institution 
cannot determine how much time students spend on work outside of class 
and that quantifying work outside of the class does not account for 
variations in students' learning abilities and styles. One commenter 
believed that the Secretary's proposed credit-hour definition did not 
take into account the nature of different courses. This commenter 
believed that certain courses require more direct faculty instruction 
and supervision while other courses may require more study outside of 
the classroom.

[[Page 66849]]

    Two commenters did not agree with the Secretary's proposed credit-
hour definition with regard to the ratio of classroom time to time 
outside of class and suggested revising the proposed definition to 
allow for more direct classroom instruction. These commenters 
recommended revising proposed paragraph (1) to define a credit hour as 
one hour of classroom or direct faculty instruction and a minimum of 
two hours of student work in or out of the classroom.
    One commenter recommended that the Department distinguish class 
time from time outside of class by making explicit in the proposed 
definition that class time refers to instruction.
    One commenter asked for clarification of proposed paragraph (2) 
regarding whether a credit hour awarded for laboratory work must 
consist of one-hour work in the laboratory and two hours outside the 
laboratory performing either preparation or follow up activities.
    Discussion: Institutions must demonstrate that the credit hours 
awarded for the amount of academic work necessary for Federal program 
purposes approximates the amount of work defined in paragraph (1) of 
the definition of credit hour in Sec.  600.2. The credit-hour 
definition in Sec.  600.2 sets a minimum standard and institutions may 
offer additional hours of instructional time to courses or provide for 
additional student work outside of class beyond what is specified in 
paragraph (1) of the definition at their discretion. We do not believe 
it is necessary to decrease the amount of out-of-class time specified 
in paragraph (1) of the definition.
    We do not want to limit the interpretation of class time only to 
direct instruction in order to take into consideration other in-class 
activities such as examinations. Similarly, the provisions related to 
laboratory work in paragraph (2) of the definition do not require one 
hour of work in the laboratory and two hours of out-of-class work 
related to the laboratory. Paragraph (2) of the credit-hour definition 
allows institutions to use their discretion to determine the in-class 
and out-of-class components for laboratory work to the extent the 
credit awarded reasonably approximates the requirements of paragraph 
(1) of the credit-hour definition in Sec.  600.2. An institution's 
basis for making this determination would be subject to review by its 
accrediting agency, the State agency recognized under 34 part 603, and 
the Department in order to demonstrate that it was reasonable.
    Changes: None.

Authority and Need To Regulate

    Comment: Several commenters believed that the Secretary does not 
have the legal authority to promulgate the proposed regulations in 
Sec. Sec.  600.2, 602.24, 603.24, and 668.8. These commenters believed 
the credit-hour definition in proposed Sec.  600.2 represented a 
Federal intrusion into academic matters. A few commenters believed that 
the General Education Provisions Act (20 U.S.C. 1232a) and the 
Department of Education Organization Act (20 U.S.C. 3403) prohibit the 
Secretary from exercising undue control of curricula, programs, 
administration, and personnel of educational institutions. These 
commenters believed that the Secretary needs explicit Congressional 
authorization to promulgate regulations that intrude in the academic 
decision-making process at institutions. Two commenters recommended 
including language in the final regulations reaffirming that it is 
appropriate for institutions and accrediting agencies to address 
student achievement, but that it is not within the Secretary's 
authority.
    Many commenters believed that a Federal definition of a credit hour 
represents a Federal intrusion into a core academic issue and the 
academic decision-making process. A few of these commenters expressed 
concern that a Federal definition of a credit hour would set a 
precedent for Federal interference in other academic matters. One 
commenter representing institutional registrars and admissions officers 
believed the proposed definition of a credit hour should be revised to 
require an institution to make a reasonable determination of whether 
the institution's assignment of credit hours conforms to commonly 
accepted practice in higher education as demonstrated in the 
portability of such credits to other institutions of higher education 
offering similar programs.
    One commenter believed that the Secretary is not authorized to make 
academic decisions and did not want institutions to be subject to any 
adverse administrative action by the Department if the Department did 
not concur with an institution's or accrediting agency's determination 
of appropriate credit. This commenter suggested that the final 
regulations specify that the credit hours awarded for a program shall 
be deemed in compliance with the definition of a credit hour as defined 
in Sec.  600.2, where the credit hours awarded have been approved by 
the institution's accrediting agency based upon a review performed in 
accordance with Sec.  602.24(f).
    Several commenters believed that the Secretary's proposed credit-
hour definition was incongruent with existing Federal laws, State 
regulations, or accrediting agency policies.
    One commenter believed that the proposed credit-hour definition in 
Sec.  600.2 could conflict with the Americans with Disabilities Act of 
1990, as amended, which requires entities such as institutions of 
higher education to make reasonable accommodations for students with 
disabilities.
    Several commenters believed that the proposed credit-hour 
definition would force some institutions that use credit hours to use 
clock hours. These commenters believed that this change would conflict 
with some State regulations and is not required by any other Federal 
agency.
    A few commenters believed that the proposed credit-hour regulations 
were harmful to institutions that had been required to convert from 
clock hours to credit hours by State mandates. These commenters 
believed that these institutions would be at a disadvantage compared to 
institutions that were previously using credit hours. One commenter 
recommended that the Department allow institutions that have converted 
to credit hours based on State mandates to use State-mandated clock-to-
credit-hour conversion rates to determine Federal program eligibility.
    Several commenters believed that the proposed credit-hour 
definition may directly violate some State regulations because it 
inherently requires that institutions take attendance.
    Discussion: The Secretary is authorized under 20 U.S.C. 1221e-3, to 
make, promulgate, issue, rescind, and amend rules and regulations 
governing the manner of operation of, and governing the applicable 
programs administered by, the Department. The intent of the regulations 
in Sec. Sec.  600.2, 602.24, 603.24, and 668.8 is not to interfere with 
the academic decision-making processes at institutions, accrediting 
agencies, and recognized State agencies, but to rely on these processes 
to ensure the integrity of the Federal programs, including the title 
IV, HEA programs. Fundamental to these decision-making processes is the 
measurement of the credit used to determine the amounts of title IV, 
HEA program funds provided to eligible students who are enrolled in 
eligible programs. Since the regulations establish a minimum standard, 
and institutions may choose to include more work for their credit hours 
than the minimum amount, credit hours at one institution will not 
necessarily equate to credit hours at another institution for a

[[Page 66850]]

similar program. Thus, we do not agree with the recommendation that an 
institution should be required to demonstrate the portability of such 
credits to other institutions of higher education offering similar 
programs as we believe such a requirement would, in fact, interfere 
with the academic decision-making processes at institutions.
    These regulations should not be inconsistent with current Federal 
laws, State regulations, and accrediting agencies' policies because of 
their intended narrow application to the determination of eligibility 
for, and distribution of, Federal program funds. Therefore, to the 
extent an institution determines that it may be necessary to use a 
current credit assignment system, for example, to comply with other 
requirements such as State mandates, an institution may continue using 
its current system for purposes unrelated to Federal programs.
    We do not agree with the commenter that the credit-hour definition 
in Sec.  600.2 conflicts with the Americans with Disabilities Act of 
1990, as amended. The credit-hour definition in Sec.  600.2 does not 
prohibit institutions from developing policies for academically 
accommodating students with disabilities in accordance with the 
Americans with Disabilities Act of 1990, as amended. The credit-hour 
definition provides institutions with the flexibility to determine the 
appropriate credit hours or equivalencies to award for student work.
    Changes: None.
    Comment: Several commenters believed that a Federal definition of a 
credit hour is unnecessary. Many of these commenters noted that there 
has been no history of fraudulent practices in credit assignment by 
institutions in the nonprofit sector and that any fraud or abuses 
identified have been in the for-profit sector. Some of these commenters 
believed that it is unfair to apply a Federal definition of a credit 
hour to all institutions. One commenter suggested that the credit-hour 
definition apply only to institutions that are not accredited by 
regional or specialized accreditors.
    A few commenters believed that the Secretary's only motive to 
define a credit hour stemmed from a report from the Department's 
Inspector General regarding one regional accrediting agency's 
accreditation of a for-profit institution it found to have 
inappropriate credit-hour policies. One commenter believed that 
although there have been problems reported with some institutions' 
assignment of credit hours, these problems were primarily related to 
two regional accrediting agencies' evaluation of degree programs and 
not with vocational career education programs.
    One commenter expressed concern that enforcement of institutions' 
compliance with the credit-hour definition would be directed primarily 
at for-profit institutions even though there have been inappropriate 
credit awarding practices at nonprofit institutions as well.
    A few commenters believed that institutional credit assignment 
problems identified in the nonprofit sector are effectively resolved 
through the existing processes of accreditation and institutional self-
review.
    One commenter suggested that instead of establishing a Federal 
credit-hour definition, the Department should require institutions to 
describe their credit assignment policies in their catalogs and 
promotional materials.
    Discussion: The Secretary did not intend to define a credit hour 
for Federal program purposes as a punitive measure against institutions 
in a particular sector or institutions that have engaged in 
inappropriate credit awarding practices in the past. Instead, the 
revised credit-hour definition is intended to provide a minimum, 
consistent standard for all institutions regardless of State, sector, 
or accreditor in determining the amount of student work necessary to 
award credit hours equitably for Federal program purposes.
    Changes: None.
    Comment: A few commenters believed that a Federal credit-hour 
definition is unnecessary because State agencies already review 
institutions' credit-hour policies within their general oversight of an 
institution's integrity.
    Discussion: We do not agree. Many State agencies do not perform 
such oversight activities nor do they use a uniform standard that would 
assure the equitable administration of Federal programs.
    Changes: None.

Administrative Burden

    Comment: Several commenters believed that the proposed credit-hour 
provisions would cause an undue administrative and financial burden on 
institutions. A few commenters believed that institutions would be 
forced to focus their administrative resources on ensuring that their 
programs and courses conform to the Federal credit-hour definition and 
remain eligible for title IV, HEA program funds instead of other 
important academic matters such as ensuring program integrity. Other 
commenters believed that in order to comply with the proposed credit-
hour definition, institutions would be burdened with administrative 
tasks such as reevaluating and significantly restructuring their 
credit-assignment systems, ensuring compliance with their accrediting 
agency's standards, reconfiguring the use of classroom space, and 
recalculating students' financial aid packages.
    One commenter believed that State agencies and accrediting agencies 
will be burdened by the requirement to focus on institutions at a more 
detailed level and will need to increase their staffs and costs to 
account for the increased workload. This commenter believed that 
increased costs would be passed to institutions, and subsequently, to 
students.
    Discussion: We do not believe that assigning credit to courses in 
accordance with the definition of credit hour in Sec.  600.2 for 
Federal program purposes will cause any significant increase in 
administrative or financial burden on institutions. Institutions 
participating in Federal programs such as title IV, HEA programs are 
already responsible for ensuring the appropriate treatment of Federal 
funds, including accurate distribution of Federal funds to students. 
Institutions will not be required to change their current systems of 
awarding credit for academic purposes which in many instances will 
already be compliant with these final regulations, but some 
institutions will be required to make the necessary changes to ensure 
accurate and equitable credit assignments for Federal program purposes.
    We do not believe that the credit-hour definition will cause any 
significant increase in the administrative burden on accrediting 
agencies or State agencies recognized under 34 CFR part 603. Section 
496(a)(5) of the HEA requires accrediting agencies recognized by the 
Secretary to evaluate an institution's or program's ``measures of 
program length and the objectives of the degrees or credentials 
offered'' which inherently requires accrediting agencies to evaluate 
the courses that constitute institutions' programs.
    Changes: None.

Accrediting Agency Procedures (Sec.  602.24(f))

    Comment: Several commenters supported the addition of Sec.  
602.24(f). These commenters believed that accrediting agencies are the 
appropriate entities to ensure institutions' compliance with the 
credit-hour provisions in Sec.  600.2.
    Many other commenters believed that the proposed provisions in 
Sec.  602.24(f) are unnecessary. These commenters

[[Page 66851]]

believed that the integrity of institutions' assignment of credit hours 
is already reviewed and evaluated by accrediting agencies through a 
system of peer review. These commenters also believed that the peer-
review system is capable of recognizing how credit hours are defined in 
different settings. A few commenters noted that the Secretary has 
already permitted accrediting agencies to perform this function and 
that accreditors have been diligent in their duties. One commenter 
believed that the Secretary could tighten Federal regulatory control 
over institutions' credit-hour policies by revising the existing 
accrediting agency recognition regulations in 34 CFR part 602.
    One commenter believed that accrediting agencies have long-standing 
practices, or in the case of some national accrediting agencies, 
formulas that provide reasonable measures of credit hours.
    Discussion: We agree with the commenters who believed that 
accrediting agencies' peer-review systems are structured to evaluate 
the appropriateness of institutions' credit policies and assignments in 
diverse educational settings. Amending Sec.  602.24 to add Sec.  
602.24(f) initially was a proposal of the non-Federal negotiators 
representing accrediting agencies to clarify their role in overseeing 
the assignment of credit hours by institutions as it relates to Federal 
program requirements. With the addition of the credit-hour definition 
in Sec.  600.2, we added Sec.  602.24(f) regarding an accrediting 
agency's review of an institution's policies and procedures for 
assigning credit hours, and the institution's application of these 
policies because this addition indicates how those requirements fit 
together and makes the two regulations consistent.
    We note that these provisions relate solely to an accrediting 
agency's consideration of an institution's implementation of the 
credit-hour definition for Federal program purposes. The regulations do 
not require the accrediting agency to use the definition of credit hour 
in Sec.  600.2 for non-Federal purposes nor do the regulations prohibit 
an accrediting agency from only using the definition of credit hour in 
Sec.  600.2.
    We believe that Sec.  602.24(f) is the appropriate place to define 
accrediting agencies' responsibilities for reviewing institutions' 
processes for assigning credit for title IV, HEA program purposes 
because Sec.  602.24 defines the procedures institutional accreditors 
must have if the institutions they accredit participate in title IV, 
HEA programs.
    Changes: None.
    Comment: Several commenters did not support the addition of Sec.  
602.24(f) because they believed the proposed provisions would allow the 
Department to indirectly regulate academic matters. A few of these 
commenters requested that the Department add language to the 
regulations making it clear that no provision in Sec.  602.24 would 
permit the Secretary to establish any criteria that specifies, defines, 
or prescribes the procedures that accrediting agencies shall use to 
assess any institution's credit-hour policies or procedures.
    One commenter believed that by requiring accrediting agencies to 
ensure institutions' compliance with the proposed credit-hour 
definition in Sec.  600.2, the Department would be placing accrediting 
agencies into a quasi-regulatory role for which they are neither 
designed nor intended. This commenter believed that over time 
accrediting agencies' regulatory role will be seen as their most 
important role and accrediting agencies will in effect become 
government agents. Another commenter believed that proposed Sec.  
602.24(f) would cause accrediting agencies to focus on institutions' 
assignment of credit hours instead of other valuable areas of review.
    One commenter requested clarification of whether Sec.  602.24(f) 
would allow the Department to rely exclusively on an accrediting 
agency's determination of an institution's definition and assignment of 
credit, or whether the Department would have separate authority under 
the regulations to evaluate and regulate an institution's definition or 
assignment of credit for title IV, HEA program eligibility purposes.
    One commenter believed that an accrediting agency found to be 
permitting inappropriate credit assignment activities at institutions 
should be cited and forced to address the identified issues. Another 
commenter believed that institutions' policies for assigning credit are 
extremely diverse, and that the Department is not capable of properly 
determining whether an accrediting agency has appropriately evaluated 
the variety of institutional policies.
    One commenter believed the provisions in Sec.  602.24(f) are 
unnecessary because section 496(a)(5)(H) of the HEA requires 
accrediting agencies to assess institutions' measures of program length 
but does not mandate any quantitative requirements establishing the 
components necessary for the measure of credit.
    Discussion: The provisions in Sec.  602.24(f) reflect that 
accrediting agencies are the oversight bodies responsible for 
evaluating the appropriateness of institutions' policies and procedures 
for assigning credit that is consistent with Federal program purposes. 
This role is in accordance with the provisions of the HEA under which 
accrediting agencies have the primary responsibility, as part of the 
oversight triad with the Federal Government and State agencies, to 
determine whether institutions participating in Federal programs such 
as the title IV, HEA programs, meet minimum standards of educational 
quality. The provisions in Sec.  602.24(f) further support accrediting 
agencies in fulfilling these responsibilities but do not prescribe the 
methods by which accrediting agencies must perform these evaluations.
    If the Secretary determines that a recognized accrediting agency 
does not comply with the provisions in Sec.  602.24(f) for purposes of 
Federal programs, or is not effective in its performance with respect 
to these provisions, then the Secretary may restrict or remove the 
agency's recognition in accordance with 34 CFR part 602, subpart C.
    We do not agree that the provisions in Sec.  602.24(f) are 
unnecessary. While section 496(a)(5)(H) of the HEA requires accrediting 
agencies to assess institutions' measures of program length, we believe 
the provisions in Sec.  602.24(f) provide necessary clarification 
regarding the means of evaluating an institution's assignment of credit 
hours.
    Changes: None.
    Comment: A few commenters believed that the provisions in Sec.  
602.24(f) were not specific enough with regard to the requirements for 
accrediting agencies.
    One commenter proposed that the Department require accrediting 
agencies to base their evaluations of the validity of institutions' 
credit-hour assignments on the manner in which other institutions 
offering similar programs assess and accept credits for purposes of 
evaluating credit for transfer.
    One commenter asked the Department to revise proposed Sec.  
602.24(f)(1)(ii) to specify that accrediting agencies must make a 
determination of whether an institution's assignment of credit hours 
conforms to the provisions in proposed Sec.  600.2.
    One commenter recommended that the Department require accrediting 
agencies to prescribe clearly the methodologies and equivalencies that 
will be utilized by institutions to determine the amount of work 
specified by the credit assigned to courses as

[[Page 66852]]

represented through stated student learning outcomes and demonstrated 
achievement of those outcomes, regardless of the delivery method.
    One commenter recommended revising the proposed accrediting agency 
requirements in Sec.  602.24(f) to state that in the case of 
competency-based programs that do not use clock hours or classroom time 
as a basis for credit, an accrediting agency must determine the 
appropriate assignment of credit by reviewing a well-substantiated list 
of competencies and assessing documented evidence of student 
achievement of competencies.
    A few commenters requested that the Department revise proposed 
Sec.  602.24(f)(2) to clarify that accrediting agencies have the 
authority and autonomy to determine review methodologies and 
techniques.
    One commenter believed that it would be appropriate for an 
accrediting agency to review a sample of an institution's curriculum to 
determine whether the credit assignment policies were being 
appropriately applied by an institution, but it would not be 
appropriate for an accrediting agency to employ an unspecified sample 
of other institutions to determine whether or not the credits awarded 
for a particular course or program conformed to commonly accepted 
practice in higher education. This commenter suggested revising 
proposed paragraph Sec.  602.24(f)(2) to specify that the agency must 
sample courses within an institution's program of study.
    One commenter suggested that accrediting agencies review annual 
institutional submissions of data, policies, and procedures for 
assigning credit hours.
    Discussion: We do not believe that further specificity is 
appropriate or necessary in Sec.  602.24(f). Accrediting agencies must 
have the flexibility to review institutional credit-assignment 
processes that may vary widely in their policies and implementation and 
may have differing methods for measuring student work such as direct 
assessment. We believe that accrediting agencies are capable of 
developing appropriate methods for evaluating institutional credit 
processes without providing further specificity in the regulations. We 
note that accrediting agencies must demonstrate their ability to 
appropriately review these areas in order to receive recognition by the 
Secretary as reliable authorities on the quality of education or 
training offered by the institutions and programs they accredit, and 
that evaluation by the Secretary continues during periodic reviews of 
accrediting agencies.
    We believe that it is not necessary to specify how an accrediting 
agency should review a competency-based program that does not use 
credit hours or clock hours as a basis for credit. In the case of a 
competency-based program, the institution may either base the 
assignment of credit on the time it takes most students to complete the 
program, or the program must meet the definition of a direct assessment 
program in Sec.  668.10. In the first scenario, the institution's 
accrediting agency would review the institution's compliance with the 
provisions in Sec.  600.2 or Sec.  668.8(k) and (l) as applicable. In 
the second scenario, the institution's accrediting agency must review 
and approve each of the institution's direct assessment program's 
equivalencies in terms of credit hours or clock hours.
    Changes: None.
    Comment: A few commenters opposed the proposed provisions in Sec.  
602.24(f)(1)(i)(A) and (B) requiring accrediting agencies to evaluate 
an institution's policies and procedures for determining credit hours 
in accordance with proposed Sec.  600.2 and to evaluate an 
institution's application of those policies and procedures to its 
programs and courses. Two commenters suggested that the provisions 
should not require accrediting agencies to evaluate compliance with 
proposed Sec.  600.2 but should permit institutions to justify the 
manner in which credit hours are assigned and permit accrediting 
agencies to determine whether an institution's application of its 
policies and procedures are appropriate. These commenters believed that 
the proposed provisions require accrediting agencies to instruct 
institutions to follow a specific approach to assigning credit hours.
    A few commenters suggested that the cross reference to the proposed 
credit-hour definition in Sec.  600.2 be stricken from proposed Sec.  
602.24(f)(1)(i)(A) and replaced with a provision requiring accrediting 
agencies to conduct their review of an institution's assignment of 
credit hours consistent with the provisions of Sec.  602.16(f).
    Discussion: We do not believe that the provisions in proposed Sec.  
602.24(f) require accrediting agencies to mandate specific policies for 
institutions with regard to assigning credit hours to programs and 
coursework. However, we do believe that it is necessary to specify in 
Sec.  602.24(f) that accrediting agencies must review an institution's 
policies and procedures for determining credit hours, and the 
application of those policies and procedures to programs and coursework 
in accordance with Sec.  600.2 for title IV, HEA program purposes. 
Accreditation by an accrediting agency recognized by the Secretary is 
an institutional and programmatic requirement for eligibility for the 
title IV, HEA programs.
    It is appropriate to specify the responsibilities of an accrediting 
agency in reviewing institutions' processes for assigning credit hours 
in Sec.  602.24, and not Sec.  602.16. The provisions in Sec.  602.24 
are related specifically to procedures accrediting agencies must have 
for institutions they accredit to obtain eligibility to participate in 
title IV, HEA programs. The provisions in Sec.  602.16(f) address the 
processes used by accrediting agencies in setting standards in 
statutorily-defined areas required for agencies to be recognized by the 
Secretary.
    Changes: None.
    Comment: A few commenters expressed concern about proposed Sec.  
602.24(f)(1)(ii), which requires accrediting agencies to determine 
whether an institution's assignment of credit hours conforms to 
commonly accepted practice in higher education.
    A few commenters believed that this proposal was inconsistent with 
the proposed credit-hour definition in Sec.  600.2 and expressed a 
preference for the language in proposed Sec.  602.24(f)(1)(ii).
    One commenter suggested striking this proposed provision from the 
regulations and including this information in the ``Guide to the 
Accrediting Agency Recognition Process'' issued by the Department. This 
guide was issued in August 2010 under the title ``Guidelines for 
Preparing/Reviewing Petitions and Compliance Reports.''
    One commenter suggested revising proposed Sec.  602.24(f)(1)(ii) to 
require accrediting agencies to evaluate institutions' assignment of 
credit hours based on a comparative study of similar institutions.
    Discussion: We do not agree that the provisions in Sec. Sec.  600.2 
and 602.24(f)(1)(ii) are inconsistent. The provisions in Sec.  600.2 
establish a title IV, HEA program requirement for institutions to award 
credit hours for an amount of academic work that is a reasonable 
equivalency to the amount of work defined in paragraph (1) of the 
credit-hour definition. By comparison, the reference to ``commonly 
accepted practice in higher education'' in Sec.  602.24(f)(1)(ii) 
establishes the parameters for accrediting agencies to determine 
whether institutions establish reasonable equivalences for the amount 
of work in paragraph (1) of the credit-hour definition within the 
framework of

[[Page 66853]]

acceptable institutional practices at comparable institutions of higher 
education.
    We believe that it is necessary to include Sec.  602.24(f)(1)(ii) 
in the regulations, rather than solely in the Department's ``Guidelines 
for Preparing/Reviewing Petitions and Compliance Reports.'' The 
regulations provide the requirements for accrediting agencies 
recognized by the Secretary whereas the ``Guidelines for Preparing/
Reviewing Petitions and Compliance Reports'' provides guidance to 
accrediting agencies seeking the Secretary's recognition and does not 
have the force of regulations. We will rely upon the accrediting 
agencies to choose the methods used to evaluate institutions' processes 
for assigning credit hours.
    Changes: None.
    Comment: One commenter expressed concern that the reference to 
``commonly accepted practice in higher education'' in proposed Sec.  
602.24(f)(1)(ii) may require institutions that primarily use clock 
hours to adopt credit-hour assignment policies that were developed by 
traditional four-year degree granting institutions, but are unsuitable 
for specialized institutions.
    Discussion: The reference to ``commonly accepted practice in higher 
education'' in Sec.  602.24(f)(1)(ii) is not a requirement for clock-
hour institutions to convert to credit hours.
    Changes: None.

Notification Requirements

    Comment: Several commenters opposed proposed Sec.  602.24(f)(4) 
that would require an accrediting agency, that identifies noncompliance 
with the agency's policies regarding an institution's credit 
assignments during a review under proposed Sec.  602.24(f), to notify 
the Secretary of the identified deficiencies. A few commenters believed 
that proposed Sec.  602.24(f)(4) lacked due process provisions. Some of 
these commenters believed that the notification requirement would force 
accrediting agencies to report minor or trivial credit-hour problems to 
the Department. One commenter believed that institutions would not be 
afforded an opportunity to respond to allegations or attempt immediate 
corrective actions which may lead to delayed resolutions to credit 
assignment problems.
    A few commenters believed that proposed Sec.  602.24(f)(4) was 
redundant with regard to the existing notification requirements in 
Sec.  602.27. These commenters suggested removing proposed paragraph 
Sec.  602.24(f)(4) and cross-referencing Sec.  602.27.
    One commenter believed that proposed Sec.  602.24(f)(4) contradicts 
the requirements of proposed Sec.  602.24(f)(3) which requires an 
accrediting agency to take appropriate action to address any 
institutional deficiencies it identifies as part of its review under 
proposed Sec.  602.24(f)(1)(i).
    A few commenters believed that the terms ``systemic noncompliance'' 
and ``significant noncompliance'' in proposed Sec.  602.24(f)(4) need 
clarification. One commenter suggested specifying that if an 
accrediting agency has any reason to believe that an institution is 
failing to meet its title IV, HEA program responsibilities, or is 
engaged in fraud or abuse, then that agency must notify the Department 
in accordance with existing regulations. Another commenter suggested 
specifying that if an accrediting agency determines that an institution 
does not develop and adhere to an acceptable credit assignment policy, 
then the agency must promptly notify the Secretary. This commenter also 
suggested that because institutions will be developing new credit 
policies, they should be afforded an adjustment period to receive and 
react to guidance from accrediting agencies on their credit assignment 
policies prior to being reported to the Secretary.
    Discussion: We agree with the commenters that Sec.  602.24(f)(4) 
does not specify due process provisions for institutions. Section 
602.24(f)(4) only requires an accrediting agency to report its findings 
and an agency's process of establishing and reporting a finding will 
rely upon the agency's own procedures. The Secretary recognition 
process ensures that accrediting agency procedures provide due process. 
Further, we believe Sec.  602.24(f)(4) is needed because it corresponds 
to the provisions in Sec.  602.27 that require an accrediting agency to 
submit information upon request from the Secretary about an accredited 
or preaccredited institution's compliance with its title IV, HEA 
program responsibilities. The provisions in Sec.  602.24(f)(4) specify 
the agency's existing responsibility under Sec.  602.27 with regard to 
inappropriate institutional processes for assigning credits.
    We do not agree with the commenter who believed that Sec.  
602.24(f)(3) and (f)(4) is contradictory. The provisions in Sec.  
602.24(f)(3) require an accrediting agency to take appropriate action 
to address any institutional deficiencies it identifies as part of its 
review under Sec.  602.24(f)(1)(i). Section 602.24(f)(4), however, 
requires an accrediting agency to notify the Secretary of any severe 
deficiencies such as systemic or significant noncompliance with the 
agency's policies identified at an institution during a review under 
Sec.  602.24(f).
    The terms ``systemic noncompliance'' and ``significant 
noncompliance'' do not encompass trivial or minor deficiencies. The 
term ``systemic noncompliance'' refers to an institutional process for 
awarding credits that is fundamentally flawed with regard to assigning 
credit hours in accordance with the credit-hour definition in Sec.  
600.2 and its accrediting agencies policies. The term ``significant 
noncompliance'' refers to institutional assignment of credit hours to 
individual courses or programs that are particularly egregious with 
regard to the compliance with Sec.  600.2.
    We do not believe that it is necessary to delay the effective date 
of the definition of a credit hour in Sec.  600.2 or Sec.  602.24(f) in 
these final regulations. An institution must implement the definition 
of a credit hour regardless of whether its accrediting agency has 
issued guidance on the implementation of Sec.  602.24(f). While an 
accrediting agency is required to implement Sec.  602.24(f) effective 
July 1, 2011, we will review on a case-by-case basis, based on an 
adequate justification as determined by the Secretary, any reasonable 
request from an accrediting agency for a delayed implementation date.
    Changes: None.

State Agency Procedures (Sec.  603.24(c))

General

    Comment: Several commenters opposed proposed Sec.  603.24(c). A few 
commenters believed that the proposed provisions would be confusing for 
State agencies and that State agencies do not have the administrative 
capabilities to review institutions' credit-hour policies. One 
commenter believed that the proposed provisions would lead to 
inconsistencies and inequalities between States based on States' 
reviews of institutions' credit policies and enforcement of 
institutions' compliance with the proposed credit-hour definition at 
Sec.  600.2.
    One commenter believed that some State agencies, such as those in 
Iowa, would not be able to comply with proposed Sec.  603.24(c) because 
the agencies may operate within the defined scope authorized by the 
State code and compliance would require changes in State law. This 
commenter also believed that some State agencies would not have the 
expertise to evaluate institutions' credit policies.
    One commenter suggested specifying that if a State agency 
determines that an institution does not develop and adhere to an 
acceptable credit assignment

[[Page 66854]]

policy, the agency must promptly notify the Secretary.
    One commenter believed that with regard to proposed Sec.  
603.24(c)(2), it would be appropriate for a State agency to review a 
sample of an institution's curriculum to determine whether the credit 
assignment policies were being appropriately applied by an institution, 
but it would not be appropriate for a State agency to employ an 
unspecified sample of other institutions to determine whether the 
credits awarded for a particular course or program conformed to 
commonly accepted practice in higher education. This commenter 
suggested revising proposed Sec.  603.24(c)(1) to require State 
agencies to evaluate an institution's assignment of credit hours based 
on a comparative study of similar institutions, and to revise proposed 
Sec.  603.24(c)(2) to specify that the agency must sample courses 
within an institution's program of study.
    Discussion: We do not agree with the commenters who believed that 
State agencies subject to the recognition criteria in 34 CFR part 603 
will be confused by Sec.  603.24(c) or will lack the administrative 
resources to meet these requirements. To be subject to Sec.  603.24(c), 
a State agency must be an agency recognized by the Secretary under 34 
CFR part 603 as a reliable authority regarding the quality of public 
postsecondary vocational education in its State. The only States that 
currently have recognized State agencies under 34 CFR part 603 are New 
York, Pennsylvania, Oklahoma, and Puerto Rico.
    As with accrediting agencies that are recognized by the Secretary, 
we do not believe it is necessary to define the specific methods that 
State agencies recognized by the Secretary should use to evaluate 
institutions' processes for assigning credit hours.
    We believe that Sec.  603.24(c)(4) provides the necessary level of 
specificity with regard to a recognized State agency's notification to 
the Secretary in case of institutional noncompliance with the credit-
hour definition in Sec.  600.2.
    Changes: None.

Program Eligibility: Clock-to-Credit-Hour Conversion (Sec.  668.8)

    Comment: One commenter questioned whether it is necessary to have a 
clock-to-credit-hour conversion if a credit hour is defined in the 
regulations and accrediting agencies are required to review 
institutional policies for awarding credits to ensure compliance. Two 
commenters believed that proposed Sec. Sec.  600.2 and 668.8(l) define 
a credit hour in two different ways and are therefore inconsistent. 
These commenters believed that it is illogical to define credit hours 
for purposes of the title IV, HEA programs in different ways depending 
on whether or not a program is subject to the clock-hour-to-credit-hour 
conversion.
    Discussion: On October 1, 1990, the Secretary published proposed 
regulations (55 FR 40148-40150) to establish standards for clock-to-
credit-hour-conversion for undergraduate vocational training programs 
and on July 23, 1993, the Secretary published final regulations (58 FR 
39618-39623) based on the public comments. The Secretary published the 
regulations to address significant abuse in the title IV, HEA programs, 
citing, for example, a 309 clock-hour program that was converted to a 
27.7 quarter-credit program. We believe that the potential for such 
abuse continues to exist and that Sec.  668.8(k) and (l) continues to 
be essential to the administrative integrity of the title IV, HEA 
programs. In Sec.  668.8(l)(2) of the final regulations, we have 
included consideration by an institution's accrediting agency of the 
institution's policies and procedures, and their implementation, for 
determining credit hours in a program if an institution seeks to 
establish any conversions that are less than the conversion rate 
specified in Sec.  668.8(l)(1).
    Due to the separate conversion formula in new Sec.  668.8(l), 
programs that are subject to the clock-to-credit-hour conversion in 
Sec.  668.8(l) are exempted from using the credit-hour definition in 
Sec.  600.2. Therefore, we do not believe there is any inconsistency 
between the definition in Sec.  600.2 and the provisions of Sec.  
668.8(l).
    Changes: None.
    Comment: One commenter asked for clarification regarding whether an 
institution that was recently approved for a degree program must wait 
for students to graduate from the program before it utilizes the 
exemption, in proposed Sec.  668.8(k)(1)(ii), from the requirements to 
perform a clock-to-credit-hour conversion under the provisions in 
proposed Sec.  668.8(l) with regard to students in a diploma program in 
which all credits are fully transferable to the new degree program.
    Discussion: Section 668.8(k)(1)(ii) provides that an institution's 
shorter length program is not subject to the conversion formula in 
Sec.  668.8(l) if each course within the shorter program is acceptable 
for full credit toward a degree that is offered by the institution that 
requires at least two academic years of study. Additionally, under 
Sec.  668.8(k)(1)(ii), an institution would be required to demonstrate 
that students enroll in, and graduate from, the longer length degree 
program. Thus, for a recently approved degree program that is at least 
two academic years in length, an institution must use clock hours for 
its title IV, HEA programs that are fully accepted for transfer into 
the new degree program until students graduate from the new degree 
program unless the institution offers other degree programs, each with 
graduates, and all the coursework in the first year of the program is 
acceptable for full credit toward one or more of these other degree 
programs. After students graduate from the new degree program, the 
programs at the institutions that are fully accepted for transfer into 
the new degree program will qualify under the exception in Sec.  
668.8(k)(1)(ii). We believe that it is essential that an institution is 
able to demonstrate that students graduate from the longer length 
degree program to ensure that the exception provided in Sec.  
668.8(k)(1)(ii) is being appropriately applied. We note that in an 
instance where a student is enrolled in a new degree program in which 
the first year of study may lead to a certificate or diploma and the 
second year provides an associate's degree, any student in the first 
year must have eligibility for title IV, HEA programs determined on a 
clock-hour basis until students graduate from the program with a degree 
after completing the second year.
    Changes: None.
    Comment: Several commenters did not agree with the provisions in 
proposed Sec.  668.8(k)(2)(i)(A) and (B), which provide for when a 
program is required to measure student progress in clock hours.
    Two commenters believed that if an institution's State licensing 
board or accrediting agency approve a credential to be awarded in 
credit hours, then that approval should be sufficient to award title 
IV, HEA program funds based on credit hours. These commenters believed 
that the provisions in Sec.  668.8(k)(2)(i)(A) and (B) create an 
unnecessary duplication of services provided by these approving 
entities. One commenter believed that this provision would be 
detrimental to institutions that have received licensing, accrediting, 
or Federal approval to use credit hours because these institutions 
would need to convert to clock hours.
    A few commenters believed that proposed Sec.  668.8(k)(2)(i)(A) is 
unclear on the requirement to measure student progress in clock hours. 
These commenters believed that State agencies' disclosure and 
calculation requirements may involve clock hours

[[Page 66855]]

but do not necessarily require that an institution measure student 
progress in clock hours. These commenters recommended revising proposed 
Sec.  668.8(k)(2)(i)(A) so that an institution is not required to 
measure student progress in clock hours unless the Federal or State 
authority requires the institution to measure student progress 
exclusively in clock hours. One commenter believed that many 
accrediting agencies and State agencies require institutions to include 
a clock-to-credit-hour conversion rate as part of the new program 
submission process, but it is not the agencies' intent to consider 
these credit-hour programs as clock-hour programs. The commenter 
suggested adding a provision to proposed Sec.  668.8(k)(2)(i)(A) so 
that it does not apply to institutions that are required to include a 
clock-to-credit-hour conversion rate in their accrediting agency or 
State application for a new program.
    One commenter believed that accrediting agencies' standards vary 
with regard to requirements for programs offering a certain number of 
clock hours in order for a graduate to be eligible to take a 
certification or licensure exam and students' requirement to attend the 
programs' clock hours. This commenter believed that there should be no 
requirement for a program to be a clock-hour program unless an 
accrediting agency specifies that students must attend the clock hours 
to take the certification or licensure exam.
    A few commenters believed that credit-hour programs are more 
recognized by employers and institutions. These commenters believed 
that it is difficult for students in clock-hour programs to transfer to 
credit-hour programs. The commenters also believed that employer-paid 
or employer-reimbursed tuition programs are generally administered 
based on credit hours.
    One commenter believed that the proposed clock-to-credit-hour 
conversion provisions that only use credit hours were not consistent 
concerning States throughout the proposed regulations.
    Discussion: The provisions in Sec.  668.8(k)(2)(i)(A) provide that 
a program must be considered a clock-hour program for title IV, HEA 
program purposes if the program is required to measure student progress 
in clock hours for Federal or State approval or licensure. We believe 
that any requirement for a program to be measured in clock hours to 
receive Federal or State approval or licensure, and any requirement for 
a graduate to complete clock hours to apply for licensure or 
authorization to practice an occupation demonstrates that a program is 
fundamentally a clock-hour program, regardless of whether the program 
has received Federal, State, or accrediting approval to offer the 
program in credit hours. As clock-hour programs, these programs are 
required to measure student progress in clock hours for title IV, HEA 
program purposes. In these circumstances where a requirement exists for 
the program to be measured in clock hours, this becomes the fundamental 
measure of that program for title IV, HEA program purposes. This 
outcome is not changed for such a program when an institution's State 
licensing board or accrediting agency also allows the institution to 
award a credential based upon credit hours, or when a State licensing 
board may require that a program be measured in clock hours but the 
program is approved by the institution's accrediting agency in credit 
hours. Further, because the institution is already required to report 
or otherwise establish the underlying clock hours of a program, we do 
not agree that provisions in Sec.  668.8(k)(2)(i)(A) and (B) create an 
unnecessary duplication of services provided by these approving 
entities. We also do not believe that using clock hours for title IV, 
HEA program purposes will be detrimental to institutions that have 
received licensing, accrediting, or Federal approval to use credit 
hours for academic purposes. In the case of institutions that are 
required to include a clock-to-credit-hour conversion rate in their 
accrediting agency or State application for a new program, we do not 
believe those accrediting agency or State requirements would affect the 
application of the provisions of Sec.  668.8(k)(2)(i)(A) and (B) 
because the institution is clearly required to establish the clock 
hours in the program to receive approval.
    With regard to the commenters who believed that credit-hour 
programs are more recognized and accepted by employers and 
institutions, there are no provisions in Sec.  668.8(k) and (l) that 
would prevent a program that must be considered a clock-hour program 
for title IV, HEA program purposes from also being offered in credit 
hours for academic or other purposes. We agree there was an 
inconsistency in proposed Sec.  668.8(l)(2) with State requirements. 
Proposed Sec.  668.8(l)(2) incorrectly referred to an institution's 
relevant State licensing authority when it should have referred to an 
institution's recognized State agency for the approval of public 
postsecondary vocational institutions that approves the institution in 
lieu of accreditation by a nationally recognized accrediting agency. 
This has been corrected.
    Changes: Section 668.8(l)(2) has been modified to remove the 
reference from proposed Sec.  668.8(l)(2) to an institution's relevant 
State licensing authority and now refers to an institution's recognized 
State agency for the approval of public postsecondary vocational 
institutions.
    Comment: Several commenters did not agree with proposed Sec.  
668.8(k)(2)(iii) that provides that an institution must require 
attendance in the clock hours that are the basis for credit hours 
awarded, except as provided in current Sec.  668.4(e).
    Some of these commenters questioned the effect this provision would 
have on institutions' attendance policies and asked that the Department 
clarify whether institutions are required to take attendance and have 
attendance policies that prohibit students from having absences. Two 
commenters believed that institutions would be required to take 
attendance in clock hours and credit hours. A few commenters noted that 
institutions that recently converted to systems using credit hours 
instead of clock hours, but that do not take attendance, would be 
particularly burdened.
    A few commenters believed that the Department did not address how 
institutions should handle typical classroom absences or extended 
leaves of absence when calculating clock hours completed or converting 
credit hours to clock hours. One commenter expressed concern that this 
provision in proposed Sec.  668.8(k)(2)(iii) would decrease 
institutions' ability to address students' needs in regard to absences. 
A few commenters asked whether a student must attend 100 percent of the 
clock hours in a course in order to receive credit for the course.
    One commenter believed that the proposed provision is impractical 
because most institutions use a 50-minute instructional hour instead of 
a 60-minute clock hour. This commenter also believed that the provision 
was unclear on whether the relevant clock hours would be considered to 
be provided if no instructor appeared for the clock hour.
    One commenter believed that the Department should clearly state in 
the final regulations that Sec.  668.8(k)(2)(iii) is not intended to be 
a test of the reasonable equivalencies that institutions can develop 
with regard to determining credit hours as that term is defined in 
proposed Sec.  600.2.
    Discussion: We believe it is essential for an institution to 
require students to

[[Page 66856]]

complete the clock hours that are the basis for the credit hours 
awarded in a program even when an institution converts a program to 
credit hours under the provisions of Sec.  668.8(k) and (l). These 
programs are still required to contain the clock hours that support the 
conversion under the regulations, and institutions are expected to make 
sure that those clock hours are completed by the students, subject to 
the institution's existing policies for excused absences and make-up 
classes.
    We do not agree with the commenters who believe that Sec.  
668.8(k)(2)(iii) does not provide for excused absences or would require 
100 percent attendance, because the regulations for clock hour programs 
already account for excused absences. Section 668.8(k)(2)(iii) 
specifically accounts for excused absences in accordance with the 
current regulations in Sec.  668.4(e) which provides guidance on when 
an institution, in determining whether a student has successfully 
completed the clock hours in a payment period, may include clock hours 
for which the student has an excused absence. An institution should 
ensure that students taking a program in credit hours are still 
completing the clock hours associated with the conversion, and excused 
absences from the classes should be within the tolerance permitted in 
the clock hour regulations. With regard to a leave of absence, an 
institution is expected to ensure that a student returning from an 
approved leave of absence still completes the clock hours that are 
needed to support the conversion for the program.
    We do not agree with the commenter who believed that Sec.  
668.8(k)(2)(iii) is impractical because most institutions use a 50-
minute instructional hour instead of a 60-minute clock hour. A clock 
hour is currently defined in Sec.  600.2 as (1) a 50- to 60-minute 
class, lecture, or recitation in a 60-minute period; (2) a 50- to 60-
minute faculty-supervised laboratory, shop training, or internship in a 
60-minute period; or (3) sixty minutes of preparation in a 
correspondence course. We also do not agree with this commenter's 
belief that the provision is unclear on whether the relevant clock 
hours would be considered to be provided if no instructor appeared for 
the clock hour. If a student is unable to complete a clock hour because 
the instructor is not present, there is no clock hour to be counted 
towards meeting the required clock hours unless it may be counted as an 
approved absence.
    Changes: None.
    Comment: One commenter believed that the Department should clearly 
state in the final regulations that Sec.  668.8(k)(2)(iii) is not 
intended to be a test of the reasonable equivalencies that institutions 
can develop with regard to determining credit hours as that term is 
defined in Sec.  600.2.
    Discussion: We do not believe it is necessary to amend Sec.  
668.8(k)(2)(iii) to state that the provision is not intended to be a 
test of the reasonable equivalencies that institutions can develop with 
regard to determining credit hours as defined in Sec.  600.2. The 
credit-hour definition in Sec.  600.2 specifically excludes its 
applicability to a program subject to the conversion formula in Sec.  
668.8(l).
    Changes: None.
    Comment: Many commenters believed that proposed Sec.  668.8(l) 
would decrease students' eligibility for title IV, HEA program funds. 
These commenters believed that students enrolled in short-term and 
nondegree programs measured in credit hours would unjustly experience a 
decrease in their eligibility for title IV, HEA program funds because 
the proposed clock-to-credit-hour conversion would require institutions 
to use 900 clock hours instead of the current 720 clock hours to 
support the same amount of credit hours.
    These commenters believed that students' decreased eligibility 
would force them to withdraw from short-term and nondegree programs or 
rely on loans which would increase their debt. One of these commenters 
expressed concern that the decreased eligibility for title IV, HEA 
program funds would disproportionately impact nontraditional and 
financially disadvantaged students.
    Discussion: We do not agree with the commenters who believed that 
students currently enrolled in short-term or nondegree programs would 
unjustly experience a decrease in their eligibility for title IV, HEA 
program funds nor do we believe that the conversion formula 
inappropriately impacts students' title IV, HEA program eligibility. We 
do not believe that the clock-to-credit-hour conversion rate in current 
Sec.  668.8(l) provides equitable outcomes for students taking similar 
programs measured in clock-hours and credit hours. The current 
regulations result in students in some credit hour programs having 
greater eligibility based on a conversion from clock hours to credit 
hours that assumed student work outside of class is always present in 
the same ratio to the time the students spend in class. The changes to 
the conversion formula in Sec.  668.8(l) of these final regulations 
provide for a more equitable accounting for student work outside of 
class. New Sec.  668.8(l)(2) would provide for conversion based on the 
varying rates of work outside class for particular educational 
activities within a student's courses or program rather than mandating 
the use of a constant ratio that may be incorrect. An institution 
applying the appropriate conversion rate to a program in accordance 
with Sec.  668.8(l)(1) would be considered compliant with Sec.  
668.8(l).
    Changes: None.
    Comment: Many commenters believed that the proposed clock-to-
credit-hour conversion formula would force institutions to increase the 
lengths of their programs or offer associate's degrees in order to 
retain their eligibility for title IV, HEA program funds. Several of 
these commenters believed that increasing program lengths would cause 
financial hardships for students by delaying students' entry into 
workforce and increasing tuition. A few commenters believed that many 
programs would be potentially eliminated because of the institutional 
burden of unnecessarily extending program lengths.
    Discussion: We do not agree with these commenters. Under the 
current regulations in Sec.  668.8(d), public and private nonprofit 
institutions and proprietary institutions offering undergraduate 
programs may have eligible programs with a minimum of 600 clock hours, 
16 semester or trimester hours, or 24 quarter hours. To the extent that 
any short-term programs would not have been eligible for title IV, HEA 
program funds in the past due to the inequitable clock-to-credit-hour 
conversion rate, we believe that students enrolled in these programs 
should not have been eligible for title IV, HEA program funds. Short-
term programs offered in credit hours that contained outside work that 
met or exceeded the assumed outside work that was implicit in the 
conversion should be in compliance with the new requirements and 
unaffected by the change.
    Changes: None.
    Comment: A few commenters questioned how proposed Sec.  668.8(l) 
would affect institutional credit policies. One commenter believed that 
programs that were designed to be compliant with the clock-to-credit-
hour conversion ratio for a semester hour in current Sec.  668.8(l) 
cannot be easily or quickly changed because using the ratio alters the 
delivery, design, and curricular structure of the programs.
    One commenter requested clarification of how the conversion should 
be applied when one program has courses that require outside work and 
other courses that do not.

[[Page 66857]]

    Discussion: We do not believe that it is necessary for programs to 
change their structure or credit assignments for academic purposes if 
they are subject to the conversion formula in new Sec.  668.8(l); 
however, institutions are responsible for ensuring that the credit 
hours awarded for title IV, HEA program purposes comply with the 
provisions in Sec.  668.8(l). In some instances, there may be no 
discernable difference between institutions' determinations of credit 
hours for academic purposes and title IV, HEA program purposes 
depending on the outcome of determinations of work outside of class and 
instructional periods within a program. Some institutions may currently 
award fewer credits then the existing regulations allow or would be 
allowed under the final regulations.
    The provisions in Sec.  668.8(l)(2) provide an exception to the 
minimum standard for converting clock hours to credit hours in Sec.  
668.8(l)(1) for coursework in a program that qualifies for a lesser 
rate of conversion based on additional student work outside of class. 
In a case where a program offers courses with work outside of class, an 
institution must use the standards in Sec.  668.8(l)(1) for the courses 
without the work outside of class and may apply the exception in Sec.  
668.8(l)(2) to courses with work outside of class.
    Changes: None.
    Comment: One commenter supported proposed Sec.  668.8(l)(2) because 
it provides institutions the ability to account for work outside of 
class. One commenter supported the provision, but recommended that the 
Department specify when an institution is eligible to use work outside 
of class as part of the total clock-hour calculation.
    A few commenters asked for clarification regarding proposed Sec.  
668.8(l)(2) and the work outside of class that may be combined with 
clock hours of instruction in order to meet or exceed the numeric 
requirements established in Sec.  668.8(l)(1). These commenters 
requested clarification on how institutions should measure student's 
completion of work outside of class, whether work outside of class 
should be identified in course syllabi, whether work outside of class 
should be graded, and what entity should determine that a program is 
suited to include work outside of class.
    Discussion: Under Sec.  668.8(l)(2), an institution may use a 
determination of appropriate amounts of work outside of class for 
various educational activities in a course or program in determining 
the appropriate conversion rate from clock hours to credit hours for 
each educational activity in the course or program. However, we do not 
believe that it is appropriate for the Department to provide more 
specificity for determining the appropriate conversion rates for 
various educational activities in a course or program. An institution, 
in accordance with the requirements of its designated accrediting 
agency, or State agency for the approval of public postsecondary 
vocational institutions, recognized under 34 CFR 603, is responsible 
for making determinations of the appropriate credit hours under 
proposed Sec.  668.8(l)(2). If an institution is unsure of how to apply 
the provisions of Sec.  668.8(l)(2) to a program, it would be 
considered compliant if it uses the appropriate conversion ratio 
specified in Sec.  668.8(l)(1).
    Changes: None.
    Comment: One commenter suggested eliminating the provision in 
proposed Sec.  668.8(k)(2)(ii) that requires institutions to measure 
student progress in clock hours in any program if the credit hours 
awarded for the program are not in compliance with the definition of 
credit hour in Sec.  600.2. The commenter believed the Secretary's 
proposed credit-hour definition in Sec.  600.2 allowed the Secretary to 
interfere in academic matters.
    Discussion: The definition of credit hour in Sec.  600.2 is 
intended to establish a quantifiable, minimum basis for a credit hour 
for Federal program purposes, including the title IV, HEA programs. We 
believe that it is necessary to establish the standards by which a 
program that awards credit hours that are not in compliance with the 
definition of credit hour in Sec.  600.2 may still be eligible for 
title IV, HEA program funds. Thus, Sec.  668.8(k)(2)(ii) provides that 
a program that does not award credit hours in compliance with Sec.  
600.2 may still be eligible for title IV, HEA programs using the 
underlying clock-hours of the program.
    Changes: None.
    Comment: A few commenters requested clarification on how to address 
students that are already enrolled in programs that may change the 
measurement of student progress to comply with proposed Sec.  668.8(k) 
and (l). A few of these commenters also requested additional time to 
comply with the proposed regulations in these sections. One commenter 
requested that current students should be permitted to complete their 
programs using the current conversion ratio. One commenter asked that 
the Secretary allow institutions that offered credit-hour programs in 
the 2010-11 academic year, but will need to measure student progress in 
clock hours under proposed Sec.  668.8(k)(2)(i)(B), to continue 
measuring student progress in these programs using credit hours.
    One commenter asked whether institutions are required to execute 
revised Enrollment Agreements with currently enrolled students when the 
new regulations take effect.
    One commenter suggested that the conversation rate in Sec.  
668.8(l) should not be applied to existing programs for at least one 
year from July 1, 2011 to allow for accrediting agencies to create 
procedures for assessing institutions' assignment of credit hours. This 
commenter added that only new programs should be required to use the 
proposed conversion rate.
    One commenter requested that the proposed provisions in Sec.  
668.8(l)(2)(i) not take effect for two award years in order for 
institutions that use clock hours to have time to redesign their 
programs.
    Discussion: We agree with the commenters' concerns regarding the 
applicability of the changes to Sec.  668.8(k) and (l) to students 
enrolled prior to the effective date of these regulations in programs 
affected by the changes in the requirements. We agree that for students 
enrolled in programs subject to the provisions in Sec.  668.8(k) and 
(l) as of the July 1, 2011 effective date of these final regulations, 
an institution may choose to apply the regulations in current Sec.  
668.8(k) and (l) until these students complete the program or to apply 
amended Sec.  668.8(k) and (l) in these final regulations for all 
students enrolled in payment periods or assigned to the 2011-12 and 
subsequent award years. For students who enroll or reenroll on or after 
July 1, 2011 in programs affected by changes in Sec.  668.8(k) and (l), 
institutions must determine title IV, HEA eligibility using Sec.  
668.8(k) and (l) in these final regulations.
    We do not agree that a delay in the effective date is needed for 
institutions to allow institutions more time to bring their existing 
programs into compliance. If an institution's accrediting agency, or 
State agency, is not yet compliant with the provisions of Sec.  
602.24(f) for an accrediting agency, or Sec.  603.24(c) for a State 
agency, the institution must use the conversion formula in Sec.  
668.8(l)(1) of these final regulations until the State agency and 
accrediting agency are compliant.
    Changes: None.

[[Page 66858]]

State Authorization (Sec. Sec.  600.4(a)(3), 600.5(a)(4), 600.6(a)(3), 
600.9, and 668.43(b))

General--No Mandate for a State Licensing Agency

    Comment: Several commenters believed the proposed regulations would 
create mandates for States to create new State oversight bodies or 
licensing agencies, or compel States to create bureaucratic structures 
that would further strain higher education resources. Some commenters 
believed that a majority of the States would have to modify licensing 
requirements or adopt new legislation and that the regulations would 
cause a major shift in State responsibility.
    Discussion: These final regulations do not mandate that a State 
create any licensing agency for purposes of Federal program 
eligibility. Under the final regulations, an institution may be legally 
authorized by the State based on methods such as State charters, State 
laws, State constitutional provisions, or articles of incorporation 
that authorize an entity to offer educational programs beyond secondary 
education in the State. If the State had an additional approval or 
licensure requirement, the institution must comply with those 
requirements. In the case of an entity established as a business or 
nonprofit charitable organization, i.e., not as an educational 
institution, the entity would be required to have authorization from 
the State to offer educational programs beyond secondary education. 
While these final regulations require the creation of a State licensing 
agency, a State may choose to rely on such an agency to legally 
authorize institutions to offer postsecondary education in the State 
for purposes of Federal program eligibility.
    Changes: None.
    Comment: Several commenters supported the proposed regulations as 
an effort to address fraud and abuse in Federal programs through State 
oversight. An association representing State higher education officials 
noted that despite differences in State practice, all the States, 
within our Federal system, have responsibilities to protect the 
interests of students and the public in postsecondary education and 
supported the basic elements of proposed Sec.  600.9. A State agency 
official praised the Department's proposed regulations but suggested 
that the Department insert ``by name'' in the proposed Sec.  
600.9(a)(1) to provide some protection against recurrence of situations 
such as the one in California when the State licensing agency lapsed 
prior to the State renewing the agency or a successor to the agency and 
no State approval was in place that named an institution as licensed or 
authorized to operate in the State.
    Discussion: We appreciate the support of the commenters. We agree 
with the commenter that a State's authorization should name the 
institution being authorized. We believe that by naming the institution 
in its authorization for the institution to offer postsecondary 
education in the State, the State is providing the necessary positive 
authorization expected under Sec.  600.9.
    Changes: We are amending proposed Sec.  600.9, where appropriate, 
to recognize that an institution authorized by name in a State will 
meet the State authorization requirements as discussed further in 
response to other comments.
    Comment: Some commenters believed that the proposed regulations 
exceeded the Department's authority and infringed on the States' 
authority. One commenter requested that the proposed regulations be 
eliminated because private institutions are authorized through various 
unique authorizations. Another commenter believed that the proposed 
regulations upset the balance of the ``Triad'' of oversight by States, 
accrediting agencies, and the Federal Government. One commenter 
questioned whether the Department could impose conditions restricting a 
State's freedom of action in determining which institutions are 
authorized by the State by requiring that a State's authorization must 
be subject to, for example, adverse actions and provision for reviewing 
complaints. The commenter believed that there was no intent to have the 
Department impose such conditions. Another commenter believed that 
proposed Sec.  600.9 unnecessarily intruded on each State's prerogative 
to determine its own laws and regulations relative to the authorization 
of higher education institutions and to define the conditions for its 
own regulations. One commenter suggested that the Department only apply 
proposed Sec.  600.9 to the problem areas that the commenter identified 
as substandard schools, diploma mills, and private proprietary 
institutions.
    One commenter believed that the proposed regulations would infringe 
upon the States' sovereignty by commanding state governments to 
implement legislation enacted by Congress. Specifically, the commenter 
noted that under the proposed regulations the States must adopt 
legislation or rules that expressly authorize institutions to offer 
postsecondary programs and further make such an authorization subject 
to adverse action by the State and that the proposed regulations would 
require that States establish a process to act on complaints about the 
institution and enforce State laws against the institution. The 
commenter believed that the Department would improperly direct State 
officials to participate in the administration of a federally enacted 
regulatory scheme in violation of State Sovereignty. By doing so, the 
commenter believed that the Federal Government would be forcing State 
governments to absorb the financial burden of implementing a Federal 
regulatory program, while allowing the Federal government to take 
credit for ``solving'' problems without having to ask their 
constituents to pay for the solutions with higher Federal taxes. The 
commenter believed that the Department cannot construe the HEA to 
require a State to regulate according to the Department's wishes. The 
commenter believed that such a construction would exceed the 
Department's authority under the HEA and violate the States' rights 
under the Tenth Amendment.
    Discussion: We disagree with the commenters that the proposed 
regulations exceed the Department's authority and infringe on States' 
authority. Under the provisions of the HEA and the institutional 
eligibility regulations, the Department is required to determine 
whether an institution is legally authorized by a State to offer 
postsecondary education if the institution is to meet the definition of 
an institution of higher education, proprietary institution of higher 
education, or postsecondary vocational institution (20 U.S.C. 1001 and 
1002) as those terms are defined in Sec. Sec.  600.4, 600.5, and 600.6 
of the institutional eligibility regulations. In accordance with the 
provisions of the HEA, the Department is establishing minimum standards 
to determine whether an institution is legally authorized to offer 
postsecondary education by a State for purposes of Federal programs. 
The proposed regulations do not seek to regulate what a State must do, 
but instead considers whether a State authorization is sufficient for 
an institution that participates, or seeks to participate, in Federal 
programs.
    Contrary to the commenter's suggestion that the Department is 
upsetting the Triad, we believe these regulations clarify the role of 
the States, a key participant in the Triad, in establishing an 
institution's eligibility for Federal programs. Further, the Department 
believes that clarifying the State role in the Triad will address some 
of the oversight concerns raised by

[[Page 66859]]

another commenter regarding problem areas with certain types of 
institutions.
    Changes: None.
    Comment: Several commenters questioned the need for proposed Sec.  
600.9. For example, several commenters questioned whether the 
Department's concern that the failure of California to reinstate a 
State regulatory agency was justified. Commenters believed that the 
regulations would not have prevented the concerns the Department 
identified in the case of the lapsing of the California State agency. 
One commenter believed the California issue was resolved and that 
accreditation and student financial aid processes worked. Some 
commenters believed that the current State regulatory bodies or other 
authorization methods were sufficient. One commenter stated that 
authorizations are spelled out in State statutes, and there is no need 
for the regulations. Some commenters believed that additional 
information is needed, such as a State-by-State review of the impact of 
proposed Sec.  600.9, or the States with adequate or inadequate 
oversight. Several commenters were concerned that proposed Sec.  600.9 
would unnecessarily impact small States without discernable problems. 
Some commenters believed there is no evidence of marginal institutions 
moving to States with lower standards and that there is no danger to 
title IV, HEA program funds. One commenter believed that proposed Sec.  
600.9 should be eliminated because the commenter believed that its full 
effect is not known and that it will be chaotic if implemented. Another 
commenter believed that proposed Sec.  600.9 would be burdensome, is 
not economically feasible, and would leave an institution at the mercy 
of the State. One commenter believed that proposed Sec.  600.9 would 
encourage for-profit institutions to undermine State agencies such as 
through lobbying to underfund an agency and would stall reconsideration 
of legislation.
    Some commenters believed that the Department's concerns were valid. 
One of these commenters believed that, in the absence of regulations, 
many States have forfeited their public responsibilities to accrediting 
agencies. In the case of the interim lapse of the State regulatory 
agency in California, the commenter believed that we do not know yet 
the extent of the mischief that may have occurred or may still occur, 
but the commenter has received reports that schools began operating in 
the gap period and are being allowed to continue to operate without 
State approval until the new agency is operational. The commenter 
understood that at least one of those schools closed abruptly, leaving 
many students with debts owed and no credential to show for their 
efforts.
    Some commenters believed that the proposed regulations would not 
address issues with degree mills as they are not accredited. Some 
commenters urged the Department to offer leadership and support of 
Federal legislation and funding to combat diploma mills.
    One commenter recommended that the Department use Federal funds for 
oversight. Another commenter suggested that the Department encourage 
the Federal Government to provide incentives to the States.
    Discussion: We do not agree with the commenters who believe that 
proposed Sec.  600.9 should be eliminated. For example, we believe 
these regulations may have prevented the situation in California from 
occurring or would have greatly reduced the period of time during which 
the State failed to provide adequate oversight. While it may appear 
that the California situation was satisfactorily resolved as some 
commenters suggested, the absence of a regulation created uncertainty. 
As one commenter noted, during the period when the State failed to act, 
it appears that problems did occur, and that no process existed for new 
institutions to obtain State authorization after the dissolution of the 
State agency. We are concerned that States have not consistently 
provided adequate oversight, and thus we believe Federal funds and 
students are at risk as we have anecdotally observed institutions 
shopping for States with little or no oversight. As a corollary effect 
of establishing some minimal requirements for State authorization for 
purposes of Federal programs, we believe the public will benefit by 
reducing the possibilities for degree mills to operate, without the 
need for additional Federal intervention or funding. We do not believe 
that additional information is needed to support Sec.  600.9 in these 
final regulations as Sec.  600.9 only requires an institution 
demonstrate that it meets a minimal level of authorization by the State 
to offer postsecondary education. Because the provisions of Sec.  600.9 
are minimal, we believe that many States will already satisfy these 
requirements, and we anticipate institutions in all States will be able 
to meet the requirements under the regulations over time. This 
requirement will also bring greater clarity to State authorization 
processes as part of the Triad. Since the final regulations only 
establish minimal standards for institutions to qualify as legally 
authorized by a State, we believe that, in most instances they do not 
impose significant burden or costs. States are also given numerous 
options to meet these minimum requirements if they do not already do 
so, and this flexibility may lead to some States using different 
authorizations for different types of institutions in order to minimize 
burden and provide better oversight. The question of whether these 
regulations will impact the ability of any group to seek changes to a 
State's requirements is beyond the purview of these final regulations. 
As one commenter requested, we will continue to support oversight 
functions as provided under Federal law, and we believe that these 
final regulations will provide the necessary incentives to the States 
to assure a minimal level of State oversight.
    Changes: None.
    Comment: Some commenters questioned how the Department would 
enforce the proposed regulations. One commenter stated that the 
Department has no mechanism to enforce the proposed regulations and 
asks how they will improve program integrity. One commenter questioned 
why an institution may be held accountable for the actions of the State 
over which it has no direct control.
    Discussion: Any institution applying to participate in a Federal 
program under the HEA must demonstrate that it has the legal authority 
to offer postsecondary education in accordance with Sec.  600.9 of 
these final regulations. If a State declines to provide an institution 
with legal authorization to offer postsecondary education in accordance 
with these regulations, the institution will not be eligible to 
participate in Federal programs.
    As to an institution's inability to control the actions of a State, 
we do not believe such a circumstance is any different than an 
institution failing to comply with an accreditation requirement that 
results in the institution's loss of accredited status. We believe that 
in any circumstance in which an institution is unable to qualify as 
legally authorized under Sec.  600.9 of these final regulations, the 
institution and State will take the necessary actions to meet the 
requirements of Sec.  600.9 of these final regulations.
    Changes: None.
    Comment: One commenter believed that proposed Sec.  600.9 would 
result in an unfunded mandate by the Federal Government. Another 
commenter stated that many States may see proposed Sec.  600.9 as a 
revenue-generating opportunity and pass the costs of this requirement 
on to institutions, which

[[Page 66860]]

would have no choice but to pass that cost on to students.
    Discussion: We do not agree that Sec.  600.9 of these final 
regulations will result in an unfunded mandate by the Federal 
Government, since many States will already be compliant and options are 
available that should permit other States to come into compliance with 
only minimal changes in procedures or requirements if they want to 
provide acceptable State authorizations for institutions. The 
regulations also include a process for an institution to request 
additional time to become compliant. Furthermore, if a State is 
unwilling to become compliant with Sec.  600.9, there is no requirement 
that it do so. We also do not agree that States will see coming into 
compliance with Sec.  600.9 as a revenue-generating opportunity, since 
any required changes are likely to be minimal.
    Changes: None.

Implementation

    Comment: Some commenters believed that the proposed regulations are 
ambiguous in meaning and application or are vague in identifying which 
State policies are sufficient. For example, one State higher education 
official suggested that proposed Sec.  600.9 should be amended to 
differentiate among authorities to operate arising from administrative 
authorization of private institutions from legislation and from 
constitutional provisions assigning responsibility to operate public 
institutions. The commenter believed that proposed Sec.  600.9 
obfuscated the various means of establishing State authorization and 
the fundamental roles of State legislatures and State constitutions and 
recommended that these means of authorization and roles of State 
entities should be clarified.
    Several commenters questioned what authorizing an institution to 
offer postsecondary programs entails. A few commenters pointed out that 
there is a wide array of State approval methods and many institutions 
were founded before the creation of State licensing agencies. An 
association representing State higher education officials urged that 
ample discretionary authority explicitly be left to the States. One 
commenter indicated that proposed Sec.  600.9 failed to address when 
more than one State entity is responsible for a portion of the 
oversight in States where dual or multiple certifications are required. 
Another commenter believed that proposed Sec.  600.9 did not adequately 
address the affect an institution's compliance with proposed Sec.  
600.9 would have if one of two different State approvals lapsed and 
both were necessary to be authorized to operate in the State or if the 
State ceased to have a process for handling complaints but the 
institutions continued to be licensed to offer postsecondary education. 
Some commenters asked whether specific State regulatory frameworks 
would meet the provisions of the proposed regulations. For example, one 
commenter believed that, under State law and practice in the 
commenter's State, the private institutions in the State already met 
the requirements in proposed Sec.  600.9 that the commenter believed 
included: (1) The institution being authorized by a State through a 
charter, license, approval, or other document issued by an appropriate 
State government agency or State entity; (2) the institution being 
authorized specifically as an educational institution, not merely as a 
business or an eleemosynary organization; (3) the institution's 
authorization being subject to adverse action by the State; and (4) the 
State having a process to review and appropriately act on complaints 
concerning an institution. The commenter noted that all postsecondary 
institutions in the State must either have a ``universal charter'' 
awarded by the legislature or be approved to offer postsecondary 
programs. The commenter noted that these institutions are authorized as 
educational institutions, not as businesses. In another example, a 
commenter from another State believed that current law in the 
commenter's State addresses and covers many of the requirements 
outlined in proposed Sec.  600.9. The commenter noted that many of the 
State laws are enforced by the State's Attorney General and attempt to 
protect individuals from fraud and abuse in the State's system of 
higher education. However, the commenter believed that it remained 
unclear whether the State would be required to create an oversight 
board for independent institutions like the commenter's institution or 
would be subject to State licensure requirements via the State 
licensure agency. The commenter believed that either option would erode 
the autonomy of the commenter's institution and add layers of 
bureaucracy to address issues currently covered by State and Federal 
laws.
    One commenter suggested that proposed Sec.  600.9(a)(1) be amended 
to provide that authorization may be based on other documents issued by 
an appropriate State government agency and delete the reference to 
``state entity.'' The commenter believed that the documents would 
affirm or convey the authority to the institution to operate 
educational programs beyond secondary education by duly enacted State 
legislation establishing an institution and defining its mission to 
provide such educational programs or by duly adopted State 
constitutional provisions assigning authority to operate institutions 
offering such educational programs.
    Some commenters questioned whether there were any factors that a 
State may not consider when granting legal authorization. One commenter 
requested confirmation that under the proposed regulations 
authorization does not typically include State regulation of an 
institution's operations nor does it include continual oversight. A few 
commenters expressed concern regarding the involvement of the States in 
authorization and that a State's role may extend into defining, for 
example, curriculum, teaching methods, subject matter content, faculty 
qualifications, and learning outcomes. One commenter was concerned that 
proposed Sec.  600.9 would create fiscal constraints on an institution 
due to, for example, additional reporting requirements or would impose 
homogeneity upon institutions that would compromise their unique 
missions. One commenter stated that the Department does not have the 
authority to review issues of academic freedom or curriculum content.
    One commenter wanted assurances that the Department does not intend 
to use the proposed regulations to strengthen State oversight of 
colleges beyond current practices. One commenter was concerned that 
States could exercise greater and more intrusive oversight of private 
colleges.
    One commenter suggested that the Department grandfather all 
institutions currently operating under a State's regulatory authority 
without a determination of its adequacy. Another indicated that private 
colleges and universities operating under a State-approved charter 
issued prior to 1972 are already subject to State regulation, even as 
they are exempt from State licensing. One commenter believed that the 
Department should accept State laws and regulations that can be 
reasonably interpreted as meeting the regulatory requirements.
    Discussion: We agree with the commenters who were concerned that 
proposed Sec.  600.9 may be viewed as ambiguous in describing a minimal 
standard for establishing State legal authorization. We agree, in 
principle, with the State higher education official who suggested that 
proposed Sec.  600.9 should be amended to differentiate the

[[Page 66861]]

types of State authorizations for institutions to operate, but not 
based upon whether the source of the authorization is administrative or 
legislative. We believe the distinction for purposes of Federal 
programs is whether the legal entities are specifically established 
under State requirements as educational institutions or instead are 
established as business or nonprofit charitable organizations that may 
operate without being specifically established as educational 
institutions. We believe this clarification addresses the concerns of 
whether specific States' requirements were compliant with Sec.  600.9 
as provided in these final regulations.
    We continue to view State authorization to offer postsecondary 
educational programs as a substantive requirement where the State takes 
an active role in authorizing an institution to offer postsecondary 
education. This view means that a State may choose a number of ways to 
authorize an institution either as an educational institution or as a 
business or nonprofit charitable organization without specific 
authorization by the State to offer postsecondary educational programs. 
These legal means include provisions of a State's constitution or law, 
State charter, or articles of incorporation that name the institution 
as established to offer postsecondary education. In addition, such an 
institution also may be subject to approval or licensure by State 
boards or State agencies that license or approve the institution to 
offer postsecondary education. If a legal entity is established by a 
State as a business or a nonprofit charitable organization and not 
specifically as an educational institution, it may be subject to 
approval or licensure by State boards or State agencies that license or 
approve the institution to offer postsecondary education. The key issue 
is whether the legal authorization the institution receives through 
these means is for the purpose of offering postsecondary education in 
the State.
    In some instances, as one commenter noted, a State may have 
multiple State entities that must authorize an institution to offer 
postsecondary programs. In this circumstance, to comply with Sec.  
600.9, we would expect that the institution would demonstrate that it 
was authorized to offer postsecondary programs by all of the relevant 
State entities that conferred such authorizations to that type of 
institution.
    We do not believe it is relevant that an institution may have been 
established prior to any State oversight. We are concerned that 
institutions currently be authorized by a State to offer postsecondary 
education, although we recognize that a State's current approval for an 
institution may be based on historical facts. We therefore do not 
believe it is necessary to grandfather institutions currently operating 
under a State's regulations or statutes nor are we making any 
determination of the adequacy of a State's methods of authorizing 
postsecondary education apart from meeting the basic provisions of 
Sec.  600.9 in these final regulations. If a private college or 
university is operating under a State-approved charter specifically 
authorizing the institution by name to offer postsecondary education in 
the State, a State may exempt an institution from any further State 
licensure process. The requirement to be named specifically in a State 
action also applies if the institution is exempt from State licensure 
based upon another condition, such as its accreditation by a nationally 
recognized accrediting agency or years in operation.
    Further, these regulations only require changes where a State does 
not have any authorizing mechanisms for institutions other than an 
approval to operate as a business entity, or does not have a mechanism 
to review complaints against institutions. We anticipate that many 
States already meet these requirements, and will have time to make any 
necessary adjustments to meet the needs of the institutions.
    With regard to the commenters who were concerned with the potential 
scope of a State's authority, we note that the Department does not 
limit a State's oversight of institutions, and only sets minimum 
requirements for institutions to show they are legally authorized by a 
State to provide educational programs above the secondary level. These 
regulations neither increase nor limit a State's authority to 
authorize, approve, or license institutions operating in the State to 
offer postsecondary education. Further, nothing in these final 
regulations limits a State's authority to revoke the authorization, 
approval, or license of such institutions. Section 600.9 ensures that 
an institution qualifies for Federal programs based on its 
authorization by the State to offer postsecondary education.
    Changes: We are amending proposed Sec.  600.9 to distinguish the 
type of State approvals that are acceptable for an institution to 
demonstrate that it is authorized by the State to offer educational 
programs beyond the secondary level.
    An institution is legally authorized by the State if the State 
establishes the institution by name as an educational institution 
through a charter, statute, constitutional provision, or other action 
to operate educational programs beyond secondary education, including 
programs leading to a degree or certificate. If, in addition, the State 
has an applicable State approval or licensure process, the institution 
must also comply with that process to be considered legally authorized. 
However, an institution created by the State may be exempted by name 
from any State approval or licensure requirements based on the 
institution's accreditation by an accrediting agency recognized by the 
Secretary or based upon the institution being in operation for at least 
20 years.
    If the legal entity is established by a State as a business or a 
nonprofit charitable organization and not specifically as an 
educational institution, the State must have a separate procedure to 
approve or license the entity by name to operate programs beyond 
secondary education, including programs leading to a degree or 
certificate. For an institution authorized under these circumstances, 
the State may not exempt the entity from the State's approval or 
licensure requirements based on accreditation, years in operation, or 
other comparable exemption.
    The following chart and examples illustrate the basic principles of 
amended Sec.  600.9:

[[Page 66862]]



                                    Meets State Authorization Requirements\*\
----------------------------------------------------------------------------------------------------------------
            Legal entity                       Entity description               Approval or licensure process
----------------------------------------------------------------------------------------------------------------
Educational institution............  A public, private nonprofit, or for-   The institution must comply with any
                                      profit institution established by      applicable State approval or
                                      name by a State through a charter,     licensure process and be approved
                                      statute, or other action issued by     or licensed by name, and may be
                                      an appropriate State agency or State   exempted from such requirement
                                      entity as an educational institution   based on its accreditation, or
                                      authorized to operate educational      being in operation at least 20
                                      programs beyond secondary education,   years, or use both criteria.
                                      including programs leading to a
                                      degree or certificate.
Business...........................  A for-profit entity established by     The State must have a State approval
                                      the State on the basis of an           or licensure process, and the
                                      authorization or license to conduct    institution must comply with the
                                      commerce or provide services.          State approval or licensure process
                                                                             and be approved or licensed by
                                                                             name.
Charitable organization............  A nonprofit entity established by the  An institution in this category may
                                      State on the basis of an               not be exempted from State approval
                                      authorization or license for the       or licensure based on
                                      public interest or common good.        accreditation, years in operation,
                                                                             or a comparable exemption
----------------------------------------------------------------------------------------------------------------
*Notes:
 Federal, tribal, and religious institutions are exempt from these requirements.
 A State must have a process, applicable to all institutions except tribal and Federal institutions, to
  review and address complaints directly or through referrals.
 The chart does not take into requirements related to State reciprocity.

Examples
    Institutions considered legally authorized under amended Sec.  
600.9:
     A college has a royal charter from the colonial period 
recognized by the State as authorizing the institution by name to offer 
postsecondary programs. The State has no licensure or approval process.
     A community college meets the requirements based upon its 
status as a public institution.
     A nonprofit institution has State constitutional 
authorization by name as a postsecondary institution; State does not 
apply a licensure or approval process.
     A nonprofit institution has a State charter as a 
postsecondary institution. State law, without naming the institution, 
considers the institution to be authorized to operate in lieu of State 
licensure based on accreditation by a regional accrediting agency.
     An individual institution is owned by a publically traded 
corporation that is incorporated in a different State from where the 
institution is located. The institution is licensed to provide 
educational programs beyond the secondary level in the State where it 
is located.
     An institution is owned by a publicly traded corporation 
established as a business without the articles of incorporation 
specifying that the institution is authorized to offer postsecondary 
education, but the institution is licensed by the State to operate 
postsecondary education programs.
     An individual institution is owned by a publically traded 
corporation that is incorporated in a different State from where the 
institution is located. The State licenses the institution by name as a 
postsecondary institution.
     Rabbinical school awarding only a certificate of Talmudic 
studies has exemption as a religious institution offering only 
religious programs.
     Tribal institution is chartered by the tribal government.
    Institutions not considered legally authorized under amended Sec.  
600.9:
     An institution is a publicly traded corporation 
established as a business without the articles of incorporation 
specifying that it is authorized to offer postsecondary education, and 
the State has no process to license or approve the institution to offer 
postsecondary education.
     A nonprofit institution is chartered as a postsecondary 
institution. A State law considers the institution to be authorized 
based on accreditation in lieu of State licensure but the institution 
is not named in the State law and does not have a certification by an 
appropriate State official, e.g., State Secretary of Education or State 
Attorney General, that it is in compliance with the exemption for State 
licensure requirements.
     An institution is established as a nonprofit entity 
without specific authorization to offer postsecondary education, but 
State law considers the institution to be authorized based on it being 
in operation for over 30 years. The State Secretary of Education issues 
a certificate of good standing to the institution naming it as 
authorized to offer postsecondary education based on its years in 
operation.
     A Bible college is chartered as a religious institution 
and offers liberal arts and business programs as well as Bible studies. 
It is exempted by State law from State licensure requirements but does 
not meet the definition of a religious institution exempt from State 
licensure for Federal purposes because it offers other programs in 
addition to religious programs.
     An institution is authorized based solely on a business 
license, and the State considers the institution to be authorized to 
offer postsecondary programs based on regional accreditation.
    Comment: One commenter provided proposed wording to amend proposed 
Sec.  600.9(a)(1) to clarify that the State entity would include a 
State's legal predecessor. The commenter believed that the change was 
necessary to ensure that colonial charters would satisfy the State 
authorization requirement.
    Discussion: If a State considers an institution authorized to offer 
postsecondary education programs in the State based on a colonial 
charter that established the entity as an educational institution 
offering programs beyond the secondary level, the institution would be 
considered to meet the provisions of Sec.  600.09(a)(1)(i) of these 
final regulations so long as the institution also meets any additional 
licensure requirements or approvals required by the State.
    Changes: None.
    Comment: Several commenters expressed concern that all institutions 
within a State could lose title IV, HEA program eligibility at once and 
that the regulations put students at risk of harm through something 
neither they nor the institution can control.
    One commenter was concerned with how the Department would 
specifically assess State compliance with proposed Sec.  600.9. Another 
commenter believed

[[Page 66863]]

that the Department should accept State laws and regulations that can 
be reasonably interpreted as meeting the requirements of Sec.  600.9 
especially if State officials interpret their laws and regulations in 
such a manner.
    One commenter requested that the Department explain how it would 
address currently enrolled students if a State is deemed not to provide 
sufficient oversight in accordance with Federal regulatory 
requirements. Another commenter asked how the Department will avoid 
such negative consequences as granting closed school loan discharges 
for large numbers of enrolled students. One commenter requested that 
the Department provide for seamless reinstatement of full institutional 
eligibility when a State meets all eligibility requirements after 
losing eligibility.
    Discussion: We do not anticipate that all institutions in a State 
will lose title IV, HEA program assistance due to any State failing to 
provide authorization to its institutions under the regulations, 
because States may meet this requirement in a number of ways, and also 
with different ways for different types of institutions. If a State 
were to undergo a change that limited or removed a type of State 
approval that had previously been in place, it would generally relate 
to a particular set of institutions within a State. For example, a 
licensing agency for truck driving schools could lapse or be closed at 
a State Department of Transportation without providing another means of 
authorizing postsecondary truck driving programs. Only the eligibility 
of truck driving schools in the State would be affected under Sec.  
600.9 while the State could continue to be compliant for all other 
institutions in the State. It also seems likely that the State would 
consider alternate ways to provide State authorization for any 
institutions affected by such a change.
    We believe that the provisions in amended Sec.  600.9 are so basic 
that State compliance will be easily established for most institutions. 
The determination of whether an institution has acceptable State 
authorization for Federal program purposes will be made by the 
Department. We also note that the regulations permit a delayed 
effective date for this requirement under certain circumstances 
discussed below, and this delay will also limit the disruption to some 
institutions within a State.
    If an institution ceased to qualify as an eligible institution 
because its State legal authorization was no longer compliant with 
amended Sec.  600.9, the institution and its students would be subject 
to the requirements for loss of eligibility in subpart D of part 600 
and an institution would also be subject to Sec.  668.26 regarding the 
end of its participation in those programs. If an institution's State 
legal authorization subsequently became compliant with amended Sec.  
600.9, the institution could then apply to the Department to resume 
participation in the title IV, HEA program.
    Changes: None.
    Comment: Several commenters were concerned that students may lose 
eligibility for title IV, HEA program funds if a State is not compliant 
with proposed Sec.  600.9. Some commenters noted that States may have 
to take steps to comply, which may include making significant statutory 
changes, and the regulations therefore need to allow adequate time for 
such changes, reflecting the various State legislative calendars. In 
some cases, the commenters believed a State's noncompliance would be 
because the State could no longer afford to meet the provisions of 
proposed Sec.  600.9. One commenter believed that alternative pathways 
should be allowed for meeting State authorization and that States that 
exempt or grant waivers from licensing should be considered to fulfill 
requirements of proposed Sec.  600.9 and another questioned whether a 
State that is not in compliance would have an opportunity to cure 
perceived problems before all institutions operating in the State lost 
institutional eligibility.
    Discussion: We recognize that a State may not already provide 
appropriate authorizations as required by Sec.  600.9 for every type of 
institution within the State. However, we believe the framework in 
Sec.  600.9 is sound and provides a State with different ways to meet 
these requirements. Unless a State provides at least this minimal level 
of review, we do not believe it should be considered as authorizing an 
institution to offer an education program beyond secondary education.
    If a State is not compliant with Sec.  600.9 for a type or sector 
of institutions in a State, we believe the State and affected 
institutions will create the necessary means of establishing legal 
authorization to offer postsecondary education in the State in 
accordance with amended Sec.  600.9. However, in the event a State is 
unable to provide appropriate State authorizations to its institutions 
by the July 1, 2011 effective date of amended Sec.  600.9(a) and (b), 
we are providing that the institutions unable to obtain State 
authorization in that State may request a one-year extension of the 
effective date of these final regulations to July 1, 2012, and if 
necessary, an additional one-extension of the effective date to July 1, 
2013. As described in the section of the preamble entitled 
``Implementation Date of These Regulations,'' to receive an extension 
of the effective date of amended Sec.  600.9(a) and (b) for 
institutions in a State, an institution must obtain from the State an 
explanation of how a one-year extension will permit the State to modify 
its procedures to comply with amended Sec.  600.9.
    Changes: None.
    Comment: A few commenters requested that the Department identify, 
publish, and maintain a list of States that meet or do not meet the 
requirements. One commenter cited an analysis that estimated that 13 
States would comply with the proposed regulations upon implementation; 
6 States would clearly not be in compliance; and 37 States would likely 
have to amend, repeal, or otherwise modify their laws. One commenter 
requested data to be provided by the Department for each sector of 
postsecondary education, including how many States are out of 
compliance, how many institutions are within those States, and how many 
students are enrolled at those institutions.
    Discussion: We do not believe that there is a need to maintain and 
publish a list of States that meet, or fail to meet the requirements. 
States generally employ more than one method of authorizing 
postsecondary education. For example, a State may authorize a private 
nonprofit university through issuing a charter to establish the 
university, another private nonprofit college through an act of the 
State legislature, a for-profit business school through a State 
postsecondary education licensing agency, a cosmetology school through 
a State cosmetology board, and a truck-driving school through the 
State's Department of Transportation. We believe that an institution of 
whatever sector and type already is aware of the appropriate State 
authorizing method or methods that would establish the institution's 
legal authorization to offer postsecondary education and publication of 
any list is unnecessary.
    Changes: None.
    Comment: One commenter expressed concern with whether a State must 
regulate the activities of institutions and exercise continual 
oversight over institutions.
    Discussion: While a State must have a process to handle student 
complaints under amended Sec.  600.9(a) for all institutions in the 
State except Federal and tribal institutions, the regulations do not 
require, nor do they prohibit, any

[[Page 66864]]

process that would lead to continual oversight by a State.
    Changes: None.
    Comment: Several commenters expressed concern regarding the 
financial burden on the States to make changes in State laws and the 
amount of time that would be needed to make the necessary changes. 
Commenters feared that the States would most likely have to reduce 
further State tax subsidies provided to public institutions. As a 
result, costs will be increased for students at public institutions to 
cover lost revenues and increase costs for the title IV, HEA programs. 
One commenter stated that schools could delay progress of degree 
completion at State funded universities because they will be forced to 
reduce offerings.
    Discussion: We do not believe that it would impose an undue 
financial burden on States to comply with the provisions in Sec.  
600.9. In most instances we believe that a State will already be 
compliant for most institutions in the State or will need to make 
minimal changes to come into compliance. Thus, we do not agree with 
commenters who believed that the regulations would generally impact the 
funding of public institutions in a State or would necessitate a 
reduction in the offerings at public institutions.
    Changes: None.

Exemptions: Accreditation and Years of Operation

    Comment: Several commenters supported the existing practice by 
which a State bases an institution's legal authorization to offer 
postsecondary education upon its accreditation by a nationally 
recognized accrediting agency, i.e., an accrediting agency recognized 
by the Secretary. The commenters believed that proposed Sec.  600.9 
should be revised or clarified to permit existing practices allowing 
exemption by accreditation. Another commenter indicated that several 
States have exempted accredited institutions from State oversight 
unless those institutions run afoul of their accreditors' requirements. 
One commenter believed that proposed Sec.  600.9 would require the 
creation of unnecessary, duplicative, and unaffordable new 
bureaucracies, and recommended that its State should continue its 
partial reliance on nationally recognized accrediting agencies. Another 
commenter believed it appropriate that a State delegate some or all of 
its licensure function to a nationally recognized accrediting agency 
provided that the State enters into a written agreement with the 
accrediting agency.
    One commenter stated that the Department should eliminate the 
ambiguity about how much a State may rely on accrediting agencies. 
Several commenters stated that the regulations are confusing as to 
which exemptions are permissible and which are not. One commenter 
believed that the Department should make it clear that although a State 
is not prohibited from relying on accrediting agencies for quality 
assessments, the essential duties of State authorization cannot be 
collapsed into the separate requirement for accreditation.
    Some commenters noted that an institution's legal authorization may 
be based on a minimum number of years that an institution has been 
operating. One of the commenters cited a minimum number of years used 
by States that ranged as low as 10 years of operation while two other 
commenters noted that institutions had been exempted in their State 
because they had been in operation over 100 years and were accredited. 
The commenters believed that the Department should consider it 
acceptable for a State to rely on the number of years an institution 
has been operating.
    Some commenters did not think that States should be allowed to 
defer authorization to accrediting agencies. One of these commenters 
believed that basing State authorization on accreditation was contrary 
to law. One commenter believed that existing law makes clear that 
institutional eligibility for title IV, HEA programs is based on the 
Triad of accreditation, State authorization, and the Federal 
requirements for administrative capability and financial 
responsibility. As a result the commenter believed that the extent to 
which States may rely on accrediting agencies should be clear and 
limited. Along the same lines, another commenter believed strongly that 
accrediting agencies should never be allowed to grant authorization to 
operate in a State, and that further clarifications about the ways in 
which accrediting agencies may substitute for State agencies is 
necessary. One commenter encouraged the Department to study more 
carefully the role of State entities and accreditation agencies. 
Another commenter believed that relying on accrediting agencies to be 
surrogates for State authorization is inappropriate and should not be 
the sole determinant for authorization. One commenter stated that 
accreditation may not be accepted as a sufficient basis for granting or 
continuing authorization to operate and that the authorization process 
must be independent of any accreditation process or decision.
    One commenter believed that proposed Sec.  600.9 would undermine 
the role of accreditation and the public-private partnership and would 
call for States to intrude into academic areas. The commenter believed 
that the proposed regulations would move toward establishing 
accreditation as a State actor, a role that is incompatible with 
accreditation's commitment to self-regulation and peer and professional 
review. Another commenter believed that the Department should make it 
clear that although a State is not prohibited from relying on 
accrediting agencies for quality assessments, the essential duties of 
State authorization cannot be collapsed into the separate requirement 
for accreditation. If an institution's State and accrediting agency 
have different standards, one commenter was concerned regarding which 
entity's standards would be applied.
    Discussion: While we recognize and share the concerns of some 
commenters that States should not be allowed to defer authorization to 
accrediting agencies, we believe that such a practice would be 
permissible so long as it does not eliminate State oversight and 
clearly distinguishes the responsibilities of the State and accreditor 
under such an arrangement. We also do not agree that additional study 
is needed of the roles of State entities and accrediting agencies as we 
believe these relationships are well understood.
    We believe that accreditation may be used to exempt an institution 
from other State approval or licensing requirements if the entity has 
been established by name as an educational institution through a 
charter, statute, constitutional provision, or other action issued by 
an appropriate State entity to operate educational programs beyond 
secondary education, including programs leading to a degree or 
certificate. For such an educational institution, a State could rely on 
accreditation to exempt the institution from further approval or 
licensing requirements, but could not do so based upon a preaccredited 
or candidacy status.
    We also agree with the commenters that States may utilize an 
institution's years in operation to exempt it from State licensure 
requirements, but only, as with accreditation, for a legal entity that 
the State establishes as an educational institution authorized to offer 
postsecondary education. However, we believe that there should be a 
minimum standard for allowing years of operation to exempt an 
institution to ensure that this exemption is not set to a short period 
of time that would not provide a historical basis to

[[Page 66865]]

evaluate the institution. Based on our consideration of the public 
comment, we believe that standard should be at least 20 years of 
operation. As in the case of accreditation, such an exemption could 
only be used if the State has established the entity as an educational 
institution. As noted above, a State may use a separate process to 
recognize by name the entity as an educational institution that offers 
programs beyond the secondary level if an institution was not 
authorized by name to offer educational programs in its approval as a 
legal entity within a State. We note that a State may also base a 
licensing exemption on a combination of accreditation and the number of 
years an institution has been in operation, as long as the State 
requirements meet or exceed at least one of the two minimum 
requirements, that is, an institution must be fully accredited or must 
have been operating for at least 20 years.
    If an institution is established as a legal entity to operate as a 
business or charitable organization but lacks authorization to operate 
by name as an educational institution that offers postsecondary 
education, the institution may not be exempted from State licensing or 
approval based on accreditation, years in operation, or comparable 
exemption from State licensure or approval.
    We do not believe that permitting such exemptions from State 
licensing requirements will distort the oversight roles of the State 
and an accrediting agency. We believe these comments are based on a 
misunderstanding of the role of a State agency recognized by the 
Secretary under 34 CFR part 603 as a reliable authority regarding the 
quality of public postsecondary vocational education in its State. 
Public postsecondary vocational institutions are approved by these 
agencies in lieu of accreditation by a nationally recognized 
accrediting agency. As noted in the comments, there are overlapping 
interests among all members of the Triad in ensuring that an 
educational institution is operating soundly and serving its students, 
and a State may establish licensing requirements that rely upon 
accreditation in some circumstances.
    If an institution's State and accrediting agency have different 
standards, there is no conflict for purposes of the institution's legal 
authorization by the State, as the institution must establish its legal 
authorization in accordance with the State's requirements.
    Changes: We have amended proposed Sec.  600.9 to provide that, if 
an institution is an entity that is established by name as an 
educational institution by the State and the State further requires 
compliance with applicable State approval or licensure requirements for 
the institution to qualify as legally authorized by the State for 
Federal program purposes, the State may exempt the institution by name 
from the State approval or licensure requirements based on the 
institution's accreditation by one or more accrediting agencies 
recognized by the Secretary or based upon the institution being in 
operation for at least 20 years. If an institution is established by a 
State as a business or a nonprofit charitable organization, for the 
institution to qualify as legally authorized by the State for Federal 
program purposes, the State may not exempt the institution from the 
State's approval or licensure requirements based on accreditation, 
years in operation, or other comparable exemption.

Complaints

    Comment: An association of State higher education officials 
recommended that the States, through their respective agencies or 
attorneys general, should retain the primary role and responsibility 
for student consumer protection against fraudulent or abusive practices 
by postsecondary institutions. The commenter stated that handling 
complaints is not a role that can or should be delegated to 
nongovernmental agencies such as accrediting agencies, nor should it be 
centralized in the Federal Government. Another commenter asked about 
the role of State enforcement of laws unrelated to postsecondary 
institutions licensure such as a law related to fraud or false 
advertising. A few commenters asked for clarification as to whether 
State consumer protection agencies or State Attorneys General could 
retain the primary role for student consumer protection and handling 
student complaints. One commenter believed that the proposed 
regulations failed to address circumstances where the State licensure 
or approval agency and the agency handling complaints are different 
agencies.
    Several commenters recommended that the Department allow States to 
rely on accrediting agencies but require a memorandum of understanding 
with the accrediting association that would include, at a minimum, 
procedures for periodic reports on actions taken by the association and 
procedures for handling student complaints. One commenter strongly 
believed that accrediting agencies should never be allowed to handle 
complaints in lieu of the State.
    One commenter expressed concern that the Department is requiring 
States to serve as an additional check on institutional integrity, but 
believed that there would be no check on the State.
    One commenter from an accrediting agency believed that proposed 
Sec.  600.9(b)(3) is an unnecessary use of limited public resources, is 
impractical, and would be impractical and chaotic to administer. 
Several other commenters expressed concern that requiring States to act 
on complaints would be duplicative because 34 CFR 602.23 already 
requires accrediting agencies to have a process to respond to 
complaints regarding their accredited institutions. One commenter 
requested that the Department exempt public postsecondary institutions 
from the complaint processes. Otherwise, the commenter asked that the 
Department clarify that a State is permitted to determine whether an 
institution within its borders is sufficiently accountable through 
institutional complaint and sanctioning processes. One commenter 
requested that the Department clarify that student complaints unrelated 
to violations of State or Federal law are not subject to State process 
or reviewing and acting on State laws, instead the commenter believed 
that student complaints are appropriately addressed at the 
institutional level. A commenter questioned how the requirements for 
State review of complaints relate to student complaints about day-to-
day instruction or operations and whether the potential review process 
represents an expansion of State authority. The commenter believes that 
student complaints that are unrelated to violations of State or Federal 
law are appropriately addressed at the institutional level and thus not 
subject to the process for review of complaints included as part of 
proposed Sec.  600.9.
    One commenter suggested that the Department's Office of Ombudsman 
respond to student complaints as an alternative if a State does not 
have a process for complaints.
    Discussion: We agree with the commenters who believed that the 
States should retain the primary role and responsibility for student 
consumer protection against fraudulent or abusive practices by some 
postsecondary institutions. For an institution to be considered to be 
legally authorized to offer postsecondary programs, a State would be 
expected to handle complaints regarding not only laws related to 
licensure and approval to operate but also any other State laws 
including, for example, laws related to fraud or false advertising. We 
agree that a State may fulfill this role through a State agency or

[[Page 66866]]

the State Attorney General as well as other appropriate State 
officials. A State may choose to have a single agency or official 
handle complaints regarding institutions or may use a combination of 
agencies and State officials. All relevant officials or agencies must 
be included in an institution's institutional information under Sec.  
668.43(b). Directly relying on an institution's accrediting agency 
would not comply with Sec.  600.9(a)(1) of these final regulations; 
however, to the extent a complaint relates to an institution's quality 
of education or other issue appropriate to consideration by an 
institution's accrediting agency, a State may refer a complaint to the 
institution's accrediting agency for resolution. We do not believe it 
is necessary to prescribe memoranda of understanding or similar 
mechanisms if a State chooses to rely on an institution's accrediting 
agency as the State remains responsible for the appropriate resolution 
of a complaint. Section 600.9(a)(1) requires an institution to be 
authorized by a State, thus providing an additional check on 
institutional integrity; however, we do not believe there are 
inadequate checks on State officials and agencies as they are subject 
to audit, review, and State legislative action.
    We do not agree with the commenters that proposed Sec.  600.9(b)(3) 
would unnecessarily use State resources, be impractical, or be chaotic 
to administer. There are complaints that only a State can appropriately 
handle, including enforcing any applicable State law or regulations. We 
do not agree that public institutions should be exempt from this 
requirement as a complainant must have a process, independent of any 
institution--public or private, to have his or her complaint considered 
by the State. The State is not permitted to rely on institutional 
complaint and sanctioning processes in resolving complaints it receives 
as these do not provide the necessary independent process for reviewing 
a complaint. A State may, however, monitor an institution's complaint 
resolution process to determine whether it is addressing the concerns 
that are raised within it.
    We do not agree with the suggestions that the Department's Student 
Loan Ombudsman is an appropriate alternative to a State complaints 
process. The Ombudsman is charged, under the HEA, with the informal 
resolution only of complaints by borrowers under the title IV, HEA loan 
programs. By comparison, a State's complaint resolution process would 
cover the breadth of issues that arise under its laws or regulations.
    Changes: We have amended proposed Sec.  668.43(b) to provide that 
an institution must make available to a student or prospective student 
contact information for filing complaints with its accreditor and with 
its State approval or licensing entity and any other relevant State 
official or agency that would appropriately handle a student's 
complaint.
    Comment: One commenter believed that proposed Sec.  668.43(b) under 
which an institution must provide to students and prospective students 
the contact information for filing complaints with the institution's 
State approval or licensing entity should make allowance for situations 
in which a State has no process for complaints, or defers to the 
accrediting agency to receive and resolve complaints. Another commenter 
believed that, in the case of distance education, the institution 
should be responsible for responding to complaints. Instead of 
providing students and prospective students, under proposed Sec.  
668.43(b), the contact information for filing complaints with the 
institution's accrediting agency and State approval or licensing 
entity, the commenter recommended that the institution provide students 
with the institution's name, location, and Web site to file complaints.
    Discussion: We do not agree that proposed Sec.  668.43(b) needs to 
make allowance for an institution in a State without a process for 
complaints, since every State is charged with enforcing its own laws 
and no institution is exempt from complying with State laws. If no 
complaint process existed, the institution would not be considered to 
be legally authorized. With respect to an institution offering distance 
education programs, the institution must provide, under Sec.  
668.43(b), not only the contact information for the State or States in 
which it is physically located, but also the contact information for 
States in which it provides distance education to the extent that the 
State has any licensure or approval processes for an institution 
outside the State providing distance education in the State.
    Changes: None.

Reciprocity and Distance Education

    Comment: In general, commenters expressed concerns regarding legal 
authorization by a State in circumstances where an institution is 
physically located across State lines as well as when an institution is 
operating in another State from its physical location through distance 
education or online learning. One commenter urged the Department to 
include clarifying language regarding a State's ability to rely on 
other States' authorization in the final regulation rather than in the 
preamble. Several commenters requested that the Department limit the 
State authorization requirement in Sec.  600.9 to the State in which 
the institution is physically located. One commenter believed that a 
State should only be allowed to rely on another State's determination 
if the school has no physical presence in the State and the other 
State's laws, authority, and oversight are at least as protective of 
students and taxpayers. One commenter asked whether the phrase ``the 
State in which the institution operates'' is the same as ``where the 
institution is domiciled''. The commenter asked for clarification of 
the meaning of ``operate'' including whether it means where online 
students are located, where student recruiting occurs, where an 
instructor is located, or where fundraising activity is undertaken. One 
commenter requested that the Department clarify and affirm that 
reciprocity agreements that exist between States with respect to public 
institutions operating campuses or programs in multiple States are not 
impacted by these regulations. Another commenter believed that the 
Department should issue regulations rather than merely provide in the 
preamble of the NPRM that a State is allowed to enter into an agreement 
with another State. One commenter asked whether an institution that 
operates in more than one State can rely on an authorization from a 
State that does not meet the authorization requirements. One commenter 
urged the Department to clarify that States may rely on the 
authorization by other States, particularly as it relates to distance 
education. One commenter stated that the proposed regulations would be 
highly problematic for students who transfer between different States. 
Another commenter feared that large proprietary schools that are 
regional or national in scope would likely lobby States to turn over 
their oversight to another State where laws, regulations, and oversight 
are more lax. Another commenter was concerned that for-profit 
institutions may lobby a State to relinquish its responsibilities to a 
State of those institutions' choosing. This situation could result in a 
State with little regulation that is home to a large for-profit 
institution actually controlling policies in many States where the 
corporation does business. One commenter suggested that if an 
institution is not physically located in a State, the State could enter 
into an agreement with other States where the

[[Page 66867]]

institution does have physical locations to rely on the information the 
other States relied on in granting authority. In this case, the 
commenter recommended that the oversight be at least as protective of 
students and the public as those of the State, and the State should 
consider any relevant information it receives from other sources. 
However, the commenter thought the State should retain authority to 
take independent adverse action including revoking the authority to 
offer postsecondary programs in the State. Another commenter expressed 
concern that the proposed regulations would confuse and burden the 
States and institutions because they are not clear regarding whether a 
State can continue to rely on the authorization of another State. The 
commenter believed that without clarification, an institution that 
offers education to students located in other States might be 
needlessly burdened with seeking authorization from each of those 
States. Another commenter expressed concern that the proposed 
regulations could potentially require an institution offering distance 
education courses in 50 different States to obtain authorization in 
each State, which would be an administrative burden that could result 
in increased tuition fees for students. Another commenter stated that 
during the negotiations, the Department indicated it was not its intent 
to require authorization in every State. Therefore, the commenter urged 
the Department to include this policy expressly in the final 
regulations.
    Discussion: We agree with the commenters that further clarification 
is needed regarding legal authorization across State lines in relation 
to reciprocity between States and to distance education and 
correspondence study. In making these clarifications, we are in no way 
preempting any State laws, regulations, or other requirements 
established by any State regarding reciprocal agreements, distance 
education, or correspondence study.
    To demonstrate that an institution is legally authorized to operate 
in another State in which it has a physical presence or is otherwise 
subject to State approval or licensure, the institution must 
demonstrate that it is legally authorized by the other State in 
accordance with Sec.  600.9. We continue to believe that we do not need 
to regulate or specifically authorize reciprocal agreements. If both 
States provide authorizations for institutions that comply with Sec.  
600.9 and they have an agreement to recognize each other's 
authorization, we would consider the institution legally authorized in 
both States as long as the institution provided appropriate 
documentation of authorization from the home State and of the 
reciprocal agreement. In addition, the institution must provide the 
complaint contact information under 34 CFR 668.43(b) for both States.
    If an institution is offering postsecondary education through 
distance or correspondence education in a State in which it is not 
physically located, the institution must meet any State requirements 
for it to be legally offering distance or correspondence education in 
that State. An institution must be able to document upon request from 
the Department that it has such State approval.
    A public institution is considered to comply with Sec.  600.9 to 
the extent it is operating in its home State. If it is operating in 
another State, we would expect it to comply with the requirements, if 
any, the other State considers applicable or with any reciprocal 
agreement between the States that may be applicable.
    Changes: We have revised Sec.  600.9 to clarify in paragraph (c) 
that, if an institution is offering postsecondary education through 
distance or correspondence education to students in a State in which it 
is not physically located, the institution must meet any State 
requirements for it to be legally offering postsecondary distance or 
correspondence education in that State. We are further providing that 
an institution must be able to document upon request by the Department 
that it has the applicable State approval.

State Institutions

    Comment: Many commenters requested that public institutions be 
exempted from the proposed regulations. They were concerned that 
requiring States to reexamine their State authorization for public 
colleges would not be a good use of resources. One commenter requested 
that the Department explicitly state that public institutions are by 
definition agents of the State and thus need no further authorization. 
One commenter from a State university system believed that the Federal 
Government should not impose a uniform model with ``one size fits all 
States.'' Another commenter noted that a State may not have legal power 
over decisions made by authorities given under the State's constitution 
for oversight of certain public postsecondary institutions. One 
commenter believed that public institutions should be exempt from the 
proposed requirements for adverse actions and complaint processes.
    Discussion: As instrumentalities of a State government, State 
institutions are by definition compliant with Sec.  600.9(a)(1)(i), and 
no exemption from the provisions of Sec.  600.9 of these final 
regulations is necessary. We do not agree that State institutions 
should be exempt from the requirement that a State have a process to 
review and appropriately act on complaints concerning an institution. 
We believe that students, their families, and the public should have a 
process to lodge complaints that is independent of an institution.
    Changes: None.

Religious Institutions

    Comment: Two commenters requested a definition of the term 
religious institution. One of these commenters felt strongly that a 
religious exemption must be tailored to prevent loopholes for abuse but 
needed to offer an alternative for religious institutions so that 
changes to a State's constitution would not be necessary. The commenter 
suggested that a religious institution should be exempted if the 
institution is owned, controlled, operated, and maintained by a 
religious organization lawfully operating as a nonprofit religious 
corporation pursuant to the Internal Revenue Code and meets the 
following requirements:
     Instruction is limited to the principles of that religious 
organization.
     A diploma or degree awarded by the institution is limited 
to evidence of completion of that education.
     The institution offers degrees and diplomas only in the 
beliefs and practices of the church, religious denomination, or 
religious organization.
     The institution does not award degrees in any area of 
physical science.
     Any degree or diploma granted by the institution contains 
on its face, in the written description of the title of the degree 
being conferred, a reference to the theological or religious aspect of 
the degree's subject area.
     A degree awarded by the institution reflects the nature of 
the degree title, such as ``associate of religious studies,'' 
``bachelor of religious studies,'' ``master of divinity,'' or ``doctor 
of divinity.''
    Discussion: We agree with the commenters that a definition of a 
religious institution is needed to clarify the applicability of a 
religious exemption. We also agree that a modification to the proposed 
regulations is needed to allow a State to provide an exemption to 
religious institutions without requiring the State to change its 
constitution.
    Changes: We have expanded Sec.  600.9(b) to provide that an 
institution is considered to be legally authorized by the State if it 
is exempt from State

[[Page 66868]]

authorization as a religious institution by State law in addition to 
the provision of the proposed regulations that the exemption by law, or 
exempt under the State's constitution. We have also included a 
definition of a religious institution, which provides that an 
institution is considered a religious institution if it is owned, 
controlled, operated, and maintained by a religious organization 
lawfully operating as a nonprofit religious corporation and awards only 
religious degrees or religious certificates including, but not limited 
to, a certificate of Talmudic studies, an associate of biblical 
studies, a bachelor of religious studies, a master of divinity, or a 
doctor of divinity. We note, however, that a religious institution is 
still subject to the requirement in Sec.  600.9(a)(1) of these final 
regulations that, for the institution to be considered to be legally 
authorized in the State, the State must have a process to review and 
appropriately act on complaints concerning the institution.

Tribal Institutions

    Comment: One commenter suggested the Department should exempt from 
State authorization any institution established and operated by tribal 
governments. Three commenters stated that the Department should 
recognize that tribal institutions would not be subject to State 
oversight but instead the tribe would exercise oversight. One of those 
commenters suggested amending the regulations to add ``tribal 
authority'' wherever State authority is mentioned in the proposed 
regulations.
    Discussion: We agree that tribal institutions are not subject to 
State oversight for institutions operating within tribal lands. 
Proposed Sec.  600.9(a)(2) provided that a tribal college would be 
considered to meet the basic provisions of proposed Sec.  600.9(a)(1) 
if it was authorized to offer educational programs beyond secondary 
education by an Indian tribe as defined in 25 U.S.C. 1802(2). However, 
proposed Sec.  600.9(b), could be read as inappropriately making a 
tribal institution subject to adverse actions by the State and a State 
process for handling student complaints. We did not intend to make a 
tribal institution subject to any State process for handling complaints 
and have clarified the language in Sec.  600.9. If a tribal college is 
located outside tribal lands within a State, or has a physical presence 
or offers programs to students that are located outside tribal lands in 
a State, the tribal college must demonstrate that it has the applicable 
State approvals needed in those circumstances.
    Changes: Section 600.9 has been revised to clarify the status of 
tribal institutions. As noted elsewhere in this preamble, we have 
removed proposed Sec.  600.9(b)(2) regarding adverse actions. Further, 
we are providing that, in Sec.  600.9(a)(2)(ii) of the final 
regulations, the tribal government must have a process to review and 
appropriately act on complaints concerning a tribal institution and 
enforce applicable tribal requirements or laws.

Part 668 Student Assistance General Provisions Retaking Coursework 
(Sec.  668.2)

    Comment: Many commenters agreed with the Secretary's proposal to 
amend the definition of full-time student in Sec.  668.2(b) to allow 
repeated coursework to count towards a student's enrollment status in 
term-based programs. The commenters believed the change would alleviate 
the administrative burden related to tracking student coursework to 
prevent payment based on repeated coursework, as is currently required.
    Discussion: The Department agrees with the commenters that amending 
the definition of full-time student in Sec.  668.2(b) will be 
beneficial for students who retake coursework.
    Changes: None.
    Comment: Several commenters asked the Department to clarify whether 
amending the definition of full-time student will apply to all 
students, regardless of their enrollment status, including less-than-
half-time, half-time, and three-quarter-time enrollment statuses.
    Discussion: Less-than-half-time, half-time, and three-quarter-time 
statuses are generally defined in relation to the definition of a full-
time student. In Sec.  668.2 half-time and three-quarter-time statuses 
generally are defined as at least one-half and three quarters of the 
academic workload of a full-time student, respectively. Less-than-half-
time status is not defined, as the term is self-explanatory in its 
relationship to half-time and full-time statuses. Thus, including this 
provision in the definition of full-time student will apply to less-
than-full-time students who are enrolled in term-based programs.
    Changes: None.
    Comment: Some commenters asked the Department to allow early 
implementation of this retaking coursework provision, because the 
Department's current guidance in the Federal Student Aid Handbook does 
not provide for this benefit.
    Discussion: We have determined, as a general policy, that no 
provisions of these final regulations should be designated for early 
implementation. We will update the Handbook for the 2011-2012 award 
year to reflect the amended definition of full-time student in these 
final regulations.
    Changes: None.
    Comment: Some commenters questioned whether institutions may 
continue to set their own policy in regards to retaking coursework and 
awarding credits for repeated coursework. One commenter asked the 
Department to clarify if the proposed regulation on retaking coursework 
would allow a student to repeat courses already passed to achieve a 
higher grade. Another commenter asked the Department to clarify whether 
a student who has already earned the maximum number of remedial courses 
allowed could be paid to retake coursework if the student repeats more 
remedial courses.
    Discussion: In general, the regulations do not affect an 
institution's policies governing whether a student may retake 
coursework in term-based programs, including repeating courses to 
achieve a higher grade, as these regulations apply only to determining 
enrollment status for title IV, HEA program purposes. Moreover, the 
regulations do not limit an institution's ability to establish policies 
for title IV, HEA program purposes to the extent those policies are not 
in conflict with title IV, HEA program requirements. However, with 
respect to repeating coursework previously passed by a student in a 
term-based program, the student's enrollment status for title IV, HEA 
purposes may include any coursework previously taken in the program, 
but we are limiting the provision so that it may not include more than 
one repetition of a previously passed course or any repetition of 
previously passed coursework that would be taken due to a student's 
failure of other coursework. In other words, an institution may pay a 
student one time for retaking previously passed coursework if, for 
example, the student needed to meet an academic standard for that 
particular course, such as a minimum grade. Conversely, an institution 
may not pay a student for retaking previously passed courses if the 
student is required to retake those courses because the student failed 
a different course in a prior term. For example, if a student enrolls 
in four classes in the fall semester and passes three of them, the 
institution could require the student to retake the failed class and 
also require the student to retake the other three classes because of 
failing the one class. If the student retakes the four classes in the 
spring semester, the failed class would be included in the student's 
enrollment

[[Page 66869]]

status, but the three classes passed in the fall would not be included 
in determining the student's enrollment status for the spring semester 
for purposes of the title IV, HEA programs. We believe these revisions 
are necessary to limit potential abuse from courses being retaken 
multiple times, while providing institutions sufficient flexibility to 
meet the needs of most students.
    We would also note that an institution's satisfactory academic 
progress policy could further limit a student from retaking coursework, 
because the credits associated with any course the student retakes 
count toward the maximum time-frame requirement.
    The regulations do not affect the one-year academic limitation on 
noncredit and reduced-credit remedial coursework under Sec.  668.20(d) 
and (f). For example, if a student repeats a remedial course that 
exceeds the one-year limitation, the course could not be considered in 
the student's enrollment status.
    Changes: We have revised the definition of full-time student in 
Sec.  668.2(b) to provide that a student's enrollment status for a 
term-based program may include repeating any coursework previously 
taken in the program but may not include more than one repetition of a 
previously passed course, or any repetition of a previously passed 
course due to the student's failing other coursework.
    Comment: One commenter recommended that the change in the 
definition of full-time student should be expanded to include 
nonstandard-term and nonterm programs.
    Discussion: Since the change in the definition applies to all term-
based programs, the change would apply to standard terms, including 
semesters, trimesters, and quarters, as well as nonstandard terms. 
Under the definition of a nonterm payment period in Sec.  668.4(c), a 
student's coursework is divided into payment periods based on the hours 
and weeks of instructional time in the program. In general, under these 
nonterm provisions a student must successfully complete the credit or 
clock hours in a payment period to advance to the next payment period, 
and may not be paid for repeating coursework regardless of whether the 
student successfully completed it unless the provisions of Sec.  
668.4(g) apply.
    Changes: None.

Written Arrangements (Sec. Sec.  668.5 and 668.43)

General

    Comment: Several commenters agreed with the proposed regulations 
relating to written arrangements. One commenter commended the 
Department's proposals on this topic, noting that they strike a fair 
balance in the presence of many minutia-driven concerns. Some 
commenters stated that the proposed changes eliminate inconsistencies 
that exist in the current regulations and provide better information to 
students while allowing institutions to determine the best way to 
disseminate the required information. Other commenters stated that they 
agreed with the proposed changes in Sec. Sec.  668.5 and 668.43 because 
if an eligible institution enters into a written arrangement with 
another eligible institution, under which the other eligible 
institution provides part of the educational program to students 
enrolled in the first institution, it is important for all parties to 
have a clear understanding of which institution is providing the 
credential and the majority of the education and training.
    Discussion: We appreciate the commenters' support of the proposed 
changes reflected in Sec. Sec.  668.5 and 668.43.
    Changes: None.

Written Arrangements Between Two or More Eligible Institutions (Sec.  
668.5(a))

    Comment: Some commenters objected to the Department's assertion--in 
the preamble of the NPRM (75 FR 34806, 34815)--that students who want 
to take more than 50 percent of an educational program at another 
institution could transfer to the institution that provides the 
preponderance of the program's coursework. One commenter stated that 
students should be allowed to take courses at more than one campus of 
eligible institutions that have a written arrangement without needing 
to go through unnecessary activities related to transfer of credit.
    Several commenters disagreed with the proposed changes reflected in 
Sec.  668.5(a)(2)(ii). First, they argued that imposing a limitation on 
the portion of an educational program one institution can provide under 
a written arrangement is not consistent with the purpose of consortium 
agreements, which is to allow students to obtain a degree or 
certificate from their institution of choice while allowing them to 
satisfy course requirements by taking courses delivered by another 
institution. Second, the commenters disagreed with the limitation 
because we do not place similar restrictions on institutions when they 
accept transfer students who have earned more than half of the credits 
that will go toward their educational program at another institution. 
Finally, the commenters argued that more students are attending 
multiple institutions before completing their degree or certificate 
programs and a requirement that the credential-granting institution 
must provide 50 percent of the individual student's educational program 
would be a barrier to the students' postsecondary success.
    In addition, a few commenters noted that current articulation 
agreements allow students to further their education at another 
institution that may accept enough credits on transfer that the student 
has less than 50 percent of the program remaining to be completed. Some 
commenters expressed the view that the proposed regulations governing 
written arrangements should not apply to articulation agreements while 
others sought clarification of whether the Department's position is 
that they do apply to such agreements. Commenters expressed concern 
that the proposal would result in undue hardship and fewer 
opportunities for students in small communities who take a portion of 
their coursework locally. One commenter asked whether the proposed 
changes reflected in Sec.  668.5 affect students who obtained college 
credit while still in high school.
    Discussion: There appears to be some confusion about the scope of 
the proposed changes to Sec.  668.5. Under proposed Sec.  668.5(a)(1), 
eligible institutions that are not under common ownership may enter 
into a written arrangement (which may include the type of consortium 
agreements mentioned by the commenters) under which the non-degree-
granting institution offers part of the degree-granting institution's 
educational program; this provision does not impose a specific 
limitation on the portion of the educational program that may be 
offered by the non-degree-granting institution. In contrast, under 
proposed Sec.  668.5(a)(2)(ii), if a written arrangement is between two 
or more eligible institutions that are under common ownership (i.e., 
are owned or controlled by the same individual, partnership or 
corporation), the degree- or certificate-granting institution must 
provide more than 50 percent of the educational program. In this 
situation, a student is considered a regular student at the degree- or 
certificate-granting institution while taking a portion of the 
educational program at another institution under common ownership. 
Under this regulatory framework, a consortium agreement between two 
eligible institutions that are not under common ownership is not 
subject to the 50 percent limitation in Sec.  668.5(a)(2)(ii).
    Moreover, Sec.  668.5(a) does not apply to articulation agreements 
under which

[[Page 66870]]

institutions agree to accept credits when students transfer from one 
institution to another, or to cases where individual students transfer 
to a different institution to complete their educational programs. 
Students who enroll in an institution and have college credits accepted 
on transfer that were earned while in high school also do not come 
within the scope of this regulation.
    Changes: None.
    Comment: A number of commenters disagreed with proposed Sec.  
668.5(a)(2), which has the effect of limiting the relative portions of 
an educational program provided by more than one institution under the 
same ownership or control. Some commenters argued that the limit is 
arbitrary and inappropriate because--for all intents and purposes--
institutions under common ownership are the same. A few commenters 
suggested that the regulations should focus more narrowly on the 
institutions with problems as opposed to all institutions under common 
ownership. Some commenters were unclear about what constitutes ``common 
ownership'' and what types of written arrangements are subject to the 
50 percent limitation in Sec.  668.5(a)(2)(ii).
    Some commenters indicated that the proposed regulations should 
apply to all institutions and not apply only to for-profit 
institutions. Several commenters expressed concern about the 
applicability of this provision to the many written arrangements 
between public institutions within a State and whether a State is 
considered to ``own'' all of its institutions. Other commenters asked 
the Department to clarify that public and private nonprofit 
institutions are not covered by the proposed language in Sec.  
668.5(a)(2).
    In addition, commenters raised concerns about the potential impact 
these regulations could have on students who move to another area and 
want to transfer to another location of the same institution. One 
commenter stated that the proposed change would discourage students who 
finish a program from transferring to another institution under the 
same control for a higher level program.
    Some commenters objected to the Department's assertions in the 
preamble of the NPRM that written arrangements are used by institutions 
under common ownership to circumvent other regulations and argued that 
the Department provided only anecdotal evidence to support the proposed 
changes in Sec.  668.5. Commenters stated that institutions that are 
circumventing the current regulations will find other opportunities to 
do so and should face sanctions under the misrepresentation provisions.
    Discussion: As indicated in the preamble to the NPRM, the 
Department focused its regulatory changes on the types of institutions 
and situations where problems have been identified rather than 
expanding a requirement for accrediting agencies to review written 
arrangements between institutions under common ownership. We modeled 
these regulations on the language in Sec.  668.5(c)(3)(ii)(B), 
regarding written arrangements between an eligible institution and an 
ineligible institution or organization because that section of the 
regulations refers to institutions that are owned or controlled by the 
same individual, partnership, or corporation.
    We do not agree with the commenter who stated that the regulations 
are arbitrary and inappropriate because institutions under common 
ownership are the same entity. This is because institutions are 
approved to participate in the Federal student aid programs as separate 
entities, and they must individually demonstrate eligibility as an 
institution, eligibility for the programs they offer, program 
compliance, cohort default rates, financial responsibility, and 
administrative capability. Some limitations on institutions that are 
based on program measures can be circumvented if programs that appear 
to be offered by one institution are actually offered by another 
institution. The prohibition in this regulation will ensure that the 
institution providing most of the program will be the one associated 
with the students that are taking the program.
    Section 668.5(a)(2) does not apply to public or private nonprofit 
institutions because these institutions are not owned or controlled by 
other entities and generally act autonomously. Some nonprofit 
institutions may have business relationships through management 
agreements or service agreements where similar concerns could arise, 
but those instances are expected to be infrequent and will be addressed 
on a case-by-case basis.
    These provisions do not impact the ability of individual students 
to transfer to another location of the same institution or to another 
institution under the same ownership or control either to complete an 
educational program or to enroll in a higher-level program. When a 
student transfers to a new institution and enrolls for the purpose of 
completing a degree or certificate, the new institution becomes the 
degree-granting institution.
    We agree that institutions that circumvent or otherwise violate 
regulations should face appropriate sanctions.
    Changes: None.
    Comment: A number of commenters supported the proposed changes to 
Sec.  668.5 regarding the limitations on the portion of the educational 
program that may be offered by another institution under a written 
arrangement, but sought clarification on how to measure portions of 
educational programs for these purposes. These commenters suggested 
that, for the purposes of determining the percentage of the educational 
program provided by each institution, we should track the provision of 
educational services on a programmatic basis rather than by the amount 
of coursework an individual student may elect to take.
    Discussion: For purposes of determining the portions of the 
educational program provided by each institution under any written 
arrangement under Sec.  668.5, the degree-granting institution is 
responsible for limiting the amount of the program that may be taken 
from any other institution.
    Because an institution cannot offer more than 50 percent of an 
educational program through another institution that is under common 
ownership or control, if an institution offered an educational program 
on campus and online (through a written arrangement with another 
institution under common ownership) and offered students the option of 
taking courses by either method, the institution must ensure that each 
student completes more than 50 percent of the educational program on 
campus. If the same institution enrolled students who live beyond a 
reasonable commuting distance to the campus and, therefore, take the 
online portion of the program first, the institution must be able to 
demonstrate that the students intend to attend on campus to complete at 
least 50 percent of their educational program.
    Changes: None.
    Comment: Some commenters agreed that the institution that grants 
the degree or certificate should provide more than 50 percent of the 
educational program, but suggested that monitoring for compliance with 
this regulatory provision should be done by accrediting agencies rather 
than the Department. These commenters noted that to the extent that 
written arrangements are part of a deliberative process related to the 
development of curriculum and academic requirements, they are part of a 
decision-making process best performed by an institution's faculty and 
leadership and best evaluated by accrediting agencies. Some commenters 
stated that the Department should rely on accrediting agencies to set 
appropriate limits on the portion of an

[[Page 66871]]

educational program that can be provided by the non-degree-granting 
institution. One commenter stated that, currently, some national 
accrediting agencies allow students the opportunity to take more than 
50 percent of their educational program from the non-degree-granting 
institution.
    Discussion: We acknowledge the important role that an institution's 
faculty and leadership play in the development of written arrangements 
as well as the role of accrediting agencies in monitoring the use of 
such arrangements in accordance with their standards. However, as we 
learned during negotiations, accrediting agencies have differing 
practices concerning the review of written arrangements, and some 
accrediting agencies do not routinely review written arrangements. As 
such, we believe that it is important to establish a threshold for the 
amount of the educational program that can be offered under a written 
arrangement by an institution under common ownership with a host 
institution. Accrediting agencies may establish a more restrictive 
measure if they wish to do so.
    Changes: None.
    Comment: One commenter expressed concern that proposed Sec.  
668.5(a) would affect the Service Members Opportunity College Army 
Degree (SOCAD) Institution Agreements currently in place, which allow 
75 percent of an educational program to be provided by the non-degree-
granting institution. However, the Contract Administrator of SOCAD 
provided a separate comment stating that the proposed regulations would 
not affect the current relationships provided to members of the 
military.
    Discussion: As noted earlier, the proposed limitations in Sec.  
668.5(a)(2) apply only to written arrangements between two or more 
eligible institutions that are owned or controlled by the same 
individual, partnership, or corporation. To the extent that the 
eligible institutions that participate in SOCAD are not owned or 
controlled by the same individual, partnership, or corporation, they 
are not subject to the proposed changes in Sec.  668.5(a)(2).
    Changes: None.
    Comment: One commenter supported the clarification that the 
enrolling institution has all the necessary approvals to offer an 
educational program in the format in which it is being provided. 
Another commenter argued that it is nonsensical to require the 
enrolling institution to have all the same approvals as the providing 
institution. The commenter stated that written arrangements exist to 
permit flexibility for students and additional options for students in 
pursuing their education goals. One of the benefits of such 
arrangements, argued the commenter, is to provide student access to 
learning resources and opportunities that the degree-granting 
institution cannot provide. For example, written arrangements may 
afford students access to online learning from an institution with 
demonstrated competencies in providing distance education. Our 
clarification in the preamble to the NPRM that the institution 
enrolling the student must have the approval to offer an education 
program in the format in which it is being offered limits the ability 
for campus-based schools to offer cutting-edge online delivery methods 
for some programs even when these online courses are provided by 
affiliated and fully accredited institutions. One commenter argued that 
the Department had failed to provide data to support this limitation. 
Another commenter suggested that there should be a transition or grace 
period to allow institutions to get any needed approvals.
    Discussion: We agree that written arrangements are designed to 
provide educational flexibility for students and to allow them access 
to resources and opportunities that may not be available from their 
degree-granting institution. However, we believe that it is important 
that the degree-granting institution have all the necessary approvals 
to offer the educational program in the format in which it is being 
offered. We note that only in cases in which an institution is offering 
more than 50 percent of an educational program through distance 
education is the institution required to receive approval from its 
accrediting agency to offer distance education. Therefore, a student 
who is taking only a few courses online as part of a written 
arrangement would not be likely to trigger the requirement that an 
institution seek approval from its accrediting agency to offer distance 
education. We do not see a need for a transition or grace period to 
allow institutions to get any needed approvals because we believe that 
most institutions already have the necessary approvals in place.
    Changes: None.

Requirements for Arrangements Between Eligible Institutions and 
Ineligible Institutions or Organizations (Sec.  668.5(c))

    Comment: One commenter supported the expansion of the list of 
conditions that preclude an arrangement between an eligible institution 
and an ineligible entity reflected in proposed Sec.  668.5(c). Another 
commenter stated that the list of exclusions in proposed Sec.  668.5(c) 
is overly broad. This commenter agreed with the Department's intent but 
pointed out that denial of recertification (Sec.  668.5(c)(iv)) may be 
due to a factor such as program length. The commenter suggested that we 
narrow Sec.  668.5(c)(iv) to cover only denials of recertification that 
are based on the institution's lack of administrative capability or 
financial responsibility.
    Discussion: We appreciate the support for the expansion of the list 
of conditions that preclude an arrangement between an eligible 
institution and an ineligible entity reflected in Sec.  668.5(c). We 
disagree with the commenter who recommended that we limit the denial of 
recertification condition to cover only those recertification denials 
that are based on the institution's lack of administrative capability 
or financial responsibility. An institution that has its 
recertification denied because it does not offer one or more programs 
of sufficient length to qualify to participate in the Title IV, HEA 
programs has committed a serious programmatic violation that the 
Department believes should be included in this prohibition.
    Changes: None.

Disclosures to Students (Sec. Sec.  668.5(e) and 668.43(a)(12))

    Comment: Several commenters supported the requirement that 
institutions providing an educational program under Sec.  668.5(a), 
(b), or (c) inform students when part of their educational program is 
provided by a different institution and of additional charges that the 
student may incur when enrolling in an educational program that is 
provided in part by another institution. They noted that all 
communication to students should be clear, user-friendly, and 
understandable. One commenter suggested that we revise Sec.  
668.43(a)(12)(ii) to require the institution to include in its 
description of its written arrangements the Web sites along with the 
names and locations of the other institutions or organizations that are 
providing the portion of the educational program that the degree- or 
certificate-granting institution is not providing. Another commenter 
asked whether Sec.  668.43(a)(12)(iv) requires the institution to 
include in its description of its written arrangements an estimate of 
the costs incurred by students taking online courses (e.g., the costs 
of purchasing a computer and obtaining Internet access).
    A few commenters requested clarification on whether the required 
student notifications apply only to educational programs that require

[[Page 66872]]

students to take coursework at another institution or whether they 
apply to institutions that enter into arrangements when students choose 
to take coursework at another institution. The commenters stated that 
if the notifications apply to both situations, the regulations would 
create an overwhelming burden for institutions. These commenters 
expressed concern that this burden would result in institutions 
limiting the use of written arrangements and that this, in turn, would 
result in less choice for students.
    Discussion: We appreciate the support for requiring additional 
disclosures regarding the portion of a program being provided by a 
different institution and the additional costs that a student may incur 
under such an arrangement. We agree that these disclosures should be 
clear and understandable. While we agree that providing the Web site of 
the non-degree-granting institution in the disclosures may be helpful 
to students, on balance, we determined that requiring that particular 
disclosure is not necessary and that the decision to include such 
information in the disclosure should be left to the degree-granting 
institution's discretion.
    As noted by the commenters, the required disclosures include 
disclosure of the estimated additional costs students may incur as the 
result of enrolling in an educational program that is provided, in 
part, under a written arrangement. Therefore, when the coursework 
provided through the written arrangement is provided online, it would 
be appropriate to include estimated additional costs such as the costs 
of purchasing a computer and obtaining Internet access.
    As stated in the preamble to the NPRM, the disclosure requirements 
reflected in Sec. Sec.  668.5(e) and 668.43(a)(12) apply to written 
arrangements between or among institutions under which the degree-
granting institution can offer educational programs that are provided, 
in part, by another institution (i.e., on an educational program-by-
program basis) and not to individual, student-initiated written 
arrangements. We acknowledged that requiring disclosures to individual, 
student-initiated written arrangements would be impractical, burdensome 
and unnecessary because the student is a party to the arrangement and 
would already have the information required to be disclosed.
    Changes: None.

Incentive Compensation (Sec.  668.14(b))

General

    Comment: A significant number of commenters supported the 
Secretary's proposed changes to Sec.  668.14(b)(22), which they stated 
would align the regulations with the statute and comprehensively ban 
the use of commissions, bonuses, and other direct forms of compensation 
based on success in securing enrollments or the award of financial aid. 
These commenters supported our efforts to ensure the integrity of the 
Federal student aid programs and to protect students against aggressive 
admissions and recruitment practices. They agreed that the current 
regulations, which included the language describing permitted 
compensation activities (i.e., ``safe harbors''), did not achieve the 
goals intended by the Congress. These commenters expressed the belief 
that the current safe harbors enable institutions to circumvent the 
law.
    Several commenters stated that the proposed definitions reflected 
in Sec.  668.14(b)(22)(iii) would be particularly helpful and expressed 
appreciation for our readiness to provide broad and appropriate 
guidance to institutions, rather than opinions on an individual 
institution's arrangements, in evaluating compensation issues.
    Numerous commenters, particularly groups representing admissions 
counselors, specifically supported the deletion of the twelve safe 
harbors. The groups representing admissions counselors stated that they 
believe that counselors should be compensated in the form of a fixed 
salary. They further argued that because the admissions profession is a 
form of counseling, admissions professionals can only discharge their 
ethical obligations if they are free of vested interests in the 
enrollment decisions made by the prospective students they advise. The 
commenters representing admissions personnel also noted that 
elimination of the safe harbors would help prevent a recruiter's 
financial interest from overriding a student's academic interest.
    Discussion: The Secretary appreciates the support offered by the 
commenters.
    Changes: None.
    Comment: A number of commenters who expressed support for the 
Secretary's goal in proposing changes to Sec.  668.14(b)(22) requested 
modifications to the regulatory language or to the preamble discussion. 
The majority of these commenters requested clarifications to assist 
institutions in understanding whether particular compensation 
activities would be prohibited under proposed Sec.  668.14(b)(22).
    Many commenters opposed the proposed changes and appealed for the 
Department to retain the current safe harbors. They challenged the 
legal adequacy of the changes and asserted that the need for the 
proposed changes remained unsupported by any evidence or data. Some 
commenters alleged that the Department had failed to specify sound 
reasons for the change in policy and instead had offered nonspecific 
references to its reviews of compensation practices and expenditures of 
resources.
    Other commenters asked whether all payments permitted under the 
current safe harbors would be prohibited under this new regulatory 
framework.
    Discussion: Under section 410 of the General Education Provisions 
Act (20 U.S.C. 1221e-3), the Secretary has the authority to make, 
promulgate, issue, rescind, and amend rules and regulations governing 
the manner of operation of, and governing applicable programs 
administered by, the Department. For regulations governing the title 
IV, HEA programs, the Secretary also must ensure that the development 
and issuance of those regulations comply with the negotiated rulemaking 
requirements in section 492 of the HEA. In 2002, the Department adopted 
the incentive compensation safe harbors reflected in current Sec.  
668.14(b)(22)(ii) under the statutory authority granted in GEPA and the 
negotiated rulemaking requirements in the HEA. The Department adopted 
the current safe harbors based on a ``purposive reading of section 
487(a)(20) of the HEA.'' (67 FR 51723 (August 8, 2002).) Since that 
time, however, the Department's experience has demonstrated that 
unscrupulous actors routinely rely upon these safe harbors to 
circumvent the intent of section 487(a)(20) of the HEA. As such, rather 
than serving to effectuate the goals intended by Congress through its 
adoption of section 487(a)(20) of the HEA, the safe harbors have served 
to obstruct those objectives and have hampered the Department's ability 
to efficiently and effectively administer the title IV, HEA programs.
    For example, it has been the Department's experience that many 
institutions routinely use employee evaluation forms that acknowledge 
that the number of students enrolled is an important, if not the most 
important, variable, in determining recruiter compensation. These forms 
also list certain qualitative factors that are ostensibly considered in 
making compensation decisions. The forms, on

[[Page 66873]]

their face, appear to demonstrate compliance with the first safe 
harbor, which permits compensation schemes that are not ``solely'' 
based on the number enrolled. However, the Department has been 
repeatedly advised by institutional employees that these other 
qualitative factors are not really considered when compensation 
decisions are made, and that they are identified only to create the 
appearance of title IV compliance. It is clear from this information 
that institutions are making actual compensation decisions based 
exclusively on the numbers of students enrolled.
    The Department's need to look behind the documents that 
institutions allege they have used to make recruiter compensation 
decisions requires the expenditure of enormous amounts of resources, 
and has resulted in an inability to adequately determine whether 
institutions are in compliance with the incentive compensation ban in 
many cases.
    For these reasons, we believe it is appropriate to remove the safe 
harbors and instead to require institutions to demonstrate that their 
admissions compensation practices do not provide any commission, bonus, 
or other incentive payment based in any part, directly or indirectly, 
upon success in securing enrollments or the award of financial aid to 
any person or entity engaged in any student recruitment or admission 
activity or in making decisions regarding the award of title IV, HEA 
program funds. We believe that institutions can readily determine if a 
payment or compensation is permissible under section 487(a)(20) of the 
HEA by analyzing--
    (1) Whether it is a commission, bonus, or other incentive payment, 
defined as an award of a sum of money or something of value paid to or 
given to a person or entity for services rendered; and
    (2) Whether the commission, bonus, or other incentive payment is 
provided to any person based in any part, directly or indirectly, upon 
success in securing enrollments or the award of financial aid, which 
are defined as activities engaged in for the purpose of the admission 
or matriculation of students for any period of time or the award of 
financial aid.
    If the answer to each of these questions is yes, the commission, 
bonus, or incentive payment would not be permitted under the statute.
    Therefore, going forward, actions that were permitted under current 
Sec.  668.14(b)(22) will neither be automatically prohibited, nor 
automatically permitted. Instead, institutions will need to re-examine 
their practices to ensure that they comply with Sec.  668.14(b)(22). To 
the extent that a safe harbor created an exception to the statutory 
prohibition found in section 487(a)(20) of the HEA, its removal would 
establish that such an exception no longer exists.
    Changes: None.

Current Safe Harbors

    Comment: Several commenters stated that removing the safe harbor 
from current Sec.  668.14(b)(22)(ii)(B), which permits compensation to 
recruiters based upon enrollment of students in ineligible title IV, 
HEA programs, is contrary to congressional intent. These commenters 
stated that the HEA was not intended to regulate other educational 
endeavors of the institution. In addition, one commenter asked about a 
specific practice permitted by some State cosmetology boards that 
allows two non-title IV, HEA eligible programs to be combined and in 
that form, to become eligible for title IV, HEA aid. Another commenter 
asked about how the removal of this safe harbor would impact advanced 
education classes that are not title IV eligible.
    Discussion: In our experience, institutions have used the safe 
harbor reflected in Sec.  668.14(b)(22)(ii)(B) to steer students away 
from title IV, HEA programs. We believe that retaining this safe harbor 
would continue to allow institutions to manipulate the system by 
initially enrolling students in non-title IV, HEA eligible programs so 
that the institutions pay incentive compensation to recruiters based on 
such enrollments, only to later re-enroll the same students in title 
IV, HEA eligible programs.
    We do not agree that the removal of this safe harbor is contrary to 
congressional intent. In particular, the only exception Congress 
provided in section 487(a)(20) of the HEA is to the recruitment of 
foreign students residing in foreign countries who are not eligible to 
receive Federal student assistance. For the reasons addressed in the 
preceding discussions, we believe it is inappropriate to carve out a 
further exception to include non-foreign students who are not 
immediately receiving Title IV funds.
    Moreover, as to the comment regarding cosmetology schools, there is 
nothing in the identified practice that supports allowing compensation 
to be paid to recruitment personnel that is otherwise inconsistent with 
section 487(a)(20) of the HEA.
    Finally, to the extent that the HEA's ban on the payment of 
incentive compensation is not otherwise limited to students enrolled in 
title IV, HEA eligible programs, institutions need to make sure that 
they are in compliance with the prohibition on incentive compensation 
regardless of the nature of the particular program of instruction.
    Changes: None.
    Comment: A few commenters expressed concerns about the safe harbor 
reflected in current Sec.  668.14(b)(22)(ii)(C), which permits 
compensation to recruiters who arrange contracts between an institution 
and an employer, where the employer pays the tuition and fees for its 
employees (either directly to the institution or by reimbursement to 
the employee). One commenter noted that because under this type of 
contract there is no direct contact between the entity or individual 
seeking the arrangement and the student, these contracts seem to be 
permissible. Another commenter asked whether the following type of 
arrangement would be permissible without this safe harbor: An employee 
secures contracts for non-degree training that is not eligible for 
title IV, HEA program funding, and such contracts are billed at a flat 
rate and are paid for by the employer. This commenter specifically 
asked whether the employee in this situation may be compensated based 
on revenue from those contracts.
    Discussion: This safe harbor permits compensation that is 
ultimately based upon success in securing enrollments. Because this is 
inconsistent with section 487(a)(20) of the HEA, we believe that the 
safe harbor should not be retained in these final regulations. We agree 
with the commenter that in some instances compensation to recruiters 
who arrange contracts between an institution and an employer, where the 
employer pays the tuition and fees for its employees, would be 
permissible under the ban on incentive compensation. As previously 
discussed, we encourage institutions to apply the two-part test 
provided within the NPRM in evaluating whether a particular 
compensation practice is permissible. Given the number of possible 
variables within any particular proposal, the Department is not 
prepared to say that the examples generally offered by commenters will 
always be permissible, but we acknowledge that there are circumstances 
where such arrangements may prove to be compliant with the HEA.
    We strongly believe that institutions do not need to rely on safe 
harbors to protect compensation that complies with section 487(a)(20) 
of the HEA. Ultimately, the institution must determine whether its 
compensation is based in any part, directly or indirectly, on securing 
enrollments or the award of

[[Page 66874]]

financial aid. If it is not, such compensation would continue to be 
permissible even with the removal of the safe harbor from current Sec.  
668.14(b)(22)(ii)(C).
    Changes: None.
    Comment: A number of commenters voiced their support for the safe 
harbor from current Sec.  668.14(b)(22)(ii)(E), which permits 
compensation based upon a student's successfully completing his or her 
educational program or one academic year of his or her educational 
program, whichever is shorter. Some commenters expressed concern that 
removal of this safe harbor would eliminate an important safeguard for 
students because this safe harbor encourages institutions to admit only 
qualified students. Other commenters noted that to disallow incentive 
compensation based on completion of an educational program is contrary 
to the Administration's stated goal of student retention. Several 
commenters suggested that the Department should measure the positive 
effect that incentive payments based on completion of an educational 
program can have on students' educational experience. Another commenter 
asked whether payments based on a graduated student's employment in the 
student's field of study would be permitted under the new regulatory 
framework for incentive compensation.
    Discussion: The Department believes that an institution's resolute 
and ongoing goal should be for its students to complete their 
educational programs. Employees should not be rewarded beyond their 
standard salary or wages for their contributions to this fundamental 
duty. The safe harbor in current Sec.  668.14(b)(22)(ii)(E) permits 
compensation that is ``indirectly'' based upon securing enrollments--
that is, unless the student enrolls, the student cannot successfully 
complete an educational program. With the proliferation of short-term, 
accelerated programs, and the potential for shorter and shorter 
programs, we have seen increased efforts by institutions to rely upon 
this safe harbor to incentivize recruiters. Accordingly, we believe 
that the retention of the current safe harbor can be readily exploited, 
and that it is not necessary for institutions to appreciate the value 
of keeping students in school. On balance, we believe that the 
proliferation of these types of programs justify any benefit that this 
safe harbor allegedly provided students by encouraging institutions to 
admit only qualified students.
    We disagree with the commenter who stated that removal of this safe 
harbor is inconsistent with the Administration's goal of increasing 
student retention in postsecondary education. Institutions should not 
need this safe harbor allowing incentive payments to recruiters to 
demonstrate their commitment to retaining students within their program 
of instruction.
    In addition, there is nothing about the making of incentivized 
payments to recruiters based upon student retention that enhances the 
quality of a student's educational experience. If the program of 
instruction has value and is appropriate for a student's needs, a 
student will likely enjoy a positive educational experience regardless 
of the manner in which the student's recruiter is compensated.
    Finally, the Department's experience has shown that some 
institutions pay incentive compensation to recruiters based upon claims 
that the students who the recruiter enrolled graduated and received 
jobs in their fields of study. Yet, included among the abuses the 
Department has seen, for example, is a circumstance where a student's 
field of study was culinary arts, and the so-called employed student 
was working an entry-level position in the fast food industry. Such a 
position did not require the student to purchase a higher education 
``credential.'' As a result, we believe that paying bonuses to 
recruiters based upon retention, completion, graduation, or placement 
remain in violation of the HEA's prohibition on the payment of 
incentive compensation.
    Changes: None.
    Comment: Many commenters questioned our rationale for eliminating 
the safe harbor in current Sec.  668.14(b)(22)(ii)(G), which exempts 
managerial and supervisory employees who do not directly manage or 
supervise employees who are directly involved in recruiting or 
admissions activities, or the awarding of title IV, HEA program funds 
from the prohibition on receiving incentive payments. These commenters 
argued that a bright line designation is needed and that the incentive 
compensation ban should only apply to employees who are involved in 
direct recruitment or admission of students or decisions involving the 
award of title IV, HEA aid. Others recommended that we retain this safe 
harbor, and that we clarify that the words ``indirectly or directly'' 
do not apply to the determination of which persons are covered by the 
prohibition. Several commenters expressed their concerns about having 
the regulations prohibit compensation practices at any level of an 
organization, no matter how far removed from actual recruitment, 
admissions, or financial aid activity. These commenters argued that 
such an approach would prevent institutions from evaluating top 
management with respect to student population metrics or any other 
business or organizational metric that is a function of student 
enrollment.
    A few commenters raised more specific concerns about the 
compensation of top college officials in situations where the president 
attends an open house or speaks with potential students who the 
institution is recruiting, either in a group or individually. Some 
commenters also asked whether the proposed regulations would permit a 
president to receive a bonus or other payment if one factor in 
attaining the bonus or other payment was meeting an institutional 
management plan or goal that included increasing minority enrollment by 
a certain percentage.
    Finally, a few commenters asked whether institutions can still 
reward athletic coaches whose student athletes stay in school and 
graduate.
    Discussion: We intend the incentive compensation ban in Sec.  
668.14(b)(22)(i) to apply to all employees at an institution who are 
engaged in any student recruitment or admission activity or in making 
decisions regarding the award of title IV, HEA program funds. We 
interpret these employees to include any higher level employee with 
responsibility for recruitment or admission of students, or making 
decisions about awarding title IV, HEA program funds. To make this 
clearer, we are revising Sec.  668.14(b)(22)(iii) to add a definition 
for the term entity or person engaged in any student recruitment or 
admission activity or in making decisions about the award of financial 
aid. This new definition expressly includes any employee who undertakes 
recruiting or admitting of students or who makes decisions about and 
awards title IV, HEA program funds, as well as higher level employees 
as specified.
    Therefore, the actions of a college president could potentially 
come within the HEA's prohibition on the payment of incentive 
compensation. However, the Department does not see how mere attendance 
at an open house or speaking with prospective students about the value 
of a college education or the virtues of attending a particular 
institution would violate the incentive compensation plan. Other 
activities should be evaluated within the context of the Department's 
previously discussed two-part test to receive assistance as to whether 
a particular activity is permissible.
    Finally, recruitment of student athletes is not different from

[[Page 66875]]

recruitment of other students. Incentive compensation payments to 
athletic department staff are governed by the restrictions included in 
Sec.  668.14(b)(22). If the payments are made based on success in 
securing enrollments or the award of financial aid, the payments are 
prohibited; however, the Department does not consider ``bonus'' 
payments made to coaching staff or other athletic department personnel 
to be prohibited if they are rewarding performance other than securing 
enrollment or awarding financial aid, such as a successful athletic 
season, team academic performance, or other measures of a successful 
team.
    Changes: We have added a definition of the term entity or person 
engaged in any student recruitment or admission activity or in making 
decisions about the award of financial aid to Sec.  668.14(b)(22)(iii). 
New paragraph (b)(22)(iii)(C) of this section provides that the term 
means--
    (1) With respect to an entity, any institution or organization that 
undertakes the recruiting or the admitting of students or that makes 
decisions about and awards title IV, HEA program funds; and
    (2) With respect to a person, any employee who undertakes 
recruiting or admitting of students or who makes decisions about and 
awards title IV, HEA program funds, and any higher level employee with 
responsibility for recruitment or admission of students, or making 
decisions about awarding title IV, HEA program funds.
    Comment: One commenter asked how the removal of the safe harbor 
from current Sec.  668.14(b)(22)(ii)(H), which permits an institution 
to provide a token gift not to exceed $100 to an alumnus or student 
provided that the gift is not in the form of money and no more than one 
gift is provided annually to an individual, will affect institutions 
compensating students for referrals. The commenter asked whether an 
individual who is referred can be given a scholarship for friends or 
family of the individual who is referring or a tuition waiver.
    Discussion: Section 668.14(b)(22) does not prohibit institutions 
from providing any commission, bonus, or incentive payment to students 
who are referrals. Therefore, an individual who is referred to an 
institution should be able to receive whatever scholarship money or 
tuition assistance that he or she may otherwise be eligible to receive 
without violating the HEA.
    Changes: None.
    Comment: Several commenters asked for clarification regarding the 
safe harbor in current Sec.  668.14(b)(22)(ii)(J) permitting an 
institution to award compensation for Internet-based recruitment and 
admission activities that provide information about the institution to 
prospective students, refer prospective students to the institution, or 
permit prospective students to apply for admission online. 
Specifically, the commenters asked us to clarify that institutions can 
make payments to third parties that provide Internet-based recruitment 
and admission services as long as they do not otherwise violate the 
statutory prohibition. Other commenters asked for confirmation that 
click-through payments are permitted if the third party is paid based 
on those who click, not those who enroll. Other commenters requested 
examples of permitted relationships.
    Discussion: The HEA does not prohibit advertising and marketing 
activities by a third party, as long as payment to the third party is 
based on those who ``click'' and is not based in any part, directly or 
indirectly, on the number of individuals who enroll or are awarded 
financial aid; therefore, the regulatory language would not prohibit 
such click-through payments. Further, institutions may make payments to 
third parties and entities with formal third-party arrangements as long 
as the parties are not compensated in any part, directly or indirectly, 
based on success in securing enrollments or the award of financial aid.
    Changes: None.
    Comment: Many commenters offered suggestions regarding the safe 
harbors reflected in current Sec.  668.14(b)(22)(ii)(K) and 
(b)(22)(ii)(L), which both involve payments to third parties for shared 
services. A number of commenters representing organizations that 
provide a variety of services to institutions asked for clarification 
about their continued ability to assist institutions in this way, as 
long as the compensation arrangements are not prohibited by the HEA. 
Many commenters asked whether tuition-sharing arrangements with third-
parties to secure servicers that include recruitment would be 
permitted. They questioned whether these arrangements should be treated 
the same as arrangements involving volume-driven payments. Several 
commenters expressed concern about the affect these regulations will 
have on third parties who provide services to assist students who study 
abroad.
    One commenter suggested that entities that provide enrollment 
services be able to elect to be treated as ``third-party servicers,'' 
with all of the restrictions, obligations, liabilities, reporting 
requirements, and oversight that accompany that status.
    Other commenters asked whether institutions would be held 
accountable for the actions of third-party servicers. A few commenters 
also requested the Department to provide examples of arrangements with 
third parties that would be permitted under the new regulatory 
framework (i.e., with the removal of the safe harbors from current 
Sec.  668.14(b)(22)(ii)(K) and (b)(22)(ii)(L)).
    Discussion: The Department understands the value of partnerships 
between institutions and entities that provide various support and 
administrative services to these institutions. Such arrangements are 
permitted under these regulations as long as no entity or person 
engaged in any student recruitment or admission activity or in making 
decisions about the award of financial aid (as defined in Sec.  
668.14(b)(22)(iii)(C)) is compensated in any part, directly or 
indirectly, based upon success in securing enrollments or the award of 
financial aid.
    In addition, as the Department stated in the NPRM, arrangements 
under which an institution is billed based on the number of student 
files that are processed (e.g., a volume-driven arrangement) are not 
automatically precluded, provided that payment is not based in any 
part, directly or indirectly, on success in securing student 
enrollments or the award of financial aid.
    Further, it is longstanding Department policy that an institution 
is responsible for the actions of any entity that performs functions 
and tasks on the institution's behalf. The definition of a third-party 
servicer is established in Sec.  668.2; the responsibilities of a 
third-party servicer are described in Sec.  668.25. No additional 
language is needed.
    Changes: None.

Permissible Compensation Activities

    Comment: Many commenters requested clarification on the types of 
compensation that would be permitted under proposed Sec.  668.14(b)(22) 
and section 487(a)(20) of the HEA. A few commenters who supported the 
proposed changes to Sec.  668.14(b)(22) suggested additional 
alterations to strengthen the language--such as moving language we had 
included in the NPRM preamble to the regulatory text--to ensure that 
incentive payments are not based ``in any part'' on success in securing 
enrollments or financial aid.
    In addition, several commenters suggested that more than two 
changes in pay in a calendar year should be considered evidence that 
the payments are incentive compensation.
    These commenters also requested guidance about allowable salary

[[Page 66876]]

adjustments, including whether raises (for promotions) would be 
permitted and whether reductions (for demotions) would be permitted. 
Some commenters requested clarification on whether a salary could be 
paid. One commenter asked whether benefits could be paid at 
differential rates by class of employee or on a sliding scale by 
salary.
    Discussion: Based on these comments, the Secretary agrees that some 
modifications to the language in proposed Sec.  668.14(b)(22) would be 
helpful to ensure that incentive payments are not based ``in any part'' 
on success in securing enrollments or financial aid. In particular, we 
agree that it is appropriate to add language to avoid confusion as to 
whether some part of an individual's compensation may be based on 
incentive compensation. For this reason, we are revising Sec.  
668.14(b)(22)(i) to reinforce the idea that compensation must not be 
based in any part, directly or indirectly, on success in securing 
enrollments or the award of financial aid.
    In addition, we support revising the regulations to provide that an 
employee who receives multiple compensation adjustments in a calendar 
year is considered to have received adjustments based upon success in 
securing enrollments or the award of financial aid in violation of the 
incentive compensation ban in Sec.  668.14(b)(22) if those adjustments 
create compensation that is based in any part, directly or indirectly, 
upon success in securing enrollments or the award of financial aid.
    Finally, with respect to the requests for clarification on 
allowable salary adjustments, we note that individuals may be 
compensated in any fashion that is consistent with the prohibition 
identified in section 487(a)(20) of the HEA. Accordingly, while not 
commenting on any specific compensation structure that an institution 
may choose to implement, the Department recognizes, for example, that 
institutions often maintain a hierarchy of recruitment personnel with 
different amounts of responsibility. As long as an institution complies 
with section 487(a)(20) of the HEA, it may be appropriate for an 
institution to have salary scales that reflect an added amount of 
responsibility. Institutions also remain free to promote and demote 
recruitment personnel, as long as these decisions are consistent with 
the HEA's prohibition on the payment of incentive compensation. 
Finally, it is appropriate to pay recruitment personnel a fixed salary.
    Changes: We have revised Sec.  668.14(b)(22)(i)(A) (which has been 
redesignated as Sec.  668.14(b)(22)(i)) to clarify that a prohibited 
incentive compensation includes any commission, bonus, or other 
incentive payment based in any part, directly or indirectly, upon 
success in securing enrollments or the award of financial aid to any 
person or entity engaged in any student recruitment or admission 
activity or in making decisions regarding the award of title IV, HEA 
program funds.
    In addition, we have redesignated proposed Sec.  
668.14(b)(22)(i)(B) as Sec.  668.14(b)(22)(i)(A) and added a new 
paragraph (b)(22)(i)(B) to provide that, for the purposes of this 
paragraph, an employee who receives multiple adjustments to 
compensation in a calendar year and is engaged in any student 
enrollment or admission activity or in making decisions regarding the 
award of title IV, HEA program funds is considered to have received 
such adjustments based upon success in securing enrollments or the 
award of financial aid if those adjustments create compensation that is 
based in any part, directly or indirectly, upon success in securing 
enrollments or the award of financial aid.
    Finally, we have revised Sec.  668.14(b)(22)(ii) to provide that 
eligible institutions, organizations that are contractors to eligible 
institutions, and other entities may make merit-based adjustments to 
employee compensation provided that such adjustments are not based in 
any part, directly or indirectly, upon success in securing enrollments 
or the award of financial aid.
    Comment: Commenters raised a number of questions related to the 
two-part test the Department has offered that will demonstrate whether 
a compensation plan or payment complies with the statute and the 
implementing regulations. Many commenters seemed confused about the 
application of the two-part test and raised a wide range of specific 
questions about employment possibilities and compensation practices. 
For example, some commenters asked for clarification about the types of 
items that could be considered something of value, such as letters of 
recommendation to volunteer interns.
    Several commenters asked that we include the language of the two-
part test in the regulatory text.
    Finally, one commenter asserted that the two-part test will not add 
clarity on compensation issues but instead will raise questions about 
the legality of certain types of merit-based compensation systems that 
seem to fall outside the scope of compensation restriction but that 
could fail to satisfy the two-part test.
    Discussion: As discussed earlier in this preamble, the Department 
has described a two-part test for evaluating whether a payment 
constitutes a commission, bonus, or other incentive payment based in 
any part, directly or indirectly, upon success in securing enrollments 
or the award of financial aid to any person or entity engaged in any 
student recruitment or admission activity or in making decisions 
regarding the award of title IV, HEA program aid in violation of the 
ban reflected in Sec.  668.14(b)(22)(i). The Department first described 
this test in the preamble to NPRM. (See 75 FR 34818 (June 18, 2010).) 
The test consists of the following two questions, the answers to which 
will permit an institution to know whether the compensation is 
considered incentive compensation:
    (1) Whether the payment is a commission, bonus, or other incentive 
payment, defined as an award of a sum of money or something of value 
paid to or given to a person or entity for services rendered; and
    (2) Whether the commission, bonus, or other incentive payment is 
provided to any person based in any part, directly or indirectly, upon 
success in securing enrollments or the award of financial aid, which 
are defined as activities engaged in for the purpose of the admission 
or matriculation of students for any period of time or the award of 
financial aid.
    If the answer to each of these questions is yes, the payment would 
not be permitted under section 487(a)(20) of the HEA or Sec.  
668.14(b)(22). The Department merely provided this test as a tool to 
help institutions evaluate compensation practices they may consider 
implementing. The test does not add any substantive requirements that 
are not otherwise included in Sec.  668.14(b)(22)(i). For this reason, 
we do not think it is necessary or appropriate to include the text of 
the test in the regulations.
    The Department further notes that, as a general matter, it does not 
believe that the provision of letters of recommendation to volunteer 
interns would constitute a proscribed incentive payment.
    Finally, we disagree with the comment that the two-part test will 
not serve generally to answer institutions' questions regarding a 
particular compensation plan. As previously stated, we believe that the 
prohibition identified in section 487(a)(20) of the HEA is clear and 
that institutions should not have difficulty maintaining

[[Page 66877]]

compliance with the new regulatory language. To the extent an 
institution has questions about what it intends to do, the Department 
has offered the two-part test as an aid to reaching a proper 
conclusion. To the extent that an institution does not wish to use the 
test to assist it in evaluating its practices, it is not required to do 
so.
    Changes: None.
    Comment: A number of commenters questioned the use of the term 
``indirectly'' in the prohibition on incentive compensation in proposed 
Sec.  668.14(b)(22). They expressed concern about the broad scope of 
this term and believed that interpretive discord will result from its 
inclusion in Sec.  668.14(b)(22). These commenters argued that any 
compensation involving an institution of higher education is based 
indirectly on success in securing enrollments and asked how far removed 
an activity must be in order for it not to be considered indirectly 
related. Other commenters specifically requested that we define the 
term ``indirectly.''
    Several commenters suggested that proposed Sec.  
668.14(b)(22)(i)(A) should use the term ``solely'' rather than 
``directly or indirectly'' (i.e., ``it will not provide any commission, 
bonus, or other incentive payment based solely upon success'' rather 
than ``it will not provide any commission, bonus, or other incentive 
payment based directly or indirectly upon success''). These and other 
commenters alleged that the language in proposed Sec.  
668.14(b)(22)(i)(A) is not consistent with congressional intent. Many 
of these commenters cited to the conference report, which states that 
the use of the term ``indirectly'' does not mean that institutions are 
prohibited from basing salaries on merit; they may not, however, be 
based ``solely'' on the number of students recruited, admitted, 
enrolled, or awarded.
    Discussion: The Department does not agree with the view that the 
use of the phrase ``directly or indirectly'' will lead to 
interpretation problems or that it is inconsistent with congressional 
intent. Given the Department's experience with how the safe harbor in 
current Sec.  668.14(b)(22)(i)(A), which permits up to two salary 
adjustments per year provided that they are not based solely on the 
number of students recruited, admitted, enrolled, or awarded financial 
aid, has been abused, the Department does not believe that it serves 
congressional intent to limit the incentive compensation ban in section 
487(a)(20) of the HEA to those payments that are based solely upon 
success in securing enrollments or the award of financial aid. The 
Department believes that, consistent with section 487(a)(20) of the 
HEA, incentive payments should not be based in any part, directly or 
indirectly, on success in securing enrollments or the award of 
financial aid.
    The safe harbor in current Sec.  668.14(b)(22)(i)(A) has led to 
allegations in which institutions conceded that their compensation 
structures included consideration of the number of enrolled students, 
but averred that they were not solely based upon such numbers. In some 
of these instances, the substantial weight of the evidence suggested 
that the other factors purportedly analyzed were not truly considered, 
and that, in reality, the institution based salaries exclusively upon 
the number of students enrolled. After careful consideration, the 
Department determined that removal of the safe harbor was preferable to 
retaining but revising the safe harbor. For example, we considered 
suggestions that we change the word solely to some other modifier, such 
as ``primarily'' or ``substantially,'' but ultimately determined that 
doing so would not correct the problem. With such a change, we believe 
the evaluation of any alternative arrangement would merely shift to 
whether the compensation was ``primarily'' or ``substantially'' based 
upon enrollments. Such a shift would not reduce the ability of an 
unscrupulous actor to claim that student enrollments constituted this 
lesser factor within a recruiter's evaluation and would foster the same 
sorts of abuses that have become apparent by institutions attempting to 
assert that their compensation practices are not solely based on 
enrollments.
    Changes: None.
    Comment: A number of commenters raised questions about proposed 
Sec.  668.14(b)(22)(ii), which allows eligible institutions, 
organizations that are contractors to eligible institutions, and other 
entities to make merit-based adjustments to employee compensation 
provided that such adjustments are not based upon success in securing 
enrollments or the award of financial aid. They expressed concern that 
limiting merit-based adjustments to those that are not based upon 
success in securing enrollments or the award of financial aid would 
make it impossible for them to award merit increases for employees 
whose job it is to enroll students. They noted that there are no 
standard evaluative factors concerning enrollment that are not directly 
or indirectly based on securing enrollments.
    Some commenters requested clarification about whether an increase 
could be based on seniority or length of employment, including whether 
a retention bonus could be paid based on the employee's retention at 
the institution if it is paid evenly to all employees.
    Some commenters argued that the regulations should recognize and 
permit compensation based on the performance of, and success at, the 
core job functions of admissions representatives and financial aid 
officials. They questioned how it would be possible to measure employee 
performance without evaluating success. They asked that we provide 
concrete guidance about how institutions can make salary adjustments 
without violating the incentive compensation prohibition.
    Discussion: Section 668.14(b)(22) does not prohibit merit-based 
compensation for financial aid or admissions staff. An institution may 
use a variety of standard evaluative factors as the basis for this type 
of compensation; however, consistent with section 487(a)(20) of the HEA 
and Sec.  668.14(b)(22), an institution may not consider the employee's 
success in securing student enrollments or the award of financial aid 
in providing this type of compensation. Further, an increase in 
compensation that is based in any part either directly or indirectly on 
the number of students recruited or awarded financial aid is 
prohibited.
    As previously mentioned, many institutions currently claim to 
evaluate their recruitment personnel on a series of qualitative 
factors, as well as on the number of enrolled students, to demonstrate 
compliance with the safe harbor reflected in current Sec.  
668.14(b)(22)(i)(A), which prohibits compensation based solely on the 
number of students enrolled. As a result, it appears that these 
institutions have identified other factors that are not dependent upon 
student enrollments that we believe could by themselves be considered 
for making a merit-based compensation decision. In addition, seniority 
or length of employment is an appropriate basis for making a 
compensation decision separate and apart from any consideration of the 
numbers of students enrolled. Finally, as many commenters from groups 
representing admissions personnel noted, as a general matter, 
recruitment personnel should be compensated with a fixed salary to 
ensure that their ability to focus on what is in a student's best 
interest is not compromised.
    Changes: None.
    Comment: Several commenters raised issues about the relationship 
between an institution's goals and payments to employees. Many asked 
whether

[[Page 66878]]

employees could be rewarded through profit-sharing or other payments 
for success in meeting retention, graduation, and placement goals as 
long as they are not rewarded for the number of students recruited and 
admitted. These commenters requested that we define an acceptable 
percentage of an employee's compensation adjustment that can be based 
on the number of students recruited, admitted, enrolled, or awarded 
financial aid.
    One commenter asked that we clarify whether payments tied to 
overall institutional revenues, including profit-sharing, pension, and 
retirement plans are allowed. A number of commenters asked more broadly 
whether such plans would be permissible. A few commenters requested 
changes to incorporate the distribution of profit-sharing or bonus 
payments under certain circumstances, such as when a payment is made to 
a broad group of employees.
    Discussion: While there is no statutory proscription upon offering 
employees either profit-sharing or a bonus, if either is based in any 
part, directly or indirectly, upon success in securing enrollments or 
the award of financial aid, it is not permitted under section 
487(a)(20) of the HEA or Sec.  668.14(b)(22).
    The Department agrees with commenters that there are circumstances 
when profit-sharing payments should be permitted. Under proposed Sec.  
668.14(b)(22), an institution may distribute profit-sharing payments if 
those payments are not provided to any person who is engaged in student 
recruitment or admission activity or in making decisions regarding the 
award of title IV, HEA program funds. The Department believes that such 
payments are consistent with the HEA as they are not being made to a 
particular group who is active in admissions or financial aid.
    For this reason, we are making a change to Sec.  668.14(b)(22)(ii) 
to provide that institutions may make payments, including profit-
sharing payments, so long as they are not provided to any person who is 
engaged in student recruitment or admission activity or in making 
decisions regarding the award of title IV, HEA program funds.
    Changes: We have revised Sec.  668.14(b)(22)(ii) to clarify that, 
notwithstanding the ban in Sec.  668.14(b)(22)(i), eligible 
institutions, organizations that are contractors to eligible 
institutions, and other entities may make profit-sharing payments, so 
long as such payments are not provided to any person who is engaged in 
student recruitment or admission activity or in making decisions 
regarding the award of title IV, HEA program funds.
    Comment: Several commenters asked us to clarify what kinds of 
activities would not be considered under the definition of securing 
enrollments or the award of financial aid. They asked that we revise 
the regulations to provide explicitly that payments based on any 
additional activities are not allowed if they are directly or 
indirectly based on enrollment or the awarding of aid.
    Other commenters raised questions about the use of ``aggregators,'' 
that is, entities that assist an institution with the institution's 
outreach efforts. These efforts include but are not limited to, 
identifying students, offering counseling and information on multiple 
institutions, and encouraging potential students to fill out an 
application directly with the individual institutions. Aggregators are 
paid based on the student remaining at the institution for a certain 
time period rather than based on the fact that the student enrolls. 
Commenters asked us to clarify whether these practices are permitted 
under section 487(a)(20) of the HEA and Sec.  668.14(b)(22).
    Some commenters focused on arrangements under which institutions 
pay third parties for student contact information and asked whether 
such information may be sorted or qualified. Further, they questioned 
whether institutions would be permitted to pay only for information 
that yields actual contact with a student. They asked that we confirm 
that institutions may pay students for contact information on a per 
person basis as long as payments are not based on the number of 
students who apply or enroll. In addition, they suggested that we allow 
qualitative factors to be included in the consideration of the price to 
provide incentives to third parties to appropriately identify students 
that more closely fit an institution's profile.
    Some commenters believed that the proposed definition of securing 
enrollments or the award of financial aid does not make it clear that 
the activities are prohibited through the completion of a student's 
educational program.
    Discussion: The Department agrees that it would be helpful to 
clarify the type of activities that are and are not considered securing 
enrollments or the award of financial aid. For this reason, we have 
revised the definition of securing enrollments or the award of 
financial aid to specifically include (as examples) contact through 
preadmission or advising activities, scheduling an appointment for the 
prospective student to visit the enrollment office or any other office 
of the institution, attendance at such an appointment, or involvement 
in a prospective student's signing of an enrollment agreement or 
financial aid application (see Sec.  668.14(b)(22)(iii)(B)(1) of these 
final regulations).
    We also revised the definition to clarify that it does not include 
making a payment to a third party for the provision of student contact 
information provided that such payment is not based on any additional 
conduct by the third party, such as participation in preadmission or 
advertising activities, scheduling an appointment to visit the 
enrollment office or any other office of the institution or attendance 
at such an appointment, or the signing, or being involved in the 
signing of a prospective student's enrollment agreement or financial 
aid application (see Sec.  668.14(b)(22)(iii)(B)(2) of these final 
regulations).
    With respect to the comments requesting guidance on 
``aggregators,'' we do not believe it is necessary or appropriate for 
the Department to indicate whether these types of activities would, 
across the board, be permitted. Each arrangement must be evaluated on 
its specific terms. As noted earlier in this preamble, we believe any 
institution can determine whether a payment it intends to make is 
prohibited by Sec.  668.14(b)(22) by applying the two-part test we have 
described. Specifically, the first step for an institution in 
determining if payment for an activity or action is considered 
incentive compensation is to evaluate whether the entity is receiving 
something of value, then to determine whether the payment is made based 
in any part, directly or indirectly, on success in securing enrollments 
or the award of financial aid.
    Finally, we agree with commenters that the definition of the term 
securing enrollments or the award of financial aid should be revised to 
specify that these activities include activities that run throughout 
completion of the student's educational program.
    Changes: We have revised the definition of securing enrollments or 
the award of financial aid in Sec.  668.14(b)(22)(iii)(B) to provide 
more detail about actions that are considered to be covered by the 
definition. We also have revised the definition to clarify that it 
includes activities through the completion of an educational program.
    Comment: Numerous commenters requested that the Department offer 
guidance on the practical implementation of the proposed definitions. 
Many expressed concern about our stated intention to address

[[Page 66879]]

only broadly applicable principles rather than responding to questions 
on individual compensation issues. These commenters asserted that 
institutions need guidance before they should be the subject of an 
investigation or legal action. They raised concerns about the confusion 
that could result without additional clarification and the attendant 
costs to partners in the student aid process in ``today's legal 
environment.'' They believed that the Department already knows that 
guidance will be needed based on our pre-2002 experiences and noted 
that issuing guidance is a fundamental purpose of the Department and 
should be continued.
    Discussion: The Department believes the proposed language is clear 
and reflective of section 487(a)(20) of the HEA. As modified, it is 
designed to appropriately guide institutions as they evaluate 
compensation practices. To the extent that ongoing questions arise on a 
particular aspect of the regulations, the Department will respond 
appropriately in a broadly applicable format and will distribute the 
information widely to all participating institutions. This response may 
include a clarification in a Department publication, such as the 
Federal Student Aid Handbook or a Dear Colleague Letter. The Department 
does not intend to provide private guidance regarding particular 
compensation structures in the future and will enforce the regulations 
as written.
    Changes: None.

Satisfactory Academic Progress (Sec. Sec.  668.16(e), 668.32(f), and 
668.34)

General

    Comment: Many commenters supported the proposed changes to the 
Satisfactory Academic Progress (SAP) regulations. Several commenters 
noted that the consolidation of the SAP requirements into Sec.  668.34 
would ease compliance and suggested that it would be helpful to revise 
the Federal Student Aid (FSA) Handbook to mirror the new organization 
of the requirements in the regulations.
    Several commenters noted that they appreciated that the proposed 
SAP regulations retain the flexibility provided under the current 
regulations for institutions to establish policies that best meet the 
needs of their students.
    Many commenters expressed support for the proposed changes to the 
SAP regulations because they viewed them as a means for helping hold 
students accountable for their academic goals earlier in their careers, 
which they believed would lead to lower student debt levels. Several 
commenters noted that their current policy and practices either met or 
exceeded the requirements in the proposed regulations.
    Many commenters supported, in particular, the definition of the 
terms financial aid warning and financial aid probation as well as the 
standardized definitions of other terms related to SAP. These 
commenters stated that this standardization would lead to a more 
consistent application of the SAP regulations among institutions, 
which, in turn, will make them more understandable to students.
    Many commenters also supported the SAP regulations because they 
give those institutions that choose to evaluate SAP more frequently 
than annually the ability to use a financial aid warning status, which 
they viewed as being beneficial to students. They stated that such a 
warning would lead to early intervention for students who face academic 
difficulties. Commenters also noted that the financial aid warning 
status will allow financial aid offices to strengthen their SAP 
policies to encourage students to use designated support services on 
campus and lead to further student success.
    Discussion: The Department appreciates the support of its efforts 
to improve program integrity through its SAP regulations. With regard 
to the comment recommending that we revise the FSA Handbook to align it 
with the changes we have made in the SAP regulations, we will take this 
recommendation into account during the next revision of the FSA 
Handbook.
    Changes: None.

General

    Comment: Several commenters did not support the proposed changes to 
the SAP regulations. Two commenters stated that the Department should 
delay implementation of the SAP regulations, including proposed Sec.  
668.34, so that we can resubmit these proposals for negotiation and 
evaluation in a future negotiated rulemaking proceeding. These 
commenters argued that the Department had not made a sufficient 
argument for what would be gained by the changes, and how these 
benefits would justify the additional burden imposed upon institutions 
by these regulations.
    Two commenters stated that institutions were in the best position 
to design and implement a satisfactory academic progress policy that 
fit their institutional needs, and that the current regulations were 
sufficient for achieving this purpose. These commenters asserted that 
the proposed changes were intrusive and would lead to increased audit 
exceptions. These commenters also noted that the Department should 
consider incentives to encourage institutions to research student 
success in light of their own SAP policies. One commenter stated that 
the proposed regulations were too prescriptive, and that institutions 
would require significant guidance in the FSA Handbook in order to be 
able to comply with the new regulations.
    Two commenters stated that while they generally agreed with the 
Department's desire to clarify the SAP regulations and with the 
proposed approach reflected in the NPRM, the regulations had a number 
of unintended consequences. These commenters indicated that the 
Department's proposal would force institutions to choose whether to 
take on additional workload by evaluating students each term, or to 
take on the additional workload caused by the dramatic increase in 
appeals. One of the commenters noted as an example an institution that 
has a number of Alaskan Native students to whom it provides significant 
support, particularly early in their careers; in this case, the 
commenter stated that these students would be significantly harmed by 
these SAP regulations as the students often cannot remedy their 
academic problems in a short period of time. Both of these commenters 
noted that while the Department believes that it has to address abuses 
with the current regulations, that it should weigh this against the 
unintended consequences of the proposed regulations, which include 
increased workload for institutions and unfair impact on certain groups 
of students.
    Discussion: The Department disagrees with the commenters who 
suggested that these regulations should be resubmitted for the 
negotiated rulemaking process. The proposed changes to the SAP 
regulations in Sec. Sec.  668.16(e), 668.32(f), and 668.34 have already 
been through the negotiated rulemaking process. In fact, the 
negotiators reached tentative agreement on these proposed changes. 
During negotiations, most negotiators stated that it was appropriate 
for the Department to provide certain flexibilities for those 
institutions that chose to check on the satisfactory academic progress 
of students more often than was required by the statutory minimum of 
annually. Many of the negotiators said that they supported the proposed 
changes to the SAP regulations because they continued to provide 
significant flexibilities for institutions to craft SAP policies that 
met the needs of their student bodies

[[Page 66880]]

while still preserving program integrity. For the commenter who 
suggested that the Department should encourage institutions to study 
the consequences of their SAP policies and allow incentives for doing 
so, we will take this under advisement when we next have the 
opportunity to develop experimental site proposals.
    We do not agree with the commenters who suggest that the SAP 
regulations are too prescriptive or intrusive. Section 484(c)(1)(A) of 
the HEA requires that an eligible student be making satisfactory 
progress towards program completion, and that institutions check at 
least annually for programs longer than a year, that a student is 
annually meeting that requirement. These regulations do not require 
institutions to do any more than what is required by the HEA, and are 
not more difficult to comply with than the current regulations. 
Therefore, institutions should not experience increased incidents of 
noncompliance. We will continue to provide any applicable and needed 
guidance in the FSA Handbook to assist institutions in complying with 
the regulations.
    We do agree with the commenters who stated that an increase in SAP 
monitoring to a payment period by payment period basis would increase 
administrative burden. However, institutions are free to continue to 
monitor as frequently as they currently do, and are not required to 
change their SAP policy and monitor every payment period. As for the 
unintended consequences for particular groups of students, these 
regulations allow for institutions to craft SAP policies that best fit 
the needs of their students. An institution could evaluate the needs of 
any special student groups and find ways to work effectively with those 
students. For example, a specific student may need to have assistance 
developing an academic plan that will enable him or her to be 
successful.
    Changes: None.

Delayed Implementation

    Comment: Several commenters suggested that implementation of the 
proposed changes to Sec. Sec.  668.16(e), 668.32(f) and 668.34 should 
be delayed for a couple of years to allow institutions to prepare their 
policies and procedures to comply with the regulatory changes. One 
commenter recommended that implementation be delayed until the 2012-13 
award year to allow for institutions to make changes to their 
monitoring systems. Another commenter encouraged the Department to 
delay implementation of the regulations for SAP, but noted that if we 
do not delay implementation, then the Department should issue guidance 
as to how the new regulations will affect summer crossover payment 
periods. This commenter expressed concern that, without this additional 
guidance, it will be unclear as to which SAP regulations apply to 
students enrolled in summer.
    Discussion: While the Department appreciates that some institutions 
may have to make changes to computer monitoring systems, or written 
policies and procedures, we do not believe that the changes to the SAP 
regulations are extensive enough to warrant delayed implementation. 
Institutions that may have to adjust or change their SAP policy will 
have to publicize such a change to students, and let students know when 
any new SAP policy is effective. As such, the summer crossover payment 
period would be addressed by the school's new policy and would be 
subject to the effective date of the school's new policy. For example, 
a school may decide that for the purpose of this policy change, a 2011-
12 summer crossover period will be subject to their current SAP policy 
and procedures, as part of the 2010-11 award year. This would be 
acceptable, and should be addressed in the school's notification to 
their students of the effective date of any new policy.
    Changes: None.

Satisfactory Academic Progress (Sec.  668.34)

    Comment: Two commenters stated that the term ``financial aid 
applicants'' should be substituted for the word ``students'' in Sec.  
668.34. The commenters indicated that students who had not applied for 
financial aid would be confused by notifications about eligibility 
under the SAP regulations. These commenters argued that institutions 
should only be required to send notifications to financial aid 
applicants, and that the proposed requirement that notifications be 
sent to all of an institution's students is unreasonable.
    Discussion: There is no requirement in the proposed regulations for 
schools to notify students who are not applying or receiving title IV, 
HEA aid of their eligibility under SAP. These regulations do not impose 
such a requirement. Moreover, we do not believe it is necessary to 
replace the term ``student'' with the term ``financial aid applicant'' 
in these regulations since we are referring to general student 
eligibility criteria, which affect not only financial aid applicants, 
but recipients of title IV, HEA funds as well. There is no attempt to 
regulate any other students in these regulations.
    Changes: None.

Consistency Among Categories of Students

    Comment: One commenter noted that proposed Sec.  668.34(a)(2) 
retained the language from current Sec.  668.16(e)(3) that the 
institution's policy must be consistent among categories of students. 
This commenter questioned whether, within the categories of students, 
an institution could evaluate sub-categories of students differently. 
For example, within the group of undergraduate students, could an 
institution choose to evaluate freshmen and sophomore students every 
payment period but upperclassmen only once a year. The commenter noted 
that this approach might be used if the institution determined that 
students in the first two years needed more intervention, and that 
after that time students were more likely to remain enrolled until 
graduation. The commenter also asked if this approach is allowable, 
could the institution use a financial aid warning for those students 
who are evaluated every payment period.
    One commenter noted that proposed Sec.  668.34(a)(2) does not 
appear to allow for different evaluation periods based upon the type of 
student or program being evaluated. For example, this commenter noted 
that an institution may want to evaluate undergraduates each payment 
period and evaluate graduate students annually. The commenter proposed 
changes to the regulatory language that would allow for such a 
difference.
    Discussion: These regulations retain the flexibility for an 
institution to evaluate different categories of students differently, 
as long as the policy provides for consistent application of standards 
within each of the categories of students. Institutions retain 
flexibility to create a policy within those groups of students to best 
meet the needs of its student body. If they wish to institute a policy 
that evaluates freshmen and sophomores every payment period, and 
juniors and seniors annually, an institution is free to do so. Such a 
policy would only allow for the automatic financial aid warning status 
to be used for those students who are evaluated every payment period. 
This would, however, allow for a policy that is sensitive to the needs 
of the institution's student body. For this reason, we do not believe 
that any changes are needed to respond to the commenters' concerns.
    Changes: None.

Frequency of Evaluation

    Comment: One commenter supported the proposed regulations, but 
expressed concern that an institution may not have

[[Page 66881]]

time prior to the start of the next term to evaluate SAP, thereby 
resulting in students owing a repayment of title IV, HEA funds. Several 
commenters noted that for some academic periods there is not enough 
time to evaluate students prior to the beginning of the next payment 
period. These commenters noted that this is particularly true for 
institutions with quarters and even most traditional calendar schools 
for the period after the summer term. One commenter stated that, in 
order to accommodate the realities of institutions that use the quarter 
system, all institutions that monitor their students' satisfactory 
academic progress more frequently than annually should be allowed to 
use the financial aid warning status.
    Several commenters argued that the Department should not require 
institutions to evaluate more frequently than annually. Numerous 
commenters did not agree with the Department giving additional 
flexibilities to those institutions that evaluate the satisfactory 
academic progress of its students each payment period rather than 
annually.
    One commenter stated that it was unfair to ``pressure'' 
institutions to check a student's satisfactory academic progress more 
frequently than once per year, particularly if they have stable student 
populations and good graduation rates. This commenter argued that these 
types of institutions should be allowed to use the flexibility of the 
financial aid warning status even if they monitored SAP less frequently 
than every payment period. Another commenter representing an 
association noted that some of its members objected to what they 
perceived as the Department restricting flexibility when an institution 
is in compliance with the minimum yearly requirement established under 
section 484(c)(1)(A) of the HEA. Another commenter argued that it would 
decrease student success to require all institutions to check 
satisfactory progress each payment period, as students would not know 
from one term to the next what their eligibility for aid might be. This 
commenter expressed concern that this would particularly disadvantage 
low income and minority students.
    One commenter argued that by strengthening other parts of the SAP 
regulations, only one probationary period for example, abuses could be 
curtailed, and institutions would not be encouraged to create more 
lenient policies.
    Discussion: The Department appreciates the fact that there could be 
an increased administrative burden for some institutions to change the 
frequency with which they monitor the satisfactory academic progress of 
their students to a payment period-by-payment period basis. However, 
changing the frequency for monitoring satisfactory academic progress is 
not required under these regulations; institutions still have the 
flexibility to create a policy that best meets the needs of their 
student body. If an institution believes, for example, that evaluating 
SAP every payment period would create too much uncertainty for their 
students, then they are not required to develop such a policy.
    With respect to the commenter who suggested that institutions with 
stable student populations and good graduation rates should be able to 
use the flexibility of the financial aid warning status even if they 
monitored SAP on an annual basis, we do not believe it is appropriate 
to allow extended periods of financial aid warning because this is 
essentially providing title IV, HEA aid to students who are not making 
progress towards program completion. We understand that some 
institutions believe that the Department is unfairly placing 
restrictions on institutions that choose to stay with minimum annual 
evaluations, or to evaluate less frequently than every payment period. 
However, we do not believe that it is appropriate to continue to allow 
a student who does not meet eligibility criteria to continue to receive 
title IV, HEA funds without a formal intervention by the institution in 
the form of an appeal approval or an academic plan.
    Changes: None.
    Comment: Several commenters noted that students who attend quarter 
schools face an inequity under proposed Sec.  668.34 in that they could 
lose title IV, HEA eligibility after 20 weeks, whereas for a student at 
a semester school, they could lose title IV, HEA eligibility after 30 
weeks, which is an academic year. These commenters asserted that this 
subjects the student at a quarter school to more rigorous evaluation. 
These commenters expressed concern that institutions might choose to 
evaluate the SAP of their students annually in order to level the 
playing field for their students, as well as relieve administrative 
burden.
    One commenter expressed concern that the term ``annually'' in Sec.  
668.34 was subject to interpretation and that questions would arise as 
to whether this term referred to every calendar year, every 12 months, 
or every academic year. This commenter suggested that the Department 
revise Sec.  668.34(a)(3)(ii) and (d) to refer to ``every academic 
year'' rather than ``annually''.
    Discussion: The Department notes that a student in a quarter 
program would be evaluated three times in an academic year, while the 
student in a semester program would be evaluated twice in an academic 
year. While some institutions may view this as a more rigorous 
evaluation, it also allows more opportunities for intervention by the 
institution. We would hope that an institution would develop a policy 
that would best serve the needs of students, and that if the 
institution believes that more frequent evaluations would be 
beneficial, that it would work with faculty and other parties to 
attempt to make such a review possible, for example, by shortening the 
amount of time that it takes grades to become available for evaluation.
    The Department notes that institutions that currently review 
student progress annually choose to review all students at a specific 
point in time, such as at the end of the spring term or spring payment 
period. The Department agrees that this is an appropriate and 
reasonable institutional policy for an institution that reviews 
academic progress annually. We do not believe that further regulatory 
language is necessary to specify that the reviews happen every academic 
year because if the review happens annually, it necessarily will happen 
every academic year.
    Changes: None.
    Comment: Several commenters indicated that the proposed SAP 
regulations will not work well for nonterm and nonstandard term 
programs. They noted that because students in these types of programs 
complete payment periods at various points during the year, 
institutions with these types of programs would be unable to evaluate 
SAP at the end of each payment period. One commenter specifically asked 
the Department to clarify how SAP in a nonterm program could be 
evaluated under proposed Sec.  668.34. Another commenter noted that 
institutions with 8-week terms would find it overly burdensome to 
evaluate academic progress every payment period. This commenter 
indicated that an unintended consequence of the proposed changes 
reflected in Sec.  668.34 would be that institutions with nonstandard 
term or nonterm programs would evaluate less frequently than currently, 
due to the administrative burden. Several commenters suggested that to 
avoid this unintended consequence, the regulations should allow 
institutions with nonterm programs to set evaluations based upon

[[Page 66882]]

calendar dates rather than payment period completion. One commenter 
stated that these ``scheduled satisfactory academic progress 
calculation'' periods could then be used as the basis for the student's 
continued receipt of aid or placement on financial aid warning. This 
commenter also suggested that we revise Sec.  668.34 to make the 
financial aid warning status available to those institutions with 
nonterm programs that evaluate student academic progress more 
frequently than annually but not in conjunction with payment periods. 
The commenter expressed that much confusion will result if the 
Department does not address how institutions with nonterm programs, 
where the annual review date chosen for SAP review does not coincide 
with a payment period, can comply with these regulations.
    Another commenter stated that the Department should consider 
studying different instructional delivery models in order to determine 
how to best regulate accountability for institutions that need to 
evaluate SAP for students in nonstandard programs.
    Discussion: The Department recognizes the complicated monitoring 
that institutions with nonterm and nonstandard term programs will need 
to implement to comply with Sec.  668.34 for evaluating the academic 
progress of students in these programs, if they choose to evaluate SAP 
on a payment period-by-payment period bases. This is because, for these 
programs, institutions could have students completing payment periods 
on a daily basis. We understand why institutions may find it easier to 
set one particular calendar date to evaluate the SAP of all of their 
students in these programs. However, we do not believe that this 
approach will work because on any given date, any particular student 
could be at the beginning, middle, or end of a payment period. The SAP 
review must account for completed coursework, and students in the 
middle of a payment period, for example, might still have days or weeks 
to go to finish that work. We do believe that the institution could set 
a particular time period when it evaluates SAP for all of its students. 
For example, the institution could set a policy that SAP evaluation 
will occur for all students upon the completion of the payment period 
in a given month(s). The evaluation would then include all of the 
coursework that an individual student completes for the payment period 
completed in that month. We do not believe that evaluating students at 
any moment in time other than at the end of a payment period is an 
appropriate measure of the student's current progress towards program 
completion, as it is not generally possible to evaluate the work in 
progress. By evaluating all of the most recently completed work, a SAP 
evaluation will be most accurate in portraying a student's progress, 
and will enable the institution to evaluate SAP prior to making the 
payment for the next payment period thereby insuring payments only to 
eligible students. We have, therefore, made a change to the proposed 
regulations to clarify that the evaluation must occur at the end of a 
payment period. With regards to the commenter who suggested that the 
Department should conduct a study in order to determine the best way to 
regulate accountability for students in nontraditional programs, we 
will take this recommendation under advisement.
    Changes: We have revised Sec.  668.34(a)(3)(ii) to provide that, 
for programs longer than an academic year in length, satisfactory 
academic progress is measured at the end of each payment period or at 
least annually to correspond to the end of a payment period.
    Comment: Two commenters noted that the proposed SAP regulations do 
not address students with disabilities and their needs, especially 
during the appeals process, as such students may need several appeals.
    Discussion: When evaluating a student appeal under Sec.  668.34, an 
institution may take into consideration factors that could have 
affected the student's academic progress. These factors can include 
whether the student has a disability or other extenuating 
circumstances. Additional considerations may also be given in an 
academic plan for a student who has a disability as long as applicable 
title IV, HEA program requirements are followed. Therefore, we do not 
believe that it is necessary to include any additional regulatory 
language on evaluating the SAP of students with disabilities or the 
appeals process for those students.
    Changes: None.
    Comment: One commenter, who expressed concern that the proposed SAP 
regulations were cumbersome, asked whether the regulations would permit 
two specific types of situations. First, the commenter asked whether an 
institution could retain the ability to utilize the financial aid 
warning status if its SAP policy stated that it would begin monitoring 
a student's academic progress after the student's first academic year, 
and then continue to monitor the student's progress every payment 
period thereafter. Second, the commenter asked whether a student could 
continue to receive title IV, HEA aid without further appeal if the 
student is in financial aid warning status and he or she submits, and 
continues to meet the terms of, an acceptable academic plan.
    Discussion: The proposed regulations allow for significant 
flexibilities for institutions. If the institution wishes to monitor at 
different periods in time, such as at the end of the first year, and 
then by payment period after that, it is free to do so. In this 
situation, only those students who are evaluated each payment period 
may receive the automatic financial aid warning status.
    With regard to the second scenario described by the commenter, a 
student who has appealed a determination that he or she is not meeting 
satisfactory academic progress and is attending his or her program 
under an approved academic plan because he or she is on financial aid 
warning status remains eligible for title IV, HEA aid as long as he or 
she continues to meet the conditions of that plan. In such a situation, 
the student's academic progress would simply be re-evaluated at the 
same time as the institution's other title IV, HEA aid recipients are 
evaluated, unless its policy called for a different review period.
    Changes: None.
    Comment: One commenter noted that at his institution summer is 
considered a trailing term, and the institution evaluates SAP at the 
end of the spring term. The commenter asked whether summer coursework 
could be used retroactively as part of the student's academic plan. The 
commenter also questioned whether the institution could state in its 
SAP policy that it reviews SAP after all work for the academic year is 
completed. Under this approach, the institution would review some 
students in the spring and others after they complete summer term. 
Another commenter asked how to handle an optional summer term.
    Discussion: An institution may choose to state in its SAP policy 
that it monitors academic progress at the end of the student's 
completion of the academic year. These SAP regulations still leave the 
flexibility to the institution to determine what policy will best serve 
its students. We note, however, that under an institution's SAP policy, 
the institution must evaluate all of the student's coursework at some 
point, and that the financial aid warning status described in Sec.  
668.34(b) is only available to institutions that evaluate a student's 
academic progress every payment period.
    If an institution evaluates SAP by payment period, then it would 
evaluate a student's academic progress at the end of each payment 
period that the student attends. If the institution evaluates SAP

[[Page 66883]]

annually, then it would evaluate all of the coursework that the student 
has attempted and completed since the last annual evaluation to 
determine whether the student is making satisfactory academic progress. 
There are no periods of the student's attendance that are not 
considered in the evaluation.
    Changes: None.

Minimum GPA

    Comment: One commenter noted that, under current Sec.  668.34(b), a 
student must have a ``C'' average or its equivalent after two years in 
order to make satisfactory academic progress. The commenter noted that 
the Department's guidance in this area has been that the student must 
have a ``C'' average or its equivalent after two years of attendance, 
regardless of the student's enrollment status during that time. The 
commenter stated that proposed Sec.  668.34(4)(ii) states that the 
``C'' average is required at the end of two academic years. The 
commenter asked the Department to clarify whether the use of the phrase 
``two academic years'' as opposed to the phrase ``two years'' results 
in any substantive change in how the Department interprets this 
requirement. Another commenter stated that the current regulations are 
sufficient in this area, because they allow institutions to interpret 
the phrase ``two years'' in the way that is best for their students.
    Discussion: The term ``academic year'' is used in section 
484(c)(1)(B) of the HEA, which states that a student is considered to 
be maintaining satisfactory academic progress if the student has a 
cumulative ``C'' average, or its equivalent or academic standing 
consistent with the requirements for graduation, as determined by the 
institution, at the end of the second such academic year. We changed 
the reference from ``year'' to ``academic year'' in Sec.  668.34 to 
more closely align this regulatory language with the corresponding 
statutory language. This change, however, does not alter the 
Department's interpretation that this requirement means that a student 
must have a ``C'' average or its equivalent after two years of 
attendance, regardless of the student's enrollment status.
    Changes: None.

Pace

    Comment: Two commenters noted that proposed Sec.  668.34(a)(5)(ii) 
states that an institution is not required to include remedial 
coursework when determining the attempted and completed hours for 
purposes of evaluating a student's pace toward completion of the 
program. Both commenters requested clarification that an institution 
may, but is not required to, include remedial coursework when making 
its SAP determination.
    Discussion: It is the Department's longstanding position that an 
institution is not required to include remedial courses when 
calculating the student's progress towards program completion. While an 
institution is not required to include remedial courses when 
calculating pace under the SAP analysis, it may do so as long as its 
SAP policy otherwise meets the requirements in Sec.  668.34.
    Changes: None.
    Comment: One commenter, who noted that its students enter a program 
at multiple points during the year, asked the Department to clarify how 
to calculate a student's ``pace'' toward program completion under 
proposed Sec.  668.34(a)(5)(ii). This commenter also asked whether full 
time or part time enrollment should be used to calculate pace toward 
completion under these regulations. Another commenter asked the 
Department to clarify how pace relates to maximum timeframe under these 
regulations. This commenter questioned whether a time component of 
weeks or months to program completion needed to be part of the pace 
measurement. Another commenter expressed concern that proposed Sec.  
668.34(a)(5) is less clear than a strict percentage of completion 
policy. This commenter, who came up with a 67 percent minimum required 
completion rate when applying the pace formula and the maximum 
timeframe requirements to the normal BA graduation requirements, argued 
that the Department should revise the regulations to list the minimum 
completion rate that would allow a student to complete his or her 
program in a 150 percent maximum timeframe (67 percent completion in 
the commenter's calculation).
    This commenter also stated that any institution that had a stricter 
than minimum SAP policy, such as higher required completion rates, 
should be allowed to use the financial aid warning status, even if it 
only checked SAP on an annual basis. The commenter stated that this 
would allow those institutions with stricter policies and high 
completion rates to use the flexibility offered through the use of the 
financial aid warning status.
    Discussion: Proposed Sec.  668.34(a)(5)(i), together with the 
definition of maximum timeframe in Sec.  668.34(b), defines ``pace'' 
for purposes of SAP evaluations; it is the pace at which a student must 
progress through his or her educational program to ensure that the 
student will complete the program within the maximum timeframe and 
provides for measurement of the student's progress at each SAP 
evaluation. Proposed Sec.  668.34(a)(5)(ii) provides the formula that 
an institution must use at each SAP evaluation to calculate pace: 
divide the cumulative number of hours the student has successfully 
completed by the cumulative number of hours the student has attempted. 
This calculation is to be used regardless of the student's enrollment 
status, as the formula is designed to measure completion appropriately 
for each student regardless of whether that student attends full time 
or part time. The Department believes that these requirements for 
measuring pace toward program completion provide maximum flexibility 
for both students and institutions. Students are free to attend at 
whatever enrollment status is appropriate for them, and institutions 
can measure the pace as appropriate for their students. Because a 
graduated pace standard (i.e., 50 percent the first year, 60 percent 
the second year, and 70 percent every year thereafter) is permissible, 
the Department does not believe it is appropriate to regulate a 
specific completion rate for all students in all programs at all 
institutions.
    Changes: None.

Transfer Credits

    Comment: Several commenters stated that, for purposes of 
calculating pace toward program completion under Sec.  668.34(a)(5), 
transfer credits should only count in the completed hours category, but 
not the attempted hours category, because those credits were not taken 
at the institution determining SAP. Another commenter stated that 
transfer credits should only be counted in the attempted hours category 
but not the completed hours category. One commenter requested 
clarification as to whether the requirement in Sec.  668.34(a)(6) to 
count transfer credits as both attempted and completed means that 
institutions are required to request and evaluate all applicable 
transcripts.
    Discussion: Whether or not an institution evaluates the transcripts 
of all coursework taken by a student at previous institutions is a 
decision left to the institution. The Department has not required 
institutions to request transcripts for previously completed work, and 
is not doing so now. However, in so much as credits taken at another 
institution are accepted towards the student's academic program under 
the institution's academic requirements, we do believe it is 
appropriate to include those credits in both the attempted and 
completed hours

[[Page 66884]]

category when measuring pace towards completion for each SAP evaluation 
period.
    Changes: None.
    Comment: One commenter recommended that the Department revise Sec.  
668.34(a) to require transfer credits to be considered when determining 
progress towards maximum timeframe, but not for purposes of determining 
the pace of completion for each evaluation period. This commenter 
stated that counting transfer credits when looking at each evaluation 
period would give transfer students an unfair advantage in the pace to 
completion calculation.
    Another commenter noted that the practice of excluding courses that 
were not degree applicable from the pace calculation for evaluating SAP 
has prompted many students to change majors in order to retain 
financial aid eligibility. The commenter opined that this practice 
leaves the door open to abuse of the system. Additionally, the 
commenter stated that the Department should require that all courses 
that the student had attempted and completed in his entire career be 
included in the pace computation for purposes of determining the 
student's progress toward program completion.
    Discussion: The Department acknowledges that transfer students may 
have a slight advantage over other students when an institution 
calculates their pace toward program completion. However, this 
inclusion of transfer credits in the calculation of pace will allow for 
a more level playing field for all students, and standardize treatment 
of completed credits in the SAP evaluation. This is because including 
transfer credits in the calculation of pace means we are considering 
all completed work for all students.
    We also note that the Department has had a longstanding policy that 
institutions are free to set their own SAP policy that deals with major 
changes as they relate to measurement of maximum timeframe. Therefore, 
if an institution wishes to limit the number of major changes that it 
will allow a student, then it is free to set a policy that does so.
    Changes: None.

Financial Aid Probation and Financial Aid Warning Statuses

    Comment: Many commenters found the definitions of the terms 
financial aid warning and financial aid probation in proposed Sec.  
668.34(b) to be helpful. These commenters stated that it was very 
useful to have standard vocabulary to use when discussing SAP. Some 
commenters noted that these terms and concepts matched their current 
policy while others requested slight changes to the terms or 
definitions so that they align more closely with their own 
institution's policies. Several commenters sought clarification, 
however, as to whether institutions are required under these 
regulations to use the newly defined terms of financial aid warning and 
financial aid probation in their consumer information and other 
communications with students, or whether we would allow them to 
continue to use their current terminology. These commenters expressed 
concern that their students might be confused if they changed the 
terminology used in this area.
    Discussion: The Department intends to allow institutions to have as 
much flexibility as possible in developing an appropriate SAP policy 
for their institution as well as consumer information materials for 
their students. However, institutions must incorporate these 
regulations changes into the information that they provide to students; 
this includes ensuring that the information made available by the 
institution uses the terminology used in these regulations.
    Changes: None.
    Comment: Several commenters expressed support for the addition of 
the concept of a financial aid warning status, but believed that the 
use of this status should be available to all institutions, regardless 
of how often they performed a SAP evaluation. Some of the commenters 
asserted that this would allow institutions additional flexibility in 
administering SAP that would be beneficial for students. Some 
commenters also noted that it would be an administrative burden to 
review students more frequently. Others indicated that they had stable 
student populations and did not need to evaluate more often than 
annually. At least one commenter opined that schools with good 
graduation and completion rates should be able to use the financial aid 
warning status regardless of how often they checked SAP. Some 
commenters argued that the financial aid warning status should be an 
option for all institutions to use automatically and without 
intervention, and for periods as long as a year or until the next 
scheduled evaluation. One commenter suggested that in exchange for 
allowing all institutions to use the financial aid warning status 
regardless of how often they evaluate students' academic progress, 
institutions should be required to remind students of their SAP 
standards at the end of any payment period in which an evaluation is 
not done. Some commenters wanted to know if the financial aid warning 
status could be used to evaluate a student's progress and to help to 
prepare an academic plan and appeal for the student, so that the 
student would not suffer a lapse in eligibility.
    Discussion: While we appreciate the fact that institutions support 
the flexibility that the financial aid warning status provides, the 
Department feels strongly that this option should only be available 
when an institution evaluates SAP each payment period. It is important 
to remember that a student who is on a financial aid warning status is 
one who is not actually meeting SAP standards.
    If an institution has a stable student population and does not 
believe it needs to evaluate SAP each payment period, then it is not 
required to do so. We recognize that there is an additional 
administrative burden involved for institutions to evaluate every 
payment period, but we also believe students benefit from the early 
intervention of this approach. We believe that this approach will 
impact favorably on student completion rates, as well as help minimize 
student debt levels for those that are not on track to complete a 
program successfully. We note that, during the negotiated rulemaking 
process, several negotiators had a SAP policy that required checking a 
student's academic progress each payment period. These negotiators 
related numerous student success stories that resulted from early 
intervention. This demonstrated success with this approach led to the 
negotiators supporting the proposed SAP regulations.
    We believe that it is important to get students back on track as 
soon as possible, and not allow the continued provision of title IV, 
HEA aid to students who are not making progress towards program 
completion under the institution's SAP standards. Allowing a financial 
aid warning status for one payment period allows the institution to 
provide an alert to that student of his status, as well as provide any 
needed support services. The institution could use the time to meet 
with the student and, if the situation means that an appeal will be 
necessary, to help the student prepare that appeal or to prepare an 
academic plan. The same benefit is not realized if the student simply 
receives notice of the institution's SAP policy, as he may not 
understand his individual status with regards to the policy.
    Changes: None.
    Comment: Several commenters expressed support for the financial aid 
warning and financial aid probation

[[Page 66885]]

statuses proposed in Sec.  668.34, but requested that the Department 
add to the SAP regulations a defined term for a student who has lost 
eligibility for title IV, HEA aid as a result of an institution's 
evaluation under the SAP regulations. Several other commenters 
questioned what status would be assigned to a student who was 
reinstated on an academic plan and was making progress under that plan. 
These commenters wondered whether these individuals would still be 
considered to be on financial aid probation status, or if the 
Department planned to define another term to refer to them.
    Discussion: A student who is not meeting SAP is simply not eligible 
to receive title IV, HEA aid, as he or she does not meet one of the 
basic student eligibility criteria. For this reason, we do not believe 
it is necessary to define another term to describe this individual, 
just as we do not have specific terms to describe students who may not 
be meeting other basic student eligibility criteria.
    A student who has been reinstated to eligibility under an academic 
plan and is making progress under that plan is considered to be an 
eligible student. The student is not considered to be on financial aid 
warning status or financial probation status, provided he or she is 
otherwise making satisfactory progress.
    Changes: None.
    Comment: A few commenters argued that proposed Sec.  668.34(c) 
could be interpreted to allow an institution to place a student on 
financial aid warning status for more than one payment period, and 
that, under this interpretation, the student would be able to get title 
IV, HEA aid for multiple payment periods when the student is on 
financial aid warning status as long as the student was within range of 
moving into compliance with the institution's SAP standards. These 
commenters stated that the language in Sec.  668.34(c) does not need to 
be interpreted so narrowly so as to limit the number of payment periods 
during which a student could be placed on financial aid status to one 
payment period.
    Other commenters suggested that students could develop and follow 
an academic plan during the period of their financial aid warning and 
that this approach would allow for students to be put on financial aid 
warning status for multiple periods. These commenters all opined that 
there was a range of deficiencies within any category of student 
failure, and that students may require differing amounts of 
intervention to get back on track to meet the institution's SAP 
standards. The commenters stated that institutions should be able to 
define different bands of need for assigning financial aid warning 
statuses. Several other commenters requested that the Department 
clarify that students may be placed on financial aid warning or 
financial aid status for multiple payment periods throughout their 
academic careers.
    Other commenters asked the Department to clarify whether the 
requirements around financial aid warning or financial aid probationary 
statuses allow students to receive title IV, HEA aid for more than one 
payment period. One commenter indicated that lack of financial aid 
during a period in which the student is on financial aid probationary 
status would cause problems for students. The commenter stated that 
this would cause barriers for the most needy and at-risk students.
    Discussion: The financial aid warning status and the financial aid 
probationary status are both defined in Sec.  668.34(b). A student who 
has not made satisfactory academic progress and is placed under one of 
these statuses may continue to receive title, IV HEA aid for one 
payment period only, under very specific circumstances. We do not 
intend for the language in Sec.  668.34(b) to be interpreted in any 
other fashion. To respond to the commenter who believed that lack of 
financial support during this period would disadvantage students, it is 
important to note that both of these statuses provide for one payment 
period of title IV, HEA funds. It is possible for institutions that are 
able to use the financial aid warning status to do any sort of 
intervention with a student that they deem appropriate during the 
period of time the student is in that status, including help them to 
prepare an appeal or refer them to other student support services. We 
do not believe that it is appropriate, however, to continue placing 
students on a financial aid warning status for more than one payment 
period because these are students who are not making progress toward 
program completion. We do not believe it is appropriate to put the 
student on an academic plan and simply continue such a plan without an 
appropriate appeal. This is because we believe that a student should be 
required to file an appeal and explain the reason that he or she has 
not been able to meet the SAP standards, and what in his or her 
situation has changed. It is important for the student to have 
ownership in his or her current situation and the resulting academic 
plan, with an understanding of the consequences the student faces if he 
or she fails to follow the academic plan. We do agree with the 
commenters who suggest that it is possible for a student to be subject 
to more than one period of financial aid warning, or to submit more 
than one appeal throughout an academic career, if the institution's SAP 
policy allows it.
    Changes: None.
    Comment: Numerous commenters objected to the requirement in the 
proposed regulations for institutions to check SAP on a payment period-
by-payment period basis. They argued that it is unreasonable for the 
Department to impose such a requirement on institutions that do not 
have any history of abuse in this area and that otherwise have good SAP 
policies. These commenters noted that it would be overly burdensome to 
require institutions to change their SAP procedures to require SAP 
evaluations every payment period.
    Discussion: Section 668.34(a)(3) is consistent with current Sec.  
668.16(e)(2)(ii)(B), which requires institutions to check academic 
progress for programs that are longer than an academic year at least 
annually. While institutions can check academic progress for these 
programs more frequently, they are not required to do so. Under these 
regulations, institutions are only required to evaluate satisfactory 
academic progress more frequently if the program is shorter than an 
academic year.
    Changes: None.
    Comment: A couple of commenters asked the Department to confirm 
that the financial aid warning and financial aid probation status would 
be applied to the student's next payment period (following the 
institution's determination that the student is not maintaining SAP) 
and not simply to the next payment period at the institution. These 
commenters argued that it was important to apply the status to the 
student during the next term that the student was actually in 
attendance.
    One commenter believed that a program of an academic year in length 
or shorter should not be allowed to use the financial aid warning 
status because a student in such a program would never be denied title 
IV, HEA funds for not making SAP.
    Discussion: Under these regulations, an institution would apply the 
financial aid warning or financial aid probation status to a student 
during the student's next period of attendance. It is not reasonable to 
assume that the student would be considered to be on financial aid 
warning, for example, if he or she were not in attendance. For shorter 
programs (i.e., those that are an academic year or less), the 
definition of a payment period does not allow

[[Page 66886]]

disbursement of aid until the student has successfully completed the 
previous payment period. For such programs, if an institution places 
the student on financial aid warning, the student will either complete 
the program or withdraw. If the student completes the program, then he 
or she has been successful. If he or she withdraws, then the return of 
funds requirements in Sec.  668.22 will apply. In either case, the 
student received only those funds for which he or she was eligible. We 
do not plan to make any changes in this area.
    Changes: None.

Appeals

    Comment: Many commenters agreed with allowing students who would 
otherwise lose eligibility for title IV, HEA aid to appeal the loss of 
eligibility. Some commenters expressed concern that the requirements 
for an appeal were too prescriptive; for example, the commenters noted 
that Sec.  668.34(b) requires that students articulate what had changed 
in their situation and that students might not be able to comply with 
this requirement. Other commenters stated that the Department should 
make the SAP appeal regulations more prescriptive, including by 
specifying the type of documentation required to be submitted with an 
appeal. Several commenters believed that it was too burdensome on 
institutions to require them to address student appeals, while others 
stated that it was too burdensome to require institutions to develop or 
evaluate academic plans for students who appeal.
    Discussion: These SAP regulations do not require that an 
institution accept or evaluate student appeals of determinations that 
the student is not making SAP. Moreover, the regulations do not require 
institutions to develop or process an academic plan for a student who 
appeals. These are merely offered as options for institutions who wish 
to allow those students who are no longer meeting the SAP standards to 
continue to receive title IV, HEA aid. It is important to note that an 
academic plan for a student may be as complicated as a course by course 
plan toward degree completion, or as simple as a mathematical 
calculation that specifies the percentage of coursework that the 
student must now complete. Academic plans need not be complicated or 
detailed; the purpose of these plans is merely to put the student on 
track to successful program completion. Section 668.34(a)(10) does 
require that an institution that does not accept appeals notify 
students as to how eligibility for title IV, HEA aid can be regained by 
those who do not meet SAP standards. An institution is free to craft a 
SAP policy that allows appeals or not, and to specify when and how such 
appeals will be permitted as well as how often and how many times a 
student may appeal. Likewise, an institution may or may not allow an 
academic plan to be submitted for a student. The SAP policy of the 
institution should specify the conditions under which an academic plan 
might be approved, or if one will be considered at all. Because 
institutions have significant flexibility in this area, the Department 
does not believe that these regulations will impose any additional 
burden.
    Changes: None.
    Comment: Some commenters requested clarification as to when 
students on an academic plan would be evaluated. Several commenters 
requested that we clarify that a student may submit more than one 
appeal during the course of his or her academic career. A couple of 
commenters inquired whether students could appeal the 150 percent 
completion requirement, and exceed this maximum timeframe if they are 
progressing under an approved academic plan.
    One commenter also asked the Department to clarify what is meant by 
the requirement in Sec.  668.34(c)(3)(iii)(B) and (d)(2)(iii)(B) that 
an academic plan ensure that the student meet the SAP standards at a 
specific point in time. The commenter noted that the student could 
actually be able to graduate the following term, and questioned whether 
an appeal could be approved at that point.
    Discussion: Under these regulations, the institution has the 
flexibility to specify whether students on an academic plan would have 
their academic progress evaluated at the same time as other students, 
or whether they would be subject to more frequent SAP evaluations. They 
should determine what is best for students and make their policy clear 
in their SAP standards.
    As noted earlier in this preamble, an institution also retains 
flexibility under these SAP regulations to allow multiple appeals by an 
individual student. Alternatively, an institution could decide not to 
allow appeals at all. We note, however, that because pace to program 
completion within 150 percent of the published length of the 
educational program is required to be evaluated each SAP evaluation 
period, it would be reasonable to assume that a student who is not 
meeting the institution's SAP standards is not on schedule to complete 
the program within the required maximum timeframe. Therefore, this 
component of the SAP standards would be subject to appeal, if the 
institution chooses to permit appeals. Finally, we expect institutions 
to assist a student who appeals on this basis to plot a course to 
successful completion within a new maximum timeframe and to then 
monitor this pace toward completion. Any academic plan would need to 
take into account the student's progression to completion of his or her 
program, which could, in fact, be the next term.
    Changes: None.

Maximum Timeframe

    Comment: Several commenters stated that the Department should 
clarify the 150 percent maximum timeframe requirement. One of the 
commenters noted that Sec.  668.34(b) did not define maximum timeframe, 
as applied to programs that are a combination of credit and clock hours 
or a combination of undergraduate and graduate work. One of the 
commenters argued that the final regulations should reinforce the 150 
percent maximum timeframe requirement for all programs. Another 
commenter stated that we should clarify that the 150 percent maximum 
timeframe only applies to determining title IV, HEA eligibility. This 
commenter suggested that this maximum timeframe should not be used for 
other purposes. For example, the commenter stated that it was not 
appropriate for the Government to determine whether or not a student 
should be allowed to complete a degree simply because title IV, HEA 
eligibility had run out. Another commenter asked whether the 150 
percent maximum timeframe applied to the student's entire academic 
career or only to the student's current academic program. The commenter 
gave the example of a student who had one degree, and asked if an 
institution would include those earned credits when evaluating whether 
the student was progressing in his or her program within the maximum 
timeframe.
    Discussion: The Department believes in allowing institutions the 
flexibility to define the 150 percent maximum timeframe in the most 
appropriate way for the program in question. In particular, individual 
institutions are in the best position to determine whether their 
combined programs, such as those noted by the commenters, should be 
evaluated as the sum of its parts (i.e., part clock hour and part 
credit for example) or as one type of program based on the structure of 
the majority of the program.
    The 150 percent maximum timeframe only applies to the student's 
eligibility to receive title IV, HEA aid. The Department has never 
regulated whether or not a student is able to continue on

[[Page 66887]]

to degree completion under an institution's academic criteria. The 
Department also wishes to clarify that the 150 percent maximum 
timeframe applies only to the student's current program of study. Under 
these regulations, institutions retain flexibility to define their 
programs of study in their SAP policy, as well as how they will 
determine how previously taken coursework applies to the student's 
current program of study.
    Changes: None.

Notification

    Comment: Several commenters requested clarification of the 
notification requirement in Sec.  668.34(a)(11). Specifically, these 
commenters questioned whether this provision would require institutions 
to notify all students or only those who were not making SAP.
    Discussion: Proposed Sec.  668.34(a)(11) only requires institutions 
to notify students of the results of their SAP evaluation if the 
results affect the student's eligibility to receive title IV, HEA aid. 
Institutions are not required to notify students who are making SAP of 
the results of the evaluation.
    Changes: None.

Evaluating the Validity of High School Diplomas (Sec.  668.16(p))

High School Diploma (Sec.  668.16(p))

    The Department received over 100 submissions about the new high 
school diploma regulation. Most of these supported our proposed 
changes, either with little or no qualification, or with suggested 
modifications and concerns. Others offered suggestions and concerns 
without explicitly supporting the proposed regulation.
    We noted in the preamble to the NPRM that the Department intends to 
add questions on the Free Application for Federal Student Aid (FAFSA) 
asking for the name of the high school the student graduated from and 
the State where the school is located. The 2011-2012 FAFSA will have 
one question with three fields. Students who indicate that they will 
have a high school diploma when they begin college for the 2011-2012 
year are instructed to provide the name of the high school where they 
received or will receive that diploma and the city and state where the 
school is located. In the online application, FAFSA on the Web, 
students will not be allowed to skip this question, though for 2011-
2012 it will only be presented to first-time undergraduate students. 
There will be a drop-down list of both public and private high schools, 
populated by the National Center for Education Statistics (NCES), 
within the Department of Education, from which most students will be 
able to select the high school that awarded them a diploma. Students 
who cannot find their school and those who complete a paper FAFSA will 
write in the name, city, and State of their high school. It is 
important to note that the absence of a high school on the drop-down 
list does not mean that the high school the student indicated he or she 
graduated from is not legitimate. It just means that the school was not 
included in the NCES list. Similarly, the inclusion of a high school on 
the drop-down list does not necessarily mean that the high school is 
legitimate.
    In addition to the information in the following discussions, we 
will provide more guidance on implementing Sec.  668.16(p), as 
necessary, in Dear Colleague Letters, electronic announcements, and the 
Federal Student Aid Handbook.
    Comment: Several commenters observed that many institutions already 
perform some kind of high school evaluation as part of their admission 
process, and one noted that because of this, it is appropriate for the 
Department to establish regulations requiring the validation of high 
school diplomas. One commenter appreciated that proposed Sec.  
668.16(p) would help institutions when they are challenged by students 
or high school diploma mills for looking into the validity of high 
school diplomas. Another commenter noted that a list of ``good'' high 
schools would be valuable for students in deciding whether they would 
want to obtain a diploma from a given source. Another commenter opined 
that the identification of suspect schools benefits students.
    Discussion: We appreciate the support of these commenters. The list 
of schools that will appear on FAFSA on the Web is meant only as an aid 
for students in completing the FAFSA. It is not a list of ``good'' 
schools, and it may happen that an institution will need to evaluate 
the diploma from one of these schools. Also, a school that does not 
appear on the list should not be inferred to be ``bad.'' The intent of 
new Sec.  668.16(p) is to have institutions develop a process for 
evaluating the legitimacy of a student's claim to have completed high 
school and not to have simply purchased a document that purports they 
completed a high school curriculum. Under this provision, institutions 
must develop and follow procedures to evaluate the validity of a 
student's high school completion if the institution or the Secretary 
has reason to suspect the legitimacy of the diploma.
    Changes: None.
    Comment: Many commenters requested that the Department provide 
institutions with clear guidance on how to review the validity of high 
school diplomas and that it provide this guidance as soon as possible. 
Although, as noted previously, many institutions review high school 
credentials, one large college noted that there are no common practices 
for these types of reviews and asked that the Department delay the 
effective date of this regulatory requirement if it is unable to 
release the needed guidance far enough in advance of July 1, 2011. This 
commenter stated that such a delay would be needed for schools to have 
enough time to create their procedures and train their employees on 
following the procedures. One commenter asked what the effect of this 
requirement would be on the student's eligibility for title IV, HEA 
program assistance when an institution is unable to determine whether a 
given diploma is valid.
    Discussion: There is no plan to delay the implementation of Sec.  
668.16(p). As noted earlier in this discussion, more guidance will be 
forthcoming about evaluating the validity of high school diplomas, and 
many institutions have been evaluating the validity of high school 
diplomas for years. We encourage financial aid administrators (FAAs) to 
consult with each other in this matter, which can be especially useful 
for similar types of institutions in the same State, where differing 
levels of oversight by State departments of education will have a 
significant effect on what procedures an institution might establish.
    With respect to the comment asking about student eligibility for 
title IV, HEA program assistance when an institution is unable to 
determine whether the student's diploma is valid, we note that there 
are alternatives for the student to establish aid eligibility under 
Sec.  668.32(e), such as passing an ATB test, or completing six credits 
of college coursework that apply to a program at the current school.
    Changes: None.
    Comment: Various commenters either requested that we create a list 
of fraudulent or ``bad'' high schools or asked if we planned to do so. 
Many commenters asked that we make available both a list of ``bad'' 
high schools and a list of acceptable schools and that we update them 
frequently, some suggesting at least quarterly. Some commenters 
requested that the effective date for this regulatory provision be 
delayed until at least 2012-2013 so the Department can have a complete 
list of acceptable schools and can address

[[Page 66888]]

issues such as foreign postsecondary schools, defunct schools, and 
missing records.
    Finally, some commenters asked what we would consider acceptable 
documentation when a high school does not appear in the Department's 
database of acceptable high schools.
    Discussion: As noted earlier in this preamble, we are not delaying 
the effective date of Sec.  668.16(p). We believe it is an important 
new provision that can be implemented for the 2011-2012 year on the 
basis we describe in this preamble.
    To emphasize a point earlier in this preamble, a school's inclusion 
on the list on FAFSA on the Web does not mean that it is exempt from 
possible review by an institution. Acceptable documentation for a 
review can include a high school diploma and a final transcript that 
shows all the courses the student completed.
    Changes: None.
    Comment: One commenter requested that the high school diploma 
validation required under Sec.  668.16(p) apply only to undergraduates. 
Others asked for institutions to be able to waive diploma validation 
for students who are substantially older than traditional college age 
and for students whose high school no longer exists or cannot be 
readily identified.
    Discussion: For 2011-2012, the Department will only ask first-year 
undergraduate students to provide on FAFSA on the Web information about 
the high school they graduated from. However, Sec.  668.16(p) requires 
institutions to review any high school diploma if the institution or 
the Secretary has reason to believe the diploma is not valid. In those 
instances the institution must evaluate the validity of the student's 
high school completion whether the diploma was obtained by an 
undergraduate or other student and regardless of whether the student's 
high school no longer exists or is not easily identified. We do not 
believe it is appropriate to limit this requirement to only 
undergraduate students or those whose high schools are not easily 
identified because the student eligibility requirement to have a high 
school diploma or its recognized equivalent or to meet an alternative 
standard applies to all students.
    Changes: None.
    Comment: Several commenters expressed concern about the difficulty 
of validating high schools, not only for older students, but also for 
students who graduated from a high school in a different part of the 
country, or in another country. One commenter suggested that the 
Department permit institutions to use copies of foreign secondary 
school credentials, attestations, and proof of entry into the United 
States after the age of compulsory attendance, when evaluating the 
secondary school education of foreign-born students. Another commenter 
stated that many admissions offices use the ``credential score'' for 
foreign countries instead of the name of the school, and that the 
Department should give guidance on how institutions can use that score 
to evaluate diplomas from foreign schools. A couple of commenters 
expressed concern that under proposed Sec.  668.16(p) students who went 
to foreign schools would be adversely affected and possibly denied 
access to postsecondary education.
    Discussion: An institution may consider various kinds of 
documentation when developing its procedures for evaluating the 
validity of a student's high school diploma. For example, there are 
companies that provide services for determining the validity of foreign 
secondary school diplomas; documentation from such companies can inform 
an institution's diploma evaluation.
    Changes: None.
    Comment: A couple of commenters asked if there will be an appeal 
process for students if an institution determines that their high 
school diploma is invalid. Others observed that different institutions 
may decide differently about a given high school's diploma and asked 
whether the Department will be the final arbiter in these situations.
    Discussion: The regulations do not provide for an appeal process 
for students if an institution determines their high school diploma is 
invalid. The Department considers institutions to be our agents in 
administering the title IV, HEA programs and to have final authority in 
many decisions. Consequently, we do not generally have appeal processes 
in place for institutional determinations of student eligibility. 
Moreover, the Department will not intervene in cases where a high 
school diploma is deemed valid at one institution but not another.
    Changes: None.
    Comment: Several commenters asked what the effect of proposed Sec.  
668.16(p) would be on homeschooling, and some commenters noted that a 
home school credential is different from a high school diploma and 
asked that the Department emphasize this difference. Others asked that 
we provide guidance on State-granted credentials for homeschoolers and 
best practices for verifying home school credentials. One organization 
asked that the achievements of homeschoolers not be ignored, and that 
the proposed regulations and any related FAFSA changes recognize that 
graduates of home schools receive a diploma from their program.
    Finally, one commenter questioned why the Department is so 
interested in the quality of a high school diploma (which is not 
defined in the HEA or the Department's regulations) when homeschooled 
students are taught by their parents, who (typically) lack credentials 
and curriculum standards.
    Discussion: Section 668.16(p) does not apply to homeschooled 
students. For guidance pertaining to homeschooled students, please see 
Chapter 1 of Volume 1 of the Federal Student Aid Handbook.
    Changes: None.
    Comment: Many commenters asked if there would be, or suggested that 
there should be, a mechanism for schools and State and local agencies, 
accrediting bodies, and education departments to suggest schools that 
should be added to any acceptable and unacceptable lists that the 
Department develops in connection with Sec.  668.16(p). One commenter 
requested that when we ask States to provide lists of approved schools, 
they provide all high schools and not just public high schools, which 
the commenter noted fall under more State oversight. Another commenter 
recommended referring to the College Entrance Examination Board (CEEB) 
code for high schools to determine whether those are acceptable, and 
another suggested consulting the College Board and the Department of 
Defense to help build the list of acceptable high schools. A few 
commenters asked what will happen when an institution evaluates a 
diploma from a school not on the Department's list of acceptable high 
schools and finds that the school is acceptable. The commenter wondered 
if this will mean that institutions will have their own lists of 
acceptable schools separate from the Department's.
    Discussion: As noted earlier in this preamble, we intend to use 
information from NCES to create a drop-down list in FAFSA on the Web 
populated by the names of public and private high schools that NCES 
provides to us. Neither inclusion on the list nor exclusion from it is 
an indication of whether a high school will need to be reviewed by a 
postsecondary institution under Sec.  668.16(p).
    There is a procedure by which private schools may submit their name 
for inclusion on the private school list. Postsecondary institutions 
are not

[[Page 66889]]

responsible for submitting the names of secondary schools.
    Changes: None.
    Comment: A couple of commenters distinguished between a high school 
diploma and a transcript, and suggested that a transcript is more 
valuable for institutions to use to determine the validity of the 
student's high school completion. Another commenter noted that 
transcripts and diplomas are not interchangeable and that the 
Department should clarify this.
    Discussion: We agree that a high school transcript is not the same 
as a diploma. It is the latter that is required under the student 
eligibility regulations and the statute, not the former. A transcript 
may be a valuable tool in determining whether a high school diploma is 
valid because by listing the courses the student completed, it 
demonstrates the extent of his or her secondary school education.
    Changes: None.
    Comment: One commenter seemed to think that an institution would 
submit documentation to the Department for review if a student was 
chosen for verification due to not answering the FAFSA questions about 
his or her high school diploma.
    Discussion: The Department does not plan to require institutions to 
submit individuals' high school documentation for validation. Moreover, 
the Department does not intend to select applicants for verification 
just because they did not complete the high school diploma questions on 
the FAFSA.
    Changes: None.
    Comment: A few commenters suggested that institutions should not be 
considered to have reason to believe that an applicant's high school 
diploma is not valid or was not obtained from an entity that provides 
secondary school education, unless the information from FAFSA 
processing suggests that. These commenters argued that institutions 
should not be obligated to investigate whether every applicant's high 
school diploma is valid, nor should the institution be required, if it 
is an institution that collects diploma information as part of the 
admissions process, to cross-check that information against the 
information from the FAFSA because that would be too burdensome.
    Discussion: For the 2011-2012 award year, we will not provide any 
additional high school diploma information on the Institutional Student 
Information Record (ISIR) beyond what the student submitted on the 
FAFSA. We will not expect institutions to check the ISIR high school 
data for every student against other information obtained by the 
institution during the admissions process. However, if an institution 
has reason to believe (or the Secretary indicates) that a high school 
diploma is not valid, the institution must follow its procedures to 
evaluate the validity of the diploma.
    Changes: None.
    Comment: One commenter requested that the Department declare that 
Sec.  668.16(p) will not be retroactive.
    Discussion: This requirement will apply to institutions beginning 
on July 1, 2011, the effective date for these regulations. This means 
that institutions will be required to follow the procedures developed 
under Sec.  668.16(p) for any applicant who completes a FAFSA beginning 
with the 2011-2012 award year.
    Changes: None.
    Comment: Several commenters requested that we allow FAAs to forego 
diploma validation for students who have completed six credits of 
college coursework that applies to a program of study at the 
institution or if the student's ability to be admitted to the 
institution or eligibility for title IV, HEA aid is otherwise not 
affected.
    Discussion: It is correct that a student without a high school 
diploma would be eligible for title IV, HEA aid if he or she meets one 
of the other academic criteria, such as successfully completing six 
credits or 225 clock hours of college-level coursework that apply to a 
program at the current institution. However, because students have that 
flexibility does not obviate the requirement that for an institution to 
be eligible, it must admit as regular students only those with a high 
school diploma, or the recognized equivalent, or who are beyond the age 
of compulsory school attendance.
    Changes: None.
    Comment: One commenter asked that if the Department permits waivers 
to the requirement in Sec.  668.16(p) to follow procedures to check the 
validity of a high school diploma, that institutions, in particular 
those that do not admit students without a diploma or the equivalent, 
be permitted to evaluate the validity of a diploma if they choose.
    Discussion: There will be no waivers of the requirement that an 
institution must evaluate the validity of a high school diploma when it 
or the Secretary has reason to believe that the diploma is not valid or 
was not obtained from a school that provides secondary school 
education.
    Changes: None.
    Comment: One commenter asked that we interpret section 123 of the 
HEA (20 U.S.C. 1011l) to apply to high school diploma mills as well as 
college diploma mills.
    Discussion: This section of the HEA provides that the Department 
will, among other things, maintain information on its Web site to 
educate students, families, and employers about diploma mills and that 
it will collaborate with other Federal agencies to broadly disseminate 
to the public information on how to identify diploma mills. While 
section 105 of the HEA (20 U.S.C. 1003) defines diploma mill only in 
terms of postsecondary education, we intend to examine the issue of 
high school diploma mills further.
    Changes: None.
    Comment: One commenter urged the Department's Office of Inspector 
General to be actively engaged with other agencies in detecting fraud, 
especially given that high school diploma mills may adopt names of 
legitimate schools.
    Discussion: The Department's Office of Inspector General will 
continue to work with other agencies as appropriate to detect fraud in 
this area.
    Changes: None.
    Comment: One institution commented that it finds it difficult to 
explain to students who present questionable high school credentials 
why those credentials are not sufficient for receiving title IV, HEA 
aid.
    Discussion: In a situation such as this, we believe that it would 
be appropriate for the institution to explain to students the concept 
of a high school diploma mill, i.e., an entity that offers a 
credential, typically for a fee, and requires little or no academic 
work on the part of the purchaser of the credential. We believe that 
students with a credential from a diploma mill would not have a 
sufficient educational foundation for success at the postsecondary 
level and should not receive title IV, HEA aid.
    Changes: None.
    Comment: One commenter urged the Department to clarify that the 
diplomas of high schools that are not accredited are not necessarily 
invalid under Sec.  668.16(p). Several commenters asked whether a new 
high school that was operating but had not yet received accreditation 
would be acceptable under this regulation. A small private high school 
expressed concern that the new provision would hinder its students from 
going to college because it is not accredited and this provision may be 
misinterpreted to mean that non-accredited high schools are not 
acceptable. The school asked that we disabuse the public of the 
mistaken notion that for students to receive title IV, HEA aid, their 
high school diplomas must be from accredited schools.

[[Page 66890]]

    Discussion: Diplomas issued by high schools that are not accredited 
(more common among private than public high schools) often meet college 
admissions standards and are generally acceptable for receiving title 
IV, HEA aid. We have noted for several years in the Federal Student Aid 
Handbook that high schools do not need to be accredited for their 
diplomas to be acceptable for title IV, HEA eligibility. The 
Department's recognition of accreditation exists only at the 
postsecondary level.
    Changes: None.
    Comment: One organization representing colleges suggested that we 
should not remove a high school from any list we create if that school 
closes.
    Discussion: We do not plan to remove closed schools from a list.
    Changes: None.
    Comment: One commenter expressed concern that because many for-
profit colleges do not require proof of a high school diploma (many 
require only that the applicant provide a signed statement of high 
school completion), they will not be diligent when evaluating the 
validity of their applicants' high school diplomas.
    Discussion: Whether any institution fails to appropriately 
investigate the validity of a student's high school completion will be 
determined in program reviews, audits, and other Department oversight 
processes.
    Changes: None.
    Comment: One commenter claimed that institutions are not qualified 
to determine the quality of anyone's high school diploma, education, or 
secondary learning.
    Discussion: We disagree with this commenter. Section 668.16(p) only 
requires that institutions develop and follow procedures to determine 
the validity of a student's high school completion when they or the 
Secretary have reason to believe that the high school diploma is not 
valid or was not obtained from an entity that provides secondary school 
education. We do not believe that an institution will need any unique 
qualifications to make this determination; as noted earlier, many 
institutions already evaluate the high school completion of students 
during the admissions process.
    Changes: None.
    Comment: One commenter opined that using a list of unacceptable 
schools is a less effective method of dealing with high school 
validation, and that the best method would be to have a large database 
of all high school graduation records.
    Discussion: While we appreciate the commenter's suggestion, we do 
not believe that the creation or use of a single database of all 
graduation records from the entire country is feasible.
    Changes: None.
    Comment: One commenter stated that some institutions do not have 
the resources to evaluate the validity of high school diplomas and that 
the Department should make those determinations with the help of 
appropriate State agencies.
    Discussion: We believe that administrators at institutions, who 
have direct contact with applicants, are in the best position to 
evaluate the validity of high school completions. We will issue further 
guidance on how to make those evaluations efficient and will try to 
minimize the administrative burden on institutions.
    Changes: None.
    Comment: One commenter claimed that the Department wants to keep 
the list of acceptable high schools secret to avoid having to defend 
its inclusion of the schools on the FAFSA list.
    Discussion: As noted earlier in this preamble, FAFSA on the Web 
will include a list of schools to help students fill out the 
application; it will not be a list of acceptable schools. It will be 
available to the public via FAFSA on the Web, though whether it can be 
accessed without filling out the application and whether it will be 
available as a separate document, such as the Federal School Code List, 
are not yet decided.
    Changes: None.
    Comment: Several commenters expressed concern that complying with 
Sec.  668.16(p) would place a disproportionate burden on institutions 
and students, and that community colleges in particular would be 
burdened because of their larger numbers of immigrant and non-
traditional students. These commenters noted that the FAFSA will get 
larger by two questions. One commenter noted that the added questions 
are acceptable even with the Department's attempt to simplify the 
FAFSA, while another opined that requiring a high school diploma does 
not seem to be a significant hurdle.
    Discussion: The Department will be mindful of ways in which to 
limit the additional burden Sec.  668.16(p) will impose. However, 
because one of the statutorily defined eligibility criteria for 
receiving title IV, HEA aid is that a student completed high school, we 
do not consider it an unacceptable burden on students to report on 
their FAFSA the name, city, and State of the high school that awarded 
them their diploma. Also, there are enough alternatives to having a 
high school diploma that make satisfying the academic criterion for 
student eligibility reasonable. Finally, we consider the inclusion on 
the FAFSA of three additional, easy-to-answer fields a reasonable 
increase in the size of the FAFSA.
    Changes: None.
    Comment: One commenter noted that the new questions on the FAFSA 
will not solve the problem of identifying questionable diplomas because 
the questions will only determine if a high school is on the approved 
list.
    Discussion: We agree that the Department's list of schools will not 
solve the problem. Section 668.16(p), however, requires institutions to 
develop and follow procedures to determine the validity of a student's 
high school completion when they or the Secretary has reason to believe 
that the high school diploma is not valid or was not obtained from an 
entity that provides secondary school education. Accordingly, we 
believe that the new FAFSA question and the requirements in Sec.  
668.16(p) will go a long way to identifying those schools that are 
providing invalid diplomas.
    Changes: None.
    Comment: One commenter expressed the opinion that institutions 
should be responsible for verifying high school diplomas or General 
Education Development (GED) certificates with a copy of either 
document, or with a transcript. The commenter argued that if students 
cannot provide this documentation to the institution, they should be 
required to take an ability-to-benefit (ATB) test. Other commenters 
stated that all institutions should be required to verify that every 
title IV, HEA aid recipient has a high school diploma or GED.
    Discussion: We do not plan to require that all institutions ask, in 
every instance, for a copy of a student's diploma or transcript. 
Moreover, ATB tests are not the only alternative to a high school 
diploma or GED certificate for establishing title IV, HEA eligibility; 
for example, as noted earlier in this preamble, students who complete 
six credit hours or 225 clock hours of college coursework that apply to 
a program at the current institution and are beyond the age of 
compulsory school attendance do not need to have a high school diploma. 
Therefore, we decline to make any changes to the regulations in 
response to these comments.
    Changes: None.
    Comment: One commenter argued that verifying authenticity of high 
school diplomas is a waste of resources because even students who have

[[Page 66891]]

completed high school and obtained a valid high school diploma might 
still not be ready for college. The commenter stated that the 
Department should focus instead on improving secondary school education 
and not connect title IV, HEA eligibility to the high school credential 
until the work of improving high schools has been completed.
    Discussion: Improving high school education is an important 
objective of the Secretary; however, the Department does not consider 
it necessary to refrain from requiring institutions to develop and 
follow procedures for evaluating the validity of high school diplomas 
until the task of improving high school education nationwide has been 
completed. And we believe verifying the validity of high school 
diplomas is necessary to ensuring compliance with the eligibility 
requirements for the receipt of title IV, HEA aid.
    Changes: None.
    Comment: One commenter suggested that because Sec.  668.16(p) does 
not require documentation of a diploma or graduation from an 
applicant's high school directly, the fraud surrounding this issue will 
just switch to the use of fraudulent diplomas or transcripts 
purportedly from legitimate high schools. Also, this commenter pointed 
out that it will be easy for unscrupulous college employees to skirt 
this requirement by telling students to simply list the name of a 
legitimate school or where to get a forged diploma, just as recruiters 
now tell students where they can buy a high school diploma.
    Discussion: Institutions are free to request that documentation 
come directly from the high school. We also acknowledge that it will be 
impossible to eliminate all potential fraud, yet we believe that the 
extra step of requiring validation under Sec.  668.16(p) will help to 
eliminate some of it. As we noted in the preamble to the NPRM, the 
Department has other avenues for addressing fraudulent activities 
committed at an institution.
    Changes: None.
    Comment: One commenter noted that when an institution is evaluating 
the validity of a student's high school education and his or her 
diploma or transcript is not available, it should be able to accept a 
certified statement from the student that serves as documentation of 
graduation and explains why the student could not obtain a copy of the 
diploma.
    Discussion: A certified statement from a student is not sufficient 
documentation of this requirement. It should be rare that students 
cannot provide a copy of either their high school diploma or final 
transcript, and there might be such instances where an institution can 
still validate a student's high school education without a copy of the 
diploma or transcript. But FAAs should remember that there are 
established alternatives for a high school diploma, such as the GED 
certificate or ATB test.
    Changes: None.
    Comment: One commenter suggested that the Department should 
determine if a significant number of students indicated they had valid 
diplomas, when they, in fact, did not. The commenter recommended that 
the Department make Sec.  668.16(p) voluntary or require compliance 
through a pilot program because building and maintaining an accurate 
database will be difficult and students will make mistakes that could 
delay their eligibility for a semester, a year, or a whole degree 
program.
    Discussion: We do not plan to make compliance with Sec.  668.16(p) 
voluntary or part of a pilot program. We expect that delays resulting 
from evaluation of high school diplomas will be minimal or nonexistent.
    Changes: None.
    Comment: One commenter stated that the new FAFSA questions on high 
school completion should be required and that students should not be 
able to enter an invalid school, or leave the questions blank.
    Discussion: As noted earlier, we intend to require that students 
who indicate that they have a high school diploma also give the name of 
the school that awarded the diploma and the city and State in which the 
school is located. They will be able to select a school from the 
Department's list or be prompted to write in the name of the school. 
Students will be unable to complete the online FAFSA unless they 
provide this information.
    Changes: None.
    Comment: Commenters noted that, even if students indicate that 
their diploma is from an acceptable school, it does not prove the 
student actually graduated from that school. These commenters argued 
that proposed Sec.  668.16(p) is not an improvement to the current 
practice, and that the extra step required under the new regulatory 
provision will not help for institutions that do not require a diploma 
for admission.
    Discussion: The proposed change reflected in Sec.  668.16(p) is 
designed to reduce the number of students who indicate that they have a 
high school diploma, but who do not, or who only possess a credential 
from a ``diploma mill.'' We believe that many students with such 
credentials will indicate the name of the entity they received it from, 
either because they honestly believe they have a legitimate high school 
diploma or because they will be reluctant to provide the name of a 
school they did not graduate from because the financial aid office will 
easily be able to determine that such a statement is false. All 
institutions, including those that do not require a high school diploma 
for admission, will be subject to the requirements in Sec.  668.16(p) 
and, therefore, will need to evaluate the credentials supplied by 
students as proof of high school completion if they or the Department 
has reason to believe the credential is not valid. We believe that this 
required process will reduce the number of bad credentials.
    Changes: None.
    Comment: One commenter suggested that unless the Department 
clarifies what is a valid high school diploma, it should not, as part 
of a program review, substitute its judgment for an institution's 
determination. The commenter argued that if an institution acted 
reasonably, the eligibility of a student should not be questioned, even 
if the Department, or another school, reaches a different conclusion 
about the high school the student attended. Another commenter asked 
that the Department make clear in this preamble that institutions may 
change their determinations about a given high school. New information 
may move a school from the ``good'' list to the ``bad'' one, or vice 
versa. The commenter wanted to ensure that the Department does not 
dissuade institutions from making such adjustments by deeming that a 
later determination indicates an earlier one was inappropriate.
    Discussion: We do not plan to second-guess the decisions of college 
administrators in these matters, such as moving a high school from a 
``good'' list to a ``bad'' list (or vice versa), as long as they are 
reasonable.
    Changes: None.
    Comment: One commenter stated that it was not fair to require 
students to provide a high school diploma because, in the commenter's 
experience, homeschooled students have only a transcript as proof of 
completing a secondary school education.
    Discussion: As we noted earlier in this preamble, the procedure for 
determining the validity of homeschooled students' education is not 
affected by Sec.  668.16(p).
    Changes: None.
    Comment: One commenter observed that students in high school 
special education programs might receive a certificate or award that is 
not a high

[[Page 66892]]

school diploma when they did not complete the required coursework to 
receive an actual diploma from the school and that these students may 
incorrectly believe that the certificate or award is a diploma.
    Discussion: Students who do not complete the required coursework to 
receive a high school diploma from their secondary school by definition 
did not earn a high school diploma. These students are not eligible for 
title IV, HEA aid unless they meet the academic requirement under one 
of the alternatives to a high school diploma in Sec.  668.32(e), or 
they are students with intellectual disabilities who are seeking Pell, 
FSEOG, or FWS program assistance under Sec.  668.233.
    Changes: None.
    Comment: One commenter asked us to clarify what would cause an 
institution to have ``reason to believe that the high school diploma is 
not valid or was not obtained from an entity that provides secondary 
school education.''
    Discussion: We expect that there may be a number of situations in 
which an institution will have reason to believe that an applicant's 
high school diploma is not valid or was not obtained from an entity 
that provides secondary school education. For example, institutions may 
come across information that suggests that the applicant's diploma or 
transcript was purchased with little work expected of the student. 
Often FAAs receive conflicting information from students themselves, 
typically as remarks that cast doubt on some element of the students' 
application information. We expect the same regarding valid high school 
diplomas. Moreover, institutions may have reason to believe that a high 
school diploma is invalid if they recognize the name of the high school 
as an entity that they identified in the past as being a high school 
diploma mill.
    Changes: None.
    Comment: One commenter requested that we add a check box on the 
FAFSA for applicants who completed secondary school in a foreign 
country and an empty space for them to fill in the name of their 
secondary school. The commenter suggested that in this situation, the 
student's FAFSA would receive a ``C'' code, not automatically, but at 
random, so that due diligence would still be required by the 
institution.
    Discussion: When completing the FAFSA, applicants will be able to 
enter the name of their high school if it is not on the Department's 
drop-down list.
    Changes: None.
    Comment: One commenter expressed concern that the wording of the 
second new question proposed for the FAFSA, as noted in the preamble to 
the NPRM, could be misleading and suggested that the Department use 
either of the following questions instead:
     In what State is the school listed in question 1 
located? or
     In what State was the school in which the student 
completed high school located?
    Discussion: As we noted earlier in this preamble, the 2011-2012 
FAFSA asks for applicants to indicate the name of the high school where 
they received or will receive their diploma and the city and State 
where the school is located.
    Changes: None.

Return of Title IV, HEA Program Funds (Sec. Sec.  668.22(a), 668.22(b), 
668.22(f), and 668.22(l))

Treatment of Title IV, HEA Program Funds When a Student Withdraws From 
Term-Based Programs With Modules or Compressed Courses (Sec. Sec.  
668.22(a), 668.22 (f) and 668.22 (l))

    Comment: Approximately 80 commenters, mostly representing 
institutions, commented on the proposed changes to the treatment of 
title IV, HEA program funds when a student withdraws from a program 
offered in modules. Approximately 26 of these commenters opposed the 
proposed changes, with some commenters recommending that the Department 
not issue final regulations at this time and instead seek further input 
from the community.
    Many of these commenters believed the proposed changes would be too 
burdensome to institutions. Several commenters were concerned about the 
additional administrative and financial burden the proposed changes 
would impose on institutions by requiring them to identify and process 
more students as withdrawals. A few commenters believed that, as a 
result of this burden, the proposed regulations would discourage 
schools from offering programs in modules, potentially causing 
disruptive changes in course offerings at institutions. A few 
commenters believed institutions would be unable to comply with the 
proposed regulations because they are too complicated or too difficult 
to explain to students. One commenter believed the proposed regulations 
would force an institution to delay disbursements to prevent the 
institution or student from having to return unearned title IV, HEA 
program funds if the student withdrew.
    Many of these commenters also believed that the proposed changes 
would be harmful to students because some students who withdrew after 
completing one course in one module would earn less title IV, HEA 
program funds. In particular, some commenters believed it was unfair to 
treat as a withdrawal a student who withdrew from a course or courses 
in the payment period or period of enrollment, but who would attend 
courses later in the same payment period or period of enrollment, and 
wanted to know how to handle title IV, HEA program funds in such cases. 
A few commenters believed the proposed regulations would discourage 
students from enrolling in programs structured in modules, including 
compressed courses to accelerate completion of their program, which the 
commenters believed was in conflict with the provisions for two Federal 
Pell Grants in one award year, which were implemented to support and 
make equitable aid available for students who wish to complete their 
program sooner. A few commenters were concerned that a student who 
would now be counted as a withdrawal would be burdened with more debt: 
To the institution for any remaining balance of tuition and fees, and 
to the Department for Federal loans and or grant overpayments. One 
commenter noted that treating a student as a withdrawal also has 
negative consequences for a student under the provisions on 
satisfactory academic progress and loan repayment.
    A few commenters believed the proposed regulations unfairly 
targeted certain programs or institutions. Some of the commenters 
believed the proposed changes would treat students in module programs 
inequitably when compared to students in more traditional programs 
where courses are offered concurrently. One commenter believed that the 
proposed regulations would have a disproportionately negative affect 
for students in career technical programs, as many of those programs 
are taught in a condensed, modular form. Some commenters believed the 
proposed regulations unfairly focused on only term-based credit-hour 
programs.
    Approximately 25 of the commenters expressed an understanding of 
the Department's concern with students receiving full or large amounts 
of title IV, HEA program funds for a short period of attendance during 
a payment period or period of enrollment. A couple of those commenters 
agreed with the proposed changes. Others believed that the current 
guidance from Dear Colleague Letter of December 2000, GEN-00-24, Return 
of Title IV Aid-Volume 1--which provided that a student who 
completed only one module or compressed course within a term was not 
considered to have

[[Page 66893]]

withdrawn--should be incorporated into the regulations. These 
commenters believed that a student who has earned credits in a payment 
period or period of enrollment who then ceases attendance should not be 
treated as a withdrawal, as the existing regulations in 34 CFR 
690.80(b)(2)(ii), requiring recalculations of title IV, HEA program 
funds when a student did not begin attendance in all classes, are a 
sufficient safeguard against students receiving full or large amounts 
of title IV, HEA program funds for a short period of attendance in a 
program offered in modules. Two commenters believed that the 
satisfactory academic program provisions should be sufficient to 
prevent long-term abuse by students of title IV, HEA program funds.
    Several commenters suggested alternative approaches to ensure that 
students are not receiving title IV, HEA program funds for periods in 
which they are not in attendance. A few commenters believed that a 
student attending a certain percentage of the payment period or period 
of enrollment (commenters suggested 60 percent) should be deemed to 
have completed a payment period or period of enrollment. A couple of 
commenters believed that the determination of whether a student should 
be treated as a withdrawal should be based on credit hours completed, 
rather than days completed, meaning that a student who ceased 
attendance would not be treated as a withdrawal as long as the student 
completed the minimum number of credits required to be eligible for a 
particular title IV, HEA program. A few commenters supported setting a 
minimum length of a module that must be completed, after which a 
student who ceased attendance would not be considered to have 
withdrawn. A few commenters suggested requiring institutions to award 
or pay title IV, HEA program funds by module, or to delay payment until 
a student has earned enough credits to support the enrollment status 
necessary for eligibility of the aid. One commenter suggested limiting 
the amount of title IV, HEA program funds that can be earned by a 
student to the lesser of actual charges or the amount calculated under 
the Return of Title IV Funds provisions (i.e., the provisions of Sec.  
668.22). A couple of commenters believed an institution should be able 
to exercise professional judgment or use its own discretion to 
determine whether a student has truly withdrawn from class. One 
commenter suggested that, for clock-hour and nonterm programs, a 
student be considered to have withdrawn if the student had not been in 
attendance for 35 consecutive days and had not completed the payment 
period or period of enrollment.
    One commenter believed that the proposed changes addressing 
completion of a payment period or period of enrollment by students in 
clock-hour programs were incorrect as all determinations of title IV, 
HEA program funds earned by students who withdraw from clock-hour 
programs aid are based on scheduled hours, and the changes referred to 
clock hours completed.
    Discussion: We note that these final regulations do not change how 
institutions are currently required to treat students when they 
withdraw from programs offered in modules (i.e., sequentially) in 
nonterm credit-hour programs, and some nonstandard-term credit-hour 
programs. The Secretary believes that the approach proposed in the NPRM 
treats students more equitably across all programs by eliminating the 
major differences in the treatment of students who withdraw from term-
based and nonterm-based programs offered in modules and, therefore, is 
a better approach than basing the determination of completion of a 
payment period or period of enrollment on completion of one course/
module, even if a minimum length of such a course/module were set. In 
addition, this approach more accurately reflects the statutory 
requirement in section 484B(a)(1) of the HEA that applies the Return of 
Title IV Funds requirements to any recipient of title IV, HEA program 
funds who ``withdraws from an institution during a payment period or 
period of enrollment in which the student began attendance'' and the 
fact that title IV, HEA program funds are awarded for an entire payment 
period or period of enrollment. Some of the alternatives suggested by 
the commenters--determining completion based on attendance of a certain 
percentage of the payment period or period of enrollment; using credit 
hours completed, instead of days completed; delaying awarding or paying 
title IV, HEA program funds; equating unearned aid to actual charges; 
and leaving the determination of completion of the period up to 
institutional discretion--are not supported by the HEA, which requires 
in section 484B(a) that students earn title IV, HEA program funds on a 
pro rata basis up through the 60 percent point of a period based on 
days completed, for credit-hour programs, and clock hours completed, 
for clock-hour programs. Completing more than 60 percent of the period 
then entitles a student to have earned 100 percent of the funds for the 
period. The law therefore does not permit the alternative measures of 
when a student may keep 100 percent of the title IV, HEA program funds 
that were suggested by the commenters.
    The Secretary agrees that it is reasonable to allow an institution 
not to treat as a withdrawal a student who ceases attendance during a 
payment period or period of enrollment, but intends to attend a course 
later in the payment period or period of enrollment. This position is 
consistent with the guidance provided in the Department's Dear 
Colleague Letter of December 2000, GEN-00-24, Return of Title IV Aid-
Volume 1, for the treatment of title IV, HEA program funds 
when a student withdraws without completing at least one course in a 
payment period or period of enrollment. These final regulations have 
been modified to incorporate this policy and provide that a student is 
not considered to have withdrawn if the student ceased attending the 
modules he or she was scheduled to attend, but the institution obtains 
a written confirmation from the student at the time of the withdrawal 
that he or she will attend a module that begins later in the same 
payment period or period of enrollment. This will provide more 
flexibility for a student who provides the authorization. This 
confirmation must be obtained at the time of withdrawal, even if the 
student has already registered for subsequent courses. However, these 
final regulations provide that, for nonterm and nonstandard-term 
programs, a confirmation is valid only if the module the student plans 
to attend begins no later than 45 calendar days after the end of the 
module the student ceased attending. If the institution has not 
obtained a written confirmation that the student intends to return to a 
nonterm or nonstandard-term program within 45 calendar days of the end 
of the module the student ceased attending, the student is considered 
to have withdrawn. A student who has provided written confirmation of 
his or her intent to return is permitted to change the date of return 
to a module that begins even later in the same payment period or period 
of enrollment, provided that the student does so in writing prior to 
the return date that he or she had previously confirmed, and, for 
nonterm and nonstandard-term programs, the later module that he or she 
will attend begins no later than 45 calendar days after the end of the 
module the student ceased attending. If an institution obtains a 
written confirmation of future attendance but the student does not 
return as scheduled, the student is

[[Page 66894]]

considered to have withdrawn from the payment period or period of 
enrollment and the student's withdrawal date and the total number of 
calendar days in the payment period or period of enrollment would be 
the withdrawal date and total number of calendar days that would have 
applied if the student had not provided written confirmation of future 
attendance.
    Title IV, HEA program funds are awarded to a student with the 
expectation that the student will complete the period of time for which 
the aid has been awarded. When a student does not complete enough of 
his or her education to earn all of the originally awarded title IV, 
HEA program funds, it is in the best interest of the taxpayer to have 
the unearned Federal funds returned to the government as expeditiously 
as possible for use by other students. It is also fairer to all 
students receiving title IV, HEA program funds to have the way those 
funds are earned be comparable regardless of the way their programs are 
structured. In general, the Secretary believes that long gaps in 
attendance during a payment period or period of enrollment are not in 
the best interest of students and increase the likelihood that a 
student will not return to the institution. Should the student not 
return, the Secretary does not wish to unduly delay the return of title 
IV, HEA program funds. The Secretary agrees with the suggestion that, 
for clock-hour and nonterm programs, a student be considered to have 
withdrawn if the student has not been in attendance for a specified 
period of time and has not completed the payment period or period of 
enrollment, although the Secretary believes that 45 days, rather than 
35 days, as suggested by the commenter, is an appropriate period of 
time. Thus, in addition to limiting a student's confirmation of return 
in a nonterm or nonstandard-term program to a module that begins no 
later than 45 calendar days after the end of the module the student 
ceased attending, if a student in a nonterm or nonstandard-term program 
is not scheduled to begin another course within a payment period or 
period of enrollment for more than 45 calendar days, the institution 
must treat the student as a withdrawal for title IV, HEA program fund 
purposes, unless the student is on an approved leave of absence, as 
defined in Sec.  668.22(d).
    We do not believe that students should be penalized if they do not 
confirm an intent to return to a module later in the payment period or 
period of enrollment, but do return to the module anyway, or if they 
are not scheduled to begin a course within a payment period or period 
of enrollment in a nonterm or nonstandard-term program for over 45 
days, but do return and begin a course within that payment period or 
period of enrollment. Thus, in these situations, we believe it is 
appropriate for the institution to ``undo'' the Return of Title IV 
Funds calculation and treat those students as if they had not ceased 
attendance. This final regulation is consistent with current 
regulations for students who withdraw from clock-hour programs and 
nonterm credit-hour programs. Under Sec.  668.4(f), a student who 
returns to a nonterm credit-hour program or clock-hour program 
(regardless of whether the program is offered in modules) within 180 
days after withdrawing is treated as if he or she did not cease 
attendance (i.e., is considered to remain in that same payment period, 
and is eligible to receive any title IV, HEA program funds for which he 
or she was eligible prior to withdrawal, including funds that were 
returned by the institution or student under the provisions of Sec.  
668.22). If a student returns to a clock-hour or nonterm credit-hour 
programs after 180 days, the student's withdrawal is not ``undone''; he 
or she must begin a new payment period and aid for that period is 
determined in accordance with the provisions of Sec.  668.4(g). The 
Secretary believes that similar treatment is warranted for students who 
withdraw from term-based programs offered in modules. That is, if a 
student returns to a term-based credit-hour program offered in modules 
prior to the end of the payment period or period of enrollment, the 
student is treated as if he or she did not cease attendance, and is 
eligible to receive any title IV, HEA program funds for which he or she 
was eligible prior to withdrawal, including funds that were returned by 
the institution or student under the provisions of Sec.  668.22. 
However, the institution must make adjustments to reflect any changes 
to the student's enrollment status.
    While we acknowledge that requiring institutions to treat as 
withdrawals students who cease attending at any point during the 
payment period or period of enrollment, rather than just those students 
who cease attending before completing at least one course, is likely to 
increase the number of Return of Title IV Fund calculations an 
institution must perform for these programs, we note that institutions 
have always had to track students in module programs beyond the first 
course/module to determine whether a student began attendance in all 
the courses they were scheduled to attend, in case the student's 
enrollment status changed upon ceasing attendance, resulting in 
required recalculations of the title IV, HEA program funds awarded. 
While we recognize that some students must withdraw due to 
circumstances beyond their control, we are concerned with the 
commenters' contention that there will be a substantial increase in 
burden due to the number of students who cease attendance during a 
payment period or period of enrollment. We do not believe that it is in 
a student's best interest to withdraw and we would expect that 
institutions are doing all they can to prevent withdrawals through 
counseling, student support services, and proper enrollment procedures. 
In response to the commenter who believed the proposed regulations 
would force institutions to delay disbursements to prevent the 
institution or student from having to return unearned title IV, HEA 
program funds if they withdraw, we are providing that, under amended 
Sec.  668.164(i), an institution would be required to provide a way for 
a Federal Pell Grant eligible student to obtain or purchase required 
books and supplies by the seventh day of a payment period under certain 
conditions if the student were to have a title IV credit balance.
    The commenter who noted that the determination of title IV, HEA 
program funds that are earned by a student who withdraws from a clock-
hour program are based on scheduled hours is correct in that once it 
has been determined that a student has not completed the payment period 
or period of enrollment, the percentage of the payment period or period 
of enrollment completed is determined by dividing the total number of 
clock hours in the payment period or period of enrollment into the 
number of clock hours scheduled to be completed at the time the student 
ceased attending (Sec.  668.22(f)(1)(ii)(A)). However, a student has 
not completed a clock hour payment period or period of enrollment until 
he or she has completed all the hours and all of the weeks of 
instructional time that he or she was scheduled to attend in that 
period.
    Because different institutions use different names to refer to this 
type of program structure, in amended Sec.  668.22(l)(6), we have 
defined the term ``offered in modules'' to mean if a course or courses 
in the program do not span the entire length of the payment period or 
period of enrollment. In addition, to clarify the types of programs 
that are considered to be nonstandard-term programs or nonterm 
programs, in amended Sec.  668.22(l)(8), we have defined the term 
``nonstandard-term program'' as

[[Page 66895]]

a term-based program that does not qualify under 34 CFR 690.63(a)(1) or 
(2) to calculate Federal Pell Grant payments under 34 CFR 690.63(b) or 
(c). We note that nonterm programs include any program offered in clock 
hours for title IV, HEA program purposes as well as any nonterm credit-
hour program.
    Changes: Section 668.22(a)(2) has been revised to provide that, for 
a payment period or period of enrollment in which courses in the 
program are offered in modules, a student who would otherwise be 
considered to have withdrawn from an institution because, prior to 
ceasing attendance the student has not completed all of the days or 
scheduled hours he or she was scheduled to attend, is not considered to 
have withdrawn if the institution obtains written confirmation from the 
student at the time of withdrawal that he or she will attend a module 
that begins later in the same payment period or period of enrollment, 
provided that, for a nonterm or nonstandard-term program, that module 
begins no later than 45 days after the end of the module the student 
ceased attending. However, if that student does not return as 
scheduled, the student is considered to have withdrawn from the payment 
period or period of enrollment and the student's withdrawal date and 
the total number of calendar days in the payment period or period of 
enrollment would be the withdrawal date and total number of calendar 
days that would have applied if the student had not provided written 
confirmation of future attendance in accordance with Sec.  
668.22(a)(2)(ii)(A).
    Section 668.22(a)(2) also has been revised to cross-reference Sec.  
668.4(f), which provides that, if a student withdraws from a nonterm 
credit-hour or clock-hour program during a payment period or period of 
enrollment and then reenters the same program within 180 days, the 
student remains in that same period when he or she returns and, subject 
to conditions established by the Secretary, is eligible to receive any 
title IV, HEA program funds for which he or she was eligible prior to 
withdrawal, including funds that were returned by the institution or 
student under the provisions of this section. Section 668.22(a)(2) has 
been further revised to provide that, if a student withdraws from a 
term-based credit-hour program offered in modules during a payment 
period or period of enrollment and reenters the same program prior to 
the end of the period, the student remains in the same payment period 
or period of enrollment when he or she returns and, subject to 
conditions established by the Secretary, is eligible to receive any 
title IV, HEA program funds for which he or she was eligible prior to 
withdrawal, including funds that were returned by the institution or 
student under the provisions of this section.
    In addition, Sec.  668.22(a)(2) has been revised to provide that, 
if a student in a nonterm or nonstandard-term program is not scheduled 
to begin another course within a payment period or period of enrollment 
for more than 45 calendar days, the institution must treat the student 
as a withdrawal for title IV, HEA program fund purposes, unless the 
student is on an approved leave of absence, as defined in Sec.  
668.22(d).
    Finally, Sec.  668.22(a)(2) has been revised to clarify that a 
student in a clock hour program has not completed a payment period or 
period of enrollment until the student has completed both the weeks of 
instructional time and the clock hours scheduled to be completed in the 
period.
    Section 668.22(l)(6) and (8) has been revised to add definitions of 
a program that is offered in modules and of a nonstandard-term program.
    Comment: Approximately 40 commenters asked the Department to 
clarify how the regulations would apply in different situations. Some 
of these commenters questioned how enrollment status changes due to an 
institution's add/drop policy would be differentiated from a 
withdrawal. For example, some commenters asked for guidance on the 
handling of title IV, HEA program funds when a student withdraws 
without beginning attendance in all courses, or notifies the 
institution that he or she will not be attending a future module that 
he or she was scheduled to attend. One commenter believed that the 
proposed regulations would be in conflict with the Department's 
guidance that allows a Direct Loan to be disbursed based on anticipated 
enrollment during a term, such as a summer term, where a student is 
enrolled for two consecutive courses. The commenter's understanding is 
that if the student does not begin the second course to establish half 
time enrollment, the student can keep the funds.
    Discussion: A student that begins attending but then ceases 
attendance in all classes during a payment period is a withdrawal 
unless the institution obtains written confirmation from the student 
that he or she plans to attend a course that begins later in the 
payment period or period of enrollment, as applicable. Anytime a 
student begins attendance in at least one course, but does not begin 
attendance in all the courses he or she was scheduled to attend, 
regardless of whether the student is a withdrawal, the institution must 
check to see if it is necessary to recalculate the student's 
eligibility for Pell Grant and campus-based funds based on a revised 
enrollment status and cost of education (34 CFR 690.80(b)(2)(ii)). If 
the student is a withdrawal, this recalculation must be done before 
performing a Return of Title IV Funds calculation, and the institution 
must use the recalculated amounts of aid in the Return of Title IV 
Funds calculation. If the student has not begun attendance in enough 
courses to establish a half-time enrollment status, the institution may 
not make a first disbursement of a Direct Loan to the student (34 CFR 
685.303(b)(2)(i)), or a second disbursement of Pell Grant funds, 
although the funds are included as aid that could have been disbursed 
in the Return of Title IV Funds calculation. Courses that were 
officially dropped prior to the student ceasing attendance are not days 
that the student was scheduled to attend, unless the student remained 
enrolled in other courses offered on those days. Correspondingly, 
courses that were officially added prior to the student ceasing 
attendance are days the student was scheduled to attend.
    If a student officially drops a course or courses he or she was 
scheduled to attend and doing so does not result in the student no 
longer attending any courses, the student is not a withdrawal, and the 
dropped courses are handled as changes in enrollment status, as 
applicable.
    An institution can determine whether a student in a program offered 
in modules is a withdrawal by answering the following questions:
    (1) After beginning attendance in the payment period or period of 
enrollment, did the student cease to attend or fail to begin attendance 
in a course he or she was scheduled to attend? If the answer is no, 
this is not a withdrawal. If the answer is yes, go to question 2.
    (2) When the student ceased to attend or failed to begin attendance 
in a course he or she was scheduled to attend, was the student still 
attending any other courses? If the answer is yes, this is not a 
withdrawal, however other regulatory provisions concerning 
recalculation may apply. If the answer is no, go to question 3.
    (3) Did the student confirm attendance in a course in a module 
beginning later in the period (for nonterm and nonstandard term 
programs, this must be no later than 45 calendar days after the end of 
the module the student ceased attending). If the answer is yes, this is 
not a withdrawal, unless the student does not

[[Page 66896]]

return. If the answer is no, this is a withdrawal.
    Take, for example, a student who is a recipient of title IV, HEA 
program funds who is scheduled to complete two courses in each of the 
first two of three modules within the payment period.
    Scenario 1: The student begins attendance in both courses in the 
first module, but ceases to attend both courses after just a few days 
and does not confirm that he will return to any courses in modules two 
or three. The student is a withdrawal because he or she ceased to 
attend courses he or she was scheduled to attend (Yes to question 1); 
was not still attending any other courses (No to question 2); and did 
not confirm attendance in a course in a module beginning later in the 
period (No to question 3).
    Scenario 2: If, however, the student begins attendance in both 
courses in the first module, but drops just one of the courses after 
just a few days, the student is not a withdrawal. Although the student 
ceased to attend a course he or she was scheduled to attend (Yes to 
question 1), the student was still attending another course (Yes to 
question 2).
    Scenario 3: If the student completes both courses in module one, 
but officially drops both courses in module two while still attending 
the courses in module one, the student is not a withdrawal. Because the 
student officially dropped both courses in module two before they 
began, the student did not cease to attend or fail to begin attendance 
in a course he or she was scheduled to attend (No to question 1). 
However, because the student did not begin attendance in all courses, 
other regulatory provisions concerning recalculation may apply.
    Changes: None.
    Comment: Several commenters asked the Department to clarify what it 
means to ``complete all the days'' or ``complete all of the clock 
hours'' in a payment period or period of enrollment. More specifically, 
commenters asked if students would be required to attend every day of 
every course, or be in attendance on the last day of the payment period 
or period of enrollment. Some of the commenters noted that, due to 
individual student schedules, students do not attend all days in the 
payment period or period of enrollment. Commenters were concerned that 
a student who was not in attendance on the last day of the payment 
period would be counted as a withdrawal. To address this concern, one 
commenter suggested that the wording of the regulations be changed to 
say that a student is considered to have withdrawn from a payment 
period or period of enrollment if the student does not complete 
substantially all of the days in the payment period or period of 
enrollment.
    Some of the commenters asked how limited absences (for example, for 
illness), incompletes, and leaves of absence would be treated. 
Commenters also asked if a student is considered to have completed a 
course in a payment period or period of enrollment if the student 
received a grade for that course or, for a clock-hour program, earns 
all the clock hours for the course, regardless of absences. A couple of 
the commenters asked if the definition of what it means to complete all 
the days or complete all the clock hours would affect in-school 
deferments for title IV, HEA program loans. Some commenters asked under 
what circumstances an institution would have to prove that the student 
attended all days in a period and what documentation would constitute 
that proof. Commenters asked if the issue would arise only if all of a 
student's grades are Fs or if it becomes otherwise apparent that the 
student has ceased attendance without formally withdrawing. A few 
commenters wanted to know how intersessions--a period of time between 
terms when courses are offered--would be handled.
    A few commenters asked the Department to clarify what the length of 
the payment period or period of enrollment is when performing a Return 
of Title IV Funds calculation for a withdrawn student who was not 
scheduled to attend courses over the entire term and how an institution 
would determine whether the student has completed more than 60 percent 
of the payment period or period of enrollment (i.e., earned all of his 
or her title IV, HEA program funds). One commenter believed there would 
be no possible way for an institution to determine the days the student 
was scheduled to attend for an on-line class that is self-paced as 
there are no ``scheduled days'' in a self-paced program.
    Discussion: Section 668.22(f)(1)(i) has always required an 
institution to determine the days in the payment period or period of 
enrollment that were completed by a student who withdraws from a 
program offered in credit hours in order to determine the percentage of 
the payment period or period of enrollment completed by the student. 
These final regulations do not change what it means to complete days 
for credit-hour programs, or clock hours for clock-hour programs, for 
purposes of the determination of the amount of aid earned by a student 
who withdraws from a program, nor do they change an institution's 
responsibility for having a procedure for determining whether a title 
IV recipient who began attendance during a period completed the period 
or should be treated as a withdrawal. The Department does not require 
that an institution use a specific procedure for making this 
determination; however, we have provided guidance to assist 
institutions in making these determinations. For example, consistent 
with the Department's guidance provided in its Dear Colleague Letter of 
November 2004, GEN-04-12, Return of Title IV Aid, an institution may 
presume a student completed the period in a program offered in modules 
if the student did not officially withdraw from the institution and 
received a passing grade in all courses the student was scheduled to 
attend during the period. If a student in a program offered in modules 
does not receive a passing grade in the last course or courses he or 
she was scheduled to attend, the institution must otherwise demonstrate 
that the student completed the period, which can sometimes be done 
using the institution's grading policy if the failing grades reflect 
whether the student participated in those courses. Consistent with 
current requirements, if a student is determined to have withdrawn from 
an institution under Sec.  668.22, the student is no longer considered 
to be enrolled and in attendance at an institution and, therefore, is 
ineligible for an in-school deferment and must be reported by the 
institution as a withdrawal for this purpose (34 CFR 674.34(b)(1)(i) 
and 34 CFR 685.204(b)(1)(i)(A)).
    Consistent with the guidance provided in the Department's Dear 
Colleague Letter of December 2000, GEN-00-24, Return of Title IV Aid-
Volume 1, for the treatment of title IV, HEA program funds 
when a student withdraws without completing at least one course in a 
payment period or period of enrollment, to determine whether the 
percentage of the payment period or period of enrollment completed for 
a student who withdraws from a program offered in modules, the 
institution would include in the denominator (the total number of 
calendar days in the payment period or period of enrollment) all the 
days in the modules the student was scheduled to attend, except for 
scheduled breaks of at least five consecutive days and days when the 
student was on an approved leave of absence. The numerator would 
include the number of the total days in the payment period or period of 
enrollment that the student has

[[Page 66897]]

completed. For example, a student was scheduled to attend an 
intersession of three weeks of instructional time at the end of a fall 
semester, and, in accordance with the Department's past guidance, the 
institution has included that intersession with the fall term for 
purposes of the program's academic calendar when determining the 
payment of title IV, HEA program funds. In this circumstance the days 
in that intersession are included in the total number of days in the 
payment period for that student, except for scheduled breaks of at 
least five consecutive days, and days in which the student was on an 
approved leave of absence. Note that all the courses in the fall term 
are considered modules for purposes of a Return of Title IV Funds 
calculation when the intersession is included in the payment period.
    Regarding the comment that there would be no possible way for an 
institution to determine the days the student was scheduled to attend 
for an on-line class that is self-paced, we note that, for Title IV, 
HEA program purposes, an institution is required to determine a program 
schedule for a payment period or period of enrollment.
    Changes: Section 668.22(f)(2)(ii) has been revised to clarify that, 
when determining the percentage of payment period or period of 
enrollment completed, the total number of calendar days in a payment 
period or period of enrollment does not include, for a payment period 
or period of enrollment in which any courses in the program are offered 
in modules, any scheduled breaks of at least five consecutive days when 
the student is not scheduled to attend a module or other course offered 
during that period of time.

Withdrawal Date for a Student Who Withdraws From an Institution That Is 
Required To Take Attendance (Sec. Sec.  668.22(b) and 668.22(l))

    Comment: Commenters were unsure about the effect of the proposed 
changes, and a number of them asked for clarification. A few commenters 
expressed concern that the Department was requiring institutions to 
take attendance. Others thought that, in instances in which individual 
faculty members take attendance by choice, the entire institution would 
then be considered an institution required to take attendance. Some 
commenters believed that if an institution or an outside entity 
required attendance taking for students in some but not all programs, 
then the institution would be considered one that has to take 
attendance for students in all programs. Other commenters believed that 
the proposed regulations would require institutions that take 
attendance for a limited period of time and use those attendance 
records, to continue to take attendance beyond that point.
    Some commenters advocated a more restricted definition of an 
institution that is required to take attendance, suggesting that an 
institution should only be required to take attendance if an outside 
entity collects and maintains those records. One commenter did not 
believe that an outside entity should be able to require an institution 
to take attendance, and others opposed the provision that institutions 
required by an outside entity to take attendance must use these 
attendance records for the purposes of a Return of Title IV Funds 
calculation.
    In general, we received comments on the application of the 
regulations to subpopulations of students and on the use of attendance 
records during a limited period. With respect to attendance 
requirements for subpopulations of students, most commenters did not 
object to the current policy that if some students at the institution 
are subject to attendance taking requirements, then institutions would 
have to follow the last day of attendance regulations for those 
students. Other commenters agreed with this position, but believed that 
this condition should only be applied when taking attendance is 
required for the entire payment period, for all classes the student 
enrolls in, and only when imposed by an outside entity. One commenter 
disagreed with our position on the treatment of subpopulations of 
students, recommending that we modify the regulations to specify that 
the taking attendance requirement must be imposed by an outside entity 
and be applicable to the entire institution in order for an institution 
to be considered one required to take attendance.
    One commenter supported the proposed change that if an institution 
requires the taking of attendance for a limited period of time, then 
those attendance records must be used to determine a withdrawal date. A 
few commenters objected to considering institutions that take 
attendance during a limited period of time to be institutions required 
to take attendance, even for only that limited period, suggesting that 
this provision should only be applied when taking attendance is 
required for the entire payment period or period of enrollment.
    Discussion: The regulations do not require institutions to take 
attendance. Instead, under the regulations the Department considers an 
``institution that is required to take attendance'' to include not only 
an institution that is required to take attendance by an outside 
entity, but also an institution that itself requires its faculty to 
take attendance in certain circumstances.
    Regarding faculty attendance records, if an institution does not 
require faculty to take attendance, but a faculty member chooses to 
take attendance, then the institution would not then be considered an 
institution required to take attendance. If, however, the institution 
requires its faculty to take attendance, whether at the program, 
department, or institutional level, then those attendance records must 
be used by the institution in determining a student's date of 
withdrawal. Institutions that do not require the taking of attendance 
and are not required to take attendance by an outside entity are not 
prohibited from using individual faculty members' attendance records in 
determining a student's date of withdrawal. The Department encourages 
institutions to use the best information available in making this 
determination.
    We do not agree with commenters who believed that if attendance 
taking is required for some students, then the institution would be 
required to take attendance for all students. These final regulations 
do not change our existing policy. Under our current guidance and 
regulations, if an outside entity requires an institution to take 
attendance for only some students, for instance, for students receiving 
financial assistance under a State program, the institution must use 
its attendance records to determine a withdrawal date for those 
students. Similarly, under these final regulations, if the institution 
itself requires attendance taking for students in certain programs or 
departments, then the institution must use its attendance records to 
determine a withdrawal date for students in those programs or 
departments. These attendance taking regulations only apply when an 
institution either requires the taking of attendance or is required by 
an outside entity to take attendance, but not when a student is 
required to self-certify attendance directly to an outside entity. For 
example, a veterans' benefits requirement that benefit recipients self-
report attendance would not result in an institutional requirement to 
take attendance of those students unless the institution is required to 
verify the student's self-certification.
    An institution that is required by an outside entity to take 
attendance during a limited period, or that requires its faculty to do 
so, must use any attendance records from that limited

[[Page 66898]]

period in determining a withdrawal date for a student. For students in 
attendance at the end of that limited period, if the institution is not 
required to take attendance and does not require its faculty to do so, 
then the guidelines for determining a withdrawal date for an 
institution that is not required to take attendance would apply. The 
Department continues to believe that the best data available should be 
used in determining a student's withdrawal date from classes, and, 
accordingly, if an institution requires the taking of attendance or is 
required to take attendance for any limited period, then those records 
must be used.
    Lastly, we disagree with the comment that an outside entity should 
not be able to require an institution to take attendance. We continue 
to believe that our policy that an ``institution that is required to 
take attendance'' means an institution that is required to take 
attendance by an outside entity is a reasonable interpretation of the 
statute. The phrase ``required to take attendance'' presupposes that an 
entity has this requirement, and under this regulation, that entity may 
be either the institution itself or a separate entity.
    Changes: None.
    Comment: A few commenters expressed concern about who would decide 
what ``required to take attendance means.'' Specifically, they were 
concerned that the Department would determine that an institution or 
outside entity had a requirement that attendance be taken at an 
institution, even if the institution or outside entity disagreed with 
that conclusion. The commenters believed that the entity requiring the 
taking of attendance should make the determination about when 
attendance must be taken and what kind of documentation to support 
attendance taking is necessary, and that the Department should not 
superimpose its view of attendance taking on that entity. In 
particular, a few commenters opposed the idea that the Department would 
consider clock-hour institutions to be institutions required to take 
attendance if an outside entity or the institutions themselves did not 
believe that they were. One commenter recommended that we remove Sec.  
668.22(b)(3)(i)(C), believing that an institution could be found in 
noncompliance by the Department if the institution or outside entity 
had a different interpretation of whether taking attendance was 
required.
    A couple of commenters requested clarification that, in a case 
where a student must be physically present to demonstrate a competency 
or skill, attendance taking would not be automatically required. 
Instead, the institution or another outside entity would have the 
responsibility of deciding whether attendance taking was necessary. 
Further, one commenter suggested that a ``requirement'' to take 
attendance should mean a written regulation or policy tied to 
determining seat time and not a quality inherent to the type of 
program.
    Discussion: For institutions that are required to measure the clock 
hours a student completes in a program, the Department believes that 
this is, in substance, a requirement for those institutions to take 
attendance for those programs since they satisfy both the requirement 
of determining that a student is present and that the student is 
participating in a core academic activity. The Department is looking at 
the substance of the information that is available rather than the way 
that information is described or portrayed by the institution or 
outside entity. If the institution is required to collect information 
or record information about whether a student was in attendance during 
a payment period, or during a limited period of time during a payment 
period, that information should be used to determine if the student 
ceased attendance during that period.
    Changes: None.
    Comment: Commenters had a number of questions about the 
documentation and the maintenance of attendance records, generally 
requesting clarification about how attendance must be documented and 
what constitutes attendance in an academic or academically-related 
activity. One commenter asked for specific guidance as to the 
definition of an attendance record, and requested clarification as to 
how often attendance must be taken at an institution required to take 
attendance. Another commenter asked what documentation would be 
sufficient to demonstrate attendance in cases in which students do not 
physically attend class but watch a video or podcast of the lecture 
remotely. Similarly, a commenter asked whether a student would be 
considered in attendance if he or she participated in an academically-
related activity but was not physically present, such as working with 
an instructor by phone or e-mail. A few commenters requested 
clarification and guidance about what the Department believes 
constitutes attendance in a distance education context and how an 
institution should document that attendance. One commenter requested 
that the Department ensure that the evidence required of last day of 
attendance in online programs for the purpose of a Return of Title IV 
Funds calculation be substantially comparable to that required of 
traditional, face-to-face programs. The same commenter was also 
concerned that the Department would be requiring documentation beyond 
that required in the past without providing sufficient time for 
institutions to implement this change.
    Discussion: In accordance with Sec.  668.22(b)(2) and (c)(4), an 
institution must document a student's withdrawal date and maintain that 
documentation as of the date of the institution's determination that 
the student withdrew. As noted in the Federal Student Aid Handbook (FSA 
Handbook), the determination of a student's withdrawal date is the 
responsibility of the institution; a student's certification of 
attendance that is not supported by institutional documentation would 
not be acceptable documentation of the student's last date of 
attendance at an academically-related activity. As with other title IV, 
HEA program records, documentation of attendance must be retained and 
be available for examination in accordance with the provisions of Sec.  
668.24. If an institution is required to take attendance or is an 
institution that is not required to take attendance, but is using a 
last date of attendance at an academically-related activity as a 
withdrawal date, it is up to the institution to ensure that accurate 
records are kept for purposes of identifying a student's last date of 
academic attendance or last date of attendance at an academically-
related activity. An institution must also determine and maintain the 
records that most accurately support its determination of a student's 
withdrawal date and the institution's use of one withdrawal date over 
another if the institution has conflicting information.
    To count as attendance for title IV, HEA program purposes, 
attendance must be ``academic attendance'' or ``attendance at an 
academically-related activity.'' We have defined those terms in new 
Sec.  668.22(l)(7) by providing examples of academically-related 
activities that institutions that are not required to take attendance 
may use in determining a student's last date of attendance at an 
academically-related activity. Certainly, traditional academic 
attendance is acceptable, i.e., a student's physical attendance in a 
class where there is an opportunity for direct interaction between the 
instructor and students. Additionally, academically-related activities 
may include an exam, a tutorial, computer-assisted instruction, 
academic counseling, academic advising, turning in a class assignment, 
or attending a study group that is assigned by the institution. The

[[Page 66899]]

Department has provided further guidance on this policy in the FSA 
Handbook, specifying that living in institutional housing and 
participating in the institution's meal plan are examples of activities 
that are not academically-related. The Department finds it acceptable 
for an institution that is required to take attendance to use the 
institution's records of attendance at the activities listed in Sec.  
668.22(l)(7) as evidence of attendance, provided there is no conflict 
with the requirements of the outside entity that requires the 
institution to take attendance or, if applicable, the institution's own 
requirements.
    However, in these final regulations, we are revising the list of 
acceptable activities because the Secretary no longer considers 
participation in academic counseling or advising to be an activity that 
demonstrates academic attendance or attendance at an academically-
related activity. The Secretary has encountered several instances of 
abuse of this particular provision by institutions that contact 
students who have ceased attendance, and treated that contact as 
``academic counseling'' to facilitate a later withdrawal date, 
resulting in an inflated amount of ``earned'' title IV, HEA program 
funds. The Secretary does not view such contact as evidence of academic 
attendance, but notes that if the student resumed attendance and 
completed the period of enrollment no return calculation would be 
needed. Even if the student resumed attendance and later stopped 
attending, the student's participation in other activities that are 
already included on the list of academic activities could be used to 
establish a later withdrawal date. Thus, participation in academic 
counseling or advising without subsequent participation in other 
academic or academically-related activities is no longer an acceptable 
example of participation in an academically related activity.
    With respect to what constitutes attendance in a distance education 
context, the Department does not believe that documenting that a 
student has logged into an online class is sufficient by itself to 
demonstrate academic attendance by the student because a student 
logging in with no participation thereafter may indicate that the 
student is not even present at the computer past that point. Further, 
there is also a potential that someone other than the student may have 
logged into a class using the student's information to create the 
appearance the student was on-line. Instead, an institution must 
demonstrate that a student participated in class or was otherwise 
engaged in an academically-related activity, such as by contributing to 
an online discussion or initiating contact with a faculty member to ask 
a course-related question. This position is consistent with the current 
guidance the Department has provided to individual institutions 
regarding the applicability of the regulations to online programs.
    When assessing an institution's compliance with any program 
requirement, the Department looks at information provided by the 
institution in support of the compliance of its policies and 
procedures.
    Changes: We have removed the reference to academic counseling and 
advising in current Sec.  668.22(c)(3)(ii) and have added to the 
regulations a combined definition of academic attendance and attendance 
at an academically-related activity in Sec.  668.22(l)(7) to clarify 
that both institutions required to take attendance and those that are 
not required to take attendance may use institutionally-documented 
attendance at certain activities as a student's withdrawal date. We 
have also redesignated current Sec.  668.22(c)(3)(i) as Sec.  
668.22(c)(3) to reflect the removal of Sec.  668.22(c)(3)(ii).
    We have added to the definition at Sec.  668.22(l)(7) both existing 
guidance from the FSA Handbook and examples of academic attendance for 
online programs. For additional clarity, we have specified that 
physically attending a class where there is an opportunity for direct 
interaction between the instructor and students is considered academic 
attendance and have specified that participating in academic counseling 
or advising is not considered academic attendance.
    Comment: A number of commenters opposed the proposed changes, 
believing that they would impose additional burdens on institutions, be 
too complex to administer, and prove counterproductive to the goals of 
the Department.
    In terms of additional burden, the commenters argued that the 
proposed regulations could become too complex, noting that institutions 
might have different attendance taking requirements, depending on the 
program or academic department. Others suggested that it would be too 
confusing and burdensome to take attendance for only a limited period. 
Two commenters did not support adverse actions or audit findings by the 
Department against institutions that did not demonstrate 100 percent 
compliance with the attendance taking requirements.
    Commenters also pointed out potential barriers to administering 
these regulations properly. A few believed that it would be difficult 
to ensure complete and accurate attendance records across faculty and 
programs, arguing that these records would not necessarily fully 
reflect a student's attendance at academically-related activities. A 
couple of commenters questioned the feasibility of achieving full 
compliance with attendance taking policies across faculty. One 
commenter did not believe that attendance records held by individual 
faculty members or departments should constitute available data. One 
commenter believed that the additional complexity of the regulations 
would make it impossible to complete a Return of Title IV Funds 
calculation in the required timeframe.
    The commenters also argued that the additional burden and 
complexity of the regulations would ultimately undermine attempts to 
mitigate the potential for fraud and abuse of Federal funds and would 
hamper attempts to improve student success in higher education. 
Specifically, a number of commenters believed that the proposed 
regulations would create an economic disincentive to taking attendance, 
causing many institutions that voluntarily take attendance to stop 
doing so. They argued that this provision would make it more difficult 
to identify a date on which a student has withdrawn from classes, 
compelling more institutions to use a mid-point date when performing a 
Return of Title IV Funds calculation. The commenters further asserted 
that institutions take attendance for a variety of reasons, and that 
ending this practice would lead to lower retention and graduation rates 
and, subsequently, higher student loan default rates.
    Due to the perceived complexity of this issue, two commenters 
requested that the Department delay the implementation of these 
regulations. One suggested gathering additional input from the 
community to develop proposed regulations, while the other recommended 
reconvening a negotiated rulemaking committee to further consider these 
issues.
    Discussion: We appreciate the concerns of the commenters about 
possible harms that might come from the proposed changes. The goal of 
determining the amount of funds a student earned before he or she 
stopped attending should be a shared one, and the claim that the 
institutions would stop taking attendance in order to increase the 
funds a student would receive beyond the point where the student 
stopped attending is troubling. The Department continues to believe

[[Page 66900]]

that institutions should use the best data available in determining a 
student's withdrawal date from classes. Accordingly, if an institution 
requires the taking of attendance or is required to take attendance for 
any limited period of a semester or other payment period, then those 
records should be used when determining a student's date of withdrawal 
for the purposes of a Return of Title IV Funds calculation.
    With respect to comments regarding the complexity of the 
regulations, they address the taking attendance policies that are 
either required by an outside party or required by the institution 
itself. Institutions would already be expected to follow these 
requirements, and the regulations provide for that attendance 
information to be used when it indicates a student has stopped 
attending during this limited period. For students in attendance at the 
end of that limited period, the guidelines for determining a withdrawal 
date for an institution that is not required to take attendance would 
apply until the start of the next period during which attendance taking 
is required. Any increase in overall burden is mitigated since this 
requirement is tied to policies for taking attendance that are already 
in place at institutions, and uses the existing requirements for 
determining the amount of Federal funds a student earned based upon 
that information. Cases of noncompliance are addressed on a case by 
case basis when the occurrences are isolated, and institutions are 
expected to take appropriate corrective actions when an error is 
brought to their attention during a self-audit, a compliance audit, or 
a program review. Accordingly, the Department does not believe it is 
necessary to delay the implementation date of these regulations, or to 
reopen the issue for negotiation.
    Changes: None.
    Comment: A few commenters opposed the proposed changes, arguing 
that the proposed regulations exceed the Secretary's authority under 
the law. The commenters believed that Congress intentionally allowed 
institutions the option to use the midpoint of the payment period 
because it recognized that institutions have already incurred costs 
when a student fails to withdraw officially. A few commenters believed 
that the definition of last day of attendance under the statute is 
sufficient and that the Department should not make any changes to the 
regulations. Some commenters opposed the proposal that an ``institution 
required to take attendance'' includes an institution that takes 
attendance voluntarily, arguing that the wording of the statute, which 
states ``institutions that are required to take attendance'' and not 
``institutions that take attendance,'' indicates that Congress did not 
intend to include institutions that choose to take attendance in that 
category. Other commenters expressed strong support for the broadened 
definition.
    Discussion: Under the law, institutions that are required to take 
attendance must use that information to determine when students who do 
not complete a class stopped attending. It is common for the Department 
to view requirements established by an institution, such as an 
institutional refund policy, as being a requirement for that 
institution. The Secretary believes it is reasonable to interpret the 
law to include instances where the institution itself is establishing 
the requirement to take attendance for a program, a department, or the 
entire institution. The regulations do not include instances where a 
faculty member would monitor student attendance but was not required to 
do so by the institution. Furthermore, there is no reason that 
attendance information required by an institution would be different in 
substance from attendance information required by other entities. It is 
the process of taking attendance itself that leads to the information 
being available, regardless of whether it is required by the 
institution or an outside entity. The law provides that institutions 
that are required to take attendance must use that information for 
students who stop attending, and the regulations define the term 
``required to take attendance'' to include instances where the 
institution itself is establishing that requirement for a program, a 
subpopulation of a program, a department, or the entire institution. 
The Secretary also believes that this information should be used when 
it is available, even if attendance is not required and is only taken 
for a limited period during the payment period or period of enrollment.
    Changes: None.
    Comment: A number of commenters requested clarification about 
whether an institution would be required to perform a Return of Title 
IV Funds calculation for students that were not in attendance on the 
last day of a limited census period. Specifically, a few commenters 
believed that Sec.  668.22(b)(3)(iii)(B) could be interpreted in 
different ways. First, it could be read to mean that an institution 
must treat a student who is not in attendance on the last day of a 
limited period of attendance taking as a withdrawal, even if the 
student continued to attend classes or was engaged in another 
academically-related activity after the end of the limited period. 
Along these lines, a few commenters pointed out that it could be 
difficult for an institution to ascertain whether a student actually 
withdrew, or whether the student was in fact only absent for a class or 
two. Second, it could be read to mean that if an institution has 
attendance records during a limited period, the institution must use 
those attendance records, as the best available source of information, 
in determining a student's date of withdrawal. One commenter believed 
that this interpretation could require an institution not otherwise 
required to take attendance to take attendance beyond the end of the 
limited attendance period to determine if the student came back. The 
commenter further requested clarification about when an institution in 
this situation would have to determine that the student actually 
withdrew.
    Three commenters provided potential modifications to the language 
related to taking attendance during a limited time period. The first 
suggested replacing the words ``in attendance at the end of the limited 
period'' with the words ``in attendance during the limited period'' to 
account for the fact that a student might have attended earlier in the 
limited period but was only absent on that last day, perhaps due to 
illness or another legitimate reason. The second commenter recommended 
modifying the words ``a student in attendance'' to read ``a student 
determined by the institution to be in attendance'' in order to give 
institutions the necessary flexibility to determine that a student 
actually withdrew from all courses and was not just absent on that 
particular day. The third commenter suggested replacing the phrase ``in 
attendance at the end of the limited period'' with ``in attendance at 
the last regularly scheduled class meeting prior to the census date'' 
to account for courses that do not meet on the last day of the limited 
period.
    One commenter believed that the Department should require 
institutions to have a limited number of hours or credits that a 
student may miss without having to be considered a withdrawal.
    Discussion: Standing alone, information that a student was absent 
on the last date attendance was taken during a limited period of time 
is the best evidence that the student has ceased attendance. That 
presumption is easily refuted when a student has gone on to complete 
the payment period, since the student will have earned a grade for the 
class. For a student who did not complete the class, the institution 
may determine whether there

[[Page 66901]]

is evidence that the student was academically engaged in the class at a 
point after the limited period when attendance was taken. Unless an 
institution demonstrates that a withdrawn student who is not in 
attendance at the end of the limited period of required attendance 
taking attended after the limited period, the student's withdrawal date 
would be determined according to the requirements for an institution 
that is required to take attendance. That is, the student's withdrawal 
date would be the last date of academic attendance, as determined by 
the institution from its attendance records. If the institution 
demonstrates that the student attended past the end of the limited 
period, the student's withdrawal date is determined in accordance with 
the requirements for an institution that is not required to take 
attendance. So, for a student the institution has determined attended 
past the limited period and has unofficially withdrawn, the student's 
withdrawal date is the midpoint of the payment period of period of 
enrollment unless the institution uses a later date when the student 
was academically engaged in the class. The institution therefore has 
the option to document a student's last date of attendance at an 
academically-related activity, but an institution is not required to 
take attendance past the end of the limited period of attendance 
taking.
    We do not interpret a requirement to take attendance in one class 
for a ``census date'' as taking attendance for purposes of this 
regulation. For example, some institutions have courses that meet only 
on Mondays and Wednesdays, and other courses that meet on Tuesdays and 
Thursdays. In those cases, a ``census date'' may be taken on two 
different days in order to establish attendance in both sets of courses 
that meet on alternate days. With respect to the suggestion that an 
institution be permitted to have a policy to establish a different 
procedure or presumption for a student who is absent at the end of a 
limited period of attendance taking, this is addressed in practice by 
having the institution determine if the student participated in an 
academically related activity at a later point in the payment period, 
not by adding a regulation that otherwise ignores an absence on the 
last date attendance was taken for the student.
    Changes: None.
    Comment: A few commenters believed that the proposed regulations 
would cause a greater financial burden for a student who withdraws from 
courses prior to the midpoint of the semester. A few commenters noted 
that institutions that voluntarily maintain attendance records would 
now have to use those records to determine the student's actual last 
date of attendance instead of using a midpoint date. In the case of 
clock-hour institutions, commenters were concerned that institutions 
would be required to use an actual last date of attendance instead of a 
scheduled last date of attendance. In these situations, a student might 
receive fewer funds to cover costs incurred for the entire payment 
period, even if he or she withdrew before the end of that payment 
period.
    Discussion: The Department recognizes that using an actual last 
date of attendance instead of a midpoint of the semester may require an 
institution to return more unearned aid; this outcome, however, is 
equitable. For institutions using credit hours that are determined to 
be required to take attendance for all or a part of the period, the 
regulation may establish an earlier date of withdrawal for a student 
that stops attending during a period when attendance is taken. This 
outcome provides a more consistent treatment with other institutions 
that have programs where student progress is tracked by measuring clock 
hours, and more closely tracks the requirements in the law that 
students earn title IV funds as they progress through a period until 
they complete more than 60 percent of the period. Institutions are 
responsible for determining the amount of title IV, HEA program 
assistance that a student earned under the applicable regulations, and 
unearned funds for a student must be returned in accordance with the 
procedures in Sec.  668.22. By establishing a more accurate date a 
student ceased attendance during a period when attendance is taken, the 
regulation will tend to increase the amount of unearned funds that are 
used to reduce the loan amounts students received for that period under 
Sec.  668.22(i).
    Changes: None.
    Comment: A number of commenters from cosmetology schools believed 
that the proposed regulations would put some institutions in a position 
of being unable to comply with both Federal and State regulations. 
Specifically, they were concerned that the proposed regulations would 
require institutions that are credit-hour institutions to become clock-
hour institutions if they take attendance, forcing them, depending on 
individual State laws, to be out of compliance with State requirements 
that those institutions use credit hours.
    Discussion: We do not agree that these regulations create a 
conflict between Federal and State laws. Institutions that use clock 
hours for a program for State reporting or licensing purposes will be 
treated as institutions that are required to take attendance under this 
regulation, and the clock hours attended will be used to determine when 
a student ceased attendance. To the extent that such an institution 
uses credit hours for its academic purposes, that institution will not 
be affected by this regulation. The requirement to determine the amount 
of aid a student earned before ceasing attendance is separate from the 
question of whether that institution uses credit hours for academic 
purposes. The clock hours are used to measure the amount of funds a 
student earned, the same way that other institutions that are required 
to take attendance will measure earnings under this regulation.
    Changes: None.
    Comment: A few commenters suggested modifications to the regulatory 
language that would require institutions to use the best information 
available in determining a student's withdrawal date. Specifically, one 
commenter recommended amending Sec.  668.22(c) to make the midpoint of 
the payment period the ``last resort'' option for determining a 
student's last date of attendance when a student unofficially withdraws 
such that a school would be required to use the midpoint of the payment 
period only in the absence of other documentation of a student's 
attendance. Another commenter recommended that we require institutions 
to use the best available data when determining a withdrawal date 
instead of allowing schools that are not required to take attendance to 
use a default date of the midpoint of the payment period of period of 
enrollment. The commenter believed that using this language would best 
support the Department's goals.
    Discussion: We do not believe that the suggested modifications are 
supportable under the HEA because the requirement to use attendance 
information is only applicable for periods when attendance taking is 
required. Under section 484B(c)(1) of the HEA, if a student stops 
attending an institution at a point where attendance taking is not 
required, the institution uses the midpoint of the payment period, or 
may use a later date when the student was participating in an 
academically related activity.
    Changes: None.
    Comment: One commenter was concerned that if an institution that is 
required to take attendance did not have a valid ISIR before a 
student's last date of attendance, the student would be unintentionally 
penalized and unable to receive title IV, HEA program assistance.

[[Page 66902]]

    Discussion: We do not agree. An institution must act in accordance 
with Sec.  668.164(g), which contains the requirements for making a 
late disbursement, including circumstances where a student did not have 
a valid SAR or valid ISIR on the student's last date of attendance.
    Changes: None.

Verification and Updating of Student Aid Application Information 
(Subpart E of Part 668)

General (Sec.  668.51)

    Comment: One commenter questioned whether the Department would 
describe, in the final regulations, our plans to provide training to 
assist institutions to prepare for and comply with verification 
requirements reflected in subpart E of part 668.
    Discussion: The Department will issue guidance through the 
Application and Verification Guide and other training materials, as 
needed. The Department will also provide training through our regional 
training officers. For information on our current and future training 
activities and learning resources, institutions should visit the 
Training for Financial Aid Professionals Web site at http://www2.ed.gov/offices/OSFAP/training/index.html.
    Changes: None.
    Comment: Some commenters requested that the Department delay 
implementing the new verification requirements until the 2012-13 award 
year to give institutions sufficient time to train their staff and make 
the necessary system changes.
    Discussion: The Department recognizes that institutions may need 
time to make changes to their institutional processing systems to 
comply with the requirements in subpart E of part 668. Accordingly, as 
described in the DATES section of these final regulations, we will 
delay the effective date of the changes to this subpart until July 1, 
2012, which means that it will be effective for the 2012-13 award year.
    Changes: None.
    Comment: Some commenters noted that because no new loans can be 
certified under the Federal Family Education Loan (FFEL) Program 
effective July 1, 2010, all references to the FFEL Program and loan 
certification should be removed from the regulatory language in this 
subpart.
    Discussion: We concur with the commenters. We had not removed the 
references to FFEL in the NPRM because that notice was already under 
development when the legislative change to end new lending under the 
FFEL Program was enacted. Our intent was to make the necessary 
technical corrections in the final regulations.
    Changes: Throughout subpart E of part 668, we have removed 
references to the FFEL Program and any corresponding regulatory 
citations. Specifically, we have removed references to ``Subsidized 
Stafford Loan,'' ``Unsubsidized Stafford Loan,'' ``Federal PLUS Loan,'' 
and ``lender'' as well as certifications for Subsidized Stafford loans 
from Sec. Sec.  668.52, 668.58, and 668.60.

Definitions (Sec.  668.52)

    Comment: Some commenters expressed support for the Department's 
efforts to simplify and clarify the definitions used throughout the 
verification regulations under subpart E of part 668. One commenter 
noted that changing the defined term application to FAFSA, and using 
the term FAFSA information in place of the term application helps 
distinguish the FAFSA from other financial aid applications used at 
many institutions.
    Discussion: We appreciate the commenters' support.
    Changes: None.
    Comment: Two commenters suggested that we change the names of the 
defined terms FAFSA information, subsidized student financial 
assistance programs, and unsubsidized student financial assistance 
programs. Specifically, one commenter suggested that we use the term 
``Federal Methodology (FM) need analysis data'' or ``ISIR data'' rather 
than FAFSA information to better reflect what institutions receive once 
the data reported on the FAFSA have been processed. In addition, one 
commenter stated that using the terms ``subsidized'' and 
``unsubsidized'' to modify student financial assistance programs will 
confuse applicants because those terms are more commonly used when 
referring to loan programs. The commenter stated that families would 
better understand the type of aid we are referring to by using the 
terms ``need-based student financial assistance programs'' and ``non-
need-based student financial assistance programs.''
    Another commenter requested that the Department include in the 
regulations definitions for the terms ``applicant'' and ``timely 
manner.''
    Discussion: While we appreciate the suggestions, we do not believe 
the suggested changes are necessary. We also do not agree that using 
the term ``subsidized'' and ``unsubsidized'' throughout subpart E will 
confuse applicants and their families about the type of aid we are 
referring to since these regulations are written for FAAs at 
institutions of higher education and not applicants and their families. 
An institution may, when communicating with students and families, use 
whatever terminology it believes will best be understood by its 
students and families.
    However, we did make some revisions to the list of definitions 
under Sec.  668.52. Specifically, we determined that the definitions 
for Free Application for Federal Student Aid (FAFSA), Institutional 
Student Information Record (ISIR), and Student Aid Report (SAR) would 
be more appropriately included in Sec.  668.2(b) of subpart A because 
these terms are used throughout part 668 of the Student Assistance 
General Provisions regulations and not just under subpart E.
    We also revised the definitions for Valid Student Aid Report (valid 
SAR) and Valid Institutional Student Information Record (valid ISIR) in 
Sec.  668.2(b) to specify that a valid ISIR is an ISIR on which all the 
information reported on a student's FAFSA is accurate and complete as 
of the date the application is signed, and a valid SAR is a student aid 
report on which all of the information reported on a student's FAFSA is 
accurate and complete as of the date the application is signed.
    In addition, we also changed the defined terms from Student Aid 
Report (SAR) to Valid Student Aid Report (valid SAR) and Institutional 
Student Information Record (ISIR) to Valid Institutional Student 
Information Record (valid ISIR) under Sec. Sec.  668.54(b), 668.58, 
668.59, and 668.61. Prior to these final regulations, an institution 
was not required to obtain a valid SAR or valid ISIR in order to make a 
disbursement under the campus-based programs and the title IV, HEA loan 
programs. Institutions could rely on their own calculations to 
determine an applicant's award amount without having to submit 
corrections through the Department's Central Processing System (CPS) 
and receiving the corrected SAR or ISIR. Consistent with the revisions 
to Sec.  668.59(a), which require that any change to a nondollar item 
and any change to a dollar item on the FAFSA that is $25 or more must 
be submitted to the CPS for reprocessing, an institution must have a 
valid SAR or a valid ISIR to disburse funds from the subsidized student 
financial assistance programs. By definition, a valid SAR or valid ISIR 
can only be created after information has been processed through the 
Department's Central Processing System.
    Finally, we also determined that we no longer need to define the 
terms valid SAR or valid ISIR under 34 CFR 690.2

[[Page 66903]]

of the Federal Pell Grant Program regulations as they are defined in 
part 668 because they apply to all of the title IV, HEA programs. For 
this reason, we have removed these definitions from this section.
    Changes: The terms and corresponding definitions for Free 
Application for Federal Student Aid (FAFSA), Institutional Student 
Information Record (ISIR), and Student Aid Report (SAR) have been 
removed from Sec.  668.52. Instead, we now define Free Application for 
Federal Student Aid (FAFSA), Institutional Student Information Record 
(ISIR), and Student Aid Report (SAR) under General definitions in Sec.  
668.2(b). We have also revised the definitions for valid Institutional 
Student Information Record (valid ISIR) and valid Student Aid Report 
(valid SAR) in Sec.  668.2(b). We have removed the definitions for the 
terms valid Student Aid Report (valid SAR) and valid Institutional 
Student Information Record (valid ISIR) from 34 CFR 690.2(b) and 
revised the definition of these terms under Sec.  668.2(b) to no longer 
refer to the definitions in 34 CFR 690.2(b) of the Federal Pell Grant 
Program regulations.
    Comment: One commenter asked the Department to clarify the meaning 
of the term ``applicant'' as used throughout the verification 
regulations. The commenter suggested that the regulations should use 
the term ``applicant'' to refer to a student who is accepted for 
admission at an institution, rather than to a student who submits a 
FAFSA. The commenter argued that having ``applicants'' cover all 
students who submit a FAFSA would be administratively burdensome for 
institutions because it would require them to verify CPS-selected 
transactions for students who do not enroll at the institution.
    Discussion: The term ``applicant,'' as used throughout the 
verification regulations, refers to an individual who applies for 
assistance under the title IV, HEA program by completing and submitting 
a FAFSA.
    While the term ``applicant,'' as used in subpart E of part 668 
covers individuals who may not enroll at the institution, we note that 
Sec.  668.54 only requires an institution to verify the FAFSA 
information selected by the Secretary under Sec.  668.56 and any FAFSA 
information the institution has reason to believe is inaccurate. 
Therefore, only those applicants who are enrolled at the institution 
and whose FAFSA information falls into one of these categories are 
subject to verification.
    Changes: None.

Policies and Procedures--Professional Judgment (Sec.  668.53(c))

    Comment: Many commenters expressed support for Sec.  668.53(c), 
which requires an institution to complete verification prior to 
exercising the professional judgment authority allowed under section 
479A of the HEA. These commenters indicated that this requirement, 
which is consistent with their policy to complete verification first, 
is important to ensure that the data reported on the FAFSA is accurate 
before making any adjustments to it.
    Discussion: We appreciate the commenters' support.
    Changes: None.
    Comment: Some commenters questioned the process for completing 
verification prior to exercising professional judgment in special 
circumstances that require a dependency override in order to create a 
valid Student Aid Report (valid SAR) or valid Institutional Student 
Information Record (valid ISIR).
    Discussion: The authority given to FAAs to exercise professional 
judgment under section 479A of the HEA is separate and apart from the 
authority given FAAs to make a dependency override decision under 
section 480(d)(1)(I) of the HEA. Section 479A of the HEA authorizes an 
FAA to make adjustments on a case-by-case basis to the cost of 
attendance or to the values of the data items used to calculate the EFC 
to allow for treatment of an individual eligible applicant with special 
circumstances as long as the adjustments are based on adequate 
documentation.
    In the definition of ``independent student'' in section 
480(d)(1)(I) of the HEA, an applicant may be considered to be an 
independent student if the FAA makes a documented determination that 
the applicant is independent by reason of other unusual circumstances.
    In practice, an FAA would first determine whether an otherwise 
dependent applicant should be considered an independent student using 
the FAA's authority under section 480(d)(1) of the HEA, in order to 
obtain a valid SAR or valid ISIR, and then would subsequently make any 
corrections or professional judgment adjustments to the applicant's 
FAFSA information.
    We will provide guidance in the Federal Student Aid Handbook to 
address operational details as needed.
    Changes: None.
    Comment: Several commenters expressed concern that requiring an 
institution to complete verification before exercising professional 
judgment would make it difficult for institutions to appropriately 
handle emergency situations. The commenters noted that delays would 
occur as a result of having to complete verification, submit any 
changes to CPS, and wait for the new SAR or ISIR upon which the 
professional judgment decision would be based. Some commenters 
suggested making modifications to systems software, i.e. FAA Access, to 
allow multiple changes to be made simultaneously to resolve this 
problem.
    Discussion: We appreciate the commenters' suggestion for improving 
our operational process. We will take this suggestion into 
consideration as we look for ways to improve our services to 
institutions.
    Currently, the CPS will process changes to an applicant's FAFSA 
information as a result of the verification process or a professional 
judgment determination and report the results on a new ISIR sent to the 
institution usually the next day. However the two transactions cannot 
be processed on the same day. This is because after the institution 
receives the ISIR that was created as a result of verification, the 
institution would use that ISIR transaction to make adjustments to the 
applicant's FAFSA information using the professional judgment process. 
While we understand the commenters' concerns about any delay that may 
occur with having to submit transactions separately, we believe that 
any delay will be slight. In addition, institutions have the option of 
making interim disbursements, as allowed under Sec.  668.58, until a 
corrected valid SAR or valid ISIR is received.
    Changes: None.
    Comment: One commenter asked whether an applicant who is selected 
to verify the parent's household size, but who requests that the 
institution use its professional judgment authority under section 479A 
of the HEA to examine the parent's income listed on the FAFSA, would be 
required to verify all five items before the institution could exercise 
its professional judgment.
    Another commenter argued that the requirement to complete 
verification before exercising professional judgment would delay the 
financial aid process and would create an additional hurdle for 
families in need. This commenter questioned why institutions have to go 
through an extra step to evaluate an applicant's eligibility through 
the verification process if the institution is updating those same 
fields when exercising professional judgment to revise an applicant's 
eligibility under section 479A of the HEA.

[[Page 66904]]

    Discussion: Under these final regulations, an institution must 
verify the items selected for verification before making any 
professional judgment adjustments regardless of whether an institution 
is making adjustments to the item being verified. Prior to the 
effective date for subpart E of part 668 of these final regulations, 
for an application selected for verification, an institution must 
verify the data elements identified in current Sec.  668.56 before 
making any adjustments regardless of whether an institution is making 
adjustments to the item being verified.
    Changes: None.
    Comment: One commenter asked whether an institution must complete 
verification prior to exercising professional judgment if the 
applicant's FAFSA information is selected for verification by the 
institution, rather than by the Secretary.
    Discussion: To ensure that any professional judgment adjustments 
made by an institution are based on accurate information, we believe 
that all FAFSA information selected for verification, whether selected 
by the Secretary or the institution, must be verified before the 
institution can exercise professional judgment. We are making a change 
to Sec.  668.53(c) to make this clearer.
    Changes: We have revised Sec.  668.53(c) by removing the phrase 
``by the Secretary'' after the words ``selected for verification'' to 
provide that verification, regardless of whether the FAFSA information 
to be verified is selected by the Secretary or the institution, must be 
completed prior to exercising professional judgment.

Selection of FAFSA Information for Verification (Sec.  668.54)

    Comment: Many commenters supported our proposal to target 
verification to those items reported on the FAFSA that are most prone 
to error, based on a set of criteria that identifies which items are 
most likely to contain erroneous data, instead of requiring 
verification of all five items listed in current Sec.  668.56 for 
FAFSAs selected for verification.
    Another commenter agreed with proposed Sec.  668.54(b)(1)(iii), 
which excludes from verification applicants who only receive 
unsubsidized student financial assistance. This commenter stated that 
this approach would be more efficient for applicants and free up time 
for institutional staff to help other applicants.
    Discussion: The Department appreciates the commenters' support.
    Changes: None.
    Comment: Many commenters opposed removing the institutional option 
to limit the total number of applicants who must be verified to 30 
percent of all applicants. They argued that removing this limitation, 
which is reflected in current Sec.  668.54(a)(2)(ii), would increase 
the workload of FAAs already struggling with reductions in staff and in 
State budgets, with a multitude of regulatory changes, and with 
increased enrollments. Some commenters noted that the Department 
currently targets Pell-eligible applicants for verification and were 
concerned that community colleges would be unduly impacted if the 30 
percent limitation were removed. Commenters stated that more 
institutions may need to use the 30 percent limit to manage their 
workload due to the large increase in applicants applying to 
institutions with open enrollment. Many commenters expressed concern 
that the Department would significantly increase the number of 
applicants whose FAFSAs are selected for verification if a limit is not 
established in the regulations.
    One commenter noted that additional study of the current 
verification process is needed to determine which corrections provide 
the most meaningful improvements in program integrity.
    A commenter recommended that we retain the 30 percent limit for at 
least two years, during which time we can monitor whether the proposed 
approach of targeting information to be verified, as reflected in Sec.  
668.56, actually reduces an institution's burden. If, after this two-
year period, we have evidence to show that burden on institutions has 
been reduced, the commenter suggested that the limit on the percentage 
of applicants whose FAFSAs must be verified should be lifted or 
modified.
    Discussion: The Department reviews, studies, and analyzes 
verification data on an ongoing basis. Annually, the Department 
develops a comprehensive predictive model by applying sophisticated 
statistical techniques to FAFSA application data from the most recent 
application filing years along with corresponding payment data from 
those same years. The model is designed to identify the characteristics 
of FAFSA applications containing information that is likely to have 
errors which, if not corrected, will result in an improper payment of 
title IV, HEA program funds. The model contains a series of application 
groupings that identifies that application's statistical likelihood of 
error. The Department selects applications with the highest likelihood 
of significant error for verification.
    We are confident that, when fully implemented, the targeted 
selection of FAFSA information to be verified will result in a more 
efficient and effective verification process. While some institutions, 
particularly those that enroll greater numbers of Pell Grant 
applicants, have more applicants whose FAFSA information is selected 
for verification, we believe that overall burden will be reduced across 
institutions. This is because for each applicant whose FAFSA 
information is selected, the items to be verified will be limited to 
specific items the Secretary has selected for that applicant (see 
proposed Sec.  668.56(b)) rather than all five items listed in current 
Sec.  668.56. For example, one applicant may be required to verify the 
five items required under the current regulations (because the 
Secretary includes them in the Federal Register notice published under 
Sec.  668.56(a) and specifies that those items must be verified for 
that one applicant) while another applicant may only be required to 
verify adjusted gross income (AGI) and household size (because the 
Secretary includes these two items in the Federal Register notice 
published under Sec.  668.56(a) and specifies that these are the only 
items that must be verified for this applicant). The Department also 
notes that it does not view the 30 percent limitation as applying to 
its own enforcement and monitoring activities, including program 
reviews and audits.
    Changes: None.
    Comment: Some commenters asked the Department to clarify how 
subpart E of part 668 will affect institutions that are currently 
allowed to establish their own verification criteria under the Quality 
Assurance (QA) Program.
    Discussion: The changes made to the verification regulations in 
subpart E of part 668 will not diminish the importance of the QA 
Program. In fact, we are currently in the process of developing a plan 
to expand the number of institutions that participate in the QA 
Program. We are especially interested in increasing the participation 
of minority serving institutions, community colleges, proprietary 
institutions, and institutions that serve non-traditional students or 
that offer instruction in non-traditional ways. Also, the changes made 
to the verification regulations are not expected to alter the way the 
QA Program operates. In fact, the Department expects that data and 
results generated from institutions participating in the QA Program 
will help us assess the effectiveness of the new verification 
regulations in subpart E of part 668.
    Changes: None.
    Comment: Two commenters stated that the FAFSA information of

[[Page 66905]]

applicants who are incarcerated at the time verification would occur 
and applicants who are immigrants who recently arrived in the United 
States should not be subject to verification. One commenter noted that 
verification in these cases would require institutions to spend a 
significant amount of time explaining the Federal requirements to these 
applicants when their eligibility for aid may not be affected by the 
data gathered to complete verification. Another commenter stated that a 
dependent applicant whose parents are deceased or are physically 
incapacitated should also be excluded from verification.
    Discussion: We do not agree with the commenters. Applicants who are 
incarcerated, recent immigrants to the United States, or whose parents 
are physically incapacitated, should be able to provide the 
documentation required to complete verification by providing their 
institution with the documentation that was used to complete the FAFSA.
    An applicant whose parents are deceased would be independent and 
therefore there would be no verification of parental information on an 
independent student's FAFSA.
    Changes: None.
    Comment: Several commenters expressed concern that the new process 
for verifying different FAFSA items would cause difficulties because, 
after one instance of verification, there potentially would be other 
items that the applicant would need to verify during subsequent 
transactions (a ``verification loop''). One commenter suggested that if 
the Department uses the targeted approach for verification, it should 
limit verification selection to one time per applicant and accept a 
subsequent correction for that targeted item as closure of the 
verification process for that application. One commenter noted that 
repeated verification does not currently occur because, under the 
current regulations, applicants are required to verify all items the 
first time. One commenter expressed concern that multiple verifications 
may occur for one student if the institution submits corrections to CPS 
and the student also initiates changes to the ISIR data. The commenter 
recommended including some protections for institutions that submit 
corrections to ISIR data. One commenter asked for guidance on what an 
institution is required to do when an applicant is selected for 
verification, completes it, is then selected for verification again but 
fails to complete the second verification process.
    Discussion: As noted earlier, the Department has delayed 
implementation of the changes to subpart E of part 668, including 
Sec. Sec.  668.54 and 668.56, which provide for the targeted approach 
to verification, until the 2012-13 award year. Therefore, for the 2011-
12 award year, institutions will continue to verify, for all FAFSAs 
selected for verification by the Secretary, the five data items listed 
in current Sec.  668.56. As we develop the selection criteria for 
determining which FAFSA information must be verified for an individual 
applicant (i.e., selection criteria for determining which FAFSA 
information is prone to error), we will build into the system 
procedures that limit the possibility of any applicant being subject to 
additional FAFSA items needing verification after the first selection 
has been made. However if our analysis shows that, based on submissions 
of corrections, additional FAFSA information should be verified, 
perhaps because it is inconsistent with the ``corrected information,'' 
an applicant may have to verify those additional items.
    In the NPRM, we inadvertently omitted Sec.  668.54(a)(4) from the 
verification regulations. Under current Sec.  668.54(a)(4), if an 
applicant is selected for verification by the Secretary, the 
institution must require the applicant to verify the information as 
specified in Sec.  668.56 on each additional application the applicant 
submits for the award year except for information already verified for 
the applicable award year. We are restoring Sec.  668.54(a)(4) to 
provide that if an applicant is selected by the Secretary to verify his 
or her FAFSA information, the institution must require the applicant to 
verify the information in accordance with Sec.  668.56 if the applicant 
is selected for a subsequent verification of FAFSA information, except 
that applicant is not required to provide documentation for that FAFSA 
information previously verified to the extent that the FAFSA 
information previously verified remains unchanged.
    Under current regulations, an applicant who has completed 
verification once, whose FAFSA information is selected a second time 
for verification, is only required to verify FAFSA information not 
verified previously. When the revised Sec.  668.54(a)(4) becomes 
effective, such an applicant would be required to complete the second 
verification process if the FAFSA information selected has changed for 
that award year. If the applicant fails to do so, he or she may forfeit 
eligibility for title IV aid in accordance with Sec.  668.60(b).
    Changes: We have revised Sec.  668.54 by reinstating current Sec.  
668.54(a)(4) to provide that if an applicant is selected by the 
Secretary to verify his or her FAFSA information under Sec.  
668.54(a)(1), the institution must require the applicant to verify the 
information as specified in Sec.  668.56 if the applicant is selected 
for a subsequent verification of FAFSA information, except that 
applicant is not required to provide documentation for the FAFSA 
information previously verified to the extent that the FAFSA 
information previously verified remains unchanged.
    Comment: Some commenters suggested that the proposed verification 
requirements in subpart E of part 668 would increase barriers for the 
neediest students to apply for financial aid to pursue higher 
education.
    Discussion: We do not agree. When this subpart is fully implemented 
in the 2012-13 award year, the verification process is expected to be 
more efficient and effective for both students and institutions. Thus, 
we do not expect that these new requirements will add a burden or 
increase barriers for students, including those from low-income 
backgrounds. We have not been presented with any evidence to support 
that these requirements will increase barriers for the neediest 
students to apply for financial aid to pursue higher education.
    Changes: None.

Updating Information (Sec.  668.55)

    Comment: While a few commenters supported the requirement in Sec.  
668.55(a)(1)(ii), which may result in making dependency status updates 
in mid-year, many stressed the difficulties that would arise as a 
result of this requirement. A primary concern expressed was that this 
requirement would result in a substantial increase in burden for 
institutions, particularly because a student's financial aid package is 
affected by the student's dependency status. One commenter claimed that 
to comply with this requirement, institutions would need to hire extra 
staff, which would not be possible in the current economy. In addition, 
some commenters noted that there would be undesirable consequences for 
the student: One who marries and becomes independent could lose 
eligibility for the Pell Grants already awarded and received because 
the spouse's financial data would be taken into account. Others stated 
that students might get married to increase their Pell eligibility or 
that divorce, rather than marriage, would decrease Pell eligibility; as 
one institution noted, many of its dependent students become eligible 
for more aid after they marry and become independent. Some

[[Page 66906]]

commenters requested that there be no change in this area or that FAAs 
be permitted to make dependency status changes under certain 
circumstances, such as during verification, or at their discretion. For 
example, one commenter suggested requiring the reporting of a change to 
dependency status until the first disbursement of title IV, HEA aid has 
been made and that if the dependency status update results in a change 
in the applicant's EFC, the lower value should be used. A couple of 
commenters observed that students who married late in the award year 
would become independent and need to have their aid repackaged for the 
award year. One commenter opposed all mid-year dependency status 
changes because they undermine the ``snapshot'' approach to the 
application process and create a large administrative burden. Another 
commenter noted the potential for students who divorced and became 
dependent again to lose eligibility for the aid they received because 
their parents would refuse to provide information for the application. 
Still another remarked that it is hard for institutions to track 
dependency status during the award year because accurate tracking 
requires that students notify the institution of changes. One 
commenter, who stated that he appreciated that when an update is due to 
a change in the student's marital status, institutions would only be 
required to make the update if notified by the student, also noted that 
this approach can penalize the student who is honest and reports the 
marital status change. This commenter argued that such a change in 
dependency status should be reflected in the application for the 
following year, as occurs under the current regulations. Another 
commenter suggested that although the Department affirmed that it is 
not the institution's responsibility to initiate updating, this view 
ignores the burden imposed on institutions to resolve conflicts in 
information they receive from different sources. This commenter 
requested relief for institutions so that they would only need to make 
a dependency status change in ISIR information if the student or family 
was the source of the information supporting the dependency change. 
Another commenter asked whether institutions are required to keep track 
of potential dependency status changes that are indicated by other 
campus offices when the student does not report the change. One 
commenter asked that there be a cut-off date after which an institution 
would no longer be required to make dependency status changes. Another 
commenter agreed with the Department's logic for not having a cut-off 
date, and asked that institutions be permitted to set their own date 
based on their academic calendar.
    One commenter who supported mid-year dependency status changes 
requested that the Department allow updates to household size and 
number in college when there is a change in marital status. Another 
commenter asked for early implementation of Sec.  668.55(c) because 
students are adversely affected by the current regulations.
    Discussion: We agree that mid-year verification updates to 
household size and number in college and dependency status updates 
would be burdensome to institutions if they resulted from a change in a 
student's marital status. Accordingly, we have revised Sec.  668.55(a) 
to provide that if an applicant's dependency status changes at any time 
during the award year, the applicant must update his or her FAFSA 
information, except when the dependency status change is due to a 
change in the applicant's marital status. Also, to reduce burden to 
institutions with regard to updating information, in Sec.  
668.55(b)(2), we specify that an applicant is not required to provide 
documentation of household size, number in college, or the financial 
data of an applicant's spouse during a subsequent verification of these 
data items if the information has not changed. However, new paragraph 
(c) of this section would allow the institution, at its discretion, to 
require an applicant to update the applicant's marital status, even if 
it results in a change in the applicant's dependency status, if the 
institution determines the update is necessary to address an inequity 
or to reflect more accurately the applicant's ability to pay.
    In response to the comments about establishing cut-off dates for 
making updates, we note that under the revised provisions, an 
institution that decides to have marital status updated pursuant to 
Sec.  668.55(c) may also incorporate in its policy a cut-off date after 
which it will not consider any updates to a student's marital status.
    Changes: We have revised Sec.  668.55(a) to provide that if any of 
the factors that impact an applicant's dependency status changes at any 
time during the award year, the applicant must update his or her FAFSA 
information, except if the item is the applicant's marital status.
    Paragraph (b) of Sec.  668.55 has been revised to provide that an 
applicant who is selected for verification of his or her household size 
or number in college must update those items to be correct as of the 
date of verification, except when the update is due to a change in the 
applicant's marital status. As revised, Sec.  668.55(b)(2) also 
provides that an applicant is not required to provide documentation of 
household size or number in college during a subsequent verification 
for the same award year of either item if the information has not 
changed. Finally, paragraph (c) of Sec.  668.55 provides that an 
institution may, at its discretion, update an applicant's marital 
status, even if the update will result in a change in the applicant's 
dependency status if the institution determines the update is necessary 
to address an inequity or to reflect more accurately the applicant's 
ability to pay.
    Comment: One commenter asked whether, when a student's marital 
status is updated, the student must have his or her spouse's income 
reported to the CPS for recalculation of the student's EFC. Another 
commenter requested that the Department clarify how to treat income in 
cases when the student marries or divorces, regardless of whether 
verification was performed. A third commenter wondered why the 
household size and number in college items are updated while the income 
and assets items are not updated for new family members (e.g., the 
stepparent of a dependent student or the spouse of an independent 
student).
    Discussion: As we stated earlier in this preamble, we have revised 
Sec.  668.55 to provide that there is no updating of an applicant's 
dependency status based on a change in marital status except at the 
discretion of an FAA. In such cases where an FAA chooses to update a 
student's dependency status as a result of a change in the student's 
marital status regardless of whether the student is being verified, all 
of the information must be consistent with the change to the marital 
status. This includes income (either adding the spouse's income or 
deducting a former spouse's income) as well as household size and 
number in college. Note, however, that the revised regulations do not 
allow for updating when an otherwise independent student marries or 
divorces, i.e., there is no change in dependency status and the student 
is not selected for verification.
    During verification, household size and number in college are 
updated, but the income and assets of new family members are not 
typically includable items on the FAFSA; for example, the income or 
assets of a grandparent who comes to live in the dependent student's 
family would not be includable. Moreover, section 475(f)(3) of the HEA 
excludes a stepparent's income and assets from being reported on the

[[Page 66907]]

FAFSA when a dependent student's parent remarries after the FAFSA was 
submitted, though we have stated for several years in the Application 
and Verification Guide that an institution may use professional 
judgment to include the stepparent's financial information.
    Changes: As noted earlier in this discussion, we have revised Sec.  
668.55 to provide that applicants are not required to update their 
household size, number in college, and dependency status when the 
update is needed as a result of a change in the student's marital 
status, unless the institution chooses to update those items. When the 
institution determines that updates are required as a result of a 
change in a student's marital status, the student's FAFSA information 
needs to reflect the accurate household size, number in college, 
dependency status, and the spouse's financial information.
    Comment: Some commenters questioned whether, when completing the 
FAFSA, students could project their marital status. One commenter 
argued that students should not be able to project marital status as 
they project household size based on unborn children.
    Discussion: Because projected marital status is prone to error, 
applicants may not project their marital status when completing the 
FAFSA.
    Changes: None.
    Comment: A few commenters asked whether the student or the 
institution is responsible for updating information that impacts 
dependency status.
    Discussion: Students and institutions both are able to update 
information that impacts an applicant's dependency status. Students can 
use FAFSA Corrections on the Web (COTW) or a paper SAR to submit 
updates. Institutions can use FAA Access to CPS Online or other 
Departmental electronic processes to submit updates on the student's 
behalf.
    Changes: None.
    Comment: One commenter asked us to clarify whether an institution 
must process a change in dependency status if a student is no longer 
enrolled at the institution.
    Discussion: An institution is not required to process a change in 
an applicant's dependency status if the student does not enroll or is 
no longer enrolled at the institution. However, if the student 
subsequently enrolls or reenrolls for the award year, required updates 
must be made.
    Changes: None.

Information To Be Verified (Sec.  668.56)

    Comment: Several commenters expressed concern that even though the 
number of items to be verified under the new targeted approach 
reflected in Sec.  668.56 will be reduced, the new approach will not 
alleviate the burden on the applicant or the institution because the 
institution must still identify and resolve discrepancies in the 
information the institution receives from different sources pursuant to 
Sec.  668.16(f). For example, if a student were selected to verify AGI 
or untaxed IRA income, and the documentation for that is the tax 
return, the institution will need to check the other data on the tax 
return to ensure there are no conflicts with what was reported on the 
FAFSA. One of these commenters stated that it will continue to require 
full verification of all data items and to collect all documentation 
unless the applicant uses the IRS Data Retrieval Process. Another 
commenter suggested that relaxing the requirement to resolve 
discrepancies in information under Sec.  668.16(f) would be a 
reasonable solution if the Department is using historical data that 
supports targeting specific data elements.
    Discussion: Under Sec.  668.16(f), an institution is required to 
resolve discrepancies in the information it receives from different 
sources with respect to a student's application for financial aid under 
the title IV, HEA programs. Therefore, conflicting information between 
the FAFSA information and other information at the institution must be 
resolved, and these regulations under subpart E do not change this. We 
have no reason to believe that the new approach to selecting items for 
verification will increase instances of conflicting information since 
any such conflicts would occur under the current regulations where 
every applicant selected for verification must verify information from 
a tax return.
    Changes: None.
    Comment: Some commenters disagreed with the proposed targeted 
approach to select items to be verified reflected in Sec.  668.56 
because they predicted that it would add to the burden of institutions. 
One commenter stated that having verifiable items different from the 
current five would require institutions to modify their automated 
correspondence and other processes. This would result in the use of 
more paper at a time when institutions are trying to reduce their 
carbon footprint.
    Discussion: While a change in the number and type of verifiable 
items will require some work by financial aid offices, we believe that 
there should not necessarily be an increase in paper use and that once 
systems are automated, any additional administrative burden should be 
minimized. In fact, the use of the IRS Data Retrieval Process will 
reduce the amount of FAFSA information that institutions are required 
to verify and decrease the documentation an institution must collect 
and maintain. We believe the benefits to institutions and to students 
as a result of this process justify any extra work that institutions 
and students will experience in the short term.
    As explained earlier in this preamble, we are delaying the 
effective date for the changes to subpart E of part 668 until July 1, 
2012, the 2012-13 award year. This will allow more time for 
institutions to prepare.
    Changes: None.
    Comment: Various commenters observed that because the items for 
verification will be unpredictable, institutions will not be able to 
inform applicants and parents before receiving the ISIR what 
documentation will be required for verification. Commenters requested 
that the Department provide the expected date for publishing the set of 
verifiable items in the Federal Register in advance so that 
institutions have time to implement any changes in the items to be 
verified. Commenters requested advance notice as late as mid-December 
to as early as 5 or 6 months prior to the beginning of the application 
cycle each January. Commenters stated that institutions will have 
difficulties setting up complicated systems and training aid 
administrators and other staff to comply with the changes reflected in 
the new approach to verification, especially given limited resources on 
so many campuses. One commenter asked the Department to set a maximum 
number of items that can be selected for verification each year. Some 
commenters suggested having multi-year sets of verification items, 
rather than different ones each year, to expedite the verification 
process and to allow institutions time to plan. One commenter asked 
that each year the Department obtain public comment on the selection 
criteria the Department will use to select items for verification. One 
commenter asked how institutions would verify applicants' FAFSAs 
consistently for the overlap of two processing years. Another commenter 
asked that the new regulations be delayed until the IRS Data Retrieval 
Process is fully implemented, while another commenter asked for a safe 
harbor period during crossover periods when institutions can use the 
old

[[Page 66908]]

verification criteria, or adopt early the new criteria.
    Discussion: While institutions will need to wait for the receipt of 
the ISIR before requesting specific verification documentation from 
applicants, we do not envision that this will substantially delay the 
time required for applicants to complete verification. During the early 
years of implementation of the targeted approach to verification, there 
will be stability in the FAFSA information the Secretary selects from 
year to year. For example, we would retain the five items included in 
the current regulations and supplement them as needed. However, it is 
unlikely that an applicant would have to verify all five data elements.
    We will publish in the Federal Register the set of potential 
verification items the Department intends to verify for an upcoming 
award year four to six months prior to the start of the application 
processing year (January 1, 2012 for the 2012-13 award year) to give 
institutions time to modify their systems. The maximum number of items 
that could be selected for verification in any given year is the entire 
list of items we plan to publish in the Federal Register notice for 
that year. Because the selection of verification items for a particular 
award year will be based upon a sophisticated statistical analysis of 
prior year and other relevant data, we do not anticipate the Federal 
Register notice providing multi-year selection criteria, nor, for the 
same reason, do we intend to solicit public comments on the 
verification items we select.
    To verify an applicant's FAFSA information that overlaps two 
processing years, the institution must determine which award year's EFC 
will be used and apply the verification criteria established for that 
award year.
    Changes: None.
    Comment: Various commenters expressed concern that the new approach 
for targeting items for verification will unfairly affect traditionally 
black, community, and career colleges. One commenter requested that we 
not use the verification process to target low-income demographic 
groups and that we consider some kind of relief for these groups 
regarding discrepancies in information under Sec.  668.16(f). Another 
commenter questioned whether the new approach for targeting items for 
verification could be seen as a means of profiling applicants.
    Discussion: Historically the Department has used verification to 
focus on those FAFSAs that are likely to include errors that will 
result in incorrect awards. It is not our intent to single out any 
demographic population or a particular type of institution; rather, our 
goal is to continue to select for verification FAFSA information that 
most likely needs to be corrected.
    As stated earlier, Sec.  668.16(f) requires an institution to 
resolve discrepancies in the information it receives from different 
sources and these regulations under subpart E will not change this 
requirement.
    Changes: None.
    Comment: One commenter asked if verification should be required 
when a student appeals for a professional judgment change to the cost 
of attendance.
    Discussion: We do not plan to add to the list of verification 
exclusions in Sec.  668.54(b) students who request a professional 
judgment change.
    Changes: None.
    Comment: Several commenters stated that an exclusion from 
verification could be granted when the student or parent used the IRS 
Data Retrieval Process to supply income and tax data on the FAFSA.
    Discussion: Section 668.57(a)(2) of the new regulations codifies 
our determination that in instances when an applicant or parent is 
required to have his or her AGI, taxes paid, or income earned from work 
verified, the institution may consider as acceptable documentation the 
information reported by the student on the FAFSA and reported to the 
institution on the ISIR if the Secretary has identified those items as 
having come from the IRS and as having not been changed. The Secretary 
will so indicate by a flag on the ISIR that the information came 
directly from the IRS and was not changed. There will be separate flags 
for the student's information and, if applicable, for the parents' 
information.
    Changes: None.
    Comment: One commenter expressed concern that students will be 
confused and will miss the verification information on their SAR. The 
commenter stated that the verification worksheet will not work anymore 
because not all items will be used for each student and asked if 
institutions will need to develop their own interchangeable forms that 
will list only those items an applicant or parent must verify.
    Discussion: Institutions have always been able and will continue to 
be able to develop and use their own verification worksheets as long as 
it captures the essential verification items. Institutions could create 
a single form with all the verification criteria for the coming award 
year and select for each student the pertinent items, or they could 
modify their form so that each student receives an individualized 
request for documentation. We will work with the community to determine 
if there still is a need for a Department-developed verification 
worksheet, and, if so, how it should be formatted.
    Changes: None.
    Comment: One organization requested that we create unique codes on 
the ISIR that correspond with each verification item so that 
institutions can automate their correspondence with applicants and 
other processes. Another commenter suggested that comments included on 
the SAR should be expanded to assist the applicant in sending the 
documentation to verify the specific items selected for verification to 
the institution he or she is seeking to attend.
    Discussion: As suggested by the commenters, we will include on each 
applicant's ISIR item specific flags that will indicate which items 
need to be verified. We will also provide notification to the applicant 
on the Student Aid Report (SAR) of the need to have information 
verified.
    Changes: None.
    Comment: One commenter asked that the Department be responsible for 
completing verification and that the Department report to institutions 
when an applicant's aid can be disbursed.
    Discussion: The commenter's request has been suggested before, and 
we have determined that most institutions are not interested in the 
Department performing verification and would, notwithstanding the 
workload, prefer to work with students directly.
    Changes: None.

Acceptable Documentation (Sec.  668.57(a)(2), (a)(4)(ii)(A), (a)(5), 
(a)(7), and (d))

    Comment: One commenter suggested that, for applicants and parents 
who have not filed their taxes prior to filling out the FAFSA and who 
indicate that they will be filing, the CPS should automatically draw 
down the IRS data and send a reprocessed ISIR, once the applicant files 
the required tax returns. A commenter noted that the IRS Data Retrieval 
Process would not benefit applicants and their families who complete 
the FAFSA (using estimated income) prior to completing their Federal 
income tax return in order to meet various State aid deadlines. One 
commenter asked whether data retrieved from the IRS can be used to make 
corrections to a FAFSA if the IRS Data Retrieval Process was not used 
to complete the original FAFSA. In this situation, the commenter asked 
whether the corrected data would be considered verified.

[[Page 66909]]

    Discussion: Under our current agreement with the IRS, only the tax 
filer, at the time he or she is completing the FAFSA or, starting in 
2011-12, at the time he or she is making corrections, can request that 
IRS tax information be displayed and only the tax filer can choose to 
have that information imported into the applicant's FAFSA for initial 
filings or into the CPS record for corrections. However, working with 
the IRS we have been able to mitigate (although not eliminate) the 
inherent calendar conflicts between the beginning of a FAFSA processing 
year in January, the many State and institutional deadlines occurring 
as early as February, and the IRS tax return filing timelines. 
Beginning with the 2011-12 processing year, the IRS plans to provide 
applicants and their families with FAFSA on the Web access to tax 
return information within approximately 10 days of the return's filing 
date if the return was filed electronically and within two weeks if a 
paper return was filed. Also, beginning with the 2011-12 FAFSA 
processing year, applicants and parents will be able to access IRS tax 
return information using the FAFSA COTW process. Thus, many applicants, 
who, because of their original FAFSA filing date (or for any reason), 
did not use the IRS Data Retrieval Process when they originally 
completed the FAFSA will be able to use the process to ``correct'' the 
original FAFSA information. Like applicants who use the IRS Data 
Retrieval Process when originally completing the FAFSA, if applicants 
and parents use the FAFSA COTW process to import IRS data on the FAFSA, 
the institution may consider that data as acceptable documentation in 
accordance with Sec.  668.57(a)(2) if that data was not changed. As 
mentioned earlier, an applicant's ISIR will indicate that the 
information came directly from the IRS and was not changed.
    Changes: None.
    Comment: Several commenters supported the IRS Data Retrieval 
Process, which will allow applicants and their families to import data 
obtained from the IRS to populate an applicant's online FAFSA. Many 
commenters agreed that this process will reduce an institution's burden 
and help expedite the financial aid process by not requiring 
verification of IRS imported data; however, one commenter argued that 
it would be more appropriate to eliminate FAFSAs populated with IRS 
data through the IRS Data Retrieval Process entirely from verification.
    Discussion: The Department appreciates the commenters' support. We 
do not agree that individuals who retrieve income and tax data from the 
IRS should be exempt from the verification process because not all 
FAFSA information can be imported from the IRS database and an 
applicant's FAFSA may be selected for verification as a result of a 
data item that cannot be retrieved from the IRS. However, as discussed 
earlier in this preamble, an institution may consider as acceptable 
documentation IRS retrieved information if the Secretary has identified 
those items as having come from the IRS and not having been changed. We 
are exploring a process that would automatically exclude from 
verification FAFSA items that came from the IRS and were not changed.
    Changes: Section 668.57(a)(2) has been revised to clarify that an 
institution may use IRS transferred data as acceptable documentation 
for verification purposes if it is limited to the IRS data that was 
transferred for the specific award year, and the Secretary has 
identified the data as having been obtained from the IRS and not having 
been changed.
    Comment: One commenter questioned whether applicants should be 
allowed to use data from the second processing tax year because that 
data may not accurately reflect a student's or parent's current income. 
The commenter asserted that the use of these data may cause confusion 
when completing the FAFSA and that this, in turn, will increase burden 
on institutions, which will be responsible for responding to increased 
requests for professional judgment reviews.
    Another commenter pointed out that using data from the second 
processing tax year would not benefit some California Community 
Colleges that have a high population of families who have experienced 
job losses.
    Discussion: Section 480(a) of the HEA gives the Secretary the 
option of using income and other data from the second preceding tax 
year to calculate an applicant's EFC. While the Department does not 
plan to exercise this option at this time, we believe it is appropriate 
to include this provision in the regulations to allow for this 
flexibility in the future.
    We are revising Sec.  668.57(a)(1)(i), (a)(1)(ii), (a)(1)(iii) to 
make conforming changes consistent with other paragraphs under this 
section that clarify the specific year that the documentation provided 
for under this section must be submitted to the institution.
    Changes: Section 668.57 has been revised in paragraphs (a)(1)(i), 
(a)(1)(ii), (a)(1)(iii), and (a)(2) to add the phrase ``for the 
specified year'' as defined under Sec.  668.52.
    Comment: We received a number of comments expressing concern 
regarding the operational aspect of the IRS Data Retrieval Process. For 
instance, a few commenters were unclear if an applicant, whose marital 
status has changed since filing an income tax return, could use the IRS 
Data Retrieval Process to import only his or her data from an income 
tax return filed jointly. Another commenter asked if the appropriate 
fields from a married couple's separately filed tax return would be 
added together before the data are imported into an online FAFSA.
    Discussion: For the reasons noted by the commenters, the IRS Data 
Retrieval Process has not and will not be offered to an applicant (or 
parent) whose marital status changed after the end of the tax year. 
Also, because the current configuration of the IRS Data Retrieval 
Process cannot access both tax returns when a married applicant or the 
married parents of a dependent student filed separately (IRS Filing 
Status of ``Married Filing Separately), our FAFSA on the Web 
instructions advise such tax filers not to use the IRS Data Retrieval 
Process. Similarly the IRS Data Retrieval Process cannot extract the 
income of one individual that filed jointly. We are working with the 
IRS to find a resolution to this issue. In the meantime, if an 
institution is aware that such individuals did use the IRS Data 
Retrieval Process the institution must collect tax return information 
from the other spouse.
    Changes: None.
    Comment: One commenter noted that most Pell-eligible applicants 
would not benefit from the IRS Data Retrieval Process since they are 
not required to file a Federal tax return because they do not earn 
enough. Therefore, this commenter argued that these applicants and the 
institutions that serve them would not experience the reduction in 
burden the IRS Data Retrieval Process is expected to provide.
    Discussion: The commenter is correct.
    Changes: None.
    Comment: One commenter requested guidance on the level of knowledge 
FAAs are expected to have regarding tax filing requirements. 
Specifically, the commenter expressed concern that FAAs may not have 
the knowledge necessary to ensure that applicants are filing their tax 
returns under the correct tax filing status (i.e., single, married 
filing jointly, married filing separately, and head of household).
    Discussion: We do not expect FAAs to be experts in IRS and tax 
filing requirements. However, FAAs are

[[Page 66910]]

expected to have a basic understanding of relevant tax issues that can 
considerably affect an applicant's eligibility. We expect FAAs to be 
able to ascertain whether an applicant or his or her family members 
identified on the applicant's FAFSA were required to file a tax return, 
what the correct filing status for the applicant should be, and that an 
individual cannot be claimed as an exemption by more than one person.
    Changes: None.
    Comment: One commenter asked for clarification on whether 
institutions have the authority to require an individual who is 
required to file a U.S. tax return but who has been granted a filing 
extension by the IRS to submit tax documents before proceeding with 
verification. Another commenter asked why the Department would not 
require the actual tax return filed with the IRS to be used to complete 
verification for a student or parent that files a tax extension. This 
commenter stated that a student should not receive any aid until 
verification is completed using the actual tax return (not the 
documentation provided under Sec.  668.57(a)(4)(ii)). Another commenter 
supported the requirement that an applicant who is granted an extension 
to file his or her income tax return must submit a copy of the return 
that was filed, and the institution must re-verify the AGI and taxes 
paid by the applicant and his or her spouse or parents.
    Discussion: Section 668.57(a)(4)(ii)(A) provides that an 
institution must accept a copy of IRS Form 4868, ``Application for 
Automatic Extension of Time to File U.S. Individual Income Tax 
Return,'' that was filed with the IRS or a copy of the IRS's approval 
for an extension beyond the automatic six-month extension as acceptable 
documentation to verify an applicant's FAFSA information for an 
applicant that has been granted a tax filing extension. An institution 
may request a copy of the tax return once filed, but it may not delay 
verifying an applicant's FAFSA information until the tax return is 
received if the applicant provides the documentation approved by the 
Secretary under Sec.  668.57.
    The Department does not require an applicant that has been granted 
a tax extension to submit the actual tax return filed with the IRS 
because of the extended period of time that may elapse before the 
applicant actually files the return. This would delay the applicant's 
aid, which we believe would be inappropriate. We believe the income 
information collected on IRS Form 4868 and IRS Form W-2 should be 
sufficient documentation to verify the AGI, income earned from work, or 
U.S. taxes paid if those items are selected for verification. However, 
the regulations do provide that the institution may require the 
applicant to submit the actual tax return that was filed with the IRS. 
If the institution receives a copy of the return, it must reverify the 
AGI and taxes paid by the applicant and his or her spouse or parents.
    We believe clarification is needed for the one commenter who 
appeared to interpret Sec.  668.57(a)(5) to mean that in all cases 
applicants who are granted a tax extension must submit the actual tax 
return once it is filed, and that the institution must reverify the AGI 
and taxes paid by the applicant and his or her spouse or parents once 
it receives the filed return. An applicant who files an extension is 
only required to provide a copy of the tax return that was filed if the 
institution requires a copy. Only if the institution requires the 
applicant to submit the tax return that was filed would the institution 
be required to reverify the AGI and taxes paid by the applicant and his 
or her spouse or parents. This differs from what occurs under the 
current regulations. Under the current regulations, if an institution 
required an applicant who was granted a tax filing extension to submit 
the return to the institution once it was filed, the institution could 
decide whether or not to reverify the AGI and taxes paid by the 
applicant and his or her spouse or parents.
    Changes: None.
    Comment: None.
    Discussion: We are making a technical change to Sec.  
668.57(a)(4)(iii)(B) to clarify that an individual who is self-employed 
or who has filed an income tax return with a foreign government must 
provide a signed statement that certifies the amount of taxes paid in 
addition to his or her AGI.
    Changes: Section 668.57(a)(4)(iii)(B) has been revised to provide 
that an institution must accept a written certification of the amount 
of taxes paid for an individual who is self-employed or has filed an 
income tax return with a foreign government.
    Comment: One commenter sought clarification on Sec.  668.57(a)(7), 
which provides that an institution may accept in lieu of a copy of an 
income tax return signed by the filer of the return or one of the 
filers of a joint return, a copy of the filer's return that includes 
the preparer's Social Security Number, Employer Identification Number 
or the Preparer Tax Identification Number and has been signed by the 
preparer of the return or stamped with the name and address of the 
preparer of the return. The commenter asked whether it would be 
acceptable for the preparer to write or type his or her name on a 
filer's tax return. The commenter noted that guidance in the 2010-11 
Application and Verification Guide is much broader, as it allows the 
preparer to stamp, type, sign, or print his or her name on a filer's 
tax return.
    Discussion: We agree with the commenter and have revised Sec.  
668.57(a)(7) to expand the options a tax preparer has for being 
identified on an applicant's tax return to make it consistent with the 
guidance provided in the 2010-11 Application and Verification Guide.
    Changes: We have revised Sec.  668.57(a)(7) to provide that in 
addition to having the preparer's signature or stamp on a filer's tax 
return, the institution may accept a paper return on which the tax 
preparer has typed or printed his or her own name.

Interim Disbursements (Sec.  668.58(a)(3))

    Comment: Some commenters supported Sec.  668.58(a)(3), which allows 
an institution to make an interim disbursement prior to receiving the 
reprocessed SAR or ISIR if, after verification, the institution 
determines that changes to the applicant's information will not change 
the amount the applicant would receive under a title IV, HEA program 
and the requirement in Sec.  668.59(a) that requires institutions to 
submit all corrections to the Department for reprocessing. One 
commenter did not support allowing an institution to disburse aid to a 
student before the student's corrected FAFSA information has been 
submitted and the institution receives a reprocessed SAR or ISIR.
    Discussion: The Department appreciates the commenters' support and 
notes that interim disbursements are optional, not required.
    Changes: None.
    Comment: One commenter stated that because all corrections must be 
submitted to the Department under Sec.  668.59(a), there is no need to 
allow interim disbursements. This commenter recommended that we remove 
from the regulations all provisions related to interim disbursements.
    Discussion: We believe it is important to continue to give 
institutions the flexibility to determine whether to make interim 
disbursements to individual applicants prior to the completion of 
verification to alleviate a hardship a student may experience if there 
is a delay in receiving his or her financial aid. And, as noted 
earlier, interim disbursements are optional, not required.
    Changes: None.

[[Page 66911]]

    Comment: One commenter indicated that there is a problem with the 
cross-references in proposed Sec.  668.58. The same commenter also 
expressed concern that this provision does not make clear how interim 
disbursements for the FWS Program are treated if the student after 
working is determined to have an overpayment.
    Discussion: We agree with the commenter that there are problems 
with the cross-references for interim disbursements in proposed Sec.  
668.58. Specifically, we believe that in Sec.  668.58(a)(1) and 
(a)(3)(i), we need to clarify that corrections to the student's FAFSA 
information must be made in accordance with Sec.  668.59(a). In 
addition, in proposed Sec.  668.58(b) we had an erroneous cross-
reference for the interim disbursements made under the FWS Program. 
Proposed Sec.  668.58(b) also did not cross-reference each type of 
interim disbursement that is allowed under certain conditions, either 
before verification is completed or after verification is completed but 
before the institution has received the valid SAR or valid ISIR 
reflecting the corrections. For clarity, we believe it is appropriate 
to revise Sec.  668.58(b) so that it addresses each type of interim 
disbursement. Further, we believe that specific cross-references to 
Sec.  668.61 need to be added to Sec.  668.58(b) to clarify how 
institutions must handle any overpayments that occur because of an 
interim disbursement such as under the FWS Program.
    Changes: We have revised Sec.  668.58(a)(1) and (a)(3)(i) by 
clarifying that corrections to a student's FAFSA information must be 
made in accordance with Sec.  668.59(a). In addition, we have revised 
Sec.  668.58(b) to correctly and completely cross-reference each type 
of interim disbursement that is allowed. Further, we have revised Sec.  
668.58(b) to explain, with more specificity, how institutions must 
handle the recovery of each type of overpayment due to an interim 
disbursement, including those made for the FWS Program. We also added 
specific cross-references to Sec.  668.61 in Sec.  668.58(b) to provide 
clarity to institutions on handling the recovery of any overpayments 
that may occur because of an interim disbursement.

Consequences of a Change in an Applicant's FAFSA Information (Sec.  
668.59)

    Comment: A number of commenters agreed with the proposal to remove 
the $400 tolerance reflected in current Sec.  668.59(a) and, instead, 
to require all changes to an applicant's FAFSA information be reported 
to the Department for reprocessing to ensure a student's award is based 
on accurate information.
    Several other commenters objected to the proposal to remove the 
dollar tolerance because they believed it would increase administrative 
burden, particularly for larger institutions, and would delay payments 
to students. One commenter noted that the current tolerance allows FAAs 
to use their own judgment to determine when it was necessary to 
reprocess corrections that have minimal impact on student eligibility.
    One commenter noted that removing the $400 tolerance will not be a 
problem for institutions but, like many other commenters, opposed 
requiring all changes to an applicant's FAFSA information to be 
submitted to the Department for reprocessing. The commenter expressed 
concern about this requirement, especially when the student's 
eligibility either would not be affected or where there were minor 
errors, i.e., an AGI was off by $1. One commenter recommended that the 
Department consider providing institutions with some administrative 
relief in this area, given that institutions will need to implement 
several other changes as a result of the issuance of these verification 
regulations. Many commenters recommended that the Department retain the 
current $400 tolerance or allow for a reasonable tolerance of a modest 
sum to allow for minor errors made by applicants and their families.
    Discussion: We appreciate the concerns raised by commenters and 
acknowledge the burden associated with having to submit all changes to 
an applicant's FAFSA information to the Department for reprocessing. 
While our goal is to obtain the most accurate data available to help in 
our efforts to identify error-prone applications, we agree that the 
regulations should provide a means for dealing with minor errors in 
financial information reported on an applicant's FAFSA information 
without requiring that these minor changes be submitted to the 
Department for reprocessing. While we do not agree that it is 
appropriate to retain the $400 tolerance from current Sec.  668.59(a), 
we are revising Sec.  668.59 to address minor errors in financial 
information so that institutions need not submit changes resulting from 
these types of errors to the Department for reprocessing. It is 
important to note, however, that institutions will still be required to 
submit all errors in nonfinancial information to the Department for 
reprocessing.
    Specifically, we have revised Sec.  668.59(a) to require 
institutions to submit, for reprocessing, any change to an individual 
data element on an applicant's FAFSA that is $25 or more. For example 
if the difference reported for AGI is $24, and taxes paid is $20, the 
institution would not be required to submit changes to the Department 
for reprocessing. However, if the difference for AGI is $25, and $20 
for taxes paid, the institution would be required to update all 
changes, not just the change that exceeded the tolerance.
    We also made conforming changes in Sec.  668.164(g)(2)(i) to 
reflect that any dependent student, whose parent is applying for a 
Direct PLUS Loan must complete a FAFSA in accordance with section 483 
of the HEA in order to obtain a SAR or ISIR with an official EFC to 
meet the conditions for a late disbursement.
    In addition we have amended Sec.  668.164(g)(4)(iv) to reflect the 
changes that were made under Sec.  668.59(a) that require all changes 
to an applicant's FAFSA information be submitted to the CPS System for 
correction, except financial data that is less than $25. Therefore, an 
institution may not make a late disbursement of any title IV, HEA 
assistance until it obtains a valid SAR or valid ISIR.
    Changes: We have revised Sec.  668.59(a) to provide that if an 
applicant's FAFSA information changes as a result of verification, the 
applicant or the institution must submit to the Secretary any change to 
a nondollar item on the FAFSA and any change to a dollar item on the 
FAFSA if the change to that dollar item is $25 or more.
    We have revised Sec.  668.164(g)(2)(i) to require an applicant 
whose parent is applying for a Direct PLUS loan to have a SAR or ISIR 
with an official EFC to meet the conditions for a late disbursement.
    We have also revised Sec.  668.164(g)(4)(iv) to provide that an 
institution may not make a late disbursement of any title IV, HEA 
program assistance unless it receives a valid SAR or valid ISIR for the 
student by the deadline date established by the Secretary in a Federal 
Register notice.
    Comment: One commenter stated that it is not opposed to requiring 
that institutions submit all corrections to CPS but expressed concern 
with the increased number of applicants selected for verification when 
there is a change to a school code or address.
    Discussion: It is true that, in a limited number of instances, 
verification could be triggered when an applicant makes a correction to 
his or her address or to a school code. This is because the

[[Page 66912]]

statistical analysis that determines whether an applicant's record or a 
particular item should be verified due to the likelihood of error 
includes factors beyond those that are used to calculate the EFC. We do 
not believe that the number of these instances will be significant.
    Changes: None.
    Comment: One commenter indicated that the proposed regulations are 
confusing with respect to the handling of overpayments due to interim 
disbursements made after an applicant had been selected for 
verification, and the handling of overpayments due to disbursements 
made before an applicant was selected for verification.
    Discussion: We agree with the commenter that proposed Sec.  
668.59(b), (c), and (d) may be confusing because these paragraphs do 
not clearly state how institutions must handle an overpayment that is 
the result of interim disbursements made after the applicant is 
selected for verification. Further, proposed Sec.  668.59(b), (c), and 
(d) may also be confusing because these paragraphs do not clearly state 
how institutions must handle an overpayment that is the result of a 
disbursement that is made before the applicant is selected for 
verification but that is later discovered to be an overpayment. While 
proposed Sec.  668.59(b), (c), and (d) was intended to describe how to 
handle an overpayment in both of these situations if the applicant is 
receiving aid under the subsidized student financial assistance 
programs, we believe that further changes are needed so that this 
section clearly states that an institution must comply with both the 
procedures in Sec.  668.61 for an interim disbursement that is 
determined later to be an overpayment, and the appropriate overpayment 
requirements in the applicable program regulations for overpayments 
discovered during verification that were due to disbursements made 
prior to a student being selected for verification.
    Changes: We have revised Sec.  668.59(b), which covers the 
consequences of a change in an applicant's FAFSA information as the 
result of verification for the Federal Pell Grant Program, to provide 
that for purposes of the Federal Pell Grant Program the institution 
must follow the procedures in Sec.  668.61 for handling overpayments 
due to interim disbursements, and the procedures in Sec.  690.79 for 
overpayments that are not the result of interim disbursements.
    We have also revised Sec.  668.59(c), which covers the consequences 
of a change in an applicant's FAFSA information as the result of 
verification for the subsidized student financial assistance programs, 
excluding the Federal Pell Grant Program. Section 668.59(c) also covers 
the Direct Subsidized Loan Program that was handled originally in 
proposed Sec.  668.59(d). As revised, Sec.  668.59(c) now provides that 
the institution must follow the procedures in Sec.  668.61 for handling 
overpayments due to interim disbursements, including for the FWS 
Program. Further, Sec.  668.59(c) now provides that the institution 
must follow the procedures in Sec.  673.5(f) for handling overpayments 
that are not the result of interim disbursements under the Federal 
Perkins Loan or FSEOG programs. Finally, we have revised Sec.  
668.59(c) to also provide that the institution must follow the 
procedures in Sec.  685.303(e) for handling overpayments that are not 
the result of interim disbursements under the Direct Subsidized Loan 
Program.
    The content in Sec.  668.59(d) has been incorporated into paragraph 
Sec.  668.59(c).

Deadlines for Submitting Documentation and the Consequences of Failing 
To Provide Documentation (Sec.  668.60(c)(1))

    Comment: Two commenters concurred with the provision under proposed 
Sec.  668.60(c)(1) that allows a student who completes verification 
while the student is no longer enrolled to be paid based on the valid 
SAR or valid ISIR. These commenters stated that this approach was 
preferable to current Sec.  668.60(c)(1), which provides that the 
student is paid based on the higher of the two EFCs if the student 
submits a valid SAR or valid ISIR while the student is no longer 
enrolled. Under that approach, the student would receive the lesser 
amount of a Federal Pell Grant.
    Discussion: We appreciate the commenters' support.
    Changes: None.
    Comment: One commenter encouraged the Department to allow 
institutions to implement Sec.  668.60(c)(1) prior to the 2011-12 award 
year.
    Discussion: While we appreciate the commenter's desire to implement 
this provision prior to the 2011-12 award year, we believe that 
allowing early implementation would interfere with policies already in 
place for the 2010-11 award year, and how that may impact aid already 
disbursed, i.e., how to account for aid disbursed for a summer term 
that was assigned to the prior award year. As noted earlier in this 
preamble, the changes to subpart E of part 668, including Sec.  668.60, 
will become effective on July 1, 2012, so that it will be implemented 
beginning with the 2012-13 award year and forward.
    Changes: None.

Recovery of Funds (Sec.  668.61)

    Comment: One commenter supported the proposed changes to Sec.  
668.61. Another commenter noted that Sec.  668.61 should only address 
recovery of funds in the event of overpayments resulting from interim 
disbursements--not overpayments that are not the result of interim 
disbursements. This commenter indicated that this section also contains 
erroneous cross-references. In addition, this commenter stated that 
this section should provide information on how to treat overpayments 
made under the FWS Program as interim disbursements because the student 
must be paid for all hours worked.
    Discussion: Section 668.61 is about handling the recovery of 
overpayments due to interim disbursements. The recovery of overpayments 
that are not the result of interim disbursements, including 
overpayments that result from disbursements made before an applicant 
was selected for verification and later after selection for 
verification the applicant's SAR and ISIR must be corrected, are 
addressed by the appropriate overpayment requirements in the applicable 
program regulations. We agree with the commenter that some of the 
cross-references in proposed Sec.  668.61 need to be corrected.
    We also agree with the commenter that it would be helpful for Sec.  
668.61 to provide details on how to handle the recovery of overpayments 
that occur from interim disbursements for students employed under the 
FWS Program. Under Sec.  668.58(a)(2)(ii), an institution is allowed to 
employ an applicant under the FWS Program for the first 60 consecutive 
days after the student's enrollment in that award year prior to 
verification, if the institution does not have reason to believe that 
an applicant's FAFSA information is inaccurate. If an FWS overpayment 
occurs due to this interim disbursement, the institution must follow 
the procedures in Sec.  668.61(b). We have revised Sec.  668.61(b) to 
clarify that the institution must attempt to adjust the applicant's 
other financial aid to eliminate the overpayment due to an interim 
disbursement under the FWS Program. This revised Sec.  668.61(b) 
provides that, if the institution is unable to eliminate the 
overpayment by adjusting the applicant's other financial aid, the 
institution must reimburse the FWS Program account by making 
restitution from its own funds. The applicant must still be paid for 
all work performed under the Federal labor laws.

[[Page 66913]]

Because the applicant was employed, the applicant must be placed on the 
institution's own payroll account and all required employer 
contributions for social security, workers' compensation, or any other 
welfare or insurance program, must still be paid by the institution 
because this applicant was an employee.
    In addition, the institution is allowed under Sec.  668.58(a)(3) to 
employ a student under the FWS Program for the first 60 consecutive 
days prior to receiving the corrected valid SAR or valid ISIR if, after 
verification, it determines that an applicant's information will not 
change the amount that the applicant would receive under that program. 
In Sec.  668.61(c), we require that if an FWS overpayment occurs 
because the institution does not receive the valid SAR or valid ISIR 
reflecting corrections within the established deadline dates, the 
institution must reimburse the FWS Program account by making 
restitution from its own funds. In Sec.  668.61(c), we clarify that the 
student must still be paid for all work performed under the 
institution's own payroll account and the institution must still handle 
all employer requirements.
    Changes: We have revised Sec.  668.61, including the section 
heading, to clarify that this section is about handling overpayments 
due to interim disbursements made under Sec.  668.58. We have also 
corrected the cross-references in this section. In addition, we have 
revised Sec.  668.61(b) to provide specific procedures for recovering 
funds from any FWS overpayment that results from an interim 
disbursement made before verification is completed. We have revised 
Sec.  668.61(c) that describes the procedures for handling overpayments 
due to an allowable interim disbursement of subsidized student 
financial assistance, including any disbursement from FWS employment, 
before the institution receives the valid SAR or valid ISIR reflecting 
the corrections. Section 668.61(c) now makes it clear that the 
applicant must still be paid for all work performed under the 
institution's own payroll account.

Misrepresentation (Subpart F--Sec. Sec.  668.71 Through 668.75)

General

    Comment: A significant number of commenters generally or 
fundamentally supported the proposed regulations in subpart F of part 
668. Several commenters stated that the proposed regulations on 
misrepresentation reflect an excellent, much-needed improvement over 
current regulatory language and that they will significantly enhance 
the Department's ability to address deceptive practices that compromise 
the ability of students to make informed choices about institutions and 
the expenditure of their resources on higher education. One commenter 
agreed, in particular, with proposed Sec. Sec.  668.72 and 668.73, 
which ensure that all students have access and transparent information 
about their educational program and its cost. This commenter noted that 
accurate disclosures are needed in order to protect students, 
especially in light of the many documented instances in which students 
have had their expectations regarding postsecondary education outcomes 
(e.g., completed degrees, good jobs and high salaries) not met with 
success but with failure and mountains of debt instead. One commenter 
stated that the proposed regulations on misrepresentation provide 
additional protections against misleading and overly aggressive 
advertising and marketing tactics. Another commenter strongly supported 
the proposals and stated that integrity in how institutions present 
themselves is key to ensuring students are not victims of false 
promises or misunderstanding when making a decision about higher 
education. Finally, we received many comments that supported the 
Department's mission of helping students make sound decisions and 
maintaining the integrity of the title IV, HEA programs but expressed 
concern about some of the specific language.
    Discussion: We appreciate the commenters' support. We address the 
comments and concerns on specific language in the relevant sections 
that follow.
    Changes: None.
    Comment: Many commenters strenuously opposed the proposed revisions 
to the misrepresentation regulations in subpart F of part 668. Some 
commenters argued that, because misrepresentation is an issue more 
appropriately addressed by the Federal Trade Commission (FTC), the 
Department should have adopted in these regulations the language from 
the FTC guidelines so that those guidelines would be applicable to all 
institutions participating in the title IV, HEA programs. These 
commenters noted that for-profit institutions are already subject to 
the FTC guidelines and that the results of that guidance have served 
their students well and that other sectors of higher education should 
be subject to the FTC guidelines as well.
    Several commenters stated that students would be confused by the 
proposed regulations dealing with misrepresentation. Specifically, the 
commenters expressed concern that because institutions disclose 
information to many parties, including accrediting agencies, the 
Department, current and prospective students, and the general public, 
information required to be disclosed under the title IV, HEA program 
regulations is complex and not always easy to understand. Therefore, 
the commenters argued that students will not be able to make informed 
decisions about which institution to attend because, under the title 
IV, HEA program regulations, they will be provided different statistics 
and will have difficulty understanding them.
    One commenter expressed concern that while the education community 
is in need of clear guidance on ethical practices and the proposed 
regulations are well-intended, they are too vague and subjective. A few 
commenters urged the Department not to adopt the proposed regulations 
as final unless they are significantly clarified.
    Finally, one group of commenters stated that the proposed changes 
to subpart F of part 668 are unfair to for-profit schools. Some 
commenters appeared to believe that the revisions reflected in proposed 
subpart F of part 668 would only apply to for-profit schools.
    Discussion: During the negotiations that were held during the 
months of November 2009 through January 2010, we discussed whether to 
adopt the FTC guidelines in our misrepresentation regulations. Some 
non-Federal negotiators strongly opposed adopting the FTC guidelines in 
the Department's regulations because doing so, they argued, would be 
duplicative and heavy-handed.
    The FTC only has jurisdiction over for-profit entities, and those 
entities are already subject to the FTC guidelines. The FTC guidelines 
do not apply to degree-granting institutions, and we believe it would 
not be appropriate to adopt the FTC guidelines wholesale. Instead, we 
have reviewed the guidelines carefully and incorporated only those that 
we determined are appropriate for inclusion in our regulations (i.e., 
those that we believe should be applicable to all eligible institutions 
participating in the title IV, HEA programs).
    With regard to the commenters who expressed concern for students 
being confused by these regulations, we note that the proposed 
regulations apply to institutions participating in the title IV, HEA 
programs and not to students. Because students are not the intended 
audience for these regulations, we do not believe that students will be

[[Page 66914]]

confused by the regulations. If students have questions about the 
regulations, they have a variety of sources to assist them in 
understanding them, including by contacting the Department with their 
questions.
    We disagree with the commenters who opined that the proposed 
regulations are too vague and subjective. Section 487 of the HEA 
provides that institutions participating in the title IV, HEA programs 
shall not engage in substantial misrepresentation of the nature of the 
institution's educational program, its financial charges, or the 
employability of its graduates. The regulations in subpart F of part 
668 set forth the types of activities that constitute misrepresentation 
by an institution and describe the actions that the Secretary may take 
if the Secretary determines that an institution has engaged in 
substantial misrepresentation. The proposed changes to the regulations 
strengthen the Department's regulatory enforcement authority against 
institutions that engage in substantial misrepresentation and clarify 
what constitutes misrepresentation.
    The commenters who stated that the proposed regulations are unfair 
because they only apply to for-profit institutions are incorrect. 
Subpart F of part 668 applies to all institutions that participate in 
the title IV, HEA programs.
    Changes: None.
    Comment: Some commenters argued that the proposed regulations are 
legally deficient on their face, redundant, and provide no insight or 
guidance on conduct that may constitute ``substantial 
misrepresentation.'' They stated that the proposed regulations do not 
contain any standards of intent, harm, or materiality. In addition, 
some commenters stated that the regulations are missing a quantitative 
element because they do not identify what exactly would trigger 
penalties (e.g., a single complaint, a pattern of misrepresentation, a 
dollar amount of title IV, HEA aid). These commenters stated that a 
degree of materiality of misrepresentation should be taken into account 
when determining whether to impose a sanction on an institution.
    Discussion: We disagree with the commenters who opined that the 
Department does not have the legal authority to regulate in this area. 
Current subpart F of part 668 has been in place for over 25 years. The 
proposed changes strengthen the Department's regulatory enforcement 
authority over institutions that engage in substantial 
misrepresentation and further clarify what constitutes 
misrepresentation.
    The U.S. Government Accountability Office (GAO) was recently asked 
to conduct undercover testing to determine whether for-profit colleges' 
representatives engaged in fraudulent, deceptive, or otherwise 
questionable marketing practices. The undercover tests at 15 for-profit 
institutions found that four institutions encouraged fraudulent 
practices and that all 15 made deceptive or otherwise questionable 
statements to GAO's undercover applicants. Institutional personnel 
engaged in deceptive practices, including by encouraging applicants to 
falsify their FAFSA information, by exaggerating applicants' potential 
salary after graduation, and by failing to provide clear information 
about the institution's program duration, costs, and graduation rate. 
In some instances, the undercover applicants received accurate and 
helpful information from institutional personnel, such as not to borrow 
more money than necessary.
    The information uncovered by the GAO during its investigation 
reinforces the Department's decision to amend the misrepresentation 
regulations in subpart F.
    We disagree with commenters who claim the regulations are legally 
deficient because they fail to establish the need for specific intent 
as an element of misrepresentation or do not define a requisite degree 
of harm before the Department may initiate an enforcement action.
    The Department has always possessed the legal authority to initiate 
a sanction under part 668, subpart G for any violation of the title IV, 
HEA program regulations. However, the Department has also always 
operated within a rule of reasonableness and has not pursued sanctions 
without evaluating the available evidence in extenuation and mitigation 
as well as in aggravation.
    The Department intends to continue to properly consider the 
circumstance surrounding any misrepresentation before determining an 
appropriate response. Depending on the facts presented, an appropriate 
response could run the gamut from no action at all to termination of an 
institution's title IV, HEA eligibility depending upon all of the facts 
that are present.
    We disagree with the commenters who stated that the proposed 
regulations are redundant. Although the FTC publishes guidelines for 
consumers to use to avoid deceptive advertising, promotional, 
marketing, and sales practices by vocational training providers, the 
FTC guidelines are considered administrative interpretations of the 
statutes that the FTC is charged with implementing as opposed to 
implementing the statutory requirement in section 487 of the HEA, which 
the Department is charged with implementing.
    We disagree with the commenters who stated that the proposed 
regulations do not provide guidance on what constitutes ``substantial 
misrepresentation.'' The proposed regulations define ``substantial 
misrepresentation'' as ``any misrepresentation on which the person to 
whom it was made could reasonably be expected to rely, or has 
reasonably relied, to that person's detriment.''
    In determining whether an institution has engaged in substantial 
misrepresentation and whether to impose penalties, the Department uses 
a rule of reasonableness and considers various factors.
    Changes: None.
    Comment: Some commenters suggested that we adopt more concrete and 
narrowly defined terms in subpart F of part 668 to address abuses while 
protecting legitimate institutions and programs from baseless charges. 
These commenters stated that the proposed regulations on 
misrepresentation contain a number of vague and broad phrases that 
leave the door wide open for interpretation by States, accrediting 
agencies, and the Department. These commenters expressed concern that 
the lack of specificity in the regulations will fuel the potential for 
frivolous lawsuits brought as class actions against institutions. One 
commenter opined that the proposed regulations would function as a 
``perpetual employment act for lawyers'' because, under the 
regulations, routine marketing claims would become a potential source 
of lawsuits and claims for years.
    Some commenters also expressed concern about allegations of 
misrepresentation from disgruntled students and employees or former 
employees and as a result of journalists misreporting facts. These 
commenters argued that it is not appropriate for the actions of a 
single individual or a single incident, whether malicious or unintended 
in nature, to dramatically affect an institution.
    Discussion: We disagree with the commenters who stated that the 
proposed regulations are too broad and open for interpretation. We 
proposed specific changes to the current regulations to clarify the 
types of false, erroneous, or misleading statements about an 
institution's educational program, the cost of the program, financial 
aid available, and the employability of its graduates that would be 
prohibited as

[[Page 66915]]

misrepresentations under subpart F of part 668.
    We understand that some commenters have concerns about baseless 
charges and frivolous lawsuits that may be brought by students and 
employees including by dissatisfied students and disgruntled employees 
as well as fears that ``routine marketing claims'' would lead to 
lawsuits. We do not believe that the proposed regulations will increase 
litigation by students and employees against the institution. These 
regulations do not provide an additional avenue for litigation for 
students, employees and other members of the public. Instead, the 
regulations specify the conditions under which the Department may 
determine that an institution has engaged in substantial 
misrepresentation and the enforcement actions that the Department may 
choose to pursue. As the Department does in evaluating any regulatory 
violation, in determining whether an institution has engaged in 
substantial misrepresentation and the appropriate enforcement action to 
take, the Department will consider the magnitude of the violation and 
whether there was a single, isolated occurrence.
    Changes: None.
    Comment: Many commenters expressed concern that the proposed 
changes would eliminate due process protections for institutions in the 
case of substantial misrepresentation. The commenters requested that we 
retain the procedures from current Sec.  668.75, arguing that the 
removal of these procedures conflicts with the HEA and exceeds the 
Department's statutory authority to regulate in this area.
    Several commenters also expressed concern about the proposed 
removal of current Sec.  668.75 because that section required the 
Department to review complaints and to dispose of them informally if 
the complaints were determined to be minor and could be readily 
corrected. The commenters argued that the proposed regulations would 
eliminate this sensible approach in exchange for using other 
procedures. These commenters recommended that we amend Sec.  668.71(a) 
to include an option for the Department to allow an institution to 
correct minor, inadvertent, and readily correctable misrepresentations 
and to make appropriate restitution. They noted that these types of 
misrepresentations are bound to occur given the amount of information 
institutions must report and that simple human error should not 
constitute misrepresentation. Other commenters expressed concern that, 
under the proposed regulations, simple mistakes could trigger sanctions 
even if an institution has no history of misrepresentation problems.
    Discussion: The Department is removing the provisions in Sec.  
668.75 because they are formulaic and have been proven unnecessary. The 
Departments takes its enforcement responsibilities seriously, and its 
history demonstrates that it does not overreact to single, isolated 
transgressions. We intend to enforce the misrepresentation regulations 
with the same degree of fairness that we enforce all other title IV, 
HEA program requirements. To the extent the Department chooses to 
initiate an action based upon a violation of the misrepresentation 
regulations, nothing in the proposed regulations diminishes the 
procedural rights that an institution otherwise possesses to respond to 
that action.
    Changes: None.
    Comment: Some commenters stated that enforcement by the Department 
is not necessary and is not the best way to allocate the Department's 
resources because State agencies, accrediting agencies and the FTC 
already enforce laws prohibiting misrepresentation. For example, some 
commenters noted that accrediting agencies have standards on 
institutional integrity and review the ways in which each institution 
represents itself as part of the accrediting process. The accrediting 
agencies perform regular reviews of all advertising and promotional 
material and publish specific guidelines for institutions regarding 
acceptable statements by staff. The commenters recommended that the 
Department continue to rely on this process, rather than adopting the 
proposed regulations, which they argue, will result in an unnecessary 
duplication of enforcement efforts. Another commenter asked us to 
clarify whether the Department--and not State authorizing agencies--is 
responsible for monitoring compliance with the misrepresentation 
regulations.
    While a number of commenters argued that it is not appropriate for 
the Department to take enforcement actions to prevent 
misrepresentation, other commenters stated that in cases of true 
misrepresentation strong enforcement steps would go a long way in 
eliminating fraud and abuse and limiting the need for other measures to 
combat abuse that arises in the absence of such enforcement.
    Discussion: We disagree with the commenters who stated that the 
Department should not be responsible for enforcement of these 
misrepresentation regulations because others, including State agencies, 
accrediting agencies, and the FTC are already enforcing laws against 
misrepresentation. The Department is responsible for ensuring that 
institutions participating in the title IV, HEA programs comply with 
section 487 of the HEA, which prohibits institutions from engaging in 
substantial misrepresentation of the nature of the institution's 
educational program, its financial charges, or the employability of its 
graduates. We acknowledge that other agencies and entities also enforce 
various laws and standards that guard against misrepresentation and are 
pleased that we have partners in ensuring that institutions do not make 
false, erroneous, or misleading statements to students, prospective 
students, and members of the public. We agree with the commenters who 
supported strong enforcement in this area. We believe that 
strengthening the misrepresentation regulations and enforcement of 
these regulations is critical to maintaining the integrity of the title 
IV, HEA programs.
    Changes: None.
    Comment: Many commenters argued that we should revise the 
regulations to link enforcement to situations in which the institution 
or its employees are making a conscious decision to mislead the 
consumer. The commenters suggested that the definition of 
misrepresentation be amended to include an element of intent to 
deceive; under this definition, institutions would face sanctions only 
if the Department determined that the misleading statement was made 
with the intent to deceive.
    Discussion: In determining whether an institution has engaged in 
substantial misrepresentation and the appropriate sanctions to impose 
if substantial misrepresentation has occurred, the Department considers 
a variety of factors, including whether the misrepresentation was 
intentional or inadvertent.
    Changes: None.
    Comment: Some commenters expressed concern that they will be unable 
to comply with the misrepresentation regulations because they are 
required to comply with so many regulations that inadvertent 
misrepresentations are bound to occur.
    Discussion: As previously discussed, before initiating any action, 
the Department carefully evaluates all of the circumstances surrounding 
an alleged misrepresentation. However, the Department rejects the 
notion that institutions are incapable of complying with multiple title 
IV, HEA program regulations, while at the same time ensuring that they 
do not make misrepresentations, inadvertent or otherwise.

[[Page 66916]]

    Changes: None.
    Comment: Some commenters expressed concern with the effect these 
proposed misrepresentation regulations could have on students. They 
argued that the regulations would conflict with State laws and create 
confusion in an area long regulated by the States. For example, given 
that students file complaints with the State, the commenters stated 
that an additional Federal remedy would be duplicative and would create 
uncertainty for students.
    Other commenters expressed concern about institutions that require 
students to sign arbitration and confidentiality agreements as part of 
their enrollment contracts. These agreements serve to limit access to 
qualified legal counsel for students who may want to pursue a 
misrepresentation claim. Some commenters stated that the regulations 
should not be interpreted to create an express or implied private right 
of action against an institution for misrepresentation.
    Discussion: We disagree with the commenters who stated that 
students will be confused by the misrepresentation regulations because 
they otherwise typically pursue claims of misrepresentation under State 
law. Nothing in the proposed regulations alters a student's ability to 
pursue claims of misrepresentation pursuant to State law and nothing in 
the proposed regulations creates a new Federal private right of action. 
The regulations are intended to make sure that institutions are on 
notice that the Department believes that misrepresentations constitute 
a serious violation of the institutions' fiduciary duty and that the 
Department will carefully and fairly evaluate claims of 
misrepresentation before determining an appropriate course of action.
    Changes: None.

Scope and Special Definitions (Sec.  668.71)

    Comment: Many commenters expressed concern about the expansion of 
the misrepresentation regulations to cover false or misleading 
statements made by representatives of the institution or any ineligible 
institution, organization or person with whom the institution has an 
agreement. The commenters believed that this change will result in 
holding institutions accountable for what is said, may be said, or 
inadvertently is said, by individuals or organizations that may have no 
official connection to an institution, and that institutions cannot 
monitor inadvertent and unofficial comments. Commenters argued that the 
proposals would expose good institutions to sanctions based on actions 
beyond their control. Many commenters sought clarification about which 
representatives of the institution are covered by the regulations. For 
example, commenters pointed to statements that may be made by students 
through the use of social media. One commenter suggested we modify the 
definition of misrepresentation to clarify that institutions are 
responsible for statements made by representatives or entities 
compensated by the institution. Another commenter recommended that we 
include only individuals under the direct control of the institution, 
including spokespersons and enrollment management companies.
    We received another suggestion to limit covered agreements to those 
relating to marketing or admissions. Many commenters expressed concern 
that, without this change, the proposed regulations would apply to the 
hundreds of contracts a large institution may have with various vendors 
and service providers. They suggested that the institution only be 
responsible for communications from and statements by individuals or 
entities authorized to speak for the institution or who have 
representative authority to respond to the subject in question.
    Commenters were particularly concerned about the penalties that 
could result from misinformation provided by an entity other than the 
institution. The commenters argued that the institution should not be 
subjected to undue penalties if the institution took steps to monitor 
and mitigate such possible misrepresentations, and in fact, took action 
upon identifying any incidences. For example, institutions provide 
information to companies that compile college rankings that are often 
derided as inaccurate, incomplete or false. Commenters believed that 
any penalties should be limited to statements related to the 
relationship between the institution and the entity.
    Discussion: As noted elsewhere in this preamble, the Department 
enforces its regulations, including those in subpart F of part 668 
within a rule of reasonableness. We strongly believe that the concerns 
voiced by many commenters have ignored this fact. We do not expect, for 
example, to find actionable violations in the comments made by students 
and routine vendors. However, the Department acknowledges that the 
language in Sec.  668.71 may be unnecessarily broad. For this reason, 
we agree to limit the reach of the ban on making substantial 
misrepresentations to statements made by any ineligible institution, 
organization, or person with whom the eligible institution has an 
agreement to provide educational programs or those that provide 
marketing, advertising, recruiting, or admissions services. We have 
done this by narrowing the language in Sec.  668.71(b) and the 
definition of the term misrepresentation. As a result, statements made 
by students through social media outlets would not be covered by these 
misrepresentation regulations. Also, statements made by entities that 
have agreements with the institution to provide services, such as food 
service, other than educational programs, marketing, advertising, 
recruiting, or admissions services would not be covered by these 
misrepresentation regulations.
    Changes: We have revised Sec.  668.71(b) and the definition of the 
term misrepresentation in Sec.  668.71(c) to clarify that the ban on 
misrepresentations for which an institution is responsible only extends 
to false, erroneous, or misleading statements about the institution 
that are made by an ineligible institution, organization, or persons 
with whom the institution has an agreement to provide educational 
programs or to provide marketing, advertising, recruiting, or 
admissions services.
    Comment: Some commenters noted a need for the regulations to 
clearly differentiate between ``misrepresentation'' and ``substantial 
misrepresentation.'' Other commenters questioned how we will determine 
what constitutes ``substantial misrepresentation.'' These commenters 
asked what the standards are for determining what constitutes harm, 
materiality, or intent to misrepresent. Another commenter suggested 
that we revise the definition of substantial misrepresentation to 
include misrepresentations that are disseminated--not only those that 
are ``made''.
    Discussion: The Department is comfortable with its ability to make 
the distinction between a misrepresentation and a substantial 
misrepresentation. We believe that the regulatory definitions we are 
establishing are clear and can easily be used to evaluate alleged 
violations of the regulations. Moreover, as previously stated, we 
routinely evaluate the seriousness of title IV, HEA program violations 
before determining what, if any, action is appropriate. There is 
nothing in the proposed misrepresentation regulations that will alter 
the manner in which the Department reviews any violation of part 668, 
subpart F before deciding how it should respond.
    Changes: None.

[[Page 66917]]

    Comment: Some commenters supported the proposed definition of 
misrepresentation in Sec.  668.71(c), which, as applied in these 
regulations, prohibits making false, erroneous, or misleading 
statements directly or indirectly to students, prospective students, or 
any member of the public, an accrediting agency, a State agency or the 
Secretary. They stated that these changes provide much needed updates 
to the current regulations and that the remedies give the Department 
needed flexibility. The commenters noted that the Department should not 
tolerate institutions that knowingly misrepresent facts and provide 
misinformation on purpose to students, their families and the public, 
and that we should hold institutions accountable that encourage 
students to enroll but fail to deliver on statements regarding 
accreditation and employability.
    Other commenters expressed concern about broadening the list of 
entities to which an institution may not make a false, erroneous, or 
misleading statement to include accrediting agencies, State agencies or 
any member of the public. These commenters remarked that the effect of 
this regulatory change is that the list now includes anyone. The 
commenters argued that the determination of whether an institution has 
made misleading statements to an accrediting agency or State agency 
should be made by that agency, not the Department, and that the agency 
should take appropriate action. One commenter suggested that the list 
of entities should also include parents who may be signing or cosigning 
loans.
    Discussion: The Department believes that in its stewardship of the 
title IV, HEA programs, it is essential to monitor the claims made by 
institutions not only to students and prospective students, but also 
those made to the Department's partners who help maintain the integrity 
of these programs. While it is likely that other oversight agencies 
will respond appropriately to any substantial misrepresentations that 
are made to them, only the Department has the overall responsibility 
for preserving the propriety of the administration of the title IV, HEA 
programs.
    In addition, because parents are also members of the public, and 
most, if not all, statements made to them will also be made to students 
or prospective students, the Department does not believe that further 
enumeration to include parents is necessary.
    Changes: None.
    Comment: Some commenters noted that the term ``misleading 
statement'' is not defined by the FTC, and opined that, because the 
term's definition merely reiterates what has always been required for a 
finding of a substantial misrepresentation, it is unnecessary for the 
Department to define the term in its regulations. Some commenters 
suggested that, instead, the Department follow the FTC's practice of 
acknowledging that a finding of misrepresentation is a fact-specific 
inquiry based on a flexible standard.
    Many commenters appeared to be particularly concerned about the use 
of the phrase ``capacity, likelihood, or tendency to deceive or 
confuse'' in the description of a ``misleading statement''. Some 
commenters stated that they do not believe that an enforceable or 
defensible basis for misrepresentation is created by including the 
likelihood of any form of communication to confuse or ``have the 
capacity'' to confuse a student or potential student. One commenter 
suggested we clarify that in order to constitute misrepresentation, the 
statement must have the ``capacity or tendency'' to deceive or confuse 
and be ``likely'' to deceive or confuse. The commenter cited examples 
of statements frequently made in marketing materials by institutions, 
such as ``there is a place for everyone at XYZ.'' Other commenters 
noted that institutions provide information on a variety of complex 
issues that students and others may find confusing. In particular, 
certain terms of art such as ``cost of attendance'' and ``graduation 
rate'' may not be familiar to the general public and may be confusing 
to them. Another commenter requested that we clarify that a 
misrepresentation is not made if confusion results from the accurate 
reporting of disclosures required under various laws.
    These commenters expressed concern that attempts to comply with 
recently promulgated regulations on college cost, transparency, and 
outcomes measures may result in confusion and lead to reported 
complaints of misrepresentation.
    Several commenters argued that the Department needs to address the 
issue of misrepresentation through omissions of important information. 
One commenter suggested that we add language in the description of the 
term misleading statement to include an omission, if in the absence of 
an affirmative disclosure is likely to result in a person assuming 
something that is incorrect.
    One commenter stated that oral statements should not be included in 
the definition of misrepresentation. The commenter questioned how the 
Department would know that an oral misleading statement was made.
    Many commenters expressed concern that the proposed 
misrepresentation regulations will restrict their capability to use the 
Internet for fear of misrepresentation. These commenters noted that 
their top lead source is the Internet and that Internet marketing is 
the bloodline of all institutions. The commenters also pointed out that 
Internet marketing has issues relating to domain name ownership, name 
confusion, and pirating, and that, when the Department enforces these 
regulations, it needs to be careful in ensuring that it has the correct 
institution.
    Discussion: The Department believes that it is appropriate to 
define the term misrepresentation in its regulations in order to 
distinguish misrepresentation from substantial misrepresentation. As 
discussed elsewhere in this preamble, the Department agrees that 
determining whether a misrepresentation has been made should be 
accomplished through a fact-specific inquiry and that enforcement 
actions should only be brought when reasonable.
    With regard to the comments who stated that the ``capacity, 
likelihood, or tendency to deceive or confuse'' language will be 
confusing, we have no reason to believe that this language will have 
any such effect. Moreover, we do not believe that it is necessary to 
revise the regulations to state that a misleading statement must have 
both the capacity or tendency and likelihood to deceive because we 
believe that a statement that has any of the characteristics of the 
capacity, likelihood, or tendency to deceive or confuse is misleading.
    By adopting these proposed regulations, the Department is not 
seeking to create extraneous bases upon which it can initiate 
enforcement actions. Rather, we want to ensure that the regulations 
help, rather than hinder, our ability to protect students, prospective 
students, and others from misleading statements made about an eligible 
institution, the nature of its educational program, its financial 
charges, or the employability of its graduates. The Department believes 
it can be trusted to properly evaluate whether a claim is confusing to 
a degree that it becomes actionable. It is also important to remember 
that it is only substantial misrepresentations that rise to the level 
where the Department may contemplate action.
    As far as the failure of the proposed regulations to address 
affirmative omissions, the Department believes that the purpose of 
these regulations is to make sure that all statements an institution 
makes are truthful. Separately, the Department requires an

[[Page 66918]]

institution to make a number of disclosures to students and to the 
extent that any of these disclosures are inaccurate and constitute 
substantial misrepresentation, they are actionable. The Department 
believes that the totality of its regulations provides a sufficient 
basis to protect against the making of substantial misrepresentations 
without creating another category of misrepresentations that are more 
logically covered within the context of disclosures.
    In addition, we disagree with the commenter who argued that oral 
statements should not be included in the definition of the term 
misrepresentation. We have seen and heard clear and unambiguous 
examples of oral statements that we view as misrepresentations in the 
GAO's video of its undercover testing.
    With respect to the commenters who expressed concern about how 
these regulations may affect an institution's ability to use the 
Internet for marketing purposes, we note that it should not matter 
where a misrepresentation takes place. What is important is to curb the 
practice of misleading students regarding an eligible institution, 
including about the nature of its educational program, its financial 
charges, or the employability of its graduates. We strongly believe 
that institutions should be able to find a way to comply with these 
regulations when using the Internet for marketing.
    Finally, we understand the many complexities of domain name 
ownership, trademark infringement and the like and will ensure that we 
are targeting the correct entities in any enforcement action we take 
under these regulations.
    Changes: None.
    Comment: Several commenters objected to including testimonials and 
endorsements in the definition of misrepresentation, because doing so 
holds institutions responsible for unsolicited testimonials or 
endorsements of any kind. The commenters noted that testimonials are 
widely used as the most relevant form of marketing. One commenter 
suggested that we modify the regulations to refer to testimonials that 
the institution ``requested'' a student to make ``as part of the 
student's program'' as opposed to ``required'' the student to make ``to 
participate in a program.'' Another commenter believed we should expand 
the definition of the term misrepresentation to include endorsements or 
testimonials for which students are given incentives or rewards.
    Discussion: The Department disagrees that changes to the definition 
of misrepresentation are needed. First, with respect to the commenters 
who stated that the definition is too broad, we note that the thrust of 
the definition is that the statement must be false, erroneous, or 
misleading. The inclusion within the definition of certain student 
endorsements or testimonials (i.e., those that are given under duress 
or are required for participation in a program) establishes the 
circumstances under which endorsements or testimonials are necessarily 
considered to be false, erroneous, or misleading. We believe that 
including these types of endorsements and testimonials in the 
definition of misrepresentation is appropriate because endorsements or 
testimonials provided under these circumstances are suspect, at best.
    Second, we do not believe it is necessary to expand the definition 
of misrepresentation to include endorsements or testimonials for which 
students are given incentives or rewards. We do not believe that an 
endorsement or testimonial for which a student was given a token reward 
such as a mug or t-shirt should automatically be considered false, 
erroneous, or misleading.
    Changes: None.

Nature of Educational Program (Sec.  668.72)

    Comment: One commenter supported the proposed changes to Sec.  
668.72 stating that the changes will reduce the motivation for 
institutions to use aggressive and misleading recruitment tactics to 
increase enrollment. The commenter noted that the requirements in this 
section align with their association's principles of good practice 
under which members represent and promote their schools, institutions 
or services by providing precise information about their academic major 
and degree programs.
    Discussion: The Department appreciates this support.
    Changes: None.
    Comment: One commenter stated that Sec.  668.72 was inherently 
unclear and asked for additional clarification without providing any 
specifics.
    Discussion: The Department disagrees with this commenter and 
believes that the language in this section is clear. Moreover, because 
only false, erroneous, or misleading statements that constitute 
substantial misrepresentations are potentially actionable, institutions 
are on notice as to what they need to do to assure themselves of 
compliance.
    Changes: None.
    Comment: Some commenters recommended that we add language to this 
section to address specific concerns about clinical experience. One 
commenter argued that institutions should be required to inform 
students of any clinical experience the student needs to obtain a 
required license or certification, whether the institution or the 
student secures the appropriate clinical placement, and how the 
clinical experience relates to the ability to obtain employment. The 
commenter argued that the failure to inform a student of this 
information should constitute misrepresentation.
    Discussion: We believe that the language in Sec.  668.72 
sufficiently covers false, erroneous, or misleading statements made by 
institutions concerning their educational programs. We further note 
that information such as that suggested by the commenter is more 
appropriately addressed in the student consumer information disclosures 
contained in subpart D of part 668 and note that institutions are 
required to disclose information about the academic program of the 
institution, which would include information about any required 
clinical experience.
    Changes: None.
    Comment: One commenter suggested that we add language to Sec.  
668.72 to specifically address misrepresentation related to whether 
course credits earned at the institution are transferable toward a 
substantially similar degree. This commenter noted that, in some cases, 
courses may be accepted but not count toward a degree at the new 
institution.
    Discussion: We believe that the language in Sec.  668.72(b)(1), 
which prohibits false, erroneous, or misleading statements about 
whether a student may transfer course credits earned at the institution 
to any other institution, is sufficient and provides more protection 
for students than the commenter's suggestion to limit the coverage to 
statements related to whether course credits are transferable toward a 
substantially similar degree.
    Changes: None.
    Comment: A few commenters suggested that we expand Sec.  
668.72(c)(2) to include ``States in which the program is offered'' 
rather than merely ``the State in which the institution is located'' so 
that the requirement reaches students who are enrolled through distance 
learning. One commenter noted that institutions that offer courses 
online should have additional responsibilities to students who take 
these courses. The commenter also asserted that these institutions 
should know and communicate to students what the State's requirements 
are to be employed

[[Page 66919]]

in that job and whether successful completion of the program will 
qualify them for such a job. Another commenter stated that an 
institution should know State licensing requirements in all the States 
in which it is providing the program and further opined that if the 
institution does not know the requirements, it could limit enrollment 
to students residing in the States in which it does know.
    Discussion: The Department agrees with the commenters who believe 
institutions should be responsible for making statements that are not 
false, erroneous, or misleading in States in which the institution's 
educational programs are offered and not only in the State where the 
institution is located.
    Changes: We have revised Sec.  668.72(c) to prohibit false, 
erroneous, or misleading statements concerning whether completion of an 
educational program qualifies a student for licensure or employment in 
the States in which the educational program is offered.
    Comment: One commenter suggested that we add ``including the 
recognized occupations for which the program prepares students'' at the 
end of Sec.  668.72(g) to address the proposed requirements in Sec.  
668.6(b)(1) under which an institution must disclose on its Web site 
the occupations the program prepares students to enter and that we add 
a new paragraph to address misrepresentation about the kinds of 
disclosures that will be required under proposed Sec.  668.6.
    Discussion: We disagree with the commenter's suggestion to add 
language in Sec.  668.72 to address the proposed regulations in Sec.  
668.6. The language in Sec.  668.72(g) prohibits false, erroneous, or 
misleading statements concerning the availability, frequency, and 
appropriateness of its courses and programs to the employment 
objectives that it states its programs are designed to meet. We believe 
that this language is sufficient to guard against misrepresentation in 
the disclosures required under Sec.  668.6. For additional information 
on those requirements, please see the section on Gainful Employment 
(Sec.  668.6) earlier in the preamble to these final regulations.
    Changes: None.
    Comment: Some commenters recommended that we add language to this 
section to address specific concerns about accreditation. One commenter 
suggested that the regulations be modified to require an institution to 
explicitly disclose a lack of specialized program or institutional 
accreditation if such accreditation is associated with the ability to 
apply to take or to take, the examination required for a local, State, 
or Federal license, or a non-governmental certification generally 
required as a precondition for employment or to perform certain 
functions in the State in which the institution is located. Some 
commenters suggested that misrepresentation related to requirements 
that are generally needed to be employed in the fields for which the 
training is provided be expanded to include withheld information. The 
commenters cited the testimony of Yasmine Issa who testified before the 
Senate Health, Education, Labor, and Pensions Committee on June 24, 
2010. Ms. Issa testified that important information about the value of 
the educational credential she was pursuing and future employability 
was withheld. In particular, the program in which she was enrolled 
lacked specialized accreditation and, as a result, she was unable to 
sit for a licensing exam. The commenters argued that omission of 
important information should constitute misrepresentation if such 
omission is likely to lead someone to make incorrect assumptions as 
happened with Ms. Issa.
    Discussion: The Department agrees with the commenters who requested 
that we expand these regulations to prohibit the withholding of 
information related to requirements that are generally needed to be 
employed in the fields for which the training is provided. To address 
circumstances such as the ones experienced by Ms. Issa, the Department 
has inserted the words ``or requires specialized accreditation'' in 
Sec.  668.72(n). As amended, this provision now provides that 
misrepresentation concerning the nature of an eligible institution's 
educational program includes any failure by an eligible institution to 
disclose the fact that a degree has not been authorized by the 
appropriate State educational agency or that it requires specialized 
accreditation in any advertising or promotional materials that 
reference such degree.
    Changes: We have revised Sec.  668.72(n) to include a failure to 
disclose that the degree requires specialized accreditation as 
misrepresentation.

Employability of Graduates (Sec.  668.74)

    Comment: Some commenters raised concerns about misrepresentation 
related to the institution's knowledge about the current or likely 
future employment conditions, compensation or opportunities in the 
occupation for which students are being prepared. Commenters argued 
that predictions about future employment or compensation should not be 
deemed misrepresentations unless such predictions are based on 
statements of fact which at the time they were made are objectively 
false or themselves misleading. The commenters requested confirmation 
that general statements of opinion about the benefits of enrolling in 
or completing a program would not be treated as misrepresentation about 
the future. Other commenters sought clarification that any information 
provided by an institution that is directly attributable to a State or 
the Federal government or any direct link to a governmental Web site 
such as the O*NET Web site would not be considered misrepresentation if 
the data and projections from the government or on the Web site are 
incorrect, confusing, or do not come true.
    Discussion: As noted elsewhere in this preamble, the regulations in 
subpart F of part 668 only address false, erroneous, or misleading 
statements. Moreover, in enforcing this subpart, the Department intends 
to continue to carefully evaluate all of the surrounding circumstances 
before reaching any conclusions regarding the occurrence of a violation 
and the appropriate response. Predictions that are not based on false 
or misleading information, general statements and opinions, and 
information provided by State and Federal governments would not be the 
basis for a misrepresentation claim.
    Changes: None.

Ability To Benefit (Sec.  668.32(e) and Subpart J)

Student Eligibility--General (Sec.  668.32(e))

    Comment: Most commenters supported the Department's implementation 
of section 484(d)(4) of the HEA, which was added in 2008. This 
statutory change provided that a student shall be determined by an 
institution of higher education as having the ability to benefit from 
the education or training offered by the institution of higher 
education upon satisfactory completion of six credit hours, or the 
equivalent coursework that are applicable toward a degree or 
certificate offered by the institution. Several commenters expressed 
appreciation for the implementation of this new option of establishing 
an ability to benefit. Several of the commenters supported the 
equivalency of the six credit hours to six semester, six trimester, six 
quarter hours or 225 clock hours. One commenter expressly supported the 
continued individual institutional determination to accept any of the 
ability-to-benefit (ATB) options available in current Sec.  668.32(e). 
One commenter recommended that the

[[Page 66920]]

Department monitor the application of this ATB option.
    Discussion: We appreciate the support for these changes. With 
regard to the suggestion that the Department monitor the use of this 
eligibility option, we plan in 2011-2012 to implement a variety of 
changes to the data that institutions will provide to the Department 
that will help us determine when title IV, HEA program assistance is 
awarded to students who establish their title IV, HEA eligibility on 
the basis of either successfully completing six credit hours (or its 
equivalent) that are applicable toward a degree or certificate program 
offered at that institution, or when the student successfully passes an 
approved ATB test. We believe that this data will help us better 
understand the frequency that these options are employed and can lead 
to further study on the effectiveness of these alternatives to a high 
school diploma or its recognized equivalent.
    Changes: None.
    Comment: Some commenters offered conditional support for the 
regulatory change reflected in Sec.  668.32(e)(5), but expressed some 
concerns. For example, one commenter expressed disagreement about the 
equivalency of six credit hours to six semester, six trimester, six 
quarter hours or 225 clock hours. In addition, several commenters did 
not agree with the application of 225 clock hours stating that this 
approach would not benefit students at clock hour institutions. 
Finally, a few commenters suggested that a conversion rate of 6 credit 
hours to 180 clock hours would be more reasonable.
    Discussion: As discussed during the negotiated rulemaking sessions 
and in the preamble to the NPRM, the statute is silent on equivalency. 
The Department believes that it is a reasonable interpretation to use 
the successful completion of 6 semester, 6 trimester, 6 quarter or 225 
clock hours for purposes of equivalency because these all would be 
equal to completion of one quarter of an academic year. For this 
reason, we are adopting as final the changes we proposed in Sec.  
668.32(e).
    Changes: None.
    Comment: A few commenters asked about the transferability of the 
successful completion of six credits (or its equivalent) among title 
IV, HEA eligible institutions. One commenter expressed concern that it 
appeared that the courses where the six credits were initially earned 
could not be college preparatory coursework, because they are not 
applicable to an eligible program. Therefore, the commenter argued, 
Sec.  668.32(e)(5) would not benefit those students for whom ATB would 
be most helpful, students who may need preparatory coursework.
    Discussion: Section 484(d)(4) of the HEA specifies that a student 
has the ability to benefit from the education or training offered by 
the institution of higher education if the student completes six credit 
hours or the equivalent coursework that are applicable toward a degree 
or certificate offered by the institution of higher education. When a 
student who earns six or more credits (or their equivalent) applicable 
toward a degree or certificate offered by that institution of higher 
education subsequently transfers to another institution, if those 
credits are applicable toward the degree or certificate offered by the 
subsequent institution, the previously-earned credits meet the 
requirements of section 484(d) of the HEA. However, we point out that 
the earning of credit hours based upon testing out is not comparable to 
taking and successfully completing six credit hours (or its equivalent) 
and, therefore, would not satisfy this ATB option.
    If the courses that a student enrolls in are considered preparatory 
in nature, an institution must first determine whether these 
preparatory courses are a part of the student's program. To the extent 
that the preparatory courses are a part of the student's eligible 
program, the successful completion of six credits in these preparatory 
courses would meet this ATB standard. However, if the institution 
determines that these preparatory courses are not part of the eligible 
program, the successful completion of the six credits would not meet 
this ATB standard. It may be important to note that generally 
institutions develop their admissions policies in accordance with State 
licensing and accrediting requirements and, as a result, some 
institutional admissions requirements may require that all students 
have a high school diploma. In those situations, because all of the 
students would be required to have a high school diploma, the 
recognized equivalent of a high school diploma option and the ATB 
options in section 484(d) of the HEA would be inapplicable. However, 
for institutions that admit students either with the recognized 
equivalent of a high school diploma or under one of the optional ATB 
standards for students who do not have a high school diploma, those 
institutions cannot fail to accept, for title IV, HEA student 
eligibility purposes, the following--
     A student's passing of an approved ATB test;
     A determination that a student has the ability to benefit 
from the education or training in accordance with an approved State 
process;
     A student's successful completion of a secondary school 
education in a home school setting that is treated as a home school or 
private school under State law; or
     The satisfactory completion of six credit hours (or the 
equivalent coursework), that are applicable toward a degree or 
certificate at that institution.
    As such, the new ATB option added in section 484(d)(4) of the HEA, 
and reflected in Sec.  668.32(e)(5), is not the only opportunity for a 
student to establish that he or she has the ability to benefit from the 
education or training offered by the institution.
    Changes: None.
    Comment: One commenter expressed support for the inclusion of 
language in the preamble to the NPRM that indicated that the six 
credits or its equivalent used to establish ATB eligibility should be 
applicable to an eligible program offered at that school and suggested 
it should be included in the regulatory language. Another commenter 
expressed concern about the inclusion of this language in the preamble, 
opining that it went beyond the statutory language and intent. This 
commenter recommended that the Department consider removing such 
language in the final regulations.
    Discussion: We recognize that the statute does not require that the 
coursework completed for purposes of this ATB option be applicable to 
an eligible program, but we remind institutions that this ATB option is 
designed to allow an otherwise ineligible student to obtain title IV, 
HEA program assistance while working to obtain a certificate or degree. 
Therefore, we expect that the coursework be applicable to an eligible 
program. We also acknowledge that students may change programs 
throughout their postsecondary career. For this reason, these 
regulations do not require that the student successfully complete six 
credits or their equivalent that are applicable to the specific degree 
or certificate program in which the student is enrolled. Instead, Sec.  
668.32(e)(5) requires only that the six credits be applicable to a 
degree or certificate program at the institution where the six credits 
are earned.
    Changes: None.
    Comment: Several commenters expressed opposition to the new Sec.  
668.32(e)(5). One commenter argued that the ATB options under current 
Sec.  668.32(e)(2) and (e)(3) provide a better method of evaluating a 
student's ability to benefit and that the new option is not needed. One 
commenter stated that new

[[Page 66921]]

Sec.  668.32(e)(5) would cause greater financial hardship for students 
because it would require students to pay for these six credits without 
the benefit of title IV, HEA program assistance and that this, in turn, 
may lead to some students turning to high cost private financing. One 
commenter expressed disappointment that the Department did not seize 
the opportunity to fully re-evaluate the ATB regulations and make more 
broad and sweeping changes to the standards. Finally, some commenters 
expressed concern that Sec.  668.32(e)(5) may penalize students who are 
very able to successfully perform class work and demonstrate learned 
skills, but who have difficulty taking tests and therefore may be 
unable to successfully complete the requisite six credit hours (or its 
equivalent), due to their inability to do well on written tests.
    Discussion: Section 668.32(e)(5) incorporates the language from 
section 484(d)(4) of the HEA. The Department does not have the 
authority to not recognize this statutorily mandated ATB option. 
Moreover, we recognize that this new standard for establishing the 
ability to benefit for students who do not have a high school diploma 
or its recognized equivalent may not be appropriate for all students. 
However, we do not view this as a problem, because Sec.  668.32(e)(5) 
supplements--rather than replaces--the current standards for 
establishing the ability to benefit under Sec.  668.32(e)(2) and 
(e)(3).
    Changes: None.
    Comment: Most of the commenters who objected to Sec.  668.32(e)(5) 
objected to this provision at least in part because the Department has 
stated that title IV, HEA funds may not be used to pay for any portion 
of the payment period in which those credits or equivalent were earned.
    Discussion: The underlying student eligibility issue here is that a 
student without a high school diploma or its equivalent cannot be 
eligible for title IV, HEA program assistance, except under the four 
circumstances described in section 484(d) of the HEA. The payment 
period during which a student successfully earns the six credits (or 
its equivalent) under section 484(d)(4) of the HEA and Sec.  
668.32(e)(5) is a period when the student has yet to meet this 
statutory requirement or standard. We recognize that this inability to 
``go back'' and establish eligibility may be fiscally problematic for 
some students or institutions, but we continue to believe that until a 
student's eligibility is established, the student is ineligible for 
title IV, HEA funds. That said, in cases where a student is enrolled in 
a program that has several modules within a payment period that are 
independently completed and graded prior to the end of that payment 
period, there could be a situation where a student successfully 
completes a module and earns six or more credits (or the equivalent) 
prior to the end of the payment period. In this scenario, an 
institution could make a determination of the cost of attendance for 
the remaining modules in the payment period, and award and disburse 
title IV, HEA funds for those remaining credits, based upon the limited 
cost of attendance in the payment period after the student has 
successfully completed the initial six credits.
    Changes: None.
    Comment: One commenter stated that he would encourage other 
institutions to establish admissions policies to prohibit the use of 
the earned credit ATB option reflected in Sec.  668.32(e)(5) because of 
the unique complications created with this provision and State 
licensing boards. Specifically, the commenter expressed concern that 
students who do not complete the six credit hours (or their equivalent) 
under this option may not be able to obtain title IV, HEA program 
assistance to pay for their coursework.
    Discussion: As noted earlier in this preamble, we recognize that 
the ATB option reflected in section 484(d)(4) of the HEA and Sec.  
668.32(e)(5) may not meet the needs of all students, or all 
institutions, and is simply one method by which a student can show that 
he or she has the ability to benefit from a degree or certificate 
program of study and, therefore, is eligible to receive title IV, HEA 
program assistance.
    Changes: None.

Subpart J--Approval of Independently Administered Tests; Specification 
of Passing Score; Approval of State Process

Special Definitions (Sec.  668.142)

    Comment: In response to the Department's request in the NPRM for 
feedback on the appropriateness of permitting specified test 
administrators in the assessment center to train other individuals at 
that assessment center to administer ATB tests, several commenters 
suggested that it would not be advisable or appropriate for senior test 
administrators in an assessment center to perform the required training 
of other individuals at the assessment center for the administration of 
approved ATB tests.
    Discussion: The Department agrees that, consistent with the 
definition of the term test administrator, an individual must be 
certified by the test publisher or State, as applicable, to administer 
tests under subpart J of part 668 in accordance with the instructions 
provided by the test publisher or State. The only practical way for a 
test publisher or State to make a determination of whether an 
individual has the necessary training required in order to certify the 
individual as a test administrator is to provide the training that will 
insure that test administrators are cognizant of the test publisher's 
or State's written requirements. To emphasize and add clarity that the 
test administrator is required to be certified by the test publisher or 
State, as applicable, when a test is given at an assessment center by a 
test administrator who is an employee of the center, we have modified 
Sec.  668.151(b)(1) by adding the word certified prior to the reference 
to test administrator.
    Changes: We have amended Sec.  668.151(b)(1) by adding the word 
``certified'' prior to the reference to test administrator.
    Comment: One commenter objected to the increased burden associated 
with the proposed requirement that test administrators at assessment 
centers be certified by the test publisher or State, as applicable.
    Discussion: During the negotiations, the Department was told about 
the high incidence of staff turnover at assessment centers. One test 
publisher participating in the negotiations expressed concern that new 
staff have been trained to administer the approved ATB tests by other 
members of the assessment center staff and, as a result, were providing 
ATB tests without being properly certified by the test publisher or 
State. We agree that in order to meet the new definition of the term 
test administrator in Sec.  668.142 and to meet the increased standards 
of training, knowledge, skills and integrity, that it is vital for all 
test administrators to be certified in order to administer an approved 
ATB test consistent with the requirements of subpart J of part 668 and 
the written instructions of the test provider. Moreover, we believe 
that the increase in burden falls mainly upon the test publisher or the 
State, rather than the institution.
    Changes: None.
    Comment: One commenter suggested that we clarify the definition of 
the term independent test administrator by modifying it to clarify that 
an independent test administrator cannot have any current or prior 
financial interest in the institution, but that he or she may earn fees 
for properly administering an approved ATB test at that institution. 
Another commenter suggested that the definition of the term

[[Page 66922]]

test administrator be expanded to include test proctors.
    Discussion: Section 668.142, in pertinent part, defines an 
independent test administrator as a test administrator who administers 
tests at a location other than an assessment center and who has no 
current or prior financial or ownership interest in the institution, 
its affiliates, or its parent corporation, other than the fees earned 
for administering approved ATB tests through an agreement with the test 
publisher or State, and has no controlling interest in any other 
institution and has no controlling interest in any other institution. 
We agree that independent test administrators may obtain a fee for the 
administration of ATB tests generally through a written contract 
between the test publisher or State and the test administrator. In 
order to clarify this single type of allowable financial interest, we 
have made a change to the language in this definition.
    On the matter of expanding the definition of the term test 
administrator to include test proctors, we disagree with this 
suggestion. The reason we disagree with the commenter's suggestion is 
that subpart J of part 668 specifically restricts the administration of 
ATB tests to test administrators certified by the test publisher or 
State to administer their tests, as defined in the agreement between 
the Secretary and the test publisher or State, as applicable. We 
believe it would be confusing to add test proctors to the definition of 
a test administrator because only certified test administrators can 
administer ATB tests for title IV, HEA program purposes. We believe 
certification is an appropriate requirement because it insures that the 
approved tests are administered by trained, skilled, and knowledgeable 
professions.
    Changes: We have amended the definition of the term independent 
test administrator by clarifying that an independent test administrator 
must have no current or prior financial or ownership interest in the 
institution, its affiliates, or its parent corporation, other than the 
fees earned through the agreement an independent test administrator has 
with the test publisher or State to administer the test.

Application for Test Approval (Sec.  668.144)

    Comment: One commenter strongly supported the proposed change in 
the language regarding the norming group in Sec. Sec.  
668.144(c)(11)(iv)(B) and 668.146(c)(4)(ii) that requires the group to 
be a contemporary sample that is representative of the population of 
persons who have earned a high school diploma in the United States.
    Discussion: The statute provides that a student who does not have a 
high school diploma or its equivalent can become eligible for title IV, 
HEA program assistance if the student takes an independently 
administered examination and achieves the score specified by the 
Secretary that demonstrates that the student has the ability to benefit 
from the training being offered. As an alternative to obtaining a high 
school diploma, it is appropriate that the normative group used to 
establish the relative placement of the test-taker's results should be 
comprised of U.S. high school graduates rather than a group of persons 
who are beyond the usual age of compulsory school attendance in the 
United States. However, we take this opportunity to remind institutions 
that a fundamental component of the definition of the term institution 
of higher education requires that an eligible and participating 
institution may admit as regular students only persons who have a high 
school diploma (or have the recognized equivalent) or are beyond the 
age of compulsory school attendance. Therefore, it is clear that for 
the purpose of establishing title IV, HEA program eligibility, approved 
ATB tests may only be provided to students who are beyond the age of 
compulsory school attendance.
    Changes: None.
    Comment: Several commenters supported the proposal to include in 
the test publisher's or State's screening of potential test 
administrators, their evaluation of a test administrator's integrity. 
In response to our request in the NPRM for feedback about how a test 
publisher or a State will determine--in accordance with Sec. Sec.  
668.144(c)(16)(i) and 668.144(d)(7)(i)--that a test administrator has 
the integrity necessary to administer tests, we received a number of 
suggestions. These included the following--
     Requiring a prospective test administrator to sign, under 
penalty of perjury, an application indicating whether he or she had 
ever been convicted of fraud, breach of fiduciary responsibilities, or 
other illegal conduct involving title IV, HEA programs;
     Including a question on the test administrator's 
application asking whether the applicant has ever been convicted of a 
crime and, if the answer to this question is ``yes'', requiring the 
applicant to provide additional details;
     Including a question on the test administer application 
asking whether the applicant has ever worked at an institution of 
higher education, and if the answer to this question is ``yes'', 
requiring the applicant to provide additional details; and
     Requiring test publishers and States to perform 
fingerprinting and background checks, including a check for being 
included in any lawsuit, as well as, checking for arrests and 
convictions, for each test administer.
    Discussion: We appreciate the commenters' suggestions regarding 
ways test publishers and States can evaluate whether a test 
administrator has the integrity necessary to administer ATB tests. 
While test publishers and States can adopt any of the methods proposed 
by the commenters, we do not believe it is appropriate to require all 
test publishers and States to use those methods to evaluate test 
administrator integrity. Rather, we believe Sec.  668.144, as proposed, 
will provide test publishers and States with the flexibility they need 
to determine that the test administrator will have the necessary 
training, knowledge, skills and integrity to test students in 
accordance with subpart J of part 668 and the requirements of the test 
administration technical manual. Under Sec.  668.144, test publishers 
and States are required to disclose how they will go about making these 
determinations. When evaluating the information provided by test 
publishers and States, we will be looking at their processes and to 
what extent information collected by the test publisher or State 
supports their determination of whether a prospective test 
administrator can demonstrate his or her training, knowledge, skills 
and integrity. In addition, we will compare the requirements in the 
test administration technical manual to the other provisions in Sec.  
668.144 that require test administrators to have both the ability and 
facilities to keep the ATB tests secure against disclosure or release 
and how those issues are explained to prospective test administrators, 
how any monitoring may be achieved to insure that the tests are being 
protected.
    Changes: None.
    Comment: One commenter recommended that test publishers and States 
should not be required to disclose any proprietary information, such as 
test anomaly analysis, to the Department due to the proprietary nature 
of the study techniques. The commenter stated that, if the Department 
decides that test publishers and States must provide their test anomaly 
study procedures, the Department should provide assurances that the 
information will be kept confidential.
    Discussion: It is important that test publishers and States provide 
the

[[Page 66923]]

Department with their test anomaly analysis because the Department 
needs to understand the specific test anomaly analysis methodology 
employed by each test publisher or State, as applicable, to insure that 
they have established a robust process and procedures to identify 
potential test anomalies, methods to investigate test anomalies, due 
process in the investigation of these anomalies, as well as, the types 
of corrective action plans and the means of implementation of the 
corrective action plans, up to and including the decertification of 
test administrators. Because the Department agrees that test anomaly 
analyses may be proprietary, the Department will not release this 
information to the public and will otherwise treat the information as 
confidential.
    Changes: None.
    Comment: One commenter suggested that the Department define the 
term ``test irregularities'' and explain the distinction between test 
irregularities and test score irregularities.
    Discussion: An ATB test irregularity occurs when the ATB test is 
administered in a manner that does not conform to the established rules 
for test administration. An ATB test score irregularity is one type of 
ATB test irregularity. For example, improper seating that would allow 
test-takers to be so close to one another that each test-taker could 
observe the test answer sheets or test answers on another test-taker's 
computer screen is an example of an ATB test score irregularity. We 
agree with the commenter that a clear understanding of proper test 
administration is needed to prevent test irregularities. For this 
reason, we have added a definition of the term ATB test irregularity to 
Sec.  668.142. In addition, test publishers and States include 
instructions to the ATB test administrator in their test administration 
manuals. Section Sec.  668.144(c)(12) requires test publishers to 
include in their applications the manual they provide to test 
administrators. We believe it is appropriate to also require States to 
include their test manuals in their applications. Accordingly, we have 
added a new Sec.  668.144(d)(11) to require States to include, as part 
of its submission to the Secretary, the State's manual for test 
administration.
    Additionally, we have determined that in proposed Sec.  
668.144(c)(10), regarding test-taking time determinations, our 
reference to Sec.  668.146(b)(2) was imprecise. Section 668.146(b)(2) 
relates only to sampling the major content domains, not to sampling the 
major content domains with regard to test-taking time. Therefore, we 
have revised this paragraph to refer to Sec.  668.146(b)(3), which 
includes as a requirement for test approval, the appropriate test-
taking time to permit adequate sampling of the major content domains. 
We have also added a provision to specify that a test publisher may 
include with its application a description of the manner in which test-
taking time was determined in relation to the other requirements in 
Sec.  668.146(b) to provide the flexibility for test publishers to 
include a more comprehensive description of the way in which test-
taking time was determined.
    Changes: In Sec.  668.142, we have defined an ATB test irregularity 
as an irregularity that results from an ATB test being administered in 
a manner that does not conform to the established rules for test 
administration consistent with the provisions of subpart J and the test 
administrator's manual. We also have added new Sec.  668.144(d)(12) to 
include a requirement that a State, in its submission of an ATB test 
for approval, must include a manual provided to test administrators 
containing the procedures and instructions for test security and 
administration.
    In Sec.  668.144(c)(10), we have made a technical correction to 
specifically reference Sec.  668.146(b)(3) rather than Sec.  
668.146(b)(2) and added a provision to specify that a test publisher 
may include with its application a description of the manner in which 
test-taking time was determined in relation to the other requirements 
in Sec.  668.146(b).

Test Approval Procedures (Sec.  668.145)

    Comment: One commenter requested that the Department provide 
examples of a substantial change that would cause the Department to 
revoke its approval consistent with proposed Sec.  668.145(d)(1).
    Discussion: Section 668.144 lists the components of an application 
that test publishers and States must submit for the Secretary's 
approval of an ATB test as an alternative to having a high school 
diploma or its recognized equivalent. The list of required items for 
submission includes a summary of the precise editions, forms, levels, 
and sub-tests for which approval is being sought. In addition, we 
require that a minimum of two or more secure, equated, alternate forms 
of the test must be submitted. Moreover, the regulations require that 
if a test is being submitted as a revision of a previously approved 
test, the test publisher or State, as applicable, must also submit an 
analysis of the revisions, including the reasons for the revisions, the 
implications of the revisions for the comparability of scores on the 
currently approved test to scores on the revised test, and the data 
from validity studies of the revised test undertaken subsequent to the 
revisions. Taken together, the regulations require the test publisher 
and the State to submit their tests, including all forms or editions of 
those tests, for approval. If the approved tests are revised, we have 
addressed how revised tests along with the supportive data must be 
submitted for approval under Sec. Sec.  668.144(c)(9) and (d)(12).
    Examples of substantive changes are (1) when a previously approved 
ATB test in a pencil and paper format is converted to a computerized 
test, and (2) when a previously approved ATB test in a pencil and paper 
format is converted to a voice recorded format. In each of these 
examples, the test publisher or State is required to submit the list of 
required submissions above.
    An example of a non-substantive change is a correction of a 
typographical error. We will not require analysis of and submission for 
approval for non-substantive changes; however, it is important to note 
that if these changes are documented and shared with the Secretary, we 
would be able to address inquiries or comments from the public 
regarding these changes. Recognizing that we cannot provide an 
exhaustive list that would cover every situation, we encourage test 
developers to contact us if they have questions about changes to an 
approved test and whether the proposed changes would be considered 
substantive or non-substantive.
    Changes: None.

Criteria for Approving Tests (Sec.  668.146)

    Comment: One commenter noted that the 1985 American Psychological 
Association (APA) edition of the Standards for Educational and 
Psychological Testing (Standards) addressed test construction in terms 
of meeting ``primary, secondary and conditional'' standards. The 
commenter pointed out that the 1999 revised edition of the Standards no 
longer makes these distinctions and instead requires test developers 
and users to consider all the standards before operational use and does 
not continue the practice of designating levels of importance. As a 
result, the commenter suggested that we remove the reference to the 
words ``meeting all primary and applicable conditional and secondary 
standards for test construction'' in proposed in Sec.  668.146(b)(6) 
because they are confusing. The commenter suggested--as an 
alternative--that we adopt language that the Department used in 34 CFR 
462.13(c)(1) (i.e., ``The

[[Page 66924]]

test must meet all applicable and feasible standards for test 
construction and validity provided in the 1999 edition of the Standards 
for Educational and Psychological Testing'').
    Discussion: As discussed in the 1999 edition of the Standards, each 
standard should be considered to determine its applicability to the 
test being constructed. There may be reasons why a particular standard 
cannot be adopted; for example, if the test in question is relatively 
new, it may not be possible to have sufficient data for a complete 
analysis. As a result of the information in the 1999 edition of the 
Standards, we have made a change to the proposed language in Sec.  
668.146(b)(6) to reflect that tests must meet all applicable standards. 
However, we do not believe that we should include all ``feasible'' 
standards in the regulatory language. We believe that where a standard 
is not feasible, it would also not be applicable, as provided in the 
example, thus the inclusion of the word ``feasible'' is duplicative.
    Changes: We have revised Sec.  668.146(b)(6) by eliminating 
outdated references to primary, secondary and conditional standards to 
make the provision consistent with the language used in the most recent 
edition of the Standards.

Additional Criteria for the Approval of Certain Tests (Sec.  668.148)

    Comment: One commenter indicated that their program of instruction 
is taught in Spanish to non-English speakers with an English as a 
Second Language (ESL) component. The commenter asked the Department for 
guidance for populations where there is no approved ATB test in the 
native language of the students.
    Discussion: Under Sec.  668.148, if a program is taught in a 
foreign language, a test in that foreign language would need to satisfy 
the conditions for approval under Sec. Sec.  668.146 and 668.148. 
Absent an approved ATB test, students without a high school diploma or 
its equivalent could meet the alternative under proposed Sec.  
668.32(e)(5), whereby a student has been determined to have the ability 
to benefit from the education or training offered by the institution 
based upon the satisfactory completion of 6 semester hours, 6 quarter 
hours, or 225 clock hours that are applicable toward a degree or 
certificate offered by that institution where the hours were earned. If 
no test is reasonably available for students whose native language is 
not English and who are not fluent in English, institutions will no 
longer be able to use any test that has not been previously rejected 
for approval by the Secretary. We proposed this regulatory change 
because we recognized that, in the last 15 years, no ATB test in a 
foreign language has been submitted for approval. Therefore, under the 
current ATB regulations, any test in a foreign language became an 
approved ATB test regardless of whether it measured basic verbal and 
quantitative skills and general learned abilities, whether the passing 
scores related to the passing scores of other recent high school 
graduates, or whether these tests were developed in accordance with the 
APA standards. We believe that the removal of this overly broad 
exception from the current regulations will improve compliance and 
works in concert with the change reflected in Sec.  668.32(e)(5), which 
allows for an exception where ability to benefit can be measured 
against a standard (the successful earning of six credits toward a 
degree or certificate program at that institution).
    Changes: None.

Agreement Between the Secretary and a Test Publisher or a State (Sec.  
668.150)

    Comment: Under proposed Sec.  668.150(b)(3)(ii), the agreement 
between the Secretary and a test publisher or a State requires that 
certified test administrators have the ability and facilities to keep 
ATB tests secure. One commenter stated that it does not favor storage 
of ATB tests anywhere other than at the institution. Another commenter 
offered to work with the Department and other test publishers to 
develop guidelines that will improve ATB test security.
    Discussion: While ATB tests can be used for more than title IV, 
student eligibility determination purposes (such as for other 
assessment purposes), institutions, assessment center staff, as well 
as, independent test administrators will continue to have access to 
these tests. Given this reality, we acknowledge that securing tests and 
preventing test disclosure or release is difficult. We established the 
requirement in Sec.  668.150(b)(3)(ii) in order to balance the need for 
legitimate access and security. We appreciate the commenter's offer to 
work with the Department and other test publishers to develop 
guidelines to improve test security.
    Changes: None.
    Comment: One commenter supported the requirement in proposed Sec.  
668.150(b)(3)(iii) that only allows test administrators to be certified 
when they have not been decertified within the last three years by any 
test publisher. This commenter inquired how, other than through self-
reporting, a test publisher or State would have the information 
necessary to meet this requirement. The commenter also asked if we 
intend to develop, implement, and maintain a database of decertified 
test administrators.
    Discussion: Under proposed Sec.  668.144(c)(16) and (d)(7), a test 
publisher and a State, respectively, must describe its test 
administrator certification process. The Department plans to evaluate 
each of the test publisher's or State's certification plans to 
determine how they will obtain the information about test administrator 
decertifications by other test publishers or States. Under proposed 
Sec.  668.150(b)(2), each test administrator will be required to 
provide to the publisher or State, as appropriate, a certification 
statement to indicate that the test administrator is not currently 
decertified and that the test administrator will notify the test 
publisher or State immediately if any other test publisher or State 
decertifies the test administrator. At this time, the Department does 
not plan to establish a list of all decertified test administrators.
    Changes: None.
    Comment: One commenter indicated that proposed Sec.  668.150(b)(4), 
which provides that test administrators must be decertified under 
certain circumstances, will require States and test publishers to take 
great care when analyzing the facts prior to decertifying any test 
administrator. Section 668.150(b)(4) states that the agreement between 
the Secretary and a test publisher or a State must require the 
decertification of a test administrator who (a) Fails to administer the 
test in accordance with the test publisher's or State's requirements, 
(b) has not kept the test secure, (c) has compromised the integrity of 
the testing process, or (d) violated the test administration 
requirements in Sec.  668.151.
    One commenter also expressed concern that proposed Sec.  
668.150(b)(4) seems to remove the test publisher's or State's 
discretion about how to address certain violations of test 
administration rules. That commenter asked whether other corrective 
action is still a possible outcome, or whether decertification for any 
violation of the regulations or the test publisher's or State's test 
administration requirements is the only permissible outcome.
    Discussion: We understand the comment regarding decertification of 
test administrators and that test publishers and States will need to 
take care when carrying out their obligations under these regulations. 
For example, we expect that a test publisher or State would provide an 
administrator an opportunity to respond to any finding

[[Page 66925]]

warranting decertification, including any finding based on inferences 
from the analysis required under Sec.  668.151(b)(13). Regarding the 
inquiry whether Sec.  668.151(b)(4) removes discretion and requires 
decertification without the possibility of other corrective action, we 
note that States and publishers are required to establish appropriate 
test instructions that ensure the integrity of the test and compliance 
with the requirements of the regulations. Having established the 
appropriate instructions, we do expect States and test publishers to 
decertify test administrators that fail to follow the test instructions 
or for any of the other reasons specified in Sec.  668.151(b)(4). For 
example, we expect a test publisher or State to decertify a test 
administrator whenever it finds that a certified test administrator--
     Alters or falsifies answers or scores;
     Provides a test-taker with answers to the ATB test in 
order to improve the test-taker's score; or
     Allows a test-taker--other than a test-taker who is a 
person with a documented disability--extra time beyond the approved 
amount time as provided by the test publisher or State.

In situations where there is no evidence or basis to conclude that one 
or more of the four reasons specified in Sec.  668.151(b)(4) has 
occurred, but there are other irregularities of another or lesser 
nature, we would expect test publishers and States to take the 
appropriate corrective action to protect the proper administration of 
its ATB test.
    Changes: None.
    Comment: Several commenters expressed concern about Sec.  
668.150(b)(5), which requires the test publisher or State to reevaluate 
the qualifications of a test administrator who has been decertified by 
another test publisher or State, even when the test publisher or State 
lacks any evidence of its own that the test administrator has performed 
in a manner inconsistent with the requirements in subpart J of part 668 
or as required in the test administration manual.
    Discussion: Under Sec.  668.150(b)(2), a test administrator is 
required to certify that he or she is not currently decertified and, in 
the event he or she subsequently is decertified, that he or she will 
immediately notify all other test publishers and States who have 
provided their certification. To the extent that a test administrator, 
who is certified by test publishers A, B, and C, as well as States 1 
and 2, is decertified by State 1, the test administrator is required to 
immediately notify the other testing organizations and make them aware 
that the test administrator has been decertified by State 1. Upon 
receipt of such notification, under Sec.  668.150(b)(5), each of the 
other test publishers and the other State will reevaluate the 
qualifications of that test administrator. While the other testing 
organizations may not know the factual basis for the decertification by 
State 1, Sec.  668.150(b)(5) requires the other testing organizations 
to examine this test administrator's work. Based upon the testing 
organization's analysis, additional professional scrutiny, and the 
facts as a result of their reevaluation, the other testing 
organizations must make a determination of whether to continue the test 
administrator's certification or to decertify the test administrator 
for cause. The fact that a test administrator has been decertified by 
one testing entity is sufficient cause to require that all other test 
publishers or States be alerted both to the fact that there was a 
problem of sufficient magnitude to require decertification by the other 
test publisher or State, and that they need to make an additional 
review and subsequent determination of whether testing problems could 
be occurring with the administration of their ATB test.
    Changes: None.
    Comment: One commenter recommended that we modify proposed Sec.  
668.150(b)(5) to provide that test publishers and States are not liable 
for damages in the event a test administrator is decertified wrongly. 
This commenter indicated that proposed Sec.  668.150(b)(6), which 
requires that the test publisher or State notify the Secretary and 
institutions immediately after decertifying a test administrator, is 
overly broad and that test publishers and States should be able to end 
their relationship with a test administrator for any reason.
    Discussion: We cannot indemnify test publishers or States for 
actions that a former employee may take against a test publisher or 
State. This is one of the reasons it is so important to strengthen 
these regulations including by requiring that, as a part of the test 
developer's (a test publisher or a State) submission, it describe in 
detail the test administrator certification process--specifically how 
the test developer will determine that the test administrator will have 
the training, knowledge, skills and integrity to administer the test 
consistent with the regulations and the requirements as established by 
the test publisher or the State. Because the current regulations 
already require the decertification of test administrators who fail to 
give the test in accordance with the test publisher's instructions, who 
fail to secure the tests, who compromise the test, or who violate the 
provisions of Sec.  668.151 (Administration of tests), we do not 
anticipate that the changes to subpart J of part 668 reflected in these 
final regulations will cause an increase in legal actions brought by 
former test administrators. However, we do expect that these 
regulations will cause test publishers and States to strengthen their 
procedures and training to ensure that only properly trained test 
administrators will be certified by test publishers and States.
    Notification of the Secretary and institutions when a test 
administrator is decertified is required for a variety of compliance 
and other issues. The Secretary needs to know to what extent a test 
publisher or State has a problem causing the decertification of test 
administrators. Recent GAO and OIG reports have reported a variety of 
compliance concerns around ATB testing. The Secretary has a 
responsibility to protect students, prospective students, institutions 
and taxpayers. Through these requirements, one new compliance metric 
will be the number of decertifications by test publishers or States, 
which the Secretary will monitor. Notification of any decertification 
by a test publisher or State to the institution is required due to the 
fact that institutions depend on the test publisher or State to provide 
certified test administrators and, therefore, are completely reliant 
upon test publishers and States to notify the institution of when a 
test administrator is no longer certified and must not be administering 
tests to students for title IV, HEA student eligibility determination 
purposes.
    Changes: None.
    Comment: One commenter suggested that when a test publisher or 
State suspends a test administrator while it conducts an investigation 
into a possible violation of its requirements or the regulations, the 
test publisher or State should not have to immediately report the 
suspension to the Secretary and the institution. The commenter also 
suggested that there should be a time limit after which notification by 
the test publisher or State to the Secretary and the institutions would 
not be required.
    Discussion: Proposed Sec.  668.150(b)(6) requires the immediate 
notification of the Secretary and all institutions where the test 
administrator administered tests upon decertification. We assume that 
in cases of suspected test administrator violations, a suspension 
period will occur while fact-finding, analysis, and ultimately a 
determination will be made to either continue the test

[[Page 66926]]

administrator's certification or to decertify the test administrator. 
The notification requirement reflected in Sec.  668.150(b)(6) only 
applies immediately after a test administrator is decertified--not 
during the suspension period. Notification of the Secretary or others 
of a test administrator's suspended status is voluntary, but is an 
action that the Department supports.
    The commenter suggested that this notification requirement be 
waived after a certain appropriate period of time. We do not agree. 
Consistent with the provisions of Sec. Sec.  682.402(e) and 685.212(e), 
students may have their loan debt obligations discharged under a false 
certification discharge if the school certified the student's 
eligibility for a FFEL or a William D. Ford Federal Direct Loan on the 
basis of ability to benefit from its training and the student did not 
meet the applicable requirements of subpart J of part 668. Because 
these loans generally have a 10-year repayment schedule (and may have 
repayment plans under which repayment schedules can be extended to 25 
or more years), we do not agree to limit the requirement to notify to 
the Secretary and institutions.
    Changes: None.
    Comment: One commenter strongly supported proposed Sec.  
668.150(b)(7), which requires that all test results administered by a 
test administrator who the test publisher or State decertifies be 
reviewed and that a determination be made about which tests were 
improperly administered. Upon a determination of which tests had been 
improperly administered, the test publisher or State must then 
immediately notify the affected institutions, affected students and 
affected prospective students. This commenter suggested that we revise 
this provision to require that the test publisher or State notify all 
students tested by the decertified test administrator.
    Another commenter suggested that we add a time limit to Sec.  
668.150(b)(7)(i) so that test publishers and States that decertify a 
test administrator are only required to review tests administered by 
the decertified administrator during a specified period of time.
    Discussion: Under proposed Sec.  668.150(b)(7)(ii), when a 
determination of improper test administration is made, the test 
publisher or State must provide notification to all affected 
institutions and students or prospective students. Under Sec.  
668.150(b)(7)(iii), the test publisher or State must also provide a 
report to the Secretary on the results of the review of the decertified 
test administrator's previously administered tests that may have been 
improperly administered. When a determination is made that tests were 
improperly administered, the affected entities would include 
institutions, students, and prospective students affected by those 
tests that were improperly administered. Under Sec.  668.150(b)(7), 
notifications to those affected entities are required. We believe that 
these notification and reporting requirements are adequate to inform 
all affected parties, including students and prospective students. We 
do not believe it is necessary to notify a student who took a test 
administered by a test administrator who was subsequently decertified 
when there is no evidence that the particular test the student took was 
improperly administered.
    Under proposed Sec.  668.150(b)(7), if a test administrator was 
certified over a long number of years, test publishers and States 
potentially would be required to review many years' worth of previously 
administered ATB tests because, as proposed, this regulatory 
requirement included no limit on how far back test publishers and 
States would need to go when reviewing tests previously administered by 
a decertified test administrator. We believe that the burden on test 
publishers and States associated with such an extensive review should 
be balanced against the significant student loan debt that students 
tested by the decertified test administrator may have incurred. For 
this reason, we are modifying the language in proposed Sec.  
668.150(b)(7)(i) to limit the period of the review to the five-year 
period prior the date of decertification. We believe that a five-year 
period is reasonable for the following reasons. First, we are 
decreasing the period of time for test publishers and States to conduct 
their test data anomaly studies from 3 years to 18 months. These 
studies, which are designed, in part, to analyze if there are ATB test 
irregularities, will be conducted more frequently and can be used to 
identify possible instances of improper test administration. Second, we 
believe that a longer review period will increase the likelihood that 
the student notification efforts of test publishers and States (in the 
event that their review reveals that previously administered tests were 
improperly administered) will be ineffective, in part, due to the low 
probability that the student address information that a test publisher 
or State obtains when the student takes the test will remain accurate 
over this period of the review. Finally, we strongly recommend that 
test publishers and States consider additional disclosures to students 
asking that they update their address information with test publishers 
and States over time, in order for test publishers and States to 
provide students and prospective students with potential future 
notifications that could reduce their future title IV, student loan 
indebtedness.
    Changes: We have revised Sec.  668.150(b)(7)(i) to indicate that 
the period of the review of all the test results of the tests 
administered by a decertified test administrator is 5 years preceding 
the date of decertification.
    Comment: One commenter, who expressed support for the proposed 
change reflected in Sec.  668.150(b)(13) decreasing the timeframe from 
3 years to 18 months for test publishers and States to analyze ATB test 
scores to determine whether the test scores and data produce any 
irregular patterns, suggested that that the Department also consider a 
separate metric for test administrators who administer large numbers of 
ATB test within an 18 month period.
    Discussion: We appreciate the recommendation and acknowledge that 
test publishers and States are free to adopt such a suggestion for test 
administrators who are providing large numbers of ATB test 
administrations in a short period of time. As some test publishers have 
pointed out, test publishers have everything to gain from ensuring that 
their ATB tests are properly administered in accordance with the 
regulations and their test administration manual. To the extent that 
there are high volume test administrators, test publishers and States 
can best protect their tests by developing processes to help them to 
determine early whether these high volume test administrators are in 
compliance.
    Changes: None.
    Comment: One commenter suggested that the Department consider a 
modification to the language in Sec.  668.150(b)(13) to change the 
emphasis from an analysis of the test scores to an analysis of the test 
data.
    Discussion: The purpose of proposed Sec.  668.150(b)(13) (in 
concert with proposed Sec. Sec.  668.144(c)(17) and (d)(8), which 
require test publishers and States, as applicable, to explain their 
methodology for identifying test irregularities) is to require test 
publishers and States to collect and analyze test data, to determine 
whether the test scores and data produce any irregular patterns that 
raise an inference that the tests were not being properly administered, 
and to provide the

[[Page 66927]]

Secretary with a copy of the test anomaly analysis. We acknowledge that 
this type of analysis is broader than just examining the test outcomes, 
i.e. the test scores. Because this type of item analysis, which can 
yield statistical irregularities, goes beyond test score results, we 
have modified the proposed language accordingly.
    Changes: We have modified Sec.  668.150(b)(13) so that it refers to 
``test data of students who take the test'' and not to ``test scores of 
students who take the test'' to determine whether the test data (rather 
than ``the test scores and data'') produce any irregular pattern that 
raises an inference that the tests were not being properly 
administered.
    Comment: One commenter suggested that the Department modify 
proposed Sec.  668.150(b)(14) to require that any request for 
information by the Secretary or other listed agencies and entities be 
in writing.
    Discussion: Nothing in the regulations would prevent the test 
publisher or State from asking the entities listed in Sec.  
668.150(b)(14) to request the information in writing, and from 
implementing other safeguards to protect the security and 
confidentiality of the data.
    Changes: None.
    Comment: One commenter stated that Sec.  668.150(b)(16), as 
proposed, is ambiguous. The commenter suggested that we delete the word 
``other,'' as it modifies ``criminal misconduct,'' from this section.
    Discussion: Upon further review, we have determined that 
alternative language that specifically provides for both civil and 
criminal fraud would clarify what we mean in this regulatory provision. 
The purpose of Sec.  668.150(b)(16) is to require test publishers and 
States to immediately report any credible information indicating that a 
test administrator or institution may have engaged in fraud or other 
criminal misconduct. We intend for test publishers and States to report 
suspected fraud or misconduct without requiring them to ascertain 
whether the conduct constitutes civil fraud, criminal fraud or ``other 
criminal misconduct.''
    Changes: We have revised Sec.  668.150(b)(16) to require that the 
agreement between a test publisher or a State, as applicable, and the 
Secretary must provide that the test publisher or the State, as 
applicable, must immediately contact the Office of the Inspector 
General of the Department of Education if the test publisher or the 
State finds any credible information indicating that a test 
administrator or institution has engaged in civil or criminal fraud or 
other misconduct.
    Comment: One commenter expressed general support for proposed Sec.  
668.150(b)(17), which requires test administrators who provide an ATB 
test to an individual with a disability who requires an accommodation, 
to report to the test publisher or State both the disability and the 
accommodation. However, the commenter recommended that the Department 
provide clarification on how test publishers and States can exchange 
this information in a manner that would be compliant with the Health 
Insurance Portability and Accountability Act (HIPAA). Additionally, the 
commenter requested an explanation of the Department's position on 
distinguishing between an accommodation provided for an individual with 
a temporary impairment and an accommodation required by a person with a 
permanent or long-term disability.
    Discussion: HIPAA is administered by the U.S. Department of Health 
and Human Services and the Department of Education does not provide 
guidance on how entities should comply with another agency's 
requirements. However, it is our expectation that test administrators, 
test publishers and States will implement the requirement reflected in 
Sec.  668.150(b)(17) consistent with all other applicable Federal 
statutes and their implementing regulations.
    With regard to the comment requesting an explanation of the 
Department's position on the differences between accommodations for 
test-takers with temporary impairments and accommodations for test-
takers with permanent or long-term disabilities, we note that the 
regulations do not distinguish between types of accommodations. 
However, we acknowledge that test-takers may require accommodations for 
either temporary impairments or for individuals with disabilities.\1\
---------------------------------------------------------------------------

    \1\ The use of the term ``temporary impairments'' for the 
purposes of these regulations should not be confused with the 
definition of disability as defined by these regulations (see Sec.  
668.142), section 504 of the Rehabilitation Act, or the Americans 
with Disabilities Act.
---------------------------------------------------------------------------

    The following two examples are provided:
    Example 1 (Temporary Impairment). If an approved ATB test is 
provided via paper and pencil and the test-taker, who is normally 
right-handed, has a broken right hand and, as a result, must write with 
his or her left hand, the test administrator must provide the test-
taker an accommodation in accordance with the test publisher or State's 
technical manual for test administration. So, in this case, if the 
technical manual indicates that under a temporary impairment, such as, 
but not limited to, a broken writing hand, the test administrator 
should allow the test-taker an additional ``X'' minutes to complete the 
test, the test administrator must allow the test-taker with the broken 
writing hand an extra ``X'' minutes to complete the test.
    Example 2 (Disability). If an approved ATB test is provided via 
paper and pencil and the test-taker is an individual with a disability, 
such as blindness. To the extent that the test publisher or State has 
addressed in the technical manual consistent with the requirements of 
Sec.  668.144(c)(11)(vii) and provided additional guidance on the 
interpretation of scores resulting from any modifications of the test 
for individuals with disabilities, for example, the use of a previously 
approved audio recorded version would be permissible. In this example, 
there may or may not be scoring implications, however, an appropriate 
accommodation as provided in the technical manual is allowable as 
approved under this subpart.
    Absent any instructions in the technical manual about 
accommodations for individuals with disabilities or individuals with 
temporary impairments, the test administrator does not have the 
authority to create or provide an accommodation other than what is 
provided in Sec.  668.149. Historically, test publishers have addressed 
types of accommodations available to test administrators in their test 
administration technical manual, which the test publisher or State 
provides to the Secretary as part of its test submission. Once the test 
is approved by the Secretary, the accommodations indicated in the test 
administration technical manual are the approved accommodations for the 
test. In addition, subsequent to the Secretary's initial approval of an 
ATB test, some test publishers, consistent with the provisions of Sec.  
668.144(c)(9), have developed large-print versions, braille versions, 
and audio-recorded versions of their previously-approved tests and 
submitted the alternative versions along with the requisite analysis of 
the revisions for their comparability of scores to the previously 
approved test, as well as the data on the validity studies of the 
revised or alternative version of the previously approved test. Once 
approved, and as published in the Federal Register, these alternative 
versions of the previously approved test would provide for certain 
accommodations that may be required by individuals with disabilities.

[[Page 66928]]

    Changes: None.

Administration of Tests (Sec.  668.151)

    Comment: One commenter provided a number of suggestions regarding 
test administration security, including requiring that (1) test 
publishers contact the Department when tests are being used for ATB and 
non-ATB purposes, (2) different versions of the test be used for 
different purposes so that one version is used exclusively for ATB 
purposes, (3) ATB tests only be shipped to test administrators and not 
to institutions, and (4) ATB tests be locked in an area that cannot be 
accessed by non-certified test administrators.
    Discussion: Many ATB tests that have been submitted to the 
Secretary and subsequently approved for title IV, HEA student 
eligibility purposes are also used for general academic placement 
purposes not related to ATB. Regarding the suggestion that test 
administrators report to the Department when a test is used for ATB 
purposes, beginning with the 2011-2012 award year, we will begin 
collecting information on the use of an ATB test for each student who 
receives title IV, HEA funds; therefore test administrators will not 
have to provide the information to us. In terms of requiring that 
approved ATB tests must be used exclusively for this single purpose, 
that would require a statutory change. While it has been suggested that 
we revise the regulations to allow ATB tests only be shipped to test 
administrators and not to institutions, we believe that this is not 
feasible given that ATB tests are used both for title IV, HEA 
eligibility and non-title IV purposes, such as for course placement 
purposes. Finally, while it may be possible that at the discretion of 
the institution's assessment center (or as a result of an agreement 
between the test publisher or State and the institution) that ATB tests 
be locked in an area only accessible by certified test administrators, 
this may be impractical since these tests are used for non-title IV 
eligibility purposes.
    Changes: None.
    Comment: A commenter indicated that for computer-based tests, 
institutions maintain the associated system components on their 
computers, so test administrators (particularly independent test 
administrators) cannot be held responsible for maintaining the security 
of these types of tests, other than during the test administration.
    For paper-and-pencil tests, the commenter expressed strong concerns 
regarding independent test administrators being held responsible for 
storing test materials. The commenter stated that independent test 
administrators often do not have access to secure storage, other than 
at the campuses where they administer the test. Use of their home or 
automobile for storage and transportation to test sites is clearly 
unacceptable for security. Institutions typically have a secure 
location (a locked facility to which only the test administrator and 
possibly a select few individuals have a key) where materials can be 
stored. In addition, many institutions use the same test forms for ATB 
purposes and other purposes, and thus would already have copies of the 
test forms in storage at the institution. The commenter argued that 
maintaining test forms at the institution while emphasizing the chain 
of custody, under written agreements, will better contribute to the 
goal of keeping test forms secure.
    Discussion: We disagree. Proposed Sec.  668.144(c)(16) and (d)(7) 
require test publishers and States, respectively, to ensure not only 
that the test administrator has the training, knowledge, skill and 
integrity to test students in accordance with the requirements of this 
subpart, and the requirements of the test administration technical 
manual, but also, that the test administrator has the ability and 
facilities to keep the ATB tests secure against disclosure or release. 
We believe that these requirements are reasonable, and prudent, and 
will help ensure the integrity of ATB tests. While at this time, we are 
not prescribing how test publishers or States must make these 
determinations about their test administrators, we expect that they 
will base their determinations on the measures taken by the test 
administrator to protect the security of the tests. For example, one 
could envision a test administrator satisfying this requirement by 
having a secure safe in the assessment center where only certified test 
administrators had the key or combination to obtain the tests. In the 
case of an independent test administrator, one could envision the test 
administrator satisfying the requirement by maintaining the tests in a 
mobile, portable safe or some other secure device. As these examples 
illustrate, test publishers and States will be required to distinguish 
between secure and non-secure methods of storing ATB tests that limit 
access and protect against unintended release or disclosure if these 
tests are going to continue to be used for ATB purposes, otherwise the 
Secretary will consider that the test is improperly administered.
    Changes: None.

Administration of Tests for Individuals Whose Native Language Is Not 
English or for Individuals With Disabilities (Sec.  668.153)

    Comment: One commenter noted that if a non-English speaking student 
is in a program of study which is taught in the student's native 
language and the program also has an ESL component or that at least a 
portion of the program will be taught in English, there are two aspects 
that need to be tested, the student's reading, verbal and quantitative 
skills in their own native language, as well as, their knowledge of 
English in order to understand the portion of the program taught in 
English. The commenter expressed concern regarding the timing of these 
tests.
    Discussion: We appreciate this comment because it highlights the 
need to address a situation not covered by the proposed regulations. 
Under proposed Sec.  668.153(a)(1), we require institutions to use an 
ATB test in the student's native language when the student's native 
language is other than English and the student will be enrolled in a 
program that is taught in the student's native language. Paragraphs 
(a)(2) and (a)(3) of proposed Sec.  668.153 address situations where 
individuals who are not native speakers of English and who are not 
fluent in English are enrolled (or plan to enroll) in a program (a) 
that is taught in English with an ESL component and (b) that is taught 
in English without an ESL component, respectively. The proposed 
regulations do not address what happens in the case of a non-English 
speaker who is enrolled or plans on enrolling in a program that will be 
taught in his or her native language that includes an ESL component or 
a portion of the program will be taught in English. In situations such 
as these, we believe that institutions should require the student to 
take an English proficiency assessment approved under Sec.  668.148(b) 
prior to when the English or ESL portion of the program commences.
    Changes: We have added a new paragraph (a)(5) to Sec.  668.153 to 
provide that if the individual is a non-native speaker of English who 
is enrolled or plans to enroll in a program that will be taught in his 
or her native language and the program includes an ESL component or a 
portion of the program will be taught in English, the individual must 
take a test approved under Sec. Sec.  668.146 and 668.148(a)(1) in the 
student's native language. This new paragraph also provides that prior 
to the beginning of the ESL component or when the English portion of 
the program

[[Page 66929]]

commences, the individual must take an English proficiency test 
approved under Sec.  668.148(b).
    Comment: One commenter suggested that most test administrators do 
not have the training or experience to determine appropriate 
accommodations for students with disabilities, and thus are not 
qualified to identify or provide an appropriate accommodation. This 
commenter argued that test publishers and States should not be held 
accountable for training test administrators in the intricacies of laws 
regarding the rights of persons with disabilities. The commenter stated 
that, to protect the privacy of the examinee, the test administrator 
should not need to know the specifics of the disability. This commenter 
argued that the test administrator only needs to know what the 
accommodation is. For this reason, the commenter recommended that the 
test administrator only be required to verify that the institution has 
provided the appropriate documentation of the student's disability, as 
described in Sec.  668.153(b)(4). It was the commenter's view that the 
responsibility for determining the appropriate accommodation for the 
student's disability lies with the institution's staff.
    Discussion: We agree that test administrators may not have 
extensive training or experience to determine whether or not a 
requested accommodation is appropriate. However, each test must be 
administered in accordance with the test publisher's or State's 
technical manual. Consistent with proposed Sec.  668.144(c)(11)(vii) 
and (d)(11)(vii), the technical manual must include additional guidance 
on the interpretation of scores resulting from any modifications of the 
test for individuals with disabilities. We expect that a test publisher 
or State will provide examples in the technical manual of the types of 
both allowable and non-allowable accommodations associated with a range 
of temporary impairments and for individuals with disabilities in order 
to insure that the test administrator has the necessary protocols to 
follow to ensure the validity of the test administration process, while 
allowing for a range of specialized needs to be met. While these 
examples of allowable and non-allowable accommodations cannot be 
exhaustive, we will expect them to be expansive so that test 
administrators have clear examples of how the approved tests can and 
cannot be used for individuals with temporary impairments and for 
individuals with disabilities. These protocols may include, for 
example, the use, when appropriate, of alternative tests (e.g., 
approved audio-recorded ATB tests for individuals who are blind) and 
providing a test-taker whose vision is impaired (as documented by a 
physician) additional time to complete an approved large print version 
of an ATB test. To make this expectation clearer, we will revise Sec.  
668.144(c)(11)(vii) and (d)(11)(vii) to require a test's technical 
manual to include additional guidance on the types of accommodations 
that are allowable for individuals with temporary impairments or 
individuals with disabilities and the interpretation of scores 
resulting from any modifications of the test for individuals with 
temporary impairments or individuals with disabilities.
    Changes: We have modified Sec.  668.144(c)(11)(vii)and (d)(11)(vii) 
to require the test manual to include, in addition to guidance on the 
interpretation of scores resulting from modification of the test for 
individuals with temporary impairments or individuals with 
disabilities, guidance on the types of accommodations that are 
allowable.

Disbursements (Sec. Sec.  668.164(i), 685.102(b), 685.301(e), 686.2(b), 
and 686.37(b))

Provisions for Books and Supplies (Sec.  668.164(i))

    Comment: Several commenters agreed with the proposal in Sec.  
668.164(i) to require an institution to provide, under certain 
conditions, a way for a Federal Pell Grant eligible student to obtain 
or purchase required books and supplies by the seventh day of a payment 
period.
    Various commenters noted the academic importance of enabling 
students to have early access to their books and supplies. However, 
some of these commenters argued that bookstore vouchers were not the 
most affordable option for students, noting that under current guidance 
an institution that issues vouchers in lieu of cash must demonstrate it 
provides students ``a real and reasonable opportunity'' to obtain 
materials from other vendors.
    Two commenters requested that the regulations also apply to 
students who are eligible for the Iraq and Afghanistan Service Grants.
    Various commenters believed the proposed regulations would be 
administratively difficult and burdensome to carry out. One of the 
commenters stated that institutions with nonterm programs would have 
special administrative problems meeting the proposed regulations 
because of different start dates and different payment period 
completion rates for students. Another commenter requested the 
Department to delay implementing the regulations so that institutions 
have sufficient time to make needed software and procedural changes. 
One commenter believed that the student should be required to initiate 
a request to obtain or purchase books and supplies instead of requiring 
an institution to perform this process for all Federal Pell Grant 
eligible students.
    Discussion: Because we have identified situations where low-cost 
institutions delay disbursing funds for an extended time, or make 
partial disbursements to cover costs for only tuition and fees, the 
Department believes that these provisions are essential in enabling 
needy students to purchase books and supplies at the beginning of the 
term or enrollment period. Moreover, we find it troubling that 
disbursement delays at some institutions may force very needy students 
to take out private loans to pay for books and supplies that would 
otherwise be paid by Federal Pell Grant funds.
    We believe that the regulations in Sec.  668.164(i) provide an 
appropriate balance between the need for Federal Pell Grant eligible 
students to be able to purchase or obtain books and supplies early in 
the payment period and the administrative needs of institutions. For 
example, an institution may issue a bookstore voucher, make a cash 
disbursement, issue a stored-value card, or otherwise extend credit to 
students to make needed purchases. The institution has the flexibility 
to choose one or more of these methods or a similar method based on its 
administrative needs and constraints or an evaluation of the costs and 
benefits of implementing one or more of these methods.
    With regard to the request to expand the scope of the regulations 
to include recipients of Iraq and Afghanistan Service Grants, we 
believe that students who are not eligible for a Federal Pell Grant 
should have sufficient resources, as indicated by their higher expected 
family contributions, to purchase books and supplies. We note however, 
that nothing in these regulations prevents an institution from making 
credit balance funds available early in the payment period to any 
student.
    In response to concerns about administrative issues for nonterm 
programs, we note that for purposes of the Federal Pell Grant Program 
an institution is already responsible for knowing when a student has 
either completed a payment period or started a payment period. These 
regulations fall within that framework.

[[Page 66930]]

    Concerning the request for a delay in implementing these 
regulations, we believe that an institution has ample time to make any 
administrative and software changes required since the regulations are 
not effective until the 2011-2012 award year.
    Changes: None.
    Comment: Some commenters questioned whether the anticipated credit 
balance for a student under the proposed regulations is calculated 
based only on Federal Pell Grant funds; all title IV, HEA program 
funds; or all financial aid funds.
    In determining whether an institution could disburse title IV, HEA 
program funds to an eligible student 10 days before the beginning of a 
payment period, several commenters requested the Department to clarify 
how an institution treats a student who (1) Is selected for 
verification, (2) is subject to the 30 day delayed disbursement 
provisions for first-time, first-year undergraduate borrowers, (3) is 
attending a term-based program with minisessions, (4) has a ``C'' code 
on the SAR or ISIR, or (5) has other unresolved eligibility issues.
    Some commenters requested that the regulations provide that an 
institution is only required to provide a student with the funds or 
bookstore vouchers for books and supplies after the student has 
attended at least one day of class.
    One commenter noted that under Federal law a bank must have a 
customer identification program to help the government fight the 
funding of terrorism. Under that program, a bank must verify the 
identity of any person who opens an account and have procedures in 
place to resolve conflicting identity data. The commenter was concerned 
that for institutions using bank-issued stored-value cards or prepaid 
debit cards to deliver funds for books and supplies, any delays by the 
bank in resolving the conflicts would delay the delivery of funds to 
students. Consequently, the commenter requested that the regulations 
allow for this type of delay.
    One commenter asked how the proposed regulations would apply under 
a consortium agreement between two eligible institutions if the student 
is enrolled in a course at the host institution with the class starting 
prior to the payment period at the home institution and the home 
institution is processing and paying the title IV, HEA program 
assistance. Another commenter asked what action would be required by an 
institution if it includes books and supplies in the tuition and 
provides all of those materials to the student when he or she starts 
class.
    Discussion: With regard to which aid funds are used to determine 
whether a credit balance would be created 10 days before the beginning 
of a payment period, an institution must consider all the title IV, HEA 
program funds that a student is eligible to receive at that time. The 
institution does not have to consider aid from any other sources.
    To be eligible, the student must meet all the eligibility 
requirements in subpart C of 34 CFR part 668 at least 10 days before 
the start of the student's payment period. A student who has not 
completed the verification process, has an unresolved ``C'' code on the 
SAR and ISIR, or has unresolved conflicting information is not covered 
by the regulations if those issues have not been resolved at least 10 
days before the start of the student's payment period. With regard to 
the 30-day delayed disbursement provisions for Stafford Loans, the 
institution would not consider the amount of the loan disbursement in 
determining the credit balance because the institution may not disburse 
that loan 10 days before the start of that student's payment period. 
Also, the institution would not consider title IV, HEA program 
assistance that has not yet been awarded to a student at least 10 days 
before the start of classes because the student missed a financial aid 
deadline date.
    The amount that the institution must provide to a qualifying 
student to obtain or purchase books and supplies is the lesser of the 
presumed credit balance or the amount needed by the student as 
determined by the institution. In determining the amount needed, an 
institution may use the actual costs of books and supplies or the 
allowance for those materials used in the student's cost of attendance 
for the payment period.
    Since an institution has until the seventh day of a student's 
payment period to provide the way for the student to obtain or purchase 
the books and supplies, the institution may determine whether the 
student has attended classes if it has, or chooses to implement, a 
process for taking or monitoring attendance. However, by the seventh 
day of the payment period, that student must be able to obtain books 
and supplies unless the institution knows that the student is not 
attending.
    When an institution uses a bank-issued stored-value or prepaid 
debit card that is supported by a federally insured bank account to 
deliver funds for books and supplies, a student must have access to the 
funds via the card by the seventh day of his or her payment period. If 
a bank delays issuing a stored-value or prepaid debit card to the 
student because it must resolve conflicting identity data under Federal 
law, the Department will not hold the institution accountable as long 
as the institution exercises reasonable care and diligence in providing 
in a timely manner any identity information about the student to the 
bank. Likewise, the institution is not responsible if the student 
provides inaccurate information or delays in responding to a request 
from the bank to resolve any discrepancies.
    Under a consortium agreement between two eligible institutions, if 
a student is enrolled in a course at the host institution and classes 
start before the payment period begins at the home institution that is 
paying the title IV, HEA program assistance, the regulations require 
that the student obtain the books and supplies by the seventh day of 
the start of the payment period of the home institution. If the host 
institution is paying the title IV, HEA program assistance, the student 
must be able to obtain the books and supplies by the seventh day of the 
start of the payment period of the host institution.
    An institution that includes the costs of books and supplies in the 
tuition charged and provides all of those materials to the student at 
the start of his or her classes meets the requirements of these 
regulations.
    Changes: None.
    Comment: Several commenters were concerned over who would be liable 
for advancing funds to a student for books and supplies if the student 
fails to start all of his or her classes. Some commenters indicated 
that the potential debt owed to an institution by students under the 
proposed regulations is not in the best interest of the student. A few 
commenters noted that the use of bookstore vouchers as the way for a 
student to obtain books and supplies appears to increase the amount of 
unearned title IV funds that the institution must return when a student 
withdraws.
    Discussion: These regulations do not change the provisions under 34 
CFR 668.21 concerning the treatment of title IV grant and loan funds if 
the recipient does not begin attendance at the institution. In the case 
where the institution has credited the student's account at the 
institution or disbursed directly to the student any Federal Pell 
Grant, FSEOG, Federal Perkins Loan, TEACH Grant, ACG, or National SMART 
Grant program funds and the student fails to begin attendance in a 
payment period, the institution must return all of those program funds 
to the respective program.

[[Page 66931]]

    In addition, an institution must return any Direct Loan funds that 
were credited to the student's account at the institution for the 
payment period or period of enrollment. For any Direct Loan funds 
disbursed directly to a student, the institution must notify the 
Department of the loan funds that are outstanding, so that the 
Department can issue a 30-day demand letter to the student under 34 CFR 
685.211. If the institution knew prior to disbursing any of the Direct 
Loan funds directly to the student that he or she would not begin 
attendance, the institution must also return those Direct Loan funds. 
This would apply when, for example, a student had previously notified 
the institution that he or she would not be attending or the 
institution had expelled the student before disbursing the Direct Loan 
directly to the student.
    When an institution is responsible for returning title IV, HEA 
program funds for a student who failed to begin attendance at the 
institution it must return those funds as soon as possible, but no 
later than 30 days after the date that the institution becomes aware 
that the student will not or has not begun attendance. The funds that 
are required to be returned by the institution are not a student title 
IV, HEA liability and will not affect the student's title IV, HEA 
eligibility. However, institutional charges not paid by financial 
assistance are a student liability owed to the institution and subject 
to its own collection process.
    The new requirement also does not change the regulations in 34 CFR 
668.22 on handling the Return of Title IV Aid when a student began 
attendance but withdraws from the payment period or period of 
enrollment. If the institution provides a bookstore voucher for a 
student to obtain or purchase books and supplies, those expenses for 
the required course materials are considered institutional charges 
because the student does not have a real and reasonable opportunity to 
purchase the materials from any other place except the institution. The 
institution must include the charges for books and supplies from a 
bookstore voucher as institutional charges in determining the portion 
of unearned title IV, HEA program assistance that the institution is 
responsible for returning. However, an institution does not have to 
select the bookstore voucher as the way to meet the new requirement, it 
is just one option.
    Changes: None.
    Comment: One commenter opined that students who are not Pell Grant 
eligible would be unfairly responsible for obtaining funds to purchase 
books while others at the same institution would be confused about who 
should or should not receive the means to obtain or purchase books and 
supplies at the beginning of the term or enrollment period. A few 
commenters suggested or asked whether a student could opt out of the 
way offered by an institution to obtain or purchase books and supplies.
    Some commenters asked if the proposed regulations were in conflict 
with the current Cash Management regulations in Sec. Sec.  668.164 and 
668.165. A few commenters requested clarification on how student 
authorizations applied to the new requirements. Some commenters 
suggested that an institution should not be required to obtain a 
student's authorization to credit his or her account at the institution 
with title IV, HEA program funds for books and supplies, while other 
commenters recommended that an institution should be able to require 
the student's authorization before advancing funds for books and 
supplies.
    Discussion: Under Sec.  668.16(h), an institution is required to 
provide adequate financial aid counseling to eligible students who 
apply for title IV, HEA program assistance and under Sec.  668.42, an 
institution is required to provide consumer information to enrolled and 
prospective students that, among other things, describe the method by 
which aid is determined and disbursed, delivered, or applied to a 
student's account and the frequency of those disbursements. Further 
under Sec.  668.165(a)(1), before an institution disburses title IV, 
HEA funds it must notify a student how and when those funds will be 
disbursed. Based on these requirements, an institution must describe in 
its financial aid information and its notifications provided to 
students receiving title IV, HEA funds the way under Sec.  668.164(i) 
that it provides for Federal Pell Grant eligible students to obtain or 
purchase required books and supplies by the seventh day of a payment 
period under certain conditions. The information must indicate whether 
the institution would enter a charge on the student's account at the 
institution for books and supplies or pay funds to the student 
directly. Institutions also routinely counsel students about the 
variations in the amounts of Federal student aid or other resources 
that are available to them based upon their need and expected family 
contribution. We believe that this counseling process will mitigate any 
confusion by explaining to a student who qualifies for funds advanced 
to purchase books and supplies, how the process is handled at the 
institution, and how a student may opt-out of the process.
    Regardless of the way an institution provides for a student to 
obtain books and supplies, the student may opt out. For instance, if an 
institution provides a bookstore voucher, the student may opt out by 
not using the voucher. If the institution uses another way, such as a 
bank-issued stored-value or prepaid debit card, it must have a policy 
under which the student may opt out. For example, a student might have 
to notify the institution by a certain date so that the institution 
does not unnecessarily issue a check to the student or transfer funds 
to the student's bank account. In any case, if the student opts out, 
the institution may, but is not required to, offer the student another 
way to purchase books and supplies so long as it does not otherwise 
delay providing funds to the student as a credit balance. We are 
amending the regulations to clarify that a student may opt out of the 
way that an institution provides for a student to obtain books and 
supplies.
    In addition, to facilitate advancing funds or credit by the seventh 
day of classes of a payment period under this provision, the Department 
considers that a student authorizes the use of title IV, HEA funds at 
the time the student uses the method provided by the institution to 
purchase books and supplies. This means that an institution does not 
need to obtain a written authorization under Sec. Sec.  
668.164(d)(1)(iv) and 668.165(b) from the student to credit a student's 
account at the institution for the books and supplies that may be 
provided only under Sec.  668.164(i). We are amending the regulations 
to indicate that an institution does not need to obtain a written 
authorization from a student to credit the student's account at the 
institution for books and supplies provided under Sec.  668.164(i).
    Changes: Section 668.164(i) has been revised to specify that an 
institution must have a policy under which a Federal Pell Grant 
eligible student may opt out of the way the institution provides for 
the student to purchase books and supplies by the seventh day of 
classes of a payment period. In addition, Sec.  668.164(i) has been 
revised to specify that if the Federal Pell Grant eligible student uses 
the method provided by the institution to purchase books and supplies, 
the student is considered to have authorized the use of title IV, HEA 
funds and the institution does not need to obtain a written 
authorization under Sec. Sec.  668.164(d)(1)(iv) and 668.165(b) for 
this purpose only.

[[Page 66932]]

Reporting Disbursements, Adjustments, and Cancellations (Sec. Sec.  
685.102(b), 685.301(e), 686.2(b), and 686.37(b))

    Comment: A few commenters supported the proposed regulations to 
adopt the Federal Pell Grant reporting requirements for the TEACH Grant 
and Direct Loan programs and to add the Federal Pell Grant definition 
of the term Payment Data to the two other programs.
    Discussion: We believe that harmonizing the reporting requirements 
for the Federal Pell Grant, TEACH Grant, and Direct Loan programs in 
accordance with procedures established by the Secretary through 
publication in the Federal Register will make it easier for 
institutions to administer the programs. In addition, this flexibility 
to adjust the reporting requirements for all three programs through 
publication in the Federal Register will enable the Secretary to make 
changes in the future that take advantage of new technology and 
improved business processes.
    Changes: None.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the OMB. 
Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action likely to result in a rule that may 
(1) Have an annual effect on the economy of $100 million or more, or 
adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule); (2) create serious 
inconsistency or otherwise interfere with an action taken or planned by 
another agency; (3) materially alter the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raise novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive order.
    Pursuant to the terms of the Executive order, we have determined 
this proposed regulatory action will have an annual effect on the 
economy of more than $100 million. Therefore, this action is 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866. Notwithstanding this determination, 
we have assessed the potential costs and benefits--both quantitative 
and qualitative--of this regulatory action. The agency believes that 
the benefits justify the costs.
    A detailed analysis, including the Department's Regulatory 
Flexibility Act certification, is found in Appendix A to these final 
regulations.

Paperwork Reduction Act of 1995

    Sections 668.6, 668.8, 668.16, 668.22, 668.34, 668.43, 668.55, 
668.56, 668.57, 668.59, 668.144, 668.150, 668.151, 668.152, and 668.164 
contain information collection requirements. Under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department has submitted 
a copy of these sections to OMB for its review.

Section 668.6--Gainful Employment

    The final regulations will impose new requirements on certain 
programs that by law must, for purposes of the title IV, HEA programs, 
prepare students for gainful employment in a recognized occupation. For 
public and private nonprofit institutions, a program that does not lead 
to a degree will be subject to the eligibility requirement that the 
program lead to gainful employment in a recognized occupation, while a 
program leading to a degree, including a two-academic-year program 
fully transferrable to a baccalaureate degree, will not be subject to 
this eligibility requirement. For proprietary institutions, all 
eligible degree and non-degree programs will be required to lead to 
gainful employment in a recognized occupation, except for a liberal 
arts baccalaureate program under section 102(b)(1)(A)(ii) of the HEA.
    An institution will be required under final Sec.  668.6(a) to 
report for each student, who during an award year, began attending or 
completed a program under Sec.  668.8(c)(3) or (d), information that 
includes, at a minimum, information needed to identify the student and 
the location of the institution the student attended, the CIP code of 
the program, the date the student completed the program, the amounts 
the student received from private educational loans and the amount from 
institutional financing plans that the student owes the institution 
after completing the program, and whether the student matriculated to a 
higher credentialed program at the institution or another institution. 
We estimate that it will take the affected 1,950 proprietary 
institutions, on average, 12 hours to develop the processes necessary 
to implement the requirements in Sec.  668.6(a) for students who, 
during the award year, began attending or completed a program under 
Sec.  668.6(c)(3) or (d). These processes include ones to record 
student identifier information, to record the CIP codes associated with 
these programs, to record completion dates, to determine and record the 
amounts the student received from private educational loans and the 
amount from institutional financing plans that the student owes the 
institution after completing the program, and to record data on 
students who matriculate to higher credentialed programs at the same or 
at another institution. Therefore, burden will increase for these 
affected proprietary institutions by 23,400 hours.
    We estimate that it will take the affected 1,736 private not-for-
profit institutions, on average, 12 hours to develop the processes 
necessary to implement the requirements in Sec.  668.6(a) for students 
who, during the award year, began attending or completed a program 
under Sec.  668.6. These processes include ones to record student 
identifier information, to record the CIP codes associated with these 
programs, to record completion dates, to determine and record the 
amounts the student received from private educational loans and the 
amount from institutional financing plans that the student owes the 
institution after completing the program, and to record data on 
students who matriculate to higher credentialed programs at the same or 
at another institution. Therefore, burden will increase for these 
affected private not-for-profit institutions by 20,832 hours.
    We estimate that it will take the affected 1,915 public 
institutions, on average, 12 hours to develop the processes necessary 
to implement the requirements in Sec.  668.6(a) for students who, 
during the award year, began attending or completed a program under 
Sec.  668.6. These processes include ones to record student identifier 
information, to record the CIP codes associated with these programs, to 
record completion dates, to determine and record the amounts the 
student received from private educational loans and the amount from 
institutional financing plans that the student owes the institution 
after completing the program, and to record data on students who 
matriculate to higher credentialed programs at the same or at another 
institution. Therefore, burden will increase for these affected public 
institutions by 22,980 hours. Collectively, we estimate that burden for 
institutions to meet these process development requirements in 
accordance with procedures established by the Secretary will increase 
burden by

[[Page 66933]]

67,212 hours in OMB Control Number 1845-NEW1.
    We estimate that annually there will be 3,499,998 students who will 
begin attendance in occupational programs that train students for 
gainful employment in a recognized occupation. We estimate that 
1,996,593 of the 3,499,998 students will attend a proprietary 
institution. Therefore, with regard to proprietary institutions, the 
total number of affected students is estimated to be 5,989,779 students 
(1,996,593 times 3) for the initial reporting period that will cover 
the 2006-2007 award year, the 2007-2008 award year and the 2008-2009 
award year. We estimate that the reporting of student identifier 
information, the location of the institution the student attended, and 
the CIP codes for each beginning student (i.e., a student who during 
the award year began attending a program under Sec.  668.8(c)(3) or 
(d)) will average .03 hours (2 minutes) per student or 179,693 hours of 
increased burden.
    We estimate that 161,308 of the 3,499,998 students will attend a 
private not-for-profit institution. Therefore, with regard to not-for-
profit institutions, the total number of affected students is estimated 
to be 483,924 students (161,308 times 3) for the initial reporting 
period that will cover the 2006-2007 award year, the 2007-2008 award 
year and the 2008-2009 award year. We estimate that the reporting of 
student identifier information, the location of the institution the 
student attended, and the CIP codes for each beginning student will 
average .03 hours (2 minutes) per student or 14,518 hours of increased 
burden.
    We estimate that 1,342,097 of the 3,499,998 students will attend a 
public institution. Therefore, with regard to public institutions, the 
total number of affected students is estimated to be 4,026,291 students 
(1,342,097 times 3) for the initial reporting period that will cover 
the 2006-2007 award year, the 2007-2008 award year and the 2008-2009 
award year. We estimate that the reporting of student identifier 
information, the location of the institution the student attended, and 
the CIP codes for each beginning student will average .03 hours (2 
minutes) per student or 120,789 hours of increased burden.
    Collectively, we estimate that burden for institutions to meet 
these reporting requirements for a student who during the award year 
began attending a program under Sec.  668.8(c)(3) or (d) will increase 
burden by 315,000 hours in OMB Control Number 1845-NEW1.
    We estimate that annually there will be 567,334 students who will 
complete their occupational programs that train students for gainful 
employment in a recognized occupation. We estimate that 325,416 of the 
567,334 students will attend a proprietary institution. Therefore, with 
regard to proprietary institutions, the total number of affected 
students is estimated to be 976,248 students (325,416 times 3) for the 
initial reporting period that will cover the 2006-2007 award year, the 
2007-2008 award year and the 2008-2009 award year. We estimate that the 
reporting of student identifier information, the location of the 
institution the student attended, the CIP codes for each graduate, the 
date of completion, the amounts the students received from private 
education loans and the amount from institutional financing plans that 
the student owes the institution after completing the program, and 
whether the student matriculated to a higher credentialed program at 
the same or another institution will average .08 hours (5 minutes) per 
student or 78,100 hours of increased burden.
    We estimate that 33,627 of the 567,334 students will attend a 
private not-for-profit institution. Therefore, with regard to not-for-
profit institutions, the total number of affected students is estimated 
to be 100,881 students (33,627 times 3) for the initial reporting 
period that will cover the 2006-2007 award year, the 2007-2008 award 
year and the 2008-2009 award year. We estimate that the reporting of 
student identifier information, the location of the institution the 
student attended, the CIP codes for each graduate, the date of 
completion, the amounts the student received from private education 
loans and the amount from institutional financing plans that the 
student owes the institution after completing the program, and whether 
the student matriculated to a higher credentialed program at the same 
or another institution will average .08 hours (5 minutes) per student 
or 8,070 hours of increased burden.
    We estimate that 208,291 of the 567,334 students will attend a 
public institution. Therefore, with regard to public institutions, the 
total number of affected students is estimated to be 624,873 students 
(208,291 times 3) for the initial reporting period that will cover the 
2006-2007 award year, the 2007-2008 award year and the 2008-2009 award 
year. We estimate that the reporting of student identifier information, 
the location of the institution the student attended, the CIP codes for 
each graduate, the date of completion, the amounts the student received 
from private education loans and the amount from institutional 
financing plans that the student owes the institution after completing 
the program, and whether the student matriculated to a higher 
credentialed program at the same or another institution will average 
.08 hours (5 minutes) per student or 49,990 hours of increased burden.
    Additionally, later in the initial year of reporting, institutions 
will have to report information on students who began attendance during 
the 2009-2010 award year. We estimate that annually there will be 
3,499,998 students who will begin attendance in occupational programs 
that train students for gainful employment in a recognized occupation. 
As established above, we estimate that 1,996,593 of the 3,499,998 
students will begin occupational programs at proprietary institutions 
during the 2009-2010 award year. We estimate that the reporting of 
student identifier information, the location of the institution the 
student attended, and the CIP codes for each beginning student (i.e., a 
student who during the award year began attending a program under Sec.  
668.8(c)(3) or (d)) will average .03 hours (2 minutes) per student or 
59,898 hours of increased burden.
    We estimate that 161,308 of the 3,499,998 students will attend a 
private not-for-profit institution. We estimate that the reporting of 
student identifier information, the location of the institution the 
student attended, and the CIP codes for each beginning student will 
average .03 hours (2 minutes) per student or 4,839 hours of increased 
burden.
    We estimate that 1,342,097 of the 3,499,998 students will attend a 
public institution. We estimate that the reporting of student 
identifier information, the location of the institution the student 
attended, and the CIP codes for each beginning student will average .03 
hours (2 minutes) per student or 40,263 hours of increased burden.
    Similarly, we estimate that annually there will be 567,334 students 
who will complete their occupational programs that train students for 
gainful employment in a recognized occupation during the 2009-2010 
award year. We estimate that 325,416 of the 567,334 students will 
complete their program at a proprietary institution during the 2009-
2010 award year. We estimate that the reporting of student identifier 
information, the location of the institution the student attended, the 
CIP codes for each graduate, the date of completion, the amounts the 
students received from private education loans

[[Page 66934]]

and the amount from institutional financing plans that the student owes 
the institution after completing the program, and whether the student 
matriculated to a higher credentialed program at the same or another 
institution will average .08 hours (5 minutes) per student or 26,033 
hours of increased burden for the 2009-2010 award year.
    We estimate that 33,627 of the 567,334 students will complete their 
program at a private not-for-profit institution. We estimate that the 
reporting of student identifier information, the location of the 
institution the student attended, the CIP codes for each graduate, the 
date of completion, the amounts the student received from private 
education loans and the amount from institutional financing plans that 
the student owes the institution after completing the program, and 
whether the student matriculated to a higher credentialed program at 
the same or another institution will average .08 hours (5 minutes) per 
student or 2,690 hours of increased burden during the 2009-2010 award 
year.
    We estimate that 208,291 of the 567,334 students will complete 
their program at a public institution during the 2009-2010 award year. 
We estimate that the reporting of student identifier information, the 
location of the institution the student attended, the CIP codes for 
each graduate, the date of completion, the amounts the student received 
from private education loans and the amount from institutional 
financing plans that the student owes the institution after completing 
the program, and whether the student matriculated to a higher 
credentialed program at the same or another institution will average 
.08 hours (5 minutes) per student or 16,663 hours of increased burden 
for the 2009-2010 award year.
    Collectively, we estimate that burden for institutions to meet 
these reporting requirements for students who begin attendance or 
complete their occupational programs that train students for gainful 
employment in a recognized occupation will increase burden by 658,758 
hours in OMB Control Number 1845-NEW1.
    Finally, under Sec.  668.6(b) an institution will be required to 
disclose to each prospective student information about (1) The 
occupations (by names and Standard Occupational Code (SOC) codes) that 
its programs prepare students to enter, along with links to 
occupational profiles on O*NET or its successor site, or if the number 
of occupations related to the program on O*Net is more than ten (10), 
the institution may provide Web links to a representative sample of SOC 
codes for which its graduates typically find employment within a few 
years after completing their program; (2) the on-time graduation rate 
for students entering the program; (3) the total amount of tuition and 
fees it charges a student for completing the program within normal time 
as defined in Sec.  668.41(a), the typical costs for books and 
supplies, and the cost of room and board, if applicable. The 
institution may include information on other costs, such as 
transportation and living expenses, but it must provide a Web link, or 
access, to the program cost information the institution makes available 
under Sec.  668.43(a); (4) beginning on July 1, 2011, the placement 
rate for students completing the program, as determined under the 
institution's accrediting agency or State requirements, until a new 
placement rate methodology is developed by the National Center for 
Education Statistics (NCES) and reported to the institution; and (5) 
the median loan debt incurred by students who completed the program as 
provided by the Secretary, as well as any other information the 
Secretary provided to the institution about that program. The 
institution must identify separately the median loan debt from title 
IV, HEA programs and the median loan debt from private educational 
loans and institutional financing plans.
    We estimate that of the 5,601 institutions with these occupational 
programs that 1,950, or 35%, are proprietary institutions. We estimate 
that of the 5,601 with these occupational programs that 1,736, or 31%, 
are private not-for-profit institutions. We estimate that of the 5,601 
with these occupational programs that 1,915, or 34%, are public 
institutions. Because under the revised disclosure requirements, 
institutions may use a representative sample of SOC codes and use 
placement rate data already required by their accrediting agency or 
State, or data that will be provided by the Department, we estimate 
that on average, it will take 1.5 hours for an institution to obtain 
the required disclosure information from O*Net and its own programmatic 
cost information and to provide that information on its Web site and in 
its promotional materials. Therefore, we estimate that burden for 1,950 
proprietary institutions will increase by 2,925 hours. We estimate that 
burden for 1,736 private not-for-profit institutions will increase by 
2,604 hours. We estimate that burden for 1,915 public institutions will 
increase by 2,873 hours.
    Collectively, we estimate that burden for institutions to meet 
these disclosure requirements for prospective students will increase 
burden by 8,402 hours in OMB Control Number 1845-NEW1.
    We estimate the total burden under this section to increase by 
677,160 hours in OMB Control Number 1845-NEW1.

Section 668.8--Eligible Program

    Under S668.8(l)(1), we will revise the method of converting clock 
hours to credit hours to use a ratio of the minimum clock hours in an 
academic year to the minimum credit hours in an academic year, i.e., 
900 clock hours to 24 semester or trimester hours or 36 quarter hours. 
Thus, a semester or trimester hour will be based on at least 37.5 clock 
hours, and a quarter hour will be based on at least 25 clock hours. 
Section 668.8(l)(2) will create an exception to the conversion ratio in 
Sec.  668.8(l)(1) if neither an institution's designated accrediting 
agency nor the relevant State licensing authority for participation in 
the title IV, HEA programs determines there are any deficiencies in the 
institution's policies, procedures, and practices for establishing the 
credit hours that the institution awards for programs and courses, as 
defined in Sec.  600.2. Under the exception provided by Sec.  
668.8(l)(2), an institution will be permitted to combine students' work 
outside of class with the clock-hours of instruction in order to meet 
or exceed the numeric requirements established in Sec.  668.8(l)(1). 
However, under Sec.  668.8(l)(2), the institution will need to use at 
least 30 clock hours for a semester or trimester hour or 20 clock hours 
for a quarter hour.
    In determining whether there is outside work that a student must 
perform, the analysis will need to take into account differences in 
coursework and educational activities within the program. Some portions 
of a program may require student work outside of class that justifies 
the application of Sec.  668.8(l)(2). In addition, the application of 
Sec.  668.8(l)(2) could vary within a program depending on variances in 
required student work outside of class for different portions of the 
program. Other portions of the program may not have outside work, and 
Sec.  668.8(l)(1) will need to be applied. Of course, an institution 
applying only Sec.  668.8(l)(1) to a program eligible for conversion 
from clock hours to credit hours, without an analysis of the program's 
coursework, will be considered compliant with the requirements of Sec.  
668.8(l).

[[Page 66935]]

    Section 668.8(k)(1)(ii) will modify a provision in current 
regulations to provide that a program is not subject to the conversion 
formula in Sec.  668.8(l) where each course within the program is 
acceptable for full credit toward a degree that is offered by the 
institution and that this degree requires at least two academic years 
of study. Additionally, under Sec.  668.8(k)(1)(ii), the institution 
will be required to demonstrate that students enroll in, and graduate 
from, the degree program.
    Section 668.8(k)(2)(i) will provide that a program is considered to 
be a clock-hour program if the program must be measured in clock hours 
to receive Federal or State approval or licensure, or if completing 
clock hours is a requirement for graduates to apply for licensure or 
the authorization to practice the occupation that the student is 
intending to pursue. Under Sec.  668.8(k)(2)(ii) and (iii), the program 
will also be considered to be offered in clock hours if the credit 
hours awarded for the program are not in compliance with the definition 
of a credit hour in Sec.  600.2, or if the institution does not provide 
the clock hours that are the basis for the credit hours awarded for the 
program or each course in the program and, except as provided in 
current Sec.  668.4(e), requires attendance in the clock hours that are 
the basis for the credit hours awarded. The final regulations on which 
tentative agreement was reached will not include the provision in Sec.  
668.8(k)(2)(iii) that, except as provided in current Sec.  668.4(e), an 
institution must require attendance in the clock hours that are the 
basis for the credit hours awarded.
    Section 668.8(k)(3) will provide that Sec.  668.8(k)(2)(i) will not 
apply if a limited portion of the program includes a practicum, 
internship, or clinical experience component that must include a 
minimum number of clock hours due to a State or Federal approval or 
licensure requirement.
    We estimate that on average, for each affected program it will take 
.5 hours (30 minutes) for an institution to make the determination of 
whether the program is an affected program, to evaluate the amount of 
outside student work that should be included as final and to perform 
the clock hour to credit hour conversion. We further estimate that of 
the 4,587 institutions of higher education with less than 2-year 
programs, that on average, each institution has approximately 8 non-
degree programs of study for a total of 36,696 affected programs. We 
estimate that there are 16,513 affected programs at proprietary 
institutions times .5 hours (30 minutes) which will increase burden by 
8,257 hours. We estimate that there are 1,835 affected programs at 
private non-profit institutions times .5 hours (30 minutes) which will 
increase burden by 918 hours. We estimate that there are 18,348 
affected programs at public institutions times .5 hours (30 minutes) 
which will increase burden by 9,174 hours.
    Collectively, the final regulatory changes reflected in Sec.  668.8 
will increase burden by 18,349 hours in OMB Control Number 1845-0022.

Section 668.16--Standards of Administrative Capability

    Under the final regulations, the elements of the institution's 
satisfactory academic progress plan have been moved from current Sec.  
668.16(e) to Sec.  668.34. We also have updated these provisions. As a 
result, the estimated burden upon institutions associated with 
measuring academic progress currently in OMB Control Number 1845-0022 
of 21,000 hours will be administratively removed from this collection 
and transferred to OMB Control Number 1845-NEW2.
    Under Sec.  668.16(p), an institution will be required to develop 
and follow procedures to evaluate the validity of a student's high 
school completion if the institution or the Secretary has reason to 
believe that the high school diploma is not valid or was not obtained 
from an entity that provides secondary school education. The burden 
associated with this requirement will be mitigated by the fact that 
many institutions already have processes in place to collect high 
school diplomas and make determinations about their validity.
    We estimate that burden will increase for each institution by 3.5 
hours for the development of a high school diploma validity process. We 
estimate that 2,086 proprietary institutions will on average take 3.5 
hours to develop the final procedures to evaluate the validity of high 
school completions, which will increase burden by 7,301 hours. We 
estimate that 1,731 private non-profit institutions will on average 
take 3.5 hours to develop the final procedures to evaluate the validity 
of high school completion, which will increase burden by 6,059 hours. 
We estimate that 1,892 public institutions will on average take 3.5 
hours to develop the final procedures to evaluate the validity of high 
school completion, which will increase burden by 6,622 hours.
    Additionally, we estimate that the validity of approximately 4,000 
high school diplomas per year will be questioned and that these 
diplomas will require additional verification, which we estimate will 
take .5 hours (30 minutes) per questionable diploma. We estimate that 
proprietary institutions will have 2,000 questionable diplomas, which 
will result in an estimated 1,000 hours of increased burden (2000 
diplomas multiplied by .5 hours). We estimate that private non-profit 
institutions will have 600 questionable diplomas, which will result in 
an estimated 300 hours of increased burden (600 diplomas multiplied by 
.5 hours). We estimate that public institutions will have 1,400 
questionable, which will result in an estimated 700 hours of increased 
burden (1400 diplomas multiplied by .5 hours).
    Collectively, the final regulatory changes reflected in Sec.  
668.16 will increase burden by 21,982 hours in OMB Control Number 1845-
0022.

Section 668.22--Treatment of Title IV, HEA Program Funds When a Student 
Withdraws

    The changes to Sec.  668.22(a)(2) clarify when a student is 
considered to have withdrawn from a payment period or period of 
enrollment. In the case of a program that is measured in credit hours, 
the student will be considered to have withdrawn if he or she does not 
complete all the days in the payment period or period of enrollment 
that the student was scheduled to complete prior to withdrawing. In the 
case of a program that is measured in clock hours, the student will be 
considered to have withdrawn if he or she does not complete all of the 
clock hours in the payment period or period of enrollment that the 
student was scheduled to complete prior to withdrawing.
    Section 668.22(f)(2)(i) clarifies that, for credit hour programs, 
in calculating the percentage of the payment period or period of 
enrollment completed, it is necessary to take into account the total 
number of calendar days that the student was scheduled to complete 
prior to withdrawing without regard to any course completed by the 
student that is less than the length of the term.
    These final regulations will affect all programs with courses that 
are less than the length of a term, including, for example, a semester-
based program that has a summer nonstandard term with two consecutive 
six-week sessions within the term.
    We estimate that approximately 425,075 students in term-based 
programs with modules or compressed courses will withdraw prior to 
completing more than 60 percent of their program of study. We estimate 
that on average, the burden per individual student who withdraws prior 
to the 60 percent point of their term-based program to be .75 hours (45 
minutes)

[[Page 66936]]

per affected individual which will increase burden for the estimated 
425,075 students by 318,806 hours in OMB Control Number 1845-0022. Of 
these 425,075 withdrawals, we estimate that 50 percent of the 
withdrawals (212,538) will occur at proprietary institutions and will 
increase burden by 1 hour per withdrawal increasing burden by 212,538 
hours. We estimate that 10 percent of the withdrawals (42,508) will 
occur at private non-profit institutions and will increase burden by 1 
hour per withdrawal increasing burden by 42,508 hours. We estimate that 
40 percent of the withdrawals (170,029) will occur at public 
institutions and will increase burden by 1 hour per withdrawal 
increasing burden by 170,029 hours. Collectively, we estimate that 
burden will increase by 743,881 hours in OMB Control Number 1845-0022, 
of which 318,806 hours is for individuals and 425,075 hours is for 
institutions.

Section 668.34--Satisfactory Progress

    The final regulations restructure the satisfactory academic 
progress requirements. Section 668.16(e) (Standards of administrative 
capability) has been revised to include only the requirement that an 
institution establish, publish and apply satisfactory academic progress 
standards that meet the requirements of Sec.  668.34. The remainder of 
current Sec.  668.16(e) has been moved to Sec.  668.34 such that it, 
alone, describes all of the required elements of a satisfactory 
academic progress policy, as well as how an institution will implement 
such a policy. The references in Sec.  668.32(e) have been updated to 
conform the section with the final changes we have made to Sec. Sec.  
668.16(e) and 668.32.
    Section 668.34(a) specifies the elements an institution's 
satisfactory academic policy must contain to be considered a reasonable 
policy. Under these regulations, institutions will continue to have 
flexibility in establishing their own policies; institutions that 
choose to measure satisfactory academic progress more frequently than 
at the minimum required intervals will have additional flexibility (see 
Sec.  668.34(a)(3)).
    All of the policy elements in the current regulations under 
Sec. Sec.  668.16(e) and 668.34 are combined in Sec.  668.34. In 
addition, Sec.  668.34(a)(5) makes explicit the requirement that 
institutions specify the pace at which a student must progress through 
his or her educational program to ensure that the student will complete 
the program within the maximum timeframe, and provide for measurement 
of a student's pace at each evaluation. Under Sec.  668.34(a)(6), 
institutional policies will need to describe how a student's GPA and 
pace of completion are affected by transfers of credit from other 
institutions. This provision will also require institutions to count 
credit hours from another institution that are accepted toward a 
student's educational program as both attempted and completed hours.
    Section 668.34(a)(7) provides that, except as permitted in Sec.  
668.34(c) and (d), the policy requires that, at the time of each 
evaluation, if the student is not making satisfactory academic 
progress, the student is no longer eligible to receive the title IV, 
HEA assistance.
    Section 668.34(a)(8) requires institutions that use ``financial aid 
warning'' and ``financial aid probation'' statuses (concepts that are 
defined in Sec.  668.34(b)) in connection with satisfactory academic 
progress evaluations to describe these statuses and how they are used 
in their satisfactory academic progress policies. Section 
668.34(a)(8)(i) specifies that a student on financial aid warning may 
continue to receive assistance under the title IV, HEA programs for one 
payment period despite a determination that the student is not making 
satisfactory academic progress. Financial aid warning status may be 
assigned without an appeal or other action by the student. Section 
668.34(a)(8)(ii) makes clear that an institution with a satisfactory 
academic progress policy that includes the use of the financial aid 
probation status could require that a student on financial aid 
probation fulfill specific terms and conditions, such as taking a 
reduced course load or enrolling in specific courses.
    Section 668.34(a)(9) will require an institution that permits a 
student to appeal a determination that the student is not making 
satisfactory academic progress to describe the appeal process in its 
policy. The policy will need to contain specified elements. Section 
668.34(a)(9)(i) will require an institution to describe how a student 
may re-establish his or her eligibility to receive assistance under the 
title IV, HEA programs.
    Under Sec.  668.34(a)(9)(ii), a student will be permitted to file 
an appeal based on the death of a relative, an injury or illness of the 
student, or other special circumstances. Under Sec.  668.34(a)(9)(iii), 
a student will be required to submit, as part of the appeal, 
information regarding why the student failed to make satisfactory 
academic progress, and what has changed in the student's situation that 
will allow the student to demonstrate satisfactory academic progress at 
the next evaluation.
    Section 668.34(a)(10) will require the satisfactory academic 
progress policy of an institution that does not permit students to 
appeal a determination that they are not making satisfactory academic 
progress, to describe how a student may regain eligibility for 
assistance under the title IV, HEA programs.
    Section 668.34(a)(11) will require that an institution's policy 
provide for notification to students of the results of an evaluation 
that impacts the student's eligibility for title IV, HEA program funds.
    We estimate that, on average, institutions will take 3 hours per 
institution to review the final regulations in Sec.  668.34(a) and 
implement any changes to their satisfactory academic policies to insure 
compliance. We estimate that 2,086 proprietary institutions will take 3 
hours per institution to review and implement the final regulations, 
which will result in an estimated increase of 6,258 hours in burden. We 
estimate that 1,731 private non-profit institutions will take 3 hours 
per institution to review and implement the final regulations, which 
will result in an estimated increase of 5,193 hours in burden. We 
estimate that 1,892 public institutions will take 3 hours per 
institution to review and implement the final regulations, which will 
result in an estimated increase of 5,676 hours in burden.
    Collectively, the final regulatory changes reflected in Sec.  
668.34(a) will increase burden by 17,127 hours.
    Section 668.34(c) and (d) will specify that an institution's policy 
may provide for disbursement of title IV, HEA program funds to a 
student who has not met an institution's satisfactory academic 
standards in certain circumstances. Of the 17 million applicants in 
2008-2009, we estimate that 90 percent (or 15,300,000 individuals) will 
begin attendance. We estimate that of the 15,300,000 individuals that 
begin attendance, that 90 percent (or 13,770,000 individuals) will 
persist at least through the end of the initial payment period and, 
therefore, will be subject to the institutions' satisfactory academic 
progress consistent with the provisions of Sec.  668.34. We estimate 
that 38 percent of participating institutions will evaluate their 
students at the end of each payment period under Sec.  668.34(c); 
therefore we expect 5,232,600 individuals to be evaluated more than 
annually (13,770,000 individuals multiplied 38 percent). We estimate 
that 62 percent of participating institutions will evaluate their 
students once per

[[Page 66937]]

academic year under Sec.  668.34(d); therefore, we expect 8,537,400 
individuals to be evaluated annually (13,770,000 individuals multiplied 
by 62 percent).
    Section 668.34(c) will permit an institution that measures 
satisfactory academic progress at the end of each payment period to 
have a policy that will permit a student who is not making satisfactory 
academic progress to be placed automatically on financial aid warning, 
a newly defined term. We estimate that, as a result of this 
requirement, the burden associated with an academic progress 
measurement at the end of each payment period, and when required, the 
development of an academic plan for the student, will increase. We 
estimate that 1,936,062 individuals at proprietary institutions will 
require an academic review more than once per academic year 
(proprietary institutions, which comprise 37 percent of the total 
number of institutions of higher education, multiplied by 5,232,600 
individuals). Given this number of individuals (1,936,062) and an 
average of 2 reviews per academic year under this requirement, we 
expect these institutions to conduct 3,872,124 satisfactory academic 
progress reviews. Because these academic progress reviews are generally 
highly automated, we estimate that, on average, each review will take 
.02 hours (1.2 minutes) and will increase burden by 77,442 hours.
    We estimate that 1,569,780 individuals at private non-profit 
institutions will require an academic review (private non-profit 
institutions, which comprise 30 percent of the total number of 
institutions of higher education, multiplied by 5,232,600 individuals). 
Given this number of individuals (1,569,780) and an average of 2 
reviews per academic year under this requirement, we expect these 
institutions to conduct 3,139,560 satisfactory academic progress 
reviews. Because these academic progress reviews are generally highly 
automated, we estimate that, on average, each review will take .02 
hours (1.2 minutes) and will increase burden by 62,791 hours.
    We estimate that 1,726,758 individuals at public institutions will 
require an academic review (public institutions, which comprise 33 
percent of the total number of institutions of higher education, 
multiplied by 5,232,600 individuals). Given this number of individuals 
(1,726,758) and an average of 2 reviews per academic year under this 
requirement, we expect these institutions to conduct 3,453,516 
satisfactory academic progress reviews. Because these academic progress 
reviews are generally highly automated, we estimate that, on average, 
each review will take .02 hours (1.2 minutes) and will increase burden 
by 69,070 hours.
    Collectively, we estimate that the burden for institutions under 
this requirement will increase by 209,303 hours, in OMB Control Number 
1845-NEW2.
    As a result of the final satisfactory academic progress reviews 
conducted by institutions, we estimate that 7 percent of the 5,232,600 
enrolled students (at institutions that review academic progress more 
often than annually) or 366,282 will not successfully achieve 
satisfactory academic progress. For these students, institutions will 
need to work with each student to develop an academic plan and this 
will increase burden for the individual and the institutions. We 
estimate that under Sec.  668.34(c), that 366,282 students will, on 
average, take .17 hours (10 minutes) to establish an academic plan for 
an increase of 62,268 burden hours and re-evaluate the plan a second 
time within the academic year for an additional increase of 62,268 
burden hours (2 times per academic year), increasing burden to 
individuals by a total of 124,536 hours.
    We estimate that 1,936,062 individuals at proprietary institutions 
will require the development of an academic plan as a result of not 
progressing academically (proprietary institutions, which comprise 37 
percent of the total number of institutions of higher education, 
multiplied by 5,232,600 individuals). Given this number of individuals 
(1,936,062) multiplied by 7 percent (which is our estimate for those 
who will not academically progress), we expect that 135,524 individuals 
will need to work with their institutions to develop an academic plan. 
We estimate that each academic plan will take, on average, .25 hours 
(15 minutes) of staff time at two times within the academic year, 
increasing burden by 67,762 hours.
    We estimate that 1,569,780 individuals at private non-profit 
institutions will require the development of an academic plan as a 
result of not progressing academically (private non-profit 
institutions, which comprise 30 percent of the total number of 
institutions of higher education, multiplied by 5,232,600 individuals). 
Given this number of individuals (1,569,780) multiplied by 7 percent 
(which is our estimate for those who will not academically progress), 
we expect that 109,885 individuals will need to work with their 
institutions to develop an academic plan. We estimate that each 
academic plan will take, on average, .25 hours (15 minutes) of staff 
time at two times within the academic year, increasing burden by 54,943 
hours.
    We estimate that 1,726,758 individuals at public institutions will 
require the development of an academic plan as a result of not 
progressing academically (public institutions, which comprise 33 
percent of the total number of institutions of higher education, 
multiplied by 5,232,600 individuals). Given this number of individuals 
(1,726,758) multiplied by 7 percent (which is our estimate for those 
who will not academically progress), we expect that 120,873 individuals 
will need to work with their institutions to develop an academic plan. 
We estimate that each academic plan will take, on average, .25 hours 
(15 minutes) of staff time at two times within the academic year, 
increasing burden by 60,437 hours.
    Collectively, therefore, we estimate that the burden for 
institutions will increase by 183,142 hours, in OMB Control Number 
1845-NEW2.
    Under Sec.  668.34(d), at an institution that measures satisfactory 
academic progress annually, or less frequently than at the end of each 
payment period, a student who has been determined not to be making 
satisfactory academic progress will be able to receive title IV, HEA 
program funds only after filing an appeal and meeting one of two 
conditions: (1) The institution has determined that the student should 
be able to meet satisfactory progress standards after the subsequent 
payment period, or (2) the institution develops an academic plan with 
the student that, if followed, will ensure that the student is able to 
meet the institution's satisfactory academic progress standards by a 
specific point in time.
    Because the final regulations will transfer the elements of an 
institution's satisfactory academic policy from Sec.  668.16(e) to 
Sec.  668.34, we are transferring the current burden estimate of 21,000 
hours from the current OMB Control Number 1845-0022 to OMB Control 
Number 1845-NEW2.
    We estimate that 3,158,838 individuals at proprietary institutions 
(proprietary institutions, which comprise 37 percent of the total 
number of institutions of higher education, multiplied by 8,537,400 
individuals) will require an academic review. Because the academic 
progress reviews are generally highly automated, we estimate that, on 
average, each review will take .02 hours (1.2 minutes) and will 
increase burden by 63,177 hours. We estimate that 2,561,220 individuals

[[Page 66938]]

at private non-profit institutions will require an academic review 
(private non-profit institutions, which comprise 30 percent of the 
total number of institutions of higher education, multiplied by 
8,537,400 individuals). Because the academic progress reviews are 
generally highly automated, we estimate that, on average, each review 
will take .02 hours (1.2 minutes) and will increase burden by 51,224 
hours.
    We estimate that 2,817,342 individuals at public institutions will 
require an academic review (public institutions, which comprise 33 
percent of the total number of institutions of higher education, 
multiplied by 8,537,400 individuals). Because the academic progress 
reviews are generally highly automated, we estimate that, on average, 
each review will take .02 hours (1.2 minutes) and will increase burden 
by 56,347 hours.
    Collectively, we estimate that the burden for institutions will 
increase by 170,748 hours, in OMB Control Number 1845-NEW2.
    As a result of the final satisfactory academic progress reviews 
conducted by the institutions, we estimate that 7 percent of the 
8,537,400 enrolled students (at institutions that review academic 
progress annually) or 597,618 will not successfully achieve 
satisfactory academic progress. For these students, institutions will 
need to work with each student to develop an academic plan and this 
will increase burden for the individual and the institutions. We 
estimate that under Sec.  668.34(d), 597,618 students will, on average, 
take .17 hours (10 minutes) to establish an academic plan, increasing 
burden to individuals by 101,595 hours.
    We estimate that 3,158,838 individuals at proprietary institutions 
will require the development of an academic plan as a result of not 
progressing academically (proprietary institutions, which comprise 37 
percent of the total number of institutions of higher education, 
multiplied by 8,537,400 individuals). Given this number of individuals 
(3,158,838) multiplied by 7 percent (which is our estimate for those 
who will not academically progress), we expect 221,119 individuals will 
need to work with their institutions to develop an academic plan. We 
estimate that each academic plan will take, on average, .25 hours (15 
minutes) of staff time, increasing burden by 55,280 hours.
    We estimate that 2,561,220 individuals at private non-profit 
institutions will require the development of an academic plan as a 
result of not progressing academically (private non-profit 
institutions, which comprise 30 percent of the total number of 
institutions of higher education, multiplied by 8,537,400 individuals). 
Given this number of individuals (2,561,220) multiplied by 7 percent 
(which is our estimate for those who will not academically progress), 
we expect 179,285 individuals will need to work with their institutions 
to develop an academic plan. We estimate that each academic plan will 
take, on average, .25 hours (15 minutes) of staff time, increasing 
burden by 44,821 hours.
    We estimate that 2,817,342 individuals at public institutions will 
require the development of an academic plan as a result of not 
progressing academically (public institutions, which comprise 33 
percent of the total number of institutions of higher education, 
multiplied by 8,537,400 individuals). Given this number of individuals 
(2,817,342) multiplied by 7 percent (our estimate for those who will 
not academically progress), we expect 197,214 individuals will need to 
work with their institutions to develop an academic plan. We estimate 
that each academic plan will take, on average, .25 hours (15 minutes) 
of staff time, increasing burden by 49,304 hours.
    Collectively, we estimate that the burden for institutions will 
increase by 149,405 hours, in OMB Control Number 1845-NEW2.
    In total, the final regulatory changes reflected in Sec.  668.34 
will increase burden by a total of 955,856 hours in OMB Control Number 
1845-NEW2; however, when the 21,000 hours of burden currently in OMB 
1845-0022 are administratively transferred from OMB 1845-0022 to OMB 
1845-NEW2, the grand total of burden hours under this section will 
increase to 976,856 in OMB 1845-NEW2.

Section 668.43--Institutional Information

    The Department has amended current Sec.  668.5(a) by revising and 
redesignating paragraph (a) as paragraph (a)(1) and adding a new 
paragraph (a)(2). Section 668.5(a)(1) is based on the language that is 
in current Sec.  668.5(a), but has been modified to make it consistent 
with the definition of an ``educational program'' in 34 CFR 600.2.
    Section 668.5(a)(2) specifies that if a written arrangement is 
between two or more eligible institutions that are owned or controlled 
by the same individual, partnership, or corporation, the institution 
that grants the degree or certificate must provide more than 50 percent 
of the educational program. These clarifications are also intended to 
ensure that the institution enrolling the student has all necessary 
approvals to offer an educational program in the format in which it is 
being provided, such as through distance education when the other 
institution is providing instruction under a written agreement using 
that method of delivery.
    Section 668.5(c)(1) includes an expanded list of conditions that 
will preclude an arrangement between an eligible institution and an 
ineligible institution.
    Sections 668.5(e) and 668.43 will require an institution that 
enters into a written arrangement to provide a description of the 
arrangement to enrolled and prospective students.
    We estimate that 104 proprietary institutions will enter into an 
average of 1 written arrangement per institution and that, on average, 
the burden associated with the information collections about written 
agreements and its disclosure required under Sec.  668.5(e) and 668.43 
will take .5 hours (30 minutes) per arrangement, increasing burden by 
52 hours.
    We estimate that 1,731 private non-profit institutions will enter 
into an average of 50 written arrangements per institution and that, on 
average, the burden associated with the final collection of information 
about written agreements and its disclosure will take .5 hours (30 
minutes) per arrangement, increasing burden by 43,275 hours.
    We estimate that 1,892 public institutions will enter into an 
average of 25 written arrangements per institution and that, on 
average, the burden associated with the final collection of information 
about written agreements and its disclosure will take .5 hours (30 
minutes) per arrangement, increasing burden by 23,650 hours.
    Collectively, we estimate that burden will increase for 
institutions in their reporting of the details of written agreements by 
66,977 hours in OMB Control Number 1845-0022.
    Currently, the Department requires that an institution must make 
available for review to any enrolled or prospective student upon 
request, a copy of the documents describing the institution's 
accreditation and its State, Federal, or tribal approval or licensing. 
The Department requires in Sec.  668.43(b) that the institution must 
also provide its students or prospective students with contact 
information for filing complaints with its accreditor and State 
approval or licensing entity.
    We estimate that 1,919 (or 92 percent of all 2,086 proprietary 
institutions) will have to begin providing contact information for 
filing complaints with accreditors, approval or licensing agencies. We 
estimate that the other 8 percent of proprietary institutions are

[[Page 66939]]

already providing this information. We estimate that on average, this 
disclosure will take .17 hours (10 minutes) per disclosure and that it 
will, therefore, increase burden to proprietary institutions by 326 
hours.
    We estimate that 1,593 (or 92 percent of all 1,731 private non-
profit institutions) will have to begin providing contact information 
for filing complaints with accreditors, approval or licensing agencies. 
We estimate that the other 8 percent of private non-profit institutions 
are already providing this information. We estimate that on average, 
this disclosure will take .17 hours (10 minutes) per disclosure and 
that it will, therefore, increase burden to private non-profit 
institutions by 271 hours.
    We estimate that 1,740 (or 92 percent of all 1,892 public 
institutions) will have to begin providing contact information for 
filing complaints with accreditors, approval or licensing agencies. We 
estimate that the other 8 percent of public institutions are already 
providing this information. We estimate that on average, this 
disclosure will take .17 hours (10 minutes) per disclosure and that it 
will, therefore, increase burden to proprietary institutions by 296 
hours.
    Collectively, we estimate that burden will increase for 
institutions in their reporting of the contact information for filing 
complaints to accreditors and approval or licensing agencies by 893 
hours in OMB Control Number 1845-0022.
    In total, the final regulatory changes reflected in Sec.  668.43 
will increase burden by 67,870 hours in OMB Control Number 1845-0022.

Section 668.55--Updating Information

    Section 668.55 will require an applicant to update all applicable 
changes in dependency status that occur throughout the award year, 
including changes in the applicant's household size and the number of 
those household members attending postsecondary educational 
institutions. We estimate that 1,530,000 individuals will update their 
household size or the number of household members attending 
postsecondary educational institutions and that, on average, reporting 
will take .08 hours (5 minutes) per individual, increasing burden by 
122,400 hours.
    We estimate that proprietary institutions will receive updated 
household size or the updated number of household members attending 
postsecondary educational institutions from 566,100 applicants. We 
estimate that each updated record will take .17 hours (10 minutes) to 
review, which will increase burden by 96,237 hours.
    We estimate that private non-profit institutions will receive 
updated household size or the updated number of household members 
attending postsecondary educational institutions from 459,000 
applicants. We estimate that each updated record will take .17 hours 
(10 minutes) to review, which will increase burden by 78,030 hours.
    We estimate that public institutions will receive updated household 
size or the updated number of household members attending postsecondary 
educational institutions from 504,900 applicants. We estimate that each 
updated record will take .17 hours (10 minutes) to review, which will 
increase burden by 85,833 hours.
    Collectively, we estimate that burden will increase for individuals 
and institutions as a result of being required to report updated 
household size and the updated number of household members attending 
postsecondary educational institutions by 382,500 hours in OMB Control 
Number 1845-0041, of which 122,400 hours is for individuals and 260,100 
hours is for institutions.
    This section also requires individuals to make changes to their 
FAFSA information if their marital status changes, but only at the 
discretion of the financial aid administrator because such an update is 
necessary to address an inequity or to reflect more accurately the 
applicant's ability to pay. As a result, we estimate that of the 
170,000 individuals that will have a change of marital status, we 
expect that this discretion will be applied in only ten percent of the 
cases, therefore, ten percent of the 170,000 estimated cases is 17,000 
cases that on average the reporting will take .08 hours (5 minutes) per 
individual, increasing burden by 1,360 hours.
    We estimate that proprietary institutions will receive updated 
marital status information from 6,290 applicants. We estimate that each 
updated record will take .17 hours (10 minutes) to review, which will 
increase burden by 1,069 hours.
    We estimate that private non-profit institutions will receive 
updated marital status information from 5,100 applicants. We estimate 
that each updated record will take .17 hours (10 minutes) to review, 
which will increase burden by 867 hours.
    We estimate that public institutions will receive updated marital 
status information from 5,610 applicants. We estimate that each updated 
record will take .17 hours (10 minutes) to review, which will increase 
burden by 954 hours.
    Collectively, we estimate that burden will increase for individuals 
and institutions in their reporting updated marital status information 
by 4,250 hours in OMB Control Number 1845-0041.
    Section 668.55 will also include a number of other changes to 
remove language that implements the marital status exception in the 
current regulations, including removing current Sec.  668.55(a)(3) and 
revising Sec.  668.55(b).
    In total, the final regulatory changes reflected in Sec.  668.55 
will increase burden by 386,750 hours in OMB Control Number 1845-0041.

Section 668.56--Information To Be Verified

    The Department will eliminate from the regulations the five items 
that an institution currently is required to verify for all applicants 
selected for verification. Instead, pursuant to Sec.  668.56(a), for 
each award year, the Secretary will specify in a Federal Register 
notice the FAFSA information and documentation that an institution and 
an applicant may be required to verify. The Department will then 
specify on an individual student's SAR and ISIR what information must 
be verified for that applicant.
    Currently, under OMB Control Number 1845-0041, there are 1,022,384 
hours of burden associated with the verification regulations of which 
1,010,072 hours of burden are a result of the data gathering and 
submission by each individual applicant selected for verification. This 
estimate was based upon the number of applicants in the 2002-2003 award 
year. Since then, the number of applicants has grown significantly to 
17.4 million applicants for the 2008-2009 award year, of which we 
project 5.1 million individual applicants to be selected for 
verification.
    The projected number of items to be verified under the final 
regulations is expected to be reduced from the current five required 
data elements to an average of three items per individual. This 
projected reduction in items to be verified will result in a reduction 
of burden per individual applicant. Also, as a result of collecting 
information to verify applicant data on this smaller average number of 
data elements (three items instead of five items), the average amount 
of time for the individual applicant to review verification form 
instructions, gather the data, respond on a form and submit a form and 
the supporting data will decrease from the current average of .20 hours 
(12 minutes) per individual to .12 hours (7

[[Page 66940]]

minutes), thus further reducing burden on the individual applicant.
    For example, when we consider the estimated 5.1 million 2008-2009 
applicants selected for verification at an average of .20 hours (12 
minutes) to collect and submit information, including supporting 
documentation for the five required data elements (which is the 
estimated amount of time that is associated with the requirements in 
current Sec.  668.56(a)), the requirements in that section yields a 
total burden of 1,020,000 hours added to OMB Control Number 1845-0041. 
However, under Sec.  668.56(b), where the number of verification data 
elements will be reduced to an average of three, the estimated 5.1 
million individuals selected for verification multiplied by the reduced 
average of .12 minutes (7 minutes) yields an increase of 612,000 hours 
in burden. Therefore, we will expect the burden to be 408,000 hours 
less than under the current regulations.
    As a result, for OMB reporting purposes, we estimate that the 
individuals, as a group, will have an increase in burden by 612,000 
hours in OMB Control Number 1845-0041 (rather than 1,020,000 hours).

Section 668.57--Acceptable Documentation

    We have made a number of technical and conforming changes 
throughout Sec.  668.57. We also have made the following substantive 
changes described in this section.
    Section 668.57(a)(2) will allow an institution to accept, in lieu 
of an income tax return or an IRS form that lists tax account 
information, the electronic importation of data obtained from the IRS 
into an applicant's online FAFSA.
    We also have amended Sec.  668.57(a)(4)(ii)(A) to accurately 
reflect that, upon application, the IRS grants a six-month extension 
beyond the April 15 deadline rather than the four-month extension 
currently stated in the regulations.
    Under Sec.  668.57(a)(5), an institution may require an applicant 
who has been granted an extension to file his or her income tax return 
to provide a copy of that tax return once it has been filed. If the 
institution requires the applicant to submit the tax return, it will 
need to re-verify the AGI and taxes paid of the applicant and his or 
her spouse or parents when the institution receives the return.
    Section 668.57(a)(7) clarifies that an applicant's income tax 
return that is signed by the preparer or stamped with the preparer's 
name and address must also include the preparer's Social Security 
number, Employer Identification Number or the Preparer Tax 
Identification Number.
    Section 668.57(b) and (c) remain substantively unchanged.
    We have deleted current Sec.  668.57(d) regarding acceptable 
documentation for untaxed income and benefits and replaced it with a 
new Sec.  668.57(d). This new section provides that, if an applicant is 
selected to verify other information specified in an annual Federal 
Register notice, the applicant must provide the documentation specified 
for that information in the Federal Register notice.
    Currently under OMB Control Number 1845-0041, there are 1,022,384 
hours of burden associated with the verification regulations, of which 
12,312 hours are attributable to institutions of higher education to 
establish their verification policies and procedures. Under Sec.  
668.57, we estimate that, on average, institutions will take .12 hours 
(7 minutes) per applicant selected for verification to review and take 
appropriate action based upon the information provided by the 
applicant, which in some cases may mean correcting applicant data or 
having the applicant correct his or her data. Under current Sec.  
668.57, when we consider the significant increase to 17.4 million 
applicants in the 2008-2009 award year, of which 5.1 million will be 
selected for verification at an average of .20 hours (12 minutes) per 
verification response received from applicants by the institutions for 
review, the total increase in burden will be 1,020,000 additional 
hours. However, under Sec.  668.57, both the average number of items to 
be verified will be reduced from five items to three items, as well as 
the average amount of time to review will decrease from .20 hours (12 
minutes) to .12 hours (7 minutes). Therefore, the burden to 
institutions will be 612,000 burden hours (that is, 5.1 million 
multiplied by .12 hours (7 minutes))--rather than 1,020,000 burden 
hours (i.e., 5.1 million applicants multiplied by .20 hours (12 
minutes)). Thus, as compared to the burden under the current 
regulations, using the number of applicants from 2008-2009--17.4 
million--there will be 408,000 fewer burden hours for institutions.
    We estimate 226,440 hours of increased burden for proprietary 
institutions (2,086 proprietary institutions of the total 5,709 
affected institutions or 37 percent multiplied by 5,100,000 applicants 
equals 1,887,000 applicants multiplied by .12 hours (7 minutes)).
    We estimate 183,600 hours of increased burden for private non-
profit institutions (1,731 private non-profit institutions of the total 
5,709 affected institutions or 30 percent multiplied by 5,100,000 
applicants equals 1,530,000 applicants multiplied by .12 hours (7 
minutes)).
    We estimate 201,960 hours of increased burden for public 
institutions (1,892 public institutions of the total 5,709 affected 
institution or 33 percent multiplied by 5,100,000 applicants multiplied 
by .12 hours (7 minutes)).
    As a result, for OMB reporting purposes, collectively there will be 
a projected increase of 612,000 hours of burden for institutions in OMB 
Control Number 1845-0041.

Section 668.59--Consequences of a Change in FAFSA Information

    We have amended Sec.  668.59 by removing all allowable tolerances 
and requiring instead that an institution submit to the Department all 
applicable changes to an applicant's FAFSA information resulting from 
verification for those applicants receiving assistance under any of the 
subsidized student financial assistance programs (see Sec.  668.59(a)).
    Under Sec.  668.59(b), for the Federal Pell Grant program, once the 
applicant provides the institution with the corrected SAR or ISIR, the 
institution will be required to recalculate the applicant's Federal 
Pell Grant and disburse any additional funds, if additional funds are 
payable. If the applicant's Federal Pell Grant will be reduced as a 
result of verification, the institution will be required to eliminate 
any overpayment by adjusting subsequent disbursements or reimbursing 
the program account by requiring the applicant to return the 
overpayment or making restitution from its own funds (see Sec.  
668.59(b)(2)(ii)).
    Section 668.59(c) provides that, for the subsidized student 
financial assistance programs, excluding the Federal Pell Grant 
Program, if an applicant's FAFSA information changes as a result of 
verification, the institution must recalculate the applicant's EFC and 
adjust the applicant's financial aid package on the basis of the EFC on 
the corrected SAR or ISIR.
    With the exception of minor technical edits, Sec.  668.59(d), which 
describes the consequences of a change in an applicant's FAFSA 
information, remains substantively the same as current Sec.  668.59(d).
    Finally, we have removed current Sec.  668.59(e), the provision 
that requires an institution to refer to the Department unresolved 
disputes over the accuracy

[[Page 66941]]

of information provided by the applicant if the applicant received 
funds on the basis of that information.
    Both individuals (students) and institutions will be making 
corrections to FAFSA information as a result of the verification 
process. We estimate that 30 percent of the 17,000,000 applicants or 
5,100,000 individuals (students) will be selected for verification. Of 
those 5,100,000 individuals, students will submit, on average, 1.4 
changes in FAFSA information as a result of verification for 7,140,000 
changes, which will take an average of .12 hours (7 minutes) per 
change, increasing burden to individuals by 856,800 hours.
    We estimate that institutions will need to submit 10,200,000 
changes in FAFSA information as a result of verification (that is, 
5,100,000 individuals selected for verification multiplied by 2.0 
changes, which is what we estimate will be the average per individual).
    Of the estimated total 10,200,000 changes, we estimate that 
3,774,000 changes to FAFSA information as a result of verification will 
occur at proprietary institutions, which will take an average of .12 
hours (7 minutes) per change, increasing burden by 452,880 hours.
    Of the estimated total 10,200,000 changes, we estimate that 
3,060,000 changes to FAFSA information as a result of verification will 
occur at private non-profit institutions, which will take an average of 
.12 hours (7 minutes) per change, increasing burden by 367,200 hours.
    Of the estimated total 10,200,000 changes, we estimate that 
3,366,000 changes to FAFSA information as a result of verification will 
occur at public institutions, which will take an average of .12 hours 
(7 minutes) per change, increasing burden by 403,920 hours.
    Collectively, therefore, the final regulatory changes reflected in 
Sec.  668.59 will increase for individuals and institutions by 
2,080,800 hours in OMB Control Number 1845-0041.

Section 668.144--Application for Test Approval

    We have clarified and expanded the requirements in current 
Sec. Sec.  668.143 and 668.144. In addition, we have consolidated all 
of the requirements for test approval in one section, Sec.  668.144. 
Paragraphs (a) and (b) of Sec.  668.144 describe the general 
requirement for test publishers and States to submit to the Secretary 
any test they wish to have approved under subpart J of part 668. 
Paragraph (c) of Sec.  668.144 describes the information that a test 
publisher must include with its application for approval of a test. 
Paragraph (d) of Sec.  668.144 describes the information a State must 
include with its application when it submits a test to the Secretary 
for approval.
    Section 668.144(c)(16) will require test publishers to include in 
their applications a description of their test administrator 
certification process. Under Sec.  668.144(c)(17), we will require test 
publishers to include in their applications, a description of the test 
anomaly analysis the test publisher will conduct and submit to the 
Secretary.
    Finally, Sec.  668.144(c)(18) will require test publishers to 
include in their applications a description of the types of 
accommodations available for individuals with disabilities, including a 
description of the process used to identify and report when 
accommodations for individuals with disabilities were provided.
    We have added Sec.  668.144(d) to describe what States must include 
in their test submissions to the Secretary. While this provision 
replaces the content in current Sec.  668.143, its language has been 
revised to be parallel, where appropriate, to the test publisher 
submission requirements in current Sec.  668.144. In addition to making 
these requirements parallel, Sec.  668.144(d) also includes the new 
requirements to be added to the test publisher submissions. A 
description of those new provisions follows:
    Both test publishers and States will be required to submit a 
description of their test administrator certification process that 
indicates how the test publisher or State, as applicable, will 
determine that a test administrator has the necessary training, 
knowledge, skills and integrity to test students in accordance with 
requirements and how the test publisher or the State will determine 
that the test administrator has the ability and facilities to keep its 
test secure against disclosure or release (see Sec.  668.144(c)(16) 
(test publishers) and Sec.  668.144(d)(7) (States)).
    We estimate that a test publisher and State will, on average, take 
2.5 hours to develop its process to establish that a test administrator 
has the necessary training, knowledge, skills and integrity to 
administer ability-to-benefit (ATB) tests and then to report that 
process to the Secretary.
    We estimate that the burden associated with the currently approved 
eight (8) ATB tests will increase for the test publishers and States by 
20 hours.
    The regulations will require both test publishers and States to 
submit a description of the test anomaly analysis they will conduct. 
This description must include a description of how they will identify 
potential test irregularities and make a determination that test 
irregularities have occurred; an explanation of corrective action to be 
taken in the event of test irregularities; and information on when and 
how the Secretary, test administrator, and institutions will be 
notified if a test administrator is decertified (see Sec.  
668.144(c)(17) (test publishers) and Sec.  668.144(d)(8) (States)).
    We estimate that each test publisher and State will, on average, 
take 75 hours to develop its test anomaly process, to establish its 
test anomaly analysis (where it explains its test irregularity 
detection process including its decertification of test administrator 
process) and to establish its reporting process to the Secretary. We 
estimate that the burden associated with the currently approved eight 
(8) ATB tests will increase for the test publishers and States by 600 
hours.
    Under Sec.  668.144(c)(18) and (d)(9) respectively, both test 
publishers and States will be required to describe the types of 
accommodations available for individuals with disabilities, and the 
process for a test administrator to identify and report to the test 
publisher when accommodations for individuals with disabilities were 
provided. We estimate that test publishers and States will, on average, 
take 1 hour to develop and describe to the Secretary the types of 
accommodations available to individuals with disabilities, to describe 
the process the test administrator will use to support the 
identification of the disability and to develop the process to report 
when accommodations will be used.
    We estimate that the burden associated with the currently approved 
eight (8) ATB tests will increase for the current test publishers by 8 
hours.
    Collectively, the final regulatory changes in Sec.  668.144 will 
increase burden for test publishers and States by 628 hours in OMB 
1845-0049.

Section 668.150--Agreement Between the Secretary and a Test-Publisher 
or a State

    Section 668.150 provides that States, as well as test publishers, 
must enter into agreements with the Secretary in order to have their 
tests approved.
    We also have revised this section to require both test publishers 
and States to comply with a number of new requirements that will be 
added to the agreement with the Secretary.
    These requirements will include:
    Requiring the test administrators that they certify to provide them 
with certain information about whether they have been decertified (see 
Sec.  668.150(b)(2)).

[[Page 66942]]

We estimate that 3,774 individuals (test administrators) will take, on 
average, .17 hours (10 minutes) to access, read, complete and submit 
the written certification to a test publisher or State, which will 
increase burden by 642 hours.
    We estimate that it will take each test publisher or State 1 hour 
per test submission to develop its process to obtain a certification 
statement from each prospective test administrator, which will increase 
burden by 8 hours.
    We estimate that the review of the submitted written certifications 
by the test publishers or States for the 3,774 test administrators will 
take, on average, .08 hours (5 minutes) per certification form, which 
will increase burden by 302 hours.
    With regard to the requirement to immediately notify the test 
administrator, the Secretary, and institutions when the test 
administrator is decertified (see Sec.  668.150(b)(6)), we estimate 
that 1 percent of the 3,774 test administrators will be decertified. We 
estimate that it will take test publishers and States, on average, 1 
hour per decertification to provide all of the final notifications, 
which will increase burden for test publishers and States by 38 hours.
    With regard to the requirement to review test results of tests 
administered by a decertified test administrator and immediately to 
notify affected institutions and students (see Sec.  668.150(b)(7)), we 
estimate that burden will increase. We estimate that 481,763 ATB tests 
will be taken for title IV, HEA purposes annually. Of the annual total 
of ATB tests provided, we estimate that 1 percent will be improperly 
administered and that 4,818 individuals will be contacted, which will 
take, on average, .25 hours (15 minutes) per individual. As a result, 
we estimate that burden will increase to test publishers and States by 
1,205 hours.
    In addition, we estimate that it will take test publishers and 
States, on average, 5 hours per ATB test submitted, to develop the 
process to determine when ATB tests have been improperly administered, 
which for 8 approved ATB tests will increase burden by 40 hours.
    We estimate that test publishers and States will, on average, take 
.33 hours (20 minutes) for each of the 4,818 estimated improperly 
administered ATB tests to make the final notifications to institutions, 
students and prospective students, which will increase burden by 1,590 
hours.
    We estimate that 38 test administrators (1 percent of the 3,774 
test administrators) will be decertified. Of the 38 decertified test 
administrators, we estimate that 1 previously de-certified test 
administrator (2 percent of 38 test administrators) will be re-
certified after a three-year period and, therefore, reported to the 
Secretary. We estimate the burden for test publishers and States for 
this reporting will be 1 hour. We project that it will be very rare 
that a decertified test administrator will seek re-certification after 
the three-year decertification period.
    Under Sec.  668.150(b)(13), test publishers and States must provide 
copies of test anomaly analysis every 18 months instead of every 3 
years. We estimate that it will take a test publisher or State, on 
average, 75 hours to conduct its test anomaly analysis and report the 
results to the Secretary every 18 months. We estimate the burden on 
test publishers and States for the submission of the 8 test anomaly 
analysis every 18 months will be 600 hours.
    Under Sec.  668.150(b)(15), test publishers and States will be 
required to report to the Secretary any credible information indicating 
that a test has been compromised (see Sec.  668.150(b)(15)). We 
estimate that 481,763 ATB tests for title IV, HEA purposes will be 
given on an annual basis. Of that total number ATB tests given, we 
estimate that 482 ATB tests will be compromised. On average, we 
estimate that test publishers and States will take 1 hour per test to 
collect the credible information to make the determination that a test 
will be compromised and report it to the Secretary. We estimate that 
burden will increase by 482 hours.
    Section 668.150(b)(16) will require test publishers and States to 
report to the Office of Inspector General of the Department of 
Education any credible information indicating that a test administrator 
or institution may have engaged in civil or criminal fraud or other 
misconduct. We estimate that 481,763 ATB tests for title IV, HEA 
purposes will be given on an annual basis. Of that total number ATB 
tests given, we estimate that 482 ATB tests will be compromised. On 
average, we estimate that test publishers or States will take 1 hour 
per test to collect the credible information to make the determination 
that a test administrator or institution may have engaged in fraud or 
other misconduct and report it to the U.S. Department of Education's 
Office of the Inspector General. We estimate that, as a result of this 
requirement, burden will increase by 482 hours.
    Section 668.150(b)(17) requires a test administrator who provides a 
test to an individual with a disability who requires an accommodation 
in the test's administration to report to the test publisher or the 
State the nature of the disability and the accommodations that were 
provided. Census data indicate that 12 percent of the U.S. population 
is severely disabled. We estimate that 12 percent of the ATB test 
population (481,763 ATB test takers) or 57,812 of the ATB test takers 
will be individuals with disabilities that will need accommodations for 
an ATB test. We estimate that it will take .08 hours (5 minutes) to 
report the nature of the disability and any accommodation that the test 
administrator made for the test taker, increasing burden by 4,625 
hours.
    We estimate that, on average, test publishers and States will take 
2 hours per ATB test to develop the process for having test 
administrators report the nature of the test taker's disability and any 
accommodations provided. We expect this to result in an increase burden 
for test publishers and States by 16 hours (2 hours multiplied by 8 ATB 
tests).
    Collectively, the final changes reflected in Sec.  668.150 will 
increase burden by 10,031 hours in OMB Control Number 1845-0049.

Section 668.151--Administration of Tests

    Section 668.151(g)(4) will require institutions to keep a record of 
each individual who took an ATB test and the name and address of the 
test administrator who administered the test and any identifier 
assigned to the test administrator by the test publisher or the State.
    We estimate that 481,763 ATB tests for title IV, HEA purposes will 
be given on an annual basis. We estimate that proprietary institutions 
will give 173,445 tests (36 percent of those ATB tests) and that, on 
average, the amount of time to record the test takers' name and address 
as well as the test administrators' identifiers will be .08 hours (5 
minutes) per test, increasing burden for proprietary institutions by 
13,876 hours.
    We estimate that private non-profit institutions will give 149,347 
tests (31 percent of the total annual ATB tests given) and that, on 
average, the amount of time to record the test takers' name and 
address, as well as the test administrators' identifiers will be .08 
hours (5 minutes) per test, increasing burden for private non-profit 
institutions by 11,948 hours.
    We estimate that public institutions will give 158,962 tests (33 
percent of the total annual ATB tests given) and that, on average, the 
amount of time to record the test takers' name and address as well as 
the test administrators' identifiers

[[Page 66943]]

will be .08 hours (5 minutes) per test, increasing burden for public 
institutions by 12,717 hours.
    If the individual who took the test has a disability and is unable 
to be evaluated by the use of an approved ATB test, or the individual 
requested or required a testing accommodation, the institution will be 
required, under Sec.  668.151(g)(5), to maintain documentation of the 
individual's disability and of the testing arrangements provided. 
Census data indicate that 12 percent of the U.S. population is severely 
disabled. We estimate that 12 percent of the ATB test population 
(481,763 ATB test takers) or 57,812 of the ATB test takers will be 
individuals with disabilities that will need accommodations for the ATB 
test. We estimate that it will take .08 hours (5 minutes) to collect 
and maintain documentation of the individual's disability and of the 
testing accommodations provided to the test taker.
    We estimate that proprietary institutions will give 20,812 tests 
(36 of the total annual ATB tests given), resulting in an increase in 
burden for proprietary institutions by 1,665 hours (20,812 tests 
multiplied by .08 hours).
    We estimate that private non-profit institutions will give 17,922 
tests (31 percent of the total annual ATB tests given), resulting in an 
increase in burden for private non-profit institutions by 1,434 hours 
(17,922 tests multiplied by .08 hours).
    We estimate that public institutions will give 19,078 tests (33 
percent of the total annual ATB tests given), resulting in an increase 
in burden for public institutions by 1,526 hours (19,078 tests 
multiplied by .08 hours).
    Collectively, the final regulatory changes reflected in Sec.  
668.151 will increase burden by 43,166 hours in OMB Control Number 
1845-0049.

Section 668.152--Administration of Tests by Assessment Centers

    Section 668.152(a) clarifies that assessment centers are also 
required to comply with the provisions of Sec.  688.153 (Administration 
of tests for individuals whose native language is not English or for 
individuals with disabilities), if applicable.
    Under Sec.  668.152(b)(2), assessment centers that score tests will 
be required to provide copies of completed tests or lists of test-
takers' scores to the test publisher or the State, as applicable, on a 
weekly basis. Under Sec.  668.152(b)(2)(i) and (b)(2)(ii), copies of 
completed tests or reports listing test-takers' scores will be required 
to include the name and address of the test administrator who 
administered the test and any identifier assigned to the test 
administrator by the test publisher or the State.
    We estimate that of the 3,774 ATB test administrators approximately 
one-third (.3328 times 3,774) or 1,256 of the ATB test administrators 
are at test assessment centers. Of the 1,256 test assessment centers, 
we estimate that 18 percent or 226 test assessment centers are at 
private non-profit institutions and 82 percent or 1,030 test assessment 
centers are at public institutions. We estimate that 92 percent of the 
ATB tests provided at test assessment centers are scored by the test 
administrators. Therefore, under the regulations, the institution will 
be required to maintain the scored ATB tests, to collect and submit 
copies of the completed ATB tests or a listing to the test publisher or 
State on a weekly basis, while the other 8 percent will not be impacted 
by these regulations. We estimate that, on average, it will take .08 
hours (5 minutes) per week for the test assessment center (institution) 
to collect and submit the final information.
    For the 226 test assessment centers at private non-profit 
institutions, we expect 940 hours of increased annual burden (226 test 
assessment centers multiplied by .08 hours (5 minutes) and then 
multiplied by 52 weeks in a year).
    For the 1,030 test assessment centers at public institutions, we 
expect 4,285 hours of increased annual burden (1,030 test assessment 
centers multiplied by.08 hours (5 minutes) and then multiplied by 52 
weeks in a year).
    Collectively, the final regulatory changes reflected in Sec.  
668.152 will increase burden by 5,225 hours in OMB Control Number 1845-
0049.

Section 668.164--Disbursing Funds

    Under Sec.  668.164(i), an institution will provide a way for a 
Federal Pell Grant eligible student to obtain or purchase required 
books and supplies by the seventh day of a payment period under certain 
conditions. An institution will have to comply with this requirement 
only if, 10 days before the beginning of the payment period, the 
institution could disburse the title IV, HEA program funds for which 
the student is eligible, and presuming that those funds were disbursed, 
the student will have a title IV, HEA credit balance under Sec.  
668.164(e). The amount the institution will provide to the student for 
books and supplies will be the lesser of the presumed credit balance or 
the amount needed by the student, as determined by the institution. In 
determining the amount needed by the student, the institution could use 
the actual costs of books and supplies or the allowance for books and 
supplies used in the student's cost of attendance for the payment 
period.
    We estimate that of the 6,321,678 Federal Pell Grant recipients in 
the 2008-2009 award year, that approximately 30 percent or 1,896,503 
will have or did have a title IV, HEA credit balance. Of that number of 
Federal Pell Grant recipients, we estimate that 25 percent or 474,126 
Federal Pell Grant recipients will have a presumed credit balance 10 
days prior to the beginning of the payment period, and as final, that 
the institution will have to provide a way for those recipients to 
either obtain or purchase their books and supplies within 7 days of the 
beginning of the payment period.
    We estimate that the 2,063 proprietary institutions participating 
in the Federal Pell Grant program will take, on average 3 hours per 
institution to analyze and make programming change needed to identify 
these recipients with presumed credit balances, increasing burden by 
6,189 hours. Additionally, we estimate that proprietary institutions 
will be required to disburse the presumed credit balance to 38 percent 
of the 474,126 at proprietary institutions (180,168 recipients), which 
on average, will take .08 hours (5 minutes) per recipient, increasing 
burden by 14,413 hours.
    We estimate that the 1,523 private non-profit institutions 
participating in the Federal Pell Grant program will take, on average, 
3 hours per institution to analyze and make programming change needed 
to identify these recipients with presumed credit balances, increasing 
burden by 4,569 hours. Additionally, we estimate that private non-
profit institutions will be required to disburse the presumed credit 
balance to 28 percent of the 474,126 at proprietary institutions 
(132,755 recipients) which on average, will take .08 hours (5 minutes) 
per recipient, increasing burden by 10,620 hours.
    We estimate that the 1,883 public institutions participating in the 
Federal Pell Grant program will take, on average 3 hours per 
institution to analyze and make programming change needed to identify 
these recipients with presumed credit balances, increasing burden by 
5,649 hours. Additionally, we estimate that proprietary institutions 
will be required to disburse the presumed credit balance to 34 percent 
of the 474,126 at proprietary institutions (161,203 recipients) which 
on average, will take .08 hours (5 minutes) per recipient, increasing 
burden by 12,896 hours.

[[Page 66944]]

    Collectively, the final regulatory changes reflected in Sec.  
668.164 will increase burden by 54,336 hours in OMB Control Number 
1845-NEW3.

                        Collection of Information
------------------------------------------------------------------------
      Regulatory Section        Information collection     Collection
------------------------------------------------------------------------
668.6.........................  This regulatory         OMB 1845-NEW1.
                                 section will require    This will be a
                                 institutions to         new collection.
                                 report for each         Separate 60-day
                                 student who during an   and 30-day
                                 award year began        Federal
                                 attending or            Register
                                 completed a program     notices were
                                 that prepares a         published to
                                 student for gainful     solicit
                                 employment              comment. The
                                 information needed to   burden will
                                 identify the student    increase by
                                 and the location of     677,160 hours.
                                 the institution the
                                 student attended, the
                                 CIP code for the
                                 program, the date the
                                 student completed the
                                 program, the amounts
                                 the student received
                                 from private
                                 educational loans and
                                 the amount from
                                 institutional
                                 financing plans that
                                 the student owes the
                                 institution after
                                 completing the
                                 program, and whether
                                 the student
                                 matriculated to a
                                 higher credentialed
                                 program at the same
                                 institution or
                                 another institution.
                                 Institutions will
                                 have to disclose
                                 information to
                                 prospective students
                                 about the occupations
                                 (by names and SOC
                                 codes) that its
                                 programs prepare
                                 students to enter,
                                 along with links to
                                 occupational profiles
                                 on O-NET or its
                                 successor site, or if
                                 the number of
                                 occupations related
                                 to the programs on O-
                                 Net is more than ten
                                 (10), the institution
                                 may provide Web links
                                 to a representative
                                 sample of the SOCs
                                 for which its
                                 graduates typically
                                 find employment
                                 within a few years
                                 after completing the
                                 program. In addition,
                                 the institution will
                                 also have to report
                                 the on-time
                                 graduation rate for
                                 students entering the
                                 program; the total
                                 amount of tuition and
                                 fees it charges a
                                 student for
                                 completing the
                                 program within the
                                 normal timeframe, the
                                 typical costs for
                                 books and supplies,
                                 and the typical costs
                                 for room and board,
                                 if applicable. The
                                 institution may
                                 include information
                                 on other costs, such
                                 as transportation and
                                 living expenses, but
                                 it must provide a Web
                                 link, or access, to
                                 the program cost
                                 information the
                                 institution makes
                                 available under Sec.
                                  668.43(a). Beginning
                                 July 1, 2011, the
                                 institution must
                                 provide prospective
                                 students with the
                                 placement rate for
                                 students completing
                                 the program, as
                                 determined by the
                                 institution's
                                 accrediting agency or
                                 State requirements,
                                 until NCES develops
                                 and makes available a
                                 new placement rate,
                                 and the median loan
                                 debt incurred by
                                 students who
                                 completed the
                                 program, as provided
                                 by the Secretary, as
                                 well as other
                                 information the
                                 Secretary provided to
                                 the institution about
                                 the program.
                                 Separately, the
                                 institution must
                                 identify the median
                                 loan dept from title
                                 IV, HEA program
                                 loans, and the median
                                 loan debt from
                                 private educational
                                 loan and
                                 institutional
                                 financing plans.
668.8.........................  This regulatory         OMB 1845-0022.
                                 section provides for    The burden will
                                 a new conversion        increase by
                                 ratio when converting   18,349 hours.
                                 clock hours to credit
                                 hours. As finalized,
                                 this section will
                                 include an exemption
                                 for affected
                                 institutions if the
                                 accrediting agency or
                                 the State approval
                                 agency finds that
                                 there are no
                                 deficiencies in the
                                 institutions policies
                                 and procedures for
                                 these conversions.
                                 Under the exception,
                                 the institution will
                                 use a lower ratio and
                                 could consider
                                 student's outside
                                 work in the total
                                 hours being converted
                                 to credit hours.
                                 Burden will increase
                                 for proprietary, not-
                                 for profit and public
                                 institutions when
                                 they measure whether
                                 certain programs when
                                 converted from clock
                                 hours to credit hours
                                 have sufficient
                                 credit hours to
                                 receive title VI, HEA
                                 funds.
668.16........................  This regulatory         OMB 1845-0022
                                 section will be         and OMB 1845-
                                 streamlined by moving   NEW2. The
                                 most of the elements    burden hours
                                 of satisfactory         attributable to
                                 academic progress       SAP in OMB 1845-
                                 (SAP) from this         0022 will be
                                 section to Sec.         administrativel
                                 668.34. Under this      y transferred
                                 proposal, the           to OMB 1845-
                                 required elements of    NEW2.
                                 SAP will be expanded    Additionally,
                                 to provide greater      the burden will
                                 institutional           increase by
                                 flexibility. Burden     21,982 hours in
                                 will increase for       OMB 1845-0022.
                                 proprietary, not-for
                                 profit and public
                                 institutions to
                                 develop a high school
                                 diploma validity
                                 process and will
                                 increase when certain
                                 diplomas are verified.
668.22........................  This regulatory         OMB 1845-0022.
                                 section will consider   The burden will
                                 a student to have       increase by
                                 withdrawn if the        743,881 hours.
                                 student does not
                                 complete all the days
                                 in the payment period
                                 or period of
                                 enrollment that the
                                 student was scheduled
                                 to complete prior to
                                 withdrawing. Burden
                                 will increase for
                                 individuals,
                                 proprietary, not-for
                                 profit and public
                                 institutions when
                                 students in term-
                                 based programs with
                                 modules or compressed
                                 courses withdraw
                                 before completing
                                 more than 60 percent
                                 of the payment period
                                 or period of
                                 enrollment for which
                                 a calculation will be
                                 performed to
                                 determine the earned
                                 and unearned portions
                                 of title IV, HEA
                                 program assistance.
668.34........................  This regulatory         OMB 1845-NEW2.
                                 section has been        This will be a
                                 restructured and the    new collection.
                                 satisfactory academic   Separate 60-day
                                 progress requirements   and 30-day
                                 have been expanded to   Federal
                                 allow for more          Register
                                 frequent measuring of   notices were
                                 SAP. Burden will        published to
                                 increase for            solicit
                                 individuals and         comment. The
                                 proprietary, not-for    burden will
                                 profit and public       increase by
                                 institutions for        976,856 hours.
                                 institutions to
                                 measure academic
                                 progress and when
                                 academic plans or
                                 alternatives will be
                                 provided to students
                                 who do not meet the
                                 institution's
                                 academic standards.

[[Page 66945]]

 
668.43........................  This regulatory         OMB 1845-0022.
                                 section will require    The burden will
                                 that for institutions   increase by
                                 that enter into         67,870 hours.
                                 written arrangements
                                 with other
                                 institutions to
                                 provide for a portion
                                 of its programs'
                                 training by the
                                 institution that is
                                 not providing the
                                 degree or
                                 certificate, the
                                 institution providing
                                 the degree or
                                 certificate must
                                 provide a variety of
                                 disclosures to
                                 enrolled and
                                 prospective students
                                 about the written
                                 arrangements. Burden
                                 will increase for
                                 proprietary, not-for
                                 profit and public
                                 institutions for
                                 reporting the details
                                 of written
                                 arrangements with
                                 other institutions
                                 offering a portion of
                                 a student's program
                                 of study.
668.55........................  This regulatory         OMB 1845-0041.
                                 provision will          The burden will
                                 require that all        increase by
                                 updated applicant       386,750 hours.
                                 data information as a
                                 result of
                                 verification be
                                 reported to the
                                 Secretary via the
                                 Central Processing
                                 System. This also
                                 will cover changes
                                 made as a result of a
                                 dependent student
                                 becoming married
                                 during the award year
                                 when a financial aid
                                 administrator
                                 exercises their
                                 discretion to require
                                 marital status change
                                 to address an
                                 inequity or
                                 accurately reflect
                                 the student's ability
                                 to pay, such change
                                 in status due to
                                 marriage had
                                 previously been
                                 prohibited.
668.56........................  This regulation         OMB 1845-0041.
                                 changes from the        The burden will
                                 current five            increase by
                                 mandatory items         612,000 hours.
                                 included in the
                                 verification process
                                 to a more flexible
                                 list of items that
                                 will be selected on
                                 an individualized
                                 basis. For example,
                                 there is no need to
                                 verify data that can
                                 be obtained directly
                                 from the IRS. Burden
                                 will increase for
                                 individuals; however,
                                 the average number of
                                 data elements to be
                                 verified is expected
                                 to be reduced.
668.57........................  This final regulatory   OMB 1845-0041.
                                 provision will modify   The burden will
                                 the requirements        increase by
                                 related to acceptable   612,000 hours.
                                 documentation
                                 required as a part of
                                 the verification
                                 process. It will
                                 allow for the
                                 importation of data
                                 obtained directly
                                 from the IRS that has
                                 been unchanged and
                                 will provide other
                                 flexibilities that
                                 will reduce burden;
                                 however, due to the
                                 large increase in
                                 applicants, there
                                 will be an overall
                                 increase in burden.
668.59........................  This provision          OMB 1845-0041.
                                 eliminates all          The burden will
                                 allowable tolerances    increase by
                                 and will require an     2,080,800
                                 institution to submit   hours.
                                 to the Department all
                                 changes to an
                                 applicant's FAFSA as
                                 a result of
                                 verification. Burden
                                 will increase for
                                 proprietary, not-for
                                 profit and public
                                 institutions that
                                 will recalculate
                                 title IV, HEA awards
                                 as a result of data
                                 changes due to
                                 verification.
668.144.......................  This regulatory         OMB 1845-0049.
                                 section expands the     The burden will
                                 required elements       increase by 628
                                 that a test publisher   hours.
                                 or a State must
                                 submit to the
                                 Secretary for
                                 approval.
668.150.......................  This provision expands  OMB 1845-0049.
                                 the provisions of the   The burden will
                                 agreement between the   increase by
                                 Secretary and the       10,031 hours.
                                 ability to benefit
                                 test (ATB) publishers
                                 or a State. The
                                 expanded provisions
                                 include requiring
                                 test administrators
                                 to certify that they
                                 have not been
                                 decertified,
                                 notification
                                 requirements when a
                                 test administrator is
                                 decertified, and
                                 providing test
                                 anomaly studies every
                                 eighteen months
                                 rather than every 36
                                 months. Burden will
                                 increase for
                                 individuals,
                                 proprietary, not-for
                                 profit and public
                                 institutions for the
                                 collection and
                                 maintenance of
                                 certifications, for
                                 required
                                 notifications, and
                                 for submission of
                                 test anomaly studies.
668.151.......................  This provision will     OMB 1845-0049.
                                 require independent     The burden will
                                 test administrators     increase by
                                 to submit completed     43,166 hours.
                                 tests for scoring to
                                 the test publisher or
                                 the State in no more
                                 than two business
                                 days following the
                                 test. Institutions
                                 will be required to
                                 maintain a record of
                                 each individual who
                                 takes an ATB test and
                                 information about the
                                 test administrator.
                                 When the test taker
                                 has a disability, it
                                 will be the
                                 institution's
                                 responsibility to
                                 maintain
                                 documentation of the
                                 individual's
                                 disability and any
                                 accommodation
                                 provided the
                                 individual.
668.152.......................  This provision will     OMB 1845-0049.
                                 require that test       The burden will
                                 assessment centers      increase by
                                 provide either copies   5,225 hours.
                                 of the completed
                                 tests or lists of the
                                 test takers' scores,
                                 including the test
                                 administrator's name,
                                 address, and any
                                 other test
                                 administrator
                                 identifier to the
                                 test publisher or
                                 State, as applicable,
                                 on a weekly basis.
668.164.......................  This provision will     OMB 1845-NEW3.
                                 require that            This will be a
                                 institutions provide    new collection.
                                 a way for Federal       Separate 60-day
                                 Pell Grant program      and 30-day
                                 recipients to obtain    Federal
                                 or purchase books and   Register
                                 supplies by the         notices were
                                 seventh day of the      published to
                                 payment period if       solicit
                                 certain conditions      comment. The
                                 are met and a credit    burden will
                                 balance or projected    increase by
                                 credit balance          54,336 hours.
                                 exists. Burden will
                                 increase for
                                 proprietary, not-for
                                 profit and public
                                 institutions to
                                 identify and notify
                                 Pell recipients with
                                 a presumed credit
                                 balance about ways to
                                 obtain or purchase
                                 books and supplies.
------------------------------------------------------------------------

Intergovernmental Review

    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, and based on our own 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 can view this document, as well as all other documents of this 
Department published in the Federal Register, in text or Adobe Portable 
Document Format (PDF) on the Internet at the following site: http://www.ed.gov/news/fedregister. To use PDF, you must

[[Page 66946]]

have Adobe Acrobat Reader, which is available free at this site.

    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.gpoaccess.gov/nara/index/html.

(Catalog of Federal Domestic Assistance: 84.007 FSEOG; 84.032 
Federal Family Education Loan Program; 84.033 Federal Work-Study 
Program; 84.037 Federal Perkins Loan Program; 84.063 Federal Pell 
Grant Program; 84.069 LEAP; 84.268 William D. Ford Federal Direct 
Loan Program; 84.376 ACG/SMART; 84.379 TEACH Grant Program)

List of Subjects

34 CFR Part 600

    Colleges and universities, Foreign relations, Grant programs-
education, Loan programs-education, Reporting and recordkeeping 
requirements, Selective Service System, Student aid, Vocational 
education.

34 CFR Part 602

    Colleges and universities, Reporting and recordkeeping 
requirements.

34 CFR Part 603

    Colleges and universities, Vocational education.

34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs-education, 
Incorporation by reference, Loan programs-education, Reporting and 
recordkeeping requirements, Selective Service System, Student aid, 
Vocational education.

34 CFR Part 682

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

34 CFR Part 685

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

34 CFR Part 686

    Administrative practice and procedure, Colleges and universities, 
Education, Elementary and secondary education, Grant programs-
education, Reporting and recordkeeping requirements, Student aid.

34 CFR Part 690

    Colleges and universities, Education of disadvantaged, Grant 
programs-education, Reporting and recordkeeping requirements, Student 
aid.

34 CFR Part 691

    Colleges and universities, Elementary and secondary education, 
Grant programs-education, Student aid.

    Dated: October 18, 2010.
Arne Duncan,
Secretary of Education.

0
For the reasons discussed in the preamble, the Secretary amends parts 
600, 602, 603, 668, 682, 685, 686, 690, and 691 of title 34 of the Code 
of Federal Regulations as follows:

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

0
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.


0
2. Section 600.2 is amended by:
0
A. Adding, in alphabetical order, the definition of a Credit hour.
0
B. Revising the definition of Recognized occupation.
    The addition and revision read as follows:


Sec.  600.2  Definitions.

* * * * *
    Credit hour: Except as provided in 34 CFR 668.8(k) and (l), a 
credit hour is an amount of work represented in intended learning 
outcomes and verified by evidence of student achievement that is an 
institutionally established equivalency that reasonably approximates 
not less than--
    (1) One hour of classroom or direct faculty instruction and a 
minimum of two hours of out of class student work each week for 
approximately fifteen weeks for one semester or trimester hour of 
credit, or ten to twelve weeks for one quarter hour of credit, or the 
equivalent amount of work over a different amount of time; or
    (2) At least an equivalent amount of work as required in paragraph 
(1) of this definition for other academic activities as established by 
the institution including laboratory work, internships, practica, 
studio work, and other academic work leading to the award of credit 
hours.
* * * * *
    Recognized occupation: An occupation that is--
    (1) Identified by a Standard Occupational Classification (SOC) code 
established by the Office of Management and Budget or an Occupational 
Information Network O*NET-SOC code established by the Department of 
Labor and available at http://online.onetcenter.org or its successor 
site; or
    (2) Determined by the Secretary in consultation with the Secretary 
of Labor to be a recognized occupation.
* * * * *

0
3. Section 600.4 is amended by:
0
A. In paragraph (a)(3), adding the words, ``in accordance with Sec.  
600.9'' immediately after the word ``located''.
0
B. Revising paragraph (a)(4)(i)(C).
    The revision reads as follows:


Sec.  600.4  Institution of higher education.

    (a) * * *
    (4) * * *
    (i) * * *
    (C) That is at least a one academic year training program that 
leads to a certificate, or other nondegree recognized credential, and 
prepares students for gainful employment in a recognized occupation; 
and
* * * * *


Sec.  600.5  [Amended]

0
4. Section 600.5(a)(4) is amended by adding the words, ``in accordance 
with Sec.  600.9'' immediately after the word ``located''.


Sec.  600.6  [Amended]

0
5. Section 600.6(a)(3) is amended by adding the words, ``in accordance 
with Sec.  600.9'' immediately after the word ``located''.

0
6. Section 600.9 is added to subpart A to read as follows:


Sec.  600.9  State authorization.

    (a)(1) An institution described under Sec. Sec.  600.4, 600.5, and 
600.6 is legally authorized by a State if the State has a process to 
review and appropriately act on complaints concerning the institution 
including enforcing applicable State laws, and the institution meets 
the provisions of paragraphs (a)(1)(i), (a)(1)(ii), or (b) of this 
section.
    (i)(A) The institution is established by name as an educational 
institution by a State through a charter, statute, constitutional 
provision, or other action issued by an appropriate State agency or 
State entity and is authorized to operate educational programs beyond 
secondary education, including programs leading to a degree or 
certificate.
    (B) The institution complies with any applicable State approval or 
licensure

[[Page 66947]]

requirements, except that the State may exempt the institution from any 
State approval or licensure requirements based on the institution's 
accreditation by one or more accrediting agencies recognized by the 
Secretary or based upon the institution being in operation for at least 
20 years.
    (ii) If an institution is established by a State on the basis of an 
authorization to conduct business in the State or to operate as a 
nonprofit charitable organization, but not established by name as an 
educational institution under paragraph (a)(1)(i) of this section, the 
institution--
    (A) By name, must be approved or licensed by the State to offer 
programs beyond secondary education, including programs leading to a 
degree or certificate; and
    (B) May not be exempt from the State's approval or licensure 
requirements based on accreditation, years in operation, or other 
comparable exemption.
    (2) The Secretary considers an institution to meet the provisions 
of paragraph (a)(1) of this section if the institution is authorized by 
name to offer educational programs beyond secondary education by--
    (i) The Federal Government; or
    (ii) As defined in 25 U.S.C. 1802(2), an Indian tribe, provided 
that the institution is located on tribal lands and the tribal 
government has a process to review and appropriately act on complaints 
concerning an institution and enforces applicable tribal requirements 
or laws.
    (b)(1) Notwithstanding paragraph (a)(1)(i) and (ii) of this 
section, an institution is considered to be legally authorized to 
operate educational programs beyond secondary education if it is exempt 
from State authorization as a religious institution under the State 
constitution or by State law.
    (2) For purposes of paragraph (b)(1) of this section, a religious 
institution is an institution that--
    (i) Is owned, controlled, operated, and maintained by a religious 
organization lawfully operating as a nonprofit religious corporation; 
and
    (ii) Awards only religious degrees or certificates including, but 
not limited to, a certificate of Talmudic studies, an associate of 
Biblical studies, a bachelor of religious studies, a master of 
divinity, or a doctor of divinity.
    (c) If an institution is offering postsecondary education through 
distance or correspondence education to students in a State in which it 
is not physically located or in which it is otherwise subject to State 
jurisdiction as determined by the State, the institution must meet any 
State requirements for it to be legally offering postsecondary distance 
or correspondence education in that State. An institution must be able 
to document to the Secretary the State's approval upon request.

(Authority: 20 U.S.C. 1001 and 1002)

PART 602--THE SECRETARY'S RECOGNITION OF ACCREDITING AGENCIES

0
7. The authority citation for part 602 continues to read as follows:

    Authority:  20 U.S.C. 1099b, unless otherwise noted.


0
8. Section 602.24 is amended by adding a new paragraph (f) to read as 
follows:


Sec.  602.24  Additional procedures certain institutional accreditors 
must have.

* * * * *
    (f) Credit-hour policies. The accrediting agency, as part of its 
review of an institution for initial accreditation or preaccreditation 
or renewal of accreditation, must conduct an effective review and 
evaluation of the reliability and accuracy of the institution's 
assignment of credit hours.
    (1) The accrediting agency meets this requirement if--
    (i) It reviews the institution's--
    (A) Policies and procedures for determining the credit hours, as 
defined in 34 CFR 600.2, that the institution awards for courses and 
programs; and
    (B) The application of the institution's policies and procedures to 
its programs and coursework; and
    (ii) Makes a reasonable determination of whether the institution's 
assignment of credit hours conforms to commonly accepted practice in 
higher education.
    (2) In reviewing and evaluating an institution's policies and 
procedures for determining credit hour assignments, an accrediting 
agency may use sampling or other methods in the evaluation, sufficient 
to comply with paragraph (f)(1)(i)(B) of this section.
    (3) The accrediting agency must take such actions that it deems 
appropriate to address any deficiencies that it identifies at an 
institution as part of its reviews and evaluations under paragraph 
(f)(1)(i) and (ii) of this section, as it does in relation to other 
deficiencies it may identify, subject to the requirements of this part.
    (4) If, following the institutional review process under this 
paragraph (f), the agency finds systemic noncompliance with the 
agency's policies or significant noncompliance regarding one or more 
programs at the institution, the agency must promptly notify the 
Secretary.
* * * * *

PART 603--SECRETARY'S RECOGNITION PROCEDURES FOR STATE AGENCIES

0
9. The authority citation for part 603 is revised to read as follows:

    Authority:  20 U.S.C. 1001, 1002, 1094(c)(4); 38 U.S.C. 3675, 
unless otherwise noted.


0
10. Section 603.24 is amended by redesignating paragraph (c) as 
paragraph (d), adding a new paragraph (c), and revising the authority 
citation after redesignated paragraph (d) to read as follows:


Sec.  603.24  Criteria for State agencies.

* * * * *
    (c) Credit-hour policies. The State agency, as part of its review 
of an institution for initial approval or renewal of approval, must 
conduct an effective review and evaluation of the reliability and 
accuracy of the institution's assignment of credit hours.
    (1) The State agency meets this requirement if--
    (i) It reviews the institution's--
    (A) Policies and procedures for determining the credit hours, as 
defined in 34 CFR 600.2, that the institution awards for courses and 
programs; and
    (B) The application of the institution's policies and procedures to 
its programs and coursework; and
    (ii) Makes a reasonable determination of whether the institution's 
assignment of credit hours conforms to commonly accepted practice in 
higher education.
    (2) In reviewing and evaluating an institution's policies and 
procedures for determining credit hour assignments, a State agency may 
use sampling or other methods in the evaluation, sufficient to comply 
with paragraph (c)(1)(i)(B) of this section.
    (3) The State agency must take such actions that it deems 
appropriate to address any deficiencies that it identifies at an 
institution as part of its reviews and evaluations under paragraph 
(c)(1)(i) and (ii) of this section, as it does in relation to other 
deficiencies it may identify, subject to the requirements of this part.
    (4) If, following the institutional review process under this 
paragraph (c), the agency finds systemic noncompliance with the 
agency's policies or significant noncompliance regarding one or more 
programs at the institution, the agency must promptly notify the 
Secretary.
* * * * *

[[Page 66948]]


(Authority: 20 U.S.C. 1094(c)(4))

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
11. The authority citation for part 668 continues to read as follows:

    Authority:  20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091, 
1092, 1094, 1099c, and 1099c-1, unless otherwise noted.


0
12. Section 668.2 is amended by:
0
A. In paragraph (a), adding, in alphabetical order, the term ``Credit 
hour''.
0
B. In paragraph (b), in the definition of Full-time student, adding the 
words, ``including for a term-based program, repeating any coursework 
previously taken in the program but not including either more than one 
repetition of a previously passed course, or any repetition of a 
previously passed course due to the student failing other coursework'' 
immediately before the period in the second sentence.
0
C. In paragraph (b), adding, in alphabetical order, definitions of 
``Free application for Federal student aid (FAFSA)'', ``Institutional 
student information record (ISIR)'', and ``Student aid report (SAR)''.
0
D. In paragraph (b), revising the definitions for ``Valid Institutional 
Student Information Record (valid ISIR)'' and ``Valid Student Aid 
Report (valid SAR)''.
    The additions and revisions read as follows:


Sec.  668.2  General definitions.

* * * * *
    (b) * * *
    Free application for Federal student aid (FAFSA): The student aid 
application provided for under section 483 of the HEA, which is used to 
determine an applicant's eligibility for the title IV, HEA programs.
* * * * *
    Institutional student information record (ISIR): An electronic 
record that the Secretary transmits to an institution that includes an 
applicant's--
    (1) FAFSA information; and
    (2) EFC.
* * * * *
    Student aid report (SAR): A report provided to an applicant by the 
Secretary showing his or her FAFSA information and the amount of his or 
her EFC.
* * * * *
    Valid institutional student information record (valid ISIR): An 
ISIR on which all the information reported on a student's FAFSA is 
accurate and complete as of the date the application is signed.
    Valid student aid report (valid SAR): A student aid report on which 
all of the information reported on a student's FAFSA is accurate and 
complete as of the date the application is signed.
* * * * *

0
13. Section 668.5 is amended by:
0
A. Revising paragraph (a).
0
B. Revising paragraph (c)(1).
0
C. In paragraph (c)(2), adding the words ``offered by the institution 
that grants the degree or certificate'' after the word ``program''.
0
D. In paragraph (c)(3)(i), removing the words ``not more than'' and 
adding the words ``or less'' after the word ``percent''.
0
E. In paragraph (c)(3)(ii)(A), removing the words ``not more'' and 
adding, in their place, the word ``less''.
0
F. Adding new paragraph (e).
    The addition and revisions read as follows:


Sec.  668.5  Written arrangements to provide educational programs.

    (a) Written arrangements between eligible institutions. (1) Except 
as provided in paragraph (a)(2) of this section, 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 part of the 
educational program to students enrolled in the first institution, the 
Secretary considers that educational program to be an eligible program 
if the educational program offered by the institution that grants the 
degree or certificate otherwise satisfies the requirements of Sec.  
668.8.
    (2) If the written arrangement is between two or more eligible 
institutions that are owned or controlled by the same individual, 
partnership, or corporation, the Secretary considers the educational 
program to be an eligible program if--
    (i) The educational program offered by the institution that grants 
the degree or certificate otherwise satisfies the requirements of Sec.  
668.8; and
    (ii) The institution that grants the degree or certificate provides 
more than 50 percent of the educational program.
* * * * *
    (c) * * *
    (1) The ineligible institution or organization has not--
    (i) Had its eligibility to participate in the title IV, HEA 
programs terminated by the Secretary;
    (ii) Voluntarily withdrawn from participation in the title IV, HEA 
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;
    (iii) Had its certification to participate in the title IV, HEA 
programs revoked by the Secretary;
    (iv) Had its application for re-certification to participate in the 
title IV, HEA programs denied by the Secretary; or
    (v) Had its application for certification to participate in the 
title IV, HEA programs denied by the Secretary;
* * * * *
    (e) Information made available to students. If an institution 
enters into a written arrangement described in paragraph (a), (b), or 
(c) of this section, the institution must provide the information 
described in Sec.  668.43(a)(12) to enrolled and prospective students.
* * * * *

0
14. Section 668.6 is added to subpart A to read as follows:


Sec.  668.6  Reporting and disclosure requirements for programs that 
prepare students for gainful employment in a recognized occupation.

    (a) Reporting requirements. (1) In accordance with procedures 
established by the Secretary an institution must report information 
that includes--
    (i) For each student who enrolled in a program under Sec.  
668.8(c)(3) or (d) during an award year--
    (A) Information needed to identify the student and the institution 
the student attended;
    (B) If the student began attending a program during the award year, 
the name and the Classification of Instructional Program (CIP) code of 
that program; and
    (C) If the student completed a program during the award year--
    (1) The name and CIP code of that program, and the date the student 
completed the program;
    (2) The amounts the student received from private education loans 
and the amount from institutional financing plans that the student owes 
the institution upon completing the program; and
    (3) Whether the student matriculated to a higher credentialed 
program at the institution or if available, evidence that the student 
transferred to a higher credentialed program at another institution; 
and
    (ii) For each program, by name and CIP code, offered by the 
institution under Sec.  668.8(c)(3) or (d), the total number of 
students that are enrolled in the program at the end of each award year 
and identifying information for those students.
    (2)(i) An institution must report the information required under 
paragraph (a)(1) of this section--

[[Page 66949]]

    (A) No later than October 1, 2011 for information from the 2006-07 
award year to the extent that the information is available;
    (B) No later than October 1, 2011 for information from the 2007-08 
through 2009-10 award years; and
    (C) No earlier than September 30, but no later than the date 
established by the Secretary through a notice published in the Federal 
Register, for information from the most recently completed award year.
    (ii) For any award year, if an institution is unable to provide all 
or some of the information required under paragraph (a)(1) of this 
section, the institution must provide an explanation of why the missing 
information is not available.
    (b) Disclosures. (1) For each program offered by an institution 
under this section, the institution must provide prospective students 
with--
    (i) The occupations (by names and SOC codes) that the program 
prepares students to enter, along with links to occupational profiles 
on O*NET or its successor site. If the number of occupations related to 
the program, as identified by entering the program's full six digit CIP 
code on the O*NET crosswalk at http://online.onetcenter.org/crosswalk/ 
is more than ten, the institution may provide Web links to a 
representative sample of the identified occupations (by name and SOC 
code) for which its graduates typically find employment within a few 
years after completing the program;
    (ii) The on-time graduation rate for students completing the 
program, as provided under paragraph (c) of this section;
    (iii) The tuition and fees it charges a student for completing the 
program within normal time as defined in Sec.  668.41(a), the typical 
costs for books and supplies (unless those costs are included as part 
of tuition and fees), and the cost of room and board, if applicable. 
The institution may include information on other costs, such as 
transportation and living expenses, but it must provide a Web link, or 
access, to the program cost information the institutions makes 
available under Sec.  668.43(a);
    (iv) The placement rate for students completing the program, as 
determined under a methodology developed by the National Center for 
Education Statistics (NCES) when that rate is available. In the 
meantime, beginning on July 1, 2011, if the institution is required by 
its accrediting agency or State to calculate a placement rate on a 
program basis, it must disclose the rate under this section and 
identify the accrediting agency or State agency under whose 
requirements the rate was calculated. If the accrediting agency or 
State requires an institution to calculate a placement rate at the 
institutional level or other than a program basis, the institution must 
use the accrediting agency or State methodology to calculate a 
placement rate for the program and disclose that rate; and
    (v) The median loan debt incurred by students who completed the 
program as provided by the Secretary, as well as any other information 
the Secretary provided to the institution about that program. The 
institution must identify separately the median loan debt from title 
IV, HEA program loans, and the median loan debt from private 
educational loans and institutional financing plans.
    (2) For each program, the institution must--
    (i) Include the information required under paragraph (b)(1) of this 
section in promotional materials it makes available to prospective 
students and post this information on its Web site;
    (ii) Prominently provide the information required under paragraph 
(b)(1) of this section in a simple and meaningful manner on the home 
page of its program Web site, and provide a prominent and direct link 
on any other Web page containing general, academic, or admissions 
information about the program, to the single Web page that contains all 
the required information;
    (iii) Display the information required under paragraph (b)(1) of 
this section on the institution's Web site in an open format that can 
be retrieved, downloaded, indexed, and searched by commonly used Web 
search applications. An open format is one that is platform-
independent, is machine-readable, and is made available to the public 
without restrictions that would impede the reuse of that information; 
and
    (iv) Use the disclosure form issued by the Secretary to provide the 
information in paragraph (b)(1), and other information, when that form 
is available.
    (c) On-time completion rate. An institution calculates an on-time 
completion rate for each program subject to this section by--
    (1) Determining the number of students who completed the program 
during the most recently completed award year;
    (2) Determining the number of students in paragraph (c)(1) of this 
section who completed the program within normal time, as defined under 
Sec.  668.41(a), regardless of whether the students transferred into 
the program or changed programs at the institution. For example, the 
normal time to complete an associate degree is two years and this 
timeframe applies to all students in the program. If a student 
transfers into the program, regardless of the number of credits the 
institution accepts from the student's attendance at the prior 
institution, those transfer credits have no bearing on the two-year 
timeframe. The student would still have two years to complete from the 
date he or she began attending the two-year program. To be counted as 
completing on time, a student who changes programs at the institution 
and begins attending the two-year program must complete within the two-
year timeframe beginning from the date the student began attending the 
prior program; and
    (3) Dividing the number of students who completed the program 
within normal time, as determined under paragraph (c)(2) of this 
section, by the total number of students who completed the program, as 
determined under paragraph (c)(1) of this section, and multiplying the 
result by 100.

(Approved by the Office of Management and Budget under control 
number 1845-NEW1)

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



0
15. Section 668.8 is amended by:
0
A. Revising paragraph (c)(3).
0
B. In paragraph (d)(2)(iii), adding the words, ``as provided under 
Sec.  668.6'' immediately after the word ``occupation.''
0
C. In paragraph (d)(3)(iii), adding the words, ``as provided under 
Sec.  668.6'' immediately after the word ``occupation.''
0
D. Revising paragraphs (k) and (l).
    The revisions read as follows:


Sec.  668.8  Eligible program.

* * * * *
    (c) * * *
    (3) Be at least a one-academic-year training program that leads to 
a certificate, or other nondegree recognized credential, and prepares 
students for gainful employment in a recognized occupation.
* * * * *
    (k) Undergraduate educational program in credit hours. (1) Except 
as provided in paragraph (k)(2) of this section, if an institution 
offers an undergraduate educational program in credit hours, the 
institution must use the formula contained in paragraph (l) of this 
section to determine whether that program satisfies the requirements 
contained in paragraph (c)(3) or (d) of this section, and the number of 
credit hours in that educational program for

[[Page 66950]]

purposes of the title IV, HEA programs, unless--
    (i) The program is at least two academic years in length and 
provides an associate degree, a bachelor's degree, a professional 
degree, or an equivalent degree as determined by the Secretary; or
    (ii) Each course within the program is acceptable for full credit 
toward that institution's associate degree, bachelor's degree, 
professional degree, or equivalent degree as determined by the 
Secretary provided that--
    (A) The institution's degree requires at least two academic years 
of study; and
    (B) The institution demonstrates that students enroll in, and 
graduate from, the degree program.
    (2) A program is considered to be a clock-hour program for purposes 
of the title IV, HEA programs if--
    (i) Except as provided in paragraph (k)(3) of this section, a 
program is required to measure student progress in clock hours when--
    (A) Receiving Federal or State approval or licensure to offer the 
program; or
    (B) Completing clock hours is a requirement for graduates to apply 
for licensure or the authorization to practice the occupation that the 
student is intending to pursue;
    (ii) The credit hours awarded for the program are not in compliance 
with the definition of a credit hour in 34 CFR 600.2; or
    (iii) The institution does not provide the clock hours that are the 
basis for the credit hours awarded for the program or each course in 
the program and, except as provided in Sec.  668.4(e), requires 
attendance in the clock hours that are the basis for the credit hours 
awarded.
    (3) The requirements of paragraph (k)(2)(i) of this section do not 
apply to a program if there is a State or Federal approval or licensure 
requirement that a limited component of the program must include a 
practicum, internship, or clinical experience component of the program 
that must include a minimum number of clock hours.
    (l) Formula. (1) Except as provided in paragraph (l)(2) of this 
section, for purposes of determining whether a program described in 
paragraph (k) of this section satisfies the requirements contained in 
paragraph (c)(3) or (d) of this section, and of determining the number 
of credit hours in that educational program with regard to the title 
IV, HEA programs--
    (i) A semester hour must include at least 37.5 clock hours of 
instruction;
    (ii) A trimester hour must include at least 37.5 clock hours of 
instruction; and
    (iii) A quarter hour must include at least 25 clock hours of 
instruction.
    (2) The institution's conversions to establish a minimum number of 
clock hours of instruction per credit may be less than those specified 
in paragraph (l)(1) of this section, if the institution's designated 
accrediting agency, or recognized State agency for the approval of 
public postsecondary vocational institutions, for participation in the 
title IV, HEA programs has identified any deficiencies with the 
institution's policies and procedures, or their implementation, for 
determining the credit hours, as defined in 34 CFR 600.2, that the 
institution awards for programs and courses, in accordance with 34 CFR 
602.24(f), or, if applicable, 34 CFR 603.24(c), so long as--
    (i) The institution's student work outside of class combined with 
the clock-hours of instruction meet or exceed the numeric requirements 
in paragraph (l)(1) of this section; and
    (ii)(A) A semester hour must include at least 30 clock hours of 
instruction;
    (B) A trimester hour must include at least 30 clock hours of 
instruction; and
    (C) A quarter hour must include at least 20 hours of instruction.
* * * * *

0
16. Section 668.14 is amended by revising paragraph (b)(22) to read as 
follows:


Sec.  668.14  Program participation agreement.

* * * * *
    (b) * * *
    (22)(i) It will not provide any commission, bonus, or other 
incentive payment based in any part, directly or indirectly, upon 
success in securing enrollments or the award of financial aid, to any 
person or entity who is engaged in any student recruitment or admission 
activity, or in making decisions regarding the award of title IV, HEA 
program funds.
    (A) The restrictions in paragraph (b)(22) of this section do not 
apply to the recruitment of foreign students residing in foreign 
countries who are not eligible to receive Federal student assistance.
    (B) For the purpose of paragraph (b)(22) of this section, an 
employee who receives multiple adjustments to compensation in a 
calendar year and is engaged in any student enrollment or admission 
activity or in making decisions regarding the award of title IV, HEA 
program funds is considered to have received such adjustments based 
upon success in securing enrollments or the award of financial aid if 
those adjustments create compensation that is based in any part, 
directly or indirectly, upon success in securing enrollments or the 
award of financial aid.
    (ii) Notwithstanding paragraph (b)(22)(i) of this section, eligible 
institutions, organizations that are contractors to eligible 
institutions, and other entities may make--
    (A) Merit-based adjustments to employee compensation provided that 
such adjustments are not based in any part, directly or indirectly, 
upon success in securing enrollments or the award of financial aid; and
    (B) Profit-sharing payments so long as such payments are not 
provided to any person who is engaged in student recruitment or 
admission activity or in making decisions regarding the award of title 
IV, HEA program funds.
    (iii) As used in paragraph (b)(22) of this section,
    (A) Commission, bonus, or other incentive payment means a sum of 
money or something of value, other than a fixed salary or wages, paid 
to or given to a person or an entity for services rendered.
    (B) Securing enrollments or the award of financial aid means 
activities that a person or entity engages in at any point in time 
through completion of an educational program for the purpose of the 
admission or matriculation of students for any period of time or the 
award of financial aid to students.
    (1) These activities include contact in any form with a prospective 
student, such as, but not limited to--contact through preadmission or 
advising activities, scheduling an appointment to visit the enrollment 
office or any other office of the institution, attendance at such an 
appointment, or involvement in a prospective student's signing of an 
enrollment agreement or financial aid application.
    (2) These activities do not include making a payment to a third 
party for the provision of student contact information for prospective 
students provided that such payment is not based on--
    (i) Any additional conduct or action by the third party or the 
prospective students, such as participation in preadmission or advising 
activities, scheduling an appointment to visit the enrollment office or 
any other office of the institution or attendance at such an 
appointment, or the signing, or being involved in the signing, of a 
prospective student's enrollment agreement or financial aid 
application; or
    (ii) The number of students (calculated at any point in time of an 
educational program) who apply for

[[Page 66951]]

enrollment, are awarded financial aid, or are enrolled for any period 
of time, including through completion of an educational program.
    (C) Entity or person engaged in any student recruitment or 
admission activity or in making decisions about the award of financial 
aid means--
    (1) With respect to an entity engaged in any student recruitment or 
admission activity or in making decisions about the award of financial 
aid, any institution or organization that undertakes the recruiting or 
the admitting of students or that makes decisions about and awards 
title IV, HEA program funds; and
    (2) With respect to a person engaged in any student recruitment or 
admission activity or in making decisions about the award of financial 
aid, any employee who undertakes recruiting or admitting of students or 
who makes decisions about and awards title IV, HEA program funds, and 
any higher level employee with responsibility for recruitment or 
admission of students, or making decisions about awarding title IV, HEA 
program funds.
    (D) Enrollment means the admission or matriculation of a student 
into an eligible institution.
* * * * *

0
17. Section 668.16 is amended by:
0
A. Revising paragraph (e).
0
B. In paragraph (n) introductory text, removing the word ``and'' that 
appears after the punctuation``;''.
0
C. In paragraph (o)(2), removing the punctuation ``.'' and adding, in 
its place, the punctuation and word ``; and''.
0
D. Adding paragraph (p).
0
E. Revising the OMB control number at the end of the section.
    The revisions and addition read as follows:


Sec.  668.16  Standards of administrative capability.

* * * * *
    (e) For purposes of determining student eligibility for assistance 
under a title IV, HEA program, establishes, publishes, and applies 
reasonable standards for measuring whether an otherwise eligible 
student is maintaining satisfactory academic progress in his or her 
educational program. The Secretary considers an institution's standards 
to be reasonable if the standards are in accordance with the provisions 
specified in Sec.  668.34.
* * * * *
    (p) Develops and follows procedures to evaluate the validity of a 
student's high school completion if the institution or the Secretary 
has reason to believe that the high school diploma is not valid or was 
not obtained from an entity that provides secondary school education.

    (Approved by the Office of Management and Budget under control 
number 1845-0022)

* * * * *

0
18. Section 668.22 is amended by:
0
A. Redesignating paragraphs (a)(2) through (a)(5) as paragraphs (a)(3) 
through (a)(6), respectively.
0
B. Adding new paragraph (a)(2).
0
C. In newly redesignated paragraph (a)(5), removing the citation 
``(a)(5)'' and adding, in its place, the citation ``(a)(6)''.
0
D. In newly redesignated paragraph (a)(6)(ii)(A)(2), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
0
E. In newly redesignated paragraph (a)(6)(ii)(B)(2), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
0
F. In newly redesignated paragraph (a)(6)(ii)(B)(3), removing the 
citation ``(a)(5)(iii)'' and adding, in its place, the citation 
``(a)(6)(iii)''.
0
G. In newly redesignated paragraph (a)(6)(iii)(A)(1), removing the 
citation ``(a)(5)(ii)(A)(2)'' and adding, in its place, the citation 
``(a)(6)(ii)(A)(2)''.
0
H. In newly redesignated paragraph (a)(6)(iii)(A)(5), removing the 
citation ``(a)(5)(iii)(C)'' and adding, in its place, the citation 
``(a)(6)(iii)(C)''.
0
I. In newly redesignated paragraph (a)(6)(iii)(B), removing the 
citation ``(a)(5)(iii)(A)'' and adding, in its place, the citation 
``(a)(6)(iii)(A)''.
0
J. In newly redesignated paragraph (a)(6)(iv), removing the citation 
``(a)(5)(iii)'' and adding, in its place, the citation ``(a)(6)(iii)''.
0
K. Revising paragraph (b)(3).
0
L. Removing paragraph (c)(3)(ii) and redesignating paragraph (c)(3)(i) 
as paragraph (c)(3).
0
M. Revising paragraph (f)(2).
0
N. In the introductory text of paragraph (j)(2), removing the first 
word ``An'' and adding, in its place, the words ``For an institution 
that is not required to take attendance, an''.
0
O. In paragraph (l)(3), adding the words ``for an institution that is 
not required to take attendance'' after the words ``date of the 
institution's determination that the student withdrew''.
0
P. Adding paragraphs (l)(6), (l)(7), and (l)(8).
    The additions and revisions read as follows:


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

* * * * *
    (a) * * *
    (2)(i) Except as provided in paragraphs (a)(2)(ii) and (a)(2)(iii) 
of this section, a student is considered to have withdrawn from a 
payment period or period of enrollment if--
    (A) In the case of a program that is measured in credit hours, the 
student does not complete all the days in the payment period or period 
of enrollment that the student was scheduled to complete;
    (B) In the case of a program that is measured in clock hours, the 
student does not complete all of the clock hours and weeks of 
instructional time in the payment period or period of enrollment that 
the student was scheduled to complete; or
    (C) For a student in a nonterm or nonstandard-term program, the 
student is not scheduled to begin another course within a payment 
period or period of enrollment for more than 45 calendar days after the 
end of the module the student ceased attending, unless the student is 
on an approved leave of absence, as defined in paragraph (d) of this 
section.
    (ii)(A) Notwithstanding paragraph (a)(2)(i)(A) and (a)(2)(i)(B) of 
this section, for a payment period or period of enrollment in which 
courses in the program are offered in modules--
    (1) A student is not considered to have withdrawn if the 
institution obtains written confirmation from the student at the time 
that would have been a withdrawal of the date that he or she will 
attend a module that begins later in the same payment period or period 
of enrollment; and
    (2) For nonterm and nonstandard-term programs, that module begins 
no later than 45 calendar days after the end of the module the student 
ceased attending.
    (B) If an institution has obtained the written confirmation of 
future attendance in accordance with paragraph (a)(2)(ii)(A) of this 
section--
    (1) A student may change the date of return to a module that begins 
later in the same payment period or period of enrollment, provided that 
the student does so in writing prior to the return date that he or she 
had previously confirmed; and
    (2) For nonterm and nonstandard-term programs, the later module 
that he or she will attend begins no later than 45 calendar days after 
the end of module the student ceased attending.
    (C) If an institution obtains written confirmation of future 
attendance in accordance with paragraph (a)(2)(ii)(A) and, if 
applicable, (a)(2)(ii)(B) of this section, but the student does not 
return as scheduled--
    (1) The student is considered to have withdrawn from the payment 
period or period of enrollment; and

[[Page 66952]]

    (2) The student's withdrawal date and the total number of calendar 
days in the payment period or period of enrollment would be the 
withdrawal date and total number of calendar days that would have 
applied if the student had not provided written confirmation of a 
future date of attendance in accordance with paragraph (a)(2)(ii)(A) of 
this section.
    (iii)(A) If a student withdraws from a term-based credit-hour 
program offered in modules during a payment period or period of 
enrollment and reenters the same program prior to the end of the 
period, subject to conditions established by the Secretary, the student 
is eligible to receive any title IV, HEA program funds for which he or 
she was eligible prior to withdrawal, including funds that were 
returned by the institution or student under the provisions of this 
section, provided the student's enrollment status continues to support 
the full amount of those funds.
    (B) In accordance with Sec.  668.4(f), if a student withdraws from 
a clock-hour or nonterm credit hour program during a payment period or 
period of enrollment and then reenters the same program within 180 
calendar days, the student remains in that same period when he or she 
returns and, subject to conditions established by the Secretary, is 
eligible to receive any title IV, HEA program funds for which he or she 
was eligible prior to withdrawal, including funds that were returned by 
the institution or student under the provisions of this section.
* * * * *
    (b) * * *
    (3)(i) An institution is required to take attendance if--
    (A) An outside entity (such as the institution's accrediting agency 
or a State agency) has a requirement that the institution take 
attendance;
    (B) The institution itself has a requirement that its instructors 
take attendance; or
    (C) The institution or an outside entity has a requirement that can 
only be met by taking attendance or a comparable process, including, 
but not limited to, requiring that students in a program demonstrate 
attendance in the classes of that program, or a portion of that 
program.
    (ii) If, in accordance with paragraph (b)(3)(i) of this section, an 
institution is required to take attendance or requires that attendance 
be taken for only some students, the institution must use its 
attendance records to determine a withdrawal date in accordance with 
paragraph (b)(1) of this section for those students.
    (iii)(A) If, in accordance with paragraph (b)(3)(i) of this 
section, an institution is required to take attendance, or requires 
that attendance be taken, for a limited period, the institution must 
use its attendance records to determine a withdrawal date in accordance 
with paragraph (b)(3)(i) of this section for that limited period.
    (B) A student in attendance the last time attendance is required to 
be taken during the limited period identified in paragraph 
(b)(3)(iii)(A) of this section who subsequently stops attending during 
the payment period will be treated as a student for whom the 
institution was not required to take attendance.
    (iv) If an institution is required to take attendance or requires 
that attendance be taken, on only one specified day to meet a census 
reporting requirement, the institution is not considered to take 
attendance.
* * * * *
    (f) * * *
    (2)(i) The total number of calendar days in a payment period or 
period of enrollment includes all days within the period that the 
student was scheduled to complete, except that scheduled breaks of at 
least five consecutive days are excluded from the total number of 
calendar days in a payment period or period of enrollment and the 
number of calendar days completed in that period.
    (ii) The total number of calendar days in a payment period or 
period of enrollment does not include--
    (A) Days in which the student was on an approved leave of absence; 
or
    (B) For a payment period or period of enrollment in which any 
courses in the program are offered in modules, any scheduled breaks of 
at least five consecutive days when the student is not scheduled to 
attend a module or other course offered during that period of time.
* * * * *
    (l) * * *
    (6) A program is ``offered in modules'' if a course or courses in 
the program do not span the entire length of the payment period or 
period of enrollment.
    (7)(i) ``Academic attendance'' and ``attendance at an academically-
related activity''--
    (A) Include, but are not limited to--
    (1) Physically attending a class where there is an opportunity for 
direct interaction between the instructor and students;
    (2) Submitting an academic assignment;
    (3) Taking an exam, an interactive tutorial, or computer-assisted 
instruction;
    (4) Attending a study group that is assigned by the institution;
    (5) Participating in an online discussion about academic matters; 
and
    (6) Initiating contact with a faculty member to ask a question 
about the academic subject studied in the course; and
    (B) Do not include activities where a student may be present, but 
not academically engaged, such as--
    (1) Living in institutional housing;
    (2) Participating in the institution's meal plan;
    (3) Logging into an online class without active participation; or
    (4) Participating in academic counseling or advisement.
    (ii) A determination of ``academic attendance'' or ``attendance at 
an academically-related activity'' must be made by the institution; a 
student's certification of attendance that is not supported by 
institutional documentation is not acceptable.
    (8) A program is a nonstandard-term program if the program is a 
term-based program that does not qualify under 34 CFR 690.63(a)(1) or 
(a)(2) to calculate Federal Pell Grant payments under 34 CFR 690.63(b) 
or (c).
* * * * *

0
19. Section 668.25 is amended by:
0
A. In paragraph (c)(2)(v), removing the word ``and''.
0
B. In paragraph (c)(2)(vi), adding the word ``and'' after the 
punctuation ``;''.
0
C. Adding paragraph (c)(2)(vii).
    The addition reads as follows:


Sec.  668.25  Contracts between an institution and a third party 
servicer.

* * * * *
    (c) * * *
    (2) * * *
    (vii) Payment of any commission, bonus, or other incentive payment 
based in any part, directly or indirectly, upon success in securing 
enrollments or the award of financial aid to any person or entity 
engaged in any student recruitment or admission activity or in making 
decisions regarding the award of title IV, HEA program funds.
* * * * *

0
20. Section 668.32 is amended by:
0
A. In paragraph (e)(3), removing the word ``or'' that appears after the 
punctuation ``;''.
0
B. In paragraph (e)(4)(ii), removing the punctuation ``.'' and adding, 
in its place, the punctuation and word ``; or''.
0
C. Adding new paragraph (e)(5).
0
D. Revising paragraph (f).
    The addition and revision read as follows:


Sec.  668.32  Student eligibility--general.

* * * * *

[[Page 66953]]

    (e) * * *
    (5) Has been determined by the institution to have the ability to 
benefit from the education or training offered by the institution based 
on the satisfactory completion of 6 semester hours, 6 trimester hours, 
6 quarter hours, or 225 clock hours that are applicable toward a degree 
or certificate offered by the institution.
    (f) Maintains satisfactory academic progress in his or her course 
of study according to the institution's published standards of 
satisfactory academic progress that meet the requirements of Sec.  
668.34.
* * * * *

0
21. Section 668.34 is revised to read as follows:


Sec.  668.34  Satisfactory academic progress.

    (a) Satisfactory academic progress policy. An institution must 
establish a reasonable satisfactory academic progress policy for 
determining whether an otherwise eligible student is making 
satisfactory academic progress in his or her educational program and 
may receive assistance under the title IV, HEA programs. The Secretary 
considers the institution's policy to be reasonable if--
    (1) The policy is at least as strict as the policy the institution 
applies to a student who is not receiving assistance under the title 
IV, HEA programs;
    (2) The policy provides for consistent application of standards to 
all students within categories of students, e.g., full-time, part-time, 
undergraduate, and graduate students, and educational programs 
established by the institution;
    (3) The policy provides that a student's academic progress is 
evaluated--
    (i) At the end of each payment period if the educational program is 
either one academic year in length or shorter than an academic year; or
    (ii) For all other educational programs, at the end of each payment 
period or at least annually to correspond with the end of a payment 
period;
    (4)(i) The policy specifies the grade point average (GPA) that a 
student must achieve at each evaluation, or if a GPA is not an 
appropriate qualitative measure, a comparable assessment measured 
against a norm; and
    (ii) If a student is enrolled in an educational program of more 
than two academic years, the policy specifies that at the end of the 
second academic year, the student must have a GPA of at least a ``C'' 
or its equivalent, or have academic standing consistent with the 
institution's requirements for graduation;
    (5)(i) The policy specifies the pace at which a student must 
progress through his or her educational program to ensure that the 
student will complete the program within the maximum timeframe, as 
defined in paragraph (b) of this section, and provides for measurement 
of the student's progress at each evaluation; and
    (ii) An institution calculates the pace at which the student is 
progressing by dividing the cumulative number of hours the student has 
successfully completed by the cumulative number of hours the student 
has attempted. In making this calculation, the institution is not 
required to include remedial courses;
    (6) The policy describes how a student's GPA and pace of completion 
are affected by course incompletes, withdrawals, or repetitions, or 
transfers of credit from other institutions. Credit hours from another 
institution that are accepted toward the student's educational program 
must count as both attempted and completed hours;
    (7) Except as provided in paragraphs (c) and (d) of this section, 
the policy provides that, at the time of each evaluation, a student who 
has not achieved the required GPA, or who is not successfully 
completing his or her educational program at the required pace, is no 
longer eligible to receive assistance under the title IV, HEA programs;
    (8) If the institution places students on financial aid warning, or 
on financial aid probation, as defined in paragraph (b) of this 
section, the policy describes these statuses and that--
    (i) A student on financial aid warning may continue to receive 
assistance under the title IV, HEA programs for one payment period 
despite a determination that the student is not making satisfactory 
academic progress. Financial aid warning status may be assigned without 
an appeal or other action by the student; and
    (ii) A student on financial aid probation may receive title IV, HEA 
program funds for one payment period. While a student is on financial 
aid probation, the institution may require the student to fulfill 
specific terms and conditions such as taking a reduced course load or 
enrolling in specific courses. At the end of one payment period on 
financial aid probation, the student must meet the institution's 
satisfactory academic progress standards or meet the requirements of 
the academic plan developed by the institution and the student to 
qualify for further title IV, HEA program funds;
    (9) If the institution permits a student to appeal a determination 
by the institution that he or she is not making satisfactory academic 
progress, the policy describes--
    (i) How the student may reestablish his or her eligibility to 
receive assistance under the title IV, HEA programs;
    (ii) The basis on which a student may file an appeal: The death of 
a relative, an injury or illness of the student, or other special 
circumstances; and
    (iii) Information the student must submit regarding why the student 
failed to make satisfactory academic progress, and what has changed in 
the student's situation that will allow the student to demonstrate 
satisfactory academic progress at the next evaluation;
    (10) If the institution does not permit a student to appeal a 
determination by the institution that he or she is not making 
satisfactory academic progress, the policy must describe how the 
student may reestablish his or her eligibility to receive assistance 
under the title IV, HEA programs; and
    (11) The policy provides for notification to students of the 
results of an evaluation that impacts the student's eligibility for 
title IV, HEA program funds.
    (b) Definitions. The following definitions apply to the terms used 
in this section:
    Appeal. Appeal means a process by which a student who is not 
meeting the institution's satisfactory academic progress standards 
petitions the institution for reconsideration of the student's 
eligibility for title IV, HEA program assistance.
    Financial aid probation. Financial aid probation means a status 
assigned by an institution to a student who fails to make satisfactory 
academic progress and who has appealed and has had eligibility for aid 
reinstated.
    Financial aid warning. Financial aid warning means a status 
assigned to a student who fails to make satisfactory academic progress 
at an institution that evaluates academic progress at the end of each 
payment period.
    Maximum timeframe. Maximum timeframe means--
    (1) For an undergraduate program measured in credit hours, a period 
that is no longer than 150 percent of the published length of the 
educational program, as measured in credit hours;
    (2) For an undergraduate program measured in clock hours, a period 
that is no longer than 150 percent of the published length of the 
educational program, as measured by the cumulative number of clock 
hours the student is required to complete and expressed in calendar 
time; and

[[Page 66954]]

    (3) For a graduate program, a period defined by the institution 
that is based on the length of the educational program.
    (c) Institutions that evaluate satisfactory academic progress at 
the end of each payment period. (1) An institution that evaluates 
satisfactory academic progress at the end of each payment period and 
determines that a student is not making progress under its policy may 
nevertheless disburse title IV, HEA program funds to the student under 
the provisions of paragraph (c)(2), (c)(3), or (c)(4) of this section.
    (2) For the payment period following the payment period in which 
the student did not make satisfactory academic progress, the 
institution may--
    (i) Place the student on financial aid warning, and disburse title 
IV, HEA program funds to the student; or
    (ii) Place a student directly on financial aid probation, following 
the procedures outlined in paragraph (d)(2) of this section and 
disburse title IV, HEA program funds to the student.
    (3) For the payment period following a payment period during which 
a student was on financial aid warning, the institution may place the 
student on financial aid probation, and disburse title IV, HEA program 
funds to the student if--
    (i) The institution evaluates the student's progress and determines 
that student did not make satisfactory academic progress during the 
payment period the student was on financial aid warning;
    (ii) The student appeals the determination; and
    (iii)(A) The institution determines that the student should be able 
to meet the institution's satisfactory academic progress standards by 
the end of the subsequent payment period; or
    (B) The institution develops an academic plan for the student that, 
if followed, will ensure that the student is able to meet the 
institution's satisfactory academic progress standards by a specific 
point in time.
    (4) A student on financial aid probation for a payment period may 
not receive title IV, HEA program funds for the subsequent payment 
period unless the student makes satisfactory academic progress or the 
institution determines that the student met the requirements specified 
by the institution in the academic plan for the student.
    (d) Institutions that evaluate satisfactory academic progress 
annually or less frequently than at the end of each payment period. (1) 
An institution that evaluates satisfactory academic progress annually 
or less frequently than at the end of each payment period and 
determines that a student is not making progress under its policy may 
nevertheless disburse title IV, HEA program funds to the student under 
the provisions of paragraph (d)(2) or (d)(3) of this section.
    (2) The institution may place the student on financial aid 
probation and may disburse title IV, HEA program funds to the student 
for the subsequent payment period if--
    (i) The institution evaluates the student and determines that the 
student is not making satisfactory academic progress;
    (ii) The student appeals the determination; and
    (iii)(A) The institution determines that the student should be able 
to be make satisfactory academic progress during the subsequent payment 
period and meet the institution's satisfactory academic progress 
standards at the end of that payment period; or
    (B) The institution develops an academic plan for the student that, 
if followed, will ensure that the student is able to meet the 
institution's satisfactory academic progress standards by a specific 
point in time.
    (3) A student on financial aid probation for a payment period may 
not receive title IV, HEA program funds for the subsequent payment 
period unless the student makes satisfactory academic progress or the 
institution determines that the student met the requirements specified 
by the institution in the academic plan for the student.

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



0
22. Section 668.43 is amended by:
0
A. In paragraph (a)(10)(ii), removing the word ``and'' that appears 
after the punctuation ``;''.
0
B. In paragraph (a)(11)(ii), removing the punctuation ``.'' and adding, 
in its place, the punctuation and word ``; and''.
0
C. Adding paragraph (a)(12).
0
D. Revising paragraph (b).
    The addition and revision read as follows:


Sec.  668.43  Institutional information.

    (a) * * *
    (12) A description of written arrangements the institution has 
entered into in accordance with Sec.  668.5, including, but not limited 
to, information on--
    (i) The portion of the educational program that the institution 
that grants the degree or certificate is not providing;
    (ii) The name and location of the other institutions or 
organizations that are providing the portion of the educational program 
that the institution that grants the degree or certificate is not 
providing;
    (iii) The method of delivery of the portion of the educational 
program that the institution that grants the degree or certificate is 
not providing; and
    (iv) Estimated additional costs students may incur as the result of 
enrolling in an educational program that is provided, in part, under 
the written arrangement.
    (b) The institution must make available for review to any enrolled 
or prospective student upon request, a copy of the documents describing 
the institution's accreditation and its State, Federal, or tribal 
approval or licensing. The institution must also provide its students 
or prospective students with contact information for filing complaints 
with its accreditor and with its State approval or licensing entity and 
any other relevant State official or agency that would appropriately 
handle a student's complaint.
* * * * *

0
23. Subpart E of part 668 is revised to read as follows:
Subpart E--Verification and Updating of Student Aid Application 
Information
Sec.
668.51 General.
668.52 Definitions.
668.53 Policies and procedures.
668.54 Selection of an applicant's FAFSA information for 
verification.
668.55 Updating information.
668.56 Information to be verified.
668.57 Acceptable documentation.
668.58 Interim disbursements.
668.59 Consequences of a change in an applicant's FAFSA information.
668.60 Deadlines for submitting documentation and the consequences 
of failing to provide documentation.
668.61 Recovery of funds from interim disbursements.

Subpart E--Verification and Updating of Student Aid Application 
Information


Sec.  668.51  General.

    (a) Scope and purpose. The regulations in this subpart govern the 
verification by institutions of information submitted by applicants for 
student financial assistance under the subsidized student financial 
assistance programs.
    (b) Applicant responsibility. If the Secretary or the institution 
requests documents or information from an applicant under this subpart, 
the applicant must provide the specified documents or information.
    (c) Foreign schools. The Secretary exempts from the provisions of 
this subpart participating institutions that are not located in a 
State.

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


[[Page 66955]]




Sec.  668.52  Definitions.

    The following definitions apply to this subpart:
    Specified year: (1) The calendar year preceding the first calendar 
year of an award year, i.e., the base year; or
    (2) The year preceding the year described in paragraph (1) of this 
definition.
    Subsidized student financial assistance programs: Title IV, HEA 
programs for which eligibility is determined on the basis of an 
applicant's EFC. These programs include the Federal Pell Grant, Federal 
Supplemental Educational Opportunity Grant (FSEOG), Federal Work-Study 
(FWS), Federal Perkins Loan, and Direct Subsidized Loan programs.
    Unsubsidized student financial assistance programs: Title IV, HEA 
programs for which eligibility is not based on an applicant's EFC. 
These programs include the Teacher Education Assistance for College and 
Higher Education (TEACH) Grant, Direct Unsubsidized Loan, and Direct 
PLUS Loan programs.

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

Sec.  668.53  Policies and procedures.

    (a) An institution must establish and use written policies and 
procedures for verifying an applicant's FAFSA information in accordance 
with the provisions of this subpart. These policies and procedures must 
include--
    (1) The time period within which an applicant must provide any 
documentation requested by the institution in accordance with Sec.  
668.57;
    (2) The consequences of an applicant's failure to provide the 
requested documentation within the specified time period;
    (3) The method by which the institution notifies an applicant of 
the results of its verification if, as a result of verification, the 
applicant's EFC changes and results in a change in the amount of the 
applicant's assistance under the title IV, HEA programs;
    (4) The procedures the institution will follow itself or the 
procedures the institution will require an applicant to follow to 
correct FAFSA information determined to be in error; and
    (5) The procedures for making referrals under Sec.  668.16(g).
    (b) An institution's procedures must provide that it will furnish, 
in a timely manner, to each applicant whose FAFSA information is 
selected for verification a clear explanation of--
    (1) The documentation needed to satisfy the verification 
requirements; and
    (2) The applicant's responsibilities with respect to the 
verification of FAFSA information, including the deadlines for 
completing any actions required under this subpart and the consequences 
of failing to complete any required action.
    (c) An institution's procedures must provide that an applicant 
whose FAFSA information is selected for verification is required to 
complete verification before the institution exercises any authority 
under section 479A(a) of the HEA to make changes to the applicant's 
cost of attendance or to the values of the data items required to 
calculate the EFC.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

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

Sec.  668.54  Selection of an applicant's FAFSA information for 
verification.

    (a) General requirements. (1) Except as provided in paragraph (b) 
of this section, an institution must require an applicant whose FAFSA 
information is selected for verification by the Secretary, to verify 
the information specified by the Secretary pursuant to Sec.  668.56.
    (2) If an institution has reason to believe that an applicant's 
FAFSA information is inaccurate, it must verify the accuracy of that 
information.
    (3) An institution may require an applicant to verify any FAFSA 
information that it specifies.
    (4) If an applicant is selected to verify FAFSA information under 
paragraph (a)(1) of this section, the institution must require the 
applicant to verify the information as specified in Sec.  668.56 if the 
applicant is selected for a subsequent verification of FAFSA 
information, except that the applicant is not required to provide 
documentation for the FAFSA information previously verified for the 
applicable award year to the extent that the FAFSA information 
previously verified remains unchanged.
    (b) Exclusions from verification. (1) An institution need not 
verify an applicant's FAFSA information if--
    (i) The applicant dies;
    (ii) The applicant does not receive assistance under the title IV, 
HEA programs for reasons other than failure to verify FAFSA 
information;
    (iii) The applicant is eligible to receive only unsubsidized 
student financial assistance; or
    (iv) The applicant who transfers to the institution, had previously 
completed verification at the institution from which he or she 
transferred, and applies for assistance based on the same FAFSA 
information used at the previous institution, if the current 
institution obtains a letter from the previous institution--
    (A) Stating that it has verified the applicant's information; and
    (B) Providing the transaction number of the applicable valid ISIR.
    (2) Unless the institution has reason to believe that the 
information reported by a dependent student is incorrect, it need not 
verify the applicant's parents' FAFSA information if--
    (i) The parents are residing in a country other than the United 
States and cannot be contacted by normal means of communication;
    (ii) The parents cannot be located because their contact 
information is unknown and cannot be obtained by the applicant; or
    (iii) Both of the applicant's parents are mentally incapacitated.
    (3) Unless the institution has reason to believe that the 
information reported by an independent student is incorrect, it need 
not verify the applicant's spouse's information if--
    (i) The spouse is deceased;
    (ii) The spouse is mentally incapacitated;
    (iii) The spouse is residing in a country other than the United 
States and cannot be contacted by normal means of communication; or
    (iv) The spouse cannot be located because his or her contact 
information is unknown and cannot be obtained by the applicant.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

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

Sec.  668.55  Updating information.

    (a) If an applicant's dependency status changes at any time during 
the award year, the applicant must update FAFSA information, except 
when the update is due to a change in his or her marital status.
    (b)(1) An applicant who is selected for verification of the number 
of persons in his or her household (household size) or the number of 
those in the household who are attending postsecondary institutions 
(number in college) must update those items to be correct as of the 
date of verification, except when the update is due to a change in his 
or her marital status.
    (2) Notwithstanding paragraph (b)(1) of this section, an applicant 
is not required to provide documentation of household size or number in 
college during a subsequent verification of either item if the 
information has not changed.
    (c) An institution may require an applicant to update FAFSA 
information under paragraph (a) or (b) of this section for a change in 
the applicant's marital status if the institution determines the

[[Page 66956]]

update is necessary to address an inequity or to reflect more 
accurately the applicant's ability to pay.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

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

Sec.  668.56  Information to be verified.

    (a) For each award year the Secretary publishes in the Federal 
Register notice the FAFSA information that an institution and an 
applicant may be required to verify.
    (b) For each applicant whose FAFSA information is selected for 
verification by the Secretary, the Secretary specifies the specific 
information under paragraph (a) of this section that the applicant must 
verify.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

(Authority: 20 U.S.C. 1094, 1095)

Sec.  668.57  Acceptable documentation.

    If an applicant is selected to verify any of the following 
information, an institution must obtain the specified documentation.
    (a) Adjusted Gross Income (AGI), income earned from work, or U.S. 
income tax paid. (1) Except as provided in paragraphs (a)(2), (a)(3), 
and (a)(4) of this section, an institution must require an applicant 
selected for verification of AGI, income earned from work or U.S. 
income tax paid to submit to it--
    (i) A copy of the income tax return or an Internal Revenue Service 
(IRS) form that lists tax account information of the applicant, his or 
her spouse, or his or her parents, as applicable for the specified 
year. The copy of the return must include the signature (which need not 
be an original) of the filer of the return or of one of the filers of a 
joint return;
    (ii) For a dependent student, a copy of each IRS Form W-2 for the 
specified year received by the parent whose income is being taken into 
account if--
    (A) The parents filed a joint return; and
    (B) The parents are divorced or separated or one of the parents has 
died; and
    (iii) For an independent student, a copy of each IRS Form W-2 for 
the specified year he or she received if the independent student--
    (A) Filed a joint return; and
    (B) Is a widow or widower, or is divorced or separated.
    (2) An institution may accept, in lieu of an income tax return or 
an IRS form that lists tax account information, the information 
reported for an item on the applicant's FAFSA for the specified year if 
the Secretary has identified that item as having been obtained from the 
IRS and not having been changed.
    (3) An institution must accept, in lieu of an income tax return or 
an IRS form that lists tax account information, the documentation set 
forth in paragraph (a)(4) of this section if the individual for the 
specified year--
    (i) Has not filed and, under IRS rules, or other applicable 
government agency rules, is not required to file an income tax return;
    (ii) Is required to file a U.S. tax return and has been granted a 
filing extension by the IRS; or
    (iii) Has requested a copy of the tax return or an IRS form that 
lists tax account information, and the IRS or a government of a U.S. 
territory or commonwealth or a foreign central government cannot locate 
the return or provide an IRS form that lists tax account information.
    (4) An institution must accept--
    (i) For an individual described in paragraph (a)(3)(i) of this 
section, a statement signed by that individual certifying that he or 
she has not filed and is not required to file an income tax return for 
the specified year and certifying for that year that individual's--
    (A) Sources of income earned from work as stated on the FAFSA; and
    (B) Amounts of income from each source. In lieu of a certification 
of these amounts of income, the applicant may provide a copy of his or 
her IRS Form W-2 for each source listed under paragraph (a)(4)(i)(A) of 
this section;
    (ii) For an individual described in paragraph (a)(3)(ii) of this 
section--
    (A) A copy of the IRS Form 4868, ``Application for Automatic 
Extension of Time to File U.S. Individual Income Tax Return,'' that the 
individual filed with the IRS for the specified year, or a copy of the 
IRS's approval of an extension beyond the automatic six-month extension 
if the individual requested an additional extension of the filing time; 
and
    (B) A copy of each IRS Form W-2 that the individual received for 
the specified year, or for a self-employed individual, a statement 
signed by the individual certifying the amount of the AGI for the 
specified year; and
    (iii) For an individual described in paragraph (a)(3)(iii) of this 
section--
    (A) A copy of each IRS Form W-2 that the individual received for 
the specified year; or
    (B) For an individual who is self-employed or has filed an income 
tax return with a government of a U. S. territory or commonwealth, or a 
foreign central government, a statement signed by the individual 
certifying the amount of AGI and taxes paid for the specified year.
    (5) An institution may require an individual described in paragraph 
(a)(3)(ii) of this section to provide to it a copy of his or her 
completed and signed income tax return when filed. If an institution 
receives the copy of the return, it must reverify the AGI and taxes 
paid by the applicant and his or her spouse or parents.
    (6) If an individual who is required to submit an IRS Form W-2, 
under paragraph (a) of this section, is unable to obtain one in a 
timely manner, the institution may permit that individual to set forth, 
in a statement signed by the individual, the amount of income earned 
from work, the source of that income, and the reason that the IRS Form 
W-2 is not available in a timely manner.
    (7) For the purpose of this section, an institution may accept in 
lieu of a copy of an income tax return signed by the filer of the 
return or one of the filers of a joint return, a copy of the filer's 
return that includes the preparer's Social Security Number, Employer 
Identification Number or the Preparer Tax Identification Number and has 
been signed, stamped, typed, or printed with the name and address of 
the preparer of the return.
    (b) Number of family members in household. An institution must 
require an applicant selected for verification of the number of family 
members in the household to submit to it a statement signed by both the 
applicant and one of the applicant's parents if the applicant is a 
dependent student, or only the applicant if the applicant is an 
independent student, listing the name and age of each family member in 
the household and the relationship of that household member to the 
applicant.
    (c) Number of family household members enrolled in eligible 
postsecondary institutions. (1) An institution must require an 
applicant selected for verification of the number of household members 
in the applicant's family enrolled on at least a half-time basis in 
eligible postsecondary institutions to submit a statement signed by 
both the applicant and one of the applicant's parents, if the applicant 
is a dependent student, or by only the applicant if the applicant is an 
independent student, listing--
    (i) The name of each family member who is or will be attending an 
eligible postsecondary educational institution as at least a half-time 
student in the award year;
    (ii) The age of each student; and
    (iii) The name of the institution that each student is or will be 
attending.

[[Page 66957]]

    (2) If the institution has reason to believe that an applicant's 
FAFSA information or the statement provided under paragraph (c)(1) of 
this section regarding the number of family household members enrolled 
in eligible postsecondary institutions is inaccurate, the institution 
must obtain a statement from each institution named by the applicant in 
response to the requirement of paragraph (c)(1)(iii) of this section 
that the household member in question is or will be attending the 
institution on at least a half-time basis, unless--
    (i) The institution the student is attending determines that such a 
statement is not available because the household member in question has 
not yet registered at the institution he or she plans to attend; or
    (ii) The institution has information indicating that the student 
will be attending the same institution as the applicant.
    (d) Other information. If an applicant is selected to verify other 
information specified in the annual Federal Register notice, the 
applicant must provide the documentation specified for that information 
in the Federal Register notice.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

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

Sec.  668.58  Interim disbursements.

    (a)(1) If an institution has reason to believe that an applicant's 
FAFSA information is inaccurate, until the information is verified and 
any corrections are made in accordance with Sec.  668.59(a), the 
institution may not--
    (i) Disburse any Federal Pell Grant, FSEOG, or Federal Perkins Loan 
Program funds to the applicant;
    (ii) Employ or allow an employer to employ the applicant in its FWS 
Program; or
    (iii) Originate a Direct Subsidized Loan, or disburse any such loan 
proceeds for any previously certified originated Direct Subsidized Loan 
to the applicant.
    (2) If an institution does not have reason to believe that an 
applicant's FAFSA information is inaccurate prior to verification, the 
institution may--
    (i)(A) Withhold payment of Federal Pell Grant, Federal Perkins 
Loan, or FSEOG Program funds for the applicant; or
    (B) Make one disbursement from each of the Federal Pell Grant, 
Federal Perkins Loan, or FSEOG Program funds for the applicant's first 
payment period of the award year;
    (ii) Employ or allow an employer to employ that applicant, once he 
or she is an eligible student, under the FWS Program for the first 60 
consecutive days after the student's enrollment in that award year; or
    (iii)(A) Withhold origination of the applicant's Direct Subsidized 
Loan; or
    (B) Originate the Direct Subsidized Loan provided that the 
institution does not disburse Subsidized Stafford Loan or Direct 
Subsidized Loan proceeds.
    (3) If, after verification, an institution determines that changes 
to an applicant's information will not change the amount the applicant 
would receive under a title IV, HEA program, the institution--
    (i) Must ensure corrections are made in accordance with Sec.  
668.59(a); and
    (ii) May prior to receiving the corrected valid SAR or valid ISIR--
    (A) Make one disbursement from each of the Federal Pell Grant, 
Federal Perkins Loan, or FSEOG Program funds for the applicant's first 
payment period of the award year;
    (B) Employ or allow an employer to employ the applicant, once he or 
she is an eligible student, under the FWS Program for the first 60 
consecutive days after the student's enrollment in that award year; or
    (C) Originate the Direct Subsidized Loan and disburse the 
Subsidized Stafford Loan or Direct Subsidized Loan proceeds for the 
applicant.
    (b) If an institution chooses to make a disbursement under--
    (1) Paragraph (a)(2)(i)(B) of this section, it--
    (i) Is liable for any overpayment discovered as a result of 
verification to the extent that the overpayment is not recovered 
through reducing subsequent disbursements in the award year or from the 
student; and
    (ii) Must recover the overpayment in accordance with Sec.  
668.61(a);
    (2) Paragraph (a)(2)(ii) of this section, it--
    (i) Is liable for any overpayment discovered as a result of 
verification to the extent that the overpayment is not eliminated by 
adjusting other financial assistance; and
    (ii) Must recover the overpayment in accordance with Sec.  
668.61(b); or
    (3) Paragraph (a)(3) of this section, it--
    (i) Is liable for any subsidized student financial assistance 
disbursed if it does not receive the valid SAR or valid ISIR reflecting 
corrections within the deadlines established under Sec.  668.60; and
    (ii) Must recover the funds in accordance with Sec.  668.61(c).

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

Sec.  668.59  Consequences of a change in an applicant's FAFSA 
information.

    (a) For the subsidized student financial assistance programs, if an 
applicant's FAFSA information changes as a result of verification, the 
applicant or the institution must submit to the Secretary any changes 
to--
    (1) A nondollar item; or
    (2) A single dollar item of $25 or more.
    (b) For the Federal Pell Grant Program, if an applicant's FAFSA 
information changes as a result of verification, an institution must--
    (1) Recalculate the applicant's Federal Pell Grant on the basis of 
the EFC on the corrected valid SAR or valid ISIR; and
    (2)(i) Disburse any additional funds under that award only if the 
institution receives a corrected valid SAR or valid ISIR for the 
applicant and only to the extent that additional funds are payable 
based on the recalculation;
    (ii) Comply with the procedures specified in Sec.  668.61 for an 
interim disbursement if, as a result of verification, the Federal Pell 
Grant award is reduced; or--
    (iii) Comply with the procedures specified in 34 CFR 690.79 for an 
overpayment that is not an interim disbursement if, as a result of 
verification, the Federal Pell Grant award is reduced.
    (c) For the subsidized student financial assistance programs, 
excluding the Federal Pell Grant Program, if an applicant's FAFSA 
information changes as a result of verification, the institution must--
    (1) Adjust the applicant's financial aid package on the basis of 
the EFC on the corrected valid SAR or valid ISIR; and
    (2)(i) Comply with the procedures specified in Sec.  668.61 for an 
interim disbursement if, as a result of verification, the financial aid 
package must be reduced;
    (ii) Comply with the procedures specified in 34 CFR 673.5(f) for a 
Federal Perkins loan or an FSEOG overpayment that is not the result of 
an interim disbursement if, as a result of verification, the financial 
aid package must be reduced; and
    (iii) Comply with the procedures specified in 34 CFR 685.303(e) for 
Direct Subsidized Loan excess loan proceeds that are not the result of 
an interim disbursement if, as a result of verification, the financial 
aid package must be reduced.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

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


[[Page 66958]]




Sec.  668.60  Deadlines for submitting documentation and the 
consequences of failing to provide documentation.

    (a) An institution must require an applicant selected for 
verification to submit to it, within the period of time it or the 
Secretary specifies, the documentation set forth in Sec.  668.57 that 
is requested by the institution.
    (b) For purposes of the subsidized student financial assistance 
programs, excluding the Federal Pell Grant Program--
    (1) If an applicant fails to provide the requested documentation 
within a reasonable time period established by the institution--
    (i) The institution may not--
    (A) Disburse any additional Federal Perkins Loan or FSEOG Program 
funds to the applicant;
    (B) Employ, continue to employ or allow an employer to employ the 
applicant under FWS; or
    (C) Originate the applicant's Direct Subsidized Loan or disburse 
any additional Direct Subsidized Loan proceeds for the applicant; and
    (ii) The applicant must repay to the institution any Federal 
Perkins Loan or FSEOG received for that award year;
    (2) If the applicant provides the requested documentation after the 
time period established by the institution, the institution may, at its 
option, disburse aid to the applicant notwithstanding paragraph (b)(1) 
of this section; and
    (3) If an institution has received proceeds for a Direct Subsidized 
Loan on behalf of an applicant, the institution must return all or a 
portion of those funds as provided under Sec.  668.166(b) if the 
applicant does not complete verification within the time period 
specified.
    (c) For purposes of the Federal Pell Grant Program--
    (1) An applicant may submit a valid SAR to the institution or the 
institution may receive a valid ISIR after the applicable deadline 
specified in 34 CFR 690.61 but within an established additional time 
period set by the Secretary through publication of a notice in the 
Federal Register; and
    (2) If the applicant does not provide to the institution the 
requested documentation and, if necessary, a valid SAR or the 
institution does not receive a valid ISIR, within the additional time 
period referenced in paragraph (c)(1) of this section, the applicant--
    (i) Forfeits the Federal Pell Grant for the award year; and
    (ii) Must return any Federal Pell Grant payments previously 
received for that award year.
    (d) The Secretary may determine not to process FAFSA information of 
an applicant who has been requested to provide documentation until the 
applicant provides the documentation or the Secretary decides that 
there is no longer a need for the documentation.
    (e) If an applicant selected for verification for an award year 
dies before the deadline for completing verification without completing 
that process, the institution may not--
    (1) Make any further disbursements on behalf of that applicant;
    (2) Originate that applicant's Direct Subsidized Loan, or disburse 
that applicant's Direct Subsidized Loan proceeds; or
    (3) Consider any funds it disbursed to that applicant under Sec.  
668.58(a)(2) as an overpayment.

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

Sec.  668.61  Recovery of funds from interim disbursements.

    (a) If an institution discovers, as a result of verification, that 
an applicant received under Sec.  668.58(a)(2)(i)(B) more financial aid 
than the applicant was eligible to receive, the institution must 
eliminate the Federal Pell Grant, Federal Perkins Loan, or FSEOG 
overpayment by--
    (1) Adjusting subsequent disbursements in the award year in which 
the overpayment occurred; or
    (2) Reimbursing the appropriate program account by--
    (i) Requiring the applicant to return the overpayment to the 
institution if the institution cannot correct the overpayment under 
paragraph (a)(1) of this section; or
    (ii) Making restitution from its own funds, by the earlier of the 
following dates, if the applicant does not return the overpayment:
    (A) Sixty days after the applicant's last day of attendance.
    (B) The last day of the award year in which the institution 
disbursed Federal Pell Grant, Federal Perkins Loan, or FSEOG Program 
funds to the applicant.
    (b) If an institution discovers, as a result of verification, that 
an applicant received under Sec.  668.58(a)(2)(ii) more financial aid 
than the applicant was eligible to receive, the institution must 
eliminate the FWS overpayment by--
    (1) Adjusting the applicant's other financial aid; or
    (2) Reimbursing the FWS program account by making restitution from 
its own funds, if the institution cannot correct the overpayment under 
paragraph (b)(1) of this section. The applicant must still be paid for 
all work performed under the institution's own payroll account.
    (c) If an institution disbursed subsidized student financial 
assistance to an applicant under Sec.  668.58(a)(3), and did not 
receive the valid SAR or valid ISIR reflecting corrections within the 
deadlines established under Sec.  668.60, the institution must 
reimburse the appropriate program account by making restitution from 
its own funds. The applicant must still be paid for all work performed 
under the institution's own payroll account.

(Approved by the Office of Management and Budget under control 
number 1845-0041)

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



0
24. Subpart F of part 668 is revised to read as follows:
Subpart F--Misrepresentation
Sec.
668.71 Scope and special definitions.
668.72 Nature of educational program.
668.73 Nature of financial charges.
668.74 Employability of graduates.
668.75 Relationship with the Department of Education.

Subpart F--Misrepresentation


Sec.  668.71  Scope and special definitions.

    (a) If the Secretary determines that an eligible institution has 
engaged in substantial misrepresentation, the Secretary may--
    (1) Revoke the eligible institution's program participation 
agreement;
    (2) Impose limitations on the institution's participation in the 
title IV, HEA programs;
    (3) Deny participation applications made on behalf of the 
institution; or
    (4) Initiate a proceeding against the eligible institution under 
subpart G of this part.
    (b) This subpart establishes the types of activities that 
constitute substantial misrepresentation by an eligible institution. An 
eligible institution is deemed to have engaged in substantial 
misrepresentation when the institution itself, one of its 
representatives, or any ineligible institution, organization, or person 
with whom the eligible institution has an agreement to provide 
educational programs, marketing, advertising, recruiting or admissions 
services, makes a substantial misrepresentation regarding the eligible 
institution, including about the nature of its educational program, its 
financial charges, or the employability of its graduates. Substantial 
misrepresentations are prohibited in all forms, including those made in 
any advertising, promotional materials, or in the marketing or sale of 
courses or programs of instruction offered by the institution.
    (c) The following definitions apply to this subpart:

[[Page 66959]]

    Misrepresentation: Any false, erroneous or misleading statement an 
eligible institution, one of its representatives, or any ineligible 
institution, organization, or person with whom the eligible institution 
has an agreement to provide educational programs, or to provide 
marketing, advertising, recruiting or admissions services makes 
directly or indirectly to a student, prospective student or any member 
of the public, or to an accrediting agency, to a State agency, or to 
the Secretary. A misleading statement includes any statement that has 
the likelihood or tendency to deceive or confuse. A statement is any 
communication made in writing, visually, orally, or through other 
means. Misrepresentation includes the dissemination of a student 
endorsement or testimonial that a student gives either under duress or 
because the institution required the student to make such an 
endorsement or testimonial to participate in a program.
    Prospective student: Any individual who has contacted an eligible 
institution for the purpose of requesting information about enrolling 
at the institution or who has been contacted directly by the 
institution or indirectly through advertising about enrolling at the 
institution.
    Substantial misrepresentation: Any misrepresentation on which the 
person to whom it was made could reasonably be expected to rely, or has 
reasonably relied, to that person's detriment.

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

Sec.  668.72  Nature of educational program.

    Misrepresentation concerning the nature of an eligible 
institution's educational program includes, but is not limited to, 
false, erroneous or misleading statements concerning--
    (a) The particular type(s), specific source(s), nature and extent 
of its institutional, programmatic, or specialized accreditation;
    (b)(1) Whether a student may transfer course credits earned at the 
institution to any other institution;
    (2) Conditions under which the institution will accept transfer 
credits earned at another institution;
    (c) Whether successful completion of a course of instruction 
qualifies a student--
    (1) For acceptance to a labor union or similar organization; or
    (2) To receive, to apply to take or to take the examination 
required to receive, a local, State, or Federal license, or a 
nongovernmental certification required as a precondition for 
employment, or to perform certain functions in the States in which the 
educational program is offered, or to meet additional conditions that 
the institution knows or reasonably should know are generally needed to 
secure employment in a recognized occupation for which the program is 
represented to prepare students;
    (d) The requirements for successfully completing the course of 
study or program and the circumstances that would constitute grounds 
for terminating the student's enrollment;
    (e) Whether its courses are recommended or have been the subject of 
unsolicited testimonials or endorsements by--
    (1) Vocational counselors, high schools, colleges, educational 
organizations, employment agencies, members of a particular industry, 
students, former students, or others; or
    (2) Governmental officials for governmental employment;
    (f) Its size, location, facilities, or equipment;
    (g) The availability, frequency, and appropriateness of its courses 
and programs to the employment objectives that it states its programs 
are designed to meet;
    (h) The nature, age, and availability of its training devices or 
equipment and their appropriateness to the employment objectives that 
it states its programs and courses are designed to meet;
    (i) The number, availability, and qualifications, including the 
training and experience, of its faculty and other personnel;
    (j) The availability of part-time employment or other forms of 
financial assistance;
    (k) The nature and availability of any tutorial or specialized 
instruction, guidance and counseling, or other supplementary assistance 
it will provide its students before, during or after the completion of 
a course;
    (l) The nature or extent of any prerequisites established for 
enrollment in any course;
    (m) The subject matter, content of the course of study, or any 
other fact related to the degree, diploma, certificate of completion, 
or any similar document that the student is to be, or is, awarded upon 
completion of the course of study;
    (n) Whether the academic, professional, or occupational degree that 
the institution will confer upon completion of the course of study has 
been authorized by the appropriate State educational agency. This type 
of misrepresentation includes, in the case of a degree that has not 
been authorized by the appropriate State educational agency or that 
requires specialized accreditation, any failure by an eligible 
institution to disclose these facts in any advertising or promotional 
materials that reference such degree; or
    (o) Any matters required to be disclosed to prospective students 
under Sec. Sec.  668.42 and 668.43 of this part.

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

Sec.  668.73  Nature of financial charges.

    Misrepresentation concerning the nature of an eligible 
institution's financial charges includes, but is not limited to, false, 
erroneous, or misleading statements concerning--
    (a) Offers of scholarships to pay all or part of a course charge;
    (b) Whether a particular charge is the customary charge at the 
institution for a course;
    (c) The cost of the program and the institution's refund policy if 
the student does not complete the program;
    (d) The availability or nature of any financial assistance offered 
to students, including a student's responsibility to repay any loans, 
regardless of whether the student is successful in completing the 
program and obtaining employment; or
    (e) The student's right to reject any particular type of financial 
aid or other assistance, or whether the student must apply for a 
particular type of financial aid, such as financing offered by the 
institution.

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

Sec.  668.74  Employability of graduates.

    Misrepresentation regarding the employability of an eligible 
institution's graduates includes, but is not limited to, false, 
erroneous, or misleading statements concerning--
    (a) The institution's relationship with any organization, 
employment agency, or other agency providing authorized training 
leading directly to employment;
    (b) The institution's plans to maintain a placement service for 
graduates or otherwise assist its graduates to obtain employment;
    (c) The institution's knowledge about the current or likely future 
conditions, compensation, or employment opportunities in the industry 
or occupation for which the students are being prepared;
    (d) Whether employment is being offered by the institution or that 
a talent hunt or contest is being conducted, including, but not limited 
to, through the use of phrases such as ``Men/women wanted to train for 
* * *,'' ``Help Wanted,'' ``Employment,'' or ``Business 
Opportunities'';
    (e) Government job market statistics in relation to the potential 
placement of its graduates; or

[[Page 66960]]

    (f) Other requirements that are generally needed to be employed in 
the fields for which the training is provided, such as requirements 
related to commercial driving licenses or permits to carry firearms, 
and failing to disclose factors that would prevent an applicant from 
qualifying for such requirements, such as prior criminal records or 
preexisting medical conditions.

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

Sec.  668.75  Relationship with the Department of Education.

    An eligible institution, its representatives, or any ineligible 
institution, organization, or person with whom the eligible institution 
has an agreement may not describe the eligible institution's 
participation in the title IV, HEA programs in a manner that suggests 
approval or endorsement by the U.S. Department of Education of the 
quality of its educational programs.

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



0
25. Subpart J of part 668 is revised to read as follows:
Subpart J--Approval of Independently Administered Tests; Specification 
of Passing Score; Approval of State Process
Sec.
668.141 Scope.
668.142 Special definitions.
668.143 [Reserved]
668.144 Application for test approval.
668.145 Test approval procedures.
668.146 Criteria for approving tests.
668.147 Passing scores.
668.148 Additional criteria for the approval of certain tests.
668.149 Special provisions for the approval of assessment procedures 
for individuals with disabilities.
668.150 Agreement between the Secretary and a test publisher or a 
State.
668.151 Administration of tests.
668.152 Administration of tests by assessment centers.
668.153 Administration of tests for individuals whose native 
language is not English or for individuals with disabilities.
668.154 Institutional accountability.
668.155 [Reserved]
668.156 Approved State process.

Subpart J--Approval of Independently Administered Tests; 
Specification of Passing Score; Approval of State Process


Sec.  668.141  Scope.

    (a) This subpart sets forth the provisions under which a student 
who has neither a high school diploma nor its recognized equivalent may 
become eligible to receive title IV, HEA program funds by--
    (1) Achieving a passing score, specified by the Secretary, on an 
independently administered test approved by the Secretary under this 
subpart; or
    (2) Being enrolled in an eligible institution that participates in 
a State process approved by the Secretary under this subpart.
    (b) Under this subpart, the Secretary sets forth--
    (1) The procedures and criteria the Secretary uses to approve 
tests;
    (2) The basis on which the Secretary specifies a passing score on 
each approved test;
    (3) The procedures and conditions under which the Secretary 
determines that an approved test is independently administered;
    (4) The information that a test publisher or a State must submit, 
as part of its test submission, to explain the methodology it will use 
for the test anomaly studies as described in Sec.  668.144(c)(17) and 
(d)(8), as appropriate;
    (5) The requirements that a test publisher or a State, as 
appropriate--
    (i) Have a process to identify and follow up on test score 
irregularities;
    (ii) Take corrective action--up to and including decertification of 
test administrators--if the test publisher or the State determines that 
test score irregularities have occurred; and
    (iii) Report to the Secretary the names of any test administrators 
it decertifies and any other action taken as a result of test score 
analyses; and
    (6) The procedures and conditions under which the Secretary 
determines that a State process demonstrates that students in the 
process have the ability to benefit from the education and training 
being offered to them.

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

Sec.  668.142  Special definitions.

    The following definitions apply to this subpart:
    Assessment center: A facility that--
    (1) Is located at an eligible institution that provides two-year or 
four-year degrees or is a postsecondary vocational institution;
    (2) Is responsible for gathering and evaluating information about 
individual students for multiple purposes, including appropriate course 
placement;
    (3) Is independent of the admissions and financial aid processes at 
the institution at which it is located;
    (4) Is staffed by professionally trained personnel;
    (5) Uses test administrators to administer tests approved by the 
Secretary under this subpart; and
    (6) Does not have as its primary purpose the administration of 
ability to benefit tests.
    ATB test irregularity: An irregularity that results from an ATB 
test being administered in a manner that does not conform to the 
established rules for test administration consistent with the 
provisions of subpart J of part 668 and the test administrator's 
manual.
    Computer-based test: A test taken by a student on a computer and 
scored by a computer.
    General learned abilities: Cognitive operations, such as deductive 
reasoning, reading comprehension, or translation from graphic to 
numerical representation, that may be learned in both school and non-
school environments.
    Independent test administrator: A test administrator who 
administers tests at a location other than an assessment center and 
who--
    (1) Has no current or prior financial or ownership interest in the 
institution, its affiliates, or its parent corporation, other than the 
fees earned for administering approved ATB tests through an agreement 
with the test publisher or State and has no controlling interest in any 
other institution;
    (2) Is not a current or former employee of or consultant to the 
institution, its affiliates, or its parent corporation, a person in 
control of another institution, or a member of the family of any of 
these individuals;
    (3) Is not a current or former member of the board of directors, a 
current or former employee of or a consultant to a member of the board 
of directors, chief executive officer, chief financial officer of the 
institution, its affiliates, or its parent corporation or of any other 
institution, or a member of the family of any of these individuals; and
    (4) Is not a current or former student of the institution.
    Individual with a disability: A person who has a physical or mental 
impairment which substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as 
having such an impairment.
    Non-native speaker of English: A person whose first language is not 
English and who is not fluent in English.
    Secondary school level: As applied to ``content,'' ``curricula,'' 
or ``basic verbal and quantitative skills,'' the basic knowledge or 
skills generally learned in the 9th through 12th grades in United 
States secondary schools.
    Test: A standardized test, assessment or instrument that has formal 
protocols on how it is to be administered in order to be valid. These 
protocols include, for example, the use of parallel, equated forms; 
testing conditions; time allowed

[[Page 66961]]

for the test; and standardized scoring. Tests are not limited to 
traditional paper and pencil (or computer-administered) instruments for 
which forms are constructed prior to administration to examinees. Tests 
may also include adaptive instruments that use computerized algorithms 
for selecting and administering items in real time; however, for such 
instruments, the size of the item pool and the method of item selection 
must ensure negligible overlap in items across retests.
    Test administrator: An individual who is certified by the test 
publisher (or the State, in the case of an approved State test or 
assessment) to administer tests approved under this subpart in 
accordance with the instructions provided by the test publisher or the 
State, as applicable, which includes protecting the test and the test 
results from improper disclosure or release, and who is not compensated 
on the basis of test outcomes.
    Test item: A question on a test.
    Test publisher: An individual, organization, or agency that owns a 
registered copyright of a test, or has been authorized by the copyright 
holder to represent the copyright holder's interests regarding the 
test.

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

Sec.  668.143  [Reserved]


Sec.  668.144  Application for test approval.

    (a) The Secretary only reviews tests under this subpart that are 
submitted by the publisher of that test or by a State.
    (b) A test publisher or a State that wishes to have its test 
approved by the Secretary under this subpart must submit an application 
to the Secretary at such time and in such manner as the Secretary may 
prescribe. The application must contain all the information necessary 
for the Secretary to approve the test under this subpart, including but 
not limited to, the information contained in paragraph (c) or (d) of 
this section, as applicable.
    (c) A test publisher must include with its application--
    (1) A summary of the precise editions, forms, levels, and (if 
applicable) sub-tests for which approval is being sought;
    (2) The name, address, telephone number, and e-mail address of a 
contact person to whom the Secretary may address inquiries;
    (3) Each edition, form, level, and sub-test of the test for which 
the test publisher requests approval;
    (4) The distribution of test scores for each edition, form, level, 
or sub-test for which approval is sought, that allows the Secretary to 
prescribe the passing score for each test in accordance with Sec.  
668.147;
    (5) Documentation of test development, including a history of the 
test's use;
    (6) Norming data and other evidence used in determining the 
distribution of test scores;
    (7) Material that defines the content domains addressed by the 
test;
    (8) Documentation of periodic reviews of the content and 
specifications of the test to ensure that the test reflects secondary 
school level verbal and quantitative skills;
    (9) If a test being submitted is a revision of the most recent 
edition approved by the Secretary, an analysis of the revisions, 
including the reasons for the revisions, the implications of the 
revisions for the comparability of scores on the current test to scores 
on the previous test, and data from validity studies of the test 
undertaken subsequent to the revisions;
    (10) A description of the manner in which test-taking time was 
determined in relation to the content representativeness requirements 
in Sec.  668.146(b)(3) and an analysis of the effects of time on 
performance. This description may also include the manner in which 
test-taking time was determined in relation to the other requirements 
in Sec.  668.146(b);
    (11) A technical manual that includes--
    (i) An explanation of the methodology and procedures for measuring 
the reliability of the test;
    (ii) Evidence that different forms of the test, including, if 
applicable, short forms, are comparable in reliability;
    (iii) Other evidence demonstrating that the test permits consistent 
assessment of individual skill and ability;
    (iv) Evidence that the test was normed using--
    (A) Groups that were of sufficient size to produce defensible 
standard errors of the mean and were not disproportionately composed of 
any race or gender; and
    (B) A contemporary sample that is representative of the population 
of persons who have earned a high school diploma in the United States;
    (v) Documentation of the level of difficulty of the test;
    (vi) Unambiguous scales and scale values so that standard errors of 
measurement can be used to determine statistically significant 
differences in performance; and
    (vii) Additional guidance on the interpretation of scores resulting 
from any modifications of the test for individuals with temporary 
impairments, individuals with disabilities and guidance on the types of 
accommodations that are allowable;
    (12) The manual provided to test administrators containing 
procedures and instructions for test security and administration, and 
the forwarding of tests to the test publisher;
    (13) An analysis of the item-content of each edition, form, level, 
and (if applicable) sub-test to demonstrate compliance with the 
required secondary school level criterion specified in Sec.  
668.146(b);
    (14) A description of retesting procedures and the analysis upon 
which the criteria for retesting are based;
    (15) Other evidence establishing the test's compliance with the 
criteria for approval of tests as provided in Sec.  668.146;
    (16) A description of its test administrator certification process 
that provides--
    (i) How the test publisher will determine that the test 
administrator has the necessary training, knowledge, skill, and 
integrity to test students in accordance with this subpart and the test 
publisher's requirements; and
    (ii) How the test publisher will determine that the test 
administrator has the ability and facilities to keep its test secure 
against disclosure or release;
    (17) A description of the test anomaly analysis the test publisher 
will conduct and submit to the Secretary that includes--
    (i) An explanation of how the test publisher will identify 
potential test irregularities and make a determination that test 
irregularities have occurred;
    (ii) An explanation of the process and procedures for corrective 
action (up to and including decertification of a certified test 
administrator) when the test publisher determines that test 
irregularities have occurred; and
    (iii) Information on when and how the test publisher will notify a 
test administrator, the Secretary, and the institutions for which the 
test administrator had previously provided testing services for that 
test publisher, that the test administrator has been decertified; and
    (18)(i) An explanation of any accessible technologies that are 
available to accommodate individuals with disabilities, and
    (ii) A description of the process for a test administrator to 
identify and report to the test publisher when accommodations for 
individuals with disabilities were provided, for scoring and norming 
purposes.
    (d) A State must include with its application--

[[Page 66962]]

    (1) The information necessary for the Secretary to determine that 
the test the State uses measures a student's skills and abilities for 
the purpose of determining whether the student has the skills and 
abilities the State expects of a high school graduate in that State;
    (2) The passing scores on that test;
    (3) Any guidance on the interpretation of scores resulting from any 
modifications of the test for individuals with disabilities;
    (4) A statement regarding how the test will be kept secure;
    (5) A description of retesting procedures and the analysis upon 
which the criteria for retesting are based;
    (6) Other evidence establishing the test's compliance with the 
criteria for approval of tests as provided in Sec.  668.146;
    (7) A description of its test administrator certification process 
that provides--
    (i) How the State will determine that the test administrator has 
the necessary training, knowledge, skill, and integrity to test 
students in accordance with the State's requirements; and
    (ii) How the State will determine that the test administrator has 
the ability and facilities to keep its test secure against disclosure 
or release;
    (8) A description of the test anomaly analysis that the State will 
conduct and submit to the Secretary that includes--
    (i) An explanation of how the State will identify potential test 
irregularities and make a determination that test irregularities have 
occurred;
    (ii) An explanation of the process and procedures for corrective 
action (up to and including decertification of a test administrator) 
when the State determines that test irregularities have occurred; and
    (iii) Information on when and how the State will notify a test 
administrator, the Secretary, and the institutions for which the test 
administrator had previously provided testing services for that State, 
that the test administrator has been decertified;
    (9)(i) An explanation of any accessible technologies that are 
available to accommodate individuals with disabilities; and
    (ii) A description of the process for a test administrator to 
identify and report to the test publisher when accommodations for 
individuals with disabilities were provided, for scoring and norming 
purposes; and
    (10) The name, address, telephone number, and e-mail address of a 
contact person to whom the Secretary may address inquiries.
    (11) A technical manual that includes--
    (i) An explanation of the methodology and procedures for measuring 
the reliability of the test;
    (ii) Evidence that different forms of the test, including, if 
applicable, short forms, are comparable in reliability;
    (iii) Other evidence demonstrating that the test permits consistent 
assessment of individual skill and ability;
    (iv) Evidence that the test was normed using--
    (A) Groups that were of sufficient size to produce defensible 
standard errors of the mean and were not disproportionately composed of 
any race or gender; and
    (B) A contemporary sample that is representative of the population 
of persons who have earned a high school diploma in the United States;
    (v) Documentation of the level of difficulty of the test;
    (vi) Unambiguous scales and scale values so that standard errors of 
measurement can be used to determine statistically significant 
differences in performance; and
    (vii) Additional guidance on the interpretation of scores resulting 
from any modifications of the test for individuals with temporary 
impairments, individuals with disabilities and guidance on the types of 
accommodations that are allowable;
    (12) the manual provided to test administrators containing 
procedures and instructions for test security and administration, and 
the forwarding of tests to the State.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

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

Sec.  668.145  Test approval procedures.

    (a)(1) When the Secretary receives a complete application from a 
test publisher or a State, the Secretary selects one or more experts in 
the field of educational testing and assessment, who possess 
appropriate advanced degrees and experience in test development or 
psychometric research, to determine whether the test meets the 
requirements for test approval contained in Sec. Sec.  668.146, 
668.147, 668.148, or 668.149, as appropriate, and to advise the 
Secretary of their determinations.
    (2) If the test involves a language other than English, the 
Secretary selects at least one individual who is fluent in the language 
in which the test is written to collaborate with the testing expert or 
experts described in paragraph (a)(1) of this section and to advise the 
Secretary on whether the test meets the additional criteria, 
provisions, and conditions for test approval contained in Sec. Sec.  
668.148 and 668.149.
    (3) For test batteries that contain multiple sub-tests measuring 
content domains other than verbal and quantitative domains, the 
Secretary reviews only those sub-tests covering the verbal and 
quantitative domains.
    (b)(1) If the Secretary determines that a test satisfies the 
criteria and requirements for test approval, the Secretary notifies the 
test publisher or the State, as applicable, of the Secretary's 
decision, and publishes the name of the test and the passing scores in 
the Federal Register.
    (2) If the Secretary determines that a test does not satisfy the 
criteria and requirements for test approval, the Secretary notifies the 
test publisher or the State, as applicable, of the Secretary's 
decision, and the reasons why the test did not meet those criteria and 
requirements.
    (3) If the Secretary determines that a test does not satisfy the 
criteria and requirements for test approval, the test publisher or the 
State that submitted the test for approval may request that the 
Secretary reevaluate the Secretary's decision. Such a request must be 
accompanied by--
    (i) Documentation and information that address the reasons for the 
non-approval of the test; and
    (ii) An analysis of why the information and documentation submitted 
meet the criteria and requirements for test approval notwithstanding 
the Secretary's earlier decision to the contrary.
    (c)(1) The Secretary approves a test for a period not to exceed 
five years from the date the notice of approval of the test is 
published in the Federal Register.
    (2) The Secretary extends the approval period of a test to include 
the period of review if the test publisher or the State, as applicable, 
re-submits the test for review and approval under Sec.  668.144 at 
least six months before the date on which the test approval is 
scheduled to expire.
    (d)(1) The Secretary's approval of a test may be revoked if the 
Secretary determines that the test publisher or the State violated any 
terms of the agreement described in Sec.  668.150, that the information 
the test publisher or the State submitted as a basis for approval of 
the test was inaccurate, or that the test publisher or the State 
substantially changed the test and did not resubmit the test, as 
revised, for approval.
    (2) If the Secretary revokes approval of a previously approved 
test, the Secretary publishes a notice of that revocation in the 
Federal Register. The revocation becomes effective--

[[Page 66963]]

    (i) One hundred and twenty days from the date the notice of 
revocation is published in the Federal Register; or
    (ii) An earlier date specified by the Secretary in a notice 
published in the Federal Register.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

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

Sec.  668.146  Criteria for approving tests.

    (a) Except as provided in Sec.  668.148, the Secretary approves a 
test under this subpart if--
    (1) The test meets the criteria set forth in paragraph (b) of this 
section;
    (2) The test publisher or the State satisfies the requirements set 
forth in paragraph (c) of this section; and
    (3) The Secretary makes a determination that the information the 
test publisher or State submitted in accordance with Sec.  
668.144(c)(17) or (d)(8), as applicable, provides adequate assurance 
that the test publisher or State will conduct rigorous test anomaly 
analyses and take appropriate action if test administrators do not 
comply with testing procedures.
    (b) To be approved under this subpart, a test must--
    (1) Assess secondary school level basic verbal and quantitative 
skills and general learned abilities;
    (2) Sample the major content domains of secondary school level 
verbal and quantitative skills with sufficient numbers of questions 
to--
    (i) Adequately represent each domain; and
    (ii) Permit meaningful analyses of item-level performance by 
students who are representative of the contemporary population beyond 
the age of compulsory school attendance and have earned a high school 
diploma;
    (3) Require appropriate test-taking time to permit adequate 
sampling of the major content domains described in paragraph (b)(2) of 
this section;
    (4) Have all forms (including short forms) comparable in 
reliability;
    (5) Have, in the case of a test that is revised, new scales, scale 
values, and scores that are demonstrably comparable to the old scales, 
scale values, and scores;
    (6) Meet all standards for test construction provided in the 1999 
edition of the Standards for Educational and Psychological Testing, 
prepared by a joint committee of the American Educational Research 
Association, the American Psychological Association, and the National 
Council on Measurement in Education incorporated by reference in this 
section. Incorporation by reference of this document has been approved 
by the Director of the Office of the Federal Register pursuant to the 
Director's authority under 5 U.S.C. 552(a) and 1 CFR part 51. The 
incorporated document is on file at the Department of Education, 
Federal Student Aid, room 113E2, 830 First Street, NE., Washington, DC 
20002, phone (202) 377-4026, and at the National Archives and Records 
Administration (NARA). For information on the availability of this 
material at NARA, call 1-866-272-6272, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html. The document also may be obtained from the American 
Educational Research Association at: http://www.aera.net; and
    (7) Have the test publisher's or the State's guidelines for 
retesting, including time between test-taking, be based on empirical 
analyses that are part of the studies of test reliability.
    (c) In order for a test to be approved under this subpart, a test 
publisher or a State must--
    (1) Include in the test booklet or package--
    (i) Clear, specific, and complete instructions for test 
administration, including information for test takers on the purpose, 
timing, and scoring of the test; and
    (ii) Sample questions representative of the content and average 
difficulty of the test;
    (2) Have two or more secure, equated, alternate forms of the test;
    (3) Except as provided in Sec. Sec.  668.148 and 668.149, provide 
tables of distributions of test scores which clearly indicate the mean 
score and standard deviation for high school graduates who have taken 
the test within three years prior to the date that the test is 
submitted to the Secretary for approval under Sec.  668.144;
    (4) Norm the test with--
    (i) Groups that are of sufficient size to produce defensible 
standard errors of the mean and are not disproportionately composed of 
any race or gender; and
    (ii) A contemporary sample that is representative of the population 
of persons who have earned a high school diploma in the United States; 
and
    (5) If test batteries include sub-tests assessing different verbal 
and/or quantitative skills, a distribution of test scores as described 
in paragraph (c)(3) of this section that allows the Secretary to 
prescribe either--
    (i) A passing score for each sub-test; or
    (ii) One composite passing score for verbal skills and one 
composite passing score for quantitative skills.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

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

Sec.  668.147  Passing scores.

    Except as provided in Sec. Sec.  668.144(d), 668.148, and 668.149, 
to demonstrate that a test taker has the ability to benefit from the 
education and training offered by the institution, the Secretary 
specifies that the passing score on each approved test is one standard 
deviation below the mean score of a sample of individuals who have 
taken the test within the three years before the test is submitted to 
the Secretary for approval. The sample must be representative of the 
population of high school graduates in the United States.

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

Sec.  668.148  Additional criteria for the approval of certain tests.

    (a) In addition to satisfying the criteria in Sec.  668.146, to be 
approved by the Secretary, a test must meet the following criteria, if 
applicable:
    (1) In the case of a test developed for a non-native speaker of 
English who is enrolled in a program that is taught in his or her 
native language, the test must be--
    (i) Linguistically accurate and culturally sensitive to the 
population for which the test is designed, regardless of the language 
in which the test is written;
    (ii) Supported by documentation detailing the development of 
normative data;
    (iii) If translated from an English version, supported by 
documentation of procedures to determine its reliability and validity 
with reference to the population for which the translated test was 
designed;
    (iv) Developed in accordance with guidelines provided in the 1999 
edition of the ``Testing Individuals of Diverse Linguistic 
Backgrounds'' section of the Standards for Educational and 
Psychological Testing prepared by a joint committee of the American 
Educational Research Association, the American Psychological 
Association, and the National Council on Measurement in Education 
incorporated by reference in this section. Incorporation by reference 
of this document has been approved by the Director of the Office of the 
Federal Register pursuant to the Director's authority under 5 U.S.C. 
552(a) and 1 CFR part 51. The incorporated document is on file at the 
Department of Education, Federal Student Aid, room 113E2, 830 First 
Street, NE., Washington, DC 20002, phone (202) 377-4026, and at the 
National Archives

[[Page 66964]]

and Records Administration (NARA). For information on the availability 
of this material at NARA, call 1-866-272-6272, or go to: http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html. The document also may be obtained from the American 
Educational Research Association at: http://www.aera.net; and
    (v)(A) If the test is in Spanish, accompanied by a distribution of 
test scores that clearly indicates the mean score and standard 
deviation for Spanish-speaking students with high school diplomas who 
have taken the test within five years before the date on which the test 
is submitted to the Secretary for approval.
    (B) If the test is in a language other than Spanish, accompanied by 
a recommendation for a provisional passing score based upon performance 
of a sample of test takers representative of non-English speaking 
individuals who speak a language other than Spanish and who have a high 
school diploma. The sample upon which the recommended provisional 
passing score is based must be large enough to produce stable norms.
    (2) In the case of a test that is modified for use for individuals 
with disabilities, the test publisher or State must--
    (i) Follow guidelines provided in the ``Testing Individuals with 
Disabilities'' section of the Standards for Educational and 
Psychological Testing; and
    (ii) Provide documentation of the appropriateness and feasibility 
of the modifications relevant to test performance.
    (3) In the case of a computer-based test, the test publisher or 
State, as applicable, must--
    (i) Provide documentation to the Secretary that the test complies 
with the basic principles of test construction and standards of 
reliability and validity as promulgated in the Standards for 
Educational and Psychological Testing;
    (ii) Provide test administrators with instructions for 
familiarizing test takers with computer hardware prior to test-taking; 
and
    (iii) Provide two or more parallel, equated forms of the test, or, 
if parallel forms are generated from an item pool, provide 
documentation of the methods of item selection for alternate forms.
    (b) If a test is designed solely to measure the English language 
competence of non-native speakers of English--
    (1) The test must meet the criteria set forth in Sec.  
668.146(b)(6), (c)(1), (c)(2), and (c)(4); and
    (2) The test publisher must recommend a passing score based on the 
mean score of test takers beyond the age of compulsory school 
attendance who completed U.S. high school equivalency programs, formal 
training programs, or bilingual vocational programs.

(Approved by the Office of Management and Budget under control 
number 1845-0049)

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

Sec.  668.149  Special provisions for the approval of assessment 
procedures for individuals with disabilities.

    If no test is reasonably available for individuals with 
disabilities so that no test can be approved under Sec. Sec.  668.146 
or 668.148 for these individuals, the following procedures apply:
    (a) The Secretary considers a modified test or testing procedure, 
or instrument that has been scientifically developed specifically for 
the purpose of evaluating the ability to benefit from postsecondary 
training or education of individuals with disabilities to be an 
approved test for purposes of this subpart provided that the testing 
procedure or instrument measures both basic verbal and quantitative 
skills at the secondary school level.
    (b) The Secretary considers the passing scores for these testing 
procedures or instruments to be those recommended by the test publisher 
or State, as applicable.
    (c) The test publisher or State, as applicable, must--
    (1) Maintain appropriate documentation, including a description of 
the procedures or instruments, their content domains, technical 
properties, and scoring procedures; and
    (2) Require the test administrator to--
    (i) Use the procedures or instruments in accordance with 
instructions provided by the test publisher or State, as applicable; 
and
    (ii) Use the passing scores recommended by the test publisher or 
State, as applicable.

(Approved by the Office of Management and Budget under control 
number 1845-0049)


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

Sec.  668.150  Agreement between the Secretary and a test publisher or 
a State.

    (a) If the Secretary approves a test under this subpart, the test 
publisher or the State that submitted the test must enter into an 
agreement with the Secretary that contains the provisions set forth in 
paragraph (b) of this section before an institution may use the test to 
determine a student's eligibility for title IV, HEA program funds.
    (b) The agreement between a test publisher or a State, as 
applicable, and the Secretary provides that the test publisher or the 
State, as applicable, must--
    (1) Allow only test administrators that it certifies to give its 
test;
    (2) Require each test administrator it certifies to--
    (i) Provide the test publisher or the State, as applicable, with a 
certification statement that indicates he or she is not currently 
decertified; and
    (ii) Notify the test publisher or the State, as applicable, 
immediately if any other test publisher or State decertifies the test 
administrator;
    (3) Only certify test administrators who--
    (i) Have the necessary training, knowledge, and skill to test 
students in accordance with the test publisher's or the State's testing 
requirements;
    (ii) Have the ability and facilities to keep its test secure 
against disclosure or release; and
    (iii) Have not been decertified within the last three years by any 
test publisher or State;
    (4) Decertify a test administrator for a period of three years if 
the test publisher or the State finds that the test administrator--
    (i) Has failed to give its test in accordance with the test 
publisher's or the State's instructions;
    (ii) Has not kept the test secure;
    (iii) Has compromised the integrity of the testing process; or
    (iv) Has given the test in violation of the provisions contained in 
Sec.  668.151;
    (5) Reevaluate the qualifications of a test administrator who has 
been decertified by another test publisher or State and determine 
whether to continue the test administrator's certification or to 
decertify the test administrator;
    (6) Immediately notify the test administrator, the Secretary, and 
the institutions where the test administrator previously administered 
approved tests when the test publisher or the State decertifies a test 
administrator;
    (7)(i) Review the test results of the tests administered by a 
decertified test administrator and determine which tests may have been 
improperly administered during the five (5) year period preceding the 
date of decertification;
    (ii) Immediately notify the affected institutions and students or 
prospective students; and
    (iii) Provide a report to the Secretary on the results of the 
review and the notifications provided to institutions and students or 
prospective students;
    (8) Report to the Secretary if the test publisher or the State 
certifies a previously decertified test administrator after the three 
year period specified in paragraph (b)(4) of this section;

[[Page 66965]]

    (9) Score a test answer sheet that it receives from a test 
administrator;
    (10) If a computer-based test is used, provide the test 
administrator with software that will--
    (i) Immediately generate a score report for each test taker;
    (ii) Allow the test administrator to send to the test publisher or 
the State, as applicable, a record of the test taker's performance on 
each test item and the test taker's test scores using a data transfer 
method that is encrypted and secure; and
    (iii) Prohibit any changes in test taker responses or test scores;
    (11) Promptly send to the student and the institution the student 
indicated he or she is attending or scheduled to attend a notice 
stating the student's score for the test and whether or not the student 
passed the test;
    (12) Keep each test answer sheet or electronic record forwarded for 
scoring and all other documents forwarded by the test administrator 
with regard to the test for a period of three years from the date the 
analysis of the tests results, described in paragraph (b)(13) of this 
section, was sent to the Secretary;
    (13) Analyze the test scores of students who take the test to 
determine whether the test scores and data produce any irregular 
pattern that raises an inference that the tests were not being properly 
administered, and provide the Secretary with a copy of this analysis 
within 18 months after the test was approved and every 18 months 
thereafter during the period of test approval;
    (14) Upon request, give the Secretary, a State agency, an 
accrediting agency, and law enforcement agencies access to test records 
or other documents related to an audit, investigation, or program 
review of an institution, the test publisher, or a test administrator;
    (15) Immediately report to the Secretary if the test publisher or 
the State finds any credible information indicating that a test has 
been compromised;
    (16) Immediately report to the Office of Inspector General of the 
Department of Education for investigation if the test publisher or the 
State finds any credible information indicating that a test 
administrator or institution may have engaged in civil or criminal 
fraud, or other misconduct; and
    (17) Require a test administrator who provides a test to an 
individual with a disability who requires an accommodation in the 
test's administration to report to the test publisher or the State 
within the time period specified in Sec.  668.151(b)(2) or Sec.  
668.152(b)(2), as applicable, the nature of the disability and the 
accommodations that were provided.
    (c)(1) The Secretary may terminate an agreement with a test 
publisher or a State, as applicable, if the test publisher or the State 
fails to carry out the terms of the agreement described in paragraph 
(b) of this section.
    (2) Before terminating the agreement, the Secretary gives the test 
publisher or the State, as applicable, the opportunity to show that it 
has not failed to carry out the terms of its agreement.
    (3) If the Secretary terminates an agreement with a test publisher 
or a State under this section, the Secretary publishes a notice in the 
Federal Register specifying when institutions may no longer use the 
test publisher's or the State's test(s) for purposes of determining a 
student's eligibility for title IV, HEA program funds.

(Approved by the Office of Management and Budget under control 
number 1845-0049)


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

Sec.  668.151  Administration of tests.

    (a)(1) To establish a student's eligibility for title IV, HEA 
program funds under this subpart, an institution must select a test 
administrator to give an approved test.
    (2) An institution may use the results of an approved test it 
received from an approved test publisher or assessment center to 
determine a student's eligibility to receive title IV, HEA program 
funds if the test was independently administered and properly 
administered in accordance with this subpart.
    (b) The Secretary considers that a test is independently 
administered if the test is--
    (1) Given at an assessment center by a certified test administrator 
who is an employee of the center; or
    (2) Given by an independent test administrator who maintains the 
test at a secure location and submits the test for scoring by the test 
publisher or the State or, for a computer-based test, a record of the 
test scores, within two business days of administering the test.
    (c) The Secretary considers that a test is not independently 
administered if an institution--
    (1) Compromises test security or testing procedures;
    (2) Pays a test administrator a bonus, commission, or any other 
incentive based upon the test scores or pass rates of its students who 
take the test; or
    (3) Otherwise interferes with the test administrator's independence 
or test administration.
    (d) The Secretary considers that a test is properly administered if 
the test administrator--
    (1) Is certified by the test publisher or the State, as applicable, 
to give the test publisher's or the State's test;
    (2) Administers the test in accordance with instructions provided 
by the test publisher or the State, as applicable, and in a manner that 
ensures the integrity and security of the test;
    (3) Makes the test available only to a test-taker, and then only 
during a regularly scheduled test;
    (4) Secures the test against disclosure or release; and
    (5) Submits the completed test or, for a computer-based test, a 
record of test scores, to the test publisher or the State, as 
applicable, within the time period specified in Sec.  668.152(b) or 
paragraph (b)(2) of this section, as appropriate, and in accordance 
with the test publisher's or the State's instructions.
    (e) An independent test administrator may not score a test.
    (f) An individual who fails to pass a test approved under this 
subpart may not retake the same form of the test for the period 
prescribed by the test publisher or the State responsible for the test.
    (g) An institution must maintain a record for each individual who 
took a test under this subpart. The record must include--
    (1) The test taken by the individual;
    (2) The date of the test;
    (3) The individual's scores as reported by the test publisher, an 
assessment center, or the State;
    (4) The name and address of the test administrator who administered 
the test and any identifier assigned to the test administrator by the 
test publisher or the State; and
    (5) If the individual who took the test is an individual with a 
disability and was unable to be evaluated by the use of an approved ATB 
test or the individual requested or required testing accommodations, 
documentation of the individual's disability and of the testing 
arrangements provided in accordance with Sec.  668.153(b).

    (Approved by the Office of Management and Budget under control 
number 1845-0049)


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

Sec.  668.152  Administration of tests by assessment centers.

    (a) If a test is given by an assessment center, the assessment 
center must properly administer the test as described in Sec.  
668.151(d), and Sec.  668.153, if applicable.
    (b)(1) Unless an agreement between a test publisher or a State, as 
applicable, and an assessment center indicates otherwise, an assessment 
center scores

[[Page 66966]]

the tests it gives and promptly notifies the institution and the 
student of the student's score on the test and whether the student 
passed the test.
    (2) If the assessment center scores the test, it must provide 
weekly to the test publisher or the State, as applicable--
    (i) All copies of the completed test, including the name and 
address of the test administrator who administered the test and any 
identifier assigned to the test administrator by the test publisher or 
the State, as applicable; or
    (ii) A report listing all test-takers' scores and institutions to 
which the scores were sent and the name and address of the test 
administrator who administered the test and any identifier assigned to 
the test administrator by the test publisher or the State, as 
applicable.

    (Approved by the Office of Management and Budget under control 
number 1845-0049)


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

Sec.  668.153  Administration of tests for individuals whose native 
language is not English or for individuals with disabilities.

    (a) Individuals whose native language is not English. For an 
individual whose native language is not English and who is not fluent 
in English, the institution must use the following tests, as 
applicable:
    (1) If the individual is enrolled or plans to enroll in a program 
conducted entirely in his or her native language, the individual must 
take a test approved under Sec. Sec.  668.146 and 668.148(a)(1).
    (2) If the individual is enrolled or plans to enroll in a program 
that is taught in English with an ESL component, the individual must 
take an English language proficiency assessment approved under Sec.  
668.148(b) and, before beginning the portion of the program taught in 
English, a test approved under Sec.  668.146.
    (3) If the individual is enrolled or plans to enroll in a program 
that is taught in English without an ESL component, or the individual 
does not enroll in any ESL component offered, the individual must take 
a test in English approved under Sec.  668.146.
    (4) If the individual enrolls in an ESL program, the individual 
must take an ESL test approved under Sec.  668.148(b).
    (5) If the individual enrolls or plans to enroll in a program that 
is taught in the student's native language that either has an ESL 
component or a portion of the program will be taught in English, the 
individual must take an English proficiency test approved under Sec.  
668.148(b) prior to beginning the portion of the program taught in 
English.
    (b) Individuals with disabilities. (1) For an individual with a 
disability who has neither a high school diploma nor its equivalent and 
who is applying for title IV, HEA program funds and seeks to show his 
or her ability to benefit through the testing procedures in this 
subpart, an institution must use a test described in Sec.  
668.148(a)(2) or Sec.  668.149(a).
    (2) The test must reflect the individual's skills and general 
learned abilities.
    (3) The test administrator must ensure that there is documentation 
to support the determination that the individual is an individual with 
a disability and requires accommodations--such as extra time or a quiet 
room--for taking an approved test, or is unable to be evaluated by the 
use of an approved ATB test.
    (4) Documentation of an individual's disability may be satisfied 
by--
    (i) A written determination, including a diagnosis and information 
about testing accommodations, if such accommodation information is 
available, by a licensed psychologist or physician; or
    (ii) A record of the disability from a local or State educational 
agency, or other government agency, such as the Social Security 
Administration or a vocational rehabilitation agency, that identifies 
the individual's disability. This record may, but is not required to, 
include a diagnosis and recommended testing accommodations.

    (Approved by the Office of Management and Budget under control 
number 1845-0049)


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

Sec.  668.154  Institutional accountability.

    An institution is liable for the title IV, HEA program funds 
disbursed to a student whose eligibility is determined under this 
subpart only if--
    (a) The institution used a test that was not administered 
independently, in accordance with Sec.  668.151(b);
    (b) The institution or an employee of the institution compromised 
the testing process in any way; or
    (c) The institution is unable to document that the student received 
a passing score on an approved test.

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

Sec.  668.155  [Reserved]


Sec.  668.156  Approved State process.

    (a)(1) A State that wishes the Secretary to consider its State 
process as an alternative to achieving a passing score on an approved, 
independently administered test for the purpose of determining a 
student's eligibility for title IV, HEA program funds must apply to the 
Secretary for approval of that process.
    (2) To be an approved State process, the State process does not 
have to include all the institutions located in that State, but must 
indicate which institutions are included.
    (b) The Secretary approves a State's process if--
    (1) The State administering the process can demonstrate that the 
students it admits under that process without a high school diploma or 
its equivalent, who enroll in participating institutions have a success 
rate as determined under paragraph (h) of this section that is within 
95 percent of the success rate of students with high school diplomas; 
and
    (2) The State's process satisfies the requirements contained in 
paragraphs (c) and (d) of this section.
    (c) A State process must require institutions participating in the 
process to provide each student they admit without a high school 
diploma or its recognized equivalent with the following services:
    (1) Orientation regarding the institution's academic standards and 
requirements, and student rights.
    (2) Assessment of each student's existing capabilities through 
means other than a single standardized test.
    (3) Tutoring in basic verbal and quantitative skills, if 
appropriate.
    (4) Assistance in developing educational goals.
    (5) Counseling, including counseling regarding the appropriate 
class level for that student given the student's individual's 
capabilities.
    (6) Follow-up by teachers and counselors regarding the student's 
classroom performance and satisfactory progress toward program 
completion.
    (d) A State process must--
    (1) Monitor on an annual basis each participating institution's 
compliance with the requirements and standards contained in the State's 
process;
    (2) Require corrective action if an institution is found to be in 
noncompliance with the State process requirements; and
    (3) Terminate an institution from the State process if the 
institution refuses or fails to comply with the State process 
requirements.
    (e)(1) The Secretary responds to a State's request for approval of 
its State's process within six months after the Secretary's receipt of 
that request. If the Secretary does not respond by the end of six 
months, the State's process is deemed to be approved.
    (2) An approved State process becomes effective for purposes of

[[Page 66967]]

determining student eligibility for title IV, HEA program funds under 
this subpart--
    (i) On the date the Secretary approves the process; or
    (ii) Six months after the date on which the State submits the 
process to the Secretary for approval, if the Secretary neither 
approves nor disapproves the process during that six month period.
    (f) The Secretary approves a State process for a period not to 
exceed five years.
    (g)(1) The Secretary withdraws approval of a State process if the 
Secretary determines that the State process violated any terms of this 
section or that the information that the State submitted as a basis for 
approval of the State process was inaccurate.
    (2) The Secretary provides a State with the opportunity to contest 
a finding that the State process violated any terms of this section or 
that the information that the State submitted as a basis for approval 
of the State process was inaccurate.
    (h) The State must calculate the success rates as referenced in 
paragraph (b) of this section by--
    (1) Determining the number of students with high school diplomas 
who, during the applicable award year described in paragraph (i) of 
this section, enrolled in participating institutions and--
    (i) Successfully completed education or training programs;
    (ii) Remained enrolled in education or training programs at the end 
of that award year; or
    (iii) Successfully transferred to and remained enrolled in another 
institution at the end of that award year;
    (2) Determining the number of students with high school diplomas 
who enrolled in education or training programs in participating 
institutions during that award year;
    (3) Determining the number of students calculated in paragraph 
(h)(2) of this section who remained enrolled after subtracting the 
number of students who subsequently withdrew or were expelled from 
participating institutions and received a 100 percent refund of their 
tuition under the institutions' refund policies;
    (4) Dividing the number of students determined in paragraph (h)(1) 
of this section by the number of students determined in paragraph 
(h)(3) of this section;
    (5) Making the calculations described in paragraphs (h)(1) through 
(h)(4) of this section for students without a high school diploma or 
its recognized equivalent who enrolled in participating institutions.
    (i) For purposes of paragraph (h) of this section, the applicable 
award year is the latest complete award year for which information is 
available that immediately precedes the date on which the State 
requests the Secretary to approve its State process, except that the 
award year selected must be one of the latest two completed award years 
preceding that application date.

    (Approved by the Office of Management and Budget under control 
number 1845-0049)


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



0
26. Section 668.164 is amended by:
0
A. In paragraph (g)(2)(i), removing the words ``Except in the case of a 
parent PLUS loan, the'', and adding, in their place, the word ``The''.
0
B. In paragraph (g)(4)(iv), removing the words ``a Federal Pell Grant, 
an ACG, or a National SMART Grant'', and adding, in their place, the 
words ``any title IV, HEA program assistance''.
0
C. Adding paragraph (i).
    The addition reads as follows:


Sec.  668.164  Disbursing funds.

* * * * *
    (i) Provisions for books and supplies. (1) An institution must 
provide a way for a Federal Pell Grant eligible student to obtain or 
purchase, by the seventh day of a payment period, the books and 
supplies required for the payment period if, 10 days before the 
beginning of the payment period--
    (i) The institution could disburse the title IV, HEA program funds 
for which the student is eligible; and
    (ii) Presuming the funds were disbursed, the student would have a 
credit balance under paragraph (e) of this section.
    (2) The amount the institution provides to the Federal Pell Grant 
eligible student to obtain or purchase books and supplies is the lesser 
of the presumed credit balance under this paragraph or the amount 
needed by the student, as determined by the institution.
    (3) The institution must have a policy under which a Federal Pell 
Grant eligible student may opt out of the way the institution provides 
for the student to obtain or purchase books and supplies under this 
paragraph.
    (4) If a Federal Pell Grant eligible student uses the way provided 
by the institution to obtain or purchase books and supplies under this 
paragraph, the student is considered to have authorized the use of 
title IV, HEA funds and the institution does not need to obtain a 
written authorization under paragraph (d)(1)(iv) of this section and 
Sec.  668.165(b) for this purpose.
* * * * *

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

0
27. The authority citation for part 682 is revised to read as follows:

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


Sec.  682.200  [Amended]


0
28. Section 682.200(a)(2) is amended by adding, in alphabetical order, 
the term ``Credit hour''.

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


0
29. The authority citation for part 685 continues to read as follows:

    Authority:  20 U.S.C. 1070g, 1087a, et seq., unless otherwise 
noted.


0
30. Section 685.102 is amended by:
0
A. In paragraph (a)(2), adding, in alphabetical order, the term 
``Credit hour''.
0
B. In paragraph (b), adding, in alphabetical order, the definition of 
Payment data to read as follows:


Sec.  685.102  Definitions.

* * * * *
    (b) * * *
    Payment data: An electronic record that is provided to the 
Secretary by an institution showing student disbursement information.
* * * * *

0
31. Section 685.301 is amended by revising paragraph (e)(1) to read as 
follows:


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

* * * * *
    (e) * * *
    (1) The Secretary accepts a student's Payment Data that is 
submitted in accordance with procedures established through publication 
in the Federal Register, and that contains information the Secretary 
considers to be accurate in light of other available information 
including that previously provided by the student and the institution.
* * * * *

PART 686--TEACHER EDUCATION ASSISTANCE FOR COLLEGE AND HIGHER 
EDUCATION (TEACH) GRANT PROGRAM

0
32. The authority citation for part 686 continues to read as follows:

    Authority:  20 U.S.C. 1070g, et seq., unless otherwise noted.


[[Page 66968]]



0
33. Section 686.2 is amended by:
0
A. In paragraph (a), adding, in alphabetical order, the term ``Credit 
hour''.
0
B. In paragraph (d), revising the definition of Payment Data to read as 
follows:


Sec.  686.2  Definitions.

* * * * *
    (d) * * *
    Payment Data: An electronic record that is provided to the 
Secretary by an institution showing student disbursement information.
* * * * *

0
34. Section 686.37 is amended by revising paragraph (b) to read as 
follows:


Sec.  686.37  Institutional reporting requirements.

* * * * *
    (b) The Secretary accepts a student's Payment Data that is 
submitted in accordance with procedures established through publication 
in the Federal Register, and that contains information the Secretary 
considers to be accurate in light of other available information 
including that previously provided by the student and the institution.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

0
35. The authority citation for part 690 continues to read as follows:

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


Sec.  690.2  [Amended]

0
36. Section 690.2 is amended by:
0
A. In paragraph (a), adding, in alphabetical order, the term ``Credit 
hour''.
0
B. In paragraph (b), adding, in alphabetical order, the terms 
``Institutional student information record (ISIR)'', ``Student aid 
report (SAR)'', ``Valid institutional student information record (valid 
ISIR)'', and ``Valid student aid report (valid SAR)''.
0
C. In paragraph (c), by removing the definitions for the terms 
``Institutional Student Information Record (ISIR)'', ``Student Aid 
Report (SAR)'', ``Valid Institutional Student Information Record (valid 
ISIR)'', and ``Valid Student Aid Report''.


Sec.  690.61  [Amended]

0
37. Section 690.61 is amended by:
0
A. In the paragraph (b) heading, adding the word ``Valid'' before the 
words ``Student Aid Report'' and before the words ``Institutional 
Student Information Record''.
0
B. In the paragraph (b) introductory text, adding the word ``valid'' 
before the word ``SAR''.

PART 691--ACADEMIC COMPETITIVENESS GRANT (ACG) AND NATIONAL SCIENCE 
AND MATHEMATICS ACCESS TO RETAIN TALENT GRANT (NATIONAL SMART 
GRANT) PROGRAMS

0
38. The authority citation for part 691 continues to read as follows:

    Authority:  20 U.S.C. 1070a-1, unless otherwise noted.


Sec.  691.2  [Amended]

0
39. Section 691.2(a) is amended by adding, in alphabetical order, the 
term ``Credit hour''.

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

Appendix A--Regulatory Impact Analysis

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine 
whether the regulatory action is ``significant'' and therefore 
subject to the requirements of the Executive Order and subject to 
review by the OMB. Section 3(f) of Executive Order 12866 defines a 
``significant regulatory action'' as an action likely to result in a 
rule that may (1) Have an annual effect on the economy of $100 
million or more, or adversely affect a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities in a 
material way (also referred to as an ``economically significant'' 
rule); (2) create serious inconsistency or otherwise interfere with 
an action taken or planned by another agency; (3) materially alter 
the budgetary impacts of entitlement grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, 
the President's priorities, or the principles set forth in the 
Executive order.
    Pursuant to the terms of the Executive order, we have determined 
that this regulatory action will have an annual effect on the 
economy of more than $100 million. Therefore, this action is 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866. Notwithstanding this 
determination, we have assessed the potential costs and benefits--
both quantitative and qualitative--of this regulatory action and 
have determined that the benefits justify the costs.

Need for Federal Regulatory Action

    Student debt is more prevalent and individual borrowers are 
incurring more debt than ever before. Twenty years ago, only one in 
six full-time freshmen at four-year public colleges and universities 
took out a Federal student loan; now more than half do. Today, 
nearly two-thirds of all graduating college seniors carry student 
loan debt. The availability of Federal student aid allows students 
to access post-secondary educational opportunities crucial for 
obtaining employment. It is therefore important for the Department 
to have a strong regulatory foundation on which to build to protect 
student aid funds. The fourteen provisions described in this 
Regulatory Impact Analysis represent a broad set of regulations and 
definitions that strengthen the Federal student aid programs by 
protecting students from aggressive and misleading recruiting 
practices, providing consumers with better information about the 
effectiveness of career college and training programs, and ensuring 
that only eligible students or programs receive title IV, HEA aid.
    These regulations are needed to implement provisions of the HEA, 
as amended by the HEOA, particularly related to (1) Programs that 
prepare students for gainful employment, (2) incentive compensation, 
(3) satisfactory academic progress policies, and (4) verification of 
information on student aid applications. These regulations also 
would implement changes made by the HEOA to provisions related to 
ability to benefit options. A description of the regulations, the 
reasons for adopting them, and an analysis of their effects were 
presented in the NPRM published on June 18, 2010. The NPRM included 
a Regulatory Impact Analysis and this section updates that analysis 
and describes changes to the proposed regulations that we considered 
in response to comments received and our reasons for adopting or 
rejecting them.

Regulatory Alternatives Considered

    The Department considered a number of regulatory alternatives as 
part of the rulemaking process. These alternatives were described in 
detail in the preamble to the NPRM under both the Regulatory Impact 
Analysis and the Reasons sections accompanying the discussion of 
each proposed regulatory provision. To the extent that the 
Department has addressed alternatives in response to comments 
received on the NPRM, these are discussed elsewhere in the preamble 
to these final regulations under the Analysis of Comments and 
Changes section.
    As discussed in the Analysis of Comments and Changes section, 
these final regulations reflect decisions reached through negotiated 
rulemaking, statutory amendments included in the HEOA, and revisions 
in response to public comments. In many cases, these revisions were 
technical in nature and intended to address drafting issues or 
provide additional clarity.
    While we received many comments relating to the validation of 
high school diplomas and written arrangements, for the reasons we 
describe elsewhere in this preamble, we did not make any changes to 
those provisions.
    In response to comments related to disbursement of funds to Pell 
Grant recipients for books and supplies, Sec.  668.164(i) has been 
revised to specify that an institution must have a policy under

[[Page 66969]]

which a student may opt out of the way the institution provides for 
the student to purchase books and supplies by the seventh day of 
classes of a payment period. In addition, Sec.  668.164(i) has been 
revised to specify that if a Federal Pell Grant eligible student 
uses the method provided by the institution to purchase books and 
supplies, the student is considered to have authorized the use of 
title IV, HEA funds and the institution does not need to obtain a 
written authorization under Sec.  668.164(d)(1)(iv) and Sec.  
668.165(b) for this purpose only.
    We also have updated the definition of full-time student to 
provide that a student's enrollment status for a term-based program 
may include repeating any coursework previously taken in the program 
but may not include more than one repetition of a previously passed 
course, or any repetition of a previously passed course due to the 
student's failing other coursework. The only change we have made to 
the satisfactory academic progress provisions has been to revise 
Sec.  668.34(a)(3)(ii) to provide that, for programs longer than an 
academic year in length, satisfactory academic progress is measured 
at the end of each payment period or at least annually to correspond 
to the end of a payment period.
    As discussed in the Analysis of Comments and Changes, the 
majority of the comments related to the Return of Title IV, HEA 
funds opposed the proposed changes or requested a delay in the 
effective date of this provision to allow further input from the 
community. Commenters were concerned with the burden on 
institutions, the potential harm to students who might withdraw 
after one module but return within the same payment period or period 
of enrollment, and the targeting of certain programs. In response to 
these comments, we revised Sec.  668.22(a)(2) to provide that a 
student is not considered to have withdrawn if the student ceased 
attending the modules he or she was scheduled to attend, but the 
institution obtains a written confirmation from the student at the 
time of the withdrawal that he or she will attend a module that 
begins later in the same payment period or period of enrollment. 
This will provide more flexibility for a student who provides the 
authorization. This confirmation must be obtained at the time of 
withdrawal even if the student has already registered for subsequent 
courses. However, these final regulations provide that, for nonterm 
and nonstandard-term programs, a confirmation is valid only if the 
module the student plans to attend begins no later than 45 calendar 
days after the end of the module the student ceased attending.
    Some additional technical and clarifying changes were made, 
including revising Sec.  668.22(f)(2)(ii) to clarify that, when 
determining the percentage of payment period or period of enrollment 
completed, the total number of calendar days in a payment period or 
period of enrollment does not include, for a payment period or 
period of enrollment in which any courses in the program are offered 
in modules, any scheduled breaks of at least five consecutive days 
when the student is not scheduled to attend a module or other course 
offered during that period of time. In response to commenters' 
requests, we have included in the Analysis of Comments and Changes 
examples of scenarios for return of title IV, HEA program funds.
    We received extensive comments on the provisions related to the 
definition of a credit hour. Some of these comments supported the 
Department's efforts and pointed out that many institutions and 
others, including States, are already following the definition or a 
comparable standard that would require only a minimal adjustment. As 
described in the Analysis of Comments and Changes section, other 
commenters opposed the definition of a credit hour and expressed 
concern that it would stifle innovation, especially in delivery 
methods, undermine the American higher education system, emphasize 
``seat-time'', and interfere in a core academic issue. The 
Department maintains that the credit-hour definition is intended to 
provide a minimum, consistent standard for all institutions in 
determining the amount of student work necessary to award credit 
hours equitably for Federal program purposes. In response to the 
discussion of the credit hour provision, we have revised the 
definition of credit hour to clarify the basic principles applied in 
the proposed definition of a credit hour and have specified further 
in the definition that it is the institution's responsibility to 
determine the appropriate credit hours or equivalencies. We also 
have revised the credit-hour definition to clarify that the amount 
of work specified is a minimum standard with no requirement for the 
standard to be exceeded.
    With respect to the provisions relating to misrepresentation, we 
have revised Sec.  668.72(c) to prohibit false, erroneous, or 
misleading statements concerning whether completion of an 
educational program qualifies a students for licensure or employment 
in the States in which the educational program is offered and not 
just the State in which the institution is located. Additionally, we 
have revised Sec.  668.72(n) to specify that a failure to disclose 
that the degree requires specialized accreditation is a 
misrepresentation. To address concerns over liability for third-
party statements, we agreed to limit the reach of the ban on making 
substantial misrepresentations to statements made by any ineligible 
institution, organization, or person with whom the eligible 
institution has an agreement to provide educational programs or 
those that provide marketing, advertising, recruiting, or admissions 
services. We revised the definition of misleading statement in Sec.  
668.71(c) to remove the word ``capacity'' from the phrase 
``capacity, likelihood, or tendency to deceive or confuse.''
    We received numerous comments regarding the incentive 
compensation provisions in the NPRM. Some of these comments 
supported the proposed changes due to the conflict of interest 
between an enrollment professional's ethical obligations and 
financial interest. Other commenters opposed the changes, 
questioning the Department's legal authority to regulate, whether 
there was sufficient evidence to support the regulations, and the 
reasoning for the policy changes. We maintain that the elimination 
of the 12 ``safe harbors'' in Sec.  668.14(b)(22) is needed to 
ensure program integrity, protect students, and align institutional 
practices with the goals intended by Congress. The Department did 
make a few clarifying changes. For example, the changes to Sec.  
668.14(b) based on comments include: (i) Adding ``in any part'' to 
Sec.  668.14(b)(22) when referring to incentive payments to 
eliminate confusion that a portion of an individual's compensation 
may be based on enrollments or the award of financial aid; (ii) 
revising the regulations to provide that an employee who receives 
multiple compensation adjustments in a calendar year and is engaged 
in any student enrollment or admission activity or in making 
decisions regarding the award of title IV, HEA program funds is 
considered to have received such adjustments based on securing 
enrollment or the award of financial aid if those adjustments create 
compensation that is based in any part, directly or indirectly, upon 
success in securing enrollments or the award of financial aid; (iii) 
revising Sec.  668.14(b)(22)(ii) to provide that eligible 
institutions, organizations that are contractors to eligible 
institutions, and other entities may make merit-based adjustments to 
employee compensation provided that such adjustments are not based 
in any part, directly or indirectly, upon success in securing 
enrollments or the award of financial aid; (iv) confirming that 
prohibited incentive compensation includes any commission, bonus, or 
other incentive payment; (v) providing that profit sharing and 
bonuses are not prohibited as long as they are based on an 
institutional goal and distributed to all employees who have 
otherwise contributed to satisfaction of a particular institutional 
goal; and (vi) revising the definition of securing enrollments or 
the award of financial aid to provide more detail and to clarify 
that it includes activities through the completion of an educational 
program.
    The reporting and disclosure requirements related to gainful 
employment have also been updated in response to comments and 
further evaluation by the Department. We confirmed that the 
reporting and disclosure requirements apply only to programs subject 
to the gainful employment regulations and revised Sec.  668.6(a) to 
require the reporting of CIP code and other information not only for 
program completers, but for all students who attend gainful 
employment programs. We also removed proposed Sec.  600.4(a)(4)(iii) 
and revised Sec.  600.4(a)(4)(i)(c) to clarify the programs subject 
to the regulations. The time period for which information has to be 
provided has been changed so that an institution must report the 
required information for each student, who during the award year 
beginning July 1, 2006, and for any subsequent award year, began 
attending or completed a program under Sec.  668.8(c)(3) or (d).
    In addition to the student identifiers, CIP codes, program 
completion dates, and private education loan and institutional 
financing amounts specified in the NPRM, institutions will also have 
to report the name of the program and whether the student 
matriculated to a higher credentialed program at the institution or 
if available,

[[Page 66970]]

evidence that the student transferred to a higher credentialed 
program at another institution. To ensure the information is 
accessible, Sec.  668.6(b) has been revised to require an 
institution to provide a prominent and direct link to information 
about a program on the home page of its Web site and on other pages 
where general, academic, or admissions information is provided about 
the program. The information must also be provided in promotional 
materials conveyed to prospective students. The information must be 
provided in a simple and meaningful manner. The information to be 
disclosed includes the on-time graduation rate, the total amount of 
tuition and fees the institution charges a student for completing 
the program within normal time, the typical costs for books and 
supplies, unless included as part of tuition and fees, and the 
amount of room and board, if applicable. The institution may include 
information on other costs, such as transportation and living 
expenses, but must provide a Web link or access to the program cost 
information it makes available under Sec.  668.43(a). The Department 
intends to develop in the future a disclosure form and will be 
seeking public comment about the design of the form through the 
information collection process under the Paperwork Reduction Act of 
1995 (PRA). Until a form is developed and approved under the PRA 
process, institutions must comply with the disclosure requirements 
independently.
    Another area of disclosure is providing students information 
about potential occupations by linking to O*Net. Commenters 
expressed concern that this would require an unwieldy amount of data 
for some degree programs and the resulting information overload 
would not serve to accurately inform students. Section 668.6(b) has 
been revised so that if the number of occupations related to the 
program, as identified by entering the program's full six digit CIP 
code on the O*NET crosswalk at http://online.onetcenter.org/crosswalk/ is more than ten, an institution is allowed to provide 
prospective students with Web links to a representative sample of 
the SOCs for which its graduates typically find employment within a 
few years after completing the program.
    In response to comments that the proposed placement rate was 
administratively complex and overly burdensome, we decided to direct 
the National Center for Education Statistics (NCES) to develop a 
placement rate methodology and the processes necessary for 
determining and documenting student employment and reporting 
placement data to the Department using IPEDS no later than July 1, 
2012. The collaborative process used by NCES and the opportunity for 
public comment on the proposed measure will allow for a considered 
review and development of a meaningful placement rate. Section 
668.6(b) has been revised to specify that an institution must 
disclose for each program the placement rate calculated under a 
methodology developed by its accrediting agency, State, or NCES. The 
institution would have to disclose the accrediting agency or State-
required placement rate beginning on July 1, 2011 and to identify 
the accrediting agency or State under whose requirements the rate 
was calculated. The NCES-developed rate would have to be disclosed 
when the rates become available.
    To remove uncertainty and to ensure a consistent calculation, we 
have revised Sec.  668.6(b) to specify how an institution calculates 
an on-time completion rate for its programs. This is a measure 
designed to provide students meaningful information about the extent 
to which former students completed the program within the published 
length. As described elsewhere in this preamble, the on-time 
completion rate will be calculated by: (1) Determining the number of 
students who completed the program during the most recently 
completed calendar year; (2) determining the number of students in 
step (1) who completed the program within normal time, regardless of 
whether the students transferred into the program or changed 
programs at the institution; and (3) dividing the number of students 
who completed in normal time in step (2) by the total number of 
completers in step (1) and multiplying by 100.
    We also received comments about the use of median loan debt, the 
definition of private loans, and the treatment of debt incurred at 
prior programs or institutions. The examples that we provide earlier 
in this preamble clarify the treatment of loan debt from prior 
programs and institutions. In general, median loan debt for a 
program at an institution does not include debt incurred by students 
in attending a prior institution, unless the prior and current 
institutions are under common ownership or control or are otherwise 
related entities. In cases where a student changes programs while 
attending an institution or matriculates to a higher credentialed 
program at the institutions, the Department will associate the total 
amount of debt incurred by the student to the program the student 
completed. In order to perform the calculation of the median loan 
debt, Sec.  668.6(a) has been revised to provide that an institution 
must provide information about whether a student matriculated to a 
higher credentialed program at the same institution, or, if it has 
evidence, that a student transferred to a higher credentialed 
program at another institution.
    The provisions related to State authorization generated comments 
from those who supported the regulations as an effort to address 
fraud and abuse in Federal programs through State oversight and from 
others who believed the regulations infringed on States' authority 
and upset the balance of the ``Triad'' of oversight by States, 
accrediting agencies, and the Federal Government. We clarified that 
the final regulations do not mandate that a State create any 
licensing agency for purposes of Federal program eligibility as an 
institution may be legally authorized by the State based on methods 
such as State charters, State laws, State constitutional provisions, 
or articles of incorporation that authorize an entity to offer 
educational programs beyond secondary education in the State.
    We revised Sec.  600.9 to clarify that an institution's legal 
authority to offer postsecondary education in a State must be by 
name and, thus, it must include the name of the institution being 
authorized. We have removed proposed Sec.  600.9(b)(2) regarding 
adverse actions. In response to concerns about the effect on 
distance education and reciprocity arrangements, we clarified that 
an institution must meet any State requirements for it to be legally 
offering distance or correspondence education in that State and must 
be able to document to the Secretary the State's approval upon 
request. Thus, a public institution is considered to comply with 
Sec.  600.9 to the extent it is operating in its home State, and, if 
operating in another State, it would be expected to comply with the 
requirements, if any, the other State considers applicable or with 
any reciprocal agreement that may be applicable. In making these 
clarifications, we are not preempting any State laws, regulations, 
or other requirements regarding reciprocal agreements, distance 
education, or correspondence study.
    We also have revised the State authorization provisions in Sec.  
600.9 to distinguish between a legal entity that is established as 
an educational institution and one established as a business or 
nonprofit entity. An institution authorized as an educational 
institution may be exempted by name from any State approval or 
licensure requirements based on the institution's accreditation by 
an accrediting agency recognized by the Secretary or based on the 
institution being in operation for at least 20 years. An institution 
established as a business or nonprofit charitable organization and 
not specifically as an educational institution may not be exempted 
from the State's approval or licensure requirements based on 
accreditation, years in operation, or other comparable exemption. 
Chart A illustrates the basic principles of Sec.  600.9 of these 
final regulations, with additional examples discussed in the 
preamble to these regulations.

[[Page 66971]]



                                    Chart A--State Authorization Requirements
                                    [Meets state authorization requirements*]
----------------------------------------------------------------------------------------------------------------
                                                                                        Approval or licensure
                     Legal entity                           Entity description                 process
----------------------------------------------------------------------------------------------------------------
Educational institution..............................  A public, private nonprofit,  The institution must comply
                                                        or for-profit institution     with any applicable State
                                                        established by name by a      approval or licensure
                                                        State through a charter,      process and be approved or
                                                        statute, or other action      licensed by name, and may
                                                        issued by an appropriate      be exempted from such
                                                        State agency or State         requirement based on its
                                                        entity as an educational      accreditation, or being in
                                                        institution authorized to     operation at least 20
                                                        operate educational           years, or use both
                                                        programs beyond secondary     criteria.
                                                        education, including
                                                        programs leading to a
                                                        degree or certificate.
Business.............................................  A for-profit entity           The State must have a State
                                                        established by the State on   approval or licensure
                                                        the basis of an               process, and the
                                                        authorization or license to   institution must comply
                                                        conduct commerce or provide   with the State approval or
                                                        services.                     licensure process and be
                                                                                      approved or licensed by
                                                                                      name.
Charitable organization..............................  A nonprofit entity            An institution in this
                                                        established by the State on   category may not be
                                                        the basis of an               exempted from State
                                                        authorization or license      approval or licensure
                                                        for the public interest or    based on accreditation,
                                                        common good.                  years in operation, or a
                                                                                      comparable exemption.
----------------------------------------------------------------------------------------------------------------
*Notes:
 Federal, tribal, and religious institutions are exempt from these requirements.
 A State must have a process, applicable to all institutions except tribal and Federal institutions, to
  review and address complaints directly or through referrals.
 The chart does not take into requirements related to State reciprocity.

    To maintain the State's role in student consumer protection and 
handling student complaints related to State laws, we have revised 
Sec.  668.43(b) to provide that an institution must make available 
to students or prospective students contact information for not only 
the State approval or licensing entities but also any other relevant 
State official or agency that would appropriately handle a student's 
complaint.
    Finally, we have clarified the meaning of a religious 
institution for the applicability of the religious exemption. We 
also have expanded Sec.  600.9(b) to provide that an institution is 
considered to be legally authorized by the State if it is exempt 
from State authorization as a religious institution by State law, in 
addition to the provision of the proposed regulations that an 
institution be exempt from State authorization as a religious 
institution under the State's constitution. We also have included a 
definition of a religious institution providing that an institution 
is considered a religious institution if it is owned, controlled, 
operated, and maintained by a religious organization lawfully 
operating as a nonprofit religious corporation and awards only 
religious degrees or religious certificates including, but not 
limited to, a certificate of Talmudic studies, an associate of 
biblical studies, a bachelor of religious studies, a master of 
divinity, or a doctor of divinity.
    In response to comments, we confirmed that tribal institutions 
are not subject to State oversight or subject to the State process 
for handling complaints and revised Sec.  600.9 to clarify the 
status of tribal institutions. As noted in the preamble discussion 
of State Authorization, we have removed proposed Sec.  600.9(b)(2) 
regarding adverse actions. Further, we are providing that, in Sec.  
600.9(a)(2)(ii) of the final regulations, the tribal government must 
have a process to review and appropriately act on complaints 
concerning a tribal institution and enforce applicable tribal 
requirements or laws.
    Finally, while the Secretary has designated amended Sec.  
600.9(a) and (b) as being effective July 1, 2011, we recognize that 
a State may be unable to provide appropriate State authorizations to 
its institutions by that date. We are providing that the 
institutions unable to obtain State authorization in that State may 
request a one-year extension of the effective date of these final 
regulations to July 1, 2012, and if necessary, an additional one-
year extension of the effective date to July 1, 2013. To receive an 
extension of the effective date of amended Sec.  600.9(a) and (b) 
for institutions in a State, an institution must obtain from the 
State an explanation of how a one-year extension will permit the 
State to modify its procedures to comply with amended Sec.  600.9.
    As discussed in the preamble to these regulations, we made a 
number of clarifying changes to the regulations regarding the 
administration of ability to benefit tests. We revised the 
definition of the term independent test administrator to clarify 
that an independent test administrator must have no current or prior 
financial or ownership interest in the institution, its affiliates, 
or its parent corporation, other than the fees earned through the 
agreement to administer the test. In Sec.  668.142, we have defined 
an ATB test irregularity as an irregularity that results from an ATB 
test being administered in a manner that does not conform to the 
established regulations for test administration consistent with the 
provision of subpart J and the test administrator's manual. We also 
added a provision to specify that a test publisher may include with 
its application a description of the manner in which test-taking 
time was determined in relation to the other requirements in Sec.  
668.146(b). We have revised Sec.  668.150(b)(7)(i) to indicate that 
the period of review of all test results of the tests administered 
by a decertified test administrator is five years preceding the date 
of decertification.
    In response to a comment regarding testing of non-native 
speakers of English, we have revised Sec.  668.153 to provide that 
if a non-native speaker of English who is enrolled or plans to 
enroll in a program that will be taught in his or her native 
language with a component or portion in English, the individual must 
take a test approved under Sec. Sec.  668.146 and 668.148(a)(1) in 
the student's native language. New Sec.  668.153(a)(5) provides that 
prior to the beginning of the English portion of the program, the 
individual must take an English proficiency test approved under 
Sec.  668.148(b). Finally, we have modified Sec.  
668.144(c)(11)(vii) to require that the test manual include, in 
addition to guidance on the interpretation of scores resulting from 
modification of the test for individuals with disabilities, guidance 
on the types of accommodations that are allowable. This responds to 
concerns that test administrators may not have extensive training or 
experience to determine if a requested accommodation is appropriate.
    The effect of these changes on the cost estimates prepared for 
and discussed in the Regulatory Impact Analysis of the NPRM is 
discussed in the Costs section of this Regulatory Impact Analysis.

Benefits

    As discussed in the NPRM, benefits provided in these regulations 
include updated administrative procedures for the Federal student 
aid programs; a definition and process to determine the validity of 
a student's high school diploma; enhanced reliability and security 
of ATB tests; an additional option for students to prove ability to 
benefit by successfully completing college coursework; increased 
clarity about incentive compensation for employees at institutions 
of higher education; reporting of information on program completers 
for programs leading to gainful employment, including costs, debt 
levels, graduation rates, and placement rates; the establishment of 
minimum standards for credit hours; greater transparency for 
borrowers participating in the programs offered under written 
agreements between institutions; greater detail about 
misrepresentation in marketing and recruitment materials; a more 
structured and

[[Page 66972]]

consistent approach to the development and implementation of 
satisfactory academic progress policies; updated and simplified 
procedures for verifying FAFSA applicant information; updated 
regulations related to the return of title IV, HEA funds when a 
student withdraws; harmonization of Direct Loan and Teach Grant 
disbursement procedures with other title IV, HEA programs; and 
revised disbursement requirements to ensure Federal Pell Grant 
recipients can access funds in a timely manner. As noted in the 
Regulatory Impact Analysis in the NPRM, these provisions result in 
no net costs to the Federal Government over 2011-2015.

Costs

    As discussed in the Regulatory Impact Analysis in the NPRM, many 
of the provisions implemented through these regulations will require 
regulated entities to develop new disclosures and other materials, 
as well as accompanying dissemination processes. Other regulations 
generally will require discrete changes in specific parameters 
associated with existing guidance and regulations--such as changes 
to title IV, HEA disbursement procedures, updated processes for 
verification of FAFSA application information, clearer standards for 
the return of title IV, HEA program funds following a student's 
withdrawal, and updated definitions and processes for confirming the 
validity of a high school diploma--rather than wholly new 
requirements. Accordingly, entities wishing to continue to 
participate in the title IV, HEA programs have already absorbed many 
of the administrative costs related to implementing these 
regulations. Marginal costs over this baseline are primarily due to 
new procedures that, while possibly significant in some cases, are 
an unavoidable cost of continued program participation.
    In assessing the potential impact of these regulations, the 
Department recognizes that certain provisions are likely to increase 
workload for some program participants. This additional workload is 
discussed in more detail under the Paperwork Reduction Act of 1995 
section of this preamble. Additional workload would normally be 
expected to result in estimated costs associated with either the 
hiring of additional employees or opportunity costs related to the 
reassignment of existing staff from other activities. In total, 
these changes are estimated to increase burden on entities 
participating in the title IV, HEA programs by 6,010,320 hours. Of 
this increased burden, 3,862,165 hours are associated with 
institutions and 9,454 hours with ATB test publishers, States, and 
ATB test administrators. An additional 2,138,701 hours are 
associated with borrowers, generally reflecting the time required to 
read new disclosures or submit required information.
    As detailed in the Paperwork Reduction Act of 1995 section of 
these final regulations, the additional paperwork burden is 
attributable to several provisions, with the greatest additional 
burden coming from the revised FAFSA verification process. Of the 
3.9 million hours of additional burden associated with institutions, 
1.8 million relate to FAFSA verification. While the average number 
of items to be verified is expected to decrease, the growth in the 
number of applicants and the requirement to submit all changes to 
the Department is estimated to increase overall burden. Other 
paperwork burden increases include the following:
     750,725 hours related to academic reviews and 
development of academic plans under Sec.  668.34;
     425,075 hours related to calculation of unearned 
amounts when a student withdraws under Sec.  668.22;
     262,990 hours associated with updating marital and 
dependency status under Sec.  668.55;
     376,417 hours annually and an additional 300,773 hours 
in the initial reporting period related to the gainful employment 
reporting and disclosure provisions in Sec.  668.6;
     48,391 hours related to ATB test administration and 
reporting under Sec. Sec.  668.151 and 668.152;
     67,870 hours associated with disclosure of information 
about an institution's written agreements in Sec.  668.43;
     54,366 hours related to disbursement of funds to Pell 
Grant recipients for books and supplies under Sec.  668.164;
     21,982 hours related to the development of a high 
school diploma validation process and the validation of questionable 
diplomas under Sec.  668.16; and
     18,349 hours related to clock hour to credit hour 
conversion and the inclusion of outside work for program eligibility 
under Sec.  668.8.
    For ATB test publishers, States, and administrators, the 
increased burden of 9,454 hours comes from the reporting, record-
keeping, test anomaly analysis, and other requirements in Sec. Sec.  
668.144, 668.150, and 668.151. The increased burden on students is 
concentrated in the FAFSA verification and status updating processes 
with 1,604,800 hours under Sec. Sec.  668.55, 668.56, and 668.59, 
with additional burden associated with the withdrawal process under 
Sec.  668.22 and satisfactory academic progress policies under Sec.  
668.34.
    Thus, for the specific information collections listed in the 
Paperwork Reduction Act of 1995 section of these final regulations, 
the total cost estimates are as follows:
     For Information Collection 1845-0041, the total cost 
will be $72,594,870;
     For Information Collection 1845-NEW2, the total cost 
attributable to these regulatory changes will be $21,834,272;
     For Information Collection 1845-0022, the total cost 
will be $15,533,671;
     For Information Collection 1845-NEW1, the total cost 
attributable to the regulatory changes will be $9,543,677 annually 
with an additional $7,624,784 in the initial reporting period;
     For Information Collection 1845-0049, the total cost 
will be $1,300,595; and
     For Information Collection 1845-NEW3, the total cost 
attributable to these regulatory changes will be $1,203,799.
    The monetized cost of this additional burden, using wage data 
developed using Bureau of Labor Statistics available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $122,010,883, of which $86.7 
million is associated with institutions, $0.21 million with ATB test 
publishers, States, and administrators, and $35.07 million with 
borrowers. For institutions, test publishers, and test 
administrators, an hourly rate of $22.14 was used to monetize the 
burden of these provisions. This was a blended rate based on wages 
of $16.79 for office and administrative staff and $38.20 for 
managers, assuming that office staff would perform 75 percent of the 
work affected by these regulations. For the gainful employment 
provision, an hourly rate of $25.35 was used to reflect increased 
management time to establish new data collection procedures 
associated with that provision. For students, the first quarter 2010 
median weekly earnings for full-time wage and salary workers were 
used. This was weighted to reflect the age profile of the student 
loan portfolio, with half at the $457 per week of the 20 to 24 age 
bracket and half at the $691 per week of the 25 to 34 year old 
bracket. This resulted in a $16.40 hourly wage rate to use in 
monetizing the burden on students.
    Because data underlying many of these burden estimates was 
limited, in the NPRM, the Department requested comments and 
supporting information for use in developing more robust estimates. 
In particular, we asked institutions to provide detailed data on 
actual staffing and system costs associated with implementing these 
regulations. In response to comments that the regulations would be 
costly, we reviewed the wage rates for more recent information and 
the share of work performed by office workers and management and 
professional staff. This increased the general wage rate from $18.63 
to $22.14 and the wage rate for gainful employment related matters 
from $20.71 to $25.35. The other areas that changed between the NPRM 
published on June 18, 2010 and these final regulations related to 
changes to the disclosure requirements related to gainful employment 
that extended the reporting to students who began or completed 
programs beginning July 1, 2006, required specified information for 
all students at a program, and established a requirement to report 
on student matriculations to higher credentialed programs.

Net Budget Impacts

    These regulations are estimated to have no net budget impact 
over FY 2011-2015. Consistent with the requirements of the Credit 
Reform Act of 1990, budget cost estimates for the student loan 
programs reflect the estimated net present value of all future non-
administrative Federal costs associated with a cohort of loans. (A 
cohort reflects all loans originated in a given fiscal year.)
    These estimates were developed using the Office of Management 
and Budget's Credit Subsidy Calculator. This calculator will also be 
used for re-estimates of prior-year costs, which will be performed 
each year beginning in FY 2009. The OMB calculator takes projected 
future cash flows from the Department's student loan cost estimation 
model and produces discounted subsidy

[[Page 66973]]

rates reflecting the net present value of all future Federal costs 
associated with awards made in a given fiscal year. Values are 
calculated using a ``basket of zeros'' methodology under which each 
cash flow is discounted using the interest rate of a zero-coupon 
Treasury bond with the same maturity as that cash flow. To ensure 
comparability across programs, this methodology is incorporated into 
the calculator and used governmentwide to develop estimates of the 
Federal cost of credit programs. Accordingly, the Department 
believes it is the appropriate methodology to use in developing 
estimates for these regulations. That said, however, in developing 
the following Accounting Statement, the Department consulted with 
OMB on how to integrate our discounting methodology with the 
discounting methodology traditionally used in developing regulatory 
impact analyses.
    Absent evidence of the impact these regulations would have on 
student behavior, budget cost estimates were based on behavior as 
reflected in various Department data sets and longitudinal surveys 
listed under Assumptions, Limitations, and Data Sources. Program 
cost estimates were generated by running projected cash flows 
related to each provision through the Department's student loan cost 
estimation model. Student loan cost estimates are developed across 
five risk categories: Two-year proprietary institutions, two-year 
public and private, not-for-profit institutions; freshmen and 
sophomores at four-year institutions, juniors and seniors at four-
year institutions, and graduate students. Risk categories have 
separate assumptions based on the historical pattern of behavior--
for example, the likelihood of default or the likelihood to use 
statutory deferment or discharge benefits--of borrowers in each 
category.
    The Department estimates no budgetary impact for most of these 
regulations as there is no data indicating that the provisions will 
have any impact on the volume or composition of the title IV, HEA 
programs.

Assumptions, Limitations, and Data Sources

    The impact estimates provided in the preceding section reflect a 
pre-statutory baseline in which the HEOA changes implemented in 
these regulations do not exist. Costs have been quantified for five 
years.
    In developing these estimates, a wide range of data sources were 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education systems, 
including especially the Fiscal Operations Report and Application to 
Participate (FISAP); and data from a range of surveys conducted by 
the National Center for Education Statistics such as the 2008 
National Postsecondary Student Aid Survey, the 1994 National 
Education Longitudinal Study, and the 1996 Beginning Postsecondary 
Student Survey. Data from other sources, such as the U.S. Census 
Bureau, were also used. Data on administrative burden at 
participating institutions are extremely limited; accordingly, in 
the NPRM, the Department expressed interest in receiving comments in 
this area. No comments were received.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify 
and explain burdens specifically associated with information 
collection requirements. See the heading Paperwork Reduction Act of 
1995.

Accounting Statement

    As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2, we have 
prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of these regulations. 
This table provides our best estimate of the changes in Federal 
student aid payments as a result of these regulations. Expenditures 
are classified as transfers from the Federal Government to student 
loan borrowers.

 Table 2--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Costs................  $126.1.
                                            Cost of compliance with
                                             paperwork requirements.
Annualized Monetized Transfers............  $0.
From Whom To Whom?                          Federal Government To
                                             Student Loan Borrowers.
------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    The Secretary certifies that these regulations will not have a 
significant economic impact on a substantial number of small 
entities. These regulations will affect institutions that 
participate in title IV, HEA programs, ATB test publishers, and 
individual students and loan borrowers. The U.S. Small Business 
Administration Size Standards define for-profit institutions as 
``small businesses'' if they are independently owned and operated 
and not dominant in their field of operation with total annual 
revenue below $7,000,000, and defines non-profit institutions as 
small organizations if they are independently owned and operated and 
not dominant in their field of operation, or if they are 
institutions controlled by governmental entities with populations 
below 50,000.
    Data from the Integrated Postsecondary Education Data System 
(IPEDS) indicate that roughly 4,379 institutions participating in 
the Federal student assistance programs meet the definition of 
``small entities.'' The following table provides the distribution of 
institutions and students by revenue category and institutional 
control.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Public                    Private NFP                 Proprietary                   Tribal
                                         ---------------------------------------------------------------------------------------------------------------
            Revenue  category               Number of     Number of     Number of     Number of     Number of     Number of     Number of     Number of
                                             schools      students       schools      students       schools      students       schools      students
--------------------------------------------------------------------------------------------------------------------------------------------------------
$0 to $500,000..........................            43         2,124           103        13,208           510        38,774  ............  ............
$500,000 to $1 million..................            44         7,182            81         9,806           438        61,906             1           137
$1 million to $3 million................            98        29,332           243        65,614           745       217,715             3           555
$3 million to $5 million................            75        65,442           138        60,923           303       182,362  ............  ............
$5 million to $7 million................            49        73,798            99        62,776           224       185,705             5         2,525
$7 million to $10 million...............            78       129,079           110        84,659           228       235,888             9         4,935
$10 million and above...................         1,585    18,480,000         1,067     4,312,010           383     1,793,951            14        18,065
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................         1,972    18,786,957         1,841     4,608,996         2,831     2,716,301            32        26,217
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Approximately two-thirds of these institutions are for-profit 
schools subject to the disclosure and reporting requirements related 
to programs leading to gainful employment. Other affected small 
institutions include small community colleges and tribally 
controlled schools. For these institutions, the new disclosure and 
administrative requirements imposed under the regulations could 
impose some new costs as described below. The impact of the

[[Page 66974]]

regulations on individuals is not subject to the Regulatory 
Flexibility Act.
    As discussed in the preamble to these regulations, the program 
integrity regulations were developed to update administrative 
procedures for the Federal student aid programs and to ensure that 
funds are provided to students at eligible programs and 
institutions. As detailed in the Paperwork Reduction Act of 1995 
section of these final regulations, many of these regulations modify 
existing regulations and requirements. For example, the regulations 
on FAFSA verification would change the number of items to be 
verified, but do not require the creation of a new process. The 
table below summarizes the estimated total hours, costs, and 
requirements applicable to small entities from these provisions on 
an annual basis. In the initial reporting period, there will be an 
additional 235,866 hours and $5,979,203 in gainful employment 
reporting for award years back to 2006-07.

----------------------------------------------------------------------------------------------------------------
           Provision & requirement              Reg. section   OMB control No.       Hours            Costs
----------------------------------------------------------------------------------------------------------------
Gainful Employment..........................            668.6        1845-NEW1          295,186        7,482,964
    Annual submission of private loan, CIP,          668.6(a)  ...............          288,597        7,315,937
     program name, further matriculation,
     and identifying data for entrants and
     completers by program..................
    Disclose occupational information,               668.6(b)  ...............            6,589          167,027
     graduation rates, on-time completion
     rates, program placement rates, and
     program costs..........................
Eligible Program............................            668.8        1845-0022            8,800          194,836
    Determine if program is affected,
     evaluate amount of outside student work
     that should be included, and perform
     credit to clock hour conversion.
Standards of Administrative Capability......           668.16        1845-0022           10,543          233,412
    Develop a high school diploma validity          668.16(p)  ...............            9,583          212,176
     process................................
    Verify questionable diplomas............        668.16(p)  ...............              959           21,237
Student Withdrawal..........................           668.22        1845-0022          203,866        4,513,593
    Establish withdrawal date and calculate
     percentage of payment period or period
     of enrollment completed.
Satisfactory Academic Progress..............           668.34        1845-NEW2          349,976        7,748,471
    Review regulations and implement changes        668.34(a)  ...............            8,214          181,860
     to ensure compliance...................
    Perform academic reviews at the end of          668.34(c)  ...............          100,382        2,222,451
     each payment period....................
    Develop academic plan for students who          668.34(c)  ...............           87,835        1,944,655
     do not achieve satisfactory academic
     progress when reviewed at end of
     payment period.........................
    Perform academic reviews at institutions        668.34(d)  ...............           81,891        1,813,061
     that do so annually....................
    Develop academic plan for students who          668.34(d)  ...............           71,655        1,586,434
     do not achieve satisfactory academic
     progress when reviewed annually........
Institutional Information--Written                     668.43        1845-NEW2           32,550          720,667
 Agreements.................................
    Disclose information about written        ...............  ...............           32,122          711,185
     agreements.............................
    Make contact information for filing             668.43(b)  ...............              428            9,482
     complaints to accreditor and State
     approval or licensing agency available
     to enrolled and prospective students...
Updating Information........................           668.55        1845-0041          126,130        2,792,518
    Update household size throughout award    ...............  ...............          124,744        2,761,831
     year...................................
    Update marital status throughout award    ...............  ...............            1,386           30,687
     year...................................
Acceptable Documentation....................           668.57        1845-0041          293,515        6,498,427
    Review verification responses for
     acceptable documentation.
Consequences of a change in FAFSA                      668.59        1845-0041          587,030       12,996,853
 information................................
    Reduces tolerances and, if outside of
     tolerances, requires institutions to
     report all changes to applicants' FAFSA
     information resulting from
     verification.
    Recalculate applicant's EFC if
     information changes from verification.
Administration of Ability to Benefit Tests..          668.151        1845-0049           20,702          458,351
    Keep records of individuals who take ATB    668.151(g)(4)  ...............           18,484          402,242
     tests and details about the
     administrator..........................
    Keep documentation of individual's          668.151(g)(5)  ...............            2,218           49,110
     disability and testing arrangements
     provided...............................
Administration of Tests by Assessment                 668.152        1845-0049            2,506           55,487
 Centers....................................
Maintain the scored ATB tests and collect     ...............  ...............           14,415          319,145
 and submit copies of completed ATB tests or
 a listing to the test publisher or State
 weekly.....................................
Disbursing Funds............................          668.164        1845-NEW3           26,074          577,277
    Provide a way for Pell Grant recipients
     to obtain or purchase required books
     and supplies by the 7th day of a
     payment period under certain
     conditions.
----------------------------------------------------------------------------------------------------------------

    To assess overall burden imposed on institutions meeting the 
definition of small entities, the Department developed a methodology 
using IPEDS data and the percentage of institutions with revenues 
below $7 million and all non-profit institutions, allocating 
approximately 66 percent of the paperwork burden to small 
institutions. Using this methodology, the Department estimates the 
regulations will increase total burden hours for these schools by 
2.58 million, or roughly 590 hours per institution. Monetized using 
salary data from the Bureau of Labor Statistics, this burden is 
$58.1 million and $13,270, respectively. If calculated using the 
distribution of students from 2007-08, the share of the burden 
allocated to small institutions would be much lower at approximately 
21 percent, resulting in an estimated burden of 235 hours and $5,410 
per institution. Even the more conservative estimate of $13,270 
represents one percent or less of the midpoint revenue

[[Page 66975]]

for all but the lowest revenue category, for which it is four 
percent of midpoint revenue.
    For institutions, an hourly rate of $22.14 was used to monetize 
the burden of these provisions. This rate was a blended rate based 
on wages of $16.79 for office and administrative staff and $38.20 
for managers, assuming that office staff would perform 75 percent of 
the work affected by these regulations. For the gainful employment 
provision, an hourly rate of $25.35 was used to reflect increased 
management time to establish new data collection procedures 
associated with that provision.
    These rates are the same as those used for all institutions in 
the Costs section of this analysis, reflecting the fact that the 
primary cost of meeting the paperwork burden is in additional labor 
and that wages at small institutions should not be systematically 
higher than those at all institutions. In response to comments that 
the regulations would be costly, we reviewed the wage rates for more 
recent information and the share of work performed by office workers 
and management and professional staff. This review increased the 
general wage rate from $18.63 to $22.14 and the wage rate for 
gainful employment related matters from $20.71 to $25.35.
    The costs discussed above represent the cost of the regulations 
in the first year of implementation, beginning on July 1, 2011, but 
several provisions will have a longer period to take effect. Most 
importantly, the regulations contained in subpart E of part 668, 
Verification and Updating of Student Aid Application Information, 
are effective July 1, 2012. These regulations account for 
approximately 50 percent of the estimated burden described above. We 
would expect 30 percent of the verification costs to be incurred in 
2011 as institutions update their systems for the changes, but the 
main part of those costs will occur in the second year. These costs 
would occur after the other provisions had been implemented and, 
while we do not have a split between the development and ongoing 
costs of each provision, we would expect the costs to taper off as 
the institutions become familiar with the regulations and have the 
systems in place to comply. Seventy percent of the estimated costs 
for the Verification regulation would not be realized in the first 
year, reducing the overall projected costs for small institutions 
during the first year by approximately one-third to approximately 
$8,000. Assuming a 10 percent reduction in the costs of other 
provisions from reduced development costs and prior experience, full 
implementation in 2012 would cost approximately $11,000. The State 
authorization provision is also subject to a delayed implementation, 
but that implementation is not expected to have a significant cost 
effect on small entities. Additionally, the recurring costs of many 
of the provisions are based on the number of students enrolled. As 
shown above, schools with small revenues have lower enrollments than 
others classified as small entities and would have to perform fewer 
verifications and reviews on an ongoing basis. Since they already 
have some systems and processes in place to comply with the existing 
regulations, once the development changes have been made to 
implement the regulatory changes, we would expect their ongoing 
costs to be lower than the averages estimated above.
    Where possible, the Department has allowed institutions 
flexibility to establish processes that fit the institution's 
administrative capabilities. For example, the requirement to 
distribute funds to Pell Grant recipients for books and supplies 
within seven days of the start of the payment period allows 
institutions to use book vouchers or a credit to the student's 
account. The Department has also tried to allow more time for all 
entities affected by these regulations to establish procedures for 
new data collections, such as the placement rate information 
required in the data collection related to gainful employment. While 
these timing provisions are available to all institutions, they 
should permit small institutions sufficient time to make the 
necessary adjustments. Approximately 60 percent of the paperwork 
burden associated with these regulations is in OMB 1845-0041, which 
relates to the updating of FAFSA application information and 
reporting all changes resulting from verification. These updated 
requirements will help ensure eligible students receive aid. As 
detailed in the Paperwork Reduction Act of 1995 section of these 
final regulations, the increase in burden associated with the FAFSA 
acceptable documentation provision is largely driven by the increase 
in student applicants since the burden for these requirements was 
last calculated. Given the increase in the number of students 
applying for title IV, HEA aid, the number of verifications is 
estimated to have increased from 3.0 million in 2002-03 to 5.1 
million in 2008-09. Without the regulatory changes reflected in 
these regulations, which are estimated to reduce the number of items 
to be verified, the paperwork burden on small institutions in OMB 
1845-0041 would increase by an additional 195,677 hours. Based on 
these estimates, the Department believes the new requirements do not 
impose significant new costs on these institutions.
    We considered whether there would be any benefit to allowing 
small institutions additional time to come into compliance with the 
regulations and concluded that there would be no benefit to taking 
such action. First and foremost, we think the risk of delaying 
implementation of these program integrity regulations and the 
resulting negative impact on students and taxpayers would be far too 
high.
    Second, we do not believe the comments or the facts would 
support such action. In the NPRM, the Secretary invited comments 
from small institutions and other affected entities as to whether 
they believed the proposed changes would have a significant economic 
impact on them and requested evidence to support that belief. 
Several commenters indicated that the provisions would be costly and 
the Department reviewed the estimates as described above. However, 
commenters did not provide us with evidence to suggest that small 
institutions or entities would need additional time beyond July 1, 
2011 to come into compliance with the regulations. Additionally, 
because we did not include such a proposal in the NPRM, we do not 
believe we could take this type of action without seeking further 
public comment.
    Finally, we note that, where possible, we have built in 
additional time or flexibility for all institutions based on the 
nature of the provision and the data requested.

[FR Doc. 2010-26531 Filed 10-28-10; 8:45 am]
BILLING CODE 4000-01-P