[Federal Register Volume 87, Number 144 (Thursday, July 28, 2022)]
[Proposed Rules]
[Pages 45432-45506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15890]



[[Page 45431]]

Vol. 87

Thursday,

No. 144

July 28, 2022

Part II





Department of Education





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34 CFR Parts 600, 668, and 690





Institutional Eligibility, Student Assistance General Provisions, and 
Federal Pell Grant Program; Proposed Rule

  Federal Register / Vol. 87 , No. 144 / Thursday, July 28, 2022 / 
Proposed Rules  

[[Page 45432]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, and 690

[Docket ID ED-2022-OPE-0062]
RIN 1840-AD54, 1840-AD55, 1840-AD66


Institutional Eligibility, Student Assistance General Provisions, 
and Federal Pell Grant Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend regulations for the Federal 
Pell Grant program, institutional eligibility, and student assistance 
general provisions. First, the Secretary proposes to establish 
regulations for Federal Pell Grants (Pell Grants or Pell) for Prison 
Education Programs (PEPs), to implement new statutory requirements to 
establish Pell Grant eligibility for a confined or incarcerated 
individual enrolled in a PEP. Second, the Secretary proposes to revise 
the Title IV Revenue and Non-Federal Education Assistance Funds 
regulations (referred to as ``90/10'' or the ``90/10 Rule'') to 
implement the statutory change in the American Rescue Plan Act of 2021 
(ARP). The Secretary further proposes to amend which non-Federal funds 
can be counted when determining compliance with the 90/10 rule to align 
allowable non-Federal revenue more closely with statutory intent. 
Finally, the Secretary proposes regulations to clarify the process for 
consideration of changes in ownership and control, to promote 
compliance with the Higher Education Act of 1965, as amended (HEA), and 
related regulations and reduce risk for students and taxpayers, as well 
as institutions contemplating or undergoing such a change.

DATES: We must receive your comments on or before August 26, 2022.

ADDRESSES: Comments must be submitted via the Federal eRulemaking 
Portal at regulations.gov. Information on using Regulations.gov, 
including instructions for finding a rule on the site and submitting 
comments, is available on the site under ``FAQ.'' If you require an 
accommodation or cannot otherwise submit your comments via 
regulations.gov, please contact one of the program contact persons 
listed under FOR FURTHER INFORMATION CONTACT. The Department will not 
accept comments submitted by fax or by email or comments submitted 
after the comment period closes. To ensure that the Department does not 
receive duplicate copies, please submit your comments only once. 
Additionally, please include the Docket ID at the top of your comments.
    The Department strongly encourages you to submit any comments or 
attachments in Microsoft Word format. If you must submit a comment in 
Adobe Portable Document Format (PDF), the Department strongly 
encourages you to convert the PDF to ``print-to-PDF'' format, or to use 
some other commonly used searchable text format. Please do not submit 
the PDF in a scanned format. Using a print-to-PDF format allows the 
Department to electronically search and copy certain portions of your 
submissions to assist in the rulemaking process.
    Privacy Note: The Department's policy is to generally make comments 
received from members of the public available for public viewing at 
www.regulations.gov. Therefore, commenters should include in their 
comments only information about themselves that they wish to make 
publicly available. Commenters should not include in their comments any 
information that identifies other individuals or that permits readers 
to identify other individuals. If, for example, your comment describes 
an experience of someone other than yourself, please do not identify 
that individual or include information that would allow readers to 
identify that individual. The Department will not make comments that 
contain personally identifiable information (PII) about someone other 
than the commenter publicly available on www.regulations.gov for 
privacy reasons. This may include comments where the commenter refers 
to a third-party individual without using their name if the Department 
determines that the comment provides enough detail that could allow one 
or more readers to link the information to the third party. If your 
comment refers to a third-party individual, to help ensure that your 
comment is posted, please consider submitting your comment anonymously 
to reduce the chance that information in your comment about a third 
party could be linked to the third party. The Department will also not 
make comments that contain threats of harm to another person or to 
oneself available on www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: For PEPs: Aaron Washington. Telephone 
(202) 453-7241. Email: [email protected]. For 90/10: Ashley 
Clark. Telephone: (202) 453-7977. Email: [email protected]. For 
Change in Ownership: Brian Schelling. Telephone: (202) 453-5966. Email: 
[email protected]. You may also email your questions to 
[email protected], but as described above, comments must be 
submitted via www.regulations.gov. The mailing address for all of the 
contacts above is U.S. Department of Education, Office of Postsecondary 
Education, 400 Maryland Avenue SW, 2nd Floor, Washington, DC 20202.
    If you are deaf, hard of hearing, or have a speech disability and 
wish to access telecommunications relay services, please dial 7-1-1.

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose of This Regulatory Action:

    The Department convened two negotiated rulemaking committees 
between October 4, 2021 and March 18, 2022 \1\ to consider proposed 
regulations for the Federal Student Aid programs authorized under title 
IV of the HEA (title IV, HEA programs): the Affordability and Student 
Loans Committee and the Institutional and Programmatic Eligibility 
Committee (see the section under Negotiated Rulemaking for more 
information on the negotiated rulemaking process). Both Committees 
operated by consensus, defined as no dissent by any member when votes 
are taken. Consensus votes were taken issue by issue. Consensus was 
reached on the topic of Pell Grants for Prison Education Programs by 
the Affordability and Student Loans Committee. Consensus was also 
reached on the topic of Title IV revenue and non-Federal education 
assistance funds (90/10 Rule) by the Institutional and Programmatic 
Eligibility Committee.
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    \1\ Negotiated Rulemaking for Higher Education 2020-21.
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    On July 13, 2022, the Department published in the Federal Register 
(87 FR 41878) a notice of proposed rulemaking (NPRM) related to 
Interest Capitalization, Public Service Loan Forgiveness (PSLF), 
Borrower Defense to Repayment, Total and Permanent Disability, Pre-
dispute Arbitration and Class Action Waivers, Closed School Discharge, 
and False Certification Discharge (``NPRM 1''), topics which were 
considered by the Affordability and Student Loans Committee. This NPRM 
addresses Prison Education Programs (PEPs), which were also considered 
by the Affordability and Student Loans Committee, and the 90/10 rule 
and institutional changes in ownership, which were considered by the 
Institutional and Programmatic Eligibility Committee. Regulations 
related to income-driven repayment will be included in a separate NPRM.

[[Page 45433]]

    These proposed regulations address three topics: Pell Grants for 
PEPs, the 90/10 rule, and institutional changes in ownership. The 
proposed PEP regulations, on which the Affordability and Student Loans 
Committee reached consensus, would implement statutory changes that 
extend Pell Grant eligibility to confined or incarcerated individuals 
who enroll in qualifying PEPs. The proposed 90/10 regulations, on which 
the Institutional and Programmatic Eligibility Committee reached 
consensus, would implement statutory changes that require proprietary 
institutions to obtain at least 10 percent of their revenue from 
sources other than Federal education assistance funds and would more 
closely align allowable non-Federal revenue with statutory intent. 
Finally, the Department proposes revisions to current regulations 
related to changes in ownership to ensure a clearer and more defined 
process.

Prison Education Programs

    The proposed PEP regulations would provide the Department and 
stakeholders, including students, correctional agencies and 
institutions, postsecondary institutions, accrediting agencies, and 
related organizations, with a detailed and clear framework for how to 
implement section 484(t) of the HEA. The Department is proposing to 
amend the regulations in Sec. Sec.  600.2, 600.10, 600.21, 668.8, 
668.32, 668.43, 668 subpart P, and 690.62. A new legal provision takes 
effect July 1, 2023, that addresses prison education programs (PEP). 
Section 484(t) of the HEA will provide PEP requirements that include: 
(1) a prohibition on proprietary institutions offering PEPs; (2) the 
definitions of a ``confined or incarcerated individual'' and a ``prison 
education program''; (3) the program approval process by the Bureau of 
Prisons, State Department of Corrections, or other entity that is 
responsible for overseeing the correctional facility (these entities 
are referred to throughout this NPRM as the oversight entity); (4) a 
credit transfer requirement for prison education programs; (5) a 
prohibition against program offerings by institutions that are subject 
to adverse actions by the Department, their accrediting agency, or the 
relevant State; (6) requirements that prison education programs offer 
educational programming that satisfies professional licensure or 
certification, as applicable; (7) student enrollment restrictions for 
programs in which there would be prohibitions on ultimate licensure or 
employment; (8) the requirement that confined or incarcerated 
individuals be enrolled in an eligible prison education program in 
order to access a Pell Grant; and (9) various Department reporting 
requirements for postsecondary institutions offering prison education 
programs.
    The proposed regulations would clarify and implement these 
statutory requirements by setting clear standards for postsecondary 
institutions offering PEPs and outlining the steps that must be taken 
to develop and implement such programs in order to gain access to Pell 
Grant funds and maintain that access over time. The proposed 
regulations would also ensure that institutions report needed data to 
the Department, which would assist in assessing program outcomes. The 
proposed rule would establish important guardrails for confined or 
incarcerated students and taxpayers to protect students from enrolling 
in programs that would not permit them to benefit by finding employment 
in the field after graduating and being released and to prevent 
taxpayer funds from financing such programs. It would also outline 
title IV program requirements for PEPs related to States and 
accrediting agencies.
    Section 484(t)(1)(B)(iii) of the HEA requires an oversight entity, 
defined in the proposed regulations as a state department of 
corrections or other entity responsible for overseeing correctional 
facilities or the Federal Bureau of Prisons, to determine that a prison 
education program that it approves is ``operating in the best 
interest'' of the confined or incarcerated students under its 
supervision. Congress outlined indicators of ``best interest''--both 
inputs and outcomes--which are explained in the SUMMARY OF PROPOSED 
CHANGES section below. Because oversight entities may not have 
previously assessed some of the ``best interest'' indicators outlined 
in statute, such as student earnings and job placement post-release, 
the proposed regulations would provide needed clarity on how to 
implement this requirement. To ensure that program assessment is 
thorough and well-informed, these regulations would require oversight 
entities to seek input from relevant stakeholders in making the ``best 
interest'' determination.

90/10 Rule

    The proposed 90/10 regulations would amend Sec.  668.28 to change 
how proprietary institutions calculate and report to the Department the 
percentage of their revenue that comes from Federal sources, in 
accordance with section 487(a) of the HEA. Section 487(a) establishes 
the requirement that proprietary institutions derive not less than 10 
percent of their revenue from non-Federal sources. Section 487(d) of 
the HEA: (1) defines how proprietary institutions calculate the 
percentage of their revenue that is derived from non-Federal sources; 
(2) sets out sanctions for proprietary institutions that fail to meet 
the requirement in section 487(a); (3) requires the Secretary to 
publicly disclose on the College Navigator website proprietary 
institutions that fail to meet the requirement; and (4) requires that 
the Secretary submit a report to Congress that contains the Federal and 
non-Federal revenue amounts and percentages for each proprietary 
institution.
    The ARP amended these sections to require proprietary institutions 
to include other sources of Federal revenue, in addition to title IV 
revenue from the Department, in the calculation that proprietary 
institutions make to determine if they are in compliance with the 90/10 
rule. These proposed regulatory amendments would align the regulations 
with this statutory change and provide periodic updates to proprietary 
institutions regarding which Federal funds should be included in their 
calculations.
    Additionally, the proposed regulations would amend how proprietary 
institutions calculate 90/10 to address the permissibility of practices 
that some proprietary institutions have employed to alter their revenue 
calculation or inflate their non-Federal revenue percentage. The NPRM 
would create a new requirement for when proprietary institutions must 
request and disburse title IV student aid funds from the Department to 
ensure that proprietary institutions are not delaying disbursements to 
the next fiscal year. The proposed regulations would also more closely 
align allowable non-Federal revenue with statutory intent by clarifying 
(1) allowable non-Federal revenue generated from programs and 
activities that can count for the purposes of 90/10; (2) how schools 
must apply Federal funds to student accounts and determine the funds' 
inclusion in the Federal revenue percentage of 90/10; (3) which revenue 
generated from institutional aid can count as non-Federal revenue for 
purposes of 90/10; and (4) funds that must be excluded from the 
calculation determining 90/10 compliance.
    The proposed regulations would also modify the steps that 
proprietary institutions must take if they fail to derive at least 10 
percent of their revenue from allowable non-Federal sources by 
requiring them to notify students of the failure and the students'

[[Page 45434]]

potential loss of title IV aid at that proprietary institution. The 
proposed regulations would also provide the steps that proprietary 
institutions that determined they met the 90/10 requirement for the 
preceding fiscal year must take to notify the Secretary immediately, if 
they obtain information after the reporting deadline indicating they 
failed 90/10. Lastly, under the proposed regulations, a proprietary 
institution would be liable for repaying all title IV funds disbursed 
for the fiscal year after it became ineligible to participate in the 
title IV program due to failing 90/10.

Changes in Ownership

    To address the risks that some changes in ownership of 
postsecondary institutions present to students and taxpayers and to 
address the growing complexity of those transactions, the Department 
proposes under the authority of section 498(i) of the HEA to amend 
regulations covering changes in ownership in Sec. Sec.  600.2, 600.4, 
600.20, 600.21, and 600.31. These changes would modify the definitions 
of ``additional location,'' ``branch campus,'' ``main campus,'' 
``distance education'' locations, and ``nonprofit institution,'' as 
well as the terms ``closely-held corporation,'' ``ownership or 
ownership interest,'' ``parent,'' ``person,'' and ``other entities'' in 
the context of changes in ownership that result in a change in control, 
where the individual or entity with control has the power to direct the 
management or policies of the institution.
    Institutions would be required to provide a minimum 90-day notice 
to the Department when they are to undergo a change in control, and the 
Department may apply necessary terms to a proposed new temporary 
provisional Program Participation Agreement (TPPPA) after the change 
and until a decision on the pending application for approval of the 
change is issued. The proposed regulations would also increase 
transparency for changes in ownership that do not constitute a change 
of control by increasing the reporting requirements to the Department 
on such transactions at lower levels.

Summary of the Major Provisions of This Regulatory Action

    The proposed regulations would make the following changes.
     Make updates to appropriate cross-references. Prison 
Education Programs (PEP) (Sec. Sec.  600.2, 600.7, 600.10, 600.21, 
668.8, 668.32, 668.43, 668.234-242, 690.62)
     Extend access to Pell Grants for confined or incarcerated 
individuals in qualifying postsecondary education programs by defining 
an eligible PEP based on the statutory requirements.
     Clarify that only public or private nonprofit institutions 
as defined in Sec.  600.4, or vocational institutions as defined in 
Sec.  600.6, may offer eligible PEPs and require that those PEPs 
offered at a correctional institution be reported to the Department as 
an ``additional location.''
     Amend requirements for postsecondary institutions to 
obtain and maintain a waiver from the Secretary to allow students who 
are confined or incarcerated to exceed 25 percent of the institution's 
regular student enrollment.
     For a PEP that is designed to meet educational 
requirements for a specific professional license or certification, 
require disclosures to students of typical State or Federal 
prohibitions on the licensure or employment of formerly incarcerated 
individuals.
     Prohibit institutions from enrolling a confined or 
incarcerated individual in a PEP that is designed to lead to licensure 
or employment in a specific job or occupation where State or Federal 
law would prohibit that individual from licensure or employment based 
on the type of the criminal conviction for which the student has been 
confined or incarcerated.
     Define the process and the factors that the oversight 
entity would use to determine if a PEP is operating in the best 
interest of the confined or incarcerated individuals over which they 
have supervision, including consulting with interested third parties 
and conducting periodic re-evaluations.
     Define the requirements for approval from the Secretary 
and the IHE's accrediting agency for the first PEP at the institution's 
first two additional locations at prison facilities.
     Require a postsecondary institution to obtain and report 
to the Department the release or transfer date of all confined or 
incarcerated individuals who participated in its PEP.
     Outline the process for winding down eligible programs for 
confined or incarcerated individuals prior to July 1, 2023, that are 
not operating at a Federal or State correctional facility and are not 
approved as eligible prison education programs.
     Outline the process a postsecondary institution must 
follow to reduce a Pell Grant award that exceeds the confined or 
incarcerated individual's cost of attendance. Title IV Revenue and Non-
Federal Education Assistance Funds (90/10 Rule) (Sec.  668.28)
     Revise the revenue calculation methodology in the 90/10 
rule by changing references to ``title IV revenue'' to ``Federal 
revenue'' where appropriate to align with the statutory amendment that 
revises the 90/10 revenue requirement to include all Federal revenue.
     Outline how the Department would publish, and update as 
necessary, which Federal funds it expects proprietary institutions to 
include in their 90/10 calculation.
     Create a new requirement for when proprietary institutions 
must request and disburse title IV, HEA program funds to prevent 
proprietary institutions from delaying disbursements to reduce their 
Federal revenue percentage for a fiscal year in order to meet the 90/10 
revenue requirement.
     Clarify the allowable revenue generated from programs and 
activities that can be counted as non-Federal revenue for purposes of 
the 90/10 revenue requirement to provide additional consumer 
protection.
     Revise how proprietary institutions apply funds to student 
accounts and determine the funds' inclusion in the 90/10 revenue 
requirement calculation to incorporate statutory changes, clarify how 
grants from non-Federal public agencies that include Federal funds must 
be treated, and add additional consumer protection measures.
     Revise the provisions governing which revenue generated 
from institutional aid can be included in the 90/10 revenue requirement 
calculation to remove sections that are no longer applicable, codify 
existing practices in regulation, promote consumer protection measures, 
and close potential loopholes related to Income Share Agreements (ISAs) 
or other alternative financing agreements issued by the institution or 
a related party.
     Revise the provisions governing which funds must be 
excluded from a proprietary institution's calculation of its revenue 
percentage to remove regulations that no longer apply and to limit 
certain types of revenues that proprietary institutions have employed 
to alter their revenue calculation.
     Revise the steps that a proprietary institution must take 
to better protect students and taxpayers if it does not generate 10 
percent or more of its revenue from allowable non-Federal sources in a 
fiscal year. The proposed regulations would also provide reporting 
procedures for proprietary institutions that learn, based on 
information received after the initial 45-day reporting period, that 
they failed the revenue requirement for the previous fiscal year.

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Changes in Ownership (CIO) (Sec. Sec.  600.2, 600.4, 600.20, 600.21, 
600.31)

     Clarify the definitions of ``additional location,'' 
``branch campus,'' ``main campus,'' ``distance education'' locations, 
and ``nonprofit institution'' and, for the last term, describe 
characteristics of institutions that do not generally meet the 
definition of a ``nonprofit institution.''
     Require that institutions provide the Department with 90 
days' notice of an impending change in ownership, ensure that 
accreditation and State licensure are in effect as of the day before 
the proposed change, and codify practices on submission of financial 
statements and provision of financial protection.
     Explain the terms by which a TPPPA may be extended to 
institutions seeking a change in ownership.
     Clarify what constitutes a change in ownership and, more 
narrowly, a change in control, distinguishing between natural persons 
and entities in Sec.  600.21 and the conditions under which they 
constitute a change of control.
     Refine the definitions of the terms ``ownership or 
ownership interest,'' ``parent,'' and ``other entities,'' as applied to 
changes in ownership, and add ``trust'' to the definition of 
``person.''
     Add to the list of covered transactions the acquisition of 
another institution and clarify the application of the regulations in 
cases of resignation or death of an owner.
    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis, the proposed regulations would have significant impacts on 
students, borrowers, educational institutions, taxpayers, and the 
Department.
    Proposed PEP regulations would benefit incarcerated individuals, 
taxpayers, and communities by creating higher employment and earnings, 
and lower recidivism rates, for those who enroll in higher education 
programs in prison, as described in the Regulatory Impact Analysis of 
this proposed regulation. Institutions that offer programs in 
correctional facilities and do not currently receive Pell Grants 
sometimes bear some or all of the costs of that programming. 
Institutions that do not currently receive Pell funds for these 
programs would benefit from these revisions. Pell Grant transfers are 
estimated to increase by $1.1 billion from these programs. There would 
be increased costs for the Department due to various requirements in 
the proposed regulations including, but not limited to: data collection 
and dissemination, approval of prison education programs, and required 
reporting to Congress and the public. There would be increased costs to 
the oversight entity due to the required ``best interest 
determination'' defined in proposed 34 CFR 668.241. There would be no 
direct costs to students, completing the FAFSA[supreg] is free (though 
there is some burden associated with completing the form) and Pell 
Grant program does not need to be repaid.
    Under the proposed 90/10 revisions, veteran borrowers and students 
would benefit as proprietary institutions' incentive to aggressively 
recruit GI Bill and Department of Defense (DOD) Tuition Assistance 
recipients would be greatly reduced because Federal assistance for 
those students was treated differently than title IV funds in the 90/10 
revenue calculation. The Department is aware that some proprietary 
institutions have sought to enroll additional VA or DOD recipients 
because their dollars provide a larger cushion to pursue more title IV, 
HEA funds, sometimes to the detriment of those veterans and service 
members. The proposed regulatory changes would remove that incentive by 
counting all Federal education assistance funds on the 90 side of the 
90/10 calculation. These changes would produce some savings to the 
taxpayer in the form of reduced expenditures of title IV, HEA aid to 
institutions that are not able to adapt and would lose eligibility. As 
indicated in the RIA, we estimate transfers would be reduced by -$292 
million from the changes to the 90/10 provisions. The proposed 
revisions would further decrease proprietary institutions' incentive to 
rely on potentially costly student financing options to meet 90/10 
requirements. Costs to institutions would include the need to ensure 
compliance with the proposed regulations. Institutions unable to 
generate sufficient non-Federal revenues through their eligible program 
may have to create programs that are not title IV eligible to generate 
revenue to meet 90/10 requirements.
    The proposed revisions to CIO would benefit institutions and the 
Department by clarifying requirements as well as providing timely 
feedback for those undergoing CIO transactions. Students and borrowers 
would benefit from the 90-day CIO notice requirement that ensures 
students receive important information timely that would impact their 
education and that they can make future educational decisions based on 
that knowledge. Costs to institutions would include compliance and the 
paperwork burden associated with the increased reporting and disclosure 
requirements.
    Invitation to Comment: We invite you to submit comments regarding 
these proposed regulations. To ensure that your comments have maximum 
effect in developing the final regulations, we urge you to clearly 
identify the specific section or sections of the proposed regulations 
that each of your comments addresses and to arrange your comments in 
the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirement of reducing regulatory burden that might result from these 
proposed regulations. Please let us know of any further ways we could 
reduce potential costs or increase potential benefits while preserving 
the effective and efficient administration of the Department's programs 
and activities. The Department also welcomes comments on any 
alternative approaches to the subjects addressed in the proposed 
regulations.
    During and after the comment period, you may inspect public 
comments about these proposed regulations by accessing Regulations.gov.
    Assistance to Individuals with Disabilities in Reviewing the 
Rulemaking Record: On request, we will provide an appropriate 
accommodation or auxiliary aid to an individual with a disability who 
needs assistance to review the comments or other documents in the 
public rulemaking record for these proposed regulations. If you want to 
schedule an appointment for this type of accommodation or auxiliary 
aid, please contact one of the persons listed under FOR FURTHER 
INFORMATION CONTACT.

Background

Prison Education Program (PEP) (Sec. Sec.  600.2, 600.7, 600.10, 
600.21, 668.43, 668.234-242, 690.62)

    The Pell Grant program was established in 1972. Pell Grants are 
awarded to undergraduate students who document financial need and who 
have not earned a bachelor's, graduate, or professional degree. A Pell 
Grant does not have to be repaid, except under certain circumstances.
    Pell Grant eligibility for confined or incarcerated students has 
changed over time. Before 1994, individuals in correctional facilities 
were able to receive Pell Grants. Thereafter, the Violent Crime Control 
and Law Enforcement Act of 1994 (Pub. L. 103-322) made individuals 
confined or

[[Page 45436]]

incarcerated in a Federal or State correctional facility ineligible to 
receive Pell Grants. Individuals in any other type of correctional 
facility, for example local jails, reformatories, work farms, and 
juvenile justice facilities, remained eligible to receive Pell Grants.
    A growing body of research has demonstrated the value of quality 
higher education programs for confined or incarcerated individuals. 
Incarcerated people who participate in postsecondary education programs 
are 48 percent less likely to return to prison than those who do 
not.\2\ As incarcerated people achieve higher levels of education, the 
likelihood of recidivism decreases.\3\ This research also indicates 
that prison education programs increase the literacy and numeracy 
skills of incarcerated students and improve their employment 
outcomes.\4\
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    \2\ Bozick, R., Steele, J., Davis, L., and Turner, S., ``Does 
Providing Inmates with Education Improve Postrelease Outcomes? A 
Meta-Analysis of Correctional Education Programs in the United 
States,'' Journal of Experimental Criminology 14, no. 3 (2018), 389-
428. https://www.rand.org/pubs/external_publications/
EP67650.html#:~:text=Conclusion,program%20is%20to%20reduce%20recidivi
sm.
    \3\ Ibid.
    \4\ Davis, L., Bozick, R., Steele, J., Saunders, J., Miles, J., 
``Evaluating the Effectiveness of Correctional Education,'' Rand 
Corp. (2013), https://www.rand.org/pubs/research_reports/RR266.html 
(pages41-47); Ositelu, M., ``Equipping Individuals for Life Behind 
Bars,'' New America (last updated Nov. 2019), https://www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/ (pages 49-53); Oakford, P., Brumfield, C., 
Goldvale, C., Tatum, L., diZerega, M., and Patrick, F., ``Investing 
in Futures: Economic and Fiscal Benefits of Postsecondary Education 
in Prison,'' Vera Institute of Justice (Jan. 2019) (``Investing in 
Futures''), https://www.vera.org/downloads/publications/investing-in-futures.pdf.
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    In 2015, the Department used its authority under the HEA to allow a 
limited number of postsecondary institutions to seek a waiver of the 
statutory restriction on Pell Grant eligibility for confined or 
incarcerated students. Conducted under the Department's Experimental 
Sites Initiative authority, this experimental waiver is known as the 
Second Chance Pell experiment.\5\ Between 2015 and 2022, the Department 
expanded the experiment twice to include additional participating 
postsecondary institutions. From 2016 to 2021, over 28,000 students 
enrolled in postsecondary education through Second Chance Pell, with 
more than 9,000 students earning a certificate or diploma, associate 
degree, or bachelor's degree.\6\
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    \5\ Second Chance Pell Experiment, https://experimentalsites.ed.gov/exp/approved.html.
    \6\ Chesnut, K., Taber, N., and Quintana, J. ``Second Chance 
Pell: Five Years of Expanding Higher Education Programs in Prisons, 
2016-2021.'' Vera Institute of Justice, May 2022.
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    The First Step Act of 2018 (Pub. L. 115-391) sought to improve 
criminal justice outcomes, as well as to reduce the size of the Federal 
prison population while also creating mechanisms to maintain public 
safety. It required the Federal government to develop frameworks around 
recidivism reduction, including a provision about educational programs, 
to offer incentives for success of confined or incarcerated 
individuals, and Federal correctional reforms, among other things.
    The Consolidated Appropriations Act, 2021 added section 484(t) to 
the HEA to formally establish Pell Grant eligibility for confined or 
incarcerated individuals, as long as they are enrolled in a PEP as 
defined under the HEA. We propose regulations to implement the 
statutory requirements allowing access to Federal Pell Grants for 
individuals who are confined or incarcerated when enrolled in programs 
that meet necessary standards.

Title IV Revenue and Non-Federal Education Assistance Funds (90/10 
Rule) (Sec.  668.28)

    The HEA has required that proprietary institutions derive a minimum 
percentage of their revenue from non-title IV sources since the Higher 
Education Amendments of 1992.\7\ Originally, proprietary institutions 
were required to derive at least 15 percent of their revenue in a 
fiscal year from non-title IV sources (originally referred to as the 
85/15 rule to reflect that institutions could receive up to 85 percent 
of funds from title IV, HEA sources and were required to receive at 
least 15 percent of funds from non-title IV, HEA sources). The Higher 
Education Amendments in 1998 reduced this requirement to at least 10 
percent of a proprietary institution's revenue in a fiscal year that 
must come from non-title IV sources (now referred to as the 90/10 
rule).\8\
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    \7\ Public Law 102-325.
    \8\ Public Law 105-244.
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    Proprietary institutions are required to report, as a footnote in 
their audited financial statements, the percentage of their revenue 
derived from title IV, HEA program funds for the fiscal year, the 
dollar amount of the numerator and denominator of the ratio, and the 
individual revenue amounts from the sources of allowable title IV and 
non-title IV funds. They must also notify the Secretary within 45 days 
after the end of their fiscal year if they fail to meet the 90/10 
requirement for that fiscal year. When the 85/15 statutory provision 
became effective in 1995, proprietary institutions became ineligible to 
participate in the title IV program after failing to meet the revenue 
requirement for one year. The Higher Education and Opportunity Act of 
2008 (HEOA) amended this so that proprietary institutions would only 
lose eligibility to participate in the title IV programs if they failed 
for two consecutive fiscal years.\9\
---------------------------------------------------------------------------

    \9\ Public Law 110-315.
---------------------------------------------------------------------------

    Over the last decade, lawmakers and other stakeholders have raised 
concerns that counting Federal funds provided by the Department of 
Defense (DOD) and the Department of Veterans Affairs (VA) as non-title 
IV revenue resulted in some proprietary institutions aggressively 
marketing their programs to service members and veterans, as well as 
military-connected family members.\10\ By enrolling those students, 
policymakers noted the institutions would be able to offset title IV 
aid with other Federal education aid without running afoul of the 90/10 
rule. In other cases, proprietary institutions offered institutional 
loans, opened or closed locations to reach different student 
populations less dependent upon title IV funds, or engaged in other 
activities that allowed them to meet the 90/10 rule. In some reported 
cases, proprietary institutions using these strategies allegedly also 
engaged in aggressive, abusive, or deceptive marketing practices.\11\
---------------------------------------------------------------------------

    \10\ See, for example, https://www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html; https://www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf.
    \11\ See, for example, https://www.chronicle.com/article/for-profit-college-marketer-settles-allegations-of-preying-on-veterans/; 
https://www.insidehighered.com/quicktakes/2015/10/09/defense-department-puts-u-phoenix-probation; https://oag.ca.gov/news/press-releases/attorney-general-becerra-announces-settlement-itt-tech-lender-illegal-student; and https://files.eric.ed.gov/fulltext/ED614219.pdf.
---------------------------------------------------------------------------

    In 2021, the ARP modified the 90/10 calculation by requiring 
proprietary institutions to derive at least 10 percent of their revenue 
from non-Federal sources (as opposed to non-title IV funds). The 
Department's proposed regulations implement those changes and more 
closely align the 90/10 calculation with the statutory intent of the 
provision.

Change in Ownership (CIO) (Sec. Sec.  600.2, 600.4, 600.20, 600.21, 
600.31)

    In recent years the Department has seen an increase in the number 
of institutions applying for changes in ownership, many of which result 
in a change in the entity or persons controlling the institution and 
therefore

[[Page 45437]]

the policies or management of the institution. In a few cases, those 
newly in control of an institution also sought a conversion in status 
from proprietary to nonprofit or public.
    As reported in 2020 by the Government Accountability Office (GAO), 
between January 2011 and August 2020, of 59 changes of ownership 
(involving 20 separate transactions) involving a conversion from a for-
profit entity to a nonprofit entity, one entire chain that comprised 13 
separate institutions was granted temporary continued access to title 
IV, HEA aid, but ceased operations prior to the Department reaching a 
decision on whether to approve the requested conversion to nonprofit 
status.\12\ Three-fourths were sold to a nonprofit entity that had not 
previously operated an institution of higher education, increasing the 
risk that students may not get the educational experience for which 
they are paying. One-third had what GAO termed ``insider involvement'' 
in the purchasing nonprofit organization (i.e., someone from the former 
for-profit ownership was also involved with the nonprofit purchaser), 
suggesting greater risk of impermissible benefits to those insiders. 
Altogether, the 59 institutions that underwent a change in ownership 
resulting in a conversion received more than $2 billion in Award Year 
2018-19 in taxpayer-financed Federal student aid.
---------------------------------------------------------------------------

    \12\ GAO Report, GAO-21-89, ``Higher Education: IRS and 
Education Could Better Address Risks Associated with Some For-Profit 
College Conversions'', Dec. 31, 2020. Accessed at https://www.gao.gov/products/gao-21-89.
---------------------------------------------------------------------------

    Based on the GAO report and other information, the Department has 
determined it is necessary to reevaluate the relevant policies to 
accommodate the increased complexity of changes in ownership 
arrangements and to mitigate the greater risk to students and taxpayers 
when institutions fail to meet Federal requirements. These proposed 
regulations would clarify the existing definition of a ``nonprofit 
institution'' to ensure particularly that institutions converting from 
proprietary status meet the standards to qualify as a nonprofit, 
including to avoid providing net earnings of the institution to a 
private entity or person; establish clearer up-front requirements for 
applications for changes in ownership; and provide for greater clarity 
in the procedures the Department follows in reviewing changes in 
ownership for continued eligibility for title IV aid.

Public Participation

    The Department has significantly engaged the public in developing 
this NPRM, including through review of oral and written comments 
submitted by the public during four public hearings. During each 
negotiated rulemaking session, we provided opportunities for public 
comment at the end of each day. Additionally, during each negotiated 
rulemaking session, non-Federal negotiators obtained feedback from 
their stakeholders that they shared with the negotiating committee.
    On May 26, 2021, the Department published a notice in the Federal 
Register (86 FR 28299) announcing our intent to establish multiple 
negotiated rulemaking committees to prepare proposed regulations on the 
affordability of postsecondary education, institutional accountability, 
and Federal student loans.
    The Department developed a list of proposed regulatory provisions 
for an Affordability and Student Loans Committee (Committee 1) and an 
Institutional and Programmatic Eligibility Committee (Committee 2) 
based on advice and recommendations submitted by individuals and 
organizations in testimony at three virtual public hearings held by the 
Department on June 21 and June 23-24, 2021. An additional virtual 
public hearing on the 90/10 rule was held on October 26-27, 2021.
    Additionally, the Department accepted written comments on possible 
regulatory provisions that were submitted directly to the Department by 
interested parties and organizations. You may view the written comments 
submitted in response to the May 26, 2021, Federal Register notice on 
the Federal eRulemaking Portal at www.regulations.gov, within docket ID 
ED-2021-OPE-0077. Instructions for finding comments are also available 
on the site under ``FAQ.''
    Transcripts of the public hearings can be accessed at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn.

Negotiated Rulemaking

    Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to 
obtain public involvement in the development of proposed regulations 
affecting programs authorized by title IV of the HEA. After obtaining 
extensive input and recommendations from the public, including 
individuals and representatives of groups involved in the title IV, HEA 
programs, the Secretary, in most cases, must engage in the negotiated 
rulemaking process before publishing proposed regulations in the 
Federal Register. If negotiators reach consensus on the proposed 
regulations, the Department agrees to publish without substantive 
alteration a defined group of regulations on which the negotiators 
reached consensus--unless the Secretary reopens the process or provides 
a written explanation to the participants stating why the Secretary has 
decided to depart from the agreement reached during negotiations. 
Further information on the negotiated rulemaking process can be found 
at: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
    The Department held two separate negotiated rulemakings related to 
this NPRM. The negotiated rulemaking session for Committee 1 consisted 
of three rounds of negotiations that lasted five days each, as well as 
two subcommittee meetings specific to the PEP proposed regulations that 
lasted three days each. The negotiated rulemaking session for Committee 
2 consisted of three rounds of negotiations, the first of which was 
held over four extended days, while the latter two were five days each.
    With respect to Committee 1, on August 10, 2021, the Department 
published a notice in the Federal Register (86 FR 43609) announcing its 
intention to establish the committee to prepare proposed regulations 
for the title IV, HEA programs. The notice set forth a schedule for 
Committee 1 meetings and requested nominations for individual 
negotiators to serve on the negotiating committee. In the notice, we 
announced the topics that Committee 1 would address. We also announced 
the creation of the PEP Subcommittee (Subcommittee) and requested 
nominations for individual negotiators and others with relevant 
expertise to serve on the Subcommittee.
    Committee 1 included the following members, representing their 
respective constituencies:
     Accrediting Agencies: Heather Perfetti, Middle States 
Commission on Higher Education, and Michale McComis (alternate), 
Accrediting Commission of Career Schools and Colleges.
     Dependent Students: Dixie Samaniego, California State 
University, and Greg Norwood (alternate), Young Invincibles.
     Departments of Corrections: Anne L. Precythe, Missouri 
Department of Corrections.
     Federal Family Education Loan Lenders and/or Guaranty 
Agencies: Jaye O'Connell, Vermont Student Assistance Corporation, and 
Will Shaffner

[[Page 45438]]

(alternate), Higher Education Loan Authority of the State of Missouri.
     Financial Aid Administrators at Postsecondary 
Institutions: Daniel Barkowitz, Valencia College, and Alyssa A. Dobson 
(alternate), Slippery Rock University.
     Four-Year Public Institutions: Marjorie Dorim[eacute]-
Williams, University of Missouri, and Rachelle Feldman (alternate), 
University of North Carolina at Chapel Hill.
     Independent Students: Michaela Martin, University of La 
Verne, and Stanley Andrisse (alternate), Howard University.
     Individuals with Disabilities or Groups Representing Them: 
Bethany Lilly, The Arc of the United States, and John Whitelaw 
(alternate), Community Legal Aid Society.
     Legal Assistance Organizations that Represent Students 
and/or Borrowers: Persis Yu, National Consumer Law Center, and Joshua 
Rovenger (alternate), Legal Aid Society of Cleveland.
     Minority-serving Institutions: Noelia Gonzalez, California 
State University.
     Private Nonprofit Institutions: Misty Sabouneh, Southern 
New Hampshire University, and Terrence S. McTier, Jr. (alternate), 
Washington University.
     Proprietary Institutions: Jessica Barry, The Modern 
College of Design in Kettering, Ohio, and Carol Colvin (alternate), 
South College.
     State Attorneys General: Joseph Sanders, Illinois Board of 
Higher Education, and Eric Apar (alternate), New Jersey Department of 
Consumer Affairs.
     State Higher Education Executive Officers, State 
Authorizing Agencies, and/or State Regulators: David Tandberg, State 
Higher Education Executive Officers Association, and Suzanne Martindale 
(alternate), California Department of Financial Protection and 
Innovation.
     Student Loan Borrowers: Jeri O'Bryan-Losee, United 
University Professions, and Jennifer Cardenas (alternate), Young 
Invincibles.
     Two-year Public Institutions: Robert Ayala, Southwest 
Texas Junior College, and Christina Tangalakis (alternate), Glendale 
Community College.
     U.S. Military Service Members and Veterans or Groups 
Representing Them: Justin Hauschild, Student Veterans of America, and 
Emily DeVito (alternate), The Veterans of Foreign Wars.
     Federal Negotiator: Jennifer M. Hong, U.S. Department of 
Education.
    The Department also invited nominations for two advisors. These 
advisors were not voting members of Committee 1 and did not impact the 
consensus vote; however, they were consulted and served as a resource. 
The advisors were:
     Rajeev Darolia, University of Kentucky, for issues related 
to economic and/or higher education policy analysis and data.
     Heather Jarvis, Fosterus, for issues related to qualifying 
employers on the topic of Public Service Loan Forgiveness.
    The Subcommittee included the following members, representing their 
respective constituencies:
     Consumer Advocacy Organizations: Belinda Wheeler, Vera 
Institute of Justice.
     Financial Aid Administrators: Kim Cary, Ozarks Technical 
Community College.
     Formerly Incarcerated Students: Stanley Andrisse, Howard 
University College of Medicine.
     Groups That Represent Incarcerated Students: Terrell 
Blount, Formerly Incarcerated College Graduates Network.
     Postsecondary Institutions that are PEP Providers: 
Terrence S. McTier, Jr., Washington University.
     State Correctional Education Directors: Marisa Britton-
Bostwick, Montana Department of Corrections.
     State Higher Education Executive Officers: Angie Paccione, 
Colorado Department of Higher Education.
     State Departments of Corrections: Anne L. Precythe, 
Director of the Missouri Department of Corrections.
     Department of Education Representative: Aaron Washington, 
U.S. Department of Education.
    Committee 1 met to develop proposed regulations in October, 
November, and December 2021. During the second session, a Committee 1 
member petitioned to add another constituency, State Departments of 
Corrections, to Committee 1 and the Subcommittee. Committee 1 voted to 
add that constituency to the groups represented at the Committee and 
Subcommittee.
    The Department tasked the Subcommittee with making recommendations 
to the full Committee on issues related to PEPs. The Subcommittee met 
in October and November 2021.
    At its first meeting, Committee 1 reached agreement on its 
protocols and proposed agenda. The protocols provided, among other 
things, that Committee 1 would operate by consensus. The protocols 
defined consensus as no dissent by any member of Committee 1 and noted 
that consensus votes would be taken issue by issue.
    Committee 1 reviewed and discussed the Department's drafts of 
regulatory language and alternative language and suggestions proposed 
by negotiators and Subcommittee members. Two members of the 
Subcommittee briefed the committee on the Subcommittee's work and 
provided extensive written materials for Committee 1's consideration. 
At the final meeting on December 10, 2021, Committee 1 reached 
consensus on the Department's proposed regulations regarding PEPs. 
Committee 1 also reached consensus on three other issues that are not 
included in this publication: total and permanent disability discharge; 
elimination of interest capitalization for non-statutory capitalization 
events; and false certification discharge. For more information on the 
negotiated rulemaking sessions, including the work of the Subcommittee, 
please visit: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
    With respect to Committee 2, on December 8, 2021, the Department 
published a notice in the Federal Register (86 FR 69607) announcing its 
intention to establish a second Committee, the Institutional and 
Programmatic Eligibility Committee, to prepare proposed regulations for 
the title IV, HEA programs. The notice set forth a schedule for 
Committee 2 meetings and requested nominations for individual 
negotiators to serve on the negotiating Committee. In the notice, the 
Department announced the topics that Committee 2 would address.
    Committee 2 included the following members, representing their 
respective constituencies:
     Accrediting Agencies: Jamienne S. Studley, WASC Senior 
College and University Commission (WSCUC), and Laura Rasar King 
(alternate), Council on Education for Public Health.
     Civil Rights Organizations: Amanda Martinez, UnidosUS.
     Consumer Advocacy Organizations: Carolyn Fast, The Century 
Foundation, and Jaylon Herbin (alternate), Center for Responsible 
Lending.
     Financial Aid Administrators at Postsecondary 
Institutions: Samantha Veeder, University of Rochester, and David 
Peterson (alternate), University of Cincinnati.
     Four-Year Public Institutions of Higher Education: Marvin 
Smith, University of California, Los Angeles, and Deborah Stanley 
(alternate), Bowie State University.
     Legal Assistance Organizations that Represent Students 
and/or Borrowers: Johnson Tyler, Brooklyn Legal Services, and Jessica 
Ranucci (alternate), New York Legal Assistance Group.
     Minority-Serving Institutions: Beverly Hogan, Tougaloo 
College

[[Page 45439]]

(retired), and Ashley Schofield (alternate), Claflin University.
     Private, Nonprofit Institutions of Higher Education: Kelli 
Perry, Rensselaer Polytechnic Institute, and Emmanual A. Guillory 
(alternate), National Association of Independent Colleges and 
Universities (NAICU).
     Proprietary Institutions of Higher Education: Bradley 
Adams, South College, and Michael Lanouette (alternate), Aviation 
Institute of Maintenance/Centura College/Tidewater Tech.
     State Attorneys General: Adam Welle, Minnesota Attorney 
General's Office, and Yael Shavit (alternate), Office of the 
Massachusetts Attorney General.
     State Higher Education Executive Officers, State 
Authorizing Agencies, and/or State Regulators of Institutions of Higher 
Education and/or Loan Servicers: Debbie Cochrane, California Bureau of 
Private Postsecondary Education, and David Socolow (alternate), New 
Jersey's Higher Education Student Assistance Authority (HESAA).
     Students and Student Loan Borrowers: Ernest Ezeugo, Young 
Invincibles, and Carney King (alternate), California State Senate.
     Two-Year Public Institutions of Higher Education: Anne 
Kress, Northern Virginia Community College, and William S. Durden 
(alternate), Washington State Board for Community and Technical 
Colleges.
     U.S. Military Service Members, Veterans, or Groups 
Representing them: Travis Horr, Iraq and Afghanistan Veterans of 
America, and Barmak Nassirian (alternate), Veterans Education Success.
     Federal Negotiator: Gregory Martin, U.S. Department of 
Education.
    The Department also invited nominations for two advisors. These 
advisors were not voting members of the Committee; however, they were 
consulted and served as a resource. The advisors were:
     David McClintock, McClintock & Associates, P.C. for issues 
with auditing institutions that participate in the title IV, HEA 
programs.
     Adam Looney, David Eccles School of Business at the 
University of Utah, for issues related to economics, as well as 
research, accountability, and/or analysis of higher education data.
    At its first meeting, Committee 2 reached agreement on its 
protocols and proposed agenda. The protocols provided, among other 
things, that Committee 2 would operate by consensus. The protocols 
defined consensus as no dissent by any member of Committee 2 and noted 
that consensus votes would be taken issue by issue. During its first 
week of sessions, Committee 2 was petitioned to add, and reached 
consensus on adding, a member from another constituency group, Civil 
Rights Organizations.
    Committee 2 reviewed and discussed the Department's drafts of 
regulatory language and the alternative language and suggestions 
proposed by Committee 2 members. At the final meeting on March 18, 
2022, Committee 2 reached consensus on the Department's proposed 
regulations regarding the 90/10 rule, but did not reach consensus on 
the proposed regulations for changes in ownership. For more information 
on the negotiated rulemaking sessions please visit https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.

Summary of Proposed Changes

    The proposed regulations would make the following changes to 
current regulations.
Pell Grants for Prison Education Programs (PEP) ((34 CFR 600.2, 600.7, 
600.10, 600.21, 668.43, 668.234-242, 690.62) (Sections 102(a)(3), 
401(b)(3), 484(t), 485(a)(1)(G), 498(k)of the HEA))
     Amend in Sec.  600.2 the definition of ``additional 
location'' so that prison education programs offered at correctional 
facilities are properly reported to the Department.
     Amend in Sec.  600.7 the requirements for an institution 
to obtain and maintain a waiver from the Secretary to allow students 
who are confined or incarcerated to exceed 25 percent of regular 
student enrollment. We also propose to consider the financial 
responsibility and administrative capability of postsecondary 
institutions in determining whether to grant a waiver.
     Amend Sec.  600.10 to require that institutions seek 
approval from the Secretary prior to offering the first PEP at the 
first two additional locations at correctional facilities.
     Amend Sec.  600.21 to require that institutions report the 
addition of any subsequent new PEP to the Secretary within 10 days of 
the program's establishment.
     Amend Sec.  668.43 to require disclosure of typical State 
or Federal prohibitions on the licensure or employment of formerly 
confined or incarcerated individuals for a PEP that is designed to meet 
educational requirements for a specific professional license or 
certification.
     Create Sec.  668.234, which would describe a scope and 
purpose for the new subpart P.
     Create Sec.  668.235, which would define ``advisory 
committee'', ``feedback process'', ``oversight entity'', and ``relevant 
stakeholders''.
     Create Sec.  668.236, which would define and set forth the 
requirements for an ``eligible prison education program.''
     Create Sec.  668.237, which would prescribe program 
evaluation and review requirements for the institution's accrediting 
agency or State approval agency.
     Create Sec.  668.238, which would require the Secretary's 
approval of an institution's first PEP at the first two additional 
locations for purposes of participation in title IV programs. 
Applications for approval of subsequent PEPs would be subject to fewer 
requirements.
     Create Sec.  668.239, which would require a postsecondary 
institution that offers an eligible prison education program to submit 
required reports to the Secretary and establish an agreement with the 
oversight entity to report information to the Secretary about the 
transfer and release of confined or incarcerated individuals enrolled 
in eligible prison education programs.
     Create Sec.  668.240, which would set forth the 
Secretary's authority to limit or terminate approval of an 
institution's eligible PEP.
     Create Sec.  668.241, which would define the ``best 
interest'' program assessment that must be conducted by the oversight 
entity at least two years after the postsecondary institution has 
continuously provided a PEP and the documentation requirements for such 
assessment.
    After the initial ``best interest'' determination, subsequent 
assessments would be conducted not less than 120 calendar days prior to 
the expiration of each institution's Program Participation Agreement 
(PPA).
     Create Sec.  668.242, which would prescribe the process 
for the winddown of eligible programs operating at a facility that is 
not a Federal or State correctional facility if those programs are not 
approved as eligible prison education programs.
     Amend Sec.  690.62 to codify a statutory requirement that 
the Pell Grant award not exceed cost of attendance.
Title IV Revenue and Non-Federal Education Assistance Funds (90/10 
Rule) ((34 CFR 668.28) (Sections 487(a) and 487(d) of the HEA))
     Amend the heading of Sec.  668.28 and references 
throughout the section to

[[Page 45440]]

change ``non-title IV revenue'' to ``non-Federal funds.''
     Modify Sec.  668.28(a)(1) to provide for periodic 
publication of information identifying the sources of Federal funds 
proprietary institutions must include in their 90/10 calculation and 
clarify how the Department will alert them when new Federal funds must 
be counted in the calculation in subsequent years.
     Amend Sec.  668.28(a)(2) to create a disbursement rule 
that outlines how proprietary institutions calculate the percentage of 
their revenue that is Federal revenue and creates an end-of-fiscal-year 
deadline for proprietary institutions to request and disburse title IV 
funds to students.
     Amend Sec.  668.28(a)(3) to reflect which non-Federal 
revenue generated from programs and activities proprietary institutions 
may count in the calculation.
     Amend Sec.  668.28(a)(4) to describe how proprietary 
institutions apply Federal funds to student accounts and determine the 
funds' inclusion in their revenue calculation.
     Amend Sec.  668.28(a)(5) to specify what revenue generated 
from institutional activities proprietary institutions may count as 
non-Federal revenue.
     Remove outdated provisions in Sec.  668.28(a)(6) that no 
longer impact the non-Federal revenue calculation.
     Redesignate Sec.  668.28(a)(7) as Sec.  668.28(a)(6) and 
amend the types of funds that proprietary institutions may not include 
in their revenue calculation.
     Amend Sec.  668.28(c) to establish disclosures for 
proprietary institutions that fail to derive at least 10 percent of 
their fiscal-year revenues from allowable non-Federal funds, clarify 
reporting requirements, and clarify liabilities for institutions that 
lose access to title IV, HEA funds due to failing 90/10 for two 
consecutive years. Changes in Ownership (CIO) ((Sec. Sec.  600.2, 
600.4, 600.20, 600.21, 600.31) (Sections 101, 102, 103, 410, 498 of the 
HEA)).
     Add a definition of ``main campus'' in Sec.  600.2 to 
clarify a commonly used term that is currently undefined.
     Amend the definitions of ``additional location'' and 
``branch campus'' in Sec.  600.2 to emphasize that they are physical 
locations within the ownership structure of the institution. These 
amendments would further clarify that an additional location 
participates in the title IV, HEA programs through the certification of 
the main campus, and a branch campus must be designated as such by the 
Department.
     To codify current practice, add under the definition of 
``distance education'' in Sec.  600.2 that, for institutions offering 
both on-campus instruction and distance education, the distance 
education programs are associated with the main campus where one or 
more approved educational programs are offered. For institutions 
offering only distance education, the location of the institution is 
where its administrative offices are located and approved by its 
accrediting agency.
     Clarify the definition of ``nonprofit institution'' in 
Sec.  600.2 to reflect that no part of its net earnings may benefit a 
natural person or private entity. We would also specify that, in 
general, a nonprofit institution is not an obligor on a debt to a 
former owner or affiliated person or entity and does not enter into a 
revenue-sharing or other kind of agreement involving payment to a 
former owner or affiliated person or entity.
     Add under Sec.  600.20(g) the requirement for institutions 
to notify the Department at least 90 days in advance of any proposed 
change in ownership, which includes any modification to such a change.
     Add a new Sec.  600.20(g)(2) to provide that, even with 
the submission of the proposed CIO, the Department may determine that 
the institution's participation in the title IV, HEA programs should 
not continue after the change in ownership.
     Amend Sec.  600.20(g)(3) to add the requirement, discussed 
in current paragraph (g)(2), that a complete application must include 
documentation that the institution's accreditation and State 
authorization remained in effect as of the day before the change in 
ownership and add provisions explaining when the Secretary may require 
an institution to provide financial protection, and in what amounts, as 
part of the change in ownership application.
     Add Sec.  600.20(g)(4), which requires institutions to 
notify enrolled and prospective students at least 90 days prior to the 
proposed change in ownership.
     Establish in Sec.  600.20(h) the terms of the extension of 
a TPPPA and clarify when the TPPPA expires.
     Clarify Sec.  600.21 to specify when institutions are 
required to report to the Department changes in ownership and/or 
changes in control and clarify the terminology for owners who are 
natural persons versus entities.
     Specify in Sec.  600.31(c) when ``other entities'' undergo 
a change in control, such as when a person or combination of persons 
acquires or loses 50 percent of voting interests in the entity or 
otherwise acquires or loses 50 percent control, or when an entity with 
members loses them or an entity without members acquires them. The 
paragraph would provide what qualifies to meet the 50 percent 
thresholds and under what other conditions a person or persons may be 
deemed to have actual control of the entity, including based on 
ownership by a combination of persons, each of whom has less than a 50 
percent interest in the entity.
     Amend Sec.  600.31(d) to add that a change of control may 
include the acquisition of an institution to become an additional 
location of another institution unless the acquired institution closed 
or ceased to provide educational instruction.
     Clarify the terminology in Sec.  600.31(e) related to the 
death or resignation of an individual owner.

Significant Proposed Regulations

    We discuss substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
proposed regulatory provisions that are technical or otherwise minor in 
effect. The Department made small, technical, non-substantive updates 
to the PEP amendatory consensus language to conform with proper 
formatting, capitalization, and cross-reference standards.

Prison Education Programs

Sec.  600.2 Definitions

Additional Location
    Statute: Section 410 of the General Education Provisions Act (20 
U.S.C. 1221e-3) provides the Secretary with authority to make, 
promulgate, issue, rescind, and amend rules and regulations governing 
the manner of operations of, and governing the applicable programs 
administered by, the Department. Furthermore, under section 414 of the 
Department of Education Organization Act (20 U.S.C. 3474), the 
Secretary is authorized to prescribe such rules and regulations as the 
Secretary determines necessary or appropriate to administer and manage 
the functions of the Secretary or the Department. These authorities, 
together with the provisions in the HEA, thus include promulgating 
regulations that, in this case amend the definition of ``additional 
location''. Finally, section 498(k) of the HEA refers to additional 
locations.
    Current Regulations: The current definition of an ``additional 
location'' in Sec.  600.2 is a ``facility that is geographically apart 
from the main campus of the institution and at which the institution 
offers at least 50 percent

[[Page 45441]]

of a program and may qualify as a branch campus.''
    Proposed Regulations: The proposed regulation would treat a 
Federal, State, or local penitentiary, prison, jail, reformatory, work 
farm, juvenile justice facility or other similar correctional 
institution as an ``additional location'' for purposes of Sec.  600.2, 
even if a student receives instruction primarily through distance 
education or correspondence courses at that location.
    Reasons: Section 484(t)(5) requires institutions offering one or 
more PEPs to file annual reports with the Department and requires the 
Department to annually report to Congress. Among other items, annual 
reports include the names and types of institutions, Pell Grant 
expenditures, demographics of enrolled students, and mode of 
instruction (such as distance education). In the course of 
administering the Second Chance Pell experiment (described in the 
Background section), the Department became aware that some 
postsecondary institutions were not reporting to the Department certain 
educational programming they were providing in Federal or State 
correctional facilities. This is because the current definition of an 
``additional location'' is phrased in terms of a location that is 
``geographically apart from the main campus of the institution'' and 
``may qualify as a branch campus,'' which institutions were 
interpreting such as to exclude non-traditional locations where 
distance education programs are offered. To ensure adequate data 
collection and accurate reports, it is imperative that institutional 
reports to the Department include all correctional facilities where 
IHEs offer PEPs. The proposed amendment to the definition of 
``additional location'' also would ensure proper reporting under the 
proposed addition to Sec.  600.21(a)(14) regarding updates to an 
institution's PPA (see the discussion of Sec.  600.21 for more 
information).
    Including PEPs as additional locations would also provide related 
benefits to students and taxpayers, as it would ensure greater 
oversight of the PEP, including oversight of the academic quality of 
the program by the accrediting agency, and would provide potential 
financial aid benefits in the event the IHE ceases to provide 
educational offerings at the correctional facility. The additional 
oversight that would be conducted for additional locations would help 
to protect the integrity of taxpayer-financed title IV, HEA dollars, by 
ensuring that such locations are not eligible for Federal aid unless 
and until they have met other conditions. Under Sec.  602.22, for 
example, which governs accrediting agencies, the establishment of 
additional locations is considered to be a ``substantive change,'' 
triggering an agency's obligation to assess whether such change 
adversely affects the institution's ability to meet accreditation 
standards. In most cases, an agency's review of a new location must 
include an assessment of the institution's fiscal and administrative 
capabilities, academic controls, faculty, facilities, resources, 
support systems, and financial stability. In addition, as discussed 
further below, proposed Sec.  668.237 would require an accrediting 
agency to conduct a site visit no later than one year after the 
institution has initiated a PEP at its first two additional locations 
at correctional facilities. The Department believes that these 
additional steps would help to ensure education quality, oversight of 
the programming at the facility, and minimum standards for the services 
provided to students.
    Additionally, under section 437(b)(3) of the HEA, a student whose 
institution closes may be eligible for restoration of their Pell Grant 
lifetime eligibility used (Pell LEU) for the period of a student's 
attendance at the institution, providing a benefit to affected 
students. Similar to the Department's interpretation of this statute 
for other program types, the Department has interpreted the statute to 
mean that, if a postsecondary institution closes, all students enrolled 
in an impacted PEP may be eligible for Pell LEU restoration. By 
requiring PEPs to be reported as additional locations, the Department 
could ensure that confined or incarcerated individuals enrolled in 
those programs are protected in the event the institution ceases to 
operate in the correctional facility by restoring their lifetime Pell 
Grant eligibility.
Confined or Incarcerated Individual
    Statute: As amended by the Consolidated Appropriations Act, 2021, 
section 484(t)(1)(A) of the HEA defines a ``confined or incarcerated 
individual'' for purposes of title IV programs as ``an individual who 
is serving a criminal sentence in a Federal, State, or local penal 
institution, prison, jail, reformatory, work farm, or other similar 
correctional institution,'' and excludes ``an individual who is in a 
halfway house or home detention or is sentenced to serve only 
weekends.'' Individuals falling within the definition are eligible for 
Pell Grants if they attend an eligible PEP, which, among other 
requirements, must be operated in a State or Federal correctional 
facility.\13\
---------------------------------------------------------------------------

    \13\ See section 484(t)(1)(B) of the HEA.
---------------------------------------------------------------------------

    Current Regulations: The current regulations in Sec.  600.2 use the 
phrase ``incarcerated student,'' which is defined as ``a student who is 
serving a criminal sentence in a Federal, State, or local penitentiary, 
prison, jail, reformatory, work farm, juvenile justice facility, or 
other similar correctional institution. A student is not considered 
incarcerated if that student is in a half-way house or home detention 
or is sentenced to serve only weekends. For purposes of Pell Grant 
eligibility under Sec.  668.32(c)(2)(ii), a student who is incarcerated 
in a juvenile justice facility, or in a local or county facility, is 
not considered to be incarcerated in a Federal or State penal 
institution, regardless of which governmental entity operates or has 
jurisdiction over the facility, including the Federal Government or a 
State, but is considered incarcerated for the purposes of determining 
costs of attendance under section 472 of the HEA in determining 
eligibility for and the amount of the Pell Grant.''
    Proposed Regulations: We propose to update the defined term to 
``confined or incarcerated individual'' and to define the phrase as 
``an individual who is serving a criminal sentence in a Federal, State, 
or local penitentiary, prison, jail, reformatory, work farm, juvenile 
justice facility, or other similar correctional institution. An 
individual would not be considered incarcerated if that individual is 
subject to or serving an involuntary civil commitment, in a half-way 
house or home detention, or is sentenced to serve only weekends.''
    Reasons: We propose to change the term from ``incarcerated 
student'' to ``confined or incarcerated individual'' to reflect the 
statute as amended more accurately. We also propose to specifically 
include ``juvenile justice facilities'' in the list of eligible 
locations where a criminal sentence is served, to ensure that programs 
offered there would be subject to the same high program standards as 
programs in other State and Federal correctional facilities. The 
statute refers to ``other similar correctional facilit[ies],'' which 
reasonably includes juvenile justice facilities in this context. 
Students meeting the definition of a confined or incarcerated 
individual would not be eligible for Direct Loan funds.
    Currently, an individual who is incarcerated in any Federal or 
State correctional facility, or who is subject to an involuntary civil 
commitment upon completion of a period of incarceration for a forcible 
or nonforcible sexual offense (as determined in accordance with the 
Federal Bureau of Investigation's Uniform Crime Reporting

[[Page 45442]]

Program), is not eligible to receive a Pell Grant. Recent amendments 
removed the Pell Grant prohibition for involuntarily civilly committed 
individuals from Section 401 of the HEA. Based on Congress' change to 
the relevant statutory language and consistent with a rulemaking 
subcommittee member's recommendation, we propose clarifying that 
individuals subject to or serving an involuntary civil commitment are 
not considered to be incarcerated. As discussed during the rulemaking 
subcommittee meetings, the statute's exclusion of those subjected to 
involuntary civil commitment from the definition of ``confined or 
incarcerated individual'' makes clear they are not prohibited from 
receiving a Pell Grant on that basis, nor do they need to be enrolled 
in a PEP in order to qualify.
    Sec.  600.7 Conditions of institutional ineligibility.
    Statute: Section 102(a)(3) of the HEA states that an institution 
will not meet the definition of an institution of higher education for 
title IV purposes if more than 25 percent of its regular enrolled 
students are incarcerated. The Secretary may waive this limitation for 
a nonprofit institution that provides a two- or four-year program of 
instruction (or both) for which the institution awards a bachelor's 
degree, associate degree, or postsecondary diploma.
    Current Regulations: The current regulations at Sec.  600.7(a)(iii) 
restate the statutory requirement that a postsecondary institution is 
ineligible to participate in the title IV, HEA programs if more than 25 
percent of its enrolled regular students are incarcerated. Section 
600.7(c) permits nonprofit (including public) postsecondary 
institutions to seek a waiver of the 25 percent enrollment limitation. 
The waiver is automatic upon request if the postsecondary institution 
consists solely of four-year or two-year education programs for which 
it awards a bachelor's degree, associate degree, or postsecondary 
diploma.
    Under Sec.  600.7(c)(3)(ii), nonprofit institutions whose offerings 
are not limited to four-year and two-year programs but that award the 
degrees identified above are subject to two different waiver 
determinations: (1) the waiver is automatic upon request for its two- 
and four-year programs, but (2) for any other program, the waiver is 
only available if the incarcerated regular students enrolled in such 
programs have a completion rate of 50 percent or greater. The formula 
for calculating the completion rate is set forth in Sec.  600.7(e)(2). 
Under Sec.  600.7(g), the institution must substantiate the completion 
rate calculation by having the certified public accountant who prepares 
its audited financial statements verify the calculation's accuracy.
    Under Sec.  600.7(f), the institution maintains the waiver 
indefinitely if it satisfies the waiver requirements each award year. 
If the institution fails to satisfy waiver requirements for an award 
year, it becomes ineligible to participate in title IV programs on June 
30 of that award year.
    Proposed Regulations: The proposed regulations would enhance the 
Secretary's ability to monitor PEP enrollment, while allowing eligible 
institutions with demonstrated program success to expand the number of 
incarcerated students they serve. Specifically:
     We propose to add a condition to Sec.  600.7(c)(1) that 
the Secretary will not approve an enrollment cap waiver for a 
postsecondary institution's PEP until the oversight entity is able to 
make the ``best interest determination'' described in Sec.  668.241, 
which would be at least two years after the postsecondary institution 
has continuously provided a PEP.
     In proposed Sec.  600.7(c)(1)(i), the Secretary would not 
grant the waiver to a non-degree program at a nonprofit institution 
unless it meets the current requirement of maintaining a completion 
rate for its enrolled incarcerated students of at least 50 percent.
     We propose to add Sec.  600.7(c)(1)(ii)(A) and (B) to 
require that all postsecondary institutions operating a PEP, regardless 
of program length, satisfy two conditions to obtain and maintain an 
enrollment cap waiver for incarcerated students. Under the proposed 
regulations, an institution would be required to: (1) comply with all 
requirements under proposed part 668 subpart P (Prison Education 
Programs), and (2) demonstrate they are administratively capable as 
defined in Sec.  668.16 and financially responsible under part 668 
subpart L. Administrative capability requires the institution to show 
it is capable of adequately administering the title IV programs, 
including for PEPs. Financial responsibility requires the institution 
to demonstrate that it provides the services described in its official 
publications and statements, meets all of its financial obligations, 
and provides the administrative resources necessary to comply with 
title IV, HEA program requirements.
     We propose to update paragraphs Sec.  600.7(c)(1) and (2) 
by clarifying that the Secretary has the discretion to deny an 
enrollment cap waiver request if the application fails to meet the 
aforementioned standards, noting instead that the Secretary ``may'' 
waive the enrollment cap prohibition. This is a change from the current 
regulations that make the waivers automatic for four-year and two-year 
programs. The proposed provisions more closely reflect the statute, 
which states that the Secretary ``may'' approve the waiver.
     Based in part on the recommendation of a rulemaking 
subcommittee member, we propose to add paragraph (c)(4) to Sec.  600.7, 
which would set program enrollment limitations on incarcerated students 
even after a waiver is approved. In paragraph (c)(4)(i)(A), once a 
postsecondary institution is granted a waiver, for the next five years, 
up to 50 percent of the institution's regular enrolled students could 
be incarcerated students. Paragraph (c)(4)(i)(B) would permit that 
percentage to increase to 75 percent for the five years thereafter. 
Paragraph (c)(4)(ii) would exempt from these limits a public 
institution that is chartered for the explicit purpose of educating 
confined or incarcerated students, as determined by the Secretary. All 
students in such a PEP must be located in the State in which the 
postsecondary institution is chartered to serve.
     Proposed Sec.  600.7(c)(5) would allow the Secretary to 
limit or terminate a postsecondary institution's waiver if it no longer 
meets the requirements established under paragraph (c)(1).
     Finally, proposed Sec.  600.7(c)(6) provides that 
revocation of an institution's enrollment cap waiver would render an 
institution ineligible to participate in title IV, HEA programs, 
commencing at the end of the award year in which the waiver was revoked 
so students will not immediately lose eligibility for title IV aid. 
Paragraph (c)(6)(i) would allow a postsecondary institution to retain 
its eligibility for title IV aid if it demonstrates that it meets all 
requirements prior to losing eligibility, including reducing its 
enrollment of confined or incarcerated students to no more than 25 
percent of its regular enrolled students, as required of eligible 
institutions by the statute, and ceasing to enroll new incarcerated 
students upon the loss of the waiver.
    Reasons: A rulemaking subcommittee member stated that unlimited 
expansion of incarcerated student enrollment, spurred on by increased 
access to Pell Grant funds, could potentially compromise the quality of 
prison education programming. The Department shares the concern that if 
institutions become too reliant on enrolling incarcerated students, 
institutions may not have sufficient

[[Page 45443]]

incentive to ensure those students are served well; students who enroll 
in prison education programs have fewer options and thus more limited 
ability to walk away from programs. The Department proposes 
strengthening the waiver application process to ensure postsecondary 
institutions are serving their incarcerated students well and are 
capable of meeting other Department requirements for the operations and 
finances of the institution. This would help to prevent circumstances 
in which institutions not serving incarcerated students well are 
permitted to enroll such students in very large numbers, potentially 
harming such students with educational programming that does not meet 
the requirements of the waiver. We also propose to set the maximum 
enrollment of confined or incarcerated students depending on the amount 
of time the institution has offered a PEP, allowing institutions to 
move from 25 percent of enrollment by incarcerated students, to 50 
percent, to 75 percent, over a number of years, to guard against growth 
of prison education programming that outpaces an institution's ability 
to support those programs. The Department also believes this additional 
built-in time would help assure the Department and an institution's 
accreditors that such programming is appropriate and acceptable and 
would protect students and taxpayers.
    Sec.  600.10 Date, extent, duration, and consequence of 
eligibility.
    Statute: Section 484(t) of the HEA authorizes Pell Grant 
eligibility for confined or incarcerated individuals who enroll in an 
eligible PEP.
    Current Regulations: None.
    Proposed Regulations: The Department proposes in Sec.  600.10 to 
require an institution to obtain approval from the Secretary to offer 
the institution's eligible PEPs at its first two additional locations 
at correctional facilities. Such locations would include a Federal, 
State, or local penitentiary, prison, jail, reformatory, work farm, 
juvenile justice facility, or other similar correctional institution. 
While an institution's first additional location may have multiple 
PEPs, this approval process would only apply to the first program at 
each of the first two locations. The application requirements for the 
first two locations are prescribed in proposed Sec.  668.238(b).
    Reasons: The Department already requires institutions to seek 
approval from the Secretary before offering certain eligible programs 
in 600.10(c), including direct assessment programs and comprehensive 
transition and postsecondary programs, and if otherwise required for 
the institution's participation in the title IV programs. In these 
cases, where experience is more limited, the Department believes it is 
particularly important to ensure an institution satisfies regulatory 
requirements to offer those programs in advance and is persuaded that 
this prior approval better protects students and taxpayers. Approval of 
an institution's initial prison education programming would serve a 
similar purpose. According to research, quality prison education 
programming may reduce the likelihood of recidivism, lower 
unemployment, and increase social mobility for formerly confined or 
incarcerated individuals.\14\ After the approval of the first PEP at 
each of the first two additional locations, and provided enrollment of 
incarcerated students does not exceed the presumptive cap of 25 
percent, the Department believes (in part based on its experience in 
reviewing other new programs, such as direct assessment programs, being 
offered for the first several times) the postsecondary institution 
would have demonstrated the capacity and capability to effectively 
maintain or expand the number of eligible PEP(s) it offers. If the 
postsecondary institution sought to expand the incarcerated student 
enrollment cap of 25 percent, it would be required to use the 
procedures outlined in Sec.  600.7.
---------------------------------------------------------------------------

    \14\ https://www.americanprogress.org/article/education-opportunities-prison-key-reducing-crime/ crime/. https://www.justice.gov/opa/pr/justice-and-education-departments-announce-new-research-showing-prison-education-reduces. https://www.rand.org/pubs/research_reports/RR266.html.https://www.vera.org/blog/back-to-school-a-common-sense-strategy-to-lower-recidivism.
---------------------------------------------------------------------------

    Sec.  600.21 Updating application information.
    Statute: Section 484(t)(5) of the HEA requires institutions with a 
PEP to submit annual reports to the Department and requires annual 
reports from the Department to Congress.
    Current Regulations: Sections 600.21(a)(1)-(13) require an 
institution to update its PPA no later than 10 days after any of the 
specified events occurs, such as adding a second or subsequent direct 
assessment program.
    Proposed Regulations: The Department proposes to add a new 
reporting requirement to Sec.  600.21 that would require an institution 
to also update its PPA no later than 10 days after it establishes or 
adds an eligible PEP at an additional location as defined under Sec.  
600.2, at a Federal, State, or local penitentiary, prison, jail, 
reformatory, work farm, juvenile justice facility, or other similar 
correctional institution that was not previously included in the 
institution's eligibility determination under Sec.  600.10.
    Reasons: The Department proposes to increase by one the existing 
specified events requiring an updated report. Among the items required 
in the Department's annual reports to Congress by section 484(t)(5) of 
the HEA are the names and types of postsecondary institutions offering 
PEPs in which confined or incarcerated individuals are enrolled and 
receiving Pell Grants. For the Department to provide accurate reports 
to Congress, postsecondary institutions must notify the Department when 
they add eligible PEPs.
    Further, requiring prompt notice of the addition of an eligible PEP 
would allow the Department to monitor trends in eligible PEPs in real 
time and more precisely target oversight as the programs progress. This 
approach mirrors our oversight of direct assessment programs (Sec.  
668.10), for example, where institutions must notify us of each 
additional program.
    Sec.  668.8 Eligible program.
    Statute: Section 484(t)(1)(b) of the HEA establishes PEPs as 
eligible programs under title IV of the HEA.
    Current Regulations: None related to prison education programs. 
Current regulations under Sec.  668.8 establish various requirements 
for eligible programs, including requirements for program length, the 
number of credit hours in a program for title IV, HEA purposes, and use 
of distance education.
    Proposed Regulations: We propose to update Sec.  668.8(n) to 
include prison education programs as named ``eligible programs'' for 
title IV aid.
    Reasons: This is a technical update to ensure the regulations would 
reflect statutory language authorizing PEPs as programs eligible for 
Federal student aid.
    Sec.  668.11 Severability.
    Statute: None.
    Current Regulations: None.
    Proposed Regulations: We would redesignate Sec.  668.11 as Sec.  
668.12 and add a severability provision in proposed Sec.  668.11, to be 
included in subpart A, which would make clear that, if any part of the 
proposed regulations is held invalid by a court, the remainder would 
still be in effect.
    Reasons: Each of the proposed provisions discussed in this NPRM 
serves one or more important, related but distinct purposes. Each of 
the requirements provides value to students, prospective students, 
their families, to the public, taxpayers, and the Government, and to 
institutions separate from, and in addition to, the

[[Page 45444]]

value provided by the other requirements. To best serve these purposes, 
we would include this administrative provision in the regulations to 
make clear that the regulations are designed to operate independently 
of each other and to convey the Department's intent that the potential 
invalidity of one provision should not affect the remainder.
    Sec.  668.32 Student eligibility--general.
    Statute: Section 484(t)(3) of the HEA establishes Pell Grant 
eligibility for confined or incarcerated individuals who are enrolled 
in an eligible PEP.
    Current Regulations: Under Sec.  668.32, an individual incarcerated 
in a Federal or State penal institution is not eligible for a Pell 
Grant.
    Proposed Regulations: We propose to update the regulations to 
reflect that a confined or incarcerated individual would be eligible 
for a Pell Grant if enrolled in an eligible PEP.
    Reasons: This is a technical update to conform with recent 
amendments made to the statute.
    Sec.  668.43 Institutional information.
    Statute: Section 485(a)(1)(G) of the HEA requires a postsecondary 
institution to make certain information readily available to enrolled 
and prospective students, including information that accurately 
describes the institution's academic program.
    Current Regulations: The current regulations at Sec.  
668.43(a)(5)(v) require an institution to disclose whether an academic 
program would fulfill educational requirements for licensure or 
certification if the program is designed to meet, or advertised as 
meeting, such requirements. For each State, institutions are required 
to disclose whether the program does or does not meet such 
requirements, or whether the institution has not made such a 
determination.
    Proposed Regulations: We propose to add Sec.  668.43(a)(5)(vi), 
which would apply if an eligible PEP were designed to meet educational 
requirements for a specific professional license or certification that 
is required for employment in an occupation (as described in proposed 
Sec.  668.236(g) and (h)). In that case, the postsecondary institution 
would provide information regarding whether that occupation typically 
involves State or Federal prohibitions on the licensure or employment 
of formerly confined or incarcerated individuals. The institution would 
provide this information for any State for which the institution has 
made a determination about such State prohibitions, other than the 
State in which the correctional facility is located or the State where 
most students are likely to return in the case of a Federal 
correctional facility where the institution would already be required 
to meet such requirements under proposed Sec.  668.236(g) and (h).
    Reasons: The proposed disclosure would provide students with 
information that institutions and oversight entities already would have 
to collect and report to the Department under other existing and 
proposed provisions. Section 484(t)(1)(B)(vi) of the HEA already 
requires (and proposed Sec.  668.236(g) would require) that an eligible 
PEP satisfy any applicable educational requirements for professional 
licensure or certification, including licensure or certification 
examinations needed to practice or find employment in the sectors or 
occupations for which the program prepares the individual. This 
requirement would apply in the State in which the correctional facility 
is located or, in the case of a Federal correctional facility, in the 
State in which most of the individuals confined or incarcerated in such 
facility will reside upon release. Similarly, section 484(t)(1)(B)(vii) 
already requires (and proposed Sec.  668.236(h) would require) that an 
eligible PEP not offer education that is designed to lead to licensure 
or employment for a specific job or occupation in the State if such job 
or occupation typically involves prohibitions on the licensure or 
employment of formerly confined or incarcerated individuals in the 
State in which the correctional facility is located, or, in the case of 
a Federal correctional facility, in the State in which most of the 
individuals confined or incarcerated in such facility will reside upon 
release.
    Disclosure of this information to confined or incarcerated students 
is critical. According to one analysis of collateral consequences of 
incarceration, ``The American Bar Association's inventory of penalties 
against those with a record has documented 27,254 state occupational 
licensing restrictions.'' \15\ In Minnesota, for example, rules bar 
participation by incarcerated students in careers ranging from dental 
assistant to server in a restaurant, based on the type of offense.\16\ 
This issue is further complicated by the diversity of offenses among 
the State or Federal prison population, which means some inmates 
serving time for the same offense may benefit from a particular PEP, 
but others may not, depending on applicable State educational 
requirements. By ensuring that institutions provide clear and timely 
information on licensure restrictions to students, they would be able 
to make more informed decisions about whether to enroll in a particular 
PEP. This is especially important because PEPs would use up some 
portion of students' lifetime Pell Grant eligibility; if confined or 
incarcerated individuals enroll in programs that do not meet their 
needs, they would have less remaining Pell Grant eligibility for 
another PEP or another postsecondary education program they may wish to 
enroll in upon release from a correctional facility.
---------------------------------------------------------------------------

    \15\ Stephen Slivinski, ``Turning Shackles into Bootstraps--Why 
Occupational Licensing Reform is the Missing Piece of Criminal 
Justice Reform'', Center for the Study of Economic Liberty at 
Arizona State University. (2016), https://csel.asu.edu/sites/default/files/2019-09/csel-policy-report-2016-01-turning-shackles-into-bootstraps.pdf.
    \16\ https://careerwise.minnstate.edu/exoffenders/find-job/jobs-criminal-record.html.
---------------------------------------------------------------------------

    The Department does not propose to require such disclosures for the 
State in which the correctional facility is located or the State where 
most students are likely to return, because the program approval 
process under proposed Sec.  668.236(g) and (h) already ensures the 
program satisfies educational standards for licensure or employment in 
those locations. With respect to other States' educational requirements 
for licensure or employment, institutions would have to provide 
information to confined or incarcerated individuals only for States for 
which the institution has made a determination about State prohibitions 
on the licensure or certification of formerly confined or incarcerated 
individuals, in recognition that institutions may not be aware of the 
licensure requirements in every State, particularly where they are not 
otherwise enrolling students.
    Sec.  668.234 Scope and purpose.
    Statute: Section 484(t) of the HEA authorizes Pell Grant 
eligibility for confined or incarcerated individuals who enroll in a 
PEP.
    Current Regulations: None.
    Proposed Regulations: We propose a new subpart P to part 668 that 
sets forth the mechanics and requirements for PEPs. The scope and 
purpose in Sec.  668.234 for proposed subpart P confirms that a 
confined or incarcerated individual is eligible to receive a Pell Grant 
if that individual enrolls in an eligible PEP. We also propose to 
clarify that eligible PEPs are subject to proposed subpart P and all 
other regulations that otherwise apply to title IV programs.
    Reasons: Given the Department's enhanced statutory obligation to 
monitor PEPs in the context of administering Pell Grant funds, the 
Department proposes to create a new subpart P to part 668. The subpart

[[Page 45445]]

would provide detail and clarity around the establishment and 
maintenance of PEPs, as well as applicable operational details and 
reporting in a single new subpart, which would aid institutions and 
oversight entities in implementing such programs and confined and 
incarcerated students in obtaining available benefits.
    Sec.  668.235 Definitions.
    Statute: There are no statutory definitions of ``advisory 
committee,'' ``feedback process,'' ``oversight entity,'' or ``relevant 
stakeholders.''
    Current Regulations: None.
    Proposed Regulations: In Sec.  668.235, the Department proposes to 
define several terms that have specific application in the PEP context. 
The proposed ``advisory committee'' would be a group established by the 
oversight entity that provides nonbinding feedback regarding the 
approval and operation of a PEP within the oversight entity's 
jurisdiction. We propose to define ``feedback process'' as the process 
developed by the oversight entity to gather nonbinding input from 
relevant stakeholders regarding the approval and operation of PEPs. 
Although the solicitation of input from relevant stakeholders would be 
required, use of an advisory committee as part of that process would be 
optional. We propose to define ``oversight entity'' as the Federal 
Bureau of Prisons or the appropriate State department of corrections or 
other entity that is responsible for overseeing correctional 
facilities. Finally, we propose to define ``relevant stakeholders'' as 
individuals and organizations that provide input to the oversight 
entity as part of a feedback process regarding approval and operation 
of PEPs. These stakeholders would include, at minimum, representatives 
of incarcerated students, organizations representing confined or 
incarcerated individuals, State higher education executive offices, and 
accrediting agencies, and may include additional stakeholders as 
determined by the oversight entity.
    Reasons: By statute, an oversight entity is required to determine 
whether its PEP is operating in the best interest of the students that 
it oversees (see Sec.  668.241). Without this determination, a 
postsecondary institution would not be eligible to award a Pell Grant 
to a confined or incarcerated individual at a correctional facility.
    We propose the term ``oversight entity'' to capture in concept the 
longer phrase in section 484(t) of the HEA (``the appropriate State 
department of corrections or other entity that is responsible for 
overseeing correctional facilities, or . . . the Bureau of Prisons'').
    During Subcommittee meetings, members urged the Department to 
mandate a feedback process from relevant stakeholders with expertise in 
prison education and from confined or incarcerated or formerly confined 
or incarcerated individuals, to assist the oversight entity in making 
the best interest determination. One Subcommittee member recommended 
requiring the oversight entity to engage with a formal advisory 
committee. While section 484(t)(1)(A)(ii) and (iii) of the HEA vests 
sole authority over the best interest determination in the oversight 
entity, the Department and Subcommittee members agreed that input from 
relevant stakeholders through a feedback process would be a valuable 
addition to the best interest determination, and the full Committee 
ultimately reached consensus on this issue. Such feedback would be 
nonbinding and need not come from a formal advisory committee. The 
Department was concerned that a formal advisory committee process could 
introduce delays in the approval of PEPs, particularly because the 
Federal Bureau of Prisons is subject to certain Federal requirements 
regarding advisory processes when informal feedback could provide 
similar value to the oversight entity. For these reasons, the 
Department recommended that an advisory committee be an optional 
component of the feedback process.
    Sec.  668.236 Eligible prison education program.
    Statute: Section 484(t) of the HEA authorizes Pell Grants for 
confined or incarcerated individuals enrolled in an eligible PEP.
    Current Regulations: None.
    Proposed Regulations: We propose new Sec.  668.236, which would 
establish eligibility, operational, and monitoring requirements for 
PEPs. Paragraph (a) would limit the ability to offer PEPs to public or 
private nonprofit institutions of higher education or postsecondary 
vocational institutions, consistent with the statute. Paragraph (b) 
would require that the PEP be offered by a postsecondary institution 
that has been approved to operate in a correctional facility by the 
oversight entity. Section 484(t)(1)(B)(iii) of the HEA requires the 
oversight entity to determine that each PEP is operating in the best 
interest of students (see Sec.  668.241); in paragraph (c), the 
Department proposes that the oversight entity make this determination 
after a two-year period of initial approval. Paragraph (d) would 
require that credits earned while enrolled in an eligible PEP transfer 
to at least one public, private nonprofit, or vocational institution in 
the State in which the facility is located or, for Federal facilities, 
the State in which most of the individuals confined or incarcerated in 
such facility will reside upon release as determined by the 
postsecondary institution with input from the oversight entity. 
Paragraph (e) is from section 484(t)(1)(B)(v) of the HEA and would 
prohibit an institution from offering a PEP if it has been subject to 
certain adverse actions by its accrediting agency or association in the 
last five years; those adverse actions are defined to include any 
suspension, emergency action, or termination of programs by the 
Department, any final adverse action by the institution's accrediting 
agency or association (as defined in Sec.  602.3), or any action by the 
State to revoke a license or other authority to operate. Paragraph (f) 
would impose limits on an institution's ability to offer a PEP if it is 
subject to a current adverse action. Paragraph (g) would require an 
eligible PEP to satisfy any applicable educational requirements for 
professional licensure or certification, including licensure or 
certification examinations needed to practice or find employment in the 
sectors or occupations for which the program prepares the individual, 
in the State in which the correctional facility is located or, for a 
Federal facility, in the State in which most of the individuals will 
reside upon release. Paragraph (h) would prohibit the eligible PEP from 
offering education that is designed to lead to licensure or employment 
for a specific job or occupation in the State, or allowing students to 
enroll in such programs, if such job or occupation typically involves 
prohibitions on the licensure or employment of formerly confined or 
incarcerated individuals in the State in which the correctional 
facility is located, or, in the case of a Federal correctional 
facility, in the State in which most of the individuals confined or 
incarcerated in such facility will reside upon release. For both 
paragraphs (g) and (h), the institution would be required to make this 
determination not less than annually, based on information provided by 
the oversight entity. The prohibition would not extend to local laws; 
screening requirements for good moral character or similar provisions; 
State or Federal laws that have been repealed, even if the repeal has 
not yet taken effect or if the repeal occurs between assessments of the 
institution of higher education by the oversight entity; or other 
restrictions as determined by the Secretary.

[[Page 45446]]

    Reasons: As noted above, many of the PEP requirements are drawn 
directly from statute. The Department proposes clarifying and 
operational regulations to support the effective implementation of the 
statute. For example, while the statute requires the oversight entity 
to make a ``best interest'' determination, the statute is silent as to 
when that determination must be made. The Department proposes to give 
the oversight entity two years to make that determination to allow the 
oversight entity time to collect the necessary data and make an 
informed decision. With respect to the statutory requirement, captured 
in proposed paragraph (d), that a PEP in a Federal facility offer 
transferability of credit to at least one institution of higher 
education in the State in which most of the students will reside upon 
release, clarity is needed as to who determines the appropriate State. 
A Subcommittee member recommended, and the full Committee 1 agreed, 
that the postsecondary institution should determine which State this 
should be, based on information provided by the oversight entity. This 
is because the postsecondary institution would have the most expertise 
on its student population. The same is true for the requirements in 
proposed paragraphs (g) and (h), which require institutions offering 
programs in Federal facilities to determine whether such programs 
satisfy educational, licensure and employment requirements in the State 
in which most of the students will reside upon release. Postsecondary 
institutions, with input from the oversight entity, would be in the 
best position to know about, and adapt their programming to, the 
educational, licensure, and employment requirements of various States. 
The Department proposes to require institutional decisions under 
paragraphs (g) and (h) be made not less than annually, to ensure 
educational programming remains current with frequently changing 
licensure requirements.
    The statute dictates, and the proposed regulations would codify in 
paragraph (e), that the postsecondary institution offering the eligible 
PEP has not been subject to various adverse actions by the Department, 
the accrediting agency, or the State within the last five years. With 
respect to accrediting agency action, we propose to draw on a familiar 
definition of ``adverse action'' in Sec.  602.3, which includes the 
denial, withdrawal, suspension, revocation, or termination of 
accreditation or pre-accreditation, or any comparable accrediting 
action an agency may take against an institution or program. 
Additionally, paragraph (f) would make clear that an institution may 
not begin offering a new PEP if the institution's accrediting agency 
initiates such adverse action and must submit a teach-out plan to the 
accrediting agency after an adverse action is initiated for any PEPs it 
already operates. Until a significant action like the ones contained in 
Sec.  602.3 is resolved, it would not be in any stakeholder's best 
interest for that institution to start a new PEP until the adverse 
action has been rescinded or otherwise resolved. If the action is not 
rescinded, for example, the school could ultimately face a loss of 
accreditation, in which case the PEP would lose eligibility for title 
IV aid, students may not be able to complete their programs, and 
taxpayers may be forced to bear the costs of restoring Pell Grant 
eligibility for the students. The required submission of a teach-out 
plan in these cases would provide additional protections for students 
to ensure equitable treatment of confined or incarcerated individuals 
if the program closes.
    Paragraph (h), which outlines prohibitions on enrollment, is based 
on the statutory requirement in section 484(t)(1)(B)(vii) of the HEA. 
As noted above, the postsecondary institution would make the 
determination as to which State most students would reside in upon 
release. Proposed paragraphs (h)(1) and (2) would add necessary 
guardrails for confined or incarcerated students. A postsecondary 
institution should not enroll a student in an eligible PEP if, based on 
their conviction, the institution knows prior to enrollment that the 
confined or incarcerated individual would not be able to obtain 
licensure or employment in the field for which the education is 
intended to prepare them and in the State the individual is likely to 
live in upon release. In the interest of ensuring that access to 
postsecondary education is not overly restricted for confined or 
incarcerated individuals, however, the Department in proposed paragraph 
(h)(3) clarifies that not all restrictive provisions would bar 
enrollment and lists the types of restrictions that would be exempt 
from the enrollment prohibition (local laws, for example).
    Sec.  668.237 Accreditation requirements.
    Statute: Section 484(t) of the HEA authorizes Pell Grants for 
confined or incarcerated individuals enrolled in an eligible PEP.
    Current Regulations: None.
    Proposed Regulations: We propose in Sec.  668.237 that an eligible 
PEP must meet the requirements of the institution's accrediting agency 
or State approval agency. We further propose that, in order for any PEP 
to qualify as an eligible program, the accrediting agency would need to 
undertake the following four measures: (1) evaluate at least the first 
two additional locations and PEPs being offered there to ensure the 
institution's ability to offer and implement the program based on the 
agency's accreditation standards, and include it in the institution's 
grant of accreditation or pre-accreditation; (2) evaluate the 
institution's first additional PEP offered using a new mode of delivery 
to ensure the institution's ability to offer and implement the program 
based on the agency's standards, and include it in the institution's 
grant of accreditation or pre-accreditation; (3) perform a site visit 
as soon as practicable but no later than one year after initiating the 
PEPs at the first two additional locations; and (4) review and approve 
the methodology for how the institution, in collaboration with the 
oversight entity, made the determination that the PEP meets the same 
standards as substantially similar non-PEP programs at the institution.
    Reasons: The requirement that the first PEP at the first two 
additional locations be evaluated by the institution's accrediting 
agency or State approval agency mirrors the Department's approval 
requirement in proposed Sec.  600.10. After the first two programs at 
the first two additional locations, an institution's subsequent PEPs 
are generally not required to be evaluated by the accrediting agency or 
State approval agency unless the accrediting agency or State approval 
agency itself has a requirement that all PEPs are evaluated, or the 
institution changes the method of delivery. A Subcommittee member 
recommended that the Department require that a change in the method of 
delivery be evaluated by the accrediting agency or State approval 
agency. The Department agreed with this suggestion, at least with 
respect to the first such program offered through a different mode of 
delivery (such as the first distance education program). This would 
allow the Department and accrediting agency to maintain oversight of 
PEP program quality in the face of a potentially significant change in 
the operations of the program, regardless of whether the institution 
already underwent approval at its first two additional locations.
    An accrediting agency would be required to perform a site visit at 
the first two additional locations offering PEPs, or upon a change in 
the modality of the program, due to the unique nature of an eligible 
PEP. It is important to

[[Page 45447]]

ensure that programming can be delivered to a confined or incarcerated 
individual, which may require different capabilities on the part of an 
institution of higher education, and that the programming would provide 
a quality education. A site visit would further ensure that the 
accrediting agency has adequate opportunity to evaluate the realities 
of the program on the ground and ensure that its initial assessment was 
appropriate. Under Sec.  602.3(b), site visits required under 
circumstances other than PEP evaluation must take place within six 
months. The Department recognizes that this may not be practicable due 
to the logistics of performing a site visit in a correctional facility; 
therefore, we propose in Sec.  668.237(b)(3) to provide an extension to 
one full year for the site visit to be conducted.
    Finally, a Committee 1 member recommended that the accrediting 
agency or State approval agency review and approve the methodology for 
how the institution, in collaboration with the oversight entity, made 
the determination that the PEP meets the same standards as 
substantially similar programs that are not PEPs at the institution. 
The Department agreed with this recommendation and adopted it in 
paragraph (b)(4). This would provide an additional backstop for the 
``best interest determination'' requirements in proposed Sec.  668.241, 
some of which would require the oversight entity to ensure that the 
services provided to confined or incarcerated individuals are the same 
or substantially similar to services provided to other students who are 
not confined or incarcerated. Promoting and requiring collaboration 
between the institution and oversight entity would ensure confined or 
incarcerated individuals get the services afforded to all other 
students at the institution, resulting in more equitable access to 
postsecondary educational opportunities. It would also provide an 
additional guardrail of accreditor evaluation and approval.
    Sec.  668.238 Application requirements.
    Statute: Section 484(t) of the HEA authorizes Pell Grants for 
confined or incarcerated individuals enrolled in an eligible PEP.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  668.238(a) reiterates that the 
postsecondary institution would need to seek approval for the first PEP 
at the first two additional locations as required under Sec.  600.10. 
Paragraph (b) spells out the application requirements for such PEPs. 
For all other PEPs not subject to initial approval by the Secretary, 
postsecondary institutions would simply be required to submit the 
documentation outlined in Sec.  668.238(c). PEPs at any location, 
including the first two additional locations, would be required to 
adhere to enrollment caps described in Sec.  600.7 and reporting 
requirements in Sec.  600.21. Under Sec.  600.20(c)(1), if a 
postsecondary institution is provisionally certified to participate in 
the title IV programs or that has been notified it must apply for 
approval of new programs or locations, the institution cannot add an 
additional location or educational program, including a PEP, without 
prior approval from the Secretary. The same requirements apply to any 
postsecondary institution that receives title IV, HEA program funds 
under the reimbursement or cash monitoring payment method, that 
acquires the assets of another institution that provided educational 
programs at that location during the preceding year and participated in 
the title IV, HEA programs during that year, or that would be subject 
to a loss of eligibility if it adds that location.
    Proposed Sec.  668.238(b) outlines the components of the PEP 
application, which would include: (1) A description of the educational 
program, including the educational credential offered (degree level or 
certificate) and the field of study; (2) Documentation from the 
institution's accrediting agency or State approval agency indicating 
that the agency has evaluated the institution's offering of one or more 
PEPs and has included the program(s) in the institution's grant of 
accreditation and approval documentation from the accrediting agency or 
State approval agency; (3) The name of the correctional facility and 
documentation from the oversight entity that the PEP has been approved 
to operate in the correctional facility; (4) Documentation detailing 
the methodology including thresholds, benchmarks, standards, metrics, 
data, or other information the oversight entity used in making its 
determination that the program is operating in the best interest of 
students for all indictors under Sec.  668.241, and how such 
information was collected; (5) Information about the types of services 
offered to admitted students, including orientation, tutoring, and 
academic and reentry counseling. If reentry counseling is provided by a 
community-based organization that has partnered with the eligible PEP, 
institution, or correctional facility to provide reentry services, then 
the application would be required to include information about the 
types of services offered by the community-based organization; (6) 
Affirmative acknowledgement that the Secretary can limit or terminate 
approval of an institution to provide a PEP as described in Sec.  
668.237; (7) Affirmative agreement to submit the report to the 
Secretary as described in Sec.  668.239; (8) Documentation that the 
institution has entered into an agreement with the oversight entity to 
obtain data about transfer and release dates of confined or 
incarcerated individuals, which would be reported to the Department; 
and (9) Such other information as the Secretary deems necessary.
    Paragraph (c) would require that, for all PEPs that do not require 
the Secretary's approval, the postsecondary institution must submit 
documentation that it has not been subject to any adverse actions by 
its accrediting agency or any action by the State to revoke a license 
to operate. The postsecondary institution also would be required to 
submit documentation that it has entered into an agreement with the 
oversight entity to obtain data on the transfer and release dates of 
the confined or incarcerated individuals enrolled in its PEP(s).
    Reasons: The Department seeks to ensure that postsecondary 
institutions that offer eligible PEPs would be able to comply with the 
various statutory and regulatory requirements laid out in proposed 
subpart P. Because there likely will not be as many program options for 
confined or incarcerated individuals, and because, for some 
institutions, offering programming within the context of correctional 
facilities will be new, the more extensive up-front review proposed in 
Sec.  668.238 would allow us to ensure that the first programs offered 
at the first two additional locations will meet applicable standards. 
Subsequently, except where the postsecondary institution changes the 
method of delivery, the institution would only need to submit 
documentation from the accrediting agency or State approval agency at 
the State showing that the institution was not subject to various 
adverse actions (as described in the proposed regulations section) and 
provide an agreement with the oversight entity to obtain transfer and 
release data. The latter would be necessary to allow the Department to 
calculate and provide information to the oversight entity for use in 
its best interest determination (see Sec.  668.241).
    We intend to propose a template to assist postsecondary 
institutions in submitting applications to the Department. Use of the 
template would be voluntary and non-binding, but submission of the 
template would fulfill the requirements of the regulation.

[[Page 45448]]

    Sec.  668.239 Reporting requirements.
    Statute: Section 484(t)(5) of the HEA requires that the Secretary 
submit an annual report to Congress regarding PEPs and make that report 
publicly available on the Department's website.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  668.239 would require a 
postsecondary institution to submit reports as required by a notice the 
Secretary publishes in the Federal Register. As in Sec.  668.238, 
proposed Sec.  668.239 reiterates that the institution would report 
information required by the Secretary regarding transfer and release 
dates of confined or incarcerated individuals, through an agreement 
with the oversight entity.
    Reasons: Section 484(t)(4) and (5) requires postsecondary 
institutions and the Secretary to report various information regarding 
PEPs. In order to fulfill statutory mandates, the Secretary may need to 
collect additional information not identified in the statute. Rather 
than dictate these data items through regulation, the Department 
proposes to notify institutions of data requirements through notices in 
the Federal Register, which would allow the Department to periodically 
add, subtract, or modify requests for certain information. Our 
experience with the Second Chance Pell experiment has been that 
revisions to data collection requirements may be necessary to ensure 
the collection of current and accurate data reflective of the 
experiences of incarcerated students, to obtain valuable new types of 
data that may become available due to statutory or regulatory changes 
or changes in recordkeeping practices at prison facilities or 
postsecondary institutions, and to address challenges related to data-
sharing or burden that were unanticipated or that have evolved since 
establishing the data requirements.
    Institutions would be required to enter into an agreement with the 
oversight entity to report the transfer or release date of PEP students 
so the Department can calculate and provide information to the 
oversight entity for use in its best interest determination (see Sec.  
668.241). A data-sharing agreement with the oversight entity would 
allow the institution, and thus the Department, to calculate data such 
as labor market outcomes only for students who are released from the 
facility and to avoid measuring those who are still incarcerated in 
such measures.
    Sec.  668.240 Limit of termination of approval.
    Statute: Section 484(t) of the HEA authorizes Pell Grant 
eligibility for confined or incarcerated individuals enrolled in an 
eligible PEP.
    Current Regulations: None.
    Proposed Regulations: The proposed regulations would allow the 
Secretary to limit or terminate approval of an institution to provide 
an eligible PEP if the Secretary determines that the institution 
violated any terms of proposed subpart P or determines that the 
information the institution submitted to the Secretary, accrediting 
agency, State agency, or oversight entity in support of its PEP 
application was materially inaccurate.
    If the Secretary initiates a limitation or termination action with 
respect to an institution's PEP approval, the regulations would also 
require the postsecondary institution to submit a teach-out plan as 
defined under 34 CFR 600.2 and, if practicable, a teach-out 
agreement(s) to the institution's accrediting agency. A teach-out plan 
is a written plan developed by an institution that provides for the 
equitable treatment of students if an institution, or an institutional 
location that provides 100 percent of at least one program, ceases to 
operate, or plans to cease operations, before all enrolled students 
have completed their program of study. A teach-out agreement is a 
written agreement between institutions that provides for the equitable 
treatment of students and a reasonable opportunity for students to 
complete their program of study if an institution, or an institutional 
location that provides 100 percent of at least one program offered, 
ceases to operate, or plans to cease operations, before all enrolled 
students have completed their program of study.
    Reasons: It is necessary for the Secretary to establish in 
regulation the ability to remove programs that violate the terms of the 
regulations if the basis for approval was materially inaccurate. A 
Subcommittee member recommended that the Department add a teach-out 
plan requirement and, if practicable, a teach-out agreement(s) for an 
initiated limitation or termination action, to ensure proper planning 
in the event of a program closure. Confined or incarcerated individuals 
should be treated equitably and be provided a reasonable opportunity to 
complete their programs through a teach-out in the event that such 
programs lose eligibility for the title IV, HEA programs. Teach-out 
plans typically include such information as how students should request 
official transcripts, alternative options for program completion, and 
may include how students may continue their education after being 
released from the facility; these elements are critical for students to 
have access to in the event their programs close.
    Sec.  668.241 Best interest determination.
    Statute: Section 484(t) of the HEA authorizes Pell Grant 
eligibility for confined or incarcerated individuals enrolled in an 
eligible PEP.
    Current Regulations: None.
    Proposed Regulations: We propose that an oversight entity's 
determination that a PEP is operating in the best interest of students 
must include an assessment of all of the following:
     Whether the rate of confined or incarcerated individuals 
continuing their education post-release, as determined by the 
percentage of students who reenroll in higher education reported by the 
Department, meets thresholds established by the oversight entity with 
input from relevant stakeholders.
     Whether job placement rates in the relevant field for such 
individuals meet any applicable standards required by the agency that 
accredits the institution or program or a State in which the 
institution is authorized. If no job placement rate standard applies to 
a PEP offered by the institution, the oversight entity would need to 
define, and the institution would need to report, a job placement rate 
with input from relevant stakeholders.
     Whether the earnings for such individuals, or the median 
earnings for graduates of the same or similar programs at the 
institution, as measured by the Department, exceed those of a typical 
high school graduate in the State.
     Whether the experience, credentials, and rates of turnover 
or departure of PEP instructors are substantially similar to other 
programs at the institution, accounting for the unique constraints of 
PEPs.
     Whether the transferability of credits for courses 
available to confined or incarcerated individuals and the applicability 
of such credits toward related degree or certificate programs is 
substantially similar to those at other similar programs at the 
institution, accounting for constraints of PEPs.
     Whether the PEP's offering of relevant academic and 
career-advising services to individuals while they are confined or 
incarcerated, in advance of reentry, and upon release, is substantially 
similar to offerings to a student who is not a confined or incarcerated 
individual and who is enrolled in, and may be preparing to transfer 
from, the same institution, accounting for constraints of PEP.

[[Page 45449]]

     Whether the institution ensures that all formerly 
incarcerated students are able to fully transfer their credits and 
continue their programs at any location of the institution that offers 
a comparable program, including by the same mode of instruction, 
barring exceptional circumstances relating to the student's conviction.
    We also propose several other assessment items that are important 
to assessing program quality, but that would be optional for the 
oversight entity:
     Whether the rates of recidivism, which do not include any 
recidivism by the student within a reasonable number of years of 
release and which only include new felony convictions as defined by 
United States Sentencing Guideline Sec.  4A1.1(a) as ``each sentence of 
imprisonment exceeding one year and one month,'' meet thresholds set by 
the oversight entity.
     Whether the rates of completion reported by the 
Department, which do not include any students who were transferred 
across facilities and which account for the status of part-time 
students, meet thresholds set by the oversight entity with input from 
relevant stakeholders.
     Other indicators pertinent to program success as 
determined by the oversight entity.
    In addition, we propose the following:
     The oversight entity would make the best interest 
determination through a feedback process that considers input from 
relevant stakeholders and considers approval of the eligible PEP given 
the totality of the circumstances.
     If the oversight entity does not find a program to be 
operating in the best interest of students, it would allow for the 
program to re-apply within a reasonable timeframe.
     The oversight entity initially could approve a PEP without 
the required assessments under this section for two years. After the 
two years of initial approval under Sec.  668.236, the oversight entity 
would need to determine that the PEP is operating in the best interest 
of students pursuant to Sec.  668.241.
     After the oversight entity's initial best interest 
determination, the institution would be required to obtain subsequent 
final evaluations of each eligible PEP from the responsible oversight 
entity not less than 120 calendar days prior to the expiration of each 
of the institution's PPAs, except that the oversight entity could make 
a determination between subsequent evaluations based on its regular 
monitoring and evaluation of program outcomes. Each subsequent 
evaluation would include the entire period following the prior 
determination, a review of the best interest factors for all students 
enrolled in the program, and input from relevant stakeholders through 
the oversight entity's feedback process. Subsequent evaluations would 
be submitted to the Secretary no later than 30 days after the 
evaluation is completed.
     Finally, we propose that postsecondary institutions would 
obtain and maintain documentation of the methodology by which the 
oversight entity made each best interest determination, including the 
initial approval determination, for as long as the program is active 
or, if the program is discontinued, for three years following the date 
of discontinuance.
    Reasons: The authorizing statute requires the Federal Bureau of 
Prisons, a State Department of Corrections, or other entity responsible 
for oversight of the correctional facility (referred to as the 
``oversight entity'' throughout the preamble) to determine whether a 
PEP is operating in the best interest of the students in its 
correctional facility. PEPs are unlike most other postsecondary 
institutions and programs, where oversight is managed by the 
Department, the State, and the institution's accrediting agency, not an 
external entity such as a correctional agency. Providing a regulatory 
framework for making the determination about the best interests of 
students would ensure that the oversight entities, which are generally 
new to this role, have adequate direction as to how to implement the 
statute, a concern raised by several Subcommittee members. Without 
adequate direction, oversight entities may fall short, and students may 
be left without the critical protection that Congress envisioned to 
ensure that students with fewer educational options--who cannot easily 
elect to attend another institution--have access to programs operating 
in their best interest.
    In paragraph (a)(1), the Department would make clear that the 
oversight entity must assess all of the indicators listed in that 
section, although the final determination that the program is operating 
in the best interest of students would be made based on the totality of 
the circumstances of the program. That is, while each indicator would 
be assessed, falling short on one or more indicators would not 
automatically require the oversight entity to determine the PEP is 
ineligible to operate at a correctional facility. Proposed Sec.  
668.238 would require an oversight entity to provide documentation for 
all of the indicators under Sec.  668.241, detailing its methodology in 
reaching a determination that the program is operating in the best 
interest of students. The Department would monitor and enforce the 
overarching requirement that a PEP operate in the best interest of 
confined or incarcerated individuals. Toward that end, we would retain 
the authority to terminate approval of the eligible PEP under proposed 
Sec.  668.240 if it is determined that the institution violated any 
terms of subpart P or that the information the institution submitted to 
the Secretary, accrediting agency, State agency, or oversight entity in 
support of its application was materially inaccurate.
    As required by the statute, paragraph (a)(1)(i) would require an 
oversight entity to evaluate continuing education post-release. The 
Department's proposed regulation would codify this indicator with 
greater specificity and require the oversight entity to establish a 
threshold for this metric with input from relevant stakeholders (as 
discussed in Sec.  668.235). Establishing a threshold for this measure 
upfront would help ensure the oversight entity has adequate processes 
in place to make fair, informed, and consistent decisions about whether 
PEPs are operating in the best interests of students and would provide 
insights to the Department and the public about the processes those 
oversight entities are employing. In the interest of reducing the data 
collection burden on institutions and oversight entities, we would 
provide data on post-release continuation of education by confined or 
incarcerated individuals to institutions and oversight entities. We 
would also publish aggregate data on post-release education 
continuation in our annual report.
    The second ``best interest'' determination factor, in paragraph 
(a)(1)(ii), would require the oversight entity to consider a job 
placement rate measure. This factor is also named in the statute. While 
the Department does not currently have an established measure for job 
placement rates, we are aware that some accrediting agencies or States 
may have policies and procedures regarding the calculation of job 
placement rates, and oversight entities could use those existing 
calculations where applicable. If no applicable requirements exist, 
however, then the oversight entity would need to establish a job 
placement rate definition with input from relevant stakeholders, and 
the institution would report using that definition.
    Paragraph (a)(1)(iii) would require the oversight entity to 
consider data regarding whether the median post-release earnings of 
graduates of the eligible PEPs are higher than those of a

[[Page 45450]]

typical high school graduate in the State, if available. This is 
consistent with the statutory provision that oversight entities may 
consider the earnings of formerly confined or incarcerated individuals 
from the PEP. It also would help ensure that the typical confined or 
incarcerated individual is financially better off after having 
completed the PEP than someone with a high school diploma or its 
equivalent who did not attend such a program. Subcommittee members 
raised concerns that such data would not be readily available. 
Accordingly, if the oversight entity does not have data, the Department 
would provide median earnings for graduates of the same or similar 
programs in order to conduct the proper assessment. Such data are 
generally already made available through the College Scorecard, and the 
Department is committed to continuing to produce and improve upon those 
data.
    Proposed paragraphs (a)(1)(iv), (v), and (vi) outline additional 
indicators that the oversight entity would be required to assess 
related to the faculty, credit transfer, and advising and support 
services for incarcerated students in the PEP. All are listed in the 
statute. Specifically, we propose to require that the oversight entity 
assess whether the experience, credentials, and turnover rates of 
instructors (paragraph (a)(1)(iv)), credit transfer (paragraph 
(a)(1)(v)), and academic and career advising services (paragraph 
(a)(1)(vi)) for the confined or incarcerated individuals in the PEP are 
substantially similar to other students at the institution. A 
Subcommittee member was concerned that the unique constraints of PEPs 
may make it challenging to offer ``substantially similar'' experiences 
to PEP students; for example, instructor turnover may be higher in a 
correctional facility setting due to background check requirements. The 
Department agreed and incorporated that concept into the proposed 
regulations by noting that each of these provisions should account 
``for the unique geographic and other constraints of prison education 
programs.'' As discussed above in connection with proposed Sec.  
668.237, the institution's accrediting agency would review and approve 
the institution's methodology for making its ``substantially similar'' 
determinations, which the institution would be required to develop in 
collaboration with the oversight entity.
    Paragraph (a)(1)(vii) was added based on a recommendation from a 
Subcommittee member. There was concern expressed during the 
Subcommittee meetings that institutions may enroll confined or 
incarcerated individuals into an eligible PEP, but later deny their 
eligibility to enroll in an on-campus program post-release, leaving at 
least some students potentially unable to complete their educational 
programs. The Department agreed that this presents an academic and 
equity concern and proposes to require that the oversight entity assess 
whether formerly incarcerated students are able to fully transfer their 
credits and continue their programs at any location of the institution 
that offered the PEP, including by the same mode of instruction, taking 
into account any exceptional circumstances related to the student's 
conviction, which are typically outside the institution's control. For 
example, exceptional circumstances might exist if, as a part of the 
terms of the individual's release from a correctional facility, the 
formerly confined or incarcerated individual is not permitted to be 
within a certain distance of an individual or group of individuals who 
are likely to be on the campus where the student wishes to enroll. In 
such circumstances, the Department would encourage institutions to work 
to identify alternative opportunities for re-enrollment for the 
student.
    The proposed regulations also would provide three optional ``best 
interest'' factors in paragraphs (a)(2)(i), (ii) and (iii) that the 
oversight entity may choose to assess in the course of determining 
whether the program operates in the best interests of students, namely 
the recidivism rates of formerly confined or incarcerated individuals 
who attended the PEP; other indicators related to program success that 
the oversight entity identifies; and completion rates reported by the 
Department to the oversight entity. The recidivism rate assessment in 
paragraph (a)(2)(i) is listed in the statute but drew sharp criticism 
from the Subcommittee as being challenging to measure and less directly 
related to program quality. The Department accordingly proposes 
parameters for the consideration of recidivism rates if the oversight 
entity opts to review that metric. Specifically, the Department 
proposes to exclude recidivism after ``a reasonable number of years of 
release,'' and to include only new felony convictions that, as defined 
by the U.S. Sentencing Guideline Sec.  4A1.1(a), exceed a sentence of 
one year and one month. Since felony definitions and sentence lengths 
vary from State to State, we believe that aligning reporting to the 
U.S. Sentencing Guidelines will ensure more consistent treatment. These 
protections would also minimize the impact of more minor convictions or 
sentences, or technical violations such as probation revocations, and 
ensure greater uniformity in how recidivism is measured, if the 
oversight entity opts to measure it.
    Under proposed paragraph (a)(2)(ii), the oversight entity may opt 
to assess completion rates as part of the best interest determination. 
Completion rates are used by many entities in higher education, 
including for consumer information purposes under the HEA; by States 
and accrediting agencies in assessing college outcomes; and by 
institutions themselves in identifying gaps in performance and 
opportunities for continuous improvement. We provide this information 
to the public through the College Scorecard, to members of an 
accreditation advisory committee, and in many other contexts to support 
practitioners' and policymakers' efforts to understand and improve 
institutional outcomes. The Federal government also invests billions 
each year in programs designed to increase postsecondary completion 
rates. Some subcommittee members were concerned with adding any metrics 
not explicitly mentioned in the statute as a required consideration for 
the oversight entity; and noted potential challenges with ensuring 
completion for incarcerated students who, for instance, are transferred 
across prison facilities and unable to continue their program. Thus, 
while the Department continues to feel strongly that this measure would 
add value to the oversight entity's assessment of prison education 
programs, we agreed to make it an optional, rather than a required, 
consideration for the purposes of reaching consensus. With this 
inclusion, the Department would analyze completion rates of eligible 
PEPs and provide that information to Congress and the public as 
required in section 484(t)(5)(A)(viii), which requires the Department 
to report on the impact of expanding Pell Grant eligibility to confined 
or incarcerated individuals and which specifically requires reporting 
on academic outcomes such as credential and degree completion.
    In proposed paragraph (a)(2)(iii), the Department would permit 
oversight entities to identify and consider other measures of program 
success in the best interest determination, beyond those specified in 
the statute and regulations. We believe that a collateral benefit of 
the stakeholder feedback processes that are required of oversight 
entities may be the suggestion of additional metrics, particularly 
those important to

[[Page 45451]]

incarcerated students and their advocates.
    Paragraph (b), which would require the oversight entity to solicit 
feedback and explain how to make the best interest determination, is 
already described in this section of the preamble and in Sec.  668.235. 
As previously stated, these proposed ``best interest'' factors would be 
part of a holistic assessment of the institution's ability to operate 
in the best interests of students and would not be pure eligibility 
requirements.
    A Subcommittee member recommended that the regulations establish an 
appeal process for programs that the oversight entity determines are 
not operating in the best interest of students. While the Department 
does not believe it is appropriate to prescribe a specific appeal 
process for use by external agencies, we incorporated the suggestion by 
proposing in paragraph (c) that oversight entities permit institutions 
that were not found to be operating in the best interests of students 
to reapply within a reasonable timeframe.
    The oversight entity would always have to approve the operation of 
an eligible PEP at a correctional facility that it oversees. However, 
in paragraph (d), we propose to provide two years before the oversight 
entity would need to make a formal ``best interest determination.''
    As discussed in Sec.  668.236, it would take time for the 
postsecondary institution, the Department, and the oversight entity to 
collect the necessary data to make an informed decision based on the 
indicators. The two-year timeframe would ensure students receive the 
protections of the best interest framework in a timely manner, while 
recognizing the need for some time to gather the necessary information 
to meet the statutory requirement for a data-informed decision by the 
oversight entity.
    In paragraph (e), the Department proposes that any reassessment of 
an eligible PEP by the oversight entity be conducted at least 120 days 
prior the expiration of the institution's PPA to ensure the assessment 
is complete and available by the time we review the institution's 
application for recertification. Reassessment is important to ensure 
that eligible PEPs continue to operate in the best interests of 
confined or incarcerated individuals. This timeframe would ensure that 
institutions' determination dates are staggered, based to an extent on 
the risk of the institution (since higher-risk institutions will have 
shorter recertification timelines than lower-risk institutions), and 
that determinations are available to the Department when the agency is 
making its own assessment of the institution for title IV purposes.
    The records retention described in paragraph (f) is necessary for 
oversight and review purposes.
    Sec.  668.242 Transition to a prison education program.
    Statute: Section 484(t) of the HEA authorizes Pell Grant for 
confined or incarcerated individuals enrolled in an eligible PEP.
    Current Regulations: None.
    Proposed Regulations: The Department proposes that, for 
institutions operating eligible PEPs in a correctional facility that is 
not a Federal or State correctional facility, a confined or 
incarcerated student who otherwise meets the eligibility requirements 
to receive a Pell Grant and is enrolled in an eligible program that 
does not meet the requirements under subpart P would continue to 
receive a Pell Grant until the earlier of July 1, 2029; the date the 
student reaches the maximum timeframe for program completion as defined 
under Sec.  668.34; or the date the student exhausts Pell Grant 
eligibility as defined under Sec.  690.6(e).
    We propose that an institution cannot enroll a confined or 
incarcerated student on or after July 1, 2023, who was not enrolled in 
an eligible program prior to July 1, 2023, unless the institution first 
converts the eligible program into an eligible PEP as defined in Sec.  
668.236.
    Reasons: This proposed regulation does not apply to the Second 
Chance Pell experiment under the Experimental Sites Initiative, for 
which an end date has not yet been determined. The Department will 
release subregulatory guidance for institutions participating in the 
Second Chance Pell Experiment.
    Instead, this section of the proposed regulations is focused on 
incarcerated students enrolled in educational programming in 
correctional facilities that is not currently subject to the 
prohibition on Federal Pell Grants. As previously noted, the statute 
and regulations currently prohibit students confined or incarcerated in 
a State or Federal correctional facility from access to Pell Grants 
(outside of the Second Chance Pell experiment). Programs operating in 
correctional facilities other than State or Federal correctional 
facilities are currently eligible, however. For example, currently, a 
proprietary institution may be operating an eligible program in a local 
jail or juvenile justice facility, and students may be accessing Pell 
Grants for that program. On July 1, 2023, the statute will require all 
confined or incarcerated individuals pursuing postsecondary education 
to enroll in an eligible PEP at a public, private nonprofit, or 
vocational institution to access Pell Grants; at that time, therefore, 
an individual enrolled in any program at a proprietary institution 
would be ineligible for a Pell Grant.
    The Department does not want to interrupt a student's enrollment in 
a program; therefore, we propose limited flexibility, discussed in the 
proposed regulations section, to allow current students to finish their 
programs if those programs do not align with final PEP regulations that 
may be in effect on July 1, 2023 (or before that time if the 
regulations are implemented early). Under the proposed regulations, any 
such flexibility would end on July 1, 2029, which would be the final 
date a confined or incarcerated individual would be able to receive a 
Pell Grant in a program that is not an eligible PEP. This provides six 
years from the effective date of the authorizing statute for current 
students to either finish their programs or enroll in an eligible PEP, 
similar to the maximum timeframe to complete a four-year program as 
defined in Sec.  668.34(b).
    Sec.  690.62 Calculation of a Federal Pell Grant.
    Statute: The Consolidated Appropriations Act, 2021 amended section 
401(b)(3) of the HEA to require that no Pell Grant exceed the cost of 
attendance (as defined in section 472 of the HEA) at the postsecondary 
institution at which that student is in attendance. If, with respect to 
any student, it is determined that the amount of a Pell Grant for that 
student exceeds the cost of attendance for that year, the amount of the 
Pell Grant must be reduced until the Pell Grant does not exceed the 
cost of attendance at such postsecondary institution.
    Current Regulations: None.
    Proposed Regulations: We propose to add paragraph (b)(1)(i) to 
Sec.  690.62 to codify in regulation that a Pell Grant cannot exceed 
the cost of attendance. In proposed Sec.  690.62(b)(1)(ii), we propose 
that the postsecondary institution must reduce the Pell Grant award if 
the amount exceeds cost of attendance so that it does not result in a 
credit balance as defined under Sec.  668.164(h).
    The Department is aware that confined or incarcerated individuals 
may receive other financial assistance in addition to a Pell Grant. In 
Sec.  690.62(b)(2)(i), we propose that, if the Pell Grant exceeds the 
student's cost of attendance when combined with other financial 
assistance, the financial assistance other than the Pell Grant must be 
reduced by the amount by which the total financial assistance

[[Page 45452]]

exceeds the student's cost of attendance. Finally, we propose Sec.  
690.62(b)(2)(ii) to require that the Pell Grant be reduced to not 
exceed the cost of attendance if the confined or incarcerated 
individual's other financial assistance cannot be reduced.
    Below are examples of how the calculation of a student's Pell Grant 
awards and lifetime eligibility is affected by the proposed 
regulations. The Pell amounts in the examples are based on the 2021-
2022 Federal Pell Grant Payment and Disbursement Schedule.
    Jerry, Sam, Amy, Paul, and Eliza are enrolled at the University of 
ABC in an eligible PEP in General Studies that leads to an associate 
degree. The eligible PEP is a standard term program with one fall and 
one spring payment period. Their COA for the program is $6,495.
    A. Jerry attends the institution as a full-time student for the 
full award year. Jerry has an expected family contribution (EFC) of $0. 
Jerry's Pell Grant scheduled award is $6,495 (maximum award for the 
2021-22 award year). Jerry also gets a Veteran's Administration (VA) 
education and training benefit of $5,495 that, by law, cannot be 
reduced. Jerry's total award is now $11,990 for the year.
    Under current Sec.  690.63(b), if Jerry were not incarcerated, he 
would receive $3,247.50 for the fall payment period and $3,247.50 for 
the spring payment period (totaling $6,495). However, under proposed 
Sec.  690.62(b)(2)(ii), the University of ABC would reduce Jerry's 
$6,495 Pell award to $1,000 so that the combination of the student's 
Pell Grant and VA education and training benefit does not exceed 
Jerry's COA. The University of ABC would determine this by subtracting 
$11,990-$6,495 (Jerry's COA) which is $5,495 above Jerry's COA. Then 
University of ABC would subtract the amount above Jerry's Pell award 
from Jerry's original award ($6,495-$5,495), leaving $1,000 in Pell. 
The University of ABC would pay Jerry $500 for the fall payment period 
and $500 for the spring payment period. Jerry begins attendance in all 
coursework and maintains full-time enrollment status for the entire 
award year. Jerry's lifetime eligibility used (LEU)--defined in Sec.  
690.6(e)--increases by ($1,000/$6,495) = 15.3964 percent.
    B. Sam also attends as a full-time student for the full award year. 
Sam has an EFC of 0. Sam's Pell Grant scheduled award is $6,495 
(maximum award for the 2021-22 award year). Sam receives no other 
financial assistance. Sam receives $3,247.50 for the fall payment 
period and $3,247.50 for the spring payment period. Sam begins 
attendance in all coursework and maintains full time status for the 
entire award year. Sam's LEU increases by ($6,495/$6,495) = 100 percent 
for the year.
    C. Amy attends the institution as a half-time student for the full 
award year. Amy has an EFC of $3,000. Amy's Pell Grant award is $1,773 
because Amy's enrollment status is half-time. Amy's maximum Pell award 
(the scheduled award) would be $3,545 if she attended full-time for the 
full year. Amy qualifies for an institutional scholarship from 
University of ABC for $5,000.
    Per the proposed Sec.  690.62(b)(2)(i), the University of ABC 
decides to reduce Amy's institutional scholarship by $278 so that the 
combination of the student's Pell Grant and scholarship does not exceed 
Amy's COA. Because Amy's Pell Grant award was not reduced, Amy would 
receive $886.50 for the fall payment period and $886.50 for the spring 
payment period.
    Amy begins attendance in all coursework and maintains half-time 
enrollment status for the entire award year. Amy's LEU would increase 
by ($1,773/$3,545) = 50.0141 percent. This is because Amy's scheduled 
award (the amount Amy would have received if Amy attended full-time for 
the full year) is $3,545.
    D. Paul attends as a three-quarter-time student for the full award 
year. Paul has an EFC of $2,000.
    Paul's Pell award is $3,409 for the year because his enrollment is 
three-quarter time. Paul's maximum Pell award (the scheduled award) 
would be $4,545 if he attended full-time for the full year. Paul also 
receives a State grant for $4,000. State law does not permit the State 
to reduce Paul's grant. This brings Paul's total aid to $7,409 for the 
year.
    Paul would receive $1,704.50 for the fall payment period and 
$1,704.50 for the spring payment period. However, per the proposed 
Sec.  690.62(b)(2)(ii), the University of ABC would reduce Paul's Pell 
award by $914 so that the combined amount of the Pell Grant and State 
grant would not exceed Paul's COA. The University of ABC would 
determine this by subtracting $7,409-$6,495 (Paul's COA), which is $914 
above Paul's COA. Then University of ABC would subtract the amount 
above Paul's Pell Grant award from Paul's original award ($3,409-$914) 
leaving Paul $2,495 in Pell funds. The University of ABC would pay Paul 
$1,247.50 for the fall payment period and $1,247.50 for the spring 
payment period.
    Paul begins attendance in all coursework and maintains three 
quarter enrollment status for the entire award year. Paul's LEU would 
increase by ($2,495/$4,545) = 54.8954 percent.
    E. Eliza plans to attend as a half-time student in the fall payment 
period and full-time in the spring payment period. Eliza has an EFC of 
$500.
    Eliza's Pell Grant disbursement amount for the fall payment period 
is $1,511.50 and $3,022.50 for the spring payment period. This is 
because Eliza attended half-time for the fall and full-time for the 
spring. Eliza's maximum Pell award (the Scheduled Award) would be 
$6,045 if she attended full-time for the full year. Eliza also receives 
a scholarship of $3,000 from an outside provider toward Eliza's 
educational expenses that cannot be reduced. This brings Eliza's total 
aid to $7,534 for the year.
    Per the proposed Sec.  690.62(b)(2)(ii), the University of ABC 
would reduce Eliza's Pell Grant award by $1,039 so that the combined 
amount of Pell Grant and other scholarship assistance would not exceed 
Eliza's COA. The University of ABC would determine this by subtracting 
$7,534-$6,495 (Eliza's COA), which is $1,039 above Eliza's COA. Then 
University of ABC would subtract the amount above from Eliza's total 
award for the year ($4,534-$1,039), leaving Eliza $3,495 in Pell funds. 
The University of ABC would pay Eliza $992 for the fall payment period 
and $2,503 for the spring payment period. Eliza's LEU would increase by 
($3,495/$6,045) = 57.8163 percent.
    Reasons: This is a technical update to ensure that the amount of 
Pell Grant funds that a confined or incarcerated student receives, 
combined with other types of educational assistance, would not exceed 
that student's educational expenses for tuition, fees, books, and 
supplies, which are the only items that may be included in such a 
student's cost of attendance under section 472 of the HEA.
    Sec.  690.68 Severability.
    Statute: None.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  690.68 would make clear that, 
if any part of the proposed regulations is held invalid by a court, the 
remainder would still be in effect.
    Reasons: Each of the proposed provisions discussed in this NPRM 
serves one or more important, related, but distinct, purposes. Each of 
the requirements provides value to students, prospective students, and 
their families, to the public, taxpayers, and the Government, and to 
institutions separate from, and in addition to, the value provided by 
the other requirements. To best serve these purposes, we would include 
this administrative provision in the regulations to make clear that the

[[Page 45453]]

regulations are designed to operate independently of each other and to 
convey the Department's intent that the potential invalidity of one 
provision should not affect the remainder of the provisions.

90/10 Rule (34 CFR 668.28)

    Sec.  668.28 Definition of the revenue requirement for proprietary 
institutions of higher education.
    Statute: Section 487(a)(24) of the HEA, as amended by the ARP, 
states that proprietary institutions must derive at least 10 percent of 
their revenue from non-Federal sources, and section 487(d) provides 
details on how proprietary institutions must calculate the percentage 
of their revenue from non-Federal sources.
    Current Regulations: The current regulations provide that a 
proprietary institution must derive at least 10 percent of its revenue 
from sources other than title IV, HEA program funds.
    Proposed Regulations: Proposed Sec.  668.28(a)(1) would change the 
terminology from non-title IV revenue to non-Federal revenue and title 
IV funds to Federal funds.
    Reasons: This proposed change in the regulatory language would 
reflect the change in the statutory language to ``non-Federal'' 
sources.
    Sec.  668.28(a)(1) Calculating the revenue percentage.
    Statute: Section 487(a)(24) of the HEA states that proprietary 
institutions must derive no less than 10 percent of their revenue from 
non-Federal sources as calculated according to section 487(d) of the 
HEA. Prior to passage of the ARP, the HEA only used title IV revenue 
from the Department when calculating compliance with the 90/10 rule. 
The ARP amended these sections to require proprietary institutions to 
include other sources of Federal revenue, in addition to title IV 
revenue from the Department, in the calculation that proprietary 
institutions make to determine if they are in compliance with the 90/10 
rule.
    Current Regulations: Current Sec.  668.28(a)(1) provides that 
proprietary institutions must determine if they meet the requirement in 
Sec.  668.14(b)(16) that at least 10 percent of their revenue is 
derived from non-title IV sources by using the formula laid out in 
Appendix C of subpart B.
    Proposed Regulations: The Department proposes to add language to 
Sec.  668.28(a)(1) detailing how proprietary institutions would 
calculate the revenue percentage. Paragraph (a)(1)(i) would provide 
that proprietary institutions with fiscal years beginning on or after 
January 1, 2023, must count title IV, HEA program funds and any other 
education assistance funds provided by a Federal agency directly to an 
institution or a student during that fiscal year, including the Federal 
portion of any grant funds provided or administered by a non-Federal 
agency, to cover tuition, fees, and other institutional charges as 
Federal revenue in the revenue calculation. It would also exclude from 
the revenue percentage calculation Federal funds for that fiscal year 
that are non-title IV Federal funds that go directly to a student and 
are specifically designated by the Federal agency providing those funds 
to cover expenses other than tuition, fees, and other institutional 
charges. Additionally, it would provide that the Secretary will 
identify the agency and Federal assistance funds that must be included 
in the revenue calculation in a Federal Register notice that will be 
updated as needed. Section 668.28(a)(1)(ii) proposes that Federal funds 
subject to the 90 percent limitation be limited to title IV, HEA 
program funds for any fiscal years beginning prior to January 1, 2023. 
Finally, we propose to update Appendix C to reflect the other changes 
proposed to the 90/10 calculation as additional guidance to accountants 
and auditors.
    Reasons: The Department proposes to differentiate requirements for 
calculating the revenue percentage for fiscal years beginning before 
January 1, 2023, and those occurring on or after that date to 
grandfather in existing calculations in compliance with the ARP 
modifications to the HEA. The ARP specifies that the earliest the 
modification to the revenue requirement for proprietary institutions 
could apply to would be for institutions' fiscal years beginning on or 
after January 1, 2023.
    Similarly, the Department proposes to include any Federal funds 
distributed directly to a student or proprietary institution to cover 
the cost of tuition, fees, and other institutional charges in the 
calculation of Federal funds in fiscal years beginning on or after 
January 1, 2023. This proposed change would implement the new statutory 
language in section 487(a)(24) of the HEA, which provides that the 
revenue percentage must count Federal funds that are disbursed or 
delivered to or on behalf of a student to be used to attend such 
institution. The Department proposes to only count Federal education 
assistance funds that are designated by a Federal agency to be used to 
pay tuition, fees, and other institutional charges as Federal revenue 
to reflect the statutory language related to funds that are ``used to 
attend the institution.''
    During the negotiated rulemaking sessions, some non-Federal 
negotiators raised the concern that it would be difficult for 
proprietary institutions to include Federal funds that go directly to 
students, as the institutions may not be aware of what funds to include 
in the revenue calculation. Nonetheless, most non-Federal negotiators 
agreed that proprietary institutions should include these funds in the 
calculation. In the proposed regulations, the Department expects that 
proprietary institutions would report any Federal revenue that they are 
aware of in their 90/10 calculation, unless those funds were provided 
to a student who did not pay any institutional charges. To address the 
concern that proprietary institutions may not be aware of all sources 
of Federal revenue, the Department proposes to publish in the Federal 
Register a list of Federal education assistance programs that 
proprietary institutions must include as Federal revenue, and 
proprietary institutions would be considered to be aware of any Federal 
funds included on this list when determining the Federal sources of 
revenue they receive. The Department expects that proprietary 
institutions would make a good-faith effort to collect information 
about Federal funds distributed to students in instances where agencies 
do not provide this information or make it readily available to 
institutions. The Department would publish subsequent Federal Register 
notices if it identified additional Federal education assistance 
programs to add to the list in subsequent years or if it needs to 
remove defunct programs. During negotiations, some non-Federal 
negotiators advocated for the Department to publish a list of programs 
to the Federal Register annually to ensure that the list was kept up-
to-date. However, the Department has observed that, generally, the 
sources of Federal funds for proprietary institutions do not vary much 
from year to year. Thus, the Department believes it would be more 
appropriate to publish one list and update as necessary.
    One negotiator raised a concern about how proprietary institutions 
would count funds from programs that the Secretary added to the notice 
midway through a proprietary institution's fiscal year. To be 
responsive to this concern, proprietary institutions would only need to 
include revenues from new Federal sources when those funds paid for 
institutional costs for the fiscal year starting after the Federal 
program has been identified on the published list.
    Sec.  668.28(a)(2) Disbursement rule.
    Statute: Section 487(d) of the HEA provides that proprietary 
institutions must perform the 90/10 revenue calculation using cash 
basis accounting,

[[Page 45454]]

with the exception of certain institutional loans issued between 2008 
and 2012 as described in section 487(d)(1)(D)(i) of the HEA.
    Current Regulations: Current Sec.  668.28(a)(2) is titled ``Cash 
basis accounting'' and mandates that proprietary institutions use cash 
basis accounting to calculate their 90/10 percentage, with the 
exception of certain institutional loans issued between 2008 and 2012 
as described in Sec.  668.28(a)(5)(i).
    Proposed Regulations: Proposed Sec.  668.28(a)(2) would maintain 
existing regulations regarding proprietary institutions' use of cash 
basis accounting to calculate their revenue percentage and would also 
specify that proprietary institutions must include Federal funds used 
to pay tuition, fees, and other institutional charges that were 
provided either directly to the institution or paid by a student who 
received Federal funds.
    The Department also proposes to add regulatory language creating a 
disbursement rule and change the name of the section to ``Disbursement 
rule.'' The disbursement rule would create a deadline for title IV, HEA 
program disbursements for a proprietary institution's 90/10 
calculation. Specifically, the proposed regulations would require 
proprietary institutions requesting title IV, HEA funds using the 
advanced payment method (Sec.  668.162(b)(2)) or the heightened cash 
monitoring method (Sec.  668.162(d)(1)) to request and disburse any 
funds to an eligible student before the end of the proprietary 
institution's fiscal year. In the proposed regulations, proprietary 
institutions requesting title IV, HEA program funds under the 
reimbursement or heightened cash monitoring methods in Sec.  668.162(c) 
or (d)(2) would be required to make timely disbursements pursuant to 
Sec.  668.164 to student accounts before the end of their fiscal years 
and report the funds that were disbursed to the student accounts as 
Federal funds in the 90/10 calculations.
    Reasons: The Department proposes to maintain the current 
requirement that proprietary institutions use cash-basis accounting to 
match statutory requirements. The Department also proposes that 
proprietary institutions consistently and accurately count the amount 
of Federal funds they receive in a fiscal year through a requirement 
recognizing the timely disbursements to student accounts as the payment 
of title IV funds, even when it is the institution advancing those 
funds to later be reimbursed by the Department. The intent, in part, is 
to clearly outline how proprietary institutions would implement the 
changes to the Federal revenue calculation. We believe this additional 
clarity would be needed given that calculating the Federal revenue 
portion of the 90/10 calculation would require the inclusion of more 
sources of Federal funds than proprietary institutions may be 
accustomed to tracking in their financial accounting systems.
    Additionally, the Department proposes to define title IV, HEA 
program funds and Federal funds that count as Federal revenue in the 
90/10 calculation as funds ``used to pay tuition, fees, and other 
institutional charges.'' Some non-Federal negotiators suggested that 
the Department include Federal funds for housing, while other non-
Federal negotiators supported defining Federal funds as we have 
proposed. The Department proposes to use this definition to align with 
the statutory language that Federal funds ``will be used to pay the 
student's tuition, fees, or other institutional charges.'' \17\ We 
propose to clarify here that, to the extent another Federal agency has 
designated payments to a student for housing and the student is not 
paying the institution for housing, those funds would not count as 
payments to an institution.
---------------------------------------------------------------------------

    \17\ Public Law 89-329.
---------------------------------------------------------------------------

    Finally, the Department proposes to require proprietary 
institutions to make timely disbursements of title IV, HEA program 
funds to eligible students by the end of the fiscal year to prevent 
proprietary institutions from delaying disbursements to the next fiscal 
year as a means of reducing the Federal funds that would be included in 
the 90/10 calculation for the earlier fiscal year. Per the HEA, 
proprietary institutions must use cash basis accounting to calculate 
90/10. Because this form of accounting counts revenues when the 
institution actually receives the funds, proprietary institutions can 
reduce their Federal revenue percentages for one fiscal year by 
delaying the requests and disbursements of title IV, HEA program funds 
to students until after the start of the next fiscal year. Through 
reviews of some 90/10 calculations and audit workpapers, the Department 
has found that some proprietary institutions have delayed disbursements 
at the end of one fiscal year until the next as a way to avoid failing 
90/10 for a second consecutive year, which failure could result in 
losing title IV, HEA program eligibility. Under this maneuver, the 
delayed disbursements were instead counted in the next fiscal year, 
where the proprietary institution might fail the 90/10 requirement but 
remained eligible due to the passing 90/10 score for the intervening 
fiscal year. To preserve the statutory intent of the 90/10 rule, the 
Department believes that it is necessary to create guardrails 
preventing proprietary institutions from gaming the revenue 
calculation.
    Proprietary institutions currently have the discretion to set up 
disbursement timelines that are consistent with regulatory 
requirements. These proposed regulations are not intended to--and would 
not--limit a proprietary institution's flexibility in this area.\18\ 
One negotiator raised the concern that the end of a fiscal year could 
coincide with the beginning of a semester or term, creating a situation 
in which it is impossible for a proprietary institution to disburse all 
funds before the end of the fiscal year. The Department does not intend 
for these proposed regulations to change proprietary institutions' 
timely disbursement policies in this situation. In these instances, the 
Department would evaluate whether a proprietary institution made timely 
disbursements and consider whether the proprietary institution deviated 
from its standing disbursement policies or created disbursement 
policies for the purpose of impacting the 90/10 revenue calculation.
---------------------------------------------------------------------------

    \18\ 34 CFR 668.164.
---------------------------------------------------------------------------

    Sec.  668.28(a)(3) Revenue generated from programs and activities.
    Statute: Section 487(d) of the HEA provides that proprietary 
institutions may count in their 90/10 calculation funds generated from 
activities conducted by the institution that are necessary for the 
education and training of the institution's students as non-Federal 
revenue.
    Current Regulations: Current Sec.  668.28(a)(3) provides that 
institutions must count as non-Federal revenue funds generated from: 
(1) tuition, fees, and other institutional charges for students 
enrolled in eligible programs; (2) activities conducted by the 
institution that are necessary for the education and training of its 
students; and (3) funds paid by a student, or on behalf of a student by 
a party other than the institution, for an ineligible program as long 
as the program meets certain criteria.
    Proposed Regulations: The regulations in proposed Sec.  
668.28(a)(3) would add a requirement that activities conducted by the 
institution necessary for the education and training of its students 
must be related directly to services performed by students for the 
revenue to be counted in 90/10. Additionally, the proposed regulations 
would modify the criteria for revenue

[[Page 45455]]

generated from programs ineligible for title IV, HEA program funds 
required to be included as non-Federal revenues. Specifically, the 
proposed regulations would add a requirement that these funds be paid 
by a student or on behalf of a student by a party unrelated to the 
institution, an institution's owners, or affiliates. Additionally, for 
a proprietary institution to count revenue generated from an ineligible 
program, the proposed regulations would require that the ineligible 
program: (1) not include any courses offered in a program eligible for 
title IV, HEA program funds; (2) be provided by the institution and 
taught by one of its instructors of an eligible program; and (3) be 
located at its main campus, one of its approved additional locations, a 
location approved by the appropriate State agency or accrediting 
agency, or an employer facility. Furthermore, the proposed regulations 
would provide that the proprietary institution may not count revenue 
generated from an ineligible program where it only ``provides 
facilities or test preparation courses, acts as a proctor, or oversees 
a course of self-study.'' Finally, the proposed regulations would no 
longer include funds generated from an ineligible program that simply 
prepares students to take an examination for an industry-recognized 
credential or certification issued by an independent third party as 
allowable non-Federal revenue; such programs must provide the industry-
recognized credential or certification in order to be included as 
revenue.
    Reasons: The Department proposes to require funds generated from 
activities conducted by the institution that are necessary for the 
education and training of its students to also be related directly to 
services performed by students in order to be counted as non-Federal 
funds in the 90/10 calculation. The Department understands that certain 
programs require students to undertake specific activities to complete 
their program, such as providing hair-styling services for a 
cosmetology program, and those activities may generate allowable non-
Federal funds. However, the Department wants to ensure that the revenue 
generated from these activities would be directly related to the 
services the students perform and that proprietary institutions are not 
including revenues from tangential activities indirectly related to the 
services the students provide, such as the proceeds from the sale of 
beauty products to customers receiving services from students in a 
cosmetology program.
    Further, the Department also believes it is necessary to provide 
additional guardrails for which funds generated from ineligible title 
IV, HEA programs can count as non-Federal aid for the purposes of 90/
10, as proposed in Sec.  668.28(a)(3)(iii). Title IV, HEA eligible 
programs have built-in consumer protection mechanisms, including 
accreditation by an accrediting agency and State authorizing agency. 
Ineligible programs do not have any of these protections and may not 
have any guarantee of value for the student. Given the other proposed 
changes to the 90/10 calculation, the Department is concerned that 
proprietary institutions may have an increased incentive to create 
ineligible programs, with little oversight and that may not serve 
students well, to generate non-Federal revenue for 90/10. By 
establishing minimum benchmarks for the revenue from non-eligible 
programs that institutions may include in the calculation, the 
Department wishes to discourage such activity.
    As a guardrail, the proposed Sec.  668.28(a)(3)(iii) would clarify 
that for a proprietary institution to count the funds as non-Federal 
revenue in 90/10, funds paid on behalf of a student must come from a 
source unrelated to the institution, its owners, or affiliates. Funds 
coming from the institution, its owners, or its affiliates are not 
sources ''other than the institution.'' \19\ For this reason, the 
Department proposes to clarify that funds from these sources do not 
count as non-Federal revenue for purposes of 90/10.
---------------------------------------------------------------------------

    \19\ Public Law 89-329, as amended.
---------------------------------------------------------------------------

    As an additional guardrail, proposed Sec.  668.28(a)(3)(iii) would 
allow proprietary institutions to count funds as non-Federal revenue 
only for programs that: (1) do not include any courses offered in an 
eligible program that is provided by the institution; (2) are taught by 
one of its instructors of an eligible program; and (3) are located at 
its main campus, one of its approved additional locations, a location 
approved by the State agency or accrediting agency, or at an employer 
facility. As mentioned, the Department is interested in ensuring that 
proprietary institutions are not creating programs that are not aligned 
with the institution or programs the proprietary institution offers and 
that have little to no oversight to boost its non-Federal revenue in 
its 90/10 calculation. The Department worked with negotiators to 
develop consensus language in proposed Sec.  668.28(a)(3)(iii) that 
allows proprietary institutions flexibility to offer programs more 
likely to provide value to students due to built-in consumer protection 
mechanisms--such as those that have been approved by an accreditor or 
the relevant State agency, those leading to an industry-recognized 
credential or certification, or those needed for students to maintain 
or meet additional State licensing requirements--while limiting non-
Federal funds included in the 90/10 calculation that are generated from 
programs with little oversight or consumer protection mechanisms.
    The guardrails in Sec.  668.28(a)(3)(iii) were created based on 
negotiations with non-Federal negotiators and are intended to provide 
proprietary institutions with the flexibility to count funds from 
ineligible programs that help students, such as those provided 
specifically for employees at an employer facility, while balancing 
protections for students against incentivizing proprietary institutions 
from creating programs with little oversight to generate non-Federal 
funds. However, the Department continues to have concerns that allowing 
institutions to count funds from these programs may serve as an 
incentive for proprietary institutions to create and market ineligible 
programs--which lack oversight or consumer protections or may be 
unrelated to preparing students for gainful employment--to increase the 
amount of non-Federal funds institutions receive for gainful employment 
programs in a fiscal year. The Department seeks feedback about how to 
provide flexibility to proprietary institutions to offer ineligible 
programs that provide value to students while ensuring that revenues 
from those programs is related to the institution's eligible programs 
that are subject to the 90/10 revenue requirement. The Department also 
seeks feedback on appropriate mechanisms to ensure that these 
opportunities to generate non-Federal funds are adequately monitored to 
identify institutions that may be passing the 90/10 requirements as a 
result of such programs.
    Additionally, proposed Sec.  668.28(a)(3)(iii) would disallow 
revenue from ineligible programs where the proprietary institution 
primarily provides facilities for test preparation courses, acts as a 
proctor, or oversees a course of self-study or prepares students to 
take an examination for an industry-recognized credential or 
certification issued by an independent third party. The Department does 
not believe that the institution providing facilities, acting as a 
proctor, or overseeing a course of self-study represents the 
proprietary institution providing training or education. Additionally, 
the Department proposes to disallow revenue from programs where the 
proprietary institution prepares students

[[Page 45456]]

to take an examination for an industry-recognized credential or 
certification issued by an independent third party because the 
Department does not believe that these programs represent new education 
and training, but rather review material. Further, the Department 
believes that high-quality programs of study generally prepare students 
to take an examination for the relevant credential or certification. It 
therefore does not want to inadvertently incent institutions to lower 
the quality of these programs by the institution requiring students to 
take an additional test preparation course in addition to the original 
program of study to be able to pass the exam for a relevant 
certification or credential in order to increase its non-Federal 
revenue.
    Sec.  668.28(a)(4) Application of funds.
    Statute: Section 487(d)(1)(C) of the HEA, as amended, provides that 
proprietary institutions will presume that any Federal education 
assistance funds that are disbursed or delivered to, or on behalf of, a 
student will be used to pay the student's tuition, fees, or other 
institutional charges. It provides exceptions in instances where a 
student's charges are satisfied by other payments, including: (1) grant 
funds provided by non-Federal public agencies or private sources 
independent of the institution; (2) funds provided under a contractual 
arrangement with a Federal, State, or local government agency to 
provide job training to low-income individuals; (3) funds used by a 
student that come from a savings plan for education expenses that 
qualify for special tax treatment under the Internal Revenue Code of 
1986; or (4) institutional scholarships from outside sources.
    Current Regulations: Current Sec.  668.28(a)(4) provides that a 
proprietary institution must presume that any title IV, HEA program 
funds it disburses, or delivers to or on behalf of a student, will be 
used to pay the student's tuition, fees, or institutional charges, 
except to the extent that those charges are covered by: (1) grant funds 
provided by non-Federal public agencies or private sources independent 
of the institution; (2) funds provided under a contractual arrangement 
with a Federal, State, or local government agency for the purpose of 
providing job training to low-income individuals; (3) funds used by a 
student from a savings plan for education expenses established by or on 
behalf of the student if the plan qualifies for special tax treatment 
under the Internal Revenue Code of 1986; or (4) institutional 
scholarships that meet specific requirements and are counted as revenue 
generated from institutional aid for the purposes of the 90/10 
calculation.
    Proposed Regulations: Proposed Sec.  668.28(a)(4) would maintain 
the presumption that Federal funds the institution disburses, or 
delivers to a student, will be used to pay the student's tuition, fees, 
or institutional charges. The proposal would also add a requirement 
that the presumption applies if the institution determines Federal 
funds were provided to a student and the student makes a payment to the 
proprietary institution within the same fiscal year to pay tuition, 
fees, and other institutional charges.
    Proposed Sec.  668.28(a)(4)(i) and (ii) would modify the treatment 
of other Federal and non-Federal funds used to pay a student's tuition, 
fees, or other charges to: (1) clarify that grant funds from non-
Federal public agencies can be counted as satisfying a student's 
tuition, fees, or institutional charges as long as those grant funds do 
not include Federal or institutional funds. If a portion of those grant 
funds are Federal, the proposal would allow the non-Federal portion of 
the grant to be counted as satisfying a student's tuition, fees, or 
institutional charges as long as the Federal portion is included as 
Federal funds under this section; (2) clarify that private sources must 
be unrelated to the institution, its owners, or affiliates; and (3) 
clarify that any contractual arrangement to provide job training must 
be between the proprietary institution and a Federal, State, or local 
government agency.
    Reasons: In Sec.  668.28(a)(4), the Department proposes to require 
proprietary institutions to presume that any Federal funds disbursed to 
a student by the proprietary institution, or Federal funds the 
institution determines were provided to a student by another Federal 
source, will be used to pay the student's tuition, fees, or other 
institutional charges as long as the institution receives a payment 
from the student during the same fiscal year. Proposed Sec.  
668.28(a)(4) aligns with amendments to the statutory requirements 
implemented in the ARP. If a student receives funds from a Federal 
source but does not make a payment to the proprietary institution, then 
the Department does not believe it would be reasonable for the 
institution to presume that these Federal funds paid for tuition, fees, 
or other institutional charges since the institution did not receive 
any payments from said student. Thus, the Department proposes to 
clarify that the proprietary institution makes the presumption that the 
Federal funds the student received in the same fiscal year were used to 
make any payments received from a student during the year only if the 
institution received a payment from the student.
    The Department proposes to clarify in Sec.  668.28(a)(4)(i)(A) that 
the Federal portion of grants provided by non-Federal public agencies 
cannot be counted as a non-Federal payment of a student's tuition, 
fees, and other institutional charges. However, the non-Federal portion 
of the grant may be counted in these instances provided that the 
Federal portion of the grant is counted as Federal revenue. Without 
this clarification, a proprietary institution could use Federal funds 
from such a grant to reduce the amount of Federal funds from another 
source included in a proprietary institution's 90/10 calculation, which 
would not align with the statutory intent. During negotiations, most 
non-Federal negotiators supported this inclusion and stated that non-
Federal public agencies are required to strictly track how Federal 
funds are spent in accordance with Federal funding requirements. Thus, 
the Department believes that proprietary institutions could work with 
the non-Federal agency to obtain the Federal/non-Federal breakdown of 
grant funds.\20\ In the limited instances where a proprietary 
institution cannot determine the breakdown of grant funds, the 
Department proposes that no amount of the funds may be included as 
paying the student's institutional charges. The Department believes 
that it is necessary to exclude the entirety of the grants in these 
situations to prevent the Federal portion of the combined grants from 
being treated as non-Federal funds in a proprietary institution's 90/10 
calculation. The Department also believes, in most instances, a 
proprietary institution would be able to determine the portion of 
Federal funds included in these grants and allocate them properly by 
source.
---------------------------------------------------------------------------

    \20\ OMB Circular A-87, revised May 10, 2004: https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A87/a87_2004.pdf.
---------------------------------------------------------------------------

    The Department also proposes to clarify in Sec.  668.28(a)(4)(i)(B) 
that grant funds from private sources used to satisfy a student's 
tuition, fees, and other institutional charges to reduce the amount of 
Federal funds counted in the 90/10 calculation must come from a source 
unrelated to the institution, its owners, or affiliates. The Department 
interprets ``independent of the institution'' \21\ to also be 
independent of an institution's owners and affiliates,

[[Page 45457]]

and thus this proposal would clarify the Department's standing 
expectation.
---------------------------------------------------------------------------

    \21\ Public Law 89-329, as amended.
---------------------------------------------------------------------------

    The Department's proposed change in Sec.  668.28(a)(4)(ii), which 
addresses funds provided through contractual arrangements for job 
training between an institution and a Federal, State, or local 
government agency, is not believed to change the meaning of the current 
regulations in this area. The Department is simply proposing to add the 
words ``the institution and'' before the reference to the applicable 
government agency, which will clarify that the proprietary institution 
is the entity entering into an agreement with a Federal, State, or 
local government agency, already the implied meaning of the 
regulations.
    Sec.  668.28(a)(5) Revenue generated from institutional aid.
    Statute: Section 487(d)(1)(D) of the HEA outlines allowable 
institutional revenue that can be counted as non-Federal revenue in the 
90/10 calculation.
    Current Regulations: Current Sec.  668.28(a)(5) provides that a 
proprietary institution must include certain institutional aid as 
revenue: (1) the net present value of loans made to students on or 
after July 1, 2008, and prior to July 1, 2012, as long as the loans are 
bona fide, issued at intervals related to the institution's enrollment 
periods, are subject to regular repayment and collections, and are 
separate from enrollment contracts; (2) payments that the proprietary 
institution received for loans made to students before July 1, 2008, 
and after July 1, 2012; and (3) the amount disbursed to students for 
scholarships made to students on the basis of academic achievement or 
financial need as long as the scholarships are disbursed from an 
established restricted account and represent designated funds from an 
outside source or income earned on those funds.
    Proposed Regulations: Proposed Sec.  668.28(a)(5) would:
    (1) Change ``must'' to ``may'' include institutional aid as 
allowable non-Federal revenue in a proprietary institution's 90/10 
calculation;
    (2) Consolidate, simplify, and codify accounting practices in the 
regulations to provide that allowable revenue from institutional loans 
be treated as the amount of principal payments made on those loans, as 
long as those loans meet the same criteria as the current regulations;
    (3) Create clear guidelines for allowing proprietary institutions 
to count payments representing principal payments on ISAs or other 
alternative financing agreements as non-Federal revenue in its 90/10 
calculation;
    (4) Prohibit the sale of ISAs or other financing agreements owned 
by an institution from being included as non-Federal revenue; and
    (5) Maintain current regulations in Sec.  668.28(a)(5)(iv) allowing 
certain qualifying scholarships for academic achievement or financial 
need to be counted as non-Federal revenue but clarifying what the term 
``outside sources'' means in the regulation.
    Reasons: The Department proposes to allow, but not require, that 
proprietary institutions include revenue generated from institutional 
aid in their 90/10 calculations. This is current practice, as the 
Department's interest is ensuring that a proprietary institution 
obtains at least 10 percent of its revenue from non-title IV sources. 
If the institution meets this standard but does not wish to include 
other revenue generated from institutional aid in its calculation, 
perhaps to reduce burden or for other reasons, this is less relevant to 
the Department's interest in the institution's calculation. 
Additionally, maintaining ``must'' here would imply that the Department 
would reject an institution's calculation if it did not include all 
revenue generated from institutional aid, even if the calculation 
indicates that the institution already met the 90/10 requirement, which 
the Department does not believe is necessary if it can establish that 
the institution is compliant with the 90/10 requirements. The 
Department believes that this proposed change would clarify the 
reporting expectations for institutions when they submit their 90/10 
calculation, while remaining consistent with current treatment of 
institutional aid in the calculation.
    The Department proposes to remove current Sec.  668.28(a)(5)(ii) 
and (iii) and move those provisions on how proprietary institutions may 
count payments made on institutional loans as non-Federal revenue to 
Sec.  668.28(a)(5)(i). The Department proposes to remove from Sec.  
668.28(a)(5)(i) the net present value calculation language for loans 
made to students in a given fiscal year between July 1, 2008, and July 
1, 2012, because this requirement no longer applies.
    Additionally, proposed Sec.  668.28(a)(5)(i) would codify that only 
the amount of principal payments made on institutional loans count as 
non-Federal revenue. This is already how the Department treats 90/10 
calculations in practice because the interest portion of the payments 
does not represent revenue the institution receives for tuition, fees, 
and other permitted charges. The Department believes that the proposed 
regulations would clarify expectations and the Department's current 
practice.
    Some non-Federal negotiators raised concerns that proprietary 
institutions may be incentivized to offer predatory ISAs and 
recommended that the Department add a section to Sec.  668.28(a)(5) 
stating that ISAs are institutional loans since the Consumer and 
Financial Protection Bureau (CFPB) issued a consent order on September 
7, 2021, finding that a student loan originator's ISAs are private 
education loans under the Truth in Lending Act (TILA) and the CFPB's 
implementing regulations Regulation Z.\22\ The negotiators also pointed 
to the Department's electronic announcement on March 2, 2022, stating 
that ``any product, including an ISA, that meets the TILA and 
Regulation Z definitions of a private education loan also meets the 
definition of that term under the HEA and the Department's 
regulations.'' \23\ The Department agrees with negotiators that it is 
prudent not to incentivize this behavior. However, the Department 
believes that having a separate section in the regulations pertaining 
to these products will help promote consistency in how these products 
are included in the 90/10 calculation. Thus, the Department proposes to 
add Sec.  668.28(a)(5)(ii) and Sec.  668.28(a)(5)(iii) pertaining to 
ISAs and alternative financing agreements, limiting the proposed 
language to those agreements meeting particular requirements.
---------------------------------------------------------------------------

    \22\ United States of America Consumer Financial Protection 
Bureau Consent Order against Better Future Forward, Inc.; Better 
Future Forward Manager, LLC; Better Future Forward Opportunity ISA 
Fund, LLC; and Better Future Forward Opportunity ISA Fund, LLC, 
September 7, 2021. https://files.consumerfinance.gov/f/documents/cfpb_better-future-forward-inc_consent-order_2021-09.pdf.
    \23\ (GENERAL-22-12) ``Income Share Agreements and Private 
Education Loan Requirements'', March 2, 2022, https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2022-03-02/income-share-agreements-and-private-education-loan-requirements.
---------------------------------------------------------------------------

    Proposed Sec.  668.28(a)(5)(ii)(A) and (B) include specific 
information about what would be required to be included in an ISA or 
other alternative financing agreement if it comes from the institution 
or a related party--including clear information about the payments that 
are required and the charges covered, the maximum time and amount a 
student would be required to pay, and a reasonable imputed or implied 
interest rate--for that agreement to qualify for the purposes of 
inclusion in 90/10. With this proposal, the Department aims to

[[Page 45458]]

avoid an incentive for proprietary institutions to encourage students 
to take out certain credit products, particularly where those products 
are unclear in their implications for students who may be comparing the 
products to more traditional funding options.
    The Department proposes in Sec.  668.28(a)(5)(ii)(C) that a 
proprietary institution may only count the payments made by the 
recipient of the ISA or other alternative financing agreement as 
revenue instead of counting the ISA as revenue when applied to a 
student's account if the agreement is between the student and the 
institution only or with a related party to include any entity in the 
ownership tree, any common ownership, or any other contractual 
agreement or continuing financial relationship. Only counting payments 
made on the ISA or alternative financing agreement mirrors how payments 
on private loans are treated in the 90/10 calculation under Sec.  
668.28(a)(5)(i). Additionally, the Department proposes this regulation 
to encompass the range of actors that may be connected to the interests 
of the proprietary institution and to reflect that the funding for the 
ISA may be directly or indirectly paid or subsidized from the 
institution or related party rather than from a private source.
    Proposed Sec.  668.28(a)(5)(ii)(D) would require ISAs or other 
alternative financing agreements between the student and the 
institution or related party to have an implied or imputed interest 
rate equal to or less than the Federal Direct Unsubsidized Loan 
interest rate for the same borrower type at the time the agreement was 
signed for a proprietary institution to count payments made on the 
product for purposes of 90/10. Given that high interest rates can cause 
balances to balloon beyond a borrower's ability to repay, the 
Department believes it is prudent to avoid incentives for proprietary 
institutions or entities associated with them to encourage students to 
take ISAs or other alternative financing products with higher interest 
rates, especially given that private loans or other private credit 
products do not have the same consumer protection measures as Federal 
loans. The Department proposes that the implied or imputed interest 
rate not be higher than the Federal Direct Loan interest rate at the 
time the agreement is signed, given that that type of loan is the most 
common type of Federal loan that students take out.\24\ The Department 
proposes to use the rate at the time of signing the agreement, since 
the rate is set by Congress and can fluctuate year to year. The Federal 
Direct Loan interest rate is different for undergraduate and graduate 
students; thus, to have a comparable product, the Department proposes 
to differentiate the allowable interest rate based on borrower type.
---------------------------------------------------------------------------

    \24\ As of quarter 1 of fiscal year 2022, nearly 86 percent of 
borrowers with loans in the Federal Student Aid loan portfolio was 
Direct Loans. Of those borrowers, nearly 81 percent held Direct 
Unsubsidized Loans. See Federal Student Aid's data center: https://studentaid.gov/data-center/student/portfolio.
---------------------------------------------------------------------------

    As with private loans, proposed Sec.  668.28(a)(5)(iii) would 
disallow proceeds from the sale of the ISA or other alternative 
financing agreement and would count as non-Federal revenue only cash 
payments on the ISA or other alternative financing agreement. Like our 
rationale for adding the sale of private loans as an excluded source of 
funds, we do not believe that proceeds from the sale of ISAs or other 
alternative financing agreements represent non-Federal funds paid to an 
institution for tuition, fees, or other permitted costs.
    Proposed Sec.  668.28(a)(5)(iv) would clarify how proprietary 
institutions can count institutional scholarships as revenue generated 
from institutional aid. We propose to clarify that scholarships must be 
designated funds from an outside source that is unrelated to the 
institution, its owners, or affiliates. The Department interprets 
current Sec.  668.28(a)(5)(iv), which provides that funds must come 
from ``an outside source,'' to exclude funds from an institution's 
owners or affiliates, as those are not outside sources. The proposed 
regulations simply codify and more clearly explain how the Department 
interprets ``outside sources.''
    Sec.  668.28(a)(6) Revenue generated from loan funds in excess of 
loan limits prior to the Ensuring Continued Access to Student Loans Act 
of 2008 (ECASLA).
    Statute: Section 487(d)(1)(E) of the HEA allows proprietary 
institutions to count as non-Federal revenue loan disbursements in 
excess of the loan limit before the enactment of ECASLA in their 90/10 
calculation for each student who received a loan on or after July 1, 
2009, and prior to July 1, 2011.
    Current Regulations: Current Sec.  668.28(a)(6) provides that 
proprietary institutions may count the amount of a loan disbursement 
for a payment period that exceeds the amount of a disbursement that a 
student would have been eligible for before the enactment of ECASLA as 
non-title IV revenue, as long as the excess amount pays for tuition, 
fees, or institutional charges remaining on a student's account after 
other title IV, HEA program funds are applied.
    Proposed Regulations: The Department proposes to remove this 
provision.
    Reasons: The Department proposes to remove current Sec.  
668.28(a)(6) because it is outdated, and this provision of the 
regulations is no longer applicable. Presently, the loan disbursements 
in excess of the pre-ECASLA amount would only count as revenue in the 
fiscal years that the loan was disbursed between July 1, 2008, and June 
30, 2011, and so it is not relevant to an institution's current 
calculation. The Department believes that removing this provision will 
help proprietary institutions more clearly understand how the 
regulations apply to their current revenue calculations.
    Revised Sec.  668.28(a)(6) Funds excluded from revenues.
    Statute: Section 487(d)(1)(F) of the HEA directs proprietary 
institutions to exclude from its 90/10 calculation certain revenues 
received from States: (1) Federal Work Study (FWS) funds, unless the 
proprietary institution uses those funds to pay a student's 
institutional charges; (2) the amount of funds a proprietary 
institution receives for the Leveraging Educational Assistance 
Partnership program (LEAP), Grants for Access and Persistence program 
(GAP), and Special Leveraging Educational Assistance Partnership 
program (SLEAP); (3) the amount of matching funds a proprietary 
institution provides for a title, IV HEA program; (4) the amount of 
title IV, HEA program funds a proprietary institution is required to 
return or refund; and (5) the amount charged for books, supplies, and 
equipment, unless those are included in a student's tuition, fees, or 
other institutional charges.
    Current Regulations: Current Sec.  668.28(a)(7) restates the 
statutory exclusions. The regulations also provide additional 
requirements for proprietary institutions that must return title IV, 
HEA program funds due to a student withdrawing if that student received 
a FFEL or Direct Loan where some of that funding counted as non-title 
IV, HEA aid in the 90/10 calculation due to the ECASLA statutory 
allowance. In that situation, current Sec.  668.28(a)(7)(iv) provides 
that the amount that the proprietary institution returns is considered 
to consist of pre-ECASLA loan amounts and loan amounts in excess of the 
loan limits prior to ECASLA in the same proportion to the loan 
disbursement.

[[Page 45459]]

    Proposed Regulations: The proposed regulations would redesignate 
Sec.  668.28(a)(7) as Sec.  668.28(a)(6). Furthermore, the proposed 
regulations would remove the second sentence of current Sec.  
668.28(a)(7)(iv) governing how proprietary institutions must account 
for title IV, HEA program funds returned to the Department that are 
subject to the ECASLA allowance. Finally, proposed Sec.  
668.28(a)(6)(vi) and (vii), respectively, would add two new sources of 
revenue that must be excluded from the 90/10 calculation: any amount 
from the proceeds of the factoring or sale of accounts receivable or 
institutional loans, regardless of whether the loans were sold with or 
without recourse; and any funds, including loans, provided by a third 
party related to the institution owners or affiliates to a student in 
any form.
    Reasons: The Department proposes to remove the provision of the 
regulations governing how proprietary institutions must treat the 
return of title IV, HEA program funds because these regulations are no 
longer relevant.
    The Department proposes the Sec.  668.28(a)(6)(vi) prohibition on 
counting the proceeds of the factoring or sale of accounts receivable 
or institutional loans, regardless of whether the loans were sold with 
or without recourse, because the Department believes that excluding the 
proceeds of these sales is necessary to implement the intent of the 90/
10 revenue requirement. One non-Federal negotiator raised concerns 
about prohibiting this source of revenue when loans are sold with 
recourse, because the institution is responsible for non-performing 
loans. Through program reviews and other oversight activities, the 
Department has observed instances where sales of institutional loans 
were made at inflated prices to entities that were later identified as 
being parties to other business relationships with the institution. 
Even when sales of these accounts are made to unrelated parties, the 
revenue to the institution is for an asset sale and not a payment by 
that party for the education provided by the institution, as intended 
under the statutory 90/10 revenue requirement.
    The proposed addition of Sec.  668.28(a)(6)(vii) would restate that 
an institution, its owners, or its affiliates cannot provide any funds, 
including loans, that are counted as non-Federal revenue for 90/10. 
This proposed addition aligns with section 487(d)(1)(C)(i) and 
(d)(1)(D)(iii) of the HEA, respectively, which provide that only grants 
and scholarships from ``private sources independent of the 
institution'' and ``an outside source,'' \25\ can count as non-Federal 
revenue for purposes of 90/10. The Department's proposed and current 
regulations align with these statutory requirements.
---------------------------------------------------------------------------

    \25\ Public Law 89-329, as amended.
---------------------------------------------------------------------------

    Sec.  668.28(c) Sanctions.
    Statute: Under section 487(a)(24) of the HEA, proprietary 
institutions that do not meet the 90/10 revenue requirements will be 
subject to sanctions described in section 487(d)(2). Section 
487(d)(2)(A) of the HEA provides that proprietary institutions will be 
ineligible to participate in title IV, HEA programs after two 
consecutive years of failing to meet 90/10 revenue requirements. 
Additionally, section 487(d)(2)(B) of the HEA provides that the 
Secretary can implement other additional means to enforce the 90/10 
requirements.
    Current Regulations: Current Sec.  668.28(c) provides that a 
proprietary institution will lose eligibility to participate in the 
title IV, HEA programs for at least two fiscal years if it fails to 
derive at least 10 percent of its revenue from non-title IV, HEA 
program funds for two consecutive fiscal years. To regain access, it 
must demonstrate that it complied with State licensure and 
accreditation requirements and financial responsibility requirements 
for a minimum of two fiscal years after the fiscal year it became 
ineligible. Additionally, if a proprietary institution fails to meet 
the 90/10 revenue requirement for one year, it becomes provisionally 
certified for at least the two fiscal years after the fiscal year in 
which it failed. The provisional certification terminates on either the 
expiration date of the proprietary institution's PPA or the date that 
the proprietary institution loses its eligibility to participate due to 
failing the 90/10 revenue requirement for two consecutive fiscal years. 
Current Sec.  668.28(c)(3) also provides that the proprietary 
institution must notify the Secretary no later than 45 days after the 
end of its fiscal year that it failed to meet the requirement.
    Proposed Regulations: Proposed Sec.  668.28(c)(3) and (c)(5), 
respectively, would add two requirements in cases where a proprietary 
institution fails the 90/10 revenue requirement: (1) the institution 
must notify students that if it fails to meet the 90/10 revenue 
requires at the end of the current fiscal year, it could potentially 
lose title IV, HEA program eligibility at the end of the current fiscal 
year if it failed to meet the 90/10 revenue requirements for the prior 
fiscal year; and (2) the institution would be liable to repay any title 
IV, HEA program funds that it disburses after the fiscal year it 
becomes ineligible to participate in the title IV, HEA program due to 
failing the 90/10 revenue requirements for two fiscal years, excluding 
funds the institution was entitled to disburse under the regulations.
    Additionally, proposed Sec.  668.28(c)(4) would continue to require 
a proprietary institution report if it failed 90/10 for the prior year 
no later than 45 days after the end of the fiscal year. It would 
further provide that a proprietary institution must immediately report 
a 90/10 failure if it determines after the 45-day reporting period that 
it failed the 90/10 requirement for the prior fiscal year.
    Reasons: The Department proposes to add a requirement that 
proprietary institutions that fail 90/10 revenue requirements must 
notify students of the institution's failure and potential implications 
of that failure in Sec.  668.28(c)(3). During negotiations, several 
non-Federal negotiators suggested that the Department add this 
disclosure requirement due to the potentially deleterious impacts on 
students if the institution loses access to title IV, HEA funds. The 
Department agrees with negotiators that notifying students of the 
potential loss of student aid is an important consumer protection 
mechanism. As negotiators stated, students may no longer be able to 
attend the institution without access to title IV, HEA funds. 
Additionally, losing access to title IV, HEA funds may cause a 
proprietary institution to abruptly close, leaving students in the 
lurch, and thus students should be made aware that that the institution 
is at-risk of becoming ineligible to participate in the title IV, HEA 
programs.
    Multiple negotiators raised the possibility that there may be 
instances where proprietary institutions obtain additional information 
pertaining to the amount of Federal aid awarded to students during the 
previous fiscal year after the required 45-day reporting window. The 
Department believes it is important for proprietary institutions to 
disclose if they meet the 90/10 revenue requirements in a timely manner 
because the Department believes it is prudent to quickly stop the flow 
of title IV, HEA program funds to institutions that lose eligibility 
for title IV, HEA funds to prevent improper payments. Thus, the 
Department proposes to maintain the 45-day reporting requirement. To 
address the concerns that negotiators raised, the Department proposes 
to add a requirement that a proprietary institution notify the 
Secretary immediately if it obtains

[[Page 45460]]

additional information indicating that it did not pass the 90/10 
revenue requirement for the prior fiscal year in Sec.  668.28(c)(4).
    The Department also proposes to add a requirement in Sec.  
668.28(c)(5) that proprietary institutions are liable for title IV, HEA 
program funds they disburse after the fiscal year they become 
ineligible due to failing 90/10, with the exception of funds they are 
entitled to disburse under Sec.  668.26. This liability for grant and 
loan funds disbursed after an institution loses eligibility due to the 
90/10 rule remains unchanged, but the Department previously established 
repayment liabilities only for the portion of ineligible loan funds 
made to students that the Department estimated would default. Through 
audit reviews, the Department has observed cases where institutions 
delayed notifying the Department of their 90/10 failure in order to 
delay their loss of eligibility for title IV, HEA funds. The Department 
believes that limiting the liability of funds disbursed to only a 
portion of disbursements may create incentives for such behavior. Thus, 
the Department proposes to require the proprietary institution to repay 
all grant and loan funds disbursed to students under these 
circumstances. The Department also believes that this proposal is more 
equitable to students because previously students were responsible for 
repaying loans disbursed after the institution was not eligible to 
disburse, even where the students may not have known the institution 
was ineligible. This proposal will shift responsibility for these funds 
to institutions, avoiding unnecessary and disallowed borrowing by 
students.
    The Department believes that this proposed change would likely 
minimally impact institutions. The Department has observed that losing 
eligibility for title IV, HEA funds, which would always happen in these 
instances, is what has the largest impact on institutions. 
Additionally, the Department believes that this proposed change would 
discourage institutions from delaying reporting their 90/10 failure or 
disbursing funds when they are not eligible to do so.
    Appendix C to subpart B of 34 CFR 668.
    Statute: Section 487(a)(24) of the HEA, as amended by the ARP, 
provides that proprietary institutions must derive at least 10 percent 
of their revenue from non-Federal sources as outlined in section 487(d) 
of the HEA.
    Current Regulations: Appendix C to subpart B of part 668 currently 
provides a sample student ledger and step-by-step directions for how 
proprietary institutions calculate 90/10.
    Proposed Regulations: The proposed revisions to Appendix C would 
revise the sample student ledger and steps for how to report the 
institution's 90/10 calculation to the Department. The revised ledger 
and steps would incorporate regulatory changes previously discussed, 
including by adding examples of Federal funds counted as Federal 
revenue, examples of how to disaggregate Federal and non-Federal funds 
in grants from public agencies, and ISAs. Additionally, the proposed 
revisions would remove references to net present value of loans and 
ECASLA.
    Reasons: The proposed revisions to Appendix C would align the 
exemplar and reporting formula with the proposed changes to the 90/10 
calculation discussed throughout the preamble, including by modifying 
funds counted in the numerator, modifying how grant funds from public 
agencies would be calculated, adding an example of how ISAs would be 
categorized in the calculation, and removing references to net present 
value and ECASLA. Appendix C provides an example for proprietary 
institutions on how to implement the regulations and report 90/10 
calculation in alignment with the regulations. The Department believes 
that revising the appendix is necessary to provide guidance for 
proprietary institutions to implement the regulatory changes in Sec.  
668.28.

Changes in Ownership (Sec. Sec.  600.2, 600.4, 600.20, 600.21, 600.31) 
(HEA Sections 101, 102, 103, 410, 498)

Sec.  600.2 Definitions

Additional Location
    Statute: Section 410 of the General Education Provisions Act (20 
U.S.C. 1221e-3) provides the Secretary with authority to make, 
promulgate, issue, rescind, and amend rules and regulations governing 
the manner of operations of, and governing the applicable programs 
administered by, the Department. Furthermore, under section 414 of the 
Department of Education Organization Act (20 U.S.C. 3474), the 
Secretary is authorized to prescribe such rules and regulations as the 
Secretary determines necessary or appropriate to administer and manage 
the functions of the Secretary or the Department. These authorities, 
together with the provisions in the HEA, thus include promulgating 
regulations that, in this case amend the definition of ``additional 
location''.
    Current Regulations: The current definition of an ``additional 
location'' in Sec.  600.2 is a ``facility that is geographically apart 
from the main campus of the institution and at which the institution 
offers at least 50 percent of a program and may qualify as a branch 
campus.''
    Proposed Regulations: The proposed changes to this definition in 
Sec.  600.2 would specify that an additional location is a physical 
facility that is separate from the main campus and within the same 
ownership structure of the institution. They would also specify that an 
additional location participates in the title IV, HEA programs only 
through the certification of the main campus.
    Reasons: The proposed revisions would allow for greater alignment 
with other related proposed regulatory changes. The proposed changes to 
the definition of an additional location should be considered alongside 
the proposed changes to the definition of a branch campus. By providing 
more specificity to both definitions, the Department hopes to resolve 
confusion about how institutions should classify and report their 
locations and campuses to the Department.
Branch Campus
    Statute: Section 498(j) of the HEA refers to branch campuses and 
provides that they are to be defined by the Department through 
regulation. This section also provides that branch campuses must be 
certified under the certification procedures of Section 498 of the HEA 
before being able to participate as part of the institution in the 
title IV programs.
    Current Regulations: Branch campuses are defined as additional 
locations that are geographically apart and independent from the main 
campus and are independent by virtue of being permanent; offering 
degrees, certificates, or recognized credentials; and having their own 
faculty, administration, and budgetary and hiring authority.
    Proposed Regulations: The proposed amendments to the definition of 
a ``branch campus'' in Sec.  600.2 would retain the existing 
requirements in modified language, but also specify that branch 
campuses are physical facilities that are in the same ownership 
structure of the institution and that are approved by the Department as 
branch campuses.
    Reasons: As with additional locations, the proposed changes would 
address existing confusion and add clarity to a postsecondary 
environment that consists increasingly of institutions that provide 
hybrid instruction and institutions with virtual classrooms only. These 
proposed changes, which would codify the Department's

[[Page 45461]]

longstanding interpretations, are intended to clearly delineate between 
an institution's main campus, additional locations, and branch campuses 
in the regulations--all physical locations. In this section of the 
proposed regulations, we separately propose to clarify that distance 
education programs be reported through the main campus of the 
institution.
Distance Education
    Statute: Section 103 of the HEA defines distance education as 
instruction that occurs between students and instructors who are 
separated and that provides regular and substantive interaction between 
them via methods such as the internet, other electronic transmissions, 
audio conferencing, and videos.
    Current Regulations: The current regulations in Sec.  600.2 
reiterate the elements of the statutory definition and supplement it by 
clarifying who instructors are, what constitutes substantive 
interaction between students and instructors, and how an institution 
shall ensure regular interaction between them.
    Proposed Regulations: The only proposed change is the addition of 
proposed paragraph (6), which provides that, except for an additional 
location at a correctional institution, for institutions that offer on-
campus and distance education programs, the distance education programs 
are associated with the main campus. For an institution that offers 
only distance education, the institution is located where its 
administrative offices are located and approved by its accrediting 
agency.
    Reasons: This addition clarifies how an institution's programs 
offered through distance education or correspondence courses should be 
considered in the context of reporting students' locations and where a 
distance education-only institution should be reported as located, 
which is a necessary clarification as remote instruction has become 
more prevalent. In addition to improving consistency in data reporting 
to the Department, this change should aid in providing equitable 
treatment to students enrolled in distance education, when compared to 
those at a physical location, for the purposes of closed school 
discharges and related policies.
    This proposal reflects an existing policy that requires the 
distance education programs of an institution to be associated with the 
main campus of the institution. In general, the vast majority of 
institutions that offer distance education programs are already 
associated with the institution's main campus. However, one negotiator 
raised concerns that the policy was not consistent with some 
institutions' current practice. The Department is committed to working 
with institutions to implement any needed changes to ensure they can 
comply with the Department's proposed definition of additional 
locations and distance education. The Department would also provide a 
reasonable period of implementation time to ensure institutions are 
able to come into compliance with these proposed provisions, should 
they be finalized. We seek comment from the public about what period of 
time would be reasonable for full implementation of this requirement as 
proposed.
Main Campus
    Statute: Section 498(j) of the HEA refers to main campus in 
connection with branch campuses; it does not define ``main campus.''
    Current Regulations: None.
    Proposed Regulations: We propose to define ``main campus'' in Sec.  
600.2 as the primary physical location where the institution offers 
programs, that is within the same ownership structure, and that is 
certified as the main campus by the accrediting agency and the 
Department.
    Reasons: This definition would provide needed clarification of a 
widely used term and of the role the main campus has in relation to the 
proposed definitions of additional location, branch campus, and 
distance education. We propose a definition that reflects a common 
understanding of how the term ``main campus'' is generally used by 
institutions, accreditors, and the Department.
Nonprofit Institution
    Statute: Sections 101 and 102 of the HEA define institutions of 
higher education and postsecondary vocational institutions as being 
public or other nonprofit institutions, in addition to meeting other 
criteria.
    Current Regulations: A nonprofit institution is specified as being 
owned and operated by a nonprofit corporation or association, having no 
part of its net earnings benefitting a private party, being authorized 
to operate as a nonprofit organization by each State where it is 
located, and having been determined by the IRS to be a 501(c)(3) 
entity.
    Proposed Regulations: While not a substantive change from current 
regulations, the proposed definition in Sec.  600.2 would provide 
greater precision to the language of the current requirement that no 
part of an institution's net earnings benefits any private entity or 
person, rather than the existing reference to ``any private shareholder 
or individual.'' As in current regulations, private nonprofit 
institutions would continue to be required to be owned and operated by 
a nonprofit corporation(s) or association(s), legally authorized to 
operate as a nonprofit in the State where the institution is located 
and determined by the U.S. Internal Revenue Service to be described in 
section 501(c)(3) of the Internal Revenue Code. Also, the Department 
proposes to clarify its current policy that, in general, an institution 
does not meet the definition of a nonprofit (public or private) if it 
is an obligor on debt owed to a former owner of the institution; holds 
a revenue-sharing agreement or any other agreement with a former owner 
or a current or former employee or board member or an affiliated person 
or entity related to the former owner, except where the Secretary 
determines that payments and terms under the agreement are reasonable 
based on the market price for the services or agreements; or engages in 
excess benefit transactions with a natural person or entity. We 
proposed to include foreign institutions in this portion of the 
definition.
    Reasons: As GAO described in its report regarding conversions of 
proprietary institutions, the Department did not generally conduct 
comprehensive reviews of conversions of proprietary institutions prior 
to 2016.\26\ The Department is concerned that not all institutions 
classified as a nonprofit institution may be complying with the 
expectations of the HEA for such an institution, especially where an 
institution has converted from proprietary status to public or 
nonprofit status. These concerns are especially significant as the 
Department expects to see additional institutions seeking to convert 
from proprietary status in the future. These proposed changes are 
intended to address those concerns, which have also been raised by 
outside stakeholders, including the Government Accountability Office 
(GAO). According to GAO, in several earlier cases the Department ``did 
not focus on assessing the risk of improper benefit,'' and did not 
``request or review independent appraisal reports or thoroughly assess 
purchase and sale agreements to

[[Page 45462]]

determine whether former owners were paid more than fair market 
value.''
---------------------------------------------------------------------------

    \26\ GAO Report, GAO-21-89, ``Higher Education: IRS and 
Education Could Better Address Risks Associated with Some For-Profit 
College Conversions'', Dec. 31, 2020. Accessed at https://www.gao.gov/assets/gao-21-89.pdf.
---------------------------------------------------------------------------

    However, in 2016, a new process began that substantially 
strengthened the Department's review. For conversions reviewed after 
that time, the Department has carefully reviewed the terms of the 
transaction, including ongoing agreements or relationships with former 
owners to determine whether such former owners improperly benefitted. 
The Department's stronger review process more reliably assesses whether 
the institutions that underwent such reviews met the requirements for a 
nonprofit institution than did earlier reviews. As the Department's 
approach has evolved, in more recent cases the Department has correctly 
interpreted the current language in 600.2 to encompass a more detailed 
analysis in order for the Secretary to make a determination about 
whether any part of a school's `net earnings benefits any private 
shareholder or individual,' which is required by the HEA. These 
regulations propose to clarify the definition of a nonprofit 
institution in furtherance of the Department's efforts to address 
inappropriate requests for conversion to nonprofit status. This is 
consistent with the Department's current treatment of nonprofit 
institutions, and by including it in the regulations, we seek to 
provide more clarity to the field about the Department's existing 
policy.
    The Department would clarify that it considers these types of 
transactions and agreements when it reviews an application for a change 
in ownership resulting in a change of control in which the institution 
seeks to convert from proprietary status to nonprofit or public status. 
The Department may also consider such agreements or transactions at 
recertification of the institution's eligibility to participate in the 
title IV, HEA programs, or when information otherwise becomes available 
to the Department, including as a result of action taken by, or 
information received from, the IRS or a State. In general, the 
Department considers, and would clarify that it will continue to 
consider under these proposed rules, an institution to meet the 
definition of a nonprofit institution if it has undergone a 
comprehensive review by the Department of its revenue-based or other 
agreements, its debts owed to a former owner of the institution, and 
other relevant information; if the Department approved such agreements; 
and if those agreements remain largely unchanged since the latest 
review.
    Some members of the negotiating committee raised concerns that the 
proposed definition of a nonprofit, which prohibits the net earnings of 
the institution from benefitting any private entity or natural person, 
would prevent an institution from engaging in business relationships 
with other types of vendors. However, the Department notes that the 
purpose of this proposed clarification is not to encompass traditional 
vendor relationships an institution engages in with an unrelated party, 
such as a contract with a campus bookstore or with a company providing 
food preparation services. Rather, the Department's proposed language 
would codify existing requirements for nonprofit organizations, and 
(through the examples the Department proposes to explain how it 
considers the net earnings calculation) would seek to address 
contractual relationships, particularly with the former owner of an 
institution, that are overpriced according to the market for associated 
goods and services in that sector. Accordingly, we are committed to 
requiring and assessing independent valuation reports that meaningfully 
address the reasonable relationship between a price charged to an 
institution for a revenue-sharing or other agreement and the market 
price for that service or agreement, along with any restrictions on an 
institution's ability to obtain similar services from independent 
providers. A valuation report would be closely scrutinized to ensure it 
meets the Department's high standards for independence and methodology. 
The Department seeks feedback about whether the proposed language is 
sufficient to ensure that nonprofit institutions are operating in ways 
consistent with the principles and expectations for nonprofit 
organizations.
    The Department also considered whether improvements are needed to 
the definition of a foreign nonprofit institution, including to ensure 
such institutions meet the definition under the Higher Education Act to 
require that no part of the net earnings benefits any private entity or 
natural person, and proposed to include such institutions within that 
requirement. We seek feedback from commenters about the appropriate 
documentation that the Department should require from foreign 
institutions in evaluating their consistency with the requirements of a 
nonprofit institution.
    Finally, the Department considered the concerns that negotiators 
raised that the process would be too onerous for the Department to 
effectively demonstrate a revenue-sharing or other agreement with a 
former owner is not consistent with reasonable market value for such 
services. We note that the Department has more experience in recent 
years with evaluating such agreements and reviewing valuation reports 
to inform our analysis. Moreover, the Department's expertise in 
administering the title IV, HEA programs provides specific and 
important context for assessing questions as to whether revenue-sharing 
and other agreements, particularly with a former owner of the 
institution, have unique impacts in the context of educational programs 
and title IV in particular. As such the Department is uniquely situated 
to conduct this important analysis in the context of the HEA and 
specifically in the context of title IV participation. The Department 
is confident that we can continue to maintain high standards for these 
evaluations, and we are committed to doing so. We also believe the 
proposed regulations would retain sufficient flexibility for the 
Department to assess these types of agreements, determine whether they 
are appropriate and compliant with the intent of the proposed 
regulations, and enforce the new provisions of the proposed rules. We 
invite feedback on ways to codify these processes.
    Sec.  600.20 Notice and application procedures for establishing, 
reestablishing, maintaining, or expanding institutional eligibility and 
certification.
    Application for provisional extension of certification.
    Statute: Section 498(h) of the HEA discusses provisional 
certification of institutional eligibility to participate in the title 
IV programs. This can occur for up to one year if the institution is 
seeking initial certification, and for up to three years if the 
institution's administrative capability and financial responsibility 
are being determined for the first time, there is a change of 
ownership, or the Department determines that an institution seeking to 
renew its certification is in an administrative or financial condition 
that may jeopardize its ability to perform its financial 
responsibilities. Section 498(i)(4) further explains that the Secretary 
may provisionally certify an institution seeking approval of a change 
in ownership based on the review of a materially complete application 
that is received by the Secretary within 10 business days of the 
transaction for which the approval is sought. Such a provisional 
certification expires at the end of the month following the month in 
which the transaction occurred, unless the Secretary has not issued a 
decision in that time, in which case the provisional certification may 
continue on a month-to-month basis.

[[Page 45463]]

    Current Regulations: Current Sec.  600.20(g) explains that an 
institution may continue to participate in the title IV programs on a 
provisional basis after undergoing a change in ownership resulting in a 
change of control if it submits a materially complete application. Such 
an application is defined as one that has a completed application (as 
designated by the Department) that is supplemented by a copy of the 
institution's State license authorizing it to provide postsecondary 
education, a copy of its accreditation document, audited financial 
statements of its two most recently completed fiscal years, and audited 
financial statements of the new owner's two most recently completed 
fiscal years.
    Proposed Regulations: We are proposing to add a requirement in 
Sec.  600.20(g)(1)(i) that institutions must apprise the Department at 
least 90 days in advance of a proposed change in ownership. This 
includes submission of a completed form, State authorization and 
accrediting documents, and copies of audited financial statements. It 
would also include reporting any subsequent changes to the proposed 
ownership structure at least 90 days prior to the date the change in 
ownership is to occur. The institution would also need to notify 
enrolled and prospective students of the proposed change in ownership 
at least 90 days in advance and submit evidence to the Department that 
such disclosure was made. The institution would have to meet this 
proposed 90-day deadline or risk having its title IV participation 
interrupted upon the change of ownership.
    The proposed regulations would add in Sec.  600.20(g)(2) that, even 
with the submission of the above items, the Department may determine 
that the participation of the institution should not be continued 
following the change in ownership. The proposed rules also add that the 
institution would need to include, with the submission of its State 
license to operate and the document showing its accreditation, 
documentation that, as of the day before the change in ownership, both 
the State license and accreditation remained in effect.
    When a new owner does not have any acceptable audited financial 
statements, the new owner would be required to provide financial 
protection in the amount of at least 25 percent of the institution's 
prior year volume of title IV aid. When a new owner does not have two 
years of acceptable audited financial statements but has one year, the 
new owner would be required to provide financial protection in the 
amount of at least 10 percent of the institution's prior year volume of 
title IV aid. This proposal is similar to existing requirements for 
participating institutions that fail the composite score under the 
financial responsibility regulations.
    Financial protection in the amount of an additional 10 percent (or 
more) of the institution's prior year volume of title IV aid may also 
be required under the proposed rules in Sec.  600.20(g)(3)(v) if deemed 
necessary by the Department. If any entity in the new ownership 
structure holds a 50 percent or greater voting or equity interest in 
another institution or institutions, the financial protection may also 
include the prior year volume of title IV aid (or more) for all 
institutions under such common ownership.
    Reasons: These proposed changes would ensure that the Department 
receives adequate notice of impending changes in ownership, and that 
institutions have adequate time to prepare for the transaction without 
an interruption to title IV aid for their students. Often, the 
Department receives notices from institutions of impending changes in 
ownership with too little time to review the application to ensure the 
institution can meet the regulatory requirements for a change of 
ownership. In some cases, the Department reviews the materials and 
determines the application is not materially complete, or a letter of 
credit will be required due to insufficient audited financial 
statements, and the institution undergoing the change in ownership is 
forced to abandon or alter the transaction at the last minute to 
continue to meet the Department's requirements for title IV 
participation. Based on the Department's experience in working with 
institutions and reviewing applications for changes in ownership, we 
believe that advance notice of 90 days will be adequate for the 
Department to ensure staff will be available to review the materially 
complete application when it is submitted within 10 days of the 
transaction. Also, students are rarely, if ever, given notice of this 
significant transaction; the Department proposes that institutions 
disclose the transaction to students in advance to provide them with 
adequate notice and information about the operations of their 
institution. The Department similarly believes that, once institutions 
have provided notice to the Department regarding the transaction, 
students deserve to receive the same information. Accordingly, we 
propose to align the timeframes between notice to students and the 
Department of the transaction. We invite comment regarding whether 
these timeframes are appropriate or sufficient.
    The Department has proposed to retain additional flexibility in the 
review and approval of a change in ownership application. Under Sec.  
600.20(g)(2), the Department preserves the ability to deny an 
institution's application to continue participating in the title IV 
programs following the change in ownership. This recognizes that some 
transactions have proven extremely risky for students and taxpayers, 
particularly as documented by the GAO report on college 
conversions.\27\ In such cases where the Department is concerned about 
imminent or excessive risk to students and taxpayers as a result of the 
change, it is prudent for the agency to ensure it has the ability to 
end the institution's participation in the Federal aid programs.
---------------------------------------------------------------------------

    \27\ GAO Report, GAO-21-89, ``Higher Education: IRS and 
Education Could Better Address Risks Associated with Some For-Profit 
College Conversions'', Dec. 31, 2020. Accessed at https://www.gao.gov/assets/gao-21-89.pdf.
---------------------------------------------------------------------------

    To better inform the Department's decision about whether to approve 
the application for the change of ownership or to approve it with 
conditions, Sec.  600.20(g)(3) would further specify the types of 
documentation that must be submitted to support the change in ownership 
application. Specifically, the proposed regulations would capture 
existing practice related to the submission of a new owner's audited 
financial statements, along with the state authorization and 
accreditation documentation that is required under current regulations. 
The proposed language specifies that the institution must submit 
documentation that confirms that, as of the day prior to the change in 
ownership, the institution's State license to operate and accreditation 
remained in effect. This would ensure that the documents the Department 
receives to evaluate the institution's standing are not ``stale,'' and 
accurately reflect the institution's current standing. The proposed 
change would also add a regulatory provision resembling the existing 
practice of requiring financial surety if the new owner cannot provide 
one or two years of audited financial statements. In such cases, the 
Department's practice is to require the new owner to post at least a 10 
percent letter of credit if only one year of audited financial 
statements are unavailable or at least 25 percent if two years of 
audited financial statements are unavailable. This practice was 
designed to recognize that the Department is taking a chance on a new 
owner who has not met the requisite documentation

[[Page 45464]]

requirements, while affording some protection to students and taxpayers 
in the event that the transaction leads to other liabilities. Generally 
speaking, a 10 percent letter of credit provides about one month's 
worth of title IV, HEA volume in an award year; and a 25 percent letter 
of credit provides about three months' worth. This larger letter of 
credit requirement for institutions whose new owners are missing both 
years of financial statements affords taxpayers greater protections in 
the event of closed school discharge or other liabilities that may be 
incurred following a transaction, which is inherently riskier because 
the new owner does not have the required financial statements.
    The proposed regulations would also provide that the Department may 
require additional financial surety as needed to ameliorate financial 
or administrative risk on a case-by-case basis. This financial surety 
may be based on the title IV volume received in the prior year by the 
institution or--in the case of an entity in the new ownership structure 
that has at least a 50 percent interest in another institution(s)--by 
all institutions that fall under that common ownership. This is 
intended to allow setting the size of the financial surety provided to 
be commensurate with the level of financial risk that the institution 
may present to taxpayers, a concern raised by non-Federal negotiators 
at the table. The Department is particularly concerned about surety 
levels where, for instance, a smaller institution acquires a much 
larger one. In such cases, a letter of credit requirement based only on 
the title IV volume of the smaller institution would severely 
underestimate the financial risk that the transaction presents.
    Terms of the extension.
    Statute: Section 498(i) of the HEA indicates that for an 
institution seeking approval of a change in ownership, a Department 
review of a materially complete application may result in a provisional 
certification that expires by the end of the month following the month 
in which the transaction occurred unless the Secretary has not issued a 
decision in that time, in which case the provisional certification may 
continue on a month-to-month basis.
    Current Regulations: Current Sec.  600.20(h) provides that, when a 
materially complete application is approved, an institution will 
receive a provisional PPA expiring the earlier of: the day the 
Department approves a new PPA, the day the school's application is 
denied, or the last day of the month following the month that the 
change in ownership occurred. The Department currently calls this 
provisional PPA a ``temporary provisional PPA'' (TPPPA). If the TPPPA 
will expire under the latter provision, the Department will extend the 
PPA on a month-to-month basis if the institution provides a ``same-
day'' balance sheet showing the financial position of the institution, 
a default management plan unless the institution is exempt from 
providing it under Sec.  668.14(b)(15), and, if not already provided, 
the State approval and the accrediting agency's approval of the change 
of ownership.
    Proposed Regulations: The Department proposes to amend Sec.  
600.20(h) by replacing ``provisional PPA'' with ``temporary provisional 
PPA (TPPPA)'' and removing the language extending the terms of the PPA 
in effect for the institution before its change of ownership.
    Among the items needed for the Department to extend the TPPPA on a 
month-to-month basis following expiration, the proposed amendments 
would specify that the ``same-day'' audited balance sheet is for 
proprietary institutions and the audited statement of financial 
position is for nonprofit institutions. For the State approval of the 
change of ownership, the proposed regulation would require approval of 
all States in which the institution is physically located, or for 
distance education-only institutions, approval of the relevant State as 
determined under the revised definition of distance education in Sec.  
600.2.
    Reasons: The proposed changes would add clarity to the process for 
extension of title IV aid following a change in ownership and would 
better recognize that the Department may need to take additional steps 
to protect students and taxpayers in light of a particular change in 
ownership, depending on the circumstances. For instance, the Department 
proposes in Sec.  600.20(h)(1) to remove the requirement that any TPPPA 
include the same terms and conditions of the institution's PPA prior to 
a change in ownership. This would provide the Department with 
additional leeway to add appropriate terms and conditions to the 
institution's TPPPA with respect to the change in ownership, regardless 
of the conditions that were applied to the institution prior to the 
change. The proposed technical adjustment clarifying that following a 
change in ownership, an institution is place on a TPPPA and not a 
``provisional PPA'' is designed to align the terminology in the 
regulations with the actual terminology already employed by the 
Department.
    The Department proposes to retain the requirements in current Sec.  
600.20(h)(3) that specify the institution must provide a ``same-day'' 
balance sheet, approval of change in ownership from the State, approval 
of change in ownership from the accrediting agency, and a default 
management plan. However, the Department proposes several clarifying 
changes to those requirements. In response to a suggestion from a non-
Federal negotiator, we propose clarifying that proprietary institutions 
must provide a ``same-day'' audited balance sheet. As proposed, 
nonprofit institutions would instead submit an audited statement of 
financial position. These proposed changes would align terminology with 
the appropriate accounting terminology in those sectors. Additionally, 
the Department has further clarified that the approval of the change in 
ownership would apply to any State in which the institution is 
physically located and that, for institutions that offer only distance 
education, the approval should be provided for the State in which the 
institution is authorized to provide postsecondary education. These are 
proposed technical changes to clarify how institutions are expected to 
obtain and submit the appropriate approvals. With more institutions 
growing to operate across many states and more institutions operating 
entirely online, we are seeking to provide clarity to the field about 
the Department's expectations.
    Sec.  600.21 Updating application information.
    Reporting requirements.
    Statute: Section 498(i) of the HEA discusses when a change in 
ownership results in a change in control and requires that, to maintain 
title IV eligibility, the institution shall establish that it meets the 
requirements of sections 102 and 498 of the HEA after the change in 
control.
    Current Regulations: Section 600.21(a) lists all of the reporting 
requirements for events in which an institution must notify the 
Department of a given change. Paragraph (a)(6) applies to changes of a 
person's ability to substantially affect the actions of the institution 
if that person did not have the ability before and explains when the 
Department considers a person to have this ability. Such control of the 
institution is generally defined as when the person is a general 
partner, CEO, or CFO of the institution or when the person, alone or 
with others, has at least a 25 percent ownership interest in the 
institution.
    Proposed Regulations: The proposed amendments to Sec.  600.21(a)(6) 
would

[[Page 45465]]

distinguish between reportable changes in ownership and changes of 
control as well as between natural persons and legal entities. 
Reportable changes in ownership would occur when a natural person or 
entity acquires at least a 5 percent direct or indirect ownership 
interest of the institution but where that change does not result in a 
change of control as described in Sec.  600.31. For reportable changes 
of control, the existing 25 percent threshold would generally apply to 
several criteria: the person, alone or with other members of the 
person's family, or the entity, alone or with affiliated persons or 
entities, acquires at least 25 percent ownership interest in the 
institution (as defined in Sec.  600.31(b)); the person or entity 
acquires, alone or with another person or entity, under a voting trust, 
power of attorney, proxy, or similar agreement, at least a 25 percent 
ownership interest; the natural person becomes a general partner, 
managing member, trustee or co-trustee of a trust, chief executive 
officer, chief financial officer, director, or other officer of the 
institution or of an entity that has at least a 25 percent ownership 
interest in the institution; or the entity becomes a general partner or 
managing member of an entity that has at least a 25 percent ownership 
interest in the institution.
    We propose to add a new paragraph (a)(15), which would require that 
any change in the ownership of the institution would be reportable if 
it does not result in a change of control under proposed Sec.  600.31 
and is not addressed under proposed Sec.  600.21(a)(6), including the 
addition or elimination of any entities in the ownership structure, a 
change of entity from one type of business structure to another, and 
any excluded transactions under the proposed revisions to Sec.  
600.31(e).
    Reasons: The proposed amendments would clarify the reporting 
requirements for a change in ownership to better reflect the many types 
of ownership reforms that may occur and that must be reported to the 
Department, including clarifying when a ``person'' (defined in current 
Sec.  600.31) refers to a natural person or also includes an entity. As 
part of these changes, the Department proposes to increase reporting, 
generally by moving from reporting only at a 25 percent change in 
ownership to reporting at a 5 percent change in ownership, to ensure 
that the Department has greater visibility into voting blocs and other 
types of corporate ownership changes that may warrant greater scrutiny. 
As described in proposed Sec.  600.21(a)(15), this would also include 
reporting on changes in ownership that do not result in a change of 
control and that are not otherwise specified on the list of types of 
changes in ownership that must be reported, to ensure that novel 
ownership structures are covered under the regulations and to 
anticipate the possibility that, without this provision, owners could 
seek to avoid reporting requirements by terming their arrangement in a 
way not explicitly covered by the scenarios in Sec.  600.21(6). In 
selecting a proposed reporting requirement for a change in ownership of 
at least 5 percent of the interest in the institution, the Department 
sought to balance the burden of reporting all such changes with the 
need for the Secretary to evaluate the terms of those arrangements. We 
also considered how institutions might seek to evade Department 
oversight. We selected 5 percent to establish a threshold low enough to 
capture the likeliest of those scenarios, without requiring reporting 
of every such change even where it is very unlikely to provide relevant 
information to the Department. Concerns were raised during negotiated 
rulemaking that this reporting threshold of 5 percent would result in 
an excessive burden to institutions and the Department. The Department 
believes that because it is a reporting requirement that will not occur 
often, and because the burden of reporting itself is small, the overall 
increased burden would not be excessive and the benefits of the 
reporting requirement would outweigh the burden.
    Sec.  600.22 Severability.
    Statute: None.
    Current Regulations: None.
    Proposed Regulations: Proposed Sec.  600.22 would make clear that 
if any provision of subpart B of the proposed regulations is held 
invalid by a court, the remainder would still be in effect.
    Reasons: We believe that each of the proposed provisions discussed 
in this NPRM serves one or more important, related, but distinct, 
purposes. Each of the requirements provides value to students, 
prospective students, and their families, to the public, taxpayers, and 
the Government, and to institutions separate from, and in addition to, 
the value provided by the other requirements. To best serve these 
purposes, we would include this severability provision in the 
regulations to make clear that the regulations are designed to operate 
independently of each other and to convey the Department's intent that 
the potential invalidity of one provision would not affect the 
remainder of the provisions.
    Sec.  600.31(b) Change in ownership resulting in a change in 
control for private nonprofit, private for-profit, and public 
institutions.
    Definition of ownership or ownership interest.
    Statute: Section 498(e)(3) of the HEA defines ownership interest as 
a share of the ownership or control of, or a right to share in the 
proceeds of, an institution or its parent corporation. An ownership 
interest may include, for example, a sole proprietorship, a 
partnership, or an interest in a trust.
    Current Regulations: The definition in Sec.  600.31(b) refers to an 
ownership or ownership interest as a legal or beneficial interest in an 
institution or its corporate parent or a right to share in the profits 
derived from it. It does not include an ownership interest held by a 
mutual fund that is regularly and publicly traded, a U.S. institutional 
investor, a profit-sharing plan of the institution or its corporate 
parent in which all of the full-time permanent employees are included, 
or an employee stock ownership plan.
    Proposed Regulations: The proposed amendments would remove the 
language about a corporate parent and define ownership or ownership 
interest as a direct or indirect legal or beneficial interest in an 
institution or legal entity, which may include a voting interest or a 
right to share in the profits.
    Reasons: These changes would ensure that it is clearer when a 
change in ownership has and has not occurred. The removal of the term 
``institution or its corporate parent'' in favor of a reference to an 
``institution or legal entity'' is intended to cover a broader range of 
corporate structures than under the current rule and reflect the 
terminology used elsewhere in the regulation related to institutions.
    Definition of person.
    Statute: Section 498(e)(2) of the HEA provides that the Secretary 
may determinate an individual has substantial control over an 
institution, including one or more persons with a substantial ownership 
interest.
    Current Regulations: The current regulations at Sec.  600.31(b) 
define a person as including a legal entity or natural person.
    Proposed Regulations: The proposed regulations would specifically 
add a trust to the definition of a person.
    Reasons: The Department proposes to include trusts in the 
definition of a person to provide greater clarity elsewhere in the 
regulations, including to the types of ``other entities'' that would be 
subject to the definition of ownership or ownership interest in Sec.  
600.31(b), the standards for identifying changes of ownership and 
control in Sec.  600.31(c), and to the types of excluded

[[Page 45466]]

transactions in Sec.  600.31(e). The Department has received numerous 
questions about trusts from institutions and owners and has proposed 
changes to the language that will provide greater clarity about the 
Department's treatment of such arrangements.
    Sec.  600.31(c) Standards for identifying changes of ownership and 
control.
    Other entities.
    Statute: Section 498(i) paragraphs (2) and (3) of the HEA provide 
that an action resulting in a change in control may include the sale of 
the institution or the majority of its assets, the transfer of the 
controlling interest of stock of the institution or its parent 
corporation, the merger or division of institutions, or the transfer of 
the liabilities or the controlling interest of stock of the institution 
to its parent corporation.
    An action that may be treated as not resulting in a change in 
control includes a routine business practice, as determined by the 
Secretary, or the sale or transfer of the ownership interest in the 
institution of a person who dies to a family member or to a person 
already holding an ownership interest.
    Current Regulations: Under Sec.  600.31(c)(3) other entities 
include limited liability companies and partnerships, limited 
partnerships, and similar types of legal entities. They experience a 
change in control either when a person acquires both control of at 
least 25 percent of the outstanding voting stock of the corporation and 
control of the corporation or when a person ceases to own or control 
that proportion of the stock of the corporation or to control the 
corporation.
    Proposed Regulations: The proposed revisions would remove the 25 
percent threshold criteria for determining when a change of control 
occurs for other entities and replace them with a more substantial list 
of criteria that observe a proposed 50 percent threshold. This list 
includes--
     When a person, a combination of persons, or a partner in a 
general partnership acquires or loses at least 50 percent of the total 
outstanding voting interests in the entity or partnership or otherwise 
acquires or loses 50 percent control;
     Any change of a general partner of a limited partnership 
or a managing member of a limited liability company if that person also 
holds an equity interest;
     A person becomes or is replaced as the sole member or 
shareholder of an entity that has a 100 percent or equivalent direct or 
indirect interest in the institution;
     An entity that has a member or members ceases to have any, 
or one that has no members becomes an entity with a member or members;
     The addition or removal of any entity that provides or 
will provide the audited financial statements to meet any of the 
requirements in Sec.  600.20(g) or (h) or part 668, subpart L;
     The transfer of 50 percent or more of the voting interests 
in the institution or an entity to an irrevocable trust, except where 
it meets the proposed definition of an excluded transaction under Sec.  
600.31(e); and
     Upon the death of an owner who previously transferred 50 
percent or more of the voting interests in an institution or an entity 
to a revocable trust, except where it meets the proposed definition of 
an excluded transaction under Sec.  600.31(e).
    Proposed Sec.  600.31(c)(3)(iii) would also provide what the 
Department considers circumstances that meet the new 50 percent 
threshold: family members who individually hold less than 50 percent 
ownership interest in an entity but together hold a combined ownership 
interest of at least 50 percent or, similarly, a group of persons who 
individually hold less than 50 percent ownership interest in an entity 
have a combined ownership interest of at least 50 percent either as a 
result of common ownership, management, or control of that entity, 
either directly or indirectly, or as a result of proxy agreements, 
voting agreements, or other agreements (whether or not the agreement is 
set forth in a written document), or by operation of State law.
    Irrespective of proposed Sec.  600.31(c)(3)(ii) and (iii), proposed 
Sec.  600.31(c)(iv) would also provide that: (1) any person is deemed 
to have control who alone or in combination with others has the right 
to appoint a majority of any class of board members of an entity or an 
institution, and (2) when a person who alone or in combination with 
others holds less than a 50 percent ownership interest in an entity, 
the Secretary may yet determine that the person, alone or with the 
others, has actual control over that entity and is subject to the 
requirements of Sec.  600.31.
    Reasons: These amendments would allow the Department to address the 
kinds of legal arrangements that it has seen during its reviews and 
that are not clearly addressed in the current regulations. Many of the 
reported changes in ownership of at least 25 percent do not result in a 
change in control and therefore do not require the heightened scrutiny 
that a full Department review entails for continued participation in 
the title IV, HEA programs. As a result, with the proposed regulations 
the Department intends to focus its reviews of changes in ownership on 
those that historically more commonly result in changes in control, to 
include changes of at least 50 percent in control or voting interest, 
changes in a general partner or managing member, and the addition or 
removal of any person who provides the financial statements to satisfy 
financial responsibility requirements in the regulations. By noting 
these types of transactions in the proposed regulations, the Department 
hopes to address deficiencies in the current rules that have created 
confusion or a lack of clarity.
    Some negotiators raised concerns that the Department would not 
adequately capture persons with control of an institution but who hold 
less than a 50 percent ownership interest because the 50 percent 
threshold would allow higher levels of ownership and more room to 
operate by those seeking to avoid scrutiny than the 25 percent level 
currently in regulations. The Department shares the concern of 
negotiators about institutions or their owners seeking to evade the 
Department's rules and therefore proposes to both lower the threshold 
for requiring reporting on changes in ownership interest under Sec.  
600.21(a)(6)(i) for increased transparency and to preserve sufficient 
discretion to assess changes of control below the proposed 50 percent 
threshold in Sec.  600.31(c)(3)(iv). Specifically, the Department 
proposed defining language in Sec.  600.31(c)(3)(iv) to provide that 
where a change in ownership results in a change of control, the 
Secretary would have authority to determine that there has been a 
change in control if a person holds less than a 50 percent interest in 
the institution but has actual control over the entity. Such control 
may be either alone or in combination with other individuals, such as 
through the establishment of voting agreements among multiple 
individuals, each with less than a 50 percent ownership interest. 
Control would also be identified where a person or combination of 
persons has the right to appoint a majority of any class of board 
members of an entity or institution--a clear-cut case of control. We 
believe these proposed revisions would improve the Department's ability 
to identify cases of changes in control below the 50 percent level 
without drawing unnecessary Department resources to reviewing changes 
in

[[Page 45467]]

ownership where a change in control is less likely. Because the 
resulting cases that the Department identifies for a change in control 
review would be fewer than the number that the current rules require, 
the overall burden on schools--and on the Department--would be reduced.
    Covered and excluded transactions.
    Statute: Section 498(i), in paragraphs (2) and (3), of the HEA 
provide that an action resulting in a change in control may include the 
sale of the institution or the majority of its assets, the transfer of 
the controlling interest of stock of the institution or its parent 
corporation, the merger or division of institutions, or the transfer of 
the liabilities or the controlling interest of stock of the institution 
to its parent corporation.
    An action that may be treated as not resulting in a change in 
control includes a routine business practice, as determined by the 
Secretary, or the sale or transfer of the ownership interest in the 
institution of a person who dies to a family member or to a person 
already holding an ownership interest.
    Current Regulations: Sections 600.31(d) and (e) explain which types 
of transactions are covered and excluded, respectively, under a change 
in control. Changes in ownership that result in a change of control may 
include the sale of the institution; the transfer of the controlling 
interest of stock of the institution or its parent corporation; the 
merger or division of eligible institutions; the transfer of the 
liabilities of an institution to its parent corporation; a transfer of 
assets that comprise a substantial portion of the educational business 
of the institution, except where the transfer consists exclusively in 
the granting of a security interest in those assets; or a change in 
status as a for-profit, nonprofit, or public institution.
    Ownership changes that do not result in a change of control occur 
when there is a transfer of ownership and control of an owner's equity 
or partnership interest in an institution, its parent, or another 
entity that has signed the PPA either from an owner to a family member 
or, upon the retirement or death of the owner, to a person with an 
ownership interest in the institution who, for at least two years prior 
to the transfer, has been involved in the institution's management and 
has established and retained the ownership interest.
    Proposed Regulations: Proposed Sec.  600.31(d)(8) would add a new 
type of covered transaction: the acquisition of an institution to 
become an additional location of another institution, excluding 
situations where the acquired institution closed or ceased to provide 
educational instruction.
    Among the excluded transactions, proposed Sec.  600.31(e)(2) and 
(3), respectively, would add irrevocable trusts in which the transfer 
of the owner's interest is to a trust and the trustee includes only the 
owner and/or a family member, as defined in current Sec.  600.21(f), 
and revocable trusts in which an owner has transferred an interest to 
the trust and then dies. The trust transaction is proposed to be 
excluded so long as the trustee at the time of death and any successor 
trustees are only family members of the former owner, as defined in 
current Sec.  600.21(f). Finally, proposed Sec.  600.31(e)(4) would add 
to excluded transactions a transfer to an individual owner who has 
retained an ownership interest and has been involved in the management 
and ownership of the institution for at least two years preceding the 
transfer, either as a result of the death of another owner, or as a 
result of the resignation of another individual owner who has been 
involved in the management of the institution for at least two years 
and who has established and retained an ownership interest for at least 
two years prior to the transfer.
    Reasons: These proposed amendments would aid the Department and 
institutions to more easily determine whether a particular type of 
transaction qualifies as excluded or not. These covered and excluded 
transactions are types the Department has seen in its reviews of 
institutional changes in ownership and where the Department believes 
additional clarity in the regulations would provide better information 
to the field. The proposal to address acquisition of institutions as 
additional locations, added as a new covered transaction in proposed 
Sec.  600.31(d)(8), addresses a type of change in ownership upon which 
the current regulations are silent but which the Department considers 
to be a covered transaction. Additionally, the Department proposes to 
clarify that transfers of an owner's interest to an irrevocable or 
revocable trust are excluded transactions in proposed Sec.  
600.31(e)(2) and (3), provided the trustees include only the owner and/
or family members of that owner. This is consistent with the 
Department's treatment of transfers of ownership among family members 
under the current regulations and reflects the Department's recognition 
that many of these transfers occur not from individual to individual 
but into family trusts which are commonly used for estate planning 
purposes. Proposed Sec.  600.31(e)(4) also clarifies an existing type 
of excluded transaction, which addresses the transfer of ownership from 
an owner who retires or dies; rather than referring to ``retirement,'' 
the Department proposes to refer to the ``resignation'' of the owner 
because it is more straightforwardly determined. The Department 
receives many questions about these types of transactions, particularly 
about the types of irrevocable and revocable trusts that are considered 
excluded transactions, and believes that including them in the 
regulations will help to clarify many questions and allow owners to 
structure their transactions appropriately to avoid a loss of 
eligibility.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Office of Management and Budget 
(OMB) must determine whether this regulatory action is ``significant'' 
and, therefore, subject to the requirements of the Executive Order and 
subject to review by 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 stated in the 
Executive Order.
    The Department estimates the quantified annualized economic and net 
budget impacts to be $835 million, consisting of an $879 million net 
increase in Pell Grant transfers and $-44.3 million reduction in loan 
transfers among students, institutions, and the Federal Government, 
including annualized transfers of $82.7 million at 3 percent 
discounting and $81.9 million at 7 percent discounting. Additionally, 
we estimate annualized quantified costs of $3.4 million related to 
paperwork burden and $1.1 million of administrative costs to the 
government. Therefore, this proposed action is ``economically 
significant'' and subject

[[Page 45468]]

to review by OMB under section 3(f) of Executive Order 12866. 
Notwithstanding this determination, based on our assessment of the 
potential costs and benefits (quantitative and qualitative), we have 
determined that the benefits of this proposed regulatory action would 
justify the costs.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only on a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these proposed regulations only on a reasoned 
determination that their benefits would justify their costs. In 
choosing among alternative regulatory approaches, we selected those 
approaches that maximize net benefits. Based on the analysis that 
follows, the Department believes that these regulations are consistent 
with the principles in Executive Order 13563.
    We have also determined that this regulatory action would not 
unduly interfere with State, local, and Tribal governments in the 
exercise of their governmental functions.
    As required by OMB Circular A-4, we compare the proposed 
regulations to the current regulations. In this regulatory impact 
analysis, we discuss the need for regulatory action, potential costs 
and benefits, net budget impacts, and the regulatory alternatives we 
considered.
    1. Need for Regulatory Action:
    The Department has identified a significant need for regulatory 
action to address inadequate protections for students and taxpayers in 
the current regulations and to implement recent changes to the HEA 
statute.

Pell Grants for Confined or Incarcerated Individuals

    In the Consolidated Appropriations Act, 2021, Congress added a new 
provision allowing confined or incarcerated individuals to access Pell 
Grants for enrollment in approved Prison Education Programs (PEPs). 
Regulatory changes are necessary to implement the law and to ensure 
access to high-quality postsecondary programs for incarcerated 
individuals. Among existing higher education programs in prisons, there 
is considerable variation among programs related to their available 
resources, the requirements they follow to operate the facilities, and 
the depth of stakeholder partnerships they have established.\28\ 
Research shows that high-quality prison education programs increase 
learning and skills among incarcerated students, and increase the 
likelihood of stable employment post-incarceration.\29\ Individuals who 
were formerly incarcerated face significant challenges in finding 
employment when returning to their communities. Many lack vocational 
skills and have little or no employment history, leading to high rates 
of unemployment and low wages for these individuals.\30\ In a study 
funded by the Bureau of Justice Assistance of the U.S. Department of 
Justice, researchers found that postsecondary correctional education 
programs are highly cost effective, and can help incarcerated 
individuals reenter the employment arena and reduce recidivism.\31\
---------------------------------------------------------------------------

    \28\ Castro, E.L., Hunter, R.K., Hardison, T., & Johnson-Ojeda, 
V. (2018). ``The Landscape of Postsecondary Education in Prison and 
the Influence of Second Chance Pell: An Analysis of Transferability, 
Credit-Bearing Status, and Accreditation.'' The Prison Journal, 
98(4), 405-26. https://doi.org/10.1177/0032885518776376.
    \29\ Ibid.
    \30\ Coady, N. M. (2021). A Qualitative Evaluation of Prison 
Education Programs in Delaware: Perceptions of Adult Male Returning 
Citizens. ProQuest Dissertations Publishing. Retrieved from https://www.proquest.com/openview/af55946da2d8d2213f500ffaa89a3102/1.pdf.
    \31\ Davis, L., et al. ``How Effective is Correctional 
Education, and Where Do We Go From Here?'' Rand Corp. (2014). 
https://www.rand.org/pubs/research_reports/RR564.html.
---------------------------------------------------------------------------

    The Department has explored postsecondary education for 
incarcerated individuals through its Second Chance Pell experiment, 
first announced in 2015.\32\ The goal of the experiment has been to 
learn about how Federal Pell Grant funding expands postsecondary 
educational opportunities for incarcerated individuals and explore how 
such funding fosters other positive outcomes.\33\ Data reported to the 
Department indicates that recipients of Second Chance Pell Grants 
successfully completed a high percentage of the credits they 
attempted.\34\ The institutions participating in the Second Chance Pell 
experiment reported that their programs had positive effects related to 
public safety and safe working and living conditions in their carceral 
facilities. Further research has illustrated that correctional 
education programs contribute to successful rehabilitation and 
subsequent reentry for those who were incarcerated, thereby improving 
safety within the facilities that offer postsecondary programming and 
recidivism and public safety outcomes overall.\35\
---------------------------------------------------------------------------

    \32\ Department of Education Experimental Sites Initiative site, 
Updated June 8, 2022, https://www2.ed.gov/about/offices/list/ope/pell-secondchance.pdf.
    \33\ Second Chance Pell Fact Sheet. (n.d.). In U.S. Department 
of Education. https://www2.ed.gov/about/offices/list/ope/pell-secondchance.pdf
    \34\ U.S. Department of Education. (2020, August). Experimental 
Sites Initiative Second Chance Pell: Evaluation Report for Award 
Years 2016-2017 and 2017-2018. Federal Student Aid. Retrieved from 
https://experimentalsites.ed.gov/exp/pdf/20162018SecondChancePellESIReport.pdf.
    \35\ Chesnut, K., & Wachendorfer, A. (2021, April). Second 
Chance Pell: Four Years of Expanding Access to Education in Prison. 
Vera Institute of Justice. Retrieved from https://www.vera.org/publications/second-chance-pell-four-years-of-expanding-access-to-education-in-prison.
---------------------------------------------------------------------------

    Correctional education can offer rehabilitation to incarcerated 
individuals, because the programs are able to capitalize on acquired 
education and skills. Soft skills in particular, such as communication 
and interaction with others, are a significant benefit of correctional 
education.\36\ In one study of correctional education in Delaware, the 
surveyed participants noted that the program provided ``credentialing 
and a

[[Page 45469]]

variety of skills . . . that they may not otherwise have obtained due 
to lack of confidence, missing opportunities to participate in 
educational programs offered in the community, and/or incapability of 
making time to commit to such programs outside of incarceration.'' \37\
---------------------------------------------------------------------------

    \36\ Bennett, B. (2015). ``An Offender's Perspective of 
Correctional Education Programs in a Southeastern State.'' Walden 
Dissertations and Doctoral Studies. 457. https://scholarworks.waldenu.edu/dissertations/457.
    \37\ Coady, N. M. (2021). A Qualitative Evaluation of Prison 
Education Programs in Delaware: Perceptions of Adult Male Returning 
Citizens. ProQuest Dissertations Publishing. Retrieved from https://www.proquest.com/openview/af55946da2d8d2213f500ffaa89a3102/1.pdf.
---------------------------------------------------------------------------

    The Department proposes a framework for PEPs that would clarify and 
implement statutory requirements for the benefit of incarcerated 
individuals and other stakeholders, including correctional agencies and 
institutions, postsecondary institutions, accrediting agencies, and 
related organizations. Our proposed regulations include clarified 
definitions of confined or incarcerated individuals and prison 
education programs that align with the statute. The Department also 
proposes to provide greater clarity on the processes that the oversight 
entity (including the State Department of Corrections or the Bureau of 
Prisons) would follow in determining whether a prison education program 
is operating in the best interests of the students. Consistent with the 
statute, the proposed regulations would prevent proprietary 
institutions or institutions subject to certain adverse actions from 
offering PEPs. We also propose protections for incarcerated students 
against programs that do not satisfy applicable licensure or 
certification requirements or where such students are typically 
prohibited under Federal or State law from employment in the field due 
to the specific conviction of the student. Under the proposed rules, 
institutions would also be required to provide disclosures for students 
if their program is designed to lead to occupations in which formerly 
incarcerated individuals typically face barriers in other States. These 
proposed regulations are designed to clarify how oversight entities can 
meet the requirements of the statute, and to guide PEP educational 
institutions and practitioners on access to, and eligibility for, 
Federal Pell Grants.

90/10 Rule

    The ARP amended section 487 of the HEA to require that proprietary 
institutions count all Federal funds used to attend the institution as 
Federal revenue in the 90/10 calculation, rather than only counting 
title IV, HEA program funds. In FY 2021, proprietary institutions were 
eligible to receive funding from at least 26 non-title IV Federal 
programs. The largest two non-title IV, Federal programs with 
documented funding provided to proprietary institutions were Post-9/11 
GI Bill education benefits, which accounted for approximately $1.3 
billion in FY 2021, and the Department of Defense (DOD) Tuition 
Assistance program, which accounted for $185 million in that year. Some 
proprietary institutions have aggressively recruited service members 
and veterans in order to use funds from GI Bill education benefits and 
DOD Tuition Assistance to comply with the current 90/10 requirement 
since these funds helped offset title IV, HEA program funds in the 
calculation.\38\
---------------------------------------------------------------------------

    \38\ See, for example, Hollister K. Petraeus, ``For-Profit 
Colleges, Vulnerable G.I.'s,'' The New York Times (Sept. 21, 2011), 
https://www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html; and For-Profit Higher Education: The Failure to 
Safeguard the Federal Investment and Ensure Student Success, U.S. 
Senate, Health, Education, Labor and Pensions Committee, Majority 
Committee Staff Report (Jul. 30, 2012), https://www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf.
---------------------------------------------------------------------------

    In addition, the proposed revisions to Sec.  668.28 would modify 
allowable non-Federal revenue in the 90/10 calculation to better align 
the regulations with statutory intent and address practices proprietary 
institutions have employed to alter their 90/10 calculation or inflate 
their non-Federal revenue percentage. These combined changes include:
    (1) Creating a new requirement for when proprietary institutions 
must request and disburse title IV, HEA program funds to prevent 
delaying disbursements to the subsequent fiscal year in order to reduce 
their Federal revenue percentage for the preceding fiscal year. The 
proposed changes to the disbursement rules in Sec.  668.28(a)(2) would 
prevent such practices.
    (2) Clarifying the requirements that ineligible programs must meet 
in order to be included in the 90/10 calculation under current 
regulations. The Department is concerned that these sources of non-
Federal revenue may provide an incentive for institutions to create, 
offer, and market programs with little oversight or few consumer 
protections, or to create programs that bear little, if any, 
relationship to eligible programs subject to the 90/10 revenue 
requirement in order to increase the amount of non-Federal funds 
proprietary institutions received in a fiscal year to comply with 90/
10. The proposed changes to Sec.  668.28(a)(3) would prevent such 
revenue from being included to inflate the amount of non-Federal funds.
    (3) Creating guardrails for ISAs and other financing agreements 
between students and proprietary institutions. Payments made by 
students or former students on institutional loans or alternative 
financing agreements currently count as non-Federal revenue in a 
proprietary institution's 90/10 calculation, and thus some proprietary 
institutions may have an incentive to encourage students to utilize 
these products.\39\ The proposed addition of Sec.  668.28(a)(5)(ii) 
will provide guardrails.
---------------------------------------------------------------------------

    \39\ See, for example, Loonin, D. (2011). Piling On: The Growth 
of Proprietary School Loans and the Consequences for Students. 
Student Loan Borrower Assistance Program at the National Consumer 
Law Center. Received from https://www.studentloanborrowerassistance.org/wp-content/uploads/File/proprietary-schools-loans.pdf and Consumer Financial Protection 
Bureau (Jan 20, 2022). Consumer Financial Protection Bureau to 
Examine Colleges' In-House Lending Practices. Retrieved from https://www.consumerfinance.gov/aboutus/newsroom/consumer-financial-protection-bureau-to-examine-colleges-in-house-lending-practices/.
---------------------------------------------------------------------------

    (4) Modifying revenue that must be excluded from the 90/10 
calculation. The Department proposes to modify allowable revenue 
generated from institutional aid and funds that cannot be included in 
the 90/10 calculation to prohibit proprietary institutions from 
including revenue from the sale of ISAs, alternative financing 
agreements, or institutional loans in their 90/10 calculation. The 
revenue to the institution from these transactions is for an asset sale 
and not a payment by that party for the education provided by the 
institution as intended under the 90/10 revenue requirement. Thus, the 
Department does not consider funds generated from these sales as 
representative of funds paid to the institution for the purposes of 
education and training. The proposed addition of Sec.  
668.28(a)(5)(iii) and Sec.  668.28(a)(6)(vi) would explicitly exclude 
proceeds from such sales from being counted as non-Federal revenue in 
the 90/10 calculation.
    Finally, the revisions would also delete several outdated 
provisions, such as those related to the ECASLA of 2008.

Changes in Ownership

    The Department has received a growing number of applications for 
CIO in recent years. While most did not involve a conversion from 
proprietary status, over 150 transactions were processed in the three 
years following October 2018; dozens more remain pending. Moreover, the 
CIO applications that the Department has received and reviewed are 
increasingly complex and require significant effort and expertise to 
review, particularly given that the current regulations are

[[Page 45470]]

not always clear for institutions or the Department. Some of these CIOs 
include institutions converting from proprietary to nonprofit status, 
which further complicates the Department's review and presents a 
greater risk to students and taxpayers. Given this changing landscape 
of CIO applications undergoing review, the Department needs to further 
clarify and define the CIO process to better protect students and 
taxpayers from potentially risky transactions, and to provide the 
Department and institutions with clearer processes and regulations to 
mitigate loss and noncompliance. These improvements would enable the 
Department to identify high-risk transactions and require financial 
protection as needed.
    The Department is also proposing new regulations to clarify the 
requirements for institutions undergoing CIOs, including to require 
adequate advance notice of such transactions to ensure the Department 
can assess the requirements of continued participation in the title IV, 
HEA programs prior to the transaction being completed. Further proposed 
regulations would increase transparency into CIOs to better enable the 
Department to identify individuals with control over the institution, 
while reducing the burden of reviewing transactions in which a change 
in ownership is unlikely to result in a change in control. The proposed 
rules would also clarify that the Department may apply the necessary 
terms for continued participation in the federal financial aid programs 
to ensure that we are able to take appropriate steps to protect 
students and taxpayers from risky transactions. Proposed changes to the 
definition of a nonprofit institution would clarify the requirements 
for operating such institutions to prohibit enrichments to private 
parties, ensuring that proprietary institutions are not able to receive 
approval as nonprofit institutions without sufficiently addressing 
their business practices and the profit interests of former owners.\40\
---------------------------------------------------------------------------

    \40\ Shireman, R. (2020). How For-Profits Masquerade as 
Nonprofit Colleges, The Century Foundation.https://tcf.org/content/report/how-for-profits-masquerade-as-nonprofit-colleges/.
---------------------------------------------------------------------------

    To provide additional clarity to institutions and ensure 
consistency in the application of the regulations, the Department is 
also proposing some technical changes to adjust the definitions of 
additional locations and branch campuses of the institution to conform 
with current practice and clarify how the Department views such 
locations.
    2. Summary:

----------------------------------------------------------------------------------------------------------------
                Provision                      Regulatory section          Description of proposed provision
----------------------------------------------------------------------------------------------------------------
                              Pell Grants for Confined or Incarcerated Individuals
----------------------------------------------------------------------------------------------------------------
Amend key definitions...................  Sec.   600.2...............  Would amend definitions of ``additional
                                                                        location'' and ``incarcerated student.''
Amend waiver requirements for enrollment  Sec.   600.7...............  Would amend requirements for an
 of incarcerated students.                                              institution to obtain and maintain a
                                                                        waiver from the Secretary to allow
                                                                        students who are confined or
                                                                        incarcerated to exceed 25 percent of
                                                                        regular student enrollment.
Approval of additional locations........  Sec.   600.10..............  Would amend language to require a
                                                                        postsecondary institution to obtain the
                                                                        Secretary's approval of the
                                                                        institution's first prison education
                                                                        program at the first two additional
                                                                        locations at correctional facilities.
Report new programs to the Secretary....  Sec.   600.21..............  Would amend language to require that
                                                                        institutions report the addition of any
                                                                        other prison education program to the
                                                                        Secretary within 10 days of the
                                                                        program's establishment.
Establish Pell Grant eligibility for      Sec.   668.8...............  Would amend language to include PEPs in
 prison education programs.                                             the list of eligible programs for
                                                                        purposes of title IV.
Establish Pell Grant eligibility for      Sec.   668.32..............  Would amend language to allow Pell Grant
 incarcerated students.                                                 eligibility for a confined or
                                                                        incarcerated individual who enrolls in a
                                                                        PEP.
Outline requirements for programs that    Sec.   668.43..............  Would amend language to require
 lead to licensure.                                                     disclosure of typical State or Federal
                                                                        prohibitions on the licensure or
                                                                        employment of formerly incarcerated
                                                                        individuals for a prison education
                                                                        program that is designed to meet
                                                                        educational requirements for a specific
                                                                        professional license or certification.
Establish regulations for the approval    Subpart P--Prison Education  Would create a new subpart that houses
 and oversight of PEPs.                    Programs.                    regulations for PEPs.
Scope for Subpart P.....................  Sec.   668.234.............  Would create a section that describes the
                                                                        scope and purpose for the new subpart P,
                                                                        governing prison education programs.
Establish key definitions...............  Sec.   668.235.............  Would create a section that defines
                                                                        ``advisory committee'', ``feedback
                                                                        process'', ``oversight entity'', and
                                                                        ``relevant stakeholders''.
Outline requirements for eligible PEPs..  Sec.   668.236.............  Would create a section that defines and
                                                                        sets forth the requirements for an
                                                                        ``eligible prison education program.''
                                                                        An eligible PEP would be required to
                                                                        ensure transferability of credits,
                                                                        satisfy applicable educational
                                                                        requirements for professional licensure
                                                                        or certification, and prohibit PEPs from
                                                                        enrolling when a Federal or State law
                                                                        would prevent a program graduate from
                                                                        obtaining licensure or employment in the
                                                                        relevant field. The proposed regulation
                                                                        would prohibit an institution from
                                                                        offering a PEP if it was subject to
                                                                        certain adverse actions in the last 5
                                                                        years. Two years after initial approval,
                                                                        proposed Sec.   668.236 would require
                                                                        the oversight entity to determine that
                                                                        the PEP is in the best interest of
                                                                        confined or incarcerated individuals,
                                                                        using the factors set forth in proposed
                                                                        Sec.   668.241.

[[Page 45471]]

 
Outline PEP evaluation and review         Sec.   668.237.............  Would create a section that prescribes
 requirements.                                                          program evaluation and review
                                                                        requirements for the institution's
                                                                        accrediting agency or State approval
                                                                        agency. Proposed Sec.   668.237 would
                                                                        require such accrediting or approval
                                                                        agency to evaluate an institution's
                                                                        first prison education program at the
                                                                        first two additional locations, evaluate
                                                                        any additional programs offered through
                                                                        a new mode of delivery, conduct a site
                                                                        visit within 1 year of program
                                                                        initiation, and review and approve the
                                                                        methodology for how the institution and
                                                                        oversight entity determined that the
                                                                        prison education program meets the same
                                                                        standards as substantially similar non-
                                                                        prison education programs offered by the
                                                                        institution.
Secretary's PEP Approval................  Sec.   668.238.............  Would create a section that requires the
                                                                        Secretary's approval of an institution's
                                                                        first PEP at the first two additional
                                                                        locations for purposes of title IV
                                                                        programs. Applications for approval of
                                                                        subsequent programs would be subject to
                                                                        fewer requirements.
Outline reporting requirements..........  Sec.   668.239.............  Would create a section that requires a
                                                                        postsecondary institution to submit
                                                                        required reports to the Secretary and to
                                                                        establish an agreement with the
                                                                        oversight entity to report information
                                                                        to the Secretary about the transfer and
                                                                        release of confined or incarcerated
                                                                        individuals.
Establish the authority to terminate      Sec.   668.240.............  Would create a section that sets forth
 approval of a PEP.                                                     the Secretary's authority to limit or
                                                                        terminate approval of an institution's
                                                                        eligible PEP.
Outline the requirements for an           Sec.   668.241.............  Would create a section that defines the
 oversight entity's ``best interest''                                   ``best interest'' program assessment
 determination of a PEP.                                                that must be conducted by the oversight
                                                                        entity. Such assessment must include a
                                                                        holistic assessment of the rates at
                                                                        which confined or incarcerated
                                                                        individuals continue their education
                                                                        post-release, job placement rates, and
                                                                        earnings for program participants;
                                                                        establishing confirmation that the PEP
                                                                        offerings are substantially similar to
                                                                        those in other programs offered by the
                                                                        institution; and ensuring confirmation
                                                                        that PEP students are able to fully
                                                                        transfer their credits and continue
                                                                        their education at any of the
                                                                        institution's other locations that
                                                                        offers a comparable program upon
                                                                        release. The proposed regulations also
                                                                        outline additional indicators that may
                                                                        be included as part of the assessment,
                                                                        and would require the institution
                                                                        offering the program to obtain and
                                                                        maintain documentation of the
                                                                        methodology by which the oversight
                                                                        entity initially approved the PEP and
                                                                        how, after 2 years, it made the ``best
                                                                        interest' determination. After the
                                                                        initial ``best interest'' determination,
                                                                        subsequent assessments would be
                                                                        conducted not less than 120 calendar
                                                                        days prior to the expiration of an
                                                                        institution's Program Participation
                                                                        Agreement.
Wind-down of currently eligible programs  Sec.   668.242.............  Would prescribe the process for the wind-
                                                                        down of eligible programs operating at a
                                                                        correctional facility that is not a
                                                                        Federal or State correctional facility.
Amend cost of attendance limitations....  Sec.   690.62..............  Would amend the relevant section to
                                                                        codify a statutory requirement that the
                                                                        Pell Grant award not exceed cost of
                                                                        attendance.
----------------------------------------------------------------------------------------------------------------
                                                      90/10
----------------------------------------------------------------------------------------------------------------
Amend non-Federal revenue provisions....  Sec.   668.28..............  Would change terminology of ``non-title
                                                                        IV revenue'' to ``non-Federal revenue'',
                                                                        and ``title IV revenue'' to ``Federal
                                                                        revenue'', as amended in ARP.
Clarify definition of Federal funds.....  Sec.   668.28(a)(1)........  Would provide that Federal funds issued
                                                                        directly to the proprietary institution
                                                                        or to the student count as Federal funds
                                                                        when calculating the revenue percentages
                                                                        in annual audit submissions for a
                                                                        proprietary institution's fiscal year
                                                                        beginning on or after January 1, 2023,
                                                                        excluding non-title IV Federal funds
                                                                        provided directly to a student to cover
                                                                        expenses other than tuition, fees, and
                                                                        other institutional charges. Would also
                                                                        provide that the Department will publish
                                                                        the list of Federal funds that should be
                                                                        included in the 90/10 calculation in the
                                                                        Federal Register. Federal funds would be
                                                                        limited to title IV, HEA program funds
                                                                        for any fiscal year beginning prior to
                                                                        January 1, 2023.
Create disbursement rule for 90/10        Sec.   668.28(a)(2)........  Would clarify that proprietary
 calculation.                                                           institutions must include Federal funds
                                                                        used to pay tuition, fees, and other
                                                                        institutional charges in the 90/10
                                                                        calculation. Would require proprietary
                                                                        institutions to request and disburse
                                                                        title IV, HEA funds to eligible students
                                                                        before the end of the proprietary
                                                                        institution's fiscal year if operating
                                                                        under the advanced payment method in
                                                                        Sec.   668.162(b)(2) or the heightened
                                                                        cash monitoring method in Sec.
                                                                        668.162(d)(1). The proposed regulations
                                                                        would also require institutions
                                                                        operating under the reimbursement or
                                                                        heightened cash monitoring methods in
                                                                        Sec.   668.162(c) or (d)(2) to make
                                                                        disbursements to eligible students by
                                                                        the end of the fiscal year and report
                                                                        these funds as Federal funds in the 90/
                                                                        10 calculations before requesting funds.
Clarify rules around services performed   Sec.   668.28(a)(3)(ii)(D).  Would add the requirement that activities
 by students.                                                           be related directly to the services
                                                                        performed by students for the revenue to
                                                                        be counted in 90/10 calculations.

[[Page 45472]]

 
Clarify treatment of revenue from         Sec.   668.28(a)(3)(iii)...  Would modify the criteria for revenue
 ineligible programs.                                                   generated from ineligible programs to be
                                                                        allowable non-Federal funds. These
                                                                        programs: (1) must not include any
                                                                        courses offered in an eligible program;
                                                                        (2) be provided by the institution and
                                                                        taught by one of its instructors of an
                                                                        eligible program; and (3) be located at
                                                                        its main campus or one of its approved
                                                                        additional locations, at another school
                                                                        facility approved by the appropriate
                                                                        State agency or accrediting agency, or
                                                                        at an employer facility. The funds for
                                                                        these programs would have to be paid by
                                                                        a student, or on behalf of a student by
                                                                        a party unrelated to the institution,
                                                                        its owners, or affiliates. Programs
                                                                        cannot be included if they solely
                                                                        prepare students to take an examination
                                                                        for an industry recognized credential or
                                                                        certification issued by an independent
                                                                        third party.
Clarify application of funds in 90/10     Sec.   668.28(a)(4)........  Would clarify that a proprietary
 calculation.                                                           institution must presume that any
                                                                        Federal funds will be used to pay the
                                                                        student's tuition, fees, or
                                                                        institutional charges up to the amount
                                                                        of those Federal funds, and presume that
                                                                        funds it determines were provided by
                                                                        another Federal source will be used to
                                                                        pay the student's tuition, fees, or
                                                                        other institutional charges up to the
                                                                        amount of those Federal funds if a
                                                                        student makes a payment to the
                                                                        institution.
Clarify grant fund exception............  Sec.   668.28(a)(4)(i).....  Would clarify that grant funds from non-
                                                                        Federal public agencies can be counted
                                                                        as satisfying a student's tuition, fees,
                                                                        or institutional charges as long as
                                                                        those grant funds do not include Federal
                                                                        funds, unless the Federal portion of
                                                                        those grant funds can be determined. The
                                                                        portion of Federal funds must be
                                                                        included as Federal funds under this
                                                                        section. It also would clarify that
                                                                        grant funds from private sources must be
                                                                        unrelated to the institution, its
                                                                        owners, or affiliates.
Clarify revenue generated from            Sec.   668.28(a)(5)........  Would change the requirement that revenue
 institutional aid.                                                     from institutional aid ``must'' be
                                                                        included to instead say it ``may'' be
                                                                        included in order to conform with
                                                                        existing practices how institutional aid
                                                                        is included as revenue. Would delete
                                                                        outdated paragraphs that governed loans
                                                                        made before July 1, 2012.
Clarify treatment of institutional loans  Sec.   668.28(a)(5)(i).....  Would codify current practice by
 in 90/10 calculation.                                                  providing that the allowable revenue for
                                                                        purposes of 90/10 from institutional
                                                                        loans is the amount of principal
                                                                        payments made on those loans, as long as
                                                                        the loans meet the criteria established
                                                                        in current regulations.
Clarify treatment of income share         Sec.   668.28(a)(5)(ii),     Would establish guardrails that must be
 agreements (ISAs) and other financing     (iii).                       included in income share agreements or
 agreements issued by the institution or                                any other alternative financing
 related entity.                                                        agreements if the institution wants to
                                                                        include revenue from these agreements as
                                                                        non-Federal revenue for purposes of 90/
                                                                        10; only cash payments representing
                                                                        principal payments that were used to
                                                                        satisfy tuition, fees, and other
                                                                        institutional charges could be included
                                                                        as non-Federal revenue for purposes of
                                                                        90/10. Would prohibit the sales of ISAs
                                                                        or other financing agreements from being
                                                                        included as non-Federal revenue.
Clarify treatment of institutional        Sec.   668.28(a)(5)(iv)....  Would clarify that institutional
 scholarships.                                                          scholarship funds that are allowed to be
                                                                        counted as non-Federal revenue must be
                                                                        from an outside source that is unrelated
                                                                        to the institution, its owners, or
                                                                        affiliates.
Eliminate outdated regulations related    Sec.   668.28(a)(6)........  Would remove outdated regulations in
 to loans issued prior to July 1, 2011.                                 current Sec.   668.28(a)(6) governing
                                                                        revenue generated from loan funds in
                                                                        excess of loan limits prior to ECASLA.
Clarify funds excluded from revenues....  Sec.   668.28(a)(6)........  Would redesignate current Sec.
                                                                        668.28(a)(7) as Sec.   668.28(a)(6) and
                                                                        would eliminate regulations governing
                                                                        how proprietary institutions should
                                                                        account for title IV, HEA program funds
                                                                        returned to the Department that are
                                                                        subject to the ECASLA allowance in
                                                                        subpart (iv). Would add subparts (vi)
                                                                        and (vii) to exclude any amount from the
                                                                        proceeds of the factoring or sale of
                                                                        accounts receivable or institutional
                                                                        loans and any funds, including loans,
                                                                        provided by a third party related to the
                                                                        institution, its owners, or affiliates
                                                                        to a student in any form.
Modify sanctions for institutions that    Sec.   668.28(c)...........  Would require the proprietary institution
 fail the 90/10 calculation.                                            to notify students of the institution's
                                                                        possible loss of title IV eligibility
                                                                        for any fiscal year that the proprietary
                                                                        institution fails to meet the 90/10
                                                                        requirements. Would also provide that
                                                                        the proprietary institution is liable
                                                                        for any title IV, HEA program funds that
                                                                        it disburses after the fiscal year it
                                                                        becomes ineligible to participate in the
                                                                        title IV, HEA program due to failing the
                                                                        90/10 revenue requirements for 2 fiscal
                                                                        years, excluding funds the proprietary
                                                                        institution was entitled to disburse.
Establish reporting requirements........  Sec.   668.28(c)(4)........  Would require a proprietary institution
                                                                        to report no later than 45 days if it
                                                                        failed 90/10, and to report immediately
                                                                        thereafter if it obtained additional
                                                                        information indicating that it failed 90/
                                                                        10.
Modify Appendix C.......................  Sec.   668 Subpart B.......  Would revise the sample student ledger
                                                                        and steps to reflect the regulatory
                                                                        changes in Sec.   668.28 Non-Federal
                                                                        revenue (90/10).
----------------------------------------------------------------------------------------------------------------

[[Page 45473]]

 
                                               Change in Ownership
----------------------------------------------------------------------------------------------------------------
Revise key definitions..................  Sec.   600.2...............  Would clarify that an additional location
                                                                        is a physical facility separate from the
                                                                        main campus and within the same
                                                                        ownership structure of the institution;
                                                                        that branch campuses are physical
                                                                        facilities that are in the same
                                                                        ownership structure of the institution
                                                                        and that are approved by the Department
                                                                        as branch campuses; that except for an
                                                                        additional location at a correctional
                                                                        institution, for institutions that offer
                                                                        on-campus and distance education
                                                                        programs, the distance education
                                                                        programs are associated with the main
                                                                        campus; and that a main campus is the
                                                                        primary physical location where the
                                                                        institution offers programs, that is
                                                                        within the same organizational
                                                                        structure, and that is certified as the
                                                                        main campus by the accrediting agency
                                                                        and the Department.
Revise definition of a nonprofit          Sec.   600.2...............  Would clarify that nonprofit institutions
 institution.                                                           generally do not hold a revenue-sharing
                                                                        or other agreement with a former owner
                                                                        and are generally not an obligor on debt
                                                                        owed to a former owner of the
                                                                        institution.
Establish requirements for notice of      Sec.   600.20(g)...........  Would establish a requirement that an
 impending changes in ownership.                                        institution must notify the Department
                                                                        within 90 days prior to a proposed
                                                                        change in ownership. An institution
                                                                        would need to submit a completed form,
                                                                        State authorization and accrediting
                                                                        documents, and copies of financial
                                                                        statements. In addition, the institution
                                                                        would need to notify enrolled and
                                                                        prospective students of the proposed
                                                                        change in ownership at least 90 days in
                                                                        advance, as well as submit evidence that
                                                                        the disclosure was made to students.
Codify requirements for financial         Sec.   600.20(g)...........  Would establish that when the two most
 protection.                                                            recent years of financial statements are
                                                                        unavailable, the new owner would be able
                                                                        to provide financial protection of at
                                                                        least 25 percent of the institution's
                                                                        prior year volume of title IV aid (if
                                                                        both years of financial statements are
                                                                        unavailable) or at least 10 percent of
                                                                        prior year title IV volume (if one year
                                                                        is unavailable). The Department may also
                                                                        require additional financial protection
                                                                        if the Secretary deems it necessary.
Clarify requirements for a Temporary      Sec.   600.20(h)...........  Would allow the Secretary to determine
 Provisional PPA (TPPPA) following a                                    the appropriate terms for a TPPPA
 change in ownership.                                                   following a change in ownership; and
                                                                        would clarify the financial and other
                                                                        documentation requirements for
                                                                        proprietary and nonprofit institutions
                                                                        undergoing a change in ownership.
Modify reporting requirements for         Sec.   600.21(a)(6)........  Would distinguish between reportable
 changes in ownership.                                                  changes in ownership and changes of
                                                                        control between natural persons and
                                                                        legal entities. Would establish
                                                                        reportable changes in ownership occur
                                                                        when a natural person or entity acquires
                                                                        or changes at least 5 percent of
                                                                        ownership interest.
Revise definition of ownership or         Sec.   600.31(b)...........  Would modify the definition of ownership
 ownership interest.                                                    or ownership interest as a direct or
                                                                        indirect legal or beneficial interest in
                                                                        an institution or legal entity, which
                                                                        may include a voting interest or a right
                                                                        to share in the profits.
Revise definition of ``other entities''   Sec.   600.31(c)...........  Would revise the threshold for a change
 for changes in ownership.                                              in ownership resulting in a change in
                                                                        control to be at 50 percent ownership
                                                                        interest, with increased reporting
                                                                        beginning at 5 percent of a change in
                                                                        ownership, with a provision that would
                                                                        permit the Secretary to determine a
                                                                        change in control has occurred at a
                                                                        lower level of ownership interest.
Covered and excluded transactions.......  Sec.   600.31(d); Sec.       Would establish as a covered transaction
                                           600.31(e).                   the acquisition of an institution to
                                                                        become an additional location of another
                                                                        institution unless the acquired
                                                                        institution closed or ceased to provide
                                                                        educational instruction. Would establish
                                                                        as excluded transactions certain
                                                                        irrevocable or revocable trusts in which
                                                                        the trustee includes only the owner or a
                                                                        family member of the former owner, and
                                                                        certain cases of the transfer or
                                                                        ownership interests as a result of the
                                                                        death or resignation of an owner.
----------------------------------------------------------------------------------------------------------------

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as a ``major rule,'' as defined by 5 U.S.C. 804(2).
    3. Discussion of Costs and Benefits:
    3.1 Pell Grants for Confined or Incarcerated Individuals:
    In its current form, the HEA prohibits students who are 
incarcerated in a Federal or State penal institution from participating 
in the Federal Pell Grant program, which provides need-based grants to 
low-income undergraduate and certain post-baccalaureate students to 
promote access to postsecondary education. This restriction prevents 
many otherwise eligible incarcerated individuals from accessing 
financial aid and benefiting from the postsecondary education and 
training that can be crucial to their successful reentry into society 
and their communities upon the completion of their sentences. The HEA 
was amended to eliminate this restriction for students who meet the 
definition of confined or incarcerated individuals and who enroll in 
eligible PEPs. The Department is seeking to implement the statutory 
requirement to extend Federal Pell Grant eligibility to incarcerated 
students and to increase their participation in high-quality 
educational opportunities.
    Costs of the Regulatory Changes:
    The proposed regulatory changes would impose some additional costs 
on the Department, educational institutions, oversight entities, and 
accrediting agencies.
    First, adding eligible Pell Grant recipients as provided for by 
Congress would expand the costs of the Pell Grant program for the 
Federal government. The Department expects these costs to be more than 
offset by the benefits noted in the benefits section, however, 
especially in the form of lower

[[Page 45474]]

recidivism rates and increased employment opportunities. Research has 
found that the average cost to incarcerate an inmate per year totals 
more than $33,000 in the U.S.\41\ However, participation in 
correctional postsecondary education programs have been demonstrated to 
reduce recidivism by 48 percent.\42\
---------------------------------------------------------------------------

    \41\ https://www.vera.org/downloads/publications/the-price-of-prisons-2015-state-spending-trends.pdf.
    \42\ https://www.rand.org/pubs/external_publications/
EP67650.html#:~:text=Conclusion,program%20is%20to%20reduce%20recidivi
sm.
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    Second, the educational institutions offering in-prison instruction 
would face some additional costs of achieving and maintaining 
compliance with new, higher standards. Thus far, correctional education 
programs have not had to comply with the same requirements as programs 
that receive title IV and Federal Pell Grant funding, although 
institutions that participate in the Second Chance Pell experiment have 
already met some of these requirements for the programs for 
incarcerated individuals. Additional costs of meeting the higher 
standards may include the cost of seeking and obtaining approval of 
initial PEP offerings from the accrediting agency and the Secretary, as 
well as the costs of providing the data necessary for the oversight 
entity to determine whether the PEP is operating in the best interests 
of students. Correctional facilities may also face some increased costs 
related to providing appropriate facilities and resources, including 
staffing, to support the prison education program as they partner with 
higher education institutions. Both institutions and correctional 
facilities would also face increased costs associated with required 
support services for their students, including appropriate academic and 
career counseling, as well as support to help prospective students 
complete the Free Application for Federal Student Aid[supreg]. The 
Department invites the public to provide comment on the potential 
compliance costs associated with these proposed regulations for each of 
the above-mentioned stakeholders to inform the final regulations.
    Additionally, oversight entities may incur additional costs to 
oversee the development and operation of eligible PEPs. For example, as 
required by proposed Sec. Sec.  668.236 and 668.241, the oversight 
entity would be required to develop an appropriate process to approve 
PEPs and determine if they are operating in the best interest of 
students. The ``best interest'' determination would require assessment 
of several identified inputs and outcomes and would require 
collaboration with relevant stakeholders. All of these would represent 
an increase in costs for the oversight entity.
    Accrediting agencies may also face associated costs related to the 
approval of PEPs and the required site visit. However, the accrediting 
agency may, in turn, require the institution of higher education to 
cover the additional costs associated with the proposed regulations. 
This would represent a transfer of these costs from institutions to the 
accrediting agencies.
    Finally, the Department would incur some additional burden and cost 
associated with its obligation to oversee PEPs and to support oversight 
entities and institutions. For instance, the Department has offered to 
provide a significant amount of data to the oversight entities to 
assist them in making the best interest determination. The Department 
is also committed to providing needed technical assistance to the 
field. The Department estimates that the costs of systems changes to 
reflect the requirements outlined in the regulations, oversight to 
ensure institutions comply with these rules, and training support to 
provide technical assistance to the field will total approximately $1.1 
million for implementation of these proposed regulations.
    Benefits of the Regulatory Changes:
    Many of the individuals in the growing prison population have lower 
levels of educational attainment compared to the general population. 
This research finds that incarcerated adults have a postsecondary 
educational attainment level of just 15 percent, compared with nearly 
half of the general public. About two-thirds of incarcerated adults 
have a high school diploma or equivalent.\43\ This creates an 
opportunity for significant expansion of correctional education 
programs, including postsecondary educational programs, which would 
begin to address those unmet needs.
---------------------------------------------------------------------------

    \43\ Ositelu, Monique, Equipping Individuals for Life Beyond 
Bars, New America (November 2019), https://www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/.
---------------------------------------------------------------------------

    Extending Pell Grants to eligible PEPs would provide numerous 
economic and public safety benefits to incarcerated individuals, to 
their communities when they return, and to states and the Federal 
government in the form of more successful rehabilitation of imprisoned 
individuals, lower recidivism rates, higher employment rates, greater 
contribution to the economy, and ultimately cost savings for the 
government. These effects and benefits are enabled through increased 
educational attainment.
    Numerous studies have shown that providing education programs to 
incarcerated individuals is a significant factor in successful 
rehabilitation and subsequent reentry. First, research demonstrates 
that correctional education boosts self-confidence and self-worth for 
confined or incarcerated individuals, which leads confined or 
incarcerated individuals who attend college eduacation to engage in 
fewer instances of misconduct than those who did not attend.\44\ 
Postsecondary education programs in prisons also improve incarcerated 
individuals' cognitive skills, especially for individuals with learning 
disabilities, by teaching critical thinking skills, encouraging debate, 
and helping students apply course lessons to their own lives, all of 
which may help them better adjust to social values and expectations 
upon reentry.\45\ This is a critical benefit, given that an estimated 
30 to 50 percent of the adult prison population has a learning 
disability.\46\ Correctional education programs also improve literacy 
levels for the incarcerated individuals with limited past educational 
experience, which increases their post-release chances of furthering 
their studies and securing employment.\47\ One of the most critical 
benefits correctional education programs provide to incarcerated 
individuals is the development of skills necessary for post-release 
employment. Those adults who participate in postsecondary education or 
job training programs while incarcerated are more likely to have higher 
literacy and numeracy proficiency than their peers who do not 
participate in such programs, helping to close the gaps in literacy and 
numeracy skills gaps between the incarcerated population and the 
general public.\48\ A study

[[Page 45475]]

conducted by the Education Division of the Indiana Department of 
Correction (IDOC) comparing the outcomes of incarcerated individuals 
who did participate in a postsecondary education program in the 
correctional facility with those who did not found that employment 
rates--and time employed--following release was much higher for those 
who participated in the program. Their incomes were also higher.\49\
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    \44\ Lahm, K.F. (2009). Educational participation and inmate 
misconduct. Journal of Offender Rehabilitation, 48, 37-52. https://www.tandfonline.com/doi/abs/10.1080/10509670802572235.
    \45\ Vandala, N.G. (2019). The transformative effect of 
correctional education: A global perspective. Cogent Social 
Sciences, 5(1). https://doi.org/10.1080/23311886.2019.1677122.
    \46\ Koo, A., ``Correctional Education Can Make a Greater Impact 
on Recidivism by Supporting Adult Inmates with Learning 
Disabilities,'' 105 J. Crim. L. & Criminology (2015). https://scholarlycommons.law.northwestern.edu/jclc/vol105/iss1/6.
    \47\ Jones Young, N.C., & Powell, G.N. (2015). Hiring ex-
offenders: A theoretical model. Human Resource Management Review, 
25(3), 298-312. https://www.sciencedirect.com/science/article/abs/pii/S1053482214000692?via%3Dihub.
    \48\ Ositelu, Monique O. ``Equipping Individuals for Life Beyond 
Bars.'' New America, 4 Nov. 2019, https://www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/.
    \49\ Nally, J., Lockwood, S., Knutson, K., & Ho, T. (2012). An 
Evaluation of the Effect of Correctional Education Programs on Post-
Release Recidivism and Employment: An Empirical Study in Indiana. 
Journal of Correctional Education (1974-), 63(1), 69-89. http://www.jstor.org/stable/26507622.
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    In addition to the benefits provided to PEP participants, there are 
also significant public safety benefits for their communities. Over the 
last 2 decades, numerous studies have been conducted on the impact of 
prison education on post-release outcomes for previously incarcerated 
individuals.\50\ The recidivism rate, represents the rate at which 
individuals who were previously incarcerated re-offend and are re-
admitted to correctional facilities and is often used as a measure of 
success for correctional education programs. Aggregating the findings 
from 57 studies published or released between 1980 and 2017, one study 
found that confined or incarcerated individuals participating in 
correctional postsecondary education programs are 28 percent less 
likely to recidivate when compared with confined or incarcerated 
individuals who did not participate in correctional education 
programs.\51\
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    \50\ Bozick, R., Steele, J., Davis, L., & Turner, S. ``Does 
providing inmates with education improve postrelease outcomes? A 
meta-analysis of correctional education programs in the United 
States.'' J. Experimental Criminology 14, 389-428 (2018). https://doi.org/10.1007/s11292-018-9334-6.
    \51\ Ibid, 389-428.
---------------------------------------------------------------------------

    Reducing recidivism also reduces economic, public safety, and 
personal costs, and correspondingly increases benefits in those 
categories, for correctional facilities, governments, and our nation as 
a whole. Additionally, individuals who complete college courses may be 
eligible for a greater number of higher-paying jobs than those without 
a college education. Using a hypothetical pool of 100 inmates, a 2014 
RAND study illustrated the powerful economic benefit of correctional 
education programs by comparing the direct costs of such correctional 
education programs with the costs of reincarceration. The study found 
that the direct costs of reincarceration were far greater than the 
direct costs of providing correctional education. For a correctional 
education program to be cost-effective or ``break-even,'' it would need 
to reduce the 3-year reincarceration rate by between 1.9 and 2.6 
percentage points. The study's findings indicate that participation in 
correctional education programs is associated with a 13-percentage-
point reduction in the risk of reincarceration in the 3 years following 
release, demonstrating that correctional education programs appear to 
far exceed the break-even point in reducing to greatly reduce the risk 
of reincarceration.\52\
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    \52\ Davis, L.M., et al., ``How Effective Is Correctional 
Education, and Where Do We Go from Here? The Results of a 
Comprehensive Evaluation.'' Santa Monica, CA: RAND Corporation, 
2014. https://www.rand.org/pubs/research_reports/RR564.html.
---------------------------------------------------------------------------

    3.2 90/10:
    The American Rescue Plan Act of 2021 amended section 487 of the HEA 
by modifying which Federal funds proprietary institutions must count in 
the numerator when calculating the percentage of their revenue that is 
non-Federal revenue, i.e., the 90/10 calculation. The proposed 
regulations would revise Sec.  668.28 to reflect statutory requirements 
implemented in the ARP.
    Additionally, these proposed regulations modify allowable non-
Federal revenue in the 90/10 calculation to better align the 
regulations with statutory intent and address practices proprietary 
institutions have employed or may be incentivized to use to alter their 
90/10 calculation or inflate their non-Federal revenue percentage. 
Examples of such practices include: delaying disbursements to avoid 
failing 90/10 in 2 consecutive years, offering programs with little or 
no oversight or programs unnecessary to the education or training of 
students, and selling institutional loans to count the proceeds from 
the sale in their 90/10 calculation. These proposed regulations would 
also create guardrails and disclosure requirements. For instance, the 
regulations require proprietary institutions to notify students if they 
fail the 90/10 calculation in a fiscal year and may lose title IV 
eligibility after another year of failing the calculation and promote 
consumer protection measures and close potential loopholes related to 
ISAs and other alternative financing agreements. These proposed changes 
would mainly result in costs to certain proprietary institutions. 
Institutions unable to generate sufficient non-Federal revenues may 
seek to generate revenue to meet 90/10 requirements, such as by 
creating programs that are not title IV eligible, a permissible source 
of revenue under the proposed regulations. Students at proprietary 
institutions that fail the 90/10 calculation may no longer be able to 
enroll at those institutions; however, research has identified that 
most students affected by such sanctions on their colleges enroll at 
other institutions, often community colleges, which are typically lower 
cost.\53\ It is anticipated that most students, proprietary 
institutions that provide high quality programs, public and nonprofit 
institutions, taxpayers and the Department would benefit from these new 
regulations.
---------------------------------------------------------------------------

    \53\ Stephanie R. Cellini & Rajeev Darolia & Lesley J. Turner, 
2020. ``Where Do Students Go When For-Profit Colleges Lose Federal 
Aid?,'' American Economic Journal: Economic Policy, vol 12(2), pages 
46-83, http://doi.org/10.1257/pol.20180265.
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    Costs of the Regulatory Changes:
    We expect the proposed revisions to the 90/10 regulations would 
result in extra costs to the Department and to proprietary institutions 
in several areas.
    First, the proposed regulations would result in some additional 
burden and compliance costs for proprietary institutions. For example, 
proprietary institutions would be responsible for identifying and 
counting more sources of Federal funds in the 90/10 calculation, 
including Federal funds delivered directly to students, and for 
adjusting their 90/10 revenue sources and measures based upon the 
changes in the proposed regulations. Additionally, institutions may 
need to make changes to programs to align with the new regulations, 
which would result in extra compliance costs for proprietary 
institutions. The Department expects that proprietary institutions 
seeking to meet the 90/10 requirements may improve the overall quality 
of their programs to attract and enroll more students who pay for 
courses with sources other than Federal funds including by making any 
necessary changes to improve the quality and visibility of their 
programs; partner with employers willing to pay institutions with their 
own funds, ensuring alignment with labor market needs; and/or create 
programs that are not eligible for title IV, HEA funds or other Federal 
funds to generate revenue to meet the proposed 90/10 rule. Such 
ineligible programs may not have the same level of oversight and may 
result in courses and educational programs that are of lower quality 
but enable proprietary institutions to meet the proposed 90/10 
requirements. As noted in the Summary of Proposed Changes section, the 
Department is concerned that allowing institutions to count funds from 
these ineligible programs may serve as an

[[Page 45476]]

incentive for proprietary institutions to create and market low-quality 
ineligible programs, and we seek feedback about how to monitor such 
programs and how to provide flexibility to proprietary institutions to 
offer ineligible programs that provide value to students while ensuring 
that revenues from those programs are related to the institution's 
ability to prepare students for gainful employment in recognized 
occupations and are aligned with the statutory intent of the 90/10 Rule 
in the HEA.
    Second proprietary institutions that are unable to meet the 
proposed 90/10 requirements would lose eligibility for Federal aid 
after failing for two consecutive years. This may mean that some 
students have their studies disrupted, and may incur additional costs 
and burdens associated with identifying other educational opportunities 
and transferring across institutions. However, the Department believes 
that--as in other cases where institutional accountability rules were 
strengthened--students may transfer to higher-quality programs at other 
institutions, which may also be more affordable.\54\ Additionally, if 
proprietary institutions create new programs that are of lower quality 
to meet the proposed 90/10 regulations, prospective students who opt to 
enroll in such programs could also see suboptimal outcomes as compared 
with higher-quality programs they might have attended, or in some cases 
as compared with not having enrolled in the first place.
---------------------------------------------------------------------------

    \54\ Stephanie R. Cellini & Rajeev Darolia & Lesley J. Turner, 
2020. ``Where Do Students Go When For-Profit Colleges Lose Federal 
Aid?,'' American Economic Journal: Economic Policy, vol 12(2), pages 
46-83, http://doi.org/10.1257/pol.20180265.
---------------------------------------------------------------------------

    Last, the proposed regulation would include other sources of 
Federal funds in addition to title IV, HEA funds as Federal sources of 
revenue for the purposes of calculating 90/10. Rather than specifying 
all Federal funding sources in the proposed regulations, the Department 
opts to identify non-title IV, HEA Federal education assistance funds 
that must be included in the 90/10 calculation in a notice published in 
the Federal Register, with updates as needed. The Department and the 
Secretary would bear additional administrative costs arising from 
identifying these Federal funds and updating the Federal Register, but 
we expect these implementation costs would be minimal.
    Benefits of the Regulatory Changes:
    The proposed 90/10 rule would benefit multiple groups of 
stakeholders, particularly military-connected students, proprietary 
institutions that provide programs that generate greater private market 
demand, public and non-profit institutions, as well as taxpayers.
    First, military-connected students would receive the most 
significant and immediate benefits from the proposed regulations. Some 
proprietary institutions have allegedly engaged in predatory recruiting 
practices to recruit service members and veterans because their GI Bill 
and DOD Tuition Assistance education benefits could help the 
institution meet the non-Federal revenue requirements in the current 
90/10 regulations.\55\ The amendment in the ARP aimed to address this 
concern. Approximately 33 institutions would have failed the 90/10 rate 
in 2018-19 if DOD and VA dollars were included, and 17 would have 
failed for two years in 2019-20, risking eligibility; the vast majority 
(about 1,600) would have passed in both years. Under the proposed rule, 
proprietary institutions at risk of failing the calculation would no 
longer have an incentive to aggressively target GI Bill and DOD Tuition 
Assistance recipients because these programs would be counted as 
Federal funds for purposes of 90/10. This proposed revision would also 
provide service members and veterans greater opportunity to consider 
enrollment options at colleges that are higher quality and more 
affordable without undue influence or aggressive recruiting from 
proprietary institutions.
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    \55\ See, for example, https://www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html; https://www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf; https://www.chronicle.com/article/for-profit-college-marketer-settles-allegations-of-preying-on-veterans/; 
https://www.insidehighered.com/quicktakes/2015/10/09/defense-department-puts-u-phoenix-probation; https://oag.ca.gov/news/press-releases/attorney-general-becerra-announces-settlement-itt-tech-lender-illegal-student; and https://files.eric.ed.gov/fulltext/ED614219.pdf.
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    Students who are considering enrolling in proprietary institutions 
would also benefit from other potential loopholes that we are proposing 
to close. For example, proprietary institutions would not be able to 
hide their inability to receive revenue from sources other than Federal 
education funding if they are not permitted to count revenue sources 
from certain types of ineligible programs or to delay disbursements to 
avoid losing eligibility following a failure of the 90/10 calculation 
during the fiscal year. Like service members and veterans, all such 
students would also face fewer informational barriers in identifying 
enrollment options at colleges that are higher quality and more 
affordable, with fewer failing programs enrolling students using title 
IV, HEA aid.
    Next, the proposed regulations would decrease proprietary 
institutions' incentive to rely on potentially costly student financing 
options to meet 90/10 requirements. Some of these student financing 
options may be harmful to students and result in debt that students 
cannot pay, such as expensive institutional loans or ISAs. In cases 
where students do rely on an ISA or alternative financing agreement 
provided by the institution or a related party, and the proprietary 
institution wishes to count payments from these arrangements in its 90/
10 calculation, the proposed regulations would require that the terms 
of the agreement be transparent and that the interest rate not be 
higher than a comparable Direct Unsubsidized Loan to reduce the risk 
that the balance balloons beyond what the student can afford to repay. 
This would provide additional protections for students accessing these 
alternative financing arrangements by increasing transparency about the 
terms of the arrangement and, in some cases, resulting in better terms 
offered by the institution, while ensuring minimum standards for the 
revenue types counted in the 90/10 calculation.
    Lastly, there is a benefit to students and taxpayers by more 
closely aligning allowable non-Federal revenue with the statutory 
intent of the HEA requiring that institutions demonstrate a willing 
market beyond taxpayer-financed Federal education assistance by 
requiring proprietary institutions to bring in at least 10 percent of 
their revenue from non-Federal sources, such as tuition revenue. 
Federal funds that go to institutions unable to obtain at least 10 
percent of their revenue from non-Federal sources are expected to 
decrease modestly, as institutions that could not meet the proposed 90/
10 rule lose eligibility for title IV, HEA funds. These proprietary 
institutions would then need to operate without access to title IV, HEA 
financial dollars provided by taxpayers; identify and enroll students 
who pay with sources other than Federal funds, including by making any 
necessary changes to improve the quality and visibility of their 
programs; or partner with employers willing to pay institutions with 
their own funds, ensuring alignment with labor market needs and 
reducing the reliance on taxpayer dollars.
    3.3 Change in Ownership:
    With the growing complexity of the landscape of changes in 
ownership in recent years, the Department is proposing to ensure a 
clearer, more streamlined process for CIOs that

[[Page 45477]]

ensures compliance with the HEA and related regulations. Among the 
riskiest of those transactions for students and taxpayers are 
conversions from proprietary status. There have been 59 conversions to 
nonprofit status, involving 20 separate transactions, between 2011 and 
2020.\56\ Of these, three-fourths were sold to an entity that had not 
previously operated an institution of higher education; and one entire 
chain (including 13 institutions) closed before the Department was even 
able to make a determination about the request for the conversion.
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    \56\ Government Accountability Office, (GAO), Higher Education, 
IRS and Education Could Better Address Risks Associated with Some 
For-Profit College Conversions, December 2020. https://www.gao.gov/products/gao-21-89.
---------------------------------------------------------------------------

    A full, comprehensive CIO review is a significant administrative 
burden to both the Department and institution, which can take between 7 
months and 1 year, on average, for a change in ownership that includes 
a conversion, and 6 months for a change in ownership that does not. 
Some institutions close transactions but are unprepared to meet the 
regulatory requirements for a change of ownership, resulting in 
burdening the Department with emergency situations where there is a 
potential loss of institutional eligibility and precipitous closure. 
The proposed regulations would seek to reduce that risk by ensuring 
adequate notice is given prior to the closing of a transaction so that 
the Department can ensure that the institution can meet the regulatory 
requirements under the time constraints of 600.20(g) and (h), and in 
particular, that the Department can determine whether a letter of 
credit is required because the new owner does not have acceptable 
audited financial statements to meet the requirements of 
600.20(g)(3)(iv); clarifying the requirements for approval of a change 
in ownership application; and establishing appropriate documentation 
requirements in the regulations.
    The Department proposes to clarify definitions related to distance 
education and campus locations such as the main campus, branch campus, 
and additional locations. In recent years, educational institutions 
often operate beyond a single location. Distance education, in 
particular, has significantly expanded and become increasingly popular 
in recent years, and higher education institutions that have adapted to 
meet distance education requirements throughout COVID-19 are often 
choosing to continue those educational offerings.\57\
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    \57\ Ewing, L.--National Council for State Authorization 
Reciprocity Agreements. (October 20, 2021). NC-SARA Institution 
Survey: Perspectives on the Pandemic. https://nc-sara.org/sites/default/files/files/2021-10/Perspectives_PUBLISH_18Oct2021.pdf; and 
Ewing, L.-A. (2020). Rethinking Higher Education Post COVID-19: 
Asian University Leaders' Perspectives. In Han, H.S., & Lee, J. 
(eds.), COVID-19 and the Future of the Service Industry Post-
Pandemic: Insights and Resources. Singapore: Springer.
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    Costs of the Regulatory Changes:
    Costs associated with this proposed rule primarily relate to 
increased burden for institutions from provisions that would enhance 
the Department's review of institutional changes in ownership and their 
participation in the Federal aid programs, provide for increased 
oversight of proprietary institutions seeking to convert to nonprofit 
status, and increase reporting requirements for CIOs.
    Some provisions of the proposed rules could be implemented without 
additional burden to affected institutions. For instance, institutions 
would not need to expend additional resources to meet the requirement 
to submit a basic notice to the Department at least 90 days in advance 
of the transaction, since the same information would be required under 
current regulations--just earlier. Instead, the Department believes 
that providing earlier notice would enable us to provide faster 
determinations related to any potential letter of credit requirement, 
and to avoid losses of eligibility for institutions failing to meet the 
requirements of 600.20(g) and (h) immediately after the transaction, as 
required by regulations. Other aspects of the proposed regulations 
simplify and codify existing practice by the Department, which would 
not increase burden to the institution relative to that current 
practice.
    However, other provisions of the proposed regulations could require 
institutions undergoing CIOs after the rules take effect to meet new 
requirements and submit additional documentation to meet the 
Department's requirements. For instance, institutions would be required 
to provide notice to their students of a forthcoming CIO at least 90 
days in advance, requiring the development of communications and 
resources for students. The Department proposes to lower the reporting 
threshold for changes in ownership to cover all changes of at least 5 
percent ownership interest. A greater number of institutions would need 
to meet these proposed reporting requirements, which would carry some 
cost for affected institutions, since the Department currently requires 
transactions to be reported only if the transaction affects at least a 
25 percent ownership interest. However, the Department also proposed to 
limit reviews of changes in control, which are more burdensome for the 
institution, generally to those involving a transfer of at least 50 
percent control, rather than the current 25 percent. The Department 
believes that this would provide additional transparency benefits to 
the Department, while reducing the burden of institutions where a 
change in control likely has not occurred from more onerous changes in 
control reviews, which we believe would outweigh the expense from the 
increased burden of additional reporting. The Department anticipates 
the reporting burden cost range will be minimal. Additionally, any 
costs from these proposed rules would only be associated with those 
institutions undergoing a CIO, which are relatively uncommon. The 
Department anticipates that the administrative costs to the agency of 
implementing these changes would be very limited, given the relatively 
small number of such transactions and the fact that many of these 
requirements confirm current practice.
    Benefits of the Regulatory Changes:
    The Department believes that the benefits and burden reduction that 
would result from these proposed regulations would outweigh these new 
costs. The Department anticipates the proposed regulations would 
significantly benefit students, taxpayers, institutions, and the 
Department.
    Students, taxpayers, institutions, and the Department would all 
benefit from increased oversight of proprietary institutions converting 
to nonprofit status. Historically, these transactions have proven to be 
a significant risk, resulting in some cases in college closures (and 
associated closed school discharges), requiring the investment of 
enforcement and oversight resources by States and the Federal 
government, and exempting some institutions from regulations governing 
proprietary institutions--such as the 90/10 rule--improperly. Students, 
taxpayers, and the Department would all benefit from increased 
transparency around a proposed transaction, providing more time for the 
Department to conduct oversight and ensure the transaction is properly 
conducted and does not result in an interruption of title IV, HEA 
benefits. Institutions would also benefit from an earlier submission 
that allows the Department to provide feedback on the proposed 
transaction before it occurs, since such feedback--for example, 
regarding whether a letter of credit will be required as part of the 
transaction--can be critical to ensuring

[[Page 45478]]

the institution's compliance with Federal rules.
    Students and taxpayers would also benefit from greater assurances 
that schools are complying with regulatory requirements in CIO 
transactions and meeting the definition of a nonprofit institution. 
Current and prospective students would benefit from the requirement 
that the institution provide notice at least 90 days prior to a change 
in ownership because the requirement would ensure that students receive 
important information that would impact their education in a timely 
manner, and that they are able to make future education decisions 
(including obtaining copies of their transcripts) based on that 
knowledge. Students and taxpayers would also benefit from increased 
oversight of proprietary institutions converting to nonprofit status, 
including requiring that proprietary institutions continue to comply 
with regulatory requirements such as gainful employment or the 90/10 
rule unless and until they have met the requirements to be approved as 
a nonprofit institution by the Department. Taxpayers benefit from 
additional financial protection when the required audited financial 
statements of a new owner are not available (consistent with current 
practice), as well as from any additional financial protections that 
may be deemed necessary by the Secretary pursuant to the risk of the 
transaction.
    Educational institutions would benefit from clearer requirements in 
the regulations as to how the rules apply to CIO transactions. The 
revised definition of nonprofit institutions would ensure that 
institutions seeking such a designation are not using business 
arrangements that improperly benefit related parties. This 
clarification would better ensure that institutions know how to comply, 
and are compliant, with the Department's expectations.
    The proposed regulations would also enable a proprietary 
institution that seeks to convert to nonprofit status to more clearly 
understand, prior to submitting a CIO application, the CIO process and 
how the Department would review CIO applications. As these institutions 
assess potential transactions, they would more easily be able to 
identify permissible and impermissible contracts and agreements with 
prior owners. The streamlined process and 90-day advanced notice would 
also benefit institutions by ensuring that their audited financial 
statements can be reviewed to determine whether a letter of credit is 
required prior to the transaction closing. This would also provide 
notice that the Department may require additional financial surety to 
ameliorate financial or administrative risk that the institution may 
present to taxpayers on a case-by-case basis.
    The Department would also benefit from clearer regulations and 
processes that are more easily interpreted and applied. Clearer 
definitions related to distance learning, as well as main campuses, 
branch campuses, and additional locations, would simplify and reduce 
the Department's reviews of institutions and of change in ownership 
transactions by ensuring greater consistency. The Department would also 
benefit from the clarifications made to reporting requirements, as 
lowering the threshold to 5 percent will increase transparency and 
enable more stringent oversight of changes in control. This greater 
visibility into voting blocs and lower-level ownership changes will 
enable the Department to determine where institutions may have 
undergone a change in control, warranting greater scrutiny by the 
Department, and to prevent institutions from evading our regulations 
through corporate changes that skirt the threshold for an automatic 
change in control review. These CIOs do not occur often, limiting the 
frequency of added burden from the reporting. The Department would also 
experience less burden from the proposed change to set the threshold 
for a change in control review at a 50 percent or greater change in 
ownership and control or where the Department has reason to believe a 
change in control has occurred, rather than all changes in ownership 
over 25 percent.
    4. Net Budget Impacts:
    These proposed regulations are estimated to have a net Federal 
budget impact in savings of $-44.3 million for loan cohorts 2025 to 
2032, and $879 million in net changes to Pell Grants. A cohort reflects 
all loans originated in a given fiscal year. 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.
    The provisions most responsible for the costs of the proposed 
regulations are in providing Pell Grants for confined or incarcerated 
individuals in qualifying prison education programs. The Department 
does not anticipate significant costs related to the change in 
ownership provisions; and anticipates a small savings due to the 90/10 
provisions. The specific costs for each provision are described in the 
following subsections covering the relevant topics.

Pell Grants for Confined or Incarcerated Individuals

    The proposed revisions to the Pell Grants for confined or 
incarcerated individuals provisions are expected to increase 
educational opportunities for confined or incarcerated students, as 
provided for by Congress, while maintaining appropriate guidelines for 
program quality and requiring reporting for tracking the extent and 
performance of these programs.
    To estimate the potential increase in Pell Grant awards related to 
these changes, the Department assumed based on current figures and 
previous experience with Pell Grant availability for incarcerated 
individuals that 2 percent of the incarcerated population of 
approximately 1.6 million individuals will participate in eligible 
PEPs. The size of the incarcerated population fluctuates and there are 
differing estimates of the number of incarcerated individuals, which is 
also affected by the pandemic. For example, the Department of Justice's 
Bureau of Justice Statistics estimates a population of 1.4 million as 
of year-end 2019 with a decline to 1.2 million as of year-end 2020,\58\ 
while the Vera Institute of Justice estimates there are 1.8 million in 
prisons and jails as of mid-2020 and 1.77 million as of mid-2021.\59\ 
Given the uncertainty, the Department chose 1.6 million as a midpoint 
between estimates. Due to enrollment intensity constraints, 
incarcerated Pell recipients are unlikely to receive the maximum grant 
available. Based on experience from the Second Chance Pell experiment, 
where average awards were nearly 60 percent of the maximum award, the 
average award used to develop the estimate was prorated to 
approximately $3,800 in the first year, generating the estimated costs 
in Table 1.
---------------------------------------------------------------------------

    \58\ Bureau of Justice Statistics, Prisoners in 2020--
Statistical Tables, December 2021 available at Prisoners in 2020--
Statistical Tables (ojp.gov.)
    \59\ Vera Institute of Justice, People in Jail and Prison, 
Spring 2021, available at https://www.vera.org/downloads/publications/people-in-jail-and-prison-in-spring-2021.pdf.

[[Page 45479]]



                                                          Table 1--Estimated Cost of PEPs \60\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Cost of Expanding Pell Eligibility to Incarcerated Students (PB23 Assumptions)
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            AY 2023-24      AY 2024-25      AY 2025-26      AY 2026-27      AY 2027-28      AY 2028-29
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discretionary Program Cost..............................              96             100             101             101             102             103
Mandatory Program Cost..................................              23              22              22              22              22              23
                                                         -----------------------------------------------------------------------------------------------
    Total Program Cost..................................             119             122             123             123             124             126
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 FY 2023         FY 2024         FY 2025         FY 2026         FY 2027         FY 2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discretionary Outlays...................................              32              63              99             101             101             102
Mandatory Outlays.......................................              11              23              22              22              22              22
                                                         -----------------------------------------------------------------------------------------------
    Total Outlays.......................................              43              86             121             123             123             124
--------------------------------------------------------------------------------------------------------------------------------------------------------


 
                                    AY 2029-30      AY 2030-31      AY 2031-32      AY 2032-33     10-year total
----------------------------------------------------------------------------------------------------------------
Discretionary Program Cost......             104             104             105             104           1,020
Mandatory Program Cost..........              23              23              23              23             226
                                 -------------------------------------------------------------------------------
    Total Program Cost..........             127             127             128             127           1,246
----------------------------------------------------------------------------------------------------------------
                                         FY 2029         FY 2030         FY 2031         FY 2032   10-year total
----------------------------------------------------------------------------------------------------------------
Discretionary Outlays...........             103             104             104             104             913
Mandatory Outlays...............              23              23              23              23             214
                                 -------------------------------------------------------------------------------
    Total Outlays...............             126             127             127             127           1,127
----------------------------------------------------------------------------------------------------------------

    Based on these assumptions, the estimated cost of the Pell Grants 
for confined or incarcerated individuals provisions is approximately 
$1.1 billion over 10 years. This amount of Pell Grants awarded from 
these changes will depend heavily on the institutions that choose to 
participate and the number of students that they enroll. Another factor 
that will affect the increase in transfers is how quickly institutions 
begin to offer these programs using Pell Grants. We assume a fast roll-
out since these changes have been known for several years before the 
proposed regulations take effect, but the ramp-up could be more 
gradual, shifting the timing back and reducing the overall number of 
additional transfers. The Department welcomes comments on the 
assumptions used for this estimate--particularly related to how quickly 
programs will obtain approval as qualifying prison education programs, 
how many students will enroll, and whether the average award will 
differ from programs under the Second Chance Pell experiment--and will 
consider them in development of cost estimates for the final rule.
---------------------------------------------------------------------------

    \60\ The Federal Pell Grant program has discretionary costs 
associated with the maximum award set in the annual appropriation 
and mandatory costs associated with the additional award amount 
determined by statute. These changes affect both mandatory and 
discretionary costs.
---------------------------------------------------------------------------

90/10 Rule

    To help estimate the effect of the proposed changes, the Department 
analyzed information about additional Federal aid received by 
institutions subject to the 90/10 requirements and found that an 
additional 92 institutions with $524.8 million in Pell grants and $1.09 
billion in loan volume in AY 2019-20 would be above the 90 percent 
threshold, and 49 institutions would be above the 90 percent threshold 
for both 2018-19 and 2019-20, risking eligibility.
    However, the Department recognizes that institutions have 
historically managed to meet the 90/10 threshold in order to operate, 
and we expect the majority would be able to adapt to the new 
requirements. Additionally, students would still qualify for similar 
levels of aid even if they choose to attend a different institution or 
shift sectors. Therefore, we do not expect a 100 percent loss of volume 
and aid awarded. The proposed change to include additional types of 
Federal aid in the 90/10 calculation are estimated to decrease Pell 
Grants awarded by -$248 million from AY2024-24 25 to AY2032-33 and have 
a net budget impact of $-44.3 million from reduced loan volumes for 
cohorts 2025-2032.
    The following tables demonstrate the expected change in Pell Grants 
awarded and loan volumes that resulted in the estimated net budget 
impact of $-292 million. Our estimates are based on institutional data, 
including Post-9/11 GI Bill benefits and DOD Tuition Assistance 
programs. They do not account for funds that go directly to students to 
cover tuition, fees, or other institutional charges, and they do not 
include other sources of Federal funds disbursed by state or local 
entities. The Department welcomes feedback on how to account for these 
funds.
    To estimate the reduction in volume related to the change in the 
90/10 regulations, the Department assumed that institutions with a 
revised 90/10 rate over 95 percent would not be able to reduce their 
rate below 90. While institutions in the 2018-19 and 2019-20 90/10 
files used for this revised estimate did not have the same motivations 
that would exist under the proposed regulations because the 90/10 
calculation was different for them than it would be under the proposed 
regulations, no institution with a 90/10 rate above 95 in the first 
year was under 90 in the second year in the Department's analysis. 
Seventeen institutions with $94.9 million in Pell Grants and $194.1 
million in loans were above the 95 percent rate, representing between 
0.2 percent to 3.3 percent of proprietary volume depending on level and 
Grant or loan type. Student choice would affect the potential reduction 
as well as they would be eligible to receive similar title IV amounts 
in attending a different institution. For this estimate, we assume that 
60 percent of students would pursue their education elsewhere if their 
initial choice were not available

[[Page 45480]]

as a result of the proposed changes to the 90/10 regulations. Finally, 
we anticipate that the reduction in volume will decrease over the years 
as institutions over the threshold no longer participate and others 
adapt to the new threshold. To account for this, we reduced the 
percentage applied to the Pell Grant and loan volume by 30 percent in 
2027-28 and 2028-29, 40 percent in 2029-30 and 2030-31, and 50 percent 
in 2031-32 and 2032-33. Table 2 shows the effect on Pell Grants of the 
proposed changes.

                                                        Table 2--Estimated Effect on Pell Grants
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            AY 2023-24      AY 2024-25      AY 2025-26      AY 2026-27      AY 2027-28      AY 2028-29
--------------------------------------------------------------------------------------------------------------------------------------------------------
PB23 Baseline Total Cost................................          29,652          33,251          33,795          34,349          34,928          36,631
% over 95 with 60% student adj..........................  ..............          0.000%          0.134%          0.134%          0.094%          0.094%
Total Policy Cost.......................................  ..............  ..............            (45)            (46)            (33)            (34)
Discretionary Policy Cost...............................  ..............  ..............            (38)            (38)            (27)            (29)
Mandatory Policy Cost...................................  ..............  ..............             (8)             (8)             (6)             (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 FY 2023         FY 2024         FY 2025         FY 2026         FY 2027         FY 2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discretionary Outlays...................................  ..............  ..............            (13)            (24)            (34)            (32)
Mandatory Outlays.......................................  ..............  ..............             (4)             (8)             (7)             (6)
                                                         -----------------------------------------------------------------------------------------------
    Total Outlays.......................................  ..............  ..............            (17)            (32)            (41)            (38)
--------------------------------------------------------------------------------------------------------------------------------------------------------


 
                                     AY2029-30       AY2030-31      AY 2031-32      AY 2032-33     10-Year Total
----------------------------------------------------------------------------------------------------------------
PB23 Baseline Total Cost........          37,202          37,810          38,450          38,931         354,999
% over 95 with 60% student adj..          0.080%          0.080%          0.067%          0.067%  ..............
Total Policy Cost...............            (30)            (30)            (26)            (26)           (271)
Discretionary Policy Cost.......            (25)            (25)            (21)            (22)           (225)
Mandatory Policy Cost...........             (5)             (5)             (4)             (4)            (46)
----------------------------------------------------------------------------------------------------------------
                                         FY 2029         FY 2030         FY 2031         FY 2032   10-Year Total
----------------------------------------------------------------------------------------------------------------
Discretionary Outlays...........            (27)            (26)            (24)            (23)           (203)
Mandatory Outlays...............             (6)             (5)             (5)             (4)            (45)
    Total Outlays...............            (33)            (31)            (29)            (27)           (248)
----------------------------------------------------------------------------------------------------------------

    The reduction in loan volume was processed as a reduction in the 
baseline volumes by loan type and risk group. In assigning the volume 
associated with 4-year programs to a risk group, we assumed 66 percent 
would be in the 4-year first year/sophomore risk group and 34 percent 
to the 4-year junior/senior risk group. Application of the adjustment 
factors shown in Table 3 resulted in the $-44.32 million loan estimate 
shown in Table 4.

                                     Table 3--Loan Volume Adjustment Factors
----------------------------------------------------------------------------------------------------------------
                  Cohort Range                      2025-2026 %     2027-2028 %     2029-2030 %     2031-2032 %
----------------------------------------------------------------------------------------------------------------
2-year proprietary:
    Subsidized..................................           0.645           0.452           0.387           0.323
    Unsubsidized................................           0.632           0.443           0.379           0.316
    PLUS........................................           0.265           0.185           0.159           0.132
4-year FR/SO:                                     ..............  ..............  ..............  ..............
    Subsidized..................................           0.112           0.078           0.067           0.056
    Unsubsidized................................           0.144           0.101           0.086           0.072
    PLUS........................................           0.004           0.002           0.002           0.002
4-year JR/SR:                                     ..............  ..............  ..............  ..............
    Subsidized..................................           0.112           0.078           0.067           0.056
    Unsubsidized................................           0.144           0.101           0.086           0.072
    PLUS........................................           0.004           0.002           0.002           0.002
GRAD:                                             ..............  ..............  ..............  ..............
    Unsubsidized................................           0.075           0.053           0.045           0.038
    Grad Plus...................................           0.008           0.005           0.005           0.004
----------------------------------------------------------------------------------------------------------------


                                                        Table 4--Estimated 90/10 Effect on Loans
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      $ millions                          2025       2026       2027       2028       2029       2030       2031       2032      Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subsidized...........................................      -2.35      -3.18      -2.63      -2.50      -2.28      -2.21      -1.96      -1.89     -18.99
Unsubsidized.........................................      -2.58      -4.31      -3.76      -3.60      -3.30      -3.15      -2.81      -2.72     -26.22
PLUS.................................................       0.13       0.18       0.13       0.11       0.10       0.09       0.08       0.08       0.90
                                                      --------------------------------------------------------------------------------------------------
    Total............................................      -4.79      -7.31      -6.26      -5.99      -5.48      -5.26      -4.69      -4.54     -44.32
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 45481]]

    These reductions in transfers depend on institutional and student 
responses that are uncertain. Students' decision to continue their 
education would depend on the availability of programs of interest at 
other institutions that fit their commuting or other constraints. Fewer 
institutions may be able to get their rate below 90 or more students 
may decide not to pursue their education if the institution they would 
have chosen is not available. Both of those scenarios would further 
reduce Pell Grant and loan transfers. For example, if the 49 
institutions with revised rates above 90 in both years were assumed to 
not be able to get below the threshold, the estimated savings in Pell 
would be -$521 million and in loans -$84 million for a total of $605 
million in reduced transfers to students. The mix of institutions and 
the volume they represent means the assumption about what rate or which 
institutions could adapt and get below the threshold does have a 
significant effect on the net budget impact.

Change in Ownership

    The proposed regulations would provide greater clarity about the 
definition of additional locations and branch campuses for clearer 
reporting and clarity of ownership structures within postsecondary 
education. The proposed rules would also increase reporting to ensure 
greater transparency into change in ownership transactions and 
strengthen the Department's review of changes in control. Increased 
oversight of changes in ownership and proposed provisions related to 
the definition of a nonprofit institution may affect the distribution 
of title IV aid across sectors, including by approving requested 
conversions from for-profit status to non-profit status only when 
institutions have met the requirements of a nonprofit institution, and 
some students' choice of institution may be affected. However, the 
Department does not expect a significant cost from the change in 
ownership provisions and would not estimate one without additional data 
demonstrating a clear effect.
    5. Accounting Statement:
    As required by OMB Circular A-4, 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 annual monetized transfers as a result of 
these proposed regulations. Expenditures are classified as transfers 
from the Federal government to affected student loan borrowers.

 Table 5--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
            Category                             Benefits
------------------------------------------------------------------------
Increased access to educational  Not quantified.
 opportunities for incarcerated
 individuals.
Improved information about       Not quantified.
 changes in ownership.
------------------------------------------------------------------------


 
 
------------------------------------------------------------------------
                Category                               Costs
------------------------------------------------------------------------
                                                      7%              3%
Costs of compliance with paperwork                  $3.4            $3.4
 requirements...........................
Increased administrative costs to                  $11.1           $11.1
 Federal government to update systems to
 implement the proposed regulations.....
------------------------------------------------------------------------
                Category                             Transfers
------------------------------------------------------------------------
                                                      7%              3%
Reduced Pell Grants and loan transfers            $-27.1          $-28.3
 to students as some institutions lose
 eligibility from revised 90/10.........
Increased Pell Grant transfers to                   $109            $111
 institutions providing educational
 opportunities to incarcerated
 individuals............................
------------------------------------------------------------------------

    6. Alternatives Considered:
    As part of the development of these proposed regulations, the 
Department engaged in a negotiated rulemaking process in which we 
received comments and proposals from non-Federal negotiators 
representing numerous impacted constituencies. These included higher 
education institutions, consumer advocates, students, financial aid 
administrators, accrediting agencies, and State attorneys general. Non-
Federal negotiators submitted a variety of proposals relating to the 
issues under discussion. Information about these proposals is available 
on our negotiated rulemaking website at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
    6.1. Pell Grants for Confined or Incarcerated Individuals:
    The Department considered establishing only implementing 
regulations that restated the requirements in the statute. We were 
concerned, however, that because the requirements were new to 
institutions, oversight entities, and other stakeholders, the field 
would benefit from greater clarity and technicality in the regulations. 
As a result, we opted to negotiate on the specific requirements in the 
regulations and were pleased to reach consensus on those items.
    With regard to an oversight entity's holistic determination that a 
PEP is operating in the best interest of students, the Department 
considered a variety of metrics, both within the statute and those more 
widely used within the higher education system. We decided that the 
list on which the negotiators reached consensus appropriately balanced 
the high-quality data that are available to programs and oversight 
entities, measures of program success used throughout higher education, 
and the statutory requirements for such a determination. The Department 
also considered making use of the ``best determination'' metrics 
voluntary, or allowing oversight entities additional discretion as to 
which metrics they consider, but we determined that making the bulk of 
the metrics mandatory would establish consistency across states, ensure 
oversight entities' consideration of relevant information and 
benchmarks, and provide enough information for the Department to 
determine whether an oversight entity's process was sufficient.
    The Department also considered allowing the PEPs to enroll students 
in eligible prison education programs that lead to occupations that 
typically involve prohibitions on licensure and employment for formerly 
incarcerated individuals, if the affected individuals attest that they 
are aware of the restrictions. We are concerned, however, that such 
programs would not

[[Page 45482]]

generally be the most productive use of students' limited Pell Grant 
eligibility or time, or of taxpayer dollars. While we acknowledge that 
some individuals may be able to meet such restrictive licensure 
requirements, if the typical student in such a program would not be 
able to find employment or obtain licensure, we are concerned that 
students may enroll in programs that exhaust their Pell Grant lifetime 
eligibility before they are able to complete a credential that would 
allow them to earn a job in the field. The Department is aware that 
many states have engaged in efforts to reduce barriers to employment 
for formerly incarcerated individuals, which we strongly encourage. Our 
proposed language ensures that institutions must regularly re-review 
these requirements to ensure they keep up with any such changes and 
make potential students aware.
    6.2. 90/10 Rule:
    To address the statutory changes in the ARP, the Department 
considered including only DOD and Department of Veteran Affairs (VA) 
funds as additional Federal funds considered for 90/10 calculations, 
since these are the two largest programs with data that demonstrates a 
significant amount of funds flow to some proprietary institutions 
outside of title IV, HEA funds, and because military-connected students 
have been targeted by some proprietary institutions in the past. The 
Department also considered including other large sources of Federal 
funds, such as funds authorized under the Workforce Innovation and 
Opportunity Act of 2014 (WIOA) but excluding smaller sources. However, 
the Department determined that its proposal would include all Federal 
education assistance programs, with the exception of funds that go 
directly to students to cover costs outside of tuition, fees, and other 
institutional charges, because Federal appropriations for education 
assistance programs and disbursements to institutions may change from 
year to year, and the Department does not want to inadvertently create 
a new loophole where proprietary institutions identify a large source 
of Federal funds and target students that receive this source of 
funding, such as WIOA. The broader inclusion is also consistent with 
the statutory language in the ARP, which refers to ``Federal education 
assistance funds.''
    The Department considered including only Federal funds that go 
directly to proprietary institutions, as it may be difficult for 
proprietary institutions to obtain timely information about funds that 
go directly to students, especially if a student needs to pay back an 
agency for funds received due to dropping a class, enrollment intensity 
decreasing, or other reasons. The Department also considered including 
all student funds, including those earmarked for purposes other than 
tuition and fees, such as housing. However, to be consistent with the 
statutory language in the ARP and HEA, the Department decided to 
include funds that go directly to students. The Department did not 
include funds that go directly to students that are earmarked for 
purposes other than tuition, fees, and other institutional charges 
because this funding does not apply to institutional charges, as 
required by the HEA.
    The Department considered listing all Federal educational 
assistance programs in the proposed regulations. However, these 
programs and institutional eligibility may change over time, so the 
Department instead decided to identify sources of funds that are to be 
included in a Federal Register notice, which gives greater flexibility 
to account for changes over time and can be updated as needed.
    6.3. Change in Ownership:
    The Department considered establishing a definition of nonprofit 
institutions that closed off all revenue-based or other agreements with 
a former owner, as opposed to just those that exceed reasonable market 
value. However, we determined that there could be appropriate 
agreements with a former owner that our language would preclude. We 
invite feedback from stakeholders on this question in the public 
comment period.
    The Department considered maintaining the current definitions that 
require ED to evaluate whether there has been a change of control at 25 
percent of a change in ownership interest, rather than the proposed 50 
percent. However, in general we have found that control is much more 
common at 50 percent and that control below 50 percent is relatively 
rare. To accommodate concerns that institutions might begin to 
establish changes of control at, for example, 49 percent to evade the 
regulations, we propose to lower the threshold for reporting changes in 
ownership to 5 percent from 25 percent and propose to retain discretion 
for the Secretary to review and determine a change of control based on 
information available to the Secretary. While the Department also 
considered requiring reporting of all changes in ownership at any 
level, we instead proposed 5 percent to avoid unnecessary reporting on 
extremely minor changes and to limit inappropriate burden on 
institutions.
    The Department considered whether to maintain the provision that 
requires the Secretary to continue an institution's participation after 
a CIO with the same terms and conditions as it held in its 
participation before the CIO. However, we are concerned that such terms 
may not adequately account for the added risk the institution may 
present to students and taxpayers as a result of the transaction. Based 
on past review of CIO applications by the Department, we are aware of 
numerous cases in which the transaction fundamentally altered the 
operations of the institution. We believe that additional conditions 
and new terms are more appropriate for institutions undergoing a CIO 
and are accordingly proposing language that allows the Department to 
establish such appropriate terms.
    7. Regulatory Flexibility Act:
    The Secretary certifies, under the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), that this proposed regulatory action would not 
have a significant economic impact on a substantial number of ``small 
entities.''
    The Small Business Administration (SBA) defines ``small 
institution'' using data on revenue, market dominance, tax filing 
status, governing body, and population. The majority of entities to 
which the Office of Postsecondary Education's (OPE) regulations apply 
are postsecondary institutions, however, which do not report such data 
to the Department. As a result, for purposes of this NPRM, the 
Department proposes to continue defining ``small entities'' by 
reference to enrollment, to allow meaningful comparison of regulatory 
impact across all types of higher education institutions.\61\
---------------------------------------------------------------------------

    \61\ In previous regulations, the Department categorized small 
businesses based on tax status. Those regulations defined ``non-
profit organizations'' as ``small organizations'' if they were 
independently owned and operated and not dominant in their field of 
operation, or as ``small entities'' if they were institutions 
controlled by governmental entities with populations below 50,000. 
Those definitions resulted in the categorization of all private 
nonprofit organization as small and no public institutions as small. 
Under the previous definition, proprietary institutions were 
considered small if they are independently owned and operated and 
not dominant in their field of operation with total annual revenue 
below $7,000,000. Using FY 2017 IPEDs finance data for proprietary 
institutions, 50 percent of 4-year and 90 percent of 2-year or less 
proprietary institutions would be considered small. By contrast, an 
enrollment-based definition applies the same metric to all types of 
institutions, allowing consistent comparison across all types.

[[Page 45483]]



                          Table 6--Small Institutions Under Enrollment-Based Definition
----------------------------------------------------------------------------------------------------------------
                 Level                            Type                 Small           Total          Percent
----------------------------------------------------------------------------------------------------------------
2-year................................  Public..................             328            1182           27.75
2-year................................  Private.................             182             199           91.46
2-year................................  Proprietary.............            1777            1952           91.03
4-year................................  Public..................              56             747            7.50
4-year................................  Private.................             789            1602           49.25
4-year................................  Proprietary.............             249             331           75.23
                                                                 -----------------------------------------------
    Total.............................  ........................            3381            6013           56.23
----------------------------------------------------------------------------------------------------------------
 Source: 2018-19 data reported to the Department.

    Table 7 summarizes the number of institutions affected by these 
proposed regulations.

 Table 7--Estimated Count of Small Institutions Affected by the Proposed
                               Regulations
------------------------------------------------------------------------
                                          Small          As percent of
                                       institutions          small
                                         affected         institutions
------------------------------------------------------------------------
Pell Grants for Confined or                       136               4.02
 Incarcerated Individuals.........
90/10.............................              1,650              17.00
Change in Ownership...............                203              10.00
------------------------------------------------------------------------

    The Department has determined that the economic impact on small 
entities affected by the regulations would not be significant. As seen 
in Table 8, the average total revenue at small institutions ranges from 
$2.3 million for proprietary institutions to $21.3 million at private 
institutions. These amounts are significantly higher than the $2,953 to 
$4,593 in estimated costs per small institution for the proposed 
regulations presented in Table 9.

              Table 8--Total Revenues at Small Institutions
------------------------------------------------------------------------
                                      Average total
                                       revenues for      Total revenues
              Control                     small          for all small
                                       institutions       institutions
------------------------------------------------------------------------
Private...........................         21,288,171     20,670,814,269
Proprietary.......................          2,343,565      4,748,063,617
Public............................         15,398,329      5,912,958,512
------------------------------------------------------------------------
Note: Based on analysis of IPEDS enrollment and revenue data for 2018-
  19.

    The impact of the PEP proposed regulations would be minimal to 
small institutions and would involve meeting disclosure requirements 
and complying with requirements of the oversight entity and the 
Department.
    The changes proposed to 90/10 would have a minor impact on 
proprietary institutions. These impacts include calculating the non-
Federal revenue and providing a notification to students and the 
Department if an institution fails to comply with the 90/10 
requirement.
    While the CIO-proposed regulations have the potential to impact 
small entities, the number of prior CIO applications indicates that 
such changes in ownership do not often occur. There will be a minor 
burden on institutions that undergo a CIO to notify students at least 
90 days prior to a proposed CIO. We believe this burden notification 
will be minor and can be disseminated electronically. The reduction in 
the reporting threshold for changes in ownership from 25 to 5 percent 
will impact more small entities than in the past; however, the burden 
associated with this increase in reporting is minimal and relatively 
uncommon.

                                 Table 9--Estimated Costs for Small Institutions
----------------------------------------------------------------------------------------------------------------
                                                                                         Estimated overall  cost
                                                     Number of small    Cost range per       range for small
                  Compliance area                     institutions     institution ($)    institutions affected
                                                        affected                                   ($)
----------------------------------------------------------------------------------------------------------------
Pell Grants for Confined or Incarcerated                          44    749.92-1,124.88      32,996.48-49,494.72
 Individuals disclosure requirement...............
90/10 non-Federal revenue calculation.............             1,650    749.92-1,499.84      1,237,368-2,474,736
90/10 failure student notification................                11      140.61-187.48         1,546.71-2062.28
CIO notification to students......................                71      187.50-281.22      13,312.50-19,966.62
CIO increased reporting burden....................               203  1,124.88-1,499.84    228,350.64-304,467.52
----------------------------------------------------------------------------------------------------------------


[[Page 45484]]

Paperwork Reduction Act of 1995
    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department provides the general public and Federal agencies 
with an opportunity to comment on proposed and continuing collections 
of information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public 
understands the Department's collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents.
    Sections 600.7, 600.10, 600.20, 600.21, 668.28, 668.43, 668.237, 
and 668.238 of this proposed rule contain information collection 
requirements. These proposed regulations include requirements for 
institutions to obtain a waiver allowing them to enroll more than 25 
percent of their students as incarcerated students; obtaining approval 
to offer prison education programs; submit an application seeking 
continued title IV participation for a change in ownership; reporting 
changes in ownership and/or control; and for proprietary institutions 
to demonstrate compliance with the 90/10 rule. Under the PRA, the 
Department has or will at the required time submit a copy of these 
sections and an Information Collection Request to OMB for its review. 
For some of the regulatory sections, including those relating to PEPs, 
PRA approval will be sought via a separate information collection 
process. Specifically, the Department will publish notices in the 
Federal Register to seek public comment on and review of these 
collections when they are published.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
no person is required to comply with, or is subject to penalty for 
failure to comply with, a collection of information if the collection 
instrument does not display a currently valid OMB control number. In 
the final regulations, we will display the control numbers assigned by 
OMB to any information collection requirements proposed in this NPRM 
and adopted in the final regulations.
    Section 600.7--Conditions of institutional eligibility.;
    Section 600.10--Date, extent, duration, and consequences of 
eligibility;
    Section 600.20--Notice and application procedures for establishing, 
reestablishing, maintaining, or expanding institutional eligibility and 
certification.; and
    Section 600.21--Updating application information.
    Section 668.238--Application requirements.
    Requirements: The proposed regulations at Sec.  600.7(c)(1) allow 
that the Secretary would not approve an enrollment cap waiver for a 
postsecondary institution's Prison Education Program (PEP) until the 
oversight entity is able to make the ``best interest determination'' 
described in Sec.  668.241, which would be at least 2 years after the 
postsecondary institution has continuously provided a PEP.
    The proposed regulations at Sec.  600.10(c)(1)(iv) require an 
institution to obtain approval from the Secretary to offer the 
institution's first eligible PEP at its first two additional locations 
at correctional facilities.
    The proposed regulations at Sec.  600.20(g)(1)(i) would require 
that institutions must notify the Department at least 90 days in 
advance of a proposed change in ownership. This includes submission of 
a completed form, State authorization and accrediting documents, and 
copies of audited financial statements. It also includes reporting any 
subsequent changes to the proposed ownership structure at least 90 days 
prior to the date the change in ownership is to occur.
    The proposed regulations at Sec.  600.21(a)(6) would amend 
reporting requirements to distinguish between reportable changes in 
ownership and changes of control and between natural persons and legal 
entities.
    The proposed regulations at Sec.  600.21(a)(14) would amend the 
reporting requirements for an institution to include the reporting of 
initial or additional PEPs and locations for PEPs.
    The proposed regulations at Sec.  600.21(a)(15) would also include 
reporting on changes in ownership that do not result in a change of 
control and that are not otherwise specified on the list of types of 
changes in ownership that must be reported, to ensure that novel 
ownership structures are covered under the regulations.
    The proposed regulations at Sec.  668.238(a) would specify that the 
postsecondary institution must seek approval for the first PEP at the 
first two additional locations as required under Sec.  600.10. Proposed 
Sec.  668.238 (b) would identify the application requirements for such 
PEPs. For all other PEPs and locations not subject to initial approval 
by the Secretary, postsecondary institutions would be required to 
submit the documentation outlined in proposed Sec.  668.238(c).
    Burden Calculation: All of these proposed regulatory changes would 
require an update to the current institutional application form, 1845-
0012. The form update would be completed and made available for comment 
through a full public clearance package before being made available for 
use by the effective date of the regulations. The burden changes would 
be assessed to OMB Control Number 1845-0012, Application for Approval 
to Participate in Federal Student Aid Programs.
    Section 600.20--Notice and application procedures for establishing, 
reestablishing, maintaining, or expanding institutional eligibility and 
certification.
    Requirements: The proposed regulations at Sec.  600.20(g)(4) would 
require institutions to notify enrolled and prospective students at 
least 90 days prior to a proposed change in ownership.
    Burden Calculation: We believe that this would result in burden for 
the institution. Based on the GAO report cited earlier, using the 59 
institutional changes of ownership over a period of 9 years, we 
anticipate that an estimate of 7 institutions annually would require 4 
hours to develop and post the required notice on the institution's 
intra- and internet sites for a total of 28 hours (7 x 4 hours = 28 
hours). The burden change would be assessed to OMB Control Number 1845-
NEW, Change of Ownership Notification to Students.

[[Page 45485]]



                   Change of Ownership Notification to Students--OMB Control Number: 1845-NEW
----------------------------------------------------------------------------------------------------------------
                                                                                                  Cost at $46.59
                 Affected entity                    Respondent       Responses     Burden hours    per hour for
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Proprietary.....................................               7               7              28          $1,305
                                                 ---------------------------------------------------------------
    Total.......................................               7               7              28           1,305
----------------------------------------------------------------------------------------------------------------

    Section 668.28--Non-Federal revenue (90/10).
    Requirements: The proposed regulations would amend Sec.  
668.28(a)(2) to create a disbursement rule that outlines how 
proprietary institutions calculate the percentage of their revenue that 
is Federal revenue and would create an end-of-fiscal-year deadline for 
proprietary institutions to request and disburse title IV funds to 
students. Additionally, proposed Sec.  668.28(c)(3) would establish 
disclosures for proprietary institutions that fail to derive at least 
10 percent of their fiscal-year revenues from allowable non-Federal 
funds.
    Burden Calculation: We believe that this proposed change to Sec.  
668.28(a)(2) would result in burden for the institution. As of April 
2022, there were 1,650 proprietary institutions eligible to participate 
in the title IV, HEA funded programs. We believe that all proprietary 
institutions would be required to perform this calculation. We believe 
that it will take 1,650 institutions an estimated 24 hours each to 
gather information about the eligible students and payment information 
to perform the required calculations and request any required 
disbursements for a total of 39,600 hours (1,650 institutions x 24 
hours = 39,600 hours). The estimated costs for institutions to meet 
this requirement would be $1,844,964.
    We believe that the proposed change to Sec.  668.28(c)(3), which 
would require institutions to notify students when the institution 
fails the 90/10 revenue test, would result in a burden for the 
institution. For the 2019-2020 Award Year there were 33 institutions 
that failed to meet the 90/10 revenue test when adding in Post 9-11 GI 
Bill and DOD Tuition Assistance funds. Using this number of 
institutions as representative of the number of institutions that would 
annually fail the 90/10 revenue test, we estimate that 33 institutions 
would require 4 hours to develop and post the required notice on the 
institution's intranet and internet sites for a total of 132 hours (33 
institutions x 4 hours = 132 hours). The estimated costs for 
institutions to meet this requirement would be $6,150.
    The total burden assessed to OMB Control Number 1845-0096 is 
estimated at 39,732 hours and estimated costs of $1,851,114.

 Student Assistance General Provisions--Non-Title IV Revenue Requirements (90/10)--OMB Control Number: 1845-0096
----------------------------------------------------------------------------------------------------------------
                                                                                                  Cost at $46.59
                 Affected entity                    Respondent       Responses     Burden hours    per hour for
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Proprietary.....................................           1,650           1,683          39,732      $1,851,114
                                                 ---------------------------------------------------------------
    Total.......................................           1,650           1,683          39,732       1,851,114
----------------------------------------------------------------------------------------------------------------

    Section 668.43--Institutional Information.
    Requirements: Proposed Sec.  668.43(a)(5)(vi), would require a new 
disclosure if an eligible Prison Education Program (PEP) is designed to 
meet educational requirements for a specific professional license or 
certification that is required for employment in an occupation (as 
described in proposed Sec.  668.236(g) and (h)). In that case, the 
postsecondary institution must provide information regarding whether 
that occupation typically involves State or Federal prohibitions on the 
licensure or employment of formerly confined or incarcerated 
individuals. This requirement applies in the State in which the 
correctional facility is located or, in the case of a Federal 
correctional facility, in the State in which most of the individuals 
confined or incarcerated in such facility will reside upon release.
    Burden Calculation: We believe that of an estimated 400 
institutions who would participate in PEPs, 20 percent or 80 
institutions would have programs that would be required to perform such 
research and disclosure development. We further believe that of an 
estimated 800 programs at those institutions, 20 percent or 160 
programs would require such research. We anticipate that to fully 
research the licensure requirements in the required State or States and 
prepare documentation for students in the eligible PEP, an institution 
would need 25 hours per program for an estimate total burden of 4,000 
hours (160 x 25 = 4,000). The burden of 4,000 hours would be assessed 
to OMB Control Number 1845-0156 with an estimated cost of $186,360.

                   Accreditation Participation and Disclosures--OMB Control Number: 1845-0156
----------------------------------------------------------------------------------------------------------------
                                                                                                  Cost at $46.59
                 Affected entity                    Respondent       Responses     Burden hours    per hour for
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Private, not-for-profit.........................              14              28             700         $32,613
Public..........................................              66             132           3,300         153,747
                                                 ---------------------------------------------------------------

[[Page 45486]]

 
    Total.......................................              80             160           4,000         186,360
----------------------------------------------------------------------------------------------------------------

    Section 668.237--Accreditation requirements.
    Requirements: Proposed regulations at Sec.  668.237, would 
prescribe program evaluation at the first two additional locations to 
ensure institutional ability to offer and implement the Prison 
Education Program (PEP) in accordance with the accrediting agency's 
standards. The proposed regulations would require the accrediting 
agency to conduct a site visit no later than one year after the 
institution has initiated a PEP at its first two additional locations 
at correctional facilities. Additionally, the proposed regulations 
would require accrediting agencies to review the methodology used by an 
institution in determining the PEP meets the same standards for 
substantially similar non-PEP programs.
    Burden Calculation: Of the current 54 recognized accrediting 
agencies, it is estimated that 18 accrediting agencies may be called 
upon to perform such required reviews for institutions under their 
oversight. It is estimated that each of these accrediting agencies will 
require 8 hours per institution to evaluate the written applications 
for the first two programs offered by PEP or any change in methodology 
review. With an estimated 400 institutions participating in the PEP 
program, accrediting agencies would require 3,200 hours to complete 
this initial review (400 institutions x 8 hours = 3,200 burden hours).
    It is estimated that to perform the site visits as required under 
the proposed regulations would require an estimated 50 hours to prepare 
for, perform the site visit and report the findings. With an estimated 
400 institutions participating in the PEP program, accrediting agencies 
would require 20,000 hours to complete this initial review (400 
institutions x 50 hours = 20,000 burden hours).
    It is estimated that to perform the methodology review as required 
under the proposed regulations would require an estimated 8 hours. With 
an estimated 400 institutions participating in the PEP program, 
accrediting agencies would require 3,200 hours to complete this initial 
review (400 institutions x 8 hours = 3,200 burden hours).
    The total estimated burden for accrediting agencies to perform 
these proposed tasks for the PEP evaluations is 42,400 hours under the 
OMB Control Number 1840-NEW.

                Prison Education Program Accreditation Requirements--OMB Control Number 1840-NEW
----------------------------------------------------------------------------------------------------------------
                                                                                                    Cost $46.59
                 Affected entity                    Respondent       Responses     Burden hours    per hour for
                                                                                                   institutions
----------------------------------------------------------------------------------------------------------------
Not-For-Profit Private..........................              18          12,000          26,400      $1,229,976
                                                 ---------------------------------------------------------------
    Total.......................................              18          12,000          26,400       1,229,976
----------------------------------------------------------------------------------------------------------------

    Consistent with the discussions above, the following chart 
describes the sections of the proposed regulations involving 
information collections, the information being collected and the 
collections that the Department will submit to OMB for approval and 
public comment under the PRA, and the estimated costs associated with 
the information collections. The monetized net cost of the increased 
burden for institutions and students was calculated using wage data 
developed using Bureau of Labor Statistics (BLS) data. For institutions 
we have used the median hourly wage for Education Administrators, 
Postsecondary, $46.59 per hour according to BLS as of May 2021. https://www.bls.gov/oes/current/oes119033.htm.

                                       Table 10--Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                                           Estimated cost $46.59
         Regulatory section             Information collection      OMB control No. and    institutional unless
                                                                     estimated burden         otherwise noted
----------------------------------------------------------------------------------------------------------------
Sec.  Sec.   600.7, 600.10, 600.20,  The proposed regulations at  1845-0012; Burden will  Costs will be cleared
 600.21, and 668.238.                 Sec.   600.7(c)(1) provide   be cleared at a later   through separate
                                      for procedures for the       date through a          information
                                      Secretary to approve an      separate information    collection for the
                                      enrollment cap waiver for    collection for the      form.
                                      incarcerated students at a   form.
                                      postsecondary institution.
                                     The proposed regulations at
                                      Sec.  Sec.
                                      600.10(c)(1)(iv) and
                                      668.238(a) require an
                                      institution to obtain
                                      approval from the
                                      Secretary to offer the
                                      institution's first
                                      eligible PEP at its first
                                      two additional locations
                                      at correctional facilities.
                                     The proposed regulations at
                                      Sec.   600.20(g)(1)(i)
                                      would require that
                                      institutions notify the
                                      Department at least 90
                                      days in advance of a
                                      proposed change in
                                      ownership.
                                     The proposed regulations at
                                      Sec.   600.21(a)(6) would
                                      amend reporting
                                      requirements to clarify
                                      reportable changes in
                                      ownership and changes of
                                      control.

[[Page 45487]]

 
                                     The proposed regulation at
                                      Sec.   600.21(a)(14) would
                                      amend the reporting
                                      requirements for an
                                      institution to include the
                                      reporting of PEPs.
                                     The proposed regulations at
                                      Sec.   600.21(a)(15),
                                      would also include
                                      reporting on changes in
                                      ownership that do not
                                      result in a change of
                                      control and that are not
                                      otherwise specified in the
                                      regulations.
                                     Sec.   668.238 (b) would
                                      identify the application
                                      requirements for PEPs. For
                                      all other PEPs not subject
                                      to initial approval by the
                                      Secretary, postsecondary
                                      institutions would be
                                      required to submit the
                                      documentation outlined in
                                      Sec.   668.238(c).
Sec.   600.20......................  The proposed regulations at  1845-NEW; 28 hours....  $1,305.
                                      Sec.   600.20(g)(4), would
                                      require institutions to
                                      notify enrolled and
                                      prospective students at
                                      least 90 days prior to a
                                      proposed change in
                                      ownership.
Sec.   668.28......................  The proposed regulations     1845-0096; 39,732       1,844,964.
                                      would amend Sec.             hours..
                                      668.28(a)(2) to clarify
                                      how proprietary
                                      institutions calculate the
                                      percentage of their
                                      revenue from Federal
                                      education assistance
                                      programs.
                                     Sec.   668.28(c)(3) is
                                      amended to establish
                                      disclosures for
                                      proprietary institutions
                                      that fail the 90/10
                                      calculation.
Sec.   668.43......................  The proposed regulations at  1845-0156; 4,000 hours  186,360.
                                      Sec.   668.43(a)(5)(vi)
                                      would require a new
                                      disclosure if an eligible
                                      Prison Education Program
                                      (PEP) is designed to meet
                                      educational requirements
                                      for a specific
                                      professional license or
                                      certification that is
                                      required for employment in
                                      an occupation.
Sec.   668.237.....................  The proposed regulations at  1840-NEW; 26,400 hours  1,229,976.
                                      Sec.   668.237 specify how
                                      accrediting agencies will
                                      review PEPs.
----------------------------------------------------------------------------------------------------------------

    The total burden hours and change in burden hours associated with 
each OMB Control number affected by the proposed regulations follows:

------------------------------------------------------------------------
                                                             Proposed
               Control No.                Total proposed     change in
                                           burden hours    burden hours
------------------------------------------------------------------------
1840-NEW................................          26,400         +26,400
1845-0096...............................          39,737         +39,732
1845-0156...............................         583,171          +4,000
1845-NEW................................              28             +28
                                         -------------------------------
    Total...............................        649, 336         +70,160
------------------------------------------------------------------------

    We have prepared Information Collection Requests for these 
information collection requirements. If you wish to review and comment 
on the Information Collection Requests, please follow the instructions 
in the ADDRESSES section of this notification. Note: The Office of 
Information and Regulatory Affairs in OMB and the Department review all 
comments posted at www.regulations.gov.
    In preparing your comments, you may want to review the Information 
Collection Requests, including the supporting materials, in 
www.regulations.gov by using the Docket ID number specified in this 
notification Docket ID ED-2022-OPE-0062. These proposed collections are 
identified as proposed collections 1840-xxxx, 1845-0096, 1845-0156, 
1845-NEW.
    If you want to review and comment on the ICRs, please follow the 
instructions listed below in this section of this notice. Please note 
that the Office of Information and Regulatory Affairs (OIRA) and the 
Department of Education review all comments posted at 
www.regulations.gov.
    When commenting on the information collection requirements, we 
consider your comments on these proposed collections of information 
in--
     Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our methodology and 
assumptions;
     Enhancing the quality, usefulness, and clarity of the 
information we collect; and
     Minimizing the burden on those who must respond.
    Comments submitted in response to this notice should be submitted 
electronically through the Federal eRulemaking Portal at 
www.regulations.gov by selecting Docket ID Number ED 2022-OPE-0062. 
Please specify the Docket ID number and indicate ``Information 
Collection

[[Page 45488]]

Comments'' if your comment(s) relate to the information collection for 
this proposed rule. FOR FURTHER INFORMATION CONTACT: Electronically 
mail [email protected].
    Consistent with 5 CFR 1320.8(d), the Department is soliciting 
comments on the information collection through this document. OMB is 
required to make a decision concerning the collections of information 
contained in these proposed regulations between 30 and 60 days after 
publication of this document in the Federal Register. Therefore, to 
ensure that OMB gives your comments full consideration, it is important 
that OMB receives your comments by August 26, 2022. This does not 
affect the deadline for your comments to us on the proposed 
regulations.

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
Order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Federalism

    Executive Order 13132 requires us to ensure meaningful and timely 
input by State and local elected officials in the development of 
regulatory policies that have federalism implications. ``Federalism 
implications'' means substantial direct effects on the States, on the 
relationship between the National Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. The proposed regulations do not have federalism 
implications.
    Accessible Format: On request to the program contact person(s) 
listed under FOR FURTHER INFORMATION CONTACT, individuals with 
disabilities can obtain this document in an accessible format. The 
Department will provide the requestor with an accessible format that 
may include Rich Text Format (RTF) or text format (txt), a thumb drive, 
an MP3 file, braille, large print, audiotape, or compact disc, or other 
accessible format.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. You may 
access the official edition of the Federal Register and the Code of 
Federal Regulations at www.govinfo.gov. At this site 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). To use PDF, you must have Adobe Acrobat Reader, which is 
available free at the site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

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 668

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

34 CFR Part 690

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

Miguel A. Cardona,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend parts 600, 685, 668 and 690 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. Revising the definitions of ``additional location'' and ``branch 
campus'';
0
b. Adding in alphabetical order a definition of ``confined or 
incarcerated individual''.
0
c. In the definition of ``distance education'' adding paragraph (6).
0
d. Removing the definition of ``incarcerated student'';
0
e. Adding the definition of ``main campus''.
0
f. Revising the definition of ``nonprofit institution''.
    The additions and revisions read as follows:


Sec.  600.2   Definitions.

* * * * *
    Additional location: A physical facility that is separate from the 
main campus of the institution and within the same ownership structure 
of the institution, at which the institution offers at least 50 percent 
of an educational program. An additional location participates in the 
title IV, HEA programs only through the certification of the main 
campus. A Federal, State, or local penitentiary, prison, jail, 
reformatory, work farm, juvenile justice facility, or other similar 
correctional institution is considered to be an additional location as 
defined under Sec.  600.2 even if a student receives instruction 
primarily through distance education or correspondence courses at that 
location.
* * * * *
    Branch campus: A physical facility that is separate from the main 
campus of the institution and within the same ownership structure of 
the institution, and that also--
    (1) Is approved by the Secretary as a branch campus; and
    (2) Is independent from the main campus, meaning the location--
    (i) Is permanent in nature;
    (ii) Offers courses in educational programs leading to a degree, 
certificate, or other recognized education credential;
    (iii) Has its own faculty and administrative or supervisory 
organization; and
    (iv) Has its own budgetary and hiring authority.
* * * * *
    Confined or incarcerated individual: An individual who is serving a 
criminal sentence in a Federal, State, or local penitentiary, prison, 
jail, reformatory, work farm, juvenile justice facility, or

[[Page 45489]]

other similar correctional institution. An individual is not considered 
incarcerated if that individual is subject to or serving an involuntary 
civil commitment, in a half-way house or home detention, or is 
sentenced to serve only weekends.
* * * * *
    Distance education * * *
* * * * *
    (6) Except for an additional location at a correctional institution 
as described in the definition of an additional location in this 
section, for an institution that offers on-campus programs and programs 
through distance education or correspondence courses, the programs 
offered through distance education or correspondence courses are 
associated with the main campus of the institution. For an institution 
that only offers distance education programs, the institution is 
located where its administrative offices are located and approved by 
its accrediting agency.
* * * * *
    Main campus: The primary physical facility at which the institution 
offers eligible programs, within the same ownership structure of the 
institution, and certified as the main campus by the Department and the 
institution's accrediting agency.
* * * * *
    Nonprofit institution: (1) A nonprofit institution is a domestic 
public or private institution or foreign institution as to which the 
Secretary determines that no part of the net earnings of the 
institution benefits any private entity or natural person and that 
meets the requirements of paragraphs (2) through (4) of this 
definition, as applicable.
    (2) When making the determination under paragraph (1) of this 
definition, the Secretary considers the entirety of the relationship 
between the institution, the entities in its ownership structure, and 
other parties. For example, a nonprofit institution is generally not an 
institution that--
    (i) Is an obligor (either directly or through any entity in its 
ownership chain) on a debt owed to a former owner of the institution or 
a natural person or entity related to or affiliated with the former 
owner of the institution;
    (ii) Either directly or through any entity in its ownership chain, 
enters into, or maintains, a revenue-sharing agreement with--
    (A) A former owner or current or former employee of the institution 
or member of its board; or
    (B) A natural person or entity related to or affiliated with the 
former owner or current or former employee of the institution or member 
of its board, unless the Secretary determines that the payments and the 
terms under the revenue-sharing agreement are reasonable, based on the 
market price and terms for such services or materials, and the price 
bears a reasonable relationship to the cost of the services or 
materials provided;
    (iii) Is a party (either directly or indirectly) to any other 
agreements (including lease agreements) with--
    (A) A former owner or current or former employee of the institution 
or member of its board; or
    (B) A natural person or entity related to or affiliated with the 
former owner or current or former employee of the institution or member 
of its board under which the institution is obligated to make any 
payments, unless the Secretary determines that the payments and terms 
under the agreement are comparable to payments in an arm's-length 
transaction at fair market value; or
    (iv) Engages in an excess benefit transaction with any natural 
person or entity.
    (3) A private institution is a ``nonprofit institution'' only if it 
meets the requirements in paragraph (1) of this definition and is--
    (i) Owned and operated by one or more nonprofit corporations or 
associations;
    (ii) Legally authorized to operate as a nonprofit organization by 
each State in which it is physically located; and
    (iii) Determined by the U.S. Internal Revenue Service to be an 
organization described in section 501(c)(3) of the Internal Revenue 
Code (26 U.S.C. 501(c)(3)).
    (4) A foreign institution is a ``nonprofit institution'' only if it 
meets the requirements in paragraph (1) of this definition and is--
    (i) An institution that is owned and operated only by one or more 
nonprofit corporations or associations; and
    (ii)(A) If a recognized tax authority of the institution's home 
country is recognized by the Secretary for purposes of making 
determinations of an institution's nonprofit status for title IV 
purposes, is determined by that tax authority to be a nonprofit 
educational institution; or
    (B) If no recognized tax authority of the institution's home 
country is recognized by the Secretary for purposes of making 
determinations of an institution's nonprofit status for title IV 
purposes, the foreign institution demonstrates to the satisfaction of 
the Secretary that it is a nonprofit educational institution.
* * * * *
0
3. Section 600.4 is amended by revising paragraph (a) introductory text 
as follows:


Sec.  600.4  Institution of higher education.

    (a) An institution of higher education is a public or other 
nonprofit educational institution that--
* * * * *
0
4. Section 600.7 is amended by revising paragraph (c) to read as 
follows:


Sec.  600.7   Conditions of institutional eligibility.

* * * * *
    (c) Special provisions regarding incarcerated students--(1) Waiver 
Exception. The Secretary may waive the prohibition contained in 
paragraph (a)(1)(iii) of this section, upon the application of an 
institution, if the institution is a nonprofit institution that 
provides four-year or two-year educational programs for which it awards 
a bachelor's degree, an associate degree, or a postsecondary diploma 
and has continuously provided an eligible prison education program 
approved by the Department under subpart P of part 668 for at least two 
years. The Secretary does not grant the waiver if--
    (i) For a program described under paragraph (c)(3)(ii) of this 
section, the program does not maintain a completion rate of 50 percent 
or greater; or
    (ii) For an institution described under paragraphs (c)(2) or (3) of 
this section--
    (A) The institution provides one or more eligible prison education 
programs that is not compliant with the requirements of part 668 
subpart P; or
    (B) The institution is not administratively capable under Sec.  
668.16 or financially responsible under part 668 subpart L.
    (2) Waiver for entire institution. If the nonprofit institution 
that applies for a waiver consists solely of four-year or two-year 
educational programs for which it awards a bachelor's degree, an 
associate degree, or a postsecondary diploma, the Secretary may waive 
the prohibition contained in paragraph (a)(1)(iii) of this section for 
the entire institution.
    (3) Other waivers. If the nonprofit institution that applies for a 
waiver does not consist solely of four-year or two-year educational 
programs for which it awards a bachelor's degree, an associate degree, 
or a postsecondary diploma, the Secretary may waive the prohibition 
contained in paragraph (a)(1)(iii) of this section on a program-by-
program basis--
    (i) For the four-year and two-year programs for which it awards a

[[Page 45490]]

bachelor's degree, an associate degree, or a postsecondary diploma; and
    (ii) For the other programs the institution provides, if the 
incarcerated regular students enrolled in those other programs have a 
completion rate of 50 percent or greater.
    (4) Waiver Limitations. (i)(A) For five years after the Secretary 
grants the waiver, the institution may not enroll more than fifty 
percent of the institution's regular enrolled students as incarcerated 
students; and
    (B) For the five years following the period described in paragraph 
(c)(4)(i)(A) of this section, the institution may not enroll more than 
seventy-five percent of the institution's regular enrolled students as 
incarcerated students.
    (ii) The limitations in paragraph (c)(4)(i) of this section do not 
apply if the institution is a public institution chartered for the 
explicit purpose of educating incarcerated students, as determined by 
the Secretary, and all students enrolled in a prison education program 
for the institution are located in the state in which the institution 
is chartered to serve.
    (5) The Secretary limits or terminates the waiver described in this 
subsection if the Secretary determines the institution no longer meets 
the requirements established under paragraph (c)(1) of this section.
    (6) If the Secretary limits or terminates an institution's waiver 
under paragraph (c)(4) of this section, the institution ceases to be 
eligible for the title IV, HEA programs at the end of the award year 
that begins after the Secretary's action unless the institution, by 
that time--
    (i) Demonstrates to the satisfaction of the Secretary that it meets 
the requirements under paragraph (c)(1) of this section; and
    (ii) The institution does not enroll any additional incarcerated 
students upon the limitation or termination of the waiver and reduces 
its enrollment of incarcerated students to no more than 25 percent of 
its regular enrolled students.
* * * * *
0
5. Section 600.10 is amended by revising paragraph (c)(1) to read as 
follows:


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

* * * * *
    (c) * * * (1) An eligible institution that seeks to establish the 
eligibility of an educational program must obtain the Secretary's 
approval--
    (i) Pursuant to a requirement regarding additional programs 
included in the institution's PPA under Sec.  668.14;
    (ii) For a direct assessment program under Sec.  668.10, and for a 
comprehensive transition and postsecondary program under Sec.  668.232;
    (iii) For a first direct assessment program under Sec.  668.10, the 
first direct assessment program offered at each credential level, and 
for a comprehensive transition and postsecondary program under Sec.  
668.232;
    (iv) For the first eligible prison education program under subpart 
P of part 668 offered at the first two additional locations as defined 
under Sec.  600.2 at a Federal, State, or local penitentiary, prison, 
jail, reformatory, work farm, juvenile justice facility, or other 
similar correctional institution.
* * * * *
0
6. Section 600.20 is amended by revising paragraphs (g) and (h) as 
follows:


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

* * * * *
    (g) Application for provisional extension of certification. (1) If 
a private nonprofit institution, a private for-profit institution, or a 
public institution participating in the title IV, HEA programs 
undergoes a change in ownership that results in a change of control as 
described in Sec.  600.31, the Secretary may continue the institution's 
participation in those programs on a provisional basis if--
    (i) No later than 90 days prior to the change in ownership, the 
institution provides the Secretary notice of the proposed change on a 
fully completed form designated by the Secretary and supported by the 
State authorization and accrediting documents identified in paragraph 
(g)(3)(i) and (ii) of this section, and supported by copies of the 
financial statements identified in paragraph (g)(3)(iii) and (iv) of 
this section;
    (ii) The institution promptly reports to the Secretary any changes 
to the proposed ownership structure identified under paragraph 
(g)(1)(i) of this section, provided that the change in ownership cannot 
occur earlier than 90 days following the date the change is reported to 
the Secretary; and
    (iii) The institution under the new ownership submits a 
``materially complete application'' that is received by the Secretary 
no later than 10 business days after the day the change occurs.
    (2) Notwithstanding the submission of the items under paragraph 
(g)(1) of this section, the Secretary may determine that the 
participation of the institution should not be continued following the 
change in ownership.
    (3) For purposes of this section, a private nonprofit institution, 
a private for-profit institution, or a public institution submits a 
materially complete application if it submits a fully completed 
application form designated by the Secretary supported by--
    (i) A copy of the institution's State license or equivalent 
document that authorized or will authorize the institution to provide a 
program ofpostsecondary educationin the State in which it is physically 
located, supplemented with documentation that, as of the day before the 
change in ownership, the State license remained in effect;
    (ii) A copy of the document from the institution's accrediting 
association that granted or will grant the 
institutionaccreditationstatus, including approval of any non-degree 
programs it offers, supplemented with documentation that, as of the day 
before the change in ownership, the accreditation remained in effect;
    (iii) Audited financial statements for the institution's two most 
recently completed fiscal years that are prepared and audited in 
accordance with the requirements of34 CFR 668.23;
    (iv)(A) Audited financial statements for the institution's new 
owner's two most recently completed fiscal years that are prepared and 
audited in accordance with the requirements of 34 CFR 668.23, or 
equivalent financial statements for that owner that are acceptable to 
the Secretary; or
    (B) If such financial statements are not available, financial 
protection in the amount of--
    (1) At least 25 percent of the institution's prior year volume of 
title IV aid if the institution's new owner does not have two years of 
acceptable audited financial statements; or
    (2) At least 10 percent of the institution's prior year volume of 
title IV aid if the institution's new owner has only one year of 
acceptable audited financial statements; and
    (v) If deemed necessary by the Secretary, financial protection in 
the amount of an additional 10 percent of the institution's prior year 
volume of title IV aid, or a larger amount as determined by the 
Secretary. If any entity in the new ownership structure holds a 50 
percent or greater direct or indirect voting or equity interest in 
another institution or institutions, the

[[Page 45491]]

financial protection may also include the prior year volume of title IV 
aid, or a larger amount as determined by the Secretary, for all 
institutions under such common ownership.
    (4) The institution must notify enrolled and prospective students 
of the proposed change in ownership, and submit evidence that such 
disclosure was made, no later than 90 days prior to the change.
    (h) Terms of the extension. (1) If the Secretary approves the 
institution's materially complete application, the Secretary provides 
the institution with a temporary provisional Program Participation 
Agreement (TPPPA).
    (2) The TPPPA expires on the earlier of--
    (i) The last day of the month following the month in which the 
change of ownership occurred, unless the provisions of paragraph (h)(3) 
of this section apply;
    (ii) The date on which the Secretary notifies the institution that 
its application is denied; or
    (iii) The date on which the Secretary co-signs a new provisional 
program participation agreement (PPPA).
    (3) If the TPPPA will expire under the provisions of paragraph 
(h)(2)(i) of this section, the Secretary extends the provisional TPPPA 
on a month-to-month basis after the expiration date described in 
paragraph (h)(2)(i) of this section if, prior to that expiration date, 
the institution provides the Secretary with--
    (i) An audited ``same-day'' balance sheet for a proprietary 
institution or an audited statement of financial position for a 
nonprofit institution;
    (ii) If not already provided, approval of the change of ownership 
from each State in which the institution is physically located or for 
an institution that offers only distance education in accordance with 
paragraph (6) of the definition of ``distance education'' in Sec.  
600.2, from the agency that authorizes the institution to legally 
providepostsecondary educationin that State;
    (iii) If not already provided, approval of the change of ownership 
from the institution's accrediting agency; and
    (iv) A default management plan unless the institution is exempt 
from providing that plan under 34 CFR 668.14(b)(15).
* * * * *
0
7. Section 600.21 is amended by
0
a. Revising paragraphs (a) introductory text and (a)(6);
0
b. Adding paragraphs (a)(14) and (a)(15); and
0
c. Revising paragraph (b).
    The revisions and additions read as follows:


Sec.  600.21  Updating application information.

    (a) Reporting requirements. Except as provided in paragraph (b) of 
this section, an eligible institution must report to the Secretary, in 
a manner prescribed by the Secretary no later than 10 days after the 
change occurs, any change in the following:
* * * * *
    (6)(i) Changes in ownership. Any change in the ownership of the 
institution, whereby a natural person or entity acquires at least a 5 
percent ownership interest (direct or indirect) of the institution but 
that does not result in a change of control as described in Sec.  
600.31.
    (ii) Changes in control. A natural person or legal entity's ability 
to affect substantially the actions of the institution if that natural 
person or legal entity did not previously have this ability. The 
Secretary considers a natural person or legal entity to have this 
ability if--
    (A) The natural person acquires, alone or together with another 
member or members of their family, at least a 25 percent ownership 
interest (as defined in Sec.  600.31(b)) in the institution;
    (B) The entity acquires, alone or together with an affiliated 
natural person or entity, at least a 25 percent ownership interest (as 
defined in Sec.  600.31(b)) in the institution;
    (C) The natural person or entity acquires, alone or together with 
another natural person or entity, under a voting trust, power of 
attorney, proxy, or similar agreement, at least a 25 percent 
``ownership interest'' (as defined in Sec.  600.31(b)) in the 
institution;
    (D) The natural person becomes a general partner, managing member, 
chief executive officer, trustee or co-trustee of a trust, chief 
financial officer, director, or other officer of the institution or of 
an entity that has at least a 25 percent ``ownership interest'' (as 
defined in Sec.  600.31(b)) in the institution; or
    (E) The entity becomes a general partner or managing member of an 
entity that has at least a 25 percent ``ownership interest'' (as 
defined in Sec.  600.31(b)) in the institution.
* * * * *
    (14) Its establishment or addition of an eligible prison education 
program at an additional location as defined under Sec.  600.2 at a 
Federal, State, or local penitentiary, prison, jail, reformatory, work 
farm, juvenile justice facility, or other similar correctional 
institution that was not previously included in the institution's 
application for approval as described under Sec.  600.10.
    (15) Any change in the ownership of the institution that does not 
result in a change of control as described in Sec.  600.31 and is not 
addressed under paragraph (a)(6) of this section, including the 
addition or elimination of any entities in the ownership structure, a 
change of entity from one type of business structure to another, and 
any excluded transactions under Sec.  600.31(e).
    (b) Additional reporting from institutions owned by publicly-traded 
corporations. An institution that is owned by a publicly-traded 
corporation must report to the Secretary any change in the information 
described in paragraph (a)(6) or (15) of this section when it notifies 
its accrediting agency, but no later than 10 days after the institution 
learns of the change.
* * * * *
0
8. Add Sec.  600.22 to read as follows:


Sec.  600.22   Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice shall not 
be affected thereby.
0
9. Section 600.31 is amended by:
0
a. In paragraph (b) revising the definitions of ``closely-held 
corporation'', ``ownership or ownership interest'', and ``parent'';
0
b. Revising paragraph (c)(3);
0
c. Removing paragraph (c)(4);
0
d. Redesignating paragraphs (c)(5) through (7) as paragraphs (c)(4) 
through (6), respectively;
0
e. In newly redesignated paragraph (c)(5) removing the phrase 
``paragraph (d)'' and adding, in its place, the phrase ``paragraphs 
(c)(3) and (d)'';
0
f. Revising paragraphs (d)(6) and (7);
0
g. Adding paragraph (d)(8); and
0
h. Revising paragraph(e).
    The revisions and addition read as follows:


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

* * * * *
    (b) * * *
    Closely-held corporation. Closely-held corporation (including the 
term ``close corporation'') means--
    (i) A corporation that qualifies under the law of the State of its 
incorporation or organization as astatutory close corporation; or
    (ii) If the State of incorporation or organization has no statutory 
close corporation provision, a corporation the stock of which--
    (A) Is held by no more than 30 persons; and

[[Page 45492]]

    (B) Has not been and is not planned to be publicly offered.
* * * * *
    Ownership or ownership interest. (i) Ownership or ownership 
interest means a direct or indirect legal or beneficial interest in an 
institution or legal entity, which may include a voting interest or a 
right to share in profits.
    (ii) For the purpose of determining whether a change in ownership 
has occurred, changes in the ownership of the following are not 
included:
    (A) A mutual fund that is regularly and publicly traded.
    (B) A U.S. institutional investor, as defined in17 CFR 240.15a-
6(b)(7).
    (C) A profit-sharing plan of the institution or its corporate 
parent, provided that all full-time permanent employees of the 
institution or its corporate parent are included in the plan.
    (D) An employee stock ownership plan (ESOP).
    Parent. The legal entity that controls the institution or a legal 
entity directly or indirectly through one or more intermediate 
entities.
    Person. Person includes a natural person or a legal entity, 
including a trust.
* * * * *
    (c) Standards for identifying changes of ownership and control--
* * * * *
    (3) Other entities. (i) The term ``other entities'' means any 
entity that is not closely held nor required to be registered with the 
SEC, and includes limited liability companies, limited liability 
partnerships, limited partnerships, and similar types of legal 
entities.
    (ii) The Secretary deems the following changes to constitute a 
change in ownership resulting in a change of control of such an entity:
    (A) A person (or combination of persons) acquires at least 50 
percent of the total outstanding voting interests in the entity, or 
otherwise acquires 50 percent control.
    (B) A person (or combination of persons) who holds less than a 50 
percent voting interest in an entity acquires at least 50 percent of 
the outstanding voting interests in the entity, or otherwise acquires 
50 percent control.
    (C) A person (or combination of persons) who holds at least 50 
percent of the voting interests in the entity ceases to hold at least 
50 percent voting interest in the entity, or otherwise ceases to hold 
50 percent control.
    (D) A partner in a general partnership acquires or ceases to own at 
least 50 percent of the voting interests in the general partnership, or 
otherwise acquires or ceases to hold 50 percent control.
    (E) Any change of a general partner of a limited partnership (or 
similar entity) if that general partner also holds an equity interest.
    (F) Any change in a managing member of a limited liability company 
(or similar entity) if that managing member also holds an equity 
interest.
    (G) Notwithstanding its voting interests, a person becomes the sole 
member or shareholder of a limited liability company or other entity 
that has a 100 percent or equivalent direct or indirect interest in the 
institution.
    (H) An entity that has a member or members ceases to have any 
members.
    (I) An entity that has no members becomes an entity with a member 
or members.
    (J) A person is replaced as the sole member or shareholder of a 
limited liability company or other entity that has a 100 percent or 
equivalent direct or indirect interest in the institution.
    (K) The addition or removal of any entity that provides or will 
provide the audited financial statements to meet any of the 
requirements in Sec.  600.20(g) or (h) or part 668, subpart L.
    (L) Except as provided in paragraph (e) of this section, the 
transfer by an owner of 50 percent or more of the voting interests in 
the institution or an entity to an irrevocable trust.
    (M) Except as provided in paragraph (e) of this section, upon the 
death of an owner who previously transferred 50 percent or more of the 
voting interests in an institution or an entity to a revocable trust.
    (iii) The Secretary deems the following interests to satisfy the 50 
percent thresholds described above:
    (A) A combination of persons, each of whom holds less than 50 
percent ownership interest in an entity, holds a combined ownership 
interest of at least 50 percent as a result of proxy agreements, voting 
agreements, or other agreements (whether or not the agreement is set 
forth in a written document), or by operation of State law.
    (B) A combination of persons, each of whom holds less than 50 
percent ownership interest in an entity, holds a combined ownership 
interest of at least 50 percent as a result of common ownership, 
management, or control of that entity, either directly or indirectly.
    (C) A combination of individuals who are family members as defined 
in Sec.  600.21, each of whom holds less than 50 percent ownership 
interest in an entity, holds a combined ownership interest of at least 
50 percent.
    (iv) Notwithstanding paragraphs (c)(3)(ii) and (iii) of this 
section--
    (A) If a person who alone or in combination with other persons 
holds less than a 50 percent ownership interest in an entity, the 
Secretary may determine that the person, either alone or in combination 
with other persons, has actual control over that entity and is subject 
to the requirements of this section;
    (B) Any person who alone or in combination with other persons has 
the right to appoint a majority of any class of board members of an 
entity or an institution is deemed to have control.
* * * * *
    (d) * * *
    (6) A transfer of assets that comprise a substantial portion of the 
educational business of the institution, except where the transfer 
consists exclusively in the granting of a security interest in those 
assets;
    (7) A change in status as a for-profit, nonprofit, or public 
institution; or
    (8) The acquisition of an institution to become an additional 
location of another institution, unless the acquired institution closed 
or ceased to provide educational instruction.
    (e) Excluded transactions. A change in ownership and control timely 
reported under Sec.  600.21 and otherwise subject to this section does 
not include a transfer of ownership and control of all or part of an 
owner's equity or partnership interest in an institution, the 
institution's parent corporation, or other legal entity that has signed 
the institution's PPA--
    (1) From an owner to a ``family member'' of that owner as defined 
in Sec.  600.21(f);
    (2) As a result of a transfer of an owner's interest in the 
institution or an entity to an irrevocable trust, so long as the 
trustees only include the owner and/or a family member as defined in 
Sec.  600.21(f). Upon the appointment of any non-family member as 
trustee for an irrevocable trust (or successor trust), the transaction 
is no longer excluded and is subject to the requirements of Sec. Sec.  
600.20(g) and (h);
    (3) Upon the death of a former owner who previously transferred an 
interest in the institution or an entity to a revocable trust, so long 
as the trustees include only family members of that former owner, as 
defined in Sec.  600.21(f). Upon the appointment of any non-family 
member as trustee for the trust (or a successor trust) following the 
death of the former owner, the transaction is no longer excluded and is 
subject to the requirements of Sec. Sec.  600.20(g) and (h); or
    (4) A transfer to an individual owner with a direct or indirect 
ownership

[[Page 45493]]

interest in the institution who has been involved in the management of 
the institution for at least two years preceding the transfer and who 
has established and retained the ownership interest for at least two 
years prior to the transfer, either upon the death of another owner or 
by transfer from another individual owner who has been involved in the 
management of the institution for at least two years preceding the 
transfer and who has established and retained the ownership interest 
for at least two years prior to the transfer, upon the resignation of 
that owner from the management of the institution.

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
10. The authority citation for part 668 is revised to read as follows:

    Authority:  20 U.S.C. 1001-1003, 1070g, 1085, 1088, 1091, 1092, 
1094, 1099c, 1099c-1, and 1231a, unless otherwise noted.
    Section 668.14 also issued under 20 U.S.C. 1085, 1088, 1091, 
1092, 1094, 1099a-3, 1099c, and 1141.
    Section 668.41 also issued under 20 U.S.C. 1092, 1094, 1099c.
    Section 668.91 also issued under 20 U.S.C. 1082, 1094.
    Section 668.171 also issued under 20 U.S.C. 1094 and 1099c and 
section 4 of Pub. L. 95-452, 92 Stat. 1101-1109.
    Section 668.172 also issued under 20 U.S.C. 1094 and 1099c and 
section 4 of Pub. L. 95-452, 92 Stat. 1101-1109.
    Section 668.175 also issued under 20 U.S.C. 1094 and 1099c.

0
11. Section 668.8 is amended by revising paragraph (n) to read as 
follows:


Sec.  668.8  Eligible program.

* * * * *
    (n) For Title IV, HEA program purposes, eligible program includes a 
direct assessment program approved by the Secretary under Sec.  668.10, 
a comprehensive transition and postsecondary program approved by the 
Secretary under Sec.  668.232, and an eligible prison education program 
under subpart P of this part.
0
12. Redesignate Sec.  668.11 as Sec.  668.12 and add a new Sec.  668.11 
to read as follows:


Sec.  668.11  Severability.

    If any provision of this part 668 or its application to any person, 
act, or practice is held invalid, the remainder of the part or the 
application of its provisions to any person, act, or practice shall not 
be affected thereby.
0
14. Section 668.14 is amended by revising paragraph (b)(16) to read as 
follows:


Sec.  668.14  Program participation agreement.

* * * * *
    (b) * * *
    (16) For a proprietary institution, the institution will derive at 
least 10 percent of its revenues for each fiscal year from sources 
other than Federal funds, as provided in Sec.  668.28(a), or be subject 
to sanctions described in Sec.  668.28(c);
* * * * *
0
15. Amend Sec.  668.23 by revising paragraph (d)(3) to read as follows:


Sec.  668.23  Compliance audits and audited financial statements.

* * * * *
    (d) * * *
    (3) Disclosure of Federal revenue. A proprietary institution must 
disclose in a footnote to its financial statement audit the percentage 
of its revenues derived from Federal funds that the institution 
received during the fiscal year covered by that audit. The revenue 
percentage must be calculated in accordance with Sec.  668.28. The 
institution must also report in the footnote the dollar amount of the 
numerator and denominator of its 90/10 ratio as well as the individual 
revenue amounts identified in section 2 of appendix C to subpart B of 
part 668.
* * * * *
0
16. Section 668.28 is revised to read as follows:


Sec.  668.28  Non-Federal revenue (90/10).

    (a) General--(1) Calculating the revenue percentage. A proprietary 
institution meets the requirement in Sec.  668.14(b)(16) that at least 
10 percent of its revenue is derived from sources other than Federal 
funds by using the formula in appendix C of this subpart to calculate 
its revenue percentage for its latest complete fiscal year. For 
purposes of this section--
    (i) For any annual audit submission for a proprietary institutional 
fiscal year beginning on or after January 1, 2023, Federal funds used 
to calculate the revenue percentage include title IV, HEA program funds 
and any other educational assistance funds provided by a Federal agency 
directly to an institution or a student including the Federal portion 
of any grant funds provided by or administered by a non-Federal agency, 
except for non-title IV Federal funds provided directly to a student to 
cover expenses other than tuition, fees, and other institutional 
charges. The Secretary identifies the Federal agency and the other 
educational assistance funds provided by that agency in a notice 
published in the Federal Register, with updates to that list published 
as needed.
    (ii) For any fiscal year beginning prior to January 1, 2023, 
Federal funds are limited to title IV, HEA program funds.
    (2) Disbursement rule. An institution must use the cash basis of 
accounting in calculating its revenue percentage by--
    (i) For each eligible student, counting the amount of Federal funds 
that were used to pay tuition, fees, and other institutional charges 
the institution received during its fiscal year--
    (A) Directly from an agency identified under paragraph (a)(1)(i) of 
this section; and
    (B) Paid by a student who received Federal funds.
    (ii) For each eligible student, counting the amount of title IV, 
HEA program funds the institution received to pay tuition, fees, and 
other institutional charges during its fiscal year. However, before the 
end of its fiscal year, the institution must--
    (A) Request funds under the advanced payment method in Sec.  
668.162(b)(2) or the heightened cash monitoring method in Sec.  
668.162(d)(1) that the students are eligible to receive and make any 
disbursements to those students by the end of the fiscal year; or
    (B) For institutions under the reimbursement or heightened cash 
monitoring methods in Sec.  668.162(c) or (d)(2), make disbursements to 
those students by the end of the fiscal year and report as Federal 
funds in the revenue calculations the funds that the students are 
eligible to receive before requesting funds.
    (3) Revenue generated from programs and activities. The institution 
must consider as revenue only those funds it generates from--
    (i) Tuition, fees, and other institutional charges for students 
enrolled in eligible programs as defined in Sec.  668.8;
    (ii) Activities conducted by the institution that are necessary for 
the education and training of its students provided those activities 
are--
    (A) Conducted on campus or at a facility under the institution's 
control;
    (B) Performed under the supervision of a member of the 
institution's faculty; and
    (C) Required to be performed by all students in a specific 
educational program at the institution; and
    (D) Related directly to services performed by students; and
    (iii) Funds paid by a student, or on behalf of a student by a party 
unrelated to the institution, its owners, or affiliates, for an 
education or training program that is not eligible under Sec.  668.8 
and that does not include any courses offered in an eligible program. 
The non-eligible education or training

[[Page 45494]]

program must be provided by the institution, and taught by one of its 
instructors, at its main campus or one of its approved additional 
locations, at another school facility approved by the appropriate State 
agency or accrediting agency, or at an employer facility. The 
institution may not count revenue from a non-eligible education or 
training program where it merely provides facilities for test 
preparation courses, acts as a proctor, or oversees a course of self-
study. The program must--
    (A) Be approved or licensed by the appropriate State agency;
    (B) Be accredited by an accrediting agency recognized by the 
Secretary under 34 CFR part 602;
    (C) Provide an industry-recognized credential or certification;
    (D) Provide training needed for students to maintain State 
licensing requirements; or
    (E) Provide training needed for students to meet additional 
licensing requirements for specialized training for practitioners that 
already meet the general licensing requirements in that field.
    (4) Application of funds. The institution must presume that any 
Federal funds it disburses, or delivers to a student, or determines was 
provided to a student by another Federal source, will be used to pay 
the student's tuition, fees, or institutional charges up to the amount 
of those Federal funds if a student makes a payment to the institution, 
except to the extent that the student's tuition, fees, or other charges 
are satisfied by--
    (i) Grant funds provided by--
    (A) Non-Federal public agencies, provided that those grant funds do 
not include Federal or institutional funds unless the Federal portion 
of those grant funds can be determined and that portion of Federal 
funds must be included as Federal funds under this section. If the 
Federal funds cannot be determined no amount of the grant funds may be 
included under this section; or
    (B) Private sources unrelated to the institution, its owners, or 
affiliates;
    (ii) Funds provided under a contractual arrangement with the 
institution and a Federal, State, or local government agency for the 
purpose of providing job training to low-income individuals who need 
that training;
    (iii) Funds used by a student from a savings plan for educational 
expenses established by or on behalf of the student if the savings plan 
qualifies for special tax treatment under the Internal Revenue Code of 
1986; or
    (iv) Institutional scholarships that meet the requirements in 
paragraph (a)(5)(iv) of this section.
    (5) Revenue generated from institutional aid. The institution may 
include the following institutional aid as revenue:
    (i) For loans made to students and credited in full to the 
students' accounts at the institution and used to satisfy tuition, 
fees, and other institutional charges, the number of principal payments 
made on those loans by current or former students that the institution 
received during the fiscal year, if the loans--
    (A) Are bona fide as evidenced by standalone repayment agreements 
between the students and the institution that are enforceable 
promissory notes;
    (B) Are issued at intervals related to the institution's enrollment 
periods;
    (C) Are subject to regular loan repayments and collections by the 
institution; and
    (D) Are separate from the enrollment contracts signed by the 
students.
    (ii) If an institution wants to include an income share agreement 
or any other alternative financing agreement as cash in its 
attestations in which the agreement is with the institution only or 
with a related party, to include any entity in the ownership tree, any 
common ownership, and any other contractual agreement or continuous 
financial relationship for this section, then the following must be 
included in the agreement:
    (A) The institution must clearly identify the institutional charges 
that are being covered by the agreement, and the charges must be the 
same or less than the stated rate for institutional charges.
    (B) The maximum time and amount a student would be required to pay 
is clearly identified including the implied or imputed interest rate 
and any fees.
    (C) All payments must be applied in accordance with debt repayment 
regulations. Interest and fees would not be included in the 
attestation.
    (D) The imputed or implied interest rate cannot be more than the 
Federal Direct Unsubsidized Loan interest rate for the same borrower 
type at the time the agreement was signed.
    (iii) Only cash payments representing principal payments on the 
income share agreement or other financing agreement that were used to 
satisfy tuition, fees, and other institutional charges may be included 
in the attestation. No amounts from the sale of the income share 
agreement or other financing agreement may be included in the 
attestation.
    (iv) For scholarships provided by the institution in the form of 
monetary aid and based on the academic achievement or financial need of 
its students, the amount disbursed to students during the fiscal year. 
The scholarships must be disbursed from an established restricted 
account and may be included as revenue only to the extent that the 
funds in that account represent--
    (A) Designated funds from an outside source that is unrelated to 
the institution, its owners, or affiliates; or
    (B) Income earned on those funds.
    (6) Funds excluded from revenues. For the fiscal year, the 
institution does not include--
    (i) The amount of Federal Work Study (FWS) wages paid directly to 
the student. However, if the institution credits the student's account 
with FWS funds, those funds are included as revenue;
    (ii) The amount of funds received by the institution from a State 
under the LEAP, SLEAP, or GAP programs;
    (iii) The amount of institutional funds used to match title IV, HEA 
program funds;
    (iv) The amount of title IV, HEA program funds refunded to students 
or returned to the Secretary under Sec.  668.22;
    (v) The amount the student is charged for books, supplies, and 
equipment unless the institution includes that amount as tuition, fees, 
or other institutional charges;
    (vi) Any amount from the proceeds of the factoring or sale of 
accounts receivable or institutional loans, regardless of whether the 
loans were sold with or without recourse; or
    (vii) Any funds, including loans, provided by a third party related 
to the institution, its owners, or affiliates to a student in any form.
    (b) [Reserved]
    (c) Sanctions. If an institution does not derive at least 10 
percent of its revenue from sources other than Federal funds--
    (1) For two consecutive fiscal years, it loses its eligibility to 
participate in the title IV, HEA programs for at least two fiscal 
years. To regain eligibility, the institution must demonstrate that it 
complied with the State licensure and accreditation requirements under 
34 CFR 600.5(a)(4) and (a)(6), and the financial responsibility 
requirements under subpart L of this part, for a minimum of two fiscal 
years after the fiscal year it became ineligible;
    (2) For any fiscal year, it becomes provisionally certified under 
Sec.  668.13(c)(1)(ii) for the two fiscal years after the fiscal year 
it failed to satisfy the revenue requirement. However, the 
institution's provisional certification terminates on--

[[Page 45495]]

    (i) The expiration date of the institution's program participation 
agreement that was in effect on the date the Secretary determined the 
institution failed this requirement; or
    (ii) The date the institution loses its eligibility to participate 
under paragraph (c)(1) of this section;
    (3) For any fiscal year that it fails to meet the requirements of 
this section, it must notify students of the possibility of loss of 
title IV eligibility;
    (4) It must determine whether it passed the revenue requirement and 
report a failure no later than 45 days after the end of its fiscal 
year, or immediately thereafter if subsequent information is obtained 
that shows an institution incorrectly determined that it passed the 
revenue requirement for the prior fiscal year; and
    (5) It is liable for any title IV, HEA program funds it disburses 
after the fiscal year it becomes ineligible to participate in the title 
IV, HEA program under paragraph (c)(1) of this section, excluding any 
funds the institution was entitled to disburse under Sec.  668.26.

(Approved by Office of Management and Budget under control number 
1845-0096)

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17. Appendix C to subpart B of part 668 is revised to read:
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18. Section 668.32 is amended by revising paragraph (c)(2)(ii) as 
follows:


Sec.  668.32  Student eligibility.

* * * * *
    (c) * * *
    (2) * * *
    (ii) If the student is a confined or incarcerated individual as 
defined in 34 CFR 600.2, is enrolled in an eligible prison education 
program as defined in Sec.  668.236;
* * * * *
0
19. Section 668.43 is amended by adding paragraph (a)(5)(vi) as 
follows:


Sec.  668.43  Institutional information.

    (a) * * *
    (5) * * *
    (vi) If a prison education program, as defined in Sec.  668.236, is 
designed to meet educational requirements for a specific professional 
license or certification that is required for employment in an 
occupation (as described in Sec.  668.236(g) and (h)), information 
regarding whether that occupation typically involves State or Federal 
prohibitions on the licensure or employment of formerly incarcerated 
individuals in any other State for which the institution has made a 
determination about State prohibitions on the licensure or 
certification of formerly incarcerated individuals;
* * * * *
0
20. Section 668.171 is amended by revising paragraphs (d)(4) and 
paragraph (f)(1)(vii) to read as follows:


Sec.  668.171  General.

* * * * *
    (d) * * *
    (4) For its most recently completed fiscal year, a proprietary 
institution did not receive at least 10 percent of its revenue from 
sources other than Federal funds, as provided under Sec.  668.28(c);
* * * * *
    (f) * * *
    (1) * * *
    (vii) For the non-Federal revenue provision in paragraph (d)(4) of 
this section, no later than 45 days after the end of the institution's 
fiscal year, as provided in Sec.  668.28(c)(4).
* * * * *
0
21. Add subpart P to read as follows:
Subpart P--Prison Education Programs
Sec.
668.234 Scope and purpose.
668.235 Definitions.
668.236 Eligible prison education program.
668.237 Accreditation requirements.
668.238 Application requirements.
668.239 Reporting requirements.
668.240 Limit or termination of approval.
668.241 Best interest determination.
668.242 Transition to a prison education program.


Sec.  668.234   Scope and purpose.

    This subpart establishes regulations that apply to an institution 
that offers prison education programs to confined or incarcerated 
individuals. A confined or incarcerated individual enrolled in an 
eligible prison education program is eligible for Federal financial 
assistance under the Federal Pell Grant program. Unless provided in 
this subpart, confined or incarcerated individuals and institutions 
that offer prison education programs are subject to the same 
regulations and procedures that otherwise apply to title IV, HEA 
program participants.


Sec.  668.235   Definitions.

    The following definitions apply to this subpart:
    Additional location has the meaning given in 34 CFR 600.2.
    Advisory Committee is a group established by the oversight entity 
that provides nonbinding feedback to the

[[Page 45504]]

oversight entity regarding the approval and operation of a prison 
education program within the oversight entity's jurisdiction.
    Confined or incarcerated individual has the meaning given in 34 CFR 
600.2.
    Feedback Process is the process developed by the oversight entity 
to gather nonbinding input from relevant stakeholders regarding the 
approval and operation of a prison education program within the 
oversight entity's jurisdiction. A feedback process may include an 
advisory committee.
    Oversight entity means--
    (1) The appropriate State department of corrections or other entity 
that is responsible for overseeing correctional facilities; or
    (2) The Federal Bureau of Prisons.
    Relevant stakeholders are individuals and organizations that 
provide input as part of a feedback process to the oversight entity 
regarding the approval and operation of a prison education program 
within the oversight entity's jurisdiction. These stakeholders must 
include representatives of incarcerated students, organizations 
representing incarcerated individuals, state higher education executive 
offices, and accrediting agencies and may include additional 
stakeholders as determined by the oversight entity.


Sec.  668.236   Eligible prison education program.

    An eligible prison education program means an education or training 
program that--
    (a) Is an eligible program under Sec.  668.8 offered by an 
institution of higher education as defined in 34 CFR 600.4, or a 
postsecondary vocational institution as defined in 34 CFR 600.6;
    (b) Is offered by an eligible institution that has been approved to 
operate in a correctional facility by the oversight entity;
    (c) After an initial two-year approval, is determined by the 
oversight entity to be operating in the best interest of students as 
described by Sec.  668.241;
    (d) Offers transferability of credits to at least one institution 
of higher education (as defined in 34 CFR 600.4 and 600.6) in the State 
in which the correctional facility is located, or, in the case of a 
Federal correctional facility, in the State in which most of the 
individuals confined or incarcerated in such facility will reside upon 
release as determined by the institution based on information provided 
by the oversight entity;
    (e) Is offered by an institution that has not been subject, during 
the five years preceding the date of the determination, to--
    (1) Any suspension, emergency action, or termination of programs 
under this title;
    (2) Any final accrediting action that is an adverse action as 
defined in 34 CFR 602.3 by the institution's accrediting agency or 
association; or
    (3) Any action by the State to revoke a license or other authority 
to operate;
    (f) Is offered by an institution that is not subject to a current 
initiated adverse action--
    (1) If an accrediting agency initiates an adverse action, the 
institution cannot begin its first or a subsequent prison education 
program unless and until the initiated adverse action has been 
rescinded; and
    (2) If the institution currently offers one or more prison 
education programs and is subject to an initiated adverse action, the 
institution must submit a teach-out plan, as defined in 34 CFR 600.2, 
to the institution's accrediting agency.
    (g) Satisfies any applicable educational requirements for 
professional licensure or certification, including licensure or 
certification examinations needed to practice or find employment in the 
sectors or occupations for which the program prepares the individual, 
in the State in which the correctional facility is located or, in the 
case of a Federal correctional facility, in the State in which most of 
the individuals confined or incarcerated in such facility will reside 
upon release as determined by the institution not less than annually 
based on information provided by the oversight entity; and
    (h) Does not offer education that is designed to lead to licensure 
or employment for a specific job or occupation in the State if such job 
or occupation typically involves prohibitions on the licensure or 
employment of formerly incarcerated individuals in the State in which 
the correctional facility is located, or, in the case of a Federal 
correctional facility, in the State in which most of the individuals 
confined or incarcerated in such facility will reside upon release as 
determined by the institution not less than annually based on 
information provided by the oversight entity.
    (1) In the case of State and local correctional facilities, the 
postsecondary institution does not enroll any student in a prison 
education program that any Federal law, or State law in which the 
correctional facility is located, bans, bars, or prohibits licensure or 
employment based on any criminal conviction or specific types of 
criminal convictions; or
    (2) In the case of a Federal correctional facility, the 
postsecondary institution does not enroll any student in a prison 
education program that any Federal law or State law in which more than 
half of the individuals confined or incarcerated in such facility will 
reside upon release, bans, bars, or prohibits licensure or employment 
based on any criminal conviction or specific types of criminal 
convictions.
    (3) Prohibitions on offering education to a confined or 
incarcerated individual do not include local laws, screening 
requirements for good moral character or similar provisions; State or 
Federal laws that have been repealed, even if the repeal has not yet 
taken effect or if the repeal occurs between assessments of the 
institution of higher education by the oversight entity; or other 
restrictions as determined by the Secretary.


Sec.  668.237   Accreditation requirements.

    (a) A prison education program must meet the requirements of the 
institution's accrediting agency or State approval agency.
    (b) In order for any prison education program to qualify as an 
eligible program, the accrediting agency must have--
    (1) Evaluated at least the first prison education program at the 
first two additional locations to ensure the institution's ability to 
offer and implement the program based on the agency's accreditation 
standards, and included it in the institution's grant of accreditation 
or pre-accreditation;
    (2) Evaluated the first additional prison education program offered 
by a new method of delivery to ensure the institution's ability to 
offer and implement the program based on the agency's standards, and 
included it in the institution's grant of accreditation or pre-
accreditation;
    (3) Performed a site visit as soon as practicable but no later than 
one year after initiating the prison education program at the first two 
additional locations; and
    (4) Reviewed and approved the methodology for how the institution, 
in collaboration with the oversight entity, made the determination that 
the prison education program meets the same standards as substantially 
similar programs that are not prison education programs at the 
institution.
    (c) A prison education program that does not meet the requirements 
of the institution's accrediting agency or State approval agency is not 
an eligible program under Sec.  668.236.


Sec.  668.238   Application requirements.

    (a) An institution that seeks to offer a prison education program 
must apply to the Secretary to have its first prison

[[Page 45505]]

education program at the first two additional locations determined to 
be eligible programs for title IV, HEA program purposes. Following the 
Secretary's initial approval of a prison education program, additional 
prison education programs at the same location may be determined to be 
eligible without further approvals from the Secretary except as 
required by 34 CFR 600.7, 600.10, 600.20(c)(1), or 600.21(a), as 
applicable, if such programs are consistent with the institution's 
accreditation or its State approval agency.
    (b) The institution's prison education program application must 
provide information satisfactory to the Secretary that includes--
    (1) A description of the educational program, including the 
educational credential offered (degree level or certificate) and the 
field of study;
    (2) Documentation from the institution's accrediting agency or 
State approval agency indicating that the agency has evaluated the 
institution's offering of prison education program(s) and has included 
the program(s) in the institution's grant of accreditation and approval 
documentation from the accrediting agency or State approval agency;
    (3) The name of the correctional facility and documentation from 
the oversight entity that the prison education program has been 
approved to operate in the correctional facility;
    (4) Documentation detailing the methodology including thresholds, 
benchmarks, standards, metrics, data, or other information the 
oversight entity used in making the determination that the program is 
in the best interest of students for all indictors under Sec.  668.241 
and how all the information was collected;
    (5) Information about the types of services offered to admitted 
students, including: orientation, tutoring and academic and reentry 
counseling. If reentry counseling is provided by a community-based 
organization that has partnered with the eligible prison education 
program, institution, or correctional facility to provide reentry 
services, then information about the types of services that the 
community-based organization offers;
    (6) Affirmative acknowledgement that the Secretary can limit or 
terminate approval of an institution to provide a prison education 
program as described in Sec.  668.237;
    (7) Affirmative agreement to submit the report to the Secretary as 
described in Sec.  668.239;
    (8) Documentation that the institution has entered into an 
agreement with the oversight entity to obtain data about transfer and 
release dates of incarcerated individuals, which will be reported to 
the Department of Education; and
    (9) Such other information as the Secretary deems necessary.
    (c) For the second or subsequent eligible prison education program 
at a location, to fulfill requirements under 34 CFR 600.21, an 
institution submits--
    (1) Documentation from the institution's accrediting agency noting 
that the institution complies with Sec.  668.236(f) and was not subject 
to any final accrediting action that is an adverse action by the 
institution's accrediting agency or association in the last five years;
    (2) Documentation from the institution noting that the institution 
was not subject to any action by the State to revoke a license or other 
authority to operate in the last five years; and
    (3) Documentation that the institution has entered into an 
agreement with the oversight entity to obtain data about transfer and 
release dates of incarcerated individuals, which will be reported to 
the Department of Education pursuant to Sec.  668.239.


Sec.  668.239   Reporting requirements.

    (a) An institution must submit reports, in accordance with 
deadlines established and published by the Secretary in the Federal 
Register.
    (b) The institution reports such information as the Secretary 
requires, in compliance with procedures the Secretary describes.
    (c) The institution reports information about transfer and release 
dates of incarcerated individuals, as required by the Secretary, 
through an agreement with the oversight entity.


Sec.  668.240   Limit or termination of approval.

    (a) The Secretary limits or terminates approval of an institution 
to provide an eligible prison education program if the Secretary 
determines that the institution violated any terms of this subpart or 
that the information that the institution submitted as a basis for 
approval to the Secretary, accrediting agency, State agency, or 
oversight entity was materially inaccurate.
    (b) If the Secretary initiates a limitation or termination action 
of an institution's approval to operate an eligible prison education 
program, the institution must submit a teach-out plan and, if 
practicable, a teach-out agreement(s) (as defined in 34 CFR 600.2) to 
its accrediting agency upon occurrence of the event.


Sec.  668.241   Best interest determination.

    (a) An oversight entity's determination that a prison education 
program is operating in the best interest of students--
    (1) Must include an assessment of all the following--
    (i) Whether the rate of confined or incarcerated individuals 
continuing their education post-release, as determined by the 
percentage of students who reenroll in higher education reported by the 
Department, meets thresholds established by the oversight entity with 
input from relevant stakeholders;
    (ii) Whether job placement rates in the relevant field for such 
individuals meet any applicable standards required by the accrediting 
agency for the institution or program or a State in which the 
institution is authorized. If no job placement rate standard applies to 
prison education programs offered by the institution, the oversight 
entity must define, and the institution must report, a job placement 
rate, with input from relevant stakeholders;
    (iii) Whether the earnings for such individuals, or the median 
earnings for graduates of the same or similar programs at the 
institution, as measured by the Department, exceed those of a typical 
high school graduate in the State;
    (iv) Whether the experience, credentials, and rates of turnover or 
departure of instructors for a prison education program are 
substantially similar to other programs at the institution, accounting 
for the unique geographic and other constraints of prison education 
programs;
    (v) Whether the transferability of credits for courses available to 
confined or incarcerated individuals and the applicability of such 
credits toward related degree or certificate programs is substantially 
similar to those at other similar programs at the institution, 
accounting for the unique geographic and other constraints of prison 
education programs;
    (vi) Whether the prison education program's offering of relevant 
academic and career advising services to participating confined or 
incarcerated individuals while they are confined or incarcerated, in 
advance of reentry, and upon release, is substantially similar to 
offerings to a student who is not a confined or incarcerated individual 
and who is enrolled in, and may be preparing to transfer from, the same 
institution, accounting for the unique geographic and other constraints 
of prison education programs;
    (vii) Whether the institution ensures that all formerly 
incarcerated students

[[Page 45506]]

are able to fully transfer their credits and continue their programs at 
any location of the institution that offers a comparable program, 
including by the same mode of instruction, barring exceptional 
circumstances surrounding the student's conviction; and
    (2) May include an assessment of all the following--
    (i) Whether the rates of recidivism, which do not include any 
recidivism by the student within a reasonable number of years of 
release and which only include new felony convictions as defined by 
United States Sentencing Guideline Sec.  4A1.1(a) as ``each sentence of 
imprisonment exceeding one year and one month,'' meet thresholds set by 
the oversight entity;
    (ii) Whether the rates of completion reported by the Department, 
which does not include any students who were transferred across 
facilities and which accounts for the status of part-time students, 
meet thresholds set by the oversight entity with input from relevant 
stakeholders; and
    (iii) Other indicators pertinent to program success as determined 
by the oversight entity.
    (b) An oversight entity makes the best interest determination--
    (1) Through a feedback process that considers input from relevant 
stakeholders; and
    (2) In light of the totality of the circumstances.
    (c) If the oversight entity does not find a program to be in the 
best interest of students, it must allow for programs to re-apply 
within a reasonable timeframe.
    (d) After the two years of initial approval under Sec.  668.236, 
the institution must be determined by the oversight entity to be 
operating in the best interest of students, as defined in paragraph 
(a), of this section.
    (e)(1) After its initial determination that a program is operating 
in the best interest of students under paragraph (c) of this section, 
the institution must obtain subsequent final evaluations of each 
eligible prison education program from the responsible oversight entity 
not less than 120 calendar days prior to the expiration of each of the 
institution's Program Participation Agreements, except that the 
oversight entity may make a determination between subsequent 
evaluations based on the oversight entity's regular monitoring and 
evaluation of program outcomes.
    (2) Each subsequent evaluation must--
    (i) Include the entire period following the prior determination and 
be based on the factors described under paragraph (a) of this section 
for all students enrolled in the program since the prior determination;
    (ii) Include input from relevant stakeholders through the oversight 
entity's feedback process; and
    (iii) Be submitted to the Secretary no later than 30 days following 
completion of the evaluation.
    (f)(1) The institution must obtain and maintain documentation of 
the methodology by which the oversight entity made each determination 
under paragraph (a) of this section and Sec.  668.236(b) for review by 
the institution's accrediting agency, submission of the application to 
the Department for the approval of the first program at the first two 
additional locations, the input of relevant stakeholders through the 
oversight entity's feedback process described in paragraphs (b)(1) and 
(e)(2)(ii) of the section, reporting to the Department, and for public 
disclosure.
    (2) The institution must maintain the documentation described in 
(1) for as long as the program is active or, if the program is 
discontinued, for three years following the date of discontinuance.


Sec.  668.242   Transition to a prison education program.

    For institutions operating eligible prison education programs in a 
correctional facility that is not a Federal or State penal institution:
    (a) A confined or incarcerated student who otherwise meets the 
eligibility requirements to receive a Federal Pell Grant and is 
enrolled in an eligible program that does not meet the requirements 
under subpart P of this part may continue to receive a Federal Pell 
Grant until the earlier of:
    (1) July 1, 2029;
    (2) The student reaches the maximum timeframe for program 
completion as defined under Sec.  668.34; or
    (3) The student has exhausted Pell Grant eligibility as defined 
under 34 CFR 690.6(e).
    (b) An institution is not permitted to enroll a confined or 
incarcerated student on or after July 1, 2023, who was not enrolled in 
an eligible program prior to July 1, 2023, unless the institution first 
converts the eligible program into an eligible prison education program 
as defined in Sec.  668.236.

PART 690--FEDERAL PELL GRANT PROGRAM

0
22. The authority citation for part 90 continues to read as follows:

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

0
23. Section 690.62 is revised to read as follows:


Sec.  690.62   Calculation of a Federal Pell Grant.

    (a) The amount of a student's Pell Grant for an academic year is 
based upon the payment and disbursement schedules published by the 
Secretary for each award year.
    (b)(1)(i) For a confined or incarcerated individual enrolled in an 
eligible prison education program, no Federal Pell Grant shall exceed 
the cost of attendance (as defined in section 472 of the HEA) at the 
institution at which that student is in attendance.
    (ii) If an institution determines that the amount of a Federal Pell 
Grant for that student exceeds the cost of attendance for that year, 
the amount of the Federal Pell Grant shall be reduced until the Federal 
Pell Grant does not exceed the cost of attendance at such institution 
and does not result in a title IV credit balance under 34 CFR 
668.164(h).
    (2)(i) If a confined or incarcerated student's Pell Grant, combined 
with any other financial assistance, exceeds the student's cost of 
attendance, the financial assistance other than the Pell Grant must be 
reduced by the amount that the total financial assistance exceeds the 
student's cost of attendance.
    (ii) If the student's other financial assistance cannot be reduced, 
the student's Pell Grant must be reduced by the amount that the 
student's total financial assistance exceeds the student's cost of 
attendance.
0
24. Add Section 690.68 to read as follows:


Sec.  690.68   Severability.

    If any provision of this subpart or its application to any person, 
act, or practice is held invalid, the remainder of the subpart or the 
application of its provisions to any person, act, or practice shall not 
be affected thereby.

[FR Doc. 2022-15890 Filed 7-26-22; 8:45 am]
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