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Capitol Report

Coverage of legislation and regulatory activity that affects higher education

Department of Education Finalizes Program Integrity Rules

The Department of Education's 18-month push to tighten rules on institutions participating in federal student aid programs culminated in two sets of final regulations published on October 29. The larger 143-page package, generally referred to as the “program integrity rules,” addresses 13 separate issues covered in last year's negotiated rulemaking effort and part of the controversial gainful employment issue. A much shorter notice covers just one provision affecting approval of new gainful employment programs.

Still to come are rules that would restrict the eligibility of some vocational programs for federal student aid based on their students' debt load and success in repaying loans. After receiving more than 90,000 comments on those proposed rules, the Department of Education (ED) decided to delay publication of final rules until early 2011.

While the impetus behind these rules is clearly the concern about rapid growth in for-profit education—representing 11 percent of all higher education students, 26 percent of all student loans, and 43 percent of all loan defaulters, according to ED—all types of institutions are subject to them. Rules were tightened on incentive compensation, return of Title IV funds, and more. Institutions will also be required for the first time to provide a way for certain students to obtain books and supplies within one week of the start of classes. Other topics covered include satisfactory academic progress, verification, definition of a credit hour, state authorizations, misrepresentation, ability-to-benefit testing, retaking of coursework, agreements between institutions, and validity of high school diplomas.

Effective date. The new rules generally become effective on July 1, 2011, except for the changes to the verification process, which do not take effect until 2012. In an unusual move, ED has not authorized institutions to implement any of the provisions early.

Following is a discussion of provisions of the final rules most likely to be of interest to business officers.

Gainful Employment Reporting Requirements

The topic that has garnered the most attention over the past few months—imposing new restrictions on so-called “gainful employment” programs—is only peripherally addressed in this rulemaking. Under the Higher Education Act, most educational programs offered by proprietary institutions, along with short-term vocational programs and nondegree programs of at least one academic year offered by private and nonprofit institutions, are eligible for Title IV funds because they prepare students for “gainful employment in a recognized occupation.” The October 29 rules add reporting and disclosure requirements for these programs in the new Section 668.6.

By Oct. 1, 2011, institutions will be required to report information by program name and Classification of Instructional Program (CIP) Code for each student enrolled in a gainful employment program for award years 2007-08 through 2009-10. Data for 2006-07 is required to the extent it is available. For those who completed a program during the year, certain details would need to be reported, including amounts of any private education loans, balances owed on institutional financing plans, and updates as to whether the student went on to attend a higher-level program at the same or a different institution.

In addition, institutions must provide prospective students with certain information via promotional materials and Web site posts that appear “in a simple and meaningful manner,” regarding graduation and placement rates, expenses, and loan debt for students already in the program.

Incentive Compensation Safe Harbors Removed

In 2002, ED added 12 safe harbors to its rules barring institutions from paying incentive compensation to anyone involved with student recruitment or student aid awards. In the new rules, the department is eliminating the safe harbors and largely falling back to language in the statute. The heart of the ban on incentive compensation is provided in Section 668.14(b)(22):

It [the institution] will not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the award of title IV, HEA program funds.

In the preamble explaining the rules, ED repeatedly states that institutions can easily determine whether a payment is permissible by analyzing: (1) whether it is a commission, bonus, or other incentive payment and, if so, (2) whether the payment is provided to any person based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid.

While incentive compensation has generally been seen as targeting for-profit schools known for more aggressive recruiting practices, nonprofit institutions have also been cited for violating the ban in the past, often due to contracts with third parties paid on a per-student basis for performing a variety of tasks that included enrollment and awarding aid. Business officers should scrutinize compensation policies and any third-party contracts that may involve these areas, to ensure compliance.

More Complexity for Return of Title IV Funds

ED has made two unrelated changes to rules governing the return of Title IV funds (R2T4) should a student withdraw from school, both of which are likely to add complexity to compliance efforts. As with most of this rulemaking, these revisions were not mandated by changes to the underlying statute. Rather, based on its experience administering the existing rules, ED has determined that current rules are inequitable or are being abused. The final rules are similar to those in the proposed rules, with a couple of notable refinements.

Modular programs. Under current R2T4 rules for a term-based institution, if a student completes any class—including one offered in a modular format—before withdrawing, the student is not considered a withdrawal for R2T4 purposes. ED alleges that some institutions have sought to take advantage of this loophole by designing their programs so that terms begin with very short one-credit modules, which nearly everyone completes. Thus, they “earn” all their Title IV aid and avoid R2T4 calculations. The new regulations seek to remedy this situation by declaring that, for a program measured in credit hours, a student is considered to have withdrawn if the student “does not complete all the days in the payment period or period of enrollment that the student was scheduled to complete.”

ED has refined the final rules to respond to comments by NACUBO and others about how institutions would handle a student who dropped out of a module in the beginning or middle of a term but was still registered to attend one beginning later:

  • If a student drops an earlier module, but the institution obtains from the student, at the time of the withdrawal, a written confirmation that the student plans to attend a module that begins later in the same term, the institution does not need to treat the student as withdrawn.
  • If a student fails to provide this confirmation but does attend a later module, the institution would need to reverse any returns it had made under R2T4.

The preamble to the final regulations also includes some useful discussion and examples of situations in which a student would or would not be considered to have withdrawn from a modular program and clarifies how institutions should calculate “the number of days within the payment period that the student was scheduled to complete” for a program with modules.

Taking attendance. The statutory language that established the R2T4 policy set up a dichotomy between institutions that are required to take attendance and those that are not. Those required to take attendance must determine when a student withdrew based on those attendance records. Other institutions have several options for determining when a student withdrew, including using the midpoint of the term or payment period and using the last date of attendance at an academically related activity if a student leaves without notifying the institution.

The final rules expand what it means to be an institution that is “required to take attendance.” Formerly, an outside entity such as a state or accrediting agency had to require the institution to take attendance. Now, an institution will be considered to be “required to take attendance” if any of the following apply:

  • An outside entity requires it to take attendance.
  • The institution itself voluntarily requires its faculty to take attendance.
  • The institution or an outside entity has a requirement that can only be met by taking attendance, such as requiring students in a particular program to demonstrate class attendance.

In a further departure from current rules, when determining withdrawal dates, institutions that take attendance for only a subgroup of students or for a limited time period must still follow the rules for institutions required to take attendance. For institutions that are required to take attendance, ED will allow as a withdrawal date the student's last date of attendance at an academically related activity rather than his or her last date of class attendance, but has modified its list of such activities.

Making Provisions for Books and Supplies

ED is concerned that some institutions delay disbursement of Title IV student assistance, making it difficult for the poorest students to pay their bills and purchase necessary books and supplies in a timely manner. The final rules call for institutions to provide a way for Pell Grant-eligible students to obtain required books and supplies by the seventh day of the payment period.

Institutions may disburse aid funds and pay credit balances to students or use book vouchers, stored value cards, or other means. This applies if the Title IV funds could have been disbursed 10 days before the beginning of the payment period and if the student would have a Title IV credit balance.

Responding to a concern raised by NACUBO in comments on the proposed regulations, the department added a provision obviating the requirement for the institution to have a signed authorization allowing Title IV funds to be applied to the student's account for charges other than tuition, fees, room, and board.

For example, if the student uses the method provided by the institution to purchase books and supplies—and the institution posts the charges to the student's account—the student is considered to have authorized the use of Title IV funds and the institution does not need to obtain a written authorization in order to apply Title IV funds to the charges. Regardless of the way an institution provides for a student to obtain books and supplies, the student must be allowed to opt out.

NACUBO CONTACTS Anne Gross, vice president of regulatory affairs, 202.861.2544, and Bryan Dickson, program analyst, 202.861.2505