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Business and Policy Areas
Business and Policy Areas

ED Program Integrity Negotiations End Without Agreement

February 10, 2010

The Department of Education's latest negotiated rulemaking effort ended without consensus, leaving ED staff free to draft changes to Title IV regulations as they see fit. Sometime in the next few months, ED will publish a notice of proposed rulemaking to solicit public comments on its proposals. ED had convened a negotiating committee, representing various stakeholders in the higher education community, late last fall to consider changes to some 14 existing "program integrity" regulations. 

While the desire to crack down on perceived abuses in the proprietary sector was generally assumed to be ED's motivation for proposing the rule changes-no new statutory language drove the need for changes-most of the proposals would have impacted nonprofit and public institutions as well. The agenda included high-profile topics such as using the definition of "gainful employment" to look at debt-to-income ratios of graduates, the prohibition on incentive compensation, the definition of a credit hour, and a number of others. 

In the end, the committee reached tentative agreement on nine of the 14 issues on the table. Without consensus on the entire package, ED is not bound by any tentative agreements but, in practice, usually follows through and proposes the agreed-upon language. 

Of three issues on the agenda of particular interest to business officers, the committee reached tentative agreement on only one concerning the timing of disbursement of Title IV aid to students. Two issues pertaining to rules governing the return of Title IV funds (known as R2T4)-defining when a school is "required to take attendance" and treatment of term-based modular programs-remained unresolved. 

Delayed Disbursement 

Complaints that some institutions regularly disburse federal aid, particularly Pell Grants, so late in a term that students are unable to purchase books and supplies in a timely manner, led ED to suggest changes to the cash management rules under 34 CFR §668.164 to require institutions to disburse funds (or enough to cover books and supplies) no later than the first day of class. NACUBO surveyed a sample of its membership to gather information about timing of disbursements and the resulting data was very useful to subsequent discussions at the negotiating table. 

Delayed disbursement of federal aid is primarily an issue at community colleges. The low cost of community colleges means that more aided students are entitled to payment of a Title IV credit balance refund once aid is disbursed to student accounts. At the same time, the student population at these open-access institutions is less settled than at many four-year institutions and they experience significant "churn" in student attendance and class schedules as a result. Many institutions delay disbursements until after census dates or drop/add periods in order to guard against disbursing aid to students who fail to attend classes, providing the wrong amount of aid due to changes to student class loads, or saddling students who withdraw soon into a term with debts for federal overpayments that must be repaid before the student can try again. 

After much discussion and reviewing a number of proposals, the group agreed that institutions would be required to provide a way for Pell-eligible students to obtain or purchase books and supplies by the seventh day of the payment period if the institution could disburse Title IV funds for that student 10 days before the first day of classes and the student would be due a Title IV credit balance. The institution retains flexibility to determine when the Title IV funds will be actually disbursed, but ED intends to remind institutions that they have that flexibility in order to choose a schedule that benefits students-not for the institution's convenience. Institutions will be free to decide how they will meet the requirement to enable students to obtain their books and supplies. 

Institutions should note that one of the drivers of this issue is complaints from students that institutional policies lock them in to purchasing books at higher prices from institution-affiliated bookstores. Allegations that some institutions have been signing agreements with third-party bookstore operators that require the institution to steer aided students and others to those bookstores are fueling further resentment among students, as well as concerns at ED.

 Return of Title IV Funds

Under the language in the Higher Education Act spelling out the policy for R2T4, institutions that are required to take attendance must use their attendance records to determine the withdrawal date for a student who drops out without officially withdrawing. Such an institution may not employ alternatives such as documenting a last day of academic activity, or using the midpoint of the period of enrollment, which are available to other institutions. Current regulations stipulate that an institution is only "required to take attendance" if it is required to do so by an outside entity.

In negotiated rulemaking, ED suggested broadening the definition of an institution that is required to take attendance to include institutions which choose to take attendance, including those who take attendance only for certain programs or subsets of students, or for limited periods of time. Negotiators representing institutions--including NACUBO's representatives--objected, arguing that partial or incomplete attendance records should not be used as the sole source of information and that the statutory language clearly distinguishes institutions "required" to take attendance. When a counter-proposal offered by a group of nonfederal negotiators wasn't embraced by ED's negotiators on the last day of the final meeting, the issue was left unresolved.

 The other R2T4 issue on the agenda was the treatment of term-based modular programs. (Note that summer sessions at many institutions with traditional calendars are treated as term-based modular programs under ED rules, and many institutions offer a mix of classes of different lengths within "regular" terms.) Under current rules, a student who completes any module in a term would not be considered to have withdrawn during the term. This is intended to parallel the case of a student in a traditional term dropping all but one class. However, ED is concerned that some institutions have been gaming the rules by leading off a term with a very short one- or two-credit module, and then never showing any students who complete that module as withdrawn for R2T4 purposes.

On this issue, negotiators could agree on the problem but not on an acceptable solution. Various suggestions seemed to trade one set of inequities for another. The final ED proposal would have required institutions to define term length for R2T4 purposes for each student, depending on their scheduled attendance. Some institutional representatives estimated that the number of R2T4 calculations needed might grow by more than 30 percent. In the end, time ran out before an agreement could be reached.


Anne Gross
Vice President, Regulatory Affairs