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ED Proposes Changes to Program Integrity Rules

June 21, 2010

Updated 7/12/10: Free NACUBO/NASFAA webinar

NACUBO is partnering with the National Association of Student Financial Aid Administrators (NASFAA) to present a free webinar on July 15 at 1:30pm EDT for our members to review the Department of Education's proposed rules on program integrity. We've grouped the issues that are of the most interest to bursars and business officers in one program: return of Title IV funds, timely disbursements (book allowances), incentive compensation, and gainful employment. Visit NASFAA's website for more information and registration details.

 

The Department of Education published proposed rules on June 18 making changes to a number of Title IV regulations, loosely grouped under the rubric of "program integrity." Fourteen issues are addressed ranging from incentive compensation to return of Title IV funds when students withdraw. While the proposed rules have been widely characterized as targeting abuses in the for-profit sector, all institutions that participate in Title IV student aid programs will be impacted.

NACUBO representatives participated on the negotiated rulemaking team that considered these changes in a series of meetings last fall and winter. The committee reached consensus on only nine of the 14 issues before it. The 45-day public comment period on the proposed rules is the next step in the rulemaking process. Comments are due August 2.

Gainful Employment

The most contentious issue in this rulemaking has centered on ED's proposal to provide a regulatory definition of the term "gainful employment" that would consider the debt load of graduates compared to expected earnings. In the end, ED removed that part of the proposal from this notice of proposed rulemaking but left in a requirement for institutions to provide information to ED on certain programs which are eligible for Title IV aid because they prepare students for "gainful employment in a recognized occupation." "Gainful employment" is used in the definition of eligible programs at for-profit schools, with some exceptions. At public and nonprofit institutions, "gainful employment" is used with respect to short-term programs of at least a year in length. Under the proposal, such programs would only encompass non-degree programs offering a certificate or other credential.

Institutions would be required to provide ED with data about students who complete such a program, including identifying information for students who complete, their date of completion, the program's Classification of Instructional Program code, and the amounts the students received from private educational loans and institutional financing. Institutions would also need to disclose on their Web sites new information about these programs including on-time graduation rates, costs, placement rates, and median debt load of students.

Incentive Compensation

The Higher Education Act (HEA) prohibits institutions participating in the Title IV programs from making any commission, bonus, or other incentive payment based on success of securing enrollments or awarding student aid to any persons or entities involved in recruiting, admissions, or financial aid. For a number of years after this provision was added in response to concerns in the early 1990s about unscrupulous for-profit schools aggressively recruiting students, the regulations provided little guidance. In 2002, ED responded to complaints from some institutions about lack of clarity and confusion about what they could and could not do in compensating admissions and student aid staff and amended the regulations by adding 12 safe harbors. The safe harbors addressed various eventualities such as merit increases, profit sharing, and paying for leads on the Internet.

Now, however, ED proposes to remove all of the safe harbors, saying that "unscrupulous actors routinely rely upon these safe harbors to circumvent the intent" of the HEA. ED maintains it has expended "vast resources evaluating the legitimacy of institutional compensation plans" since the safe harbors were introduced.

The proposed rules would reiterate the statutory prohibition, supply several definitions of key terms, and provide that institutions and their contractors may make merit-based adjustments to employee compensation as long as the adjustments are not based "directly or indirectly upon success in securing enrollments or awarding financial aid".

Key Issues for Business Officers

Three of the issues are of primary interest to business officers, student financial services directors, and bursars. One focuses on ensuring that low-income students have the opportunity to obtain necessary books and supplies in a timely manner, even if their federal aid has not been disbursed. The other two would make changes to the rules for return of Title IV funds (R2T4), the calculation that institutions must make when students with Title IV aid withdraw. The negotiated rulemaking team did not reach consensus on the R2T4 proposals.

Provisions for Books and Supplies

ED raised this issue originally as a concern about timely disbursement of Pell grants to students, expressing concern that students were disadvantaged by institutions that were deliberately delaying disbursements to avoid R2T4 liabilities. In negotiated rulemaking, association and institutional representatives persuaded the committee that this was primarily an issue at community colleges with more unsettled enrollments. Such institutions often wait until students' attendance is confirmed and the drop/add period is over before making disbursements. It then may take up to two additional weeks for students to receive payment of any credit balances.

Instead of mandating earlier disbursements, ED is proposing that institutions must provide a way for Pell-eligible students to obtain or purchase required books and supplies within 7 days of the start of the payment period. The institution may choose how it will do this: it can pay expected credit balances earlier, use a book voucher program, or something else. The provision only applies to those students whose aid could have been disbursed 10 days before the beginning of the payment period (all aid processes had been completed) and who would have a Title IV credit balance. The amount provided for the student to get books must equal the lesser of the expected credit balance or the amount the institution determines the student needs.

R2T4 - Term-based Programs with Modules or Compressed Courses

Under current R2T4 regulations, a student who completes at least one module in a term-based program has not withdrawn. So, for instance, if a program consisted of five three-week modules, each worth 3 credits, a student who completed the first module and earned 3 credits, but then dropped the rest of the term would not be subject to an R2T4 calculation. This was intended to parallel the case of a student in a traditional term that drops all but one course, and is not considered to have withdrawn.

According to ED, however, this rule has led to considerable abuse as some institutions have deliberately fashioned programs that start with a short module. As long as students stick it out for that first module, the R2T4 rules never apply. The negotiated rulemaking team went through a variety of fixes for this problem, but failed to settle on a solution.

ED is proposing a fundamental shift in the R2T4 calculation. A student would be considered to have withdrawn from a payment period or period of enrollment if, for a program that is measured in credit hours, "the student does not complete all the days in the payment period or period of enrollment that the student was scheduled to complete" (emphasis added). This change is likely to require many more R2T4 calculations at institutions with terms that encompass modules and compressed courses. There will also be some interplay between a student's dropping and adding of classes, thus changing what days they are scheduled to complete, and withdrawing.

R2T4 - Institutions Required to Take Attendance

The HEA, in laying out the framework for the R2T4 requirements, divides institutions into two categories: those that are required to take attendance and those that are not. An institution's options for determining when a student withdrew differ depending on which category it falls in. An institution that is required to take attendance must use its attendance data to determine a student's last day of attendance and may not fall back on the midpoint in the term for a student who withdraws without official notification. The regulations have long determined that an institution is required to take attendance if it is mandated by an outside entity (such as an accreditor or state).

ED proposes to broaden the definition of an institution that is required to take attendance to include an institution that:

  • Imposes its own requirement for faculty to take attendance
  • Has its own requirement, or one imposed by an outside entity, that can only be met by taking attendance or a comparable process, that students demonstrate attendance in classes of a program or part of a program. This would include institutions which take attendance for a limited time for census purposes but not if it is only for one day.

Next Steps

NACUBO will provide greater detail and more analysis of the proposed changes in the coming weeks. Members are urged to carefully consider the likely impact of the proposal on your institution's and share your questions and concerns with NACUBO. NACUBO plans to file comments with ED on behalf of its members and also encourages institutions to submit their own comments before the August 2 deadline.

ED plans to release final regulations no later than November 1 so that the changes would take effect July 1, 2011, for the 2011-12 award year.

Contact

Anne Gross
Vice President, Regulatory Affairs
202.861.2544
E-mail