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[Note: This article was updated on November 17 to correct the information about which programs at nonprofit and public institutions are subject to the "gainful employment" provisions.]

On October 29, the Department of Education published a slew of changes to the regulations governing the Title IV student aid programs. While in several areas alleged abuses primarily found in the for-profit sector are targeted, the regulations will affect public and nonprofit colleges and universities as well. 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.

Provisions of the final rules likely to be of most interest to business officers are discussed in greater detail below.

Gainful Employment

The topic that has garnered the most attention over the last 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 are eligible for Title IV funds because they prepare students for "gainful employment in a recognized occupation." Short-term postsecondary vocational programs offered by public and nonprofit institutions are also defined that way. The revised regulations clarify that public and nonprofit programs of at least one academic year in length that lead to a certificate or other nondegree credential also are eligible because they prepare students for "gainful employment in a recognized occupation." Such programs, offered at many colleges and universities, will need to comply with the same rules that apply to the for-profit programs.

Gainful employment programs were on the agenda of last winter's negotiated rulemaking team convened to discuss the proposed changes to the program integrity rules. By the time ED issued notices of proposed rulemaking in the summer, however, the meat of the gainful employment rules were split off into a separate notice that came out more than a month later. Reporting and disclosure requirements remained in the broader program integrity proposed rules, while the provisions that called for using the reported data to evaluate gainful employment programs and potentially restrict their eligibility for aid were in the later notice. ED was overwhelmed with more than 90,000 comments on that second notice and has announced that final rules will not be issued for several months. ED did, however, address one aspect of that rule-approvals for new gainful employment programs-in a separate final rule published on October 29.

Reporting and Disclosure. The October 29 rules add reporting and disclosure requirements for these programs in new §668.6. By October 1, 2011, institutions will be required to report information, by program name and Classification of Instructional Program (CIP) Code, on each student who was 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. Data reported would include, for students who completed a program during the year, amounts of any private education loans, amounts outstanding on institutional financing plans, and 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 the following information, both in promotional materials and by posting it "in a simple and meaningful manner" on the home page of its program Web site:

  • Occupations that the program prepares students to enter
  • On-time graduation rate for students who completed the program
  • Tuition and fees charged for completing the program in the normal time
  • Typical costs for books and supplies, unless included in tuition and fees
  • Placement rate for students completing the program
  • Median loan debt incurred by students completing the program, separately for Title IV and private loans

ED made several changes to this section of the final regulations in response to comments submitted on the proposed rules. While the rules set forth interim requirements for calculation of placement rates, the National Center for Education Statistics has been charged with developing a placement rate methodology and the processes necessary for determining and documenting student employment and reporting placement data to ED through the Integrated Postsecondary Education Data System (IPEDS). The final rules are also more prescriptive in laying out how institutions must make this information available on their Web sites. Details of how to calculate an on-time completion rate are also provided, since commenters pointed out that this is a new previously undefined measure.

New Gainful Employment Programs. As mentioned above, ED published a second notice on October 29 providing final rules on approval of new gainful employment programs. The final rules scale back the original proposal that would have required institutions to obtain prior approval from ED for all new programs. Instead, for students in new programs to be eligible for Title IV aid, institutions will need to notify ED at least 90 days in advance of their plans to introduce new gainful employment programs.

The notice must describe how the institution determined the need for the new program, how the program was designed to meet market needs, and must include a description of any wage analysis that was performed. The notice should also detail how the program was reviewed, approved by, or developed in conjunction with business advisory committees, public or private oversight or regulatory agencies, and businesses that would likely employ graduates of the program.

The institution may proceed to offer the program unless ED advises the institution that there is a concern or a need for additional information. If ED denies the new program, institutions may appeal. In deciding whether to seek additional information, ED will assess the institution's administration of its current programs, its capability to add the new program, and evaluate the institution's determination that the program should be offered.

Incentive Compensation

Back in 2002, ED added twelve safe harbors to its rules barring institutions from paying incentive compensation to anyone involved with student recruitment or awarding student aid. Now, in these rules, ED is eliminating the safe harbors and largely falling back to the language in the statute. The heart of the ban on incentive compensation is provided in §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 opines that institutions can easily determine if 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.

In response to comments received on the proposed rules, ED made a few changes to accompanying definitions and provided a little more guidance. The definition of commission, bonus, or other incentive payment, which seemed to cover any type of payment as proposed, now has been clarified to exclude "a fixed salary or wages." More detail is provided on the types of activities covered and not covered. For instance, an entity that provides an institution with contact information for prospective students would not be considered to be engaged in recruiting unless the entity was also involved in other activities that are considered recruiting, such as setting up appointments.

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

Return of Title IV Funds

ED has made two unrelated changes to the rules governing the return of Title IV funds (R2T4) when a student withdraws 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 the department's 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. Class scheduling has become considerably more flexible in recent years, even at term-based institutions, with more courses offered in modular format. Courses within the term may have a variety of start dates, and may vary in length. Many institutions, even those with quite traditional calendars, treat the summer session as a term with modular classes. 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. This was intended to put students in such programs on an equal footing with those attending traditional schedules (a student in a traditional term who drops three out of four classes, completing only one, is not considered a withdrawal). However, ED alleges that some institutions have sought to take advantage of this loophole and have designed their programs so that terms begin with very short one-credit modules which everyone completes, "earns" all their Title IV aid, allowing R2T4 calculations to be avoided. 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(s) in the beginning or middle of a term but was still registered to attend one beginning later. ED has now defined "offered in modules" in the final regulations as follows:

A program is "offered in modules" if a course or courses in the program do not span the entire length of the payment period or period of enrollment.

The final regulations now allow a student attending such a program who ceases to attend during a term to not be considered a withdrawal if 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. 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 when a student would or would not be considered to have withdrawn from a modular program.

The final regulations clarify how institutions should calculate "the number of days within the payment period that the student was scheduled to complete" for a program with modules. Days should not be counted for any scheduled breaks of at least five days when the student is not scheduled to attend a module or other course.

Taking Attendance. The statutory language that established the R2T4 policy sets up a dichotomy between institutions that are required to take attendance and those that are not. Those that are 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 or the last date of attendance at an academically related activity if a student leaves without notifying the institution.

In these final rules, ED has expanded what it means to be an institution that is "required to take attendance." Formerly, an institution had to be required to take attendance by an outside entity, such as a state or accrediting agency. Now, an institution will be considered to be "required to take attendance" if:

  • 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 that students in a particular program demonstrate class attendance

In a further departure from current rules, institutions that take attendance for only some subgroup of students or for a limited period of time (perhaps the first few weeks of a term) will have to follow the rules for institutions that are required to take attendance when determining withdrawal dates for some students or during certain time periods. ED will allow institutions that are required to take attendance to use a student's last date of attendance at an academically-related activity rather than the last date of class attendance as a withdrawal date, but has modified its list of such activities. ED has taken academic counseling or advising off the list of acceptable activities, alleging that some institutions have contacted students who ceased attending and then characterized such contact as academic counseling.

Provisions for Books and Supplies

ED is concerned that some institutions delay disbursement of Title IV student assistance until weeks into a payment period, 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 or purchase required books and supplies by the seventh day of the payment period. Institutions may disburse aid funds and pay credit balances to students within that time frame or use book vouchers, stored value cards, loaned books, or other methods to provide the aid. This applies if the Title IV funds could have been disbursed 10 days before the beginning of the payment period (i.e., all necessary paperwork is completed) and if the student would have a Title IV credit balance.

ED responded to a concern raised by NACUBO in comments on the proposed regulations by adding a provision obviating the requirement for the institution to have a signed authorization in order to pay charges directly by crediting the student's account for any charges other than tuition, fees, room, and board. 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, as required under current regulations, 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 may opt out. If the student opts out, the institution may, but is not required to, offer the student another way to purchase books and supplies so long as it does not otherwise delay providing funds to the student as a credit balance.


Liz Clark

Vice President, Policy and Research



Bryan Dickson

Director, Student Financial Services and Educational Programs


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