Regulatory Update – Program Integrity

Presented by: Betsy MayottePresented to: ANZFAA Conference via SkypeDate: September, 2010

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The Legal Bits

Please note this PowerPoint presentation is an educational tool that is speculative in nature. It is

not intended to be an exhaustive review of the Department of Education’s laws and regulations

and it not intended to provide legal advice. Materials presented in this presentation should

not be considered a substitute for actual statutory or regulatory language.  Always refer to

the current edition of a referenced statute, or regulation for precise language and consult with

your own attorney for legal advice.

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Agenda

• Background

• 2010-2011 Negotiated Rulemaking Overview

• Regulations effective July 1, 2011 in most cases

• Speculation on Gainful Employment

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Background

• Student debt level big discussion topic

• Consumer protections

• It’s all about the oversight

• Unique atmosphere at neg reg

• No consensus

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Program Integrity - Topics

• Definition of High School Diploma

• Ability to Benefit• Misrepresentation of

Information• Incentive Compensation• State Authorization• Gainful Employment• Definition of Credit Hour• Return of Title IV Funds:

Institutions Taking Attendance

• Verification*• Satisfactory Academic

Progress• Retaking Coursework• Return of Title IV Funds:

Term-based Module Program• Credit Balances• Agreements Between

Institutions of Higher Education

* Foreign Schools Exempt

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High School Diploma

• Currently not defined

• Proposal would require school to verify validity if school or ED had reason to believe was not valid

• School must develop procedures to do so– ED will provide further guidance in Handbook

• Questions will be added to FAFSA to validate HS

• ED will maintain list of “approved” schools

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Ability to Benefit

• Students considered to have the ATB if:– High school diploma or equivalent– Pass an approved ATB test– Satisfactorily complete 6 semester hours, 6 trimester

hours, 6 quarter hours, or 225 clock hours that are applicable toward a degree or certificate offered by the institution.

– Does not have to be same program, but should be “rigorous”

• Defines “independent test administrator”

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Incentive Compensation

Eliminates all 12 safe harbors

Is it cash or has value?+

Is it based on enrollment or financial aid?

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It’s Illegal

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Incentive Compensation

• Allows for enrollment in non-Title IV eligible programs• Allows 3 annual raises as long as not solely based on

enrollment• Profit sharing and bonuses ok as long as are of same

percentage • Can be based on student who successfully complete

program\• Does not apply to foreign students recruited to foreign

schools if student not eligible to receive aid

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Credit Hours

• Seeks to define credit hour in terms of work completed by a student– Consists of one hour of classroom or direct faculty instruction and

– a minimum of two hours of out of class student work for approximately fifteen weeks for one semester or trimester hour of credit, or

– ten to twelve weeks for one quarter hour of credit, or the equivalent amount of work over a different amount of time

• Alternative would be based on learning outcomes• Responsibility for review of institutional policies would rest with

accrediting agencies• Clock hours may be used if credit hour definition for a program is

deficient

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Definition of a Credit Hour

1 hour of direct faculty instruction +

at least two hours of student work outside classroom over set period of time

For

15 weeks– -----------------------------------------------------------------

1 Credit Hour

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Return of Title IV – Mini Sessions and Modules

• Attempt to resolve inequities– Current rules allow a student in a few day long module to be

seen as attending the entire semester

• Proposal would require the student to attend entire semester to receive Title IV credit for entire semester

• No resolution

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Disbursements – Credit Balances

• Anticipated credit balances can be made available to students prior to disbursement if:– The student is Pell-eligible (shows on SAR)– All disbursement requirements have been met no later than 10

days prior to the payment period– The student will have a Title IV credit balance

• Liability remains on the student if they do not attend• Amount is lesser of:

– COA of books and supplies– Amount of credit balance

• School must ensure that students can obtain books/supplies by 7th day of loan period

• Method of disbursement up to school (book voucher etc)

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Taking Attendance

• Proposal would add following requirements to definition of schools required to take attendance:– The institution itself has a requirement that its instructors take

attendance; or – The institution or an outside entity has a requirement that can

only be met by taking attendance or a comparable process, including but not limited to, requiring that students in a program demonstrate attendance in the classes of that program, or a portion of that program

• Exception would be one day attendance for census purposes

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Taking Attendance – Impact of Proposal

• An institution required to take attendance may use only the last date of attendance as the withdrawal date;

• An institution not required to take attendance may use:– the date the student officially withdraws, or,– for students who do not at least begin the institution's formal

withdrawal process, the midpoint of the payment period or– some other date based on documented participation in an

academically-related activity.

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Misrepresentation by an Institution

• “When the institution itself, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement, makes a substantial misrepresentation regarding the eligible institution, including about the nature of its educational program, its financial charges, or the employability of its graduates.”

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Substantial Misrepresentation

• Any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.

• Possible results:– Revoke program participation agreement;– limitations on participation in the Title IV programs– Deny participation applications made on behalf of the institution;

or– Fines and penalties

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Misrepresentation by an Institution• Types of activities (if not accurate) that constitute

substantial misrepresentation by an institution would include:– Offers of scholarships to pay all or part of a course charge; – Whether a particular charge is the customary charge at the

institution for a course; – The cost of the program and the institution's refund policy if the

student does not complete the program; – The availability or nature of any financial assistance offered to

students, including a student's responsibility to repay any loans, regardless of whether the student is successful in completing the program and obtaining employment; or

– The student's right to reject any particular type of financial aid or other assistance or the borrower must apply for a particular type of financial aid, such as financing offered by the institution.

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Misrepresentation by an Institution

• Includes institutions which have written arrangements with ineligible institutions to ensure that substantial misrepresentation on the part of the ineligible institution is tied to the eligible institution.

• Preamble includes the need for institutions to disclose which of its programs are not accredited.

• Violations could result in loss of Title IV eligibility

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Repeating Coursework

• Repeated courses count towards enrollment status regardless of credits earned for term-based program only– Non-term based programs remain unchanged; credits must be

earned in addition to those previously earned.

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Satisfactory Academic Progress

• Financial aid warning – students may still get aid for one additional payment period– Only allowed if school measures SAP every payment period

• Financial aid probation – student failed SAP and has appealed successfully and is receiving aid– School allowed to impose conditions such as reduced course

loads

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Satisfactory Academic Progress

• Schools must specify pace that student must matriculate to complete in maximum timeframe

• Policy must include:– How pace measured– How transfers affect SAP

• Transfer credits count towards completed and attempted credits in calculations

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Satisfactory Academic Progress - Appeals

• Must have written policy

• Student must explain why they did not meet SAP and what has changed to allow them to do so now

• Student must meet one of two elements for successful appeal– The institution has determined that the student should be able to meet

satisfactory progress standards after the subsequent payment period, or

– The institution develops an academic plan with the student that, if followed, will ensure that the student is able to meet the institution’s satisfactory academic progress standards by a specific point in time.

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Written Arrangements Between Institutions

• Foreign schools not allowed to have written agreements with US schools to allow students to take portion of program there– Exceptions for clinical portions of medical, nursing, vet schools

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Gainful Employment – most recent proposal

• Non-degree programs: – One academic year in length or more– Non-degree recognized educational credential and – prepares a student for gainful employment in a recognized occupation

• Schools meets standard if:– The program’s annual loan repayment rate is at least 35 percent;– over three years , the program’s annual loan payment is 30 percent or

less of– discretionary income or 12 percent or less of average annual earnings;

or– Using the prior three year period, the program’s annual loan payment is

less than 20– percent of discretionary income or less than 8 percent of average

annual earnings.

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Gainful Employment – Restricted Status

• ED places a program on a restricted status under the following conditions—– The program has an annual loan repayment rate of less than 45

percent; and– The program has an annual loan payment that is more than 20

percent of discretionary income and more than 8 percent of average annual income using 3 year period

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Gainful Employment

• Annual loan repayment rate test :– the percentage of borrowers who are successfully reducing the

principal of their FFEL and Direct loans. – Includes all students who attend program – even if they don’t

complete– Includes all loans used for program, not just the ones from that

schools.

• Debt to Income Test:– All Federal and private loans from that institution– Only includes “completers”

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Don’t Forget About…

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Cohort Default Rates

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014

◄ In Repay ► Default By ► FY 2007 Published

◄ In Repay ► Default By ► FY 2008 Published

◄ In Repay ► Default By ► 2-Year FY 2009 Published

◄ In Repay ► Default By ► 2-Year FY 2010 Published

◄ In Repay ► Default By ► 2-Year FY 2011 Published

◄ In Repay ► Default By ► 3-Year FY 2009 Published

◄ In Repay ► Default By ► 3-Year FY 2010 Published

◄ In Repay ► Default By ► 3-Year FY 2011 Published

*Chart created by NCHELP

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Cohort Default Rates

• Date of default:– 360 days for FFELP PUT loans– Date guarantor pays claim for FFELP loans– 360 days for Direct Loans

• Rehabilitated Loans removed from CDR– Longer time period

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Cohort Default Rates

• Low default rate exceptions:

– Threshold increase from 10% to 15% 10/1/2011• School may use 2 or 3 year rates to qualify

– Includes:• Multiple disbursements for single term loans

• Delayed disbursements for 1st time 1st year borrowers (undergrad)

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Cohort Default Rates

• High Default Rate Consequences:– Loss of participation if

• One year at 40%– Stafford and PLUS only

• Three years at 30% or more– Stafford, PLUS and Pell– Effective FY 2011 (to be published September, 2014)

– Provisional Certification if• Two of last three rates are 30% or more

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Cohort Default Rates

• Default Prevention Plans if• CDR over 30% for one year

• Default Prevention Plans include:– Establishment of Institutional Task Force– Submit default reduction plan to ED– Applies to 3 year rates so begins in 2012

• If CDR over 30% in year two, school must:– Revise plan and submit to ED– Soonest applicable is 2013 for 2010 rate

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Resources

• Textbook DCL – GEN-10-09 Published June 8th, 2010

• Negotiated Rulemaking– http://www2.ed.gov/policy/highered/reg/hearulemaking/2009/inte

grity.html

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