[Federal Register: November 1, 1999 (Volume 64, Number 210)]
[Rules and Regulations]               
[Page 59015-59044]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no99-17]                         


[[Page 59015]]

_______________________________________________________________________

Part VII


Department of Education

_______________________________________________________________________


34 CFR Parts 668, 682, and 685


Student Assistance General Provisions, Federal Family Education Loan 
Program, the William D. Ford Federal Direct Loan (Direct Loan) Program; 
Final Rule


[[Page 59016]]



DEPARTMENT OF EDUCATION

34 CFR Parts 668, 682, and 685

RIN 1845-AA02

 
Student Assistance General Provisions, Federal Family Education 
Loan Program, the William D. Ford Federal Direct Loan (Direct Loan) 
Program

AGENCY: Department of Education.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: We amend the Student Assistance General Provisions regulations 
governing participation in the student financial assistance programs 
authorized under Title IV of the Higher Education Act of 1965, as 
amended (Title IV, HEA programs) and the Federal Family Education Loan 
(FFEL) Program regulations. The student financial assistance programs 
include the Federal Pell Grant Program, the campus-based programs 
(Federal Perkins Loan, Federal Work-Study (FWS), and Federal 
Supplemental Educational Opportunity Grant (FSEOG) Programs), the 
William D. Ford Federal Direct Loan (Direct Loan) Program, the Federal 
Family Education Loan (FFEL) Program, and the Leveraging Educational 
Assistance Partnership (LEAP) Program (formerly called the State 
Student Incentive Grant (SSIG) Program). The Federal Family Education 
Loan Program regulations govern the Federal Stafford Loan Program 
(subsidized and unsubsidized), the Federal Supplemental Loans for 
Students Program (no longer active), the Federal PLUS Program, and the 
Federal Consolidation Loan Program (formerly collectively known as the 
Guaranteed Student Loan Programs).
    These regulations implement statutory changes made to the Higher 
Education Act of 1965, as amended (HEA), by the Higher Education 
Amendments of 1998 (Public Law 105-244, enacted October 7, 1998) (the 
1998 Amendments) for the treatment of Title IV, HEA program funds when 
a student withdraws from an institution.

EFFECTIVE DATE: These regulations are effective July 1, 2000.

IMPLEMENTATION DATE: The Secretary has determined, in accordance with 
section 482(c)(2)(A) of the HEA, that institutions may, at their 
discretion, choose to implement in their entirety all provisions in 
Sec. 668.22 and related provisions in Secs. 668.8, 668.14, 668.16, 
668.24, 668.25, 668.26, 668.83, 668.92, 668.95, 668.164, 668.171, 
668.173, 682.207, 682.209, 682.604, 682.605, 682.607, 685.211, 685.215, 
685.305, and 685.306 on or after November 1, 1999. Furthermore, 
pursuant to Section 484B(e) of the HEA, institutions are not required 
to implement these provisions until October 7, 2000 (two years from the 
enactment of the 1998 Amendments). If an institution chooses to 
implement the provisions of section 484B of the HEA after publication 
of these final regulations but before October 7, 2000, the 
institution--
     Must implement these regulations in their entirety;
     Must apply these regulations to all students who withdraw 
on or after the institution's implementation of these regulations 
(i.e., not on a student-by-student basis); and
     Cannot revert back to the old provisions of Sec. 668.22.
    For further information see ``Implementation Date of These 
Regulations'' under the SUPPLEMENTARY INFORMATION section of this 
preamble.

FOR FURTHER INFORMATION CONTACT: Dan Klock or Wendy Macias, U.S. 
Department of Education, 400 Maryland Avenue, S.W., ROB-3, Room 3045, 
Washington, DC 20202-5344. Telephone: (202) 708-8242. If you use a 
telecommunications device for the deaf (TDD), you may call the Federal 
Information Relay Service (FIRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternate format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed in the preceding 
paragraph.

SUPPLEMENTARY INFORMATION: On August 6, 1999, we published a notice of 
proposed rulemaking (NPRM) in the Federal Register (64 FR 43024) 
proposing to implement statutory changes made to the HEA, by the 1998 
Amendments for the treatment of Title IV, HEA program funds when a 
student withdraws from an institution. In the preamble to the NPRM, we 
discussed major changes to Sec. 668.22 in the following areas:

     The conditions under which Title IV, HEA program funds 
would be required to be returned and the conditions under which a 
student would be owed a disbursement of Title IV, HEA program funds 
upon withdrawal of a student.
    * The requirements for making a post-withdrawal 
disbursement to a student.
    * The determination of a withdrawal date for a student 
who withdraws.
    * The treatment of a leave of absence for Title IV, HEA 
program purposes.
    * The calculation of the amount of Title IV, HEA program 
funds that a student has earned upon withdrawal, including 
differences in the calculation for clock-hour programs and credit-
hour programs, and non-term programs and term programs.
    * The responsibility of the institution to return Title 
IV, HEA program funds when a student withdraws.
    * The responsibility of the student to return Title IV, 
HEA program funds upon withdrawal.
    * The order in which Title IV, HEA program funds must be 
returned to the Title IV, HEA programs.
    * A timeframe for the return of Title IV, HEA program 
funds by an institution, and a timeframe for an institution to 
determine a withdrawal date for a student who withdraws without 
notifying the institution.
    * The consumer information that an institution must 
provide to a student regarding the results of a student's 
withdrawal.

    In addition, in the preamble to the NPRM we discussed a proposed 
change to Sec. 682.207(b)(1)(v) of the FFEL program regulations to 
require a lender that is making a direct disbursement to a student 
attending a foreign school to notify the foreign school that the 
disbursement was made.
    These final regulations contain a few significant changes from the 
NPRM. These changes are explained fully in the Analysis of Comments and 
Changes elsewhere in this preamble.
    Conforming changes have been made to the following sections: 
Secs. 668.8, 668.14, 668.16, 668.24, 668.25, 668.26, 668.83, 668.92, 
668.95, 668.164, 668.171, 668.173, 682.207, 682.209, 682.604, 682.605, 
682.607, 685.211, 685.215, 685.305, and 685.306.

Implementation Date of These Regulations

    Section 482(c) of the HEA (20 U.S.C. 1089(c)) requires that 
regulations affecting programs under Title IV of the HEA be published 
in final form by November 1 prior to the start of the award year in 
which they apply. However, that section also permits the Secretary to 
designate any regulation as one that an entity subject to the 
regulation may choose to implement earlier. If the Secretary designates 
a regulation for early implementation, he may specify when and under 
what conditions the entity may implement it. The sections designated by 
the Secretary and the corresponding conditions for early implementation 
are set out under the heading IMPLEMENTATION DATE, above.

Discussion of Student Financial Assistance Regulations Development 
Process

    The regulations in this document were developed through the use of 
negotiated rulemaking. Section 492 of the HEA requires that, before 
publishing any proposed regulations to implement programs under Title 
IV of the HEA, the

[[Page 59017]]

Secretary obtain public involvement in the development of the proposed 
regulations. After obtaining advice and recommendations, the Secretary 
must conduct a negotiated rulemaking process to develop the proposed 
regulations. All proposed regulations must conform to agreements 
resulting from the negotiated rulemaking process unless the Secretary 
reopens that process or explains any departure from the agreements to 
the negotiated rulemaking participants.
    These regulations were published in proposed form on August 6, 
1999. With the exception of provisions relating to the ``50% discount'' 
on Title IV grant funds that a student must return, which are located 
in Sec. 668.22(h)(3)(ii), the proposed regulations reflected the 
consensus of the negotiated rulemaking committee. Under the committee's 
protocols, consensus meant that no member of the committee dissented 
from the agreed-upon language. The Secretary invited comments on the 
proposed regulations by September 15, 1999, and 176 comments were 
received. An analysis of the comments and of the changes in the 
proposed regulations follows.
    We discuss substantive issues under the sections of the regulations 
to which they pertain. Generally, we do not address technical and other 
minor changes in the proposed regulations, and we do not respond to 
comments suggesting changes that the Secretary is not authorized by law 
to make.

Analysis of Comments and Changes

General
    Comments: A few commenters believed that the proposed rules were 
too complicated. Some commenters requested that we prepare and 
distribute worksheets to clarify the application of the final 
regulations. A few commenters thought that we should distribute or make 
available a software program that institutions could use to calculate 
the treatment of Title IV, HEA program funds when a student withdraws. 
A couple of the commenters requested that we provide institutions with 
examples of how the regulations should be applied when a student 
withdraws during a summer term. A few commenters believed that the 
proposed rules simplified the process of returning Title IV, HEA 
program funds when a student withdraws.
    Discussion: We believe that some of the commenters' general 
concerns about the complexity of the proposed rules may be caused by 
statutory provisions. We have responded throughout the Analysis of 
Comments and Changes to commenters' specific concerns about complexity 
caused by particular provisions of the proposed regulations. Prior to 
the effective date of these final regulations, we will provide 
worksheets and software that may be used to calculate the treatment of 
Title IV, HEA program funds when a student withdraws. We will provide 
examples of and guidance on the applicability of the final regulations 
after publication through appropriate Department publications and 
training.
    Changes: None.
    Comments: Several commenters contended that these proposed rules 
would have a negative financial impact on institutions. Several of 
these commenters suggested changes to the ``50 percent discount'' 
requirement of Sec. 668.22(h) to alleviate some of the financial 
burden. Seven of the commenters stated that, because two calculations 
were now necessary, one to determine the treatment of Title IV, HEA 
program funds, and one to determine earned institutional charges under 
the institution's refund policy, their institution would have to expend 
funds to hire additional personnel. Two of the commenters contended 
that institutions would have to expend funds to purchase software in 
order to perform the calculation correctly.
    Discussion: To the extent that there is any financial burden, we 
believe that it is due to the statutory changes made to the 
requirements for determining the amount of Title IV, HEA program funds 
that must be returned to the Title IV, HEA programs. Commenters' more 
specific concerns with the financial implications of this rule, 
including the concern that institutions will now have to perform two 
calculations and comments on the ``50 percent discount,'' are discussed 
in detail in the Analysis of Comments and Changes for Sec. 668.22(g) 
and Sec. 668.22(h). As noted above, we will assist institutions with 
the calculation of earned Title IV, HEA program funds when a student 
withdraws by providing worksheets, software, and examples of the 
calculation.
    Changes: None.
    Comments: A couple of commenters felt that the proposed rules are 
unfair to clock hour institutions. One commenter, a federation 
representing the professional beauty industry, believed that the rules 
unfairly penalize students who attend clock hour institutions, such as 
cosmetology schools. The commenter was concerned that, as a result, 
students would be discouraged from pursuing cosmetology careers.
    Discussion: We believe that the provisions that specifically affect 
clock-hour institutions are in keeping with statutory intent. These 
provisions are an attempt to recognize the manner in which clock-hour 
programs operate. We have responded throughout the Analysis of Comments 
and Changes to commenters' concerns in this area.
    Changes: None.
Effective Date
    Coments: A few commenters requested that we delay implementation of 
the final rules in order to establish pilot programs to evaluate the 
impact of the rules on students and institutions, and to allow 
institutions the time necessary to properly implement the final 
regulations. One commenter suggested that institutions that choose to 
implement section 484B of the HEA prior to the required implementation 
date of October 7, 2000 be used as the pilot sites. Specifically, one 
of these commenters contended that the rules should be delayed because 
institutions have been, and will continue to be, focused on Year 2000 
(Y2K) issues, and will not be able to focus on the implementation of 
the new rules. One commenter recommended that these rules be effective 
for students who begin an enrollment period on or after October 7, 2000 
and withdraw from the institution on or after October 7, 2000. One 
commenter requested that institutions be permitted to implement early 
(prior to the required effective date of October 7, 2000) one portion 
of the requirements of Sec. 668.22 without having to implement the 
entire requirements.
    Discussion: We believe that the statutorily required implementation 
date of October 7, 2000 provides institutions with sufficient time to 
assess the impact of these requirements, to make any necessary 
administrative and systems changes, and to notify all potentially 
affected students of the changes. As these provisions of section 484B 
of the HEA apply to students who withdraw from an institution, we 
believe that these regulations should apply to any student who 
withdraws on or after October 7, 2000, rather than to any student who 
begins an enrollment period on of after that date and subsequently 
withdraws. Because the provisions of section 484B of the HEA, as 
revised by the 1998 Amendments, are a significant departure from the 
requirements of section 484B prior to the 1998 Amendments, we do not 
believe that it is reasonable to permit an institution to implement 
select portions of the implementing final regulations prior to October 
7, 2000. If an institution chooses to implement these final regulations 
prior to October 7, 2000, it must implement them in their entirety.

[[Page 59018]]

    Changes: None.

Section 668.22(a)  General

Definition of a Title IV Recipient
    Comments: A few commenters asked us to clarify who is a ``recipient 
of Title IV grant or loan assistance'' for purposes of the requirements 
for the treatment of Title IV, HEA program funds when a student 
withdraws. Some of these commenters believed that a student should be 
counted as a Title IV, HEA program recipient only if the student 
receives a disbursement of Title IV, HEA program funds before he or she 
withdraws. One commenter felt that a student should also be considered 
a Title IV, HEA program recipient if the student is entitled to a late 
disbursement. One commenter maintained that a student who received only 
Federal Work-Study funds should not be considered a Title IV, HEA 
program recipient. A couple of the commenters contend that it is hard 
to identify students who withdraw if they have not received aid. One of 
these commenters asserted that most institutional processing systems 
identify only students who have received Title IV, HEA program 
assistance and alert the financial aid or bursar office when those 
students withdraw. One commenter asked whether the rules would apply to 
a student who withdrew if the student had applied for a Title IV, HEA 
loan, but the institution had not yet certified the loan.
    Discussion: We believe that it is consistent to define a Title IV, 
HEA program recipient for purposes of this section as a student who has 
met the requirements of Sec. 668.164(g)(2). When a student withdraws or 
makes certain other changes to his or her enrollment status, the 
student is no longer eligible for a regular disbursement of Title IV, 
HEA program funds. Section 668.164(g)(2) lists the conditions that must 
have been met prior to such a change in enrollment status in order for 
the institution to make a late disbursement. For example, for a student 
to receive a Direct loan, the institution must have created the 
electronic origination record for the loan; for the student to receive 
a FFEL Program loan, the institution must have certified the loan. The 
conditions listed in Sec. 668.164(g)(2) are also used for purposes of 
determining when a post-withdrawal disbursement of Title IV, HEA funds 
may be disbursed. Therefore, we have defined in the regulations a Title 
IV grant or loan recipient for purposes of this section as a student 
who has met the requirements of Sec. 668.164(g)(2). In keeping with 
section 484B(a)(1) of the HEA, which provides that the requirements of 
section 484B of the HEA are not applicable to recipients of Federal 
Work-Study funds, a student would not be considered a Title IV, HEA 
program recipient under this section if the only Title IV, HEA program 
assistance that the student had received or could have received, was 
Federal Work-Study funds. Therefore, a Title IV, HEA program recipient 
for purposes of this section is a student who has met the requirements 
of Sec. 668.164(g)(2).
    Changes: The definition of a ``recipient of Title IV grant or loan 
assistance'' has been added to Sec. 668.22(l).
LEAP Program Funds
    Comments: One commenter believed that it is unfair to require an 
institution to count the entire amount of Leveraging Education 
Assistance Partnership (LEAP) funds in the calculation of the amount of 
Title IV, HEA program assistance that a student has earned upon 
withdrawal, rather than just the Federal share of the grant. The 
commenter stated that their institution's State Student Aid Commission 
identifies their State grant program as containing LEAP funds. The 
commenter noted that the State Student Aid Commission expects the 
institution to return any unearned portion of the grant, based on the 
institution's refund policy, to the State. The commenter is concerned 
that if the institution complies with both the requirements for the 
treatment of Title IV, HEA program funds when a student withdraws and 
the State's return requirements, it will end up returning more than the 
original amount of the grant. One commenter supported the position that 
LEAP funds that are not identified as LEAP funds do not need to be 
included in the calculation of the treatment of Title IV, HEA program 
funds if a student withdraws.
    Discussion: Section 484B of the HEA excludes only Federal Work-
Study funds from the calculation of earned Title IV, HEA program funds 
when a student withdraws. Once a State agency identifies a grant as 
LEAP funds, the entire amount of the grant is considered a LEAP grant 
and is subject to the Federal regulations governing the LEAP program. 
Therefore, if a State agency specifically identifies a grant as LEAP 
funds, the entire amount of the grant must be included in the 
calculation of earned Title IV, HEA funds. This guidance is consistent 
with the guidance in Dear Colleague Letter GEN-89-38. We acknowledge 
that the interplay between the requirements of this section and State 
requirements for the handling of LEAP funds may cause some difficulties 
for institutions. We will work with the States to attempt to resolve 
these difficulties.
    Changes: None.
Title IV Aid Disbursed
    Comments: A few commenters objected to our assertion in the 
preamble to the proposed rule that a pattern or practice of inadvertent 
overpayments--where an institution disbursed Title IV, HEA program 
funds to a student who has withdrawn because the institution was 
unaware of the student's withdrawal--would be questioned in a program 
review. A few commenters contended that what we refer to as 
``inadvertent overpayments'' are late disbursements and, therefore, are 
permissible. The commenters believed that it is inconsistent to allow 
an institution to count inadvertent overpayments as Title IV, HEA 
program aid disbursed, and then sanction an institution for making the 
overpayments.
    One commenter felt that our assertion is inconsistent with preamble 
language that ``some aspects of the withdrawal process cannot occur 
until the institution is aware that the student has withdrawn.'' One 
commenter believed that an institution should not be sanctioned for the 
practice of disbursing funds to withdrawn students if the institution 
had no evidence to the contrary that the student was still enrolled at 
the time the funds were disbursed. The commenter believed that an 
institution has fulfilled its obligation to ensure that a student is 
eligible by looking at the institution's data to ensure that the 
student is an active, current, student who meets satisfactory academic 
progress and other eligibility requirements. One commenter asserted 
that institutions increasingly rely on computer processing of Title IV, 
HEA program funds in order to process those funds as expeditiously and 
efficiently as possible. The commenter noted that if a student 
withdraws from an institution without notification, there is no way to 
prevent such inadvertent overpayments unless the institution takes 
attendance for every class; an option that the commenter felt was 
unduly burdensome. One commenter questioned how many inadvertent 
overpayments would be considered a ``pattern or practice'' of making 
inadvertent overpayments.
    Discussion: As we noted in the preamble to the proposed rule, we 
agreed to permit an institution to include inadvertent overpayments in 
the calculation of total aid disbursed only for the administrative ease 
of the

[[Page 59019]]

institution. Specifically, the inclusion of these inadvertent 
overpayments in total aid disbursed would prevent the burden of an 
institution having to return Title IV, HEA program funds, only to have 
to disburse them again if a post-withdrawal disbursement was due. As 
stated in the NPRM, if we were to sanction a practice of inadvertent 
overpayments we would be sanctioning violations of other Title IV, HEA 
program regulations that require that an institution may disburse Title 
IV, HEA program funds only if the student is eligible to receive those 
funds.
    We note that these disbursement requirements are not new. As such, 
an institution would be expected to already have had in place a 
mechanism for making the necessary eligibility determinations prior to 
the disbursement of any Title IV, HEA program funds, such as a process 
by which withdrawals are reported immediately to those individuals at 
the institution who are responsible for making Title IV, HEA program 
disbursements. If an institution does not have the proper mechanisms in 
place, the institution must make the necessary changes to the way it 
currently disburses Title IV, HEA program funds to come into 
compliance.
    We do not agree with the commenters who believe that these 
inadvertent overpayments are legitimate late disbursements. We note 
that these overpayments are not late disbursements either; late 
disbursements are made in accordance with specific regulatory 
requirements after the institution is aware that the student has 
withdrawn.
    We do not believe that it is appropriate to define a set number or 
percentage of inadvertent overpayments that would constitute a pattern 
or practice of making inadvertent overpayments. The determination of a 
pattern or practice must be made in conjunction with an assessment of a 
specific institution's demonstrated willingness and ability to prevent 
inadvertent overpayments.
    Changes: None.
    Comments: A couple of commenters believed that institutions should 
be permitted to replace a withdrawn student's Title IV, HEA loan funds 
with Title IV, HEA grant funds that the student was otherwise eligible 
to receive before performing the calculation for the treatment of Title 
IV, HEA program funds when a student withdraws. The commenters felt 
that it is always in the best interest of the student and the Federal 
government to reduce student indebtedness, particularly for students 
who have not completed their education.
    Discussion: We continue to believe that it is inappropriate for an 
institution to disburse Title IV, HEA program funds to a student who 
has withdrawn unless the institution has determined under these 
regulations that the student has earned more funds than were disbursed. 
Therefore, an institution may not alter the amounts of Title IV, HEA 
grant and loan funds that were disbursed prior to the institution's 
determination that the student withdrew.
    Changes: None.

Post-Withdrawal Disbursements

    Comments: Some commenters confused the requirements for late 
disbursements that are made to students who have withdrawn from an 
institution with the late disbursements requirements that regulate how 
and when late disbursements are made to students for other reasons, 
such as a change in enrollment status to less than half-time.
    Discussion: We believe that this confusion may be alleviated if 
disbursements that are made to students who have withdrawn from an 
institution are referred to as ``post-withdrawal disbursements,'' 
rather than ``late disbursements.''
    Changes: References to ``late disbursements'' have been changed to 
``post-withdrawal disbursements'' where appropriate.
    Comments: Several commenters did not believe that Title IV, HEA 
program funds should be disbursed directly to a student who has 
withdrawn. Some of these commenters did not believe that this was the 
intent of Congress. In particular, many of these commenters did not 
believe that it was ever appropriate to disburse Title IV, HEA program 
funds to a withdrawn student if the student owed any money to the 
institution.
    Several of the commenters specifically questioned whether an 
institution must disburse a post-withdrawal disbursement check if a 
student no longer has any institutional charges. One commenter asserted 
that disbursements to withdrawn students will result in Title IV, HEA 
funds being used for noneducationally-related expenses. A few 
commenters believed that direct disbursements of loans to withdrawn 
students would imprudently increase a withdrawn student's indebtedness 
and chance of default. To mitigate this, and to reduce institutional 
burden, a few commenters recommended that an institution be permitted 
to determine when a post-withdrawal disbursement of Title IV, HEA 
program funds should be disbursed directly to a student.
    A few commenters believed that the existing late disbursement 
regulations should be used instead of the proposed rules for post-
withdrawal disbursements. One commenter suggested that earned Title IV, 
HEA program funds in excess of money owed to the institution should be 
used to reduce any Title IV, HEA program loan debt of the student. 
Another commenter alleged that the post-withdrawal disbursement 
requirements conflict with other statutory requirements that allow the 
institution to be the custodian of the Title IV, HEA program funds and 
control whether late disbursements are made and how they are used.
    Discussion: We believe that the commenters' contention that it was 
not the intent of Congress to directly provide withdrawn students with 
earned Title IV, HEA program funds is unfounded. Section 484B(a)(4)(A) 
of the HEA requires that disbursements of earned funds be provided to a 
student if the student has received less grant or loan assistance than 
the amount he or she has earned. The statute does not require that the 
disbursement of earned aid can only be applied to unpaid charges at the 
institution. As stated in the preamble to the NPRM, the determination 
of the amount of Title IV, HEA program assistance that the student has 
earned has no relationship to a student's actual incurred educational 
costs. The amount of earned Title IV, HEA program funds is based on the 
amount of time that the student spent in attendance and is a 
determination of aid that is earned by the student, not money earned by 
the institution. Therefore, we believe that it would be in direct 
violation of the statute to permit an institution to decrease this 
amount.
    We continue to believe that it is appropriate to be consistent with 
the cash management requirements for disbursing Title IV, HEA program 
funds, which do not permit an institution to credit a student's account 
with Title IV, HEA program funds other than for tuition, fees, and room 
and board (if the student contracts with the institution)--without the 
student's permission. If an institution does not have permission from 
the student (or parent for a PLUS loan) prior to the student's 
withdrawal and does not obtain that permission after the student's 
withdrawal, the undisbursed earned funds must be offered to the student 
and cannot be used by the institution to pay remaining institutional 
charges other than for tuition, fees, and room and board (if the 
student contracts with the institution).
    Changes: None.

[[Page 59020]]

    Comments: A few commenters felt that the proposed post-withdrawal 
disbursement procedures are too burdensome and costly for institutions 
to implement. One commenter noted that it would be impossible to 
process a post-withdrawal disbursement in a timely manner for a student 
when the institution cannot locate the student immediately. The 
commenter suggested that it would be less burdensome to permit an 
institution to credit a student's account with earned Title IV, HEA 
program funds for current charges for educationally-related activities 
other than tuition, fees, and room and board (if the student contracts 
with the institution) unless the student or parent specifically denied 
permission to the institution within a certain number of days. One 
commenter supported the proposed timeframes for notification, response 
to, and disbursement of post-withdrawal disbursements. Two commenters 
agreed that 90 days after the date of the institution's determination 
that the student withdrew was an appropriate amount of time for 
institutions to have to make any accepted post-withdrawal disbursements 
to a student (or parent for a PLUS loan). A couple of commenters felt 
that it was unreasonably burdensome to require institutions to notify a 
student or parent of the outcome of any post-withdrawal disbursement 
request if the student's or parent's authorization was not received at 
all, or was not received within the 14 day timeframe. One of the 
commenters thought that this second notification that simply restated 
that the student had lost the opportunity to accept a post-withdrawal 
disbursement would be confusing to a student who had never responded to 
the original notification. A couple of commenters applauded our 
determination that a single notification could be used for all of the 
notification requirements for post-withdrawal disbursements, except for 
the institution's notification to inform the student or parent 
electronically or in writing concerning the outcome of any post-
withdrawal disbursement request.
    Discussion: The statute requires that earned funds be provided to 
the student. We recognize that it may be difficult to locate a student 
who has left the institution. This was addressed in negotiated 
rulemaking and it was concluded that the requirements for making a 
post-withdrawal disbursement to a student provide that the institution 
must offer in writing to the student (or parent for PLUS loan funds) 
any amount of a post-withdrawal disbursement that is not credited to 
the student's account. If a response is not received from the student 
or parent, is not received within the permitted timeframe, or the 
student declines the funds, the institution would return any earned 
funds that the institution was holding to the Title IV, HEA programs. 
As stated previously in the Analysis of Comments and Changes, we 
continue to believe that it is appropriate to be consistent with the 
cash management requirements for disbursing Title IV, HEA program 
funds, which do not permit an institution to credit a student's account 
with Title IV, HEA program funds for current charges for educationally-
related activities--other than tuition, fees, and room and board (if 
the student contracts with the institution)--without the student's 
permission.
    We agree with the commenters who believe that it is sometimes 
unreasonably burdensome or redundant to require institutions to notify 
a student or parent of the outcome of any post-withdrawal disbursement 
request. Therefore, if an authorization from the student (or parent for 
a PLUS loan) is never received, or if the post-withdrawal disbursement 
is accepted, the institution does not need to notify the student of the 
outcome of the post-withdrawal disbursement request. Presumably, a 
student (or parent for PLUS loan funds) who has never responded will 
understand that the post-withdrawal disbursement will not be made. 
Further, a student (or parent for PLUS loan funds) who has accepted the 
funds will likely understand that the amount of the post-withdrawal 
disbursement that he or she accepts will be provided, and any 
unaccepted amount will be returned. However, in the case of a student 
(or parent for PLUS loan funds) whose acceptance was not received 
within the 14 day timeframe and the institution does not otherwise 
choose to make the post-withdrawal disbursement, the student (or parent 
for a PLUS loan) may assume incorrectly that his or her acceptance of a 
post-withdrawal disbursement has been received within the timeframe and 
that the post-withdrawal disbursement will be made. Therefore, if a 
student's (or parent's for PLUS loan funds) acceptance was not received 
within the 14 day timeframe and the institution does not otherwise 
choose to make the post-withdrawal disbursement, the institution must 
notify the student (or parent for PLUS loan funds) that the post-
withdrawal disbursement will not be made and why.
    Changes: Section 668.22(a)(4)(ii)(E) has been changed to reflect 
that an institution must notify a student (or parent for PLUS loan 
funds) if the student's (or parent's for PLUS loan funds) acceptance 
was received after the 14 day timeframe and the institution does not 
otherwise choose to make the post-withdrawal disbursement.
    Comments: Several commenters questioned how an institution could 
verify the identity of the person claiming to be the student or parent 
if the student or parent calls the institution to accept earned Title 
IV, HEA program funds. Several commenters recommended that an 
institution be allowed to refuse to mail a check of earned Title IV, 
HEA program funds based on a phone call requesting that the check be 
sent to a particular address. A few commenters questioned whether the 
institution could insist that a student or parent come into the 
institution to pick up any post-withdrawal disbursements due.
    Discussion: Obviously, we would not want an institution to disburse 
Title IV, HEA program funds to anyone other than the intended 
recipient. We do not regulate how an institution should ensure that 
Title IV, HEA program funds are disbursed to the proper individual. 
However, we do not believe that it would be reasonable to require a 
student who has withdrawn from an institution (or a parent of such a 
student, for PLUS loan funds) to pick up a post-withdrawal disbursement 
in person. Because the student is no longer attending the institution, 
it would not be unlikely that the student has moved out of the area and 
would not be able to return to the institution to pick up a post-
withdrawal disbursement. Presumably, in the scenario presented by the 
commenters, the student or parent is calling in response to the 
notification the institution mailed to the student or parent about the 
funds available from a post-withdrawal disbursement. We believe that it 
is reasonable to assume that a check mailed to the same address will 
reach the proper party.
    Changes: None.
    Comments: A few commenters felt that post-withdrawal disbursements 
should be available to pay prior year charges. The commenters 
maintained that this would meet the intent of the negotiating committee 
to mirror the cash management rules as closely as possible.
    Discussion: We agree that it is desirable to mirror the cash 
management regulations as closely as possible. Therefore, we agree that 
an institution should be allowed to credit a student's account for 
minor prior award year charges. Institutions should make every effort 
to explain to a student that all or a portion of his or her post-
withdrawal disbursement has been used

[[Page 59021]]

to satisfy any charges from prior award years.
    Changes: Section 668.22(a)(4)(i)(A) has been amended to permit an 
institution to credit a student's account to pay minor prior year 
charges in accordance with Sec. 668.164(d)(2)(ii).
    Comments: One commenter maintained that the requirement that an 
institution must offer a post-withdrawal disbursement to a student 
within 30 days of the date that the institution determines that the 
student withdrew is inconsistent with regulations that require an 
institution to disburse loans within three business days of the 
institution's receipt of the funds.
    Discussion: Because an institution must disburse Title IV, HEA 
program funds as soon as possible, but no later than three business 
days after receipt of the funds, we believe that in most cases, an 
institution will not possess undisbursed funds for a student as of the 
date that the institution determines that the student withdrew. An 
institution should not request Title IV, HEA program funds for a post-
withdrawal disbursement unless and until it has determined: (1) That a 
post-withdrawal disbursement is due, (2) the amount of the post-
withdrawal disbursement, and (3) that the post-withdrawal disbursement 
can be disbursed within three business days of receipt.
    Changes: None.

Section 668.22(b)  Withdrawal Date for a Student Who Withdraws From an 
Institution That Is Required To Take Attendance

General Withdrawal Issues
    Comments: A few commenters asserted that the provisions in the NPRM 
for determining a student's withdrawal date favor institutions that do 
not take attendance. In particular, a couple of commenters noted that, 
because of the difference in requirements for determining withdrawal 
dates for institutions that do not take attendance, in some 
circumstances, two students who cease attendance on the same day, one 
at an institution that is required to take attendance and one at an 
institution that is not required to take attendance, may have different 
withdrawal dates. The commenters noted that this would result in the 
students earning different amounts of Title IV, HEA program aid. The 
commenters believed that the NPRM will encourage institutions that do 
take attendance to stop taking it, which the commenters felt would be 
harmful to students. One commenter thought that it was particularly 
unfair for students who withdraw without notification from institutions 
that are not required to take attendance to earn 50 percent of their 
Title IV, HEA program aid.
    Discussion: The provisions that the commenters referred to are 
those that are prescribed by the statute. Extending the provisions in 
the statute that apply to institutions that are not required to take 
attendance to institutions that are required to take attendance would 
not be permitted under the law.
    Changes: None.
    Comments: Some commenters questioned how an institution would 
determine a student's withdrawal date if the student withdrew from 
some, but not all of his or her classes.
    Discussion: The provisions of section 484B of the HEA and these 
implementing regulations apply to a student who began attending an 
institution and withdrew from all classes at the institution. They do 
not apply to a student who withdraws from some classes but continues to 
be enrolled in other classes, or a to student who leaves an institution 
prior to the student's first day of class.
    Changes: None.
Required To Take Attendance
    Comments: Several commenters asked for clarification of the 
definition of an institution that is required to take attendance for 
purposes of this section. A few commenters supported the position in 
the NPRM that an institution that opts to take attendance would not be 
considered an institution that is required to take attendance for Title 
IV, HEA program purposes. One commenter believed that all institutions 
that are required to take attendance, whether required by an outside 
entity or not, should be considered institutions that are required to 
take attendance for Title IV, HEA purposes.
    A few commenters asked if an institution must use attendance 
records to determine a student's withdrawal date if the institution is 
not required to take attendance, but some faculty members do take 
attendance. One commenter asked if an institution would be considered 
an institution that is required to take attendance if the institution's 
State licensing agency or accrediting agency provided institutions with 
the option of taking attendance and the institution opts to take 
attendance. One commenter wanted to know if an institution would be 
considered to be required to take attendance by an outside entity if 
the institution's State licensing agency does not directly require an 
institution to take attendance, but requires the institution to track 
students, so in effect, the institution has to take attendance. For 
example, the commenter noted that some institutions are required to 
follow the State agency's refund policy regulations which require the 
institution to refund tuition and fees based on the student's last date 
of class attendance. The commenter also provided the example of an 
institution's State licensing agency regulations that require the 
institution to drop a student if the student misses more than a certain 
number of days or hours in a term.
    Two commenters believed that an institution's State licensing 
agency and accrediting agency should be considered the only outside 
entities that can require the institution to take attendance for 
purposes of the treatment of Title IV, HEA program funds when a student 
withdraws. Some commenters asked what requirements would apply for 
determining a student's withdrawal date if an institution is required 
to take attendance by an outside entity, such as the Department of 
Veterans Affairs, that requires the institution to take attendance for 
recipients of the entity's assistance only.
    Discussion: We believe that only an institution that is required to 
take attendance by an outside entity should be considered an 
institution that is required to take attendance for purposes of 
determining a student's withdrawal date. Therefore, an institution that 
elects to take attendance, including an institution that voluntarily 
complies with an optional attendance requirement of an outside entity, 
would not be considered an institution that is required to take 
attendance. However, we believe that if any requirements of an outside 
entity result in an institution having to take attendance, the 
institution would be considered an institution that is required to take 
attendance for purposes of determining a student's withdrawal date. So, 
in the two examples provided by the commenter (one where the state 
agency requires the institution to refund tuition and fees based on the 
student's last date of class attendance and the other where state 
agency regulations require the institution to drop a student if the 
student misses more than a certain number of days or hours in a term) 
the institution would be considered an institution that is required to 
take attendance for purposes of determining a student's withdrawal 
date.
    We do not agree that State licensing agencies and accrediting 
agencies should be considered the only outside entities that can 
require the institution to take attendance for purposes of the 
treatment of Title IV, HEA program funds when a student withdraws. We

[[Page 59022]]

believe that if an institution has attendance records as the result of 
the requirements of any outside entity, those attendance records must 
be used to determine a student's withdrawal date. We also believe that 
if an institution is required to take attendance for only some students 
by an outside entity, the institution must use those attendance records 
for only those students to determine the student's withdrawal date (the 
last date of academic attendance). The institution would not be 
required to take attendance for any of its other students, or to use 
attendance records to determine any of its other students' withdrawal 
dates, unless the institution is required to take attendance for those 
students by another outside entity. For example, 10 students at Peabody 
University receive assistance from the Veterans Administration (VA). 
The VA requires the institution to take attendance for the recipients 
of the VA education benefits. Peabody University is not required by any 
other outside entity to take attendance for any of its other students. 
Seven of the 10 students who receive VA benefits are also Title IV, HEA 
program recipients. If any of those seven students withdraw from the 
institution, the institution must use the VA required attendance 
records for those students. For all other Title IV, HEA program 
recipients at Peabody University that withdraw, the institution must 
determine the withdrawal date in accordance with the requirements for 
students who withdraw from an institution that is not required to take 
attendance (Sec. 668.22(c)). We believe that requiring an institution 
to use its attendance records to determine the withdrawal date of a 
student for which another outside entity requires that attendance be 
taken is consistent with our view that the goal in defining a student's 
withdrawal date is to identify the date that most accurately reflects 
the point when the student ceased academic attendance, and should be 
based on the best information available.
    Changes: We have changed Sec. 668.22(b)(3) to clarify that if an 
institution is required by an outside entity to take attendance for 
only some of its students, the institution must use those attendance 
records for those students to determine the withdrawal date.
    Comments: Several of the commenters asked what an institution's 
official attendance record would be. The commenters noted that an 
institution may have a master attendance record in addition to the roll 
books kept by the instructors. Several commenters asked how an 
institution would determine a student's withdrawal date if one of the 
student's instructors took attendance, but the others did not. A couple 
of commenters wanted to know how to determine a student's withdrawal 
date if faculty members' attendance records differed.
    Discussion: If an institution is required to take attendance, it is 
up to institution to ensure that accurate attendance records are kept 
for purposes of identifying a student's last date of academic 
attendance. An institution must also determine which attendance records 
most accurately support its determination of a student's withdrawal 
date and support its use of one date over another if the institution 
has conflicting information.
    Changes: None.
    Comments: One commenter agreed that the withdrawal date for a 
student who withdraws from an institution that is required to take 
attendance should be the last date of academic attendance. A couple of 
commenters believed that an institution should have the discretion to 
use a student's last date of academic attendance as the basis for 
determining the students withdrawal date, rather than as the actual 
withdrawal date.
    One commenter asserted that Title IV, HEA program assistance earned 
is not a reflection of time in academic attendance but, rather, is a 
reflection of institutional costs. As such, the commenter believed that 
the student's withdrawal date should reflect that the costs are 
incurred by the student after the student's last date of academic 
attendance. The commenter stated that using as a student's withdrawal 
date a point beyond the student's last date of attendance would be 
consistent with some institutional policies. The commenter contended 
that Congress did not intend that a student's withdrawal date at an 
institution that is required to take attendance be limited to the last 
date of academic attendance.
    One commenter believed that an institution that is required to take 
attendance should be allowed to use as a student's withdrawal date the 
student's last date of attendance at an academically-related activity 
as documented by the institution. The commenter believed that it would 
be unfair to allow institutions that are not required to take 
attendance to count a student's subsequent academic activity, while not 
extending this option to institutions that are required to take 
attendance.
    A couple of commenters also maintained that the provision for 
institutions that are not required to take attendance that provides 
that the withdrawal date for a student that withdrew without 
notification is the midpoint of the payment period or period of 
enrollment, should be extended to institutions that are required to 
take attendance. One commenter noted that this extension may be 
necessary if an institution that is required to take attendance has a 
student who takes a portion of their program at an institution that is 
not required to take attendance under a consortium agreement. The 
commenter believed that if the student withdrew from the non-attendance 
taking institution without providing notification, the student's 
withdrawal date should be the midpoint of the payment period or period 
of enrollment.
    Discussion: Section 484B(c)(1)(B) of the HEA provides that 
institutions that are required to take attendance must determine a 
student's withdrawal date from its attendance records. We believe that 
the interpretation of the statute that is most in line with our goal of 
determining the date that most accurately reflects the point when a 
student ceased academic attendance defines a student's withdrawal date 
as the last date of academic attendance, as determined by the 
institution from its attendance records. We note that if a student 
continues to reside at the institution and consume goods and services 
past this point, the institution is not precluded from charging the 
student for these expenses. We believe that the statute makes clear 
that an institution that is required to take attendance and, therefore, 
has an established mechanism for tracking a student's attendance, must 
use that mechanism to determine the point when the student ceased 
academic attendance. We believe that a student's last date of academic 
attendance, as determined by the institution from its attendance 
records, accurately reflects the point when a student ceased academic 
attendance. The option of using a last date of attendance at an 
academically-related activity as documented by the institution has been 
extended to institutions that do not take attendance in order to permit 
the institutions to meet more precisely the goal of identifying as 
accurately as possible the point when the student ceased academic 
attendance.
    The statute does not permit an institution that is required to take 
attendance to use the midpoint of the payment period or period of 
enrollment as the withdrawal date for a student that withdrew without 
notification. In the case of a student who is attending both an 
institution that is required to take attendance and an institution that 
is not

[[Page 59023]]

required to take attendance through a consortium agreement, in 
accordance with Sec. 600.9 of the Institutional Eligibility regulations 
and Sec. 690.9 of the Federal Pell Grant Program regulations, the 
institutions must specify as part of the consortium agreement which 
institution will handle the administration of Title IV, HEA program 
funds, which would include the determination of Title IV, HEA program 
funds earned by students upon withdrawal. The designated institution 
must take on all aspects of the administration of Title IV, HEA program 
funds.
    Changes: None.
    Comments: A few commenters believed that institutions that take 
attendance for only a short period of time should be considered 
institutions that are required to take attendance for Title IV, HEA 
purposes. Some of these commenters believed that if other agencies can 
require attendance for specific periods for their purposes, so can the 
Department. A few commenters supported the position taken in the NPRM 
that an institution that is required to take attendance for a portion 
of the payment period or period of enrollment should not be considered 
an institution that is required to take attendance for Title IV, HEA 
purposes. One of these commenters contended that attendance records 
that are kept for census purposes would not be appropriate for 
determining a student's withdrawal date for Title IV, HEA purposes.
    Discussion: Although we believe that in some instances, the use of 
attendance records for an institution that is required to take 
attendance for a portion of the payment period or period of enrollment 
may meet our goal of using the best date available, we understand that 
in other instances, these records may not be appropriate for 
determining a student's withdrawal date.
    Changes: None.
    Comments: Some commenters believe that it would be unfair to use 
the student's last date of academic attendance as the withdrawal date 
for a student that does not return from an approved leave of absence.
    Discussion: This issue is discussed under the Analysis of Comments 
and Changes for Sec. 668.22(c).
    Changes: None.

Section 668.22(c)  Withdrawal Date for a Student Who Withdraws From an 
Institution That Is Not Required To Take Attendance

Official Notification
    Comments: Several commenters asked for clarification of the meaning 
of ``intent to withdraw.'' The commenters wanted to know if a student 
who is only discussing and exploring the option of withdrawing would be 
considered a student who is providing the institution with his or her 
intent to withdraw. A couple of commenters suggested that only written 
submissions from the student specifying that the student intended to 
withdraw should be accepted. One of the commenters felt that oral 
notifications should not be allowed because they are subject to 
disagreement over what was said and when it was said. The commenter 
also believed that oral notifications are subject to abuse because an 
individual other than the student could phone the institution and 
withdraw the student.
    Several commenters wanted to know if a student would be considered 
to have provided official notification to the institution of the 
student's intent to withdraw if a student runs into an employee of the 
designated office for official notification of intent to withdraw out 
in the community and mentions that they might not be returning to 
school.
    A few commenters did not believe that the date that a student 
notifies the institution of his or her intent to withdraw is an 
accurate withdrawal date for a student who never actually withdraws, 
for a student who does not withdraw until a future date, or for a 
student who ceased attendance prior to the notification. One commenter 
suggested that an institution be permitted to use the earlier of the 
last date of class attendance as certified by the student, or the date 
the student officially submits paperwork to begin the withdrawal 
process.
    One commenter supported the position taken in the NPRM that an 
institution may designate the office or offices that a student must 
notify in order for the notification to count as official notification.
    Discussion: Intent to withdraw, as provided for in section 
484B(c)(1)(A) of the HEA, means that the student indicates that he or 
she has either ceased to attend the institution and does not plan to 
resume academic attendance, or believes at the time he or she provides 
notification that he or she will cease to attend the institution. A 
student who contacts an institution and only requests information on 
aspects of the withdrawal process, such as the potential consequences 
of withdrawal, would not be considered a student who is indicating that 
he or she plans to withdraw. However, if the student indicates that he 
or she is requesting the information because he or she plans to cease 
attendance, the student would be considered to have provided official 
notification of his or her intent to withdraw.
    At negotiated rulemaking, it was discussed and understood that 
notification of intent to withdraw that a student provided orally would 
be sufficient. We believe that a student's oral notification to an 
institution is a legitimate means of communicating to the institution 
his or her intent to withdraw. We believe that requiring all students 
to provide a written notice of intent to withdraw would unfairly limit 
and possibly delay notifications of withdrawal. The responsibility for 
documenting oral notifications is the institution's; however, the 
institution may request, but not require, that the student confirm his 
or her oral notification in writing.
    Official notification of intent to withdraw is notice that a 
student provides to an office designated by the institution. If a 
student provides notification to an employee of that office while that 
person is acting in his or her official capacity, the student has 
provided official notification. If the student provides notification to 
an employee of that office while that person is not acting in his or 
her official capacity, we would expect the employee to inform the 
student of the appropriate means for providing official notification of 
his or her intent to withdraw.
    The statute provides that the withdrawal date for a student who 
withdraws by providing notification to an institution that is not 
required to take attendance is the date that the student began the 
institution's withdrawal process or otherwise provided official 
notification of his or her intent to withdraw. Although stated in the 
NPRM, we believe that it is important to emphasize that an institution 
that is not required to take attendance may always use a last date of 
attendance at an academically-related activity as a student's 
withdrawal date. Therefore, if a student begins the institution's 
withdrawal process or notifies the institution of his or her intent to 
withdraw and continues to attend the institution before actually 
withdrawing, the attendance subsequent to the student's notification 
may be taken into account by the documentation of a last date of 
attendance at an academically-related activity. Likewise, an 
institution could use an earlier last documented date of attendance at 
an academically-related activity if this date is a more accurate 
reflection of the student's withdrawal date than the date that the 
student begins the institution's withdrawal process or notifies the 
institution of his or her intent to

[[Page 59024]]

withdraw. We would also like to emphasize that the requirements of 
these regulations for the treatment of Title IV, HEA program funds when 
a student withdraws do not apply to a student who does not actually 
cease attendance at the institution.
    Section 484B(c) of the HEA makes clear that the determination of a 
student's withdrawal date is the responsibility of the institution. 
Therefore, the institution, not the student, must document a student's 
attendance at an academically-related activity in order to be able to 
use the date of that attendance as the student's withdrawal date. A 
student's certification of attendance that is not supported by 
documentation by the institution would not be acceptable documentation 
of the student's last date of attendance at an academically-related 
activity.
    Changes: We have changed Sec. 668.22(c)(1)(ii) to make clear that a 
student has provided official notification to the institution of his or 
her intent to withdraw if the student indicates an intent in writing or 
orally.
Resolving Instances Where a Student Triggers Two Dates
    Comments: One commenter believed that it is unnecessary to define 
the withdrawal date for a student that both begins the institution's 
withdrawal process and also provides official notification to the 
institution of his or her intent to withdraw, as the earlier of these 
two dates, because a student cannot otherwise provide official 
notification to the institution without having already begun the 
institution's withdrawal process.
    Discussion: The commenter's assertion that a student cannot 
otherwise provide official notification to the institution without 
having already begun the institution's withdrawal process is incorrect. 
The example given in the preamble to the NPRM illustrates one scenario 
where a student may otherwise provide official notification to the 
institution prior to beginning the institution's withdrawal process. In 
that example, a student calls the institution's designated office and 
states his or her intent to withdraw on November 1. On December 1, the 
student begins the institution's withdrawal process by submitting a 
withdrawal form.
    Changes: None.
Withdrawals Without Notification
    Comments: One commenter believed that use of the midpoint as the 
withdrawal date for a student who does not begin the institution's 
withdrawal process or otherwise provide official notification to the 
institution of his or her intent to withdraw penalizes students who 
provide notification of withdrawal. The commenter asserted that this 
provision provides students with an incentive to leave without 
notification, which will only add to the institution's administrative 
burden. The commenter believed that the withdrawal date for an 
unofficial withdrawal should be the student's last date of attendance 
or the date of the last homework assignment submitted by the student.
    One commenter contended that an institution cannot determine until 
the end of the term that a student has really dropped out because the 
student would always have the right to return. A couple of commenters 
maintained that there is no reliable way to determine that a student 
has dropped out of the institution. For example, one commenter noted 
that all failing grades for a student would not necessarily mean that 
the student stopped attending. The commenter questioned how a program 
reviewer would identify students that have dropped out of the 
institution. Another commenter believed that other institutions often 
conclude that some students have completed a semester even though the 
students may have transferred to another institution. The commenter 
believed that the add-drop periods established by the institution could 
be used to more fairly interpret when students withdrew.
    Discussion: Section 484B(c)(1)(iii) of the HEA provides that the 
withdrawal date for a student who does not begin the institution's 
withdrawal process or otherwise provide official notification to the 
institution of his or her intent to withdraw is the midpoint of the 
period for which assistance was disbursed. However, these regulations 
provide that an institution may always use an earlier or later last 
date of attendance at an academically-related activity as the student's 
withdrawal date.
    It is the responsibility of the institution to develop a mechanism 
for determining whether a student who is a recipient of Title IV, HEA 
grant or loan funds has ceased attendance without notification during a 
payment period or period of enrollment. The requirement that an 
institution identify students that have dropped out of the institution 
during a payment period or period of enrollment is not new. Under the 
Title IV, HEA refund requirements an institution has been required to 
identify drop outs. Among other things, a reviewer may look to see if 
an institution has a mechanism in place for identifying and resolving 
instances where attendance through the end of the period could not be 
confirmed for a student. These regulations provide institutions with 
flexibility to establish their own add-drop periods and institutional 
refund policies. The basis for measuring the amount the student earns 
is the student's attendance, and the law requires that the funds be 
earned on a pro-rata basis through the 60 percent point of the payment 
period or period of enrollment.
    Changes: None.
Student Does Not Return From an Approved Leave of Absence
    Comments: A few commenters believed that, for a student who does 
not return from an approved leave of absence, the institution should be 
able to use the scheduled return date as the student's withdrawal date, 
rather than the date that the student began the leave of absence (for a 
student who withdraws from an institution that is not required to take 
attendance) or the last date of academic attendance as determined by 
the institution from its attendance records (for a student who 
withdraws from an institution that is required to take attendance). One 
commenter felt that the withdrawal date should be the date of the 
institution's determination of the student's withdrawal. One commenter 
contended that the law states that the student's withdrawal date is the 
date that the student withdrew; therefore, for a student who notifies 
the institution that he or she will not be returning to the 
institution, the date of the student's notification should be the 
withdrawal date.
    A few commenters were concerned that the withdrawal date for a 
student who does not return at the expiration of an approved leave of 
absence as proposed in the NPRM would penalize students and 
institutions if the student was a Title IV, HEA program loan recipient. 
The commenters noted that if a student had been granted the full 180 
days for an approved leave of absence, the student will have exhausted 
all of his or her grace period and will be required to begin repayment 
of the loan immediately, which would increase the likelihood that the 
student would default.
    A couple of commenters contended that the proposed withdrawal date 
will not provide institutions with enough time to comply with the 
requirements for the treatment of Title IV, HEA program funds when a 
student withdraws within the required timeframes. One commenter noted 
that when a student does not return from an approved leave of absence, 
the institution would like the opportunity

[[Page 59025]]

to work with the student to properly prepare them for repayment.
    Discussion: We do not agree with the commenters' suggested 
alternative withdrawal dates for a student who does not return from an 
approved leave of absence because we continue to believe that the date 
that best reflects the point when the student ceased academic 
attendance for this student is the date that the student began the 
leave of absence (for a student who withdraws from an institution that 
is not required to take attendance) or the last date of academic 
attendance as determined by the institution from its attendance records 
(for a student who withdraws from an institution that is required to 
take attendance).
    Section 484B(a)(2)(B) of the HEA states that the withdrawal date 
for a student who does not return to the institution at the expiration 
of an approved leave of absence is the withdrawal date as determined in 
accordance with section 484B(c). However, section 484B(c) does not 
specifically address the circumstance of a student who does not return 
to the institution at the expiration of an approved leave of absence. 
Therefore, as noted in the NPRM, we have promulgated the withdrawal 
date that we believe best meets our goal to accurately reflects the 
point when the student ceased attendance by treating the start of the 
leave of absence as a withdrawal date documented by the institution.
    We acknowledge that this withdrawal date will result in the 
exhaustion of some or all of a student's grace period for Title IV, HEA 
program loan recipients. We believe this is an appropriate result 
because the student was not in academic attendance for that period. 
However, we note that a student who has exhausted his or her grace 
period and is unable to begin repayment of a loan may apply for a 
deferment or forbearance of payment. Taking into account the concerns 
of the commenters, we believe that a student must be informed of the 
possible consequences of withdrawal on a loan grace period before he or 
she is granted an approved leave of absence. Therefore, we have changed 
these regulations to require an institution to provide information to a 
loan recipient prior to the granting of a leave of absence about the 
possible effects that the student's failure to return from the leave of 
absence may have on the student's loan repayment terms. These issues 
related to a student's Title IV, HEA program loan repayment status when 
the student does not return from an approved leave of absence are 
discussed in more detail in the Analysis of Comments and Changes for 
Sec. 668.22(d).
    We note that the timeframes and requirements for the handling of 
post-withdrawal disbursements, maintaining documentation of a student's 
withdrawal, and returning Title IV, HEA program funds for which the 
institution is responsible all begin as of the date of the 
institution's determination that the student withdrew, not as of the 
student's withdrawal date. Therefore, the withdrawal date for a student 
should have no effect on an institution's ability to meet these 
requirements and deadlines.
    Changes: Section 668.22(d)(1) has been changed to provide that a 
leave of absence is not an approved leave of absence for purposes of 
the Title IV, HEA programs unless the institution explains at or prior 
to granting the leave of absence the effects that the student's failure 
to return from an approved leave of absence may have on the student 
loan repayment terms, including the exhaustion of some or all of the 
student's grace period.
Unapproved Leave of Absence
    Comments: One commenter contended that there would never be any 
unapproved leaves of absence because a leave of absence would not be 
allowed unless it is approved by the institution. One commenter 
believed that a withdrawal that results because a student is granted an 
unapproved leave of absence should be treated as a withdrawal without 
official notification so that the student's withdrawal date would be 
the midpoint of the payment period or period of enrollment.
    Discussion: We would like to make clear that an institution may 
grant a student for academic reasons a leave of absence that does not 
meet the conditions of these regulations for an ``approved'' leave of 
absence. However, this ``unapproved'' leave of absence must be treated 
as a withdrawal for Title IV, HEA purposes. We do not agree that a 
student who is granted an unapproved leave of absence should be treated 
as an unofficial withdrawal. An unofficial withdrawal is one where the 
institution has not received notice from the student that the student 
has ceased or will cease attending the institution. If an institution 
has granted a student an unapproved leave of absence, the institution 
would be aware of when the student will cease attendance. In keeping 
with our stated goal of identifying the date that most accurately 
reflects the point when the student ceased academic attendance, we have 
defined the withdrawal date for a student who takes an unapproved leave 
of absence at an institution that is not required to take attendance as 
the date that the institution determines that the student began the 
leave of absence. The withdrawal date at an institution that is 
required to take attendance is the last date of academic attendance as 
determined by the institution from its attendance records. We have also 
added a conforming change to define the date of the institution's 
determination that the student withdrew for a student who is granted an 
unapproved leave of absence as the first day of the student's leave of 
absence.
    Changes: We have amended Secs. 668.22(b)(1) and (c)(1)(vi) to 
specify the withdrawal date for a student who takes an unapproved leave 
of absence at an institution that is required to take attendance and at 
an institution that is not required to take attendance, respectively. 
We have added Sec. 668.22(l)(3)(v) to define the date of the 
institution's determination that the student withdrew for a student who 
takes an unapproved leave of absence.
Rescission of Intent To Withdraw
    Comments: A few commenters did not agree that the withdrawal date 
for a student who withdraws from an institution after rescinding an 
intent to withdraw should be the date that the student first provided 
notification to the institution or began the withdrawal process, unless 
the institution chooses to document a last date of attendance at an 
academically-related activity. A couple of commenters believed that an 
intent to withdraw that is rescinded is completely cancelled and cannot 
be referred to again. The commenters maintain that the appropriate 
withdrawal date would be the date that the student subsequently 
notifies the institution and actually withdraws. One commenter was 
unhappy about our insinuation that an institution may abuse this area. 
The commenter felt that the institution is being held responsible for 
the student's actions. A couple of the commenters contended that the 
original date of the student's notification was not an accurate 
withdrawal date because it does not take into account the additional 
charges that the student has incurred for the additional period of 
attendance. One commenter asserted that it would be difficult to get a 
written statement from the student that indicated that he or she will 
remain in attendance. One commenter believed that the proposed 
requirements for handling rescissions of withdrawal notices are too 
complicated and penalize the student for deciding to remain enrolled.

[[Page 59026]]

    Discussion: We continue to believe that the appropriate withdrawal 
date for a student who does not complete the payment period or period 
of enrollment after rescinding his or her first notification of 
withdrawal is the date when the student first began the institution's 
withdrawal process or otherwise provided official notification to the 
institution. The Department is responsible for identifying and 
responding to areas of potential abuse to the Title IV, HEA programs in 
the development of regulations. The potential abuses that we identified 
in the NPRM were not addressed by the alternative withdrawal dates 
suggested by the commenters. We do not believe that this requirement is 
onerous because an institution may always use the last date of 
attendance at an academically-related activity to take into account 
attendance by the student subsequent to the student's first 
notification of withdrawal. For example, Dave notifies his institution 
of his intent to withdraw on January 5. On January 6, Dave notifies the 
institution that he has changed his mind and has decided to continue to 
attend the institution, and provides the required written statement to 
that effect. On February 15, Dave notifies the institution that he is 
withdrawing, and actually does. The institution has a record of an exam 
that Dave took on February 9. The institution may use February 9 as 
Dave's withdrawal date. If the institution could not or did not choose 
to document a last date of attendance at an academically-related 
activity for Dave (in this case, the record of the exam), his 
withdrawal date would be January 5, the date of Dave's original 
notification of his intent to withdraw, not February 15.
    We do not believe that it will be unduly burdensome for an 
institution to obtain a statement from the student that he or she 
intends to remain in academic attendance for the remainder of the 
payment period or period of enrollment. Presumably, the institution is 
aware that the student has changed his or her mind about withdrawing 
because the student has contacted the institution to inform the 
institution that he or she has changed his or her mind and are not 
withdrawing. The institution may inform the student of the 
certification requirement at that time.
    Changes: None.
Last Date of Attendance at an Academically-Related Activity
    Comments: One commenter contended that the law makes no mention of 
a last date of attendance or academically-related activities, so the 
regulations should only use the language of the law which states that a 
later date documented by the institution may be used for a student who 
withdraws without notification to the institution. The commenter did 
not agree that the concept of using the last date of attendance at an 
academically-related activity is a longstanding one for the Title IV, 
HEA programs because it has never been included in previous laws and 
was only introduced in the regulations about eight years ago. One 
commenter requested clarification of the documentation required to 
verify a student's attendance at an academically-related activity. One 
commenter contended that using the last date of attendance at an 
academically-related activity is not a realistic option because it is 
difficult for an institution to track attendance.
    Discussion: As stated in the preamble to the NPRM, the statute does 
not specifically allow an institution to use as a withdrawal date a 
student's last date of attendance at an academically-related activity, 
except in the case of a student who withdraws without providing 
notification (in which case the institution may use a date that is 
later than the midpoint of the period). However, we continue to believe 
that we have the discretion under the statute to promulgate regulations 
that permit an institution that is not required to take attendance to 
document a date other than the specified withdrawal dates if that date 
more accurately reflects the point when the student ceased academic 
attendance.
    We note that the use of a last date of attendance at an 
academically-related activity has been a part of the guidance for the 
definition of a student's Title IV, HEA program withdrawal date for 
over eight years. We believe that this qualifies as longstanding Title 
IV, HEA program policy. Just as there is a wide variety in the types of 
educational programs offered by institutions, there appears to be a lot 
of variation in ways that institutions have been able to identify a 
last date of attendance at an academically-related activity. We believe 
that the guidance provided in the preamble to the NPRM is sufficient 
for an institution to determine how the institution should properly 
document a student's last date of attendance at an academically-related 
activity without being overly prescriptive. This flexibility permits 
institutions to control the process used to verify the student's 
attendance in these activities. We will continue to provide guidance in 
this area through Department publications to address specific concerns 
that are not addressed by this guidance.
    Changes: None.
Acceptable Documentation
    Comments: One commenter supported the position in the NPRM that 
acceptable documentation for a student's withdrawal date should not be 
specified in the regulations.
    Discussion: None.
    Changes: None.

Section 668.22(d)  Approved Leaves of Absence

    Comments: A few commenters supported the position in the NPRM that 
an institution would be allowed to grant more than one leave of absence 
to a student. In response to the Secretary's specific request for 
comment, commenters suggested the following additional categories of 
unforeseen circumstances that the commenters believe warrant the 
granting of more than one approved leave of absence: jury duty; 
incarceration; unexpected loss of child care; the need to care for 
children during the children's school breaks; changes in work schedules 
(for example, a part-time employee is required to work full-time for a 
few weeks); protection in cases of domestic abuse where a student has 
been forced to go into hiding; dependent care outside the parameters of 
the Family and Medical Leave Act of 1993 (FMLA) (no specifics 
provided); financial reasons; death or illness of a family member; 
student suffers injury or major illness; snow days; travel.
    A few commenters believed that a list of circumstances could not 
address every unforeseen circumstance that should warrant an approved 
leave of absence. A couple of these commenters believed that 
institutions should have the discretion to grant an approved leave of 
absence, as long as the institution maintained the appropriate 
documentation. One commenter suggested limiting the number of leaves of 
absence to two, rather than defining all unforeseen circumstances. One 
commenter thought that unforeseen circumstances should be defined, but 
only two leaves of no more than 60 days each should be permitted for 
these reasons. One commenter felt that one leave of absence in a 12-
month period is sufficient.
    Discussion: We continue to believe that more than one leave of 
absence should only be granted for limited, well-documented 
circumstances due to unforeseen circumstances. As stated in the NPRM, 
we believe this interpretation is supported by the language of the 
statute, which refers to a student who takes ``a'' leave of absence 
from an institution. This interpretation also recognizes the fact

[[Page 59027]]

that it is often not in the best interest of a student to have multiple 
interruptions in their education.
    We believe that jury duty, like military duty, is a circumstance 
that would warrant multiple leaves of absence. We believe that some of 
the circumstances suggested by the commenters, such as illness of a 
family member or an injury or major illness of the student, are 
adequately covered by the FMLA. We do not believe that the additional 
circumstances suggested by the commenters would warrant multiple leaves 
of absence, either because they are not unforeseen, are difficult to 
document, or are likely to be adequately addressed by one leave of 
absence. However, we recognize that some of these circumstances, as 
well as other circumstances that have not been identified by either the 
Department or the commenters, may force a student who would otherwise 
continue their education to withdraw. We believe that the institution 
is in the best position to determine if one additional leave of absence 
is necessary for unforeseen circumstances that are not specifically 
mentioned in the regulations. However, in keeping with our intention to 
limit interruptions to a student's education, we believe that this 
leave of absence should be limited to 30 days and can only be granted 
if a student has already been granted an approved leave of absence at 
the institution's discretion. Therefore, consistent with the NPRM, the 
regulations would not specify the circumstances that would warrant one 
leave of absence; rather, the institution would determine if the 
student's reason for requesting a single leave of absence is 
appropriate. An institution may grant subsequent leaves of absence if:
    * The student's circumstances meet one of the following 
conditions for multiple leaves of absence: military reasons, 
circumstances covered by the FMLA, or jury duty, or
    * For one additional leave of absence not to exceed 30 days, 
the institution determines that the additional leave of absence is 
necessary. This type of leave of absence would have to be subsequent to 
the granting of the single leave of absence that is granted at the 
institution's discretion.

In accordance with the statute, the total number of days of all leaves 
of absence cannot exceed 180 days in any 12-month period.
    Changes: Section 668.22(d)(2) is amended to provide that for one 
additional leave of absence not to exceed 30 days, the institution may 
determine that the additional leave of absence is necessary due to 
unforeseen circumstances. This type of leave of absence would have to 
be subsequent to the granting of the single leave of absence. Section 
668.22(d)(2) is amended to provide that jury duty is another 
circumstance, in addition to military reasons or circumstances covered 
by the FMLA, for which an institution may grant a student subsequent 
leaves of absence.
    Comments: One commenter asked if leaves of absence granted for 
``military reasons'' includes the National Guard.
    Discussion: We believe that leaves of absence that are granted for 
military reasons include training and service requirements of the 
National Guard.
    Changes: None.
    Comments: One commenter noted that some of the circumstances 
covered by the Family and Medical Leave Act of 1993 (FMLA) are covered 
for a 12-month period. The commenter asked us to clarify the interplay 
of the 12-month period for FMLA with the 180 days restriction of leaves 
of absence.
    Discussion: Two of the circumstances that are covered under the 
FMLA, birth and care of a child, and adoption or foster care placement, 
are covered for up to 12 months for purposes of the FMLA. For purposes 
of the Title IV, HEA programs, this means that a student may be granted 
an approved leave of absence for these circumstances, as long as (1) 
the entire leave of absence will occur sometime during this 12 month 
period of time, and (2) the total number of days of all leaves of 
absence for the student does not exceed 180 days in the 12-month period 
that began on the first day of the student's first leave of absence. 
For example, a student has a child who is born on February 1, 2000. The 
student has never taken an approved leave of absence before. The 
student may be granted an approved leave of absence for the birth of 
and/or care of the child for up to 180 days during the period of 
February 1, 2000 through February 1, 2001, 12 months from the birth of 
the child. If the student requests a subsequent leave of absence to 
care for the child that would begin on January 1, 2001, the leave of 
absence could be no longer than 31 days, because the circumstance that 
triggered the leave of absence would no longer be covered under the 
FMLA after February 1, 2001.
    Changes: None.
    Comments: One commenter believed that it was unreasonable to 
require that a student be permitted to complete the coursework begun 
before the leave of absence. Since a leave of absence can be up to 180 
days, the commenter noted that this period of time exceeded the limits 
most institutions permit before having a grade of ``incomplete'' turn 
into a failing grade. The commenter suggested that it would be more 
consistent with existing academic requirements for the term 
`coursework' to be changed to `course of study or major'. One commenter 
suggested that the requirement to exclude periods of excused absences 
from the calendar days used in the return calculation does not work 
because any leave of absence that extended beyond the end of the 
payment period or period of enrollment would automatically qualify the 
student to earn 100 percent of the Title IV, HEA program funds.
    Discussion: Approved leaves of absence are viewed as interruptions 
in a student's academic attendance. Therefore, when a student returns 
from a leave of absence, the student should be continuing the academic 
program where it left off. Approved leaves of absence must conform to 
the institution's policy, and institutions are expected to play an 
active role in evaluating whether a requested leave of absence should 
be granted and how it can be structured to permit a student to complete 
the payment period or period of enrollment. Although a leave of absence 
may extend for up to 180 days, we anticipate that most requests will be 
for shorter periods that will conform to an institution's requirements 
for completing courses within specified time limits. Furthermore, the 
scenario provided by the commenter is one where a student has not 
ceased to perform academically if the student is completing the course 
work through independent study rather than by taking classes at the 
institution. Therefore, this would not be considered a leave of absence 
for Title IV, HEA program purposes. When a student returns from an 
approved leave of absence the payment period or period of enrollment 
used for a return calculation would be adjusted to reflect the new 
ending date. In order to prevent a situation where a student is able to 
earn funds simply by taking a leave of absence, those days must be 
excluded from the return calculation.
    Changes: None.
    Comments: One commenter believed that retroactive requests for 
leaves of absence should be permitted because students often do not 
know that they will need a leave of absence until they have been absent 
from the institution for a few days.
    Discussion: We continue to believe that it is reasonable to expect 
an institution to collect a written request for an approved leave of 
absence from the student prior to the leave of absence, unless the 
student is unable to provide the written request prior to the leave of

[[Page 59028]]

absence due to unforeseen circumstances. In such cases, the institution 
must document the reason for its decision to grant the leave of absence 
prior to receiving a written request and collect the written request 
from the student at a later date.
    Changes: None.
In-School Status for Title IV Loans
    Comments: Several commenters believed that a student should be 
considered to have in-school status for Title IV, HEA loan purposes 
during an approved leave of absence. The commenters argued that 
considering a student to have in-school status for Title IV, HEA loan 
purposes is consistent with the assertion that a student on an approved 
leave of absence is still considered to be enrolled at the institution. 
The commenters contended that the inconsistency of placing a student in 
an out-of-school status for loan purposes, while the student is still 
considered enrolled in the institution, would be too confusing and 
burdensome to students and their families, institutions, lenders, and 
guaranty agencies. Some commenters noted that leaves of absence are 
granted to encourage a student to continue his or her education. The 
commenters believed that guaranteeing that a student will not exhaust 
any or all of their grace period will be an added incentive to return 
and avoid immediate repayment. One commenter noted that most loan 
servicing systems generate letters to a borrower beginning in the first 
month of the borrower's grace period. The commenter contended that 
these notices will confuse students who are considered to be in 
enrollment for other Title IV, HEA purposes.
    Discussion: We agree with the commenters' arguments that the 
inconsistency of treating a student on an approved leave of absence as 
a withdrawn student for purposes of terminating a student's in-school 
status would not be in the best interest of the student and would 
possibly create undue burden for institutions, lenders and guaranty 
agencies. We agree that a student who is granted an approved leave of 
absence should be considered to remain in an in-school status for Title 
IV, HEA loan repayment purposes. However, as discussed previously, if a 
student does not return from an approved leave of absence, the 
student's withdrawal date, and the beginning of the student's grace 
period, is the date that the student began the leave of absence (for a 
student who withdraws from an institution that is not required to take 
attendance) or the last date of academic attendance as determined by 
the institution from its attendance records (for a student who 
withdraws from an institution that is required to take attendance). 
Therefore, an institution must report to the loan holder the student's 
change in enrollment status as of the withdrawal date.
    Changes: Section 668.22(d)(1) has been changed to reflect that if a 
Title IV, HEA program loan borrower has been granted an approved leave 
of absence, the borrower is considered to be enrolled in the 
institution for purposes of reporting the student's in-school status 
for Title IV, HEA program loans.
Scheduled Breaks
    Comments: A few commenters supported the position that a student 
would not have to be granted an approved leave of absence for periods 
of nonattendance for a scheduled break. The commenters assumed that 
this position would apply to summer sessions when the student is not 
scheduled to be in attendance.
    Discussion: The commenters are correct that an approved leave of 
absence would not be necessary for a summer session for which the 
student was not scheduled to be in attendance. However, if a scheduled 
break falls within a payment period or period of enrollment and the 
student does not return at the end of the scheduled break, the 
withdrawal date would reflect that the scheduled break was a period of 
non-attendance.
    Changes: None.

Sec. 668.22(e)  Calculation of the Amount of Title IV Assistance Earned 
by the Student

Use of Payment Period or Period of Enrollment
    Comments: A few commenters suggested that institutions that use 
period of enrollment for the calculation should be allowed to use aid 
awarded rather than the aid that was disbursed or could have been 
disbursed as of the date of the student's withdrawal. The commenters 
said that the use of aid awarded was provided for in the law, and that 
the option of using period of enrollment is made void unless an 
institution is allowed to use the aid awarded in the calculation. The 
commenters explained that the proposed requirement to only use the 
amount of aid disbursed or that could have been disbursed at the time 
of the student's withdrawal is unfair because students who withdraw 
during the first payment period will not have been enrolled long enough 
for the institution to have disbursed all aid awarded for the period of 
enrollment. The commenters believe that institutions will be acting 
against the interests of their students by using the period of 
enrollment in the calculation rather than the payment period because 
less aid could be considered in the calculation.
    Discussion: Although the commenters point out that the law refers 
to aid awarded when describing the institution's option to use either 
payment period or period of enrollment in the calculation, that 
reference simply describes the relevant period to use in the 
calculation. The law gives institutions the option to use either the 
payment period or period of enrollment ``for which assistance was 
awarded'' in the calculation, but specifies that the percentage of 
assistance earned is applied to the assistance that ``was disbursed 
(and that could have been disbursed). . . as of the day the student 
withdrew''.
    Changes: None.
    Comments: A small number of commenters pointed out that the 
requirement for an institution to consistently use either the payment 
period or period of enrollment measure poses a problem in some 
circumstances, particularly for students that are transferring to the 
institution or are re-entering to complete their program. Some of those 
commenters said that they read the law to allow institutions to choose 
on a student-by-student basis to address differences in student 
circumstances. The commenters noted that many institutions would decide 
to use the payment period as a basis for doing most return 
calculations, because that calculation would be better for most 
students. The commenters said that the choice in the law to use payment 
period or period of enrollment was supposed to give them flexibility to 
use a calculation that matched the way they charged for their programs.
    Discussion: Institutions must choose between using payment period 
or period of enrollment on a program by program basis. This requirement 
promotes consistency in administration of the programs and makes it 
simpler for schools to explain the return of funds provision to 
students. Students enrolling in a program at an institution will also 
be subject to the same period of measure for return of unearned aid 
calculations throughout their attendance. We therefore reject the 
suggestion that institutions should be able to choose the appropriate 
period for this calculation on a student by student basis for the 
students that regularly enroll in their programs. Some different 
treatment is being permitted for

[[Page 59029]]

students that transfer into an institution or re-enter, and this is 
discussed below.
    Changes: None.
    Comments: A few commenters said that the proposed regulation is 
confusing because it does not distinguish between financial aid awarded 
(which is subject to the student meeting certain criteria to receive 
any amount awarded) and financial aid that the student was eligible to 
receive. The commenters illustrated this by explaining that a first 
time borrower must attend 30 days before being awarded the financial 
aid for the first loan disbursement. The student must then continue 
attending into the second payment period in order to receive the second 
disbursement of the loan proceeds. The commenters recommended revising 
the regulation to provide that the amount to be returned may never 
exceed the difference of the amount disbursed and the amount earned.
    Discussion: The calculation in the NPRM determines whether more aid 
was actually disbursed than the student earned. If so, the unearned 
portion must be returned. The proposed language has already been 
written to clarify that the only amount that needs to be returned is 
the amount of aid that was actually disbursed that exceeded the amount 
of earned aid. We believe that the proposed language accurately 
describes the steps needed to perform the calculation, and believe that 
this language better describes the processes that institutions will use 
when performing these calculations.
    Changes: None.
    Comments: A few commenters asked how to determine tuition and fee 
costs to be paid in a payment period or period of enrollment when the 
program is longer than those periods. These commenters pointed out that 
some institutions charge for equipment and supplies up front, even 
though that equipment may be used throughout a program that could last 
for two years or perhaps longer. Other questions dealt with whether 
such charges could be pro-rated, and asked how registration fees or 
book charges would be handled in the calculation. The commenters 
suggested that deference should be given to the recommendations made by 
the schools and their students who are affected by this provision. Some 
of these commenters said that the Department has a longstanding policy 
to include up-front charges in the first period of enrollment so that 
there would be no tuition and fee costs for subsequent periods.
    Discussion: An institution would be permitted to pro-rate the total 
program charges for the program to correspond to the payment period if 
the institution has elected to use payment period rather than period of 
enrollment for the return calculations. If the institution retained a 
higher amount of charges to the student for the payment period for any 
reason, including allocating costs for equipment and supplies to the 
front of the program, the funds retained by the institution are 
attributed to that payment period because they are a better measure of 
the institutional charges paid by the student for that period.
    Changes: None.
    Comments: A few commenters raised concerns about the statutory 
requirements of the return calculation. For example, one commenter 
argued that forcing institutions to return unearned Title IV, HEA 
program funds through 60 percent of the period could cause the 
institutions to delay disbursing funds to their students until after 
this point. Those schools pointed out that students that withdraw after 
the beginning of a payment period cannot be replaced, and the cost to 
the institution of providing that program does not decrease. Another 
commenter pointed out that his state required a shorter refund policy 
that the commenter believed was fairer than the return calculation. 
Other commenters complained about the additional costs institutions 
would face from adding additional staff and returning larger amounts of 
unearned funds. Other commenters objected to having students earn funds 
on a pro-rata basis because it does not correspond to the costs 
incurred by the student for attending the institution, and complained 
that the statutory formula does not round the percentages earned in 10 
percent portions like the prior version of the law did.
    Discussion: The commenters address components of the return 
calculation that are statutory and cannot be changed by regulation.
    Changes: None.
Re-Entry and Transfer Students
    Comments: Some institutions pointed out that it was impossible for 
an institution to use a consistent number of hours in a payment period 
for students that transferred into the institution or re-entered it, 
because the first payment period for those students will be whatever 
portion of a payment period remains to be completed before the student 
can begin a subsequent full payment period. A few commenters pointed 
out that the Title IV, HEA program funds at issue during this partial 
payment period are, in effect, discounted twice, once at entry, due to 
the Federal Pell Grant proration requirements, and once at the time of 
withdrawal for the return calculation. Other schools also complained 
that this problem was further complicated because institutions are not 
allowed to use aid awarded in the calculation. Another commenter noted 
that the benefit of using payment periods for the regularly enrolled 
students would be negated if the institution used payment periods for 
the transfer and re-entry students as well. The commenter believed that 
it may be fairer for those students to have their period of enrollment 
used in a return calculation.
    Discussion: We acknowledge that students transferring to an 
institution or re-entering a nonstandard term or non-term based program 
are more likely to have a short, non-standard payment period that would 
have to be completed before their schedules could fit into the standard 
payment periods at the institution. Both these groups of students are 
distinct from students who have attended a program from the beginning 
of the payment period or period of enrollment, and it may be 
appropriate for an institution to choose to use either a payment period 
or period of enrollment basis for a return calculation for one of these 
groups of students, even if a different period is used for the students 
who have been in attendance from the beginning of the payment period or 
period of enrollment in that program.
    Changes: Section 668.22(e)(5)(ii) has been modified to permit an 
institution to make a separate selection of payment period or period of 
enrollment for return of unearned aid calculations for students that 
transfer to the institution and for those who reenter the institution 
for students who attend a nonterm-based or a nonstandard term-based 
educational program.
    Comments: A small number of commenters pointed out that the return 
calculation does not provide for treatment of aid that was awarded but 
not disbursed, including situations where the institution elects to do 
multiple disbursements. The commenters suggested that the multiple 
disbursements should not be treated as funds that would be applied to 
institutional charges, but that institutional charges should be applied 
against the amount the student and the institution must repay. Another 
commenter said that the return calculation does not adequately address 
how undisbursed funds should be treated because of the many different 
scenarios that can occur at a college where a student withdraws before

[[Page 59030]]

receiving all funds that have been disbursed to him.
    Discussion: As discussed above, the law determines the amount of 
funds earned by the student in the return calculation by applying the 
percentage the student completed of the payment period or period of 
enrollment to the funds that were disbursed, or could have been 
disbursed, as of the day the student withdrew. Students that have not 
received aid that could have been disbursed to them at the time they 
withdrew are entitled to receive any additional sum earned that is 
greater than the amount already disbursed to them. This snapshot 
approach to considering whether additional aid may be awarded will 
provide a consistent set of procedures that will prevent post-
withdrawal disbursements of unearned aid. Even though multiple 
disbursements may have been scheduled for a student at the time he or 
she withdrew, the return calculation will limit those disbursements to 
actual amounts earned. A student receiving a post-withdrawal 
disbursement will have earned all aid that had been disbursed, and the 
subsequent disbursement will only be for the additional amount earned. 
A student receiving a post-withdrawal disbursement will therefore never 
have any unearned funds that would be the responsibility of the student 
in the return calculation, as might be the case if all of the student's 
disbursements were made at the beginning of the period. This rule will 
prevent institutions from making post-withdrawal disbursements of aid 
that could be manipulated to alter the grant/loan mix of funds used in 
the return calculation. We believe it is consistent with the law to 
base the return calculation on the actual aid that had been disbursed 
at the time the student withdrew.
    Changes: None.

Sec. 668.22(f)  Percentage of Payment Period or Period of Enrollment 
Completed

Credit Hour Programs
    Comments: Several commenters questioned how holidays and weekends 
should be treated in the calculation of days completed, particularly 
when combined with a short break. One commenter suggested that the 
calendar days used in the calculation should be defined as school days, 
and exclude weekends and holidays from the calculation. The commenter 
argued that this treatment would provide consistency among terms and 
would comport with the current method of determining repayments. Other 
commenters agreed that including weekends and short breaks complicates 
the calculation and does not accurately reflect the actual course 
completion. Conversely, other commenters pointed out that students are 
often studying during weekends and during short breaks, and they argued 
that all calendar days should count in the return calculation. Another 
commenter preferred basing the calculation on weeks completed, and 
suggested that some rounding of calendar days completed be permitted in 
order to simplify the calculation.
    A few commenters argued that the proposed exclusion of 5 day breaks 
was too short if the weekend days would be considered a part of that 
period. The commenter noted that every break of 3 days or more 
occurring prior to or after a weekend would create a period that would 
be excluded from the return calculation, and recommended that the 
number of days of closure be increased to more accurately reflect the 
expenses incurred by the institution during short-term closure. One 
commenter pointed out that most colleges have a one week Spring break 
in the Spring term, but only one-day or two-day holidays in the Fall 
even though the number of teaching days are the same. The commenter 
believed that this disparity in breaks would require students 
withdrawing in the Spring to have to return more funds than students 
that withdraw at a comparable point in the Fall payment period.
    Discussion: The law generally requires the use of calendar days in 
the return calculation. The proposed rule would exclude breaks of five 
or more consecutive days in order to provide for more equitable 
treatment to students that withdraw near each end of a scheduled break. 
In those instances, the student that withdrew after the break would not 
be given credit for earning an additional week of funds during the 
scheduled break, but would instead earn only an additional day or two 
more funds than a student that withdrew right before the start of the 
break. We intend for institutions to exclude all days between the last 
scheduled day of classes before a scheduled break and the first day 
that classes resume. For example, where classes end on a Friday and do 
not resume until Monday following a one-week break, both weekends would 
be excluded from the return calculation. If classes were taught on 
either weekend for the programs that were subject to the scheduled 
break, those days would be counted.
    Changes: None. Comments: One commenter pointed out that the 
proposed regulation does not fully address non-term credit hour 
programs and nontraditional program formats, especially those non-term 
credit hour programs that consist of consecutive courses where students 
may be scheduled to attend one or two days a week or every other 
weekend. In those instances, five or more days would routinely occur 
between class meetings, and the commenter asked if those days would be 
treated as scheduled breaks. Another comment suggested that we should 
continue to work with the financial aid community to identify the best 
way to measure the period used in the return calculation for these non-
traditional programs.
    Discussion: We note that the proposed rule excludes scheduled 
breaks of at least five consecutive days. For a program that regularly 
met each weekend for its entirety, the days between classes would not 
be excluded because they were not part of any regularly scheduled 
break. If classes were not held on at least one of the scheduled days 
during a weekend, the period from the last scheduled day of class 
before the scheduled break until the next scheduled day of class after 
the break would be excluded from the return calculation. We believe 
that this result is consistent with the application of this rule to 
traditional institutions, since a program that usually offered classes 
on Saturday and Sunday would be taking a break from half of a week's 
classes if it did not meet on one of those days.
    Changes: None.
Clock Hour Programs
    Comments: One commenter said that the proposed regulations for 
clock hour institutions were too complex. A few commenters argued that 
the return calculations for clock hour institutions should use 
scheduled clock hours to determine the amount of aid earned rather than 
considering the actual clock hours completed in the program, because 
this is more consistent with the requirement to use calendar days as 
the measure of aid earned at credit hour institutions. Other commenters 
argued that the law was intended to create similarity between rules for 
credit hour and clock hour institutions by permitting the use of 
scheduled hours. These commenters pointed out that credit hour students 
can attend the first day of classes and not again until the 30th day 
and receive aid for that 30-day enrollment if they withdraw. 
Furthermore, if the student unofficially withdrew, he would receive aid 
through the midpoint of the payment period.
    A small number of commenters also argued that the proposed 
regulations did

[[Page 59031]]

not correctly interpret the law concerning when scheduled clock hours 
are used instead of completed clock hours. These commenters believe the 
law permits the Secretary to establish a threshold of minimum hours 
such as 10 percent of the payment period that, when completed, would 
entitle a student to be paid for scheduled hours from that point on 
whenever he or she withdraws.
    Other commenters recommended a number lower than 70 be used for the 
percentage of completed hours that would allow a student to be paid for 
scheduled hours, or argued that it was punitive to limit some students 
to being paid for completed hours if they only completed 69 percent of 
the hours they were scheduled to take when a student completing 70 
percent would get the bonus of being paid for all scheduled hours. A 
few commenters also suggested that the 70 percent number be changed to 
66 percent in order to correspond with our satisfactory academic 
progress measures that require a student to complete a program in no 
more than 150 percent of the scheduled time, so that a student could be 
paid for up to 150 percent of the actual hours completed at the time of 
withdrawal.
    Discussion: The law provides clear authority for the Secretary to 
establish the percentage of attendance a student must achieve in order 
to be paid for scheduled hours rather than completed hours. Under the 
new regulation, that measure will be based upon the student's success 
at completing at least 70 percent of the hours scheduled to be 
completed at the time he or she withdrew. The 70 percent requirement is 
a bright line, and students that meet the attendance threshold will be 
paid for scheduled hours, while students with lower attendance rates 
will not. The 70 percent attendance requirement was reached after 
numerous meetings with a work group that were held during the 
negotiated rulemaking process. We reject the suggestion that the number 
be lowered in order to mirror our satisfactory academic progress 
provisions, which serve the very different purpose of providing 
students that remain enrolled beyond the scheduled length of their 
program with additional time to complete their studies.
    Changes: None.
    Comments: A few commenters objected to the proposed requirement 
that a student in a clock hour program actually complete 60 percent of 
the program before earning 100 percent of the funds. The commenters 
argued that the 60 percent measure identified in the law should be 
based on the student's scheduled hours if the student were entitled to 
be paid for scheduled hours, as discussed above. The commenters said 
that there is no specific statutory basis for imposing this 
restriction, and they asserted that it discriminates against clock hour 
students because no comparable restrictions are imposed on students 
enrolled in credit hour programs. One commenter pointed out that some 
states approve clock hour programs that permit students to attend with 
accelerated schedules, so that a student would withdraw with more 
completed hours than scheduled. The commenter sought either 
clarification or a change in language to provide that a student could 
be paid for completed hours if they exceeded the amount of scheduled 
hours.
    Discussion: The law permits a student to earn 100 percent of the 
funds when completing 60 percent of a program, and we view the actual 
completion of that amount of the program as a substantive requirement. 
We refuse to dilute this measure by treating a student that completes 
42 percent (70 percent of 60 percent) of a program as having earned 100 
percent of his or her Title IV, HEA program aid. We note that the 
student completing 42 percent of the program in this example will still 
get the substantial benefit of having earned aid for 60 percent of the 
scheduled hours because the student met the 70 percent attendance 
requirement when he withdrew. We note that the language in the 
regulation permits the institution to use either the hours completed or 
the scheduled hours (subject to the 70 percent attendance requirement) 
in the calculation, so that a student completing more hours than were 
scheduled to be completed at the time he or she withdrew could be paid 
for the completed hours.
    Changes: None.
Excused Absences
    Comments: Many commenters suggested that excused absences should be 
treated as completed hours, because we currently permit clock hour 
institutions to count up to 10 percent of the missed hours in the 
program as completed hours. The commenters noted that this was also 
consistent with higher education community practice.
    A few commenters further suggested that the 10 percent limit on 
excused absences should be raised to 15 percent or whatever standard 
was permitted in state regulations. Some commenters also suggested that 
excused absences should include jury duty, military service, court 
appearances, sickness, medical reasons and family emergencies since 
these are all circumstances beyond the student's control.
    One commenter claimed that not counting excused absences as 
completed hours would create potential problems for transfer students 
and re-entry students because the state would recognize hours for 
excused absences as completed even though the Department would not. 
Other commenters said it was not fair to exclude excused absences from 
being treated as completed hours because credit hour institutions are 
allowed to count weekends and holidays in the return calculation.
    One commenter supported the proposed regulation because the 70 
percent completion measure used to permit students to be paid for 
scheduled hours rather than completed hours would already include these 
absences.
    Discussion: Excused absences will not count as completed hours in 
the return calculation. For students that withdraw from their programs, 
the absences will be classified as scheduled hours that were not 
completed. In order to be paid for those hours, the student must 
satisfy the 70 percent attendance measure. We believe that the 
allowance of up to 30 percent of the scheduled hours to be missed is 
sufficient to cover most of the situations for unexpected absences that 
were posed by the commenters. We also note that some of the suggestions 
for reasons to recognize excused absences would appear to come within 
the criteria an institution could use to give a student a leave of 
absence. For students that do not withdraw from their programs, the 
existing policy in the cash management regulations, Sec. 668.164(b)(3), 
of not requiring clock hours to be completed for excused absences of up 
to 10 percent of the program will be retained.
    Changes: None.
Rounding
    Comments: Some commenters pointed out that there was no mention of 
rounding the numbers used in the return calculation, and they requested 
guidance.
    Discussion: The return calculation should use the following 
rounding procedures. Use three decimal places for most steps in the 
calculation, rounding the third decimal place up one if the fourth 
decimal place is 5 or above. For example, .4486 would be rounded to 
.449, or 44.9 percent. There is one exception to this general rule. 
Monetary amounts may be reported in dollars and cents using normal 
rounding rules to round to the nearest penny. Final repayment amounts 
that the institution and student are each responsible to

[[Page 59032]]

return may be rounded to the nearest dollar.
    Changes: None.

Section 668.22(g)  Return of Unearned Aid, Responsibility of the 
Institution

    Comments: A few commenters believed that it was unduly financially 
burdensome to hold an institution responsible for repaying Title IV, 
HEA program funds that were disbursed directly to the student. The 
commenters contended that the assumption of the proposed rules that an 
institution has retained Title IV, HEA program funds to cover 
institutional charges before disbursing any Title IV, HEA program funds 
to the student is incorrect.
    A few commenters argued that it would be unfair to include 
institutional charges that are paid by other sources of aid that are 
restricted to institutional charges--such as State funding programs, 
State grant programs or veteran's grants--in the amount of 
institutional charges that is used for purposes of determining the 
portion of unearned Title IV, HEA program funds that the institution 
must return. One commenter noted that in the case of restricted 
funding, when a student withdraws, the institution will have to refund 
a portion of the aid to the other source. The commenter believed that 
it would be financially burdensome for the institution to have to also 
return funds for the same institutional charges to the Title IV, HEA 
programs. A few of the commenters contended that if the amount of 
restricted aid was removed from the amount of institutional charges, 
the student would be able to repay the same amount under the more 
beneficial repayment terms of a Title IV, HEA program loan.
    A few commenters contended that an institution would have to take 
undesirable actions to mitigate their financial loss. A few of these 
commenters maintained that an institution will have to pass on the bill 
to the student for the amount of Title IV, HEA program funds that the 
institution had to return in excess of the Title IV, HEA program funds 
that were actually received by the institution. A few commenters 
maintained that an institution will have to change its refund policy so 
that the institution will earn more institutional charges when a 
student withdraws. A few commenters asserted that institutions will 
have to delay some loan disbursements to avoid having to repay Title 
IV, HEA program funds they never received. One commenter, a state 
community college trustees association, believed that requiring 
institutions to return Title IV, HEA program funds that were given to 
the student will force the community colleges in the commenters State 
to discourage thousands of students from enrolling if they believe that 
the student may not complete the term. The commenter believed that 
state community college enrollment could be reduced by more than 10 
percent.
    A few commenters contended that institutions with low or no 
institutional charges, such as many community colleges, should be 
exempt from the requirement that the institution return Title IV, HEA 
program funds that it has not received because of the enormous negative 
effects that this provision would have on these institutions and their 
students.
    A couple of the commenters believed that there should be an 
exemption for institutions like those in the California community 
college system, when institutional charges are paid or waived by a 
State program. The commenters asserted that because Title IV, HEA 
program funds are never used to pay the fees for these students, it 
would be unfair to require the institution to return Title IV, HEA 
program funds that were never received by the institution to cover 
these fees. The commenter noted that any funds returned by the 
institution will come at the expense of other programs or services to 
students.
    A few of the commenters maintained that students at low- or no-cost 
institutions will be the hardest hit by this provision. The commenters 
noted that the students who enroll at these institutions have the 
greatest chance of owing a large overpayment because the amount of 
Title IV, HEA program funds that the institution will be responsible 
for returning--which is capped at the lesser of the total unearned 
amount of aid or the student's institutional charges multiplied by the 
percentage of unearned Title IV, HEA program assistance--will be quite 
small.
    Discussion: We do not agree with the suggestion that these 
regulations should take into consideration whether other sources of aid 
were actually used to pay a student's institutional charges when 
allocating repayment responsibilities between the institution and the 
student. The proposed regulation implements the statutory framework 
that divides responsibility for repaying unearned Title IV, HEA program 
funds between the institution and the student under a new system that 
no longer controls the actual charges assessed by the institution. In 
the statute, the allocation of repayment responsibilities looks first 
to the institution to repay unearned Title IV, HEA program funds 
because the Title IV, HEA program funds are provided under the 
presumption embodied in the current regulations that they are used to 
pay institutional charges ahead of all other sources of aid. The 
regulations do not provide for institutions to adjust this allocation 
by taking into consideration other sources of aid that might be used to 
pay institutional charges for a student. We believe that it would be 
administratively burdensome to try and take into consideration when 
other sources of aid would be deemed to have paid some portion of 
institutional costs for a student, particularly given the variations in 
timing and conditions that may be associated with those sources of aid.
    The commenters noted that institutions will have to change their 
institutional refund policies to adjust to the new provisions. The new 
provisions of section 484B of the HEA for the return of unearned Title 
IV, HEA program funds have freed institutions to make such changes. The 
law requires institutions to disclose and explain their refund policies 
to students, and this should include some discussion of how the 
institution might adjust a student's charges to take into account 
repayments that the institution was required to make under these 
provisions. As noted by some commenters, institutions may also consider 
changing the disbursement schedules for students in order to have the 
disbursements better match the rate at which the student is earning the 
funds.
    In response to the predictions by some commenters that some 
community colleges may discourage enrollments by students that are less 
likely to complete the term, we note that many options are available to 
institutions to screen their applicants and actively work with them to 
keep them enrolled. An institution should only admit students who have 
an intention of completing the program in which they enroll. 
Institutions should inform students of their responsibilities under 
these rules to repay unearned funds if they withdraw.
    The law does not permit exemptions of any institutions that are 
participating in the Title IV, HEA grant or loan programs from the 
requirements of section 484B, as implemented by these final 
regulations. We note that institutions may instead waive the 
institutional charges for their students rather than paying them state 
scholarships, provided that the waiver of those fees is taken into 
consideration when calculating the student's cost of attendance. This 
would result in no institutional responsibility for repayment of 
unearned Title IV, HEA program funds because there would be no 
institutional charges. As pointed out

[[Page 59033]]

by the commenters, the students receiving the largest grant payments 
for living expenses are the students most likely to have a large grant 
overpayment if they withdraw from the program. These students are also, 
therefore, the ones that will derive the largest benefit from having 50 
percent of their grant overpayment eliminated under the return 
calculation. In addition, we have developed repayment terms for 
overpayments of Title IV, HEA grants that we believe will mitigate some 
of the possible negative effects of these requirements on students. 
Institutions that are particularly concerned about the impact of these 
provisions on their students may wish to consider alternative 
disbursement schedules or at least making additional disclosures to 
students at the time the grant funds are disbursed to them.
    Changes: None.
    Comments: Commenters asked for clarification of, and suggested a 
few changes to, the guidance in effect on the definition of 
institutional charges. One commenter encouraged us to continue to 
include the financial aid community in any revision efforts. One 
commenter suggested that institutions be permitted to define 
institutional charges based on the regulatory language proposed in the 
NPRM.
    Discussion: As stated in the preamble to the NPRM, we will revisit 
the current guidance of the January 7, 1999 policy bulletin on the 
definition of institutional charges to determine if revisions would be 
appropriate given the changes to section 484B of the HEA. We will take 
into account the comments received in response to the NPRM as part of a 
larger effort to include the financial aid community in the evaluation 
of the current guidance. Until further guidance is issued, the guidance 
of the January 7, 1999 policy bulletin remains in effect.
    Changes: None.
    Comments: A few commenters believed that ``institutional charges 
incurred by the student'' should be the institutional charges for which 
the student is held responsible by the institution at the time the 
student withdrew. The commenters maintain that this definition will 
take into account revisions to a student's institutional charges based 
on changes in the student's enrollment status or in the number of 
classes in which the student is enrolled. One commenter explained that 
some institutions will assess housing charges throughout the payment 
period, and that the institutions do not withhold Title IV, HEA program 
funds to pay those costs. The commenter suggested that, in this 
situation, the institution's repayment responsibilities should only 
consider the initial charges that were assessed to the student because 
the subsequent housing charges were paid by the student throughout the 
payment period. A student that withdrew could, therefore, cause the 
institution to repay institutional charges that had never actually been 
collected from the student.
    One commenter asked which amounts of Title IV, HEA program funds 
would be used in the calculation of earned aid, the original amounts or 
the net amounts after an institution adjusts the student's aid because 
of an enrollment change. One commenter believed that aid received to 
pay for tuition, fees, and books, should be considered fully earned by 
the institution on the day that the institution no longer considers 
students eligible for refunds. One commenter questioned whether Federal 
Work-Study funds that are credited to a student's account for 
institutional charges would be included in determining the amount of 
Title IV, HEA program assistance retained for institutional charges. 
One commenter questioned whether Title IV, HEA program aid retained by 
the institution as of the withdrawal date must be considered in 
determining the amount of Title IV, HEA program assistance retained for 
institutional charges for a non-term program where the institution 
chooses to calculate the treatment of Title IV, HEA program funds when 
a student withdraws using the payment period basis, but institutional 
charges are for a longer period, or only the Title IV, HEA program aid 
that is retained by the institution to cover the charges the 
institution imposed under its refund policy as of the student's 
withdrawal date.
    Discussion: We do not agree that the return calculation should be 
based upon the student's enrollment status at the time of withdrawal, 
or reduced to reflect whatever adjusted institutional charges were 
assessed by the institution after the student withdrew. The allocation 
of repayment responsibilities is based upon the institutional charges 
that were initially assessed. Unless the institution had processed a 
change in enrollment status for a student prior to his or her 
withdrawal and made any attendant changes in the amount of 
institutional charges at that point, the institution would be required 
to use in the return calculation the charges that were initially 
assessed to the student. While we understand that the actual charging 
practices at some institutions may not conform to the standard practice 
of assessing all charges to the student for the payment period, we 
believe that it would not be feasible to create exceptions because of 
the potential for abuse. Since the Title IV, HEA program funds are 
provided to the student for the entire payment period or the period of 
enrollment, it follows that repaying the unearned institutional charges 
assessed throughout that period should be deemed to be the 
responsibility of the institution.
    Since the basis for earning Title IV, HEA program funds is the time 
that the student was in attendance at the institution, the time periods 
covered by the institution's refund policy are not taken into 
consideration. For that reason, there is no separate measure used to 
determine when a student has earned specific amounts of funds for 
particular charges. The institution's refund policy will govern what 
charges a student may owe after withdrawing, but that policy will not 
affect the amount of aid the student has earned under the return 
calculation. An institution's refund policy is also not taken into 
consideration for establishing the repayment obligations of the 
institution and the student. Furthermore, we note that the 
institution's refund policy is not required to take into consideration 
the formula in the return calculation when establishing whether the 
student owes any funds to the institution.
    The return calculation does not take into consideration the 
individual requirements of an institution's refund policy. The 
repayment responsibilities for the Title IV, HEA program aid is 
allocated between the institution and the student based upon the total 
institutional charges that were initially assessed to the student.
    Because Federal Work-Study funds are not included in the 
calculation of earned Title IV, HEA program funds when a student 
withdraws, Federal Work-Study funds that are credited to a student's 
account would not be included as Title IV, HEA program assistance 
retained for institutional charges.

Section 668.22(h) Return of Unearned Aid, Responsibility of the Student

General
    Comments: Several commenters were concerned about the financial 
burden and the consequences of that burden that the proposed rules 
would place on students and institutions. The commenters contended that 
the proposed rules will result in the availability of less Title IV, 
HEA funds for a withdrawn student than under former provisions of 
section 484B of the

[[Page 59034]]

HEA. As a result, the commenters maintained that in many cases, 
students will owe both the institution (for unpaid institutional 
charges under the institution's refund policy) and the Title IV, HEA 
programs (for the return of unearned Title IV, HEA program funds).
    The commenters noted that many of these students will have limited 
funds to make these payments and will have to choose whether to pay the 
institution or the Title IV, HEA programs. The commenters contended 
that, either way, a student will not be able to re-enroll in the 
institution or attend another institution, either because the student 
chooses to pay the institution rather than the Title IV, HEA programs 
and defaults on their Title IV, HEA program loans thereby losing 
eligibility for additional Title IV, HEA program funds, or because the 
student chooses to pay the Title IV, HEA programs rather than the 
institution, thereby being denied the opportunity to re-enroll or 
obtain transcripts to attend another institution. A couple of 
commenters believed that because students would not be able to re-
enroll and complete their education, the institution will lose its 
relationship with employers in the community because the institution 
will not be able to provide employers with qualified candidates.
    A few commenters suggested that institutions be permitted to change 
the way that they disburse Title IV, HEA program funds so that the 
institution can lessen or eliminate the occurrence of grant or loan 
repayment for a student. For example, one commenter suggested that, to 
decrease the chance of a student owing a repayment of Title IV, HEA 
program funds, an institution should be permitted to disburse Title IV, 
HEA program funds as the aid is earned in accordance with the schedule 
for determining the amount of aid a student has earned upon withdrawal. 
One commenter suggested that an institution be permitted to establish 
disbursement dates based on withdrawal patterns at the institution.
    One commenter argued that the return calculation will encourage 
students to borrow to avoid possible grant overpayments if they 
withdraw, and another commenter said that the return of unearned Title 
IV, HEA program funds under the proposed rules did not provide for 
equitable treatment for students receiving Title IV, HEA program 
funding compared to students that did not receive such funding. The 
commenters also reasoned that, because students will have less Title 
IV, HEA program funds to cover the institutional charges that the 
students will owe the institution under the institution's refund 
policy, the institution will be forced to increase costs for all 
students. One commenter believed that an institution should be allowed 
to pay the amount the student is responsible for returning to the Title 
IV, HEA programs and then be allowed to bill the student. A couple of 
the commenters believed that an institution could not resolve a debt 
owed by a student that is difficult or impossible to collect by 
writing-off the debt because the institution would be considered 
fiscally irresponsible under the 90/10 rules and other regulations if 
they did not pursue payment.
    Many of the commenters believed that many, if not all, of the 
negative effects delineated here could be mitigated by requiring a 
student to return 50 percent of the amount of grant funds that were 
originally disbursed or that could have been disbursed to the student.
    Discussion: The commenters are correct that these new statutory 
provisions may result in more aid being returned to the Title IV, HEA 
programs. The difference will be primarily due to the absence of 
rounding in 10 percent segments as done under the prior pro-rata refund 
provisions, and to the use of the same refund formula for successive 
payment periods rather than switching to a different schedule that 
permits institutions to earn Title IV, HEA program funds faster. It 
will be incumbent upon institutions to work closely with their students 
to ensure that they understand their responsibilities for earning the 
aid being provided for the payment period or period of enrollment.
    Other steps can also be taken to minimize the potential hardships 
to students that withdraw. We note that institutions already have some 
flexibility in holding back some portion of disbursements of Title IV, 
HEA program funds if they work with the student to set up a budget. For 
example, an institution may disburse Federal Pell Grant program funds 
at such times and in such installments as it determines will best meet 
the student's needs. We believe that this flexibility permits an 
institution to tailor Title IV, HEA program disbursements to meet the 
circumstances of the institution's student body. Institutions will also 
be able to work with a student that owes a grant repayment in order to 
preserve the student's eligibility for additional Title IV, HEA program 
funds, or the student may also enter into a repayment agreement with 
the Department. These flexibilities provide institutions and students 
with opportunities to either avoid substantial repayment obligations or 
to minimize the impact of the repayment burden when a student 
withdraws.
    We question the statement that students may minimize their exposure 
to grant overpayments by increasing their borrowing. In some instances, 
such borrowing could actually increase the amount of a grant 
overpayment if the institution is responsible for returning funds 
toward the student's Title IV, HEA loan, leaving the student with the 
entire Title IV, HEA grant repayment. Situations where a grant 
overpayment is required are also instances where a direct benefit was 
conferred upon the student because half of the repayment amount is 
forgiven. Under these scenarios, it is not clear how there is any 
disfavorable treatment of a Title IV, HEA program funds recipient when 
compared to a student that does not receive Title IV, HEA program 
funds. We also note that the impact of these new rules will vary among 
institutions based upon the relative numbers of students that withdraw 
and the points at which those withdrawals occur, as well as the 
relative ability of their students to repay the institutions for 
amounts owed under the institution's refund policies. Institutions 
will, over time, adjust to these new rules by changing their policies, 
by working more closely with their students that are considering 
withdrawing, and by adjusting their charges.
    As requested by a commenter, we note that an institution may repay 
a Title IV, HEA program grant overpayment on a student's behalf and 
collect the debt from the student. The student will no longer be 
considered to owe an overpayment and will be eligible for Title IV, HEA 
program funds provided that all other eligibility requirements are met. 
An institution that repaid a grant overpayment and then forgave the 
student's debt to the institution would not be considered fiscally 
irresponsible under the 90/10 rule or other regulations. The 90/10 
rule, which requires that an institution may derive no more than 90 
percent of its revenues from the Title IV, HEA programs, does not 
require an institution to pursue payment of debts. However, if an 
institution does not collect a student debt for institutional charges, 
the institution may not include the amount of the debt as non-federal 
revenue in its 90/10 calculations.
    The commenters' belief that the negative effects could be mitigated 
by requiring a student to return 50 percent of the amount of grant 
funds that were originally disbursed or that could have been disbursed 
is discussed in detail in the Analysis of Comments and Changes

[[Page 59035]]

for the ``Grant Overpayments'' portion of Sec. 668.22(h).
    Changes: None.
Grant Overpayments
    Comments: Several commenters believed that Title IV, HEA grant 
overpayment amounts should be minimized as much as possible. To this 
end, many of these commenters supported the non-federal negotiators' 
interpretation of the law that the statute should be read to relieve 
the student of 50 percent of the amount of grant funds that were 
originally disbursed or that could have been disbursed to the student, 
rather than the Secretary's interpretation of the statute that would 
provide that a student does not have to repay 50 percent of the 
student's grant repayment amount. A few commenters believe that 50 
percent of a student's Pell Grant funds should be protected up-front 
and not included at all in the calculation of earned aid.
    The commenters opposed the Secretary's position for the following 
reasons:

    * Grant recipients, who are the students who are least 
able to repay an overpayment, will lose eligibility for future Title 
IV, HEA program aid if they do not repay the grant. A loss of Title 
IV, HEA program eligibility will prevent these students from re-
enrolling in a postsecondary institution because they will not have 
the financial resources to do so. This will deny education to the 
people who need it most.
    * Disadvantaged students will be discouraged from 
enrolling. They will not want to risk assuming an overpayment if 
they are forced to withdraw for reasons beyond their control.
    * Grant recipients will be prevented from transferring to 
another postsecondary institution that may better meet their needs.
    * Defaults will increase. Students will be forced to take 
out Title IV, HEA program loans to avoid possible Title IV, HEA 
grant overpayments if they withdraw. Many of the students will not 
have the resources to repay the loans and will default. The same 
will be true for students who owe both a grant overpayment and a 
loan debt and do not have the resources to satisfy both. A student 
may also owe the institution under the institution's refund policy, 
further limiting the student's ability to repay a loan.
    * Up-front costs are not sufficiently acknowledged.
    * The proposed rules are punitive to students who 
withdraw from an institution, regardless of the reason. The 
implication that Title IV, HEA grant recipients are trying to take 
advantage of the Title IV, HEA programs is unfounded. Our position 
is not in line with stated goal for negotiated rulemaking which is, 
``to develop policies that promote opportunity with 
responsibility.''
    * Our position undercuts the intent of the Pell Grant 
program, which is to give financially disadvantaged students the 
opportunity to succeed. The Pell Grant Program is an incentive 
program, an access program and a second chance program.
    * Students at low-cost institutions would be the hardest 
hit because most of a student's Title IV, HEA grant funds are given 
directly to student.
    * Every Title IV, HEA grant recipient who withdraws 
should not have a grant overpayment, as our position would require. 
Although a Title IV, HEA grant recipient who withdraws should not be 
considered to have completely earned the funds, the amount of the 
student's overpayment should be minimized as much as possible.
    * Society will be impacted negatively. There will be a 
greater need for social programs for the students who are not able 
to continue their education because of a loss of Title IV, HEA 
program eligibility. The number of educated citizens to fill 
technical jobs will decrease.

    A few commenters specifically argued that the statute can be read 
to support the nonfederal negotiators' interpretation. Some maintained 
that the statutory language is ambiguous. One commenter asserted that 
the phrase ``that is the responsibility of the student to repay'' 
refers to the grant programs to which repayments must be attributed, 
and it does not limit the 50 percent discount to 50 percent of the 
student's grant repayment amount. A few commenters noted that other 
similar aid recipients, such as scholarship recipients, are not asked 
to return any aid funds upon withdrawal. Some of these commenters 
asserted that monthly social security payments are not repaid if a 
recipient does not live out the entire month for which the payment has 
been received. The commenters noted that other entitlement aid sources 
recognize that the aid generally only funds a small portion of the 
expenses for which they are intended. A few commenters noted that the 
requirements for students to maintain satisfactory academic progress 
has safeguards to prevent students from abusing Title IV, HEA program 
funds through frequent withdrawals, because students not maintaining 
satisfactory academic progress will lose eligibility for Title IV, HEA 
program funds. A few commenters asked how to treat a situation where a 
grant repayment is owed and the student has a credit balance on his or 
her account, including whether a student would get the full benefit of 
a 50 percent reduction in the repayment amount in those circumstances.
    Some commenters requested changes to the existing repayment terms 
for students who owe a grant overpayment to ensure that students who 
cannot repay remain eligible for additional Title IV, HEA program 
funds. The commenters made the following points:

    * It is inequitable to allow a student to repay loan 
funds under the terms of a promissory note, but insist on repayment 
of a grant overpayment under more immediate and punitive terms.
    * We should provide terms that are similar to loan 
repayment terms, such as a grace period, periods of deferment and 
forbearance, and the ability to repay over a longer period of time.
    * The institutional collection effort would be too 
burdensome and costly to an institution. An institution should not 
have to collect Title IV, HEA program overpayments for us.
    *
	 We should consider community service as an alternative 
to repayment of an overpayment.

Several commenters requested clarification of the applicable 
requirements for repaying a Title IV, HEA grant overpayment. 
Specifically, the commenters wanted to know how long a student will 
lose eligibility if he or she owes an overpayment. One commenter urged 
us to not overregulate the repayment process and let institutions work 
with students to provide satisfactory repayment arrangements.
    Discussion: We continue to believe that 50 percent of the student's 
grant repayment amount provides the level of relief to the student that 
the statute intended, while it requires a student to return a portion 
of the unearned grant assistance. As stated in the preamble to the 
NPRM, we believe that the conference report language for the 1998 
Amendments supports this interpretation.
    We note that the difference in position between the commenters and 
the Secretary for purposes of the proposed rules is limited to the 
question of how much grant overpayment should be forgiven, with the 
Secretary proposing to forgive half of the grant repayment amount 
rather than half of the total grant amount the student received. The 
suggestions from commenters arguing against holding students 
accountable for making any grant repayments are not permitted under the 
law. To the extent that the law could be read to support either 
position, we believe that we have adopted the better reading. We also 
note that the proposal to discount by half the amount of any grant 
repayment is simpler to explain to students and consistent with the 
principle that the repayment is a shared responsibility.
    The commenters suggestion to reduce grant overpayments by half of 
the total grant amounts would instead create a fixed amount of grant 
funds that the student was never required to earn, regardless of when 
the student withdrew. For example, a student who

[[Page 59036]]

was disbursed or could have been disbursed $2,000 in Title IV, HEA 
grant funds would be given $1,000 of the grant funds in addition to 
whatever amounts were earned regardless of whether he or she withdrew 
after 5 days of attendance or 25 days.
    In response to the observation from commenters that other sources 
of aid are not subject to repayment requirements, such as scholarships 
or monthly social security benefits, the statutory basis for this grant 
repayment requirement distinguishes it from those programs.
    We note that the requirements for students to maintain satisfactory 
academic progress further the goals of the Title IV, HEA programs by 
establishing maximum timeframes for students to complete their program, 
but these requirements do not replace the proposed repayment structure 
that is designed to allow students to earn over time the aid provided 
for a payment period or period of enrollment.
    When a student owes a grant overpayment and there are funds 
available on the student's account as a credit balance, the institution 
would be expected to use those funds to apply toward repaying the 
student's grant overpayment. The actual amount of the grant repayment 
would still be determined under the return calculation by applying the 
50 percent discount to the amount of unearned grant funds. Any funds 
left as a credit balance after satisfying the grant repayment would be 
handled in accordance with Subpart K-Cash Management of the Student 
Assistance General Provisions regulations.
    We agree with the commenters who suggest that we revise the 
existing repayment terms for students who owe a grant overpayment to 
ensure that students who cannot repay have the opportunity to continue 
their eligibility for Title IV, HEA program funds. Under changes that 
are included in these final regulations, a student who owes an 
overpayment as a result of withdrawal will retain his or her 
eligibility for Title IV, HEA program funds for 45 days from the 
earlier of the date the institution sends a notification to the student 
of the overpayment, or the date the institution was required to notify 
the student of the overpayment. During those 45 days, the student will 
have the opportunity to take action that can continue his or her 
eligibility for Title IV, HEA program funds. A student may do this in 
one of three ways: (1) the student may repay the overpayment in full to 
the institution, (2) the student may sign a repayment agreement with 
the institution, or (3) the student may sign a repayment agreement with 
the Department. If a student does not take one of these three actions 
during the 45 day period, the student becomes ineligible for Title IV, 
HEA program funds on the 46th day from the earlier of the date that the 
institution sends a notification to the student of the overpayment, or 
the date the institution was required to notify the student of the 
overpayment. The student will remain ineligible until the student 
enters into a repayment agreement with the Department that re-
establishes the student's eligibility.
    We are sensitive to the concerns of some commenters that collection 
on behalf of the Department may be unduly burdensome and costly to the 
institution. We note that an institution is never required to enter 
into a repayment agreement with a student, and may refer an overpayment 
to the Department at any time after the student has had the opportunity 
to pay off the overpayment in full to the institution or sign an 
agreement with the Department. Because we are concerned with an 
institution's ability to continue to track a student to obtain payment, 
these final regulations provide that an institution's repayment 
arrangement must provide for repayment of the entire overpayment within 
two years of the date of the institution's determination that the 
student withdrew. Any amount of the overpayment that remains at the end 
of the two years must be referred to the Department. Other times that 
an institution must refer an overpayment to the Department are: (1) If 
the student did not satisfy any of the required actions for extending 
his or her eligibility during the 45 day period; and (2) if at any time 
a student does not meet the requirements of his or her repayment 
agreement with the institution.
    A student who wishes to sign a repayment agreement with the 
Department will do so by contacting the Department directly. We 
acknowledge that an institution may not know if a student chooses to 
sign a repayment agreement with the Department within the 45 days. 
Therefore, if a student does not repay the overpayment in full to the 
institution or sign a repayment agreement with the institution within 
the 45 days, when the institution refers the overpayment to the 
Department, it must report the overpayment to the National Student Loan 
Data System (NSLDS) as a referred overpayment (an institution can refer 
to Dear Colleague Letter GEN-98-14 for more information on reporting 
overpayment information to NSLDS). We will check to see if the student 
signed an agreement with the Department and report the final status of 
the overpayment to NSLDS.
    A repayment agreement with the Department will include terms that 
permit the student to repay the overpayment while maintaining his or 
her eligibility for Title IV, HEA program funds. We will seek to 
develop terms that will include a grace period and are sensitive to a 
student's financial situation. We encourage institutions that choose to 
enter repayment agreements with students to do the same.
    We would like to stress that any overpayment resulting from a 
student's withdrawal remains an overpayment until the overpayment is 
repaid in full. We will provide further guidance on the repayment of 
overpayments through appropriate Department publications.
    Changes: Section 668.22(h)(4) has been revised to provide repayment 
terms for students who owe a grant overpayment to ensure that students 
who cannot repay have the opportunity to continue their eligibility for 
Title IV, HEA program funds.

Section 668.22(j)  Timeframe for the Return of Title IV, HEA Program 
Funds

    Comments: A few commenters support the 30-day timeframe for an 
institution to return all Title IV, HEA program funds for which it is 
responsible. In particular, the commenters felt that it is reasonable 
to expect that FFEL Program funds be returned at the same time as all 
other Title IV, HEA program funds. The commenters believed that this 
should not be significantly burdensome to institutions because most 
FFEL Program funds are delivered electronically. A couple of commenters 
contended that an institution should be allowed 45 days, rather than 30 
days to return all Title IV, HEA program funds for which it is 
responsible. The commenters asserted that 30 days is not enough time 
for an institution to adjust a student's account and perform all of the 
administrative functions necessary to process funds. A few commenters 
believed that 30 days is not a sufficient amount of time to determine 
if a student has unofficially withdrawn from the institutions. The 
commenter felt that more time was needed to permit the institution to 
contact professors and students.
    Discussion: We agree with the commenters who believe that it is not 
unduly burdensome for an institution to return Title IV, HEA program 
funds, including FFEL Program funds, within 30 days of the date of the 
institution's determination that the student withdrew because these 
funds are often delivered electronically. This 30 day

[[Page 59037]]

period should also be enough time for the institution to contact 
professors and students, as needed, to meet these responsibilities.
    Changes: None.

Section 668.22(k)  Consumer Information

    Comments: A few commenters felt that the requirements for 
determining a student's earned Title IV, HEA program aid upon 
withdrawal would be too difficult for a student or potential student to 
understand, especially since the student is likely to be subject to an 
institutional refund policy as well. Two commenters believe that it 
will be difficult to communicate to a student the actual amount of 
Title IV, HEA program assistance that they will receive because it will 
vary depending on if and when a student withdraws. One commenter asked 
if information on determining a student's earned Title IV, HEA program 
aid upon withdrawal would be in The Student Guide, our publication for 
students that provides general information on Title IV, HEA program 
assistance. One commenter felt that the requirements for determining a 
student's earned Title IV, HEA program aid upon withdrawal will be more 
easily explained to students than the current Title IV, HEA refund 
requirements.
    Discussion: We do not agree that the requirements for determining 
the treatment of Title IV, HEA program funds when a student withdraws 
will be too difficult for a student to understand. We note that a 
general write-up on the treatment of a student's Title IV, HEA program 
funds when he or she withdraws is contained in The Student Guide for 
the 2000-2001 award year.
    Changes: None.

Section 682.207  Due Diligence in Disbursing a Loan

    Comments: One commenter believed that the social security number of 
a parent borrower should be added to the information that a lender must 
provide to an institution when the lender disburses a loan directly to 
a borrower for attendance at a foreign institution, if the loan 
disbursed is a PLUS loan. The commenter felt that a parent's social 
security number is necessary for recordkeeping and access purposes. The 
commenter noted that if the institution must return funds to the lender 
or correspond with lender regarding an inquiry about the PLUS loan, the 
institution will need the parent's social security number to ensure 
proper identification and/or application of the funds.
    Discussion: We agree that a parent's social security number is 
information that an institution must have for proper recordkeeping and 
identification of PLUS loan funds.
    Changes: Section 682.207(b)(1)(v)(E)(2) has been amended to require 
that a lender must provide the social security number of a parent 
borrower that was provided on the PLUS loan application to an 
institution when the lender disburses a loan directly to a borrower for 
attendance at a foreign institution, if the loan disbursed is a PLUS 
loan.

Executive Order 12866

    We have reviewed these final regulations in accordance with 
Executive Order 12866. Under the terms of the order we have assessed 
the potential costs and benefits of this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those we have determined to 
be necessary for administering this program effectively and 
efficiently.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these final regulations, we have determined that 
the benefits of the regulations justify the costs.
    We have also determined that this regulatory action does not unduly 
interfere with State, local, and tribal governments in the exercise of 
their governmental functions.
    We summarized the potential costs and benefits of these final 
regulations in the preamble to the NPRM (34 FR 43037-43038).

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 does not require you to respond 
to a collection of information unless it displays a valid OMB control 
number. We display the valid OMB control numbers assigned to the 
collections of information in these final regulations at the end of the 
affected sections of the regulations.

Assessment of Educational Impact

    In the NPRM, we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Electronic Access to This Document

    You may view this document in text or Adobe Portable Document 
Format (PDF) on the Internet at the following sites:

http://ocfo.ed.gov/fedreg.htm
http://www.ed.gov/legislation/HEA/rulemaking/
http://ifap.ed.gov/csb__html/fedlreg.htm

To use the PDF you must have the Adobe Acrobat Reader Program with 
Search, which is available free at the first of the previous sites. If 
you have questions about using the PDF, call the U.S. Government 
Printing Office (GPO) toll free, at 1-888-293-6498; or in the 
Washington, D.C., area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://
www.access.gpo.gov/nara/index.html

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal 
Supplemental Educational Opportunity Grant Program; 84.032 
Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032 
Federal PLUS Program; 84.032 Federal Supplemental Loans for Students 
Program; 84.033 Federal Work-Study Program; 84.038 Federal Perkins 
Loan Program; 84.063 Federal Pell Grant Program; 84.069 LEAP; 84.268 
William D. Ford Federal Direct Loan Programs; and 84.272 National 
Early Intervention Scholarship and Partnership Program.)

List of Subjects in 34 CFR Parts 668 and 682

    Administrative practice and procedure, Colleges and universities, 
Student aid, Reporting and recordkeeping requirements, education, Loan 
programs--education, vocational education.

    Dated: October 25, 1999.
Richard W. Riley,
Secretary of Education.

    The Secretary amends parts 668, 682, and 685 of title 34 of the 
Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

    1. The authority citation for part 668 is amended to read as 
follows:

    Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092, 
1094, 1099c-1, unless otherwise noted.

    2. Section 668.8 is amended by revising paragraph (f)(2) to read as 
follows:

[[Page 59038]]

Sec. 668.8  Eligible program.

* * * * *
    (f) * * *
    (2) Subtract from the number of students determined under paragraph 
(f)(1) of this section, the number of regular students who, during that 
award year, withdrew from, dropped out of, or were expelled from the 
program and were entitled to and actually received, in a timely manner 
a refund of 100 percent of their tuition and fees.
* * * * *
    3. Section 668.14 is amended by revising paragraph (b)(25)(ii) to 
read as follows:


Sec. 668.14  Program participation agreement.

* * * * *
    (b) * * *
    (25) * * *
    (ii) Returns of title IV, HEA program funds that the institution or 
its servicer may be required to make; and
* * * * *
    4. Section 668.16 is amended by revising paragraphs (h)(3) and 
(l)(2) to read as follows:


Sec. 668.16  Standards of administrative capability.

* * * * *
    (h) * * *
    (3) The rights and responsibilities of the student with respect to 
enrollment at the institution and receipt of financial aid. This 
information includes the institution's refund policy, the requirements 
for the treatment of title IV, HEA program funds when a student 
withdraws under Sec. 668.22, its standards of satisfactory progress, 
and other conditions that may alter the student's aid package;
* * * * *
    (l) * * *
    (2) Were entitled to and actually received in a timely manner, a 
refund of 100 percent of their tuition and fees;
* * * * *
    5. Section 668.22 is revised to read as follows:


Sec. 668.22  Treatment of title IV funds when a student withdraws.

    (a) General. (1) When a recipient of title IV grant or loan 
assistance withdraws from an institution during a payment period or 
period of enrollment in which the recipient began attendance, the 
institution must determine the amount of title IV grant or loan 
assistance (not including Federal Work-Study or the non-Federal share 
of FSEOG awards if an institution meets its FSEOG matching share by the 
individual recipient method or the aggregate method) that the student 
earned as of the student's withdrawal date in accordance with paragraph 
(e) of this section.
    (2) If the total amount of title IV grant or loan assistance, or 
both, that the student earned as calculated under paragraph (e)(1) of 
this section is less than the amount of title IV grant or loan 
assistance that was disbursed to the student or on behalf of the 
student in the case of a PLUS loan, as of the date of the institution's 
determination that the student withdrew--
    (i) The difference between these amounts must be returned to the 
title IV programs in accordance with paragraphs (g) and (h) of this 
section in the order specified in paragraph (i) of this section; and
    (ii) No additional disbursements may be made to the student for the 
payment period or period of enrollment.
    (3) If the total amount of title IV grant or loan assistance, or 
both, that the student earned as calculated under paragraph (e)(1) of 
this section is greater than the total amount of title IV grant or loan 
assistance, or both, that was disbursed to the student or on behalf of 
the student in the case of a PLUS loan, as of the date of the 
institution's determination that the student withdrew, the difference 
between these amounts must be treated as a post-withdrawal disbursement 
in accordance with paragraph (a)(4) of this section and 
Sec. 668.164(g)(2).
    (4)(i)(A) If outstanding charges exist on the student's account, 
the institution may credit the student's account in accordance with 
Sec. 668.164(d)(1), (d)(2), and (d)(3) with all or a portion of the 
post-withdrawal disbursement described in paragraph (a)(3) of this 
section, up to the amount of the outstanding charges.
    (B) If Direct Loan, FFEL, or Federal Perkins Loan Program funds are 
used to credit the student's account, the institution must notify the 
student, or parent in the case of a PLUS loan, and provide an 
opportunity for the borrower to cancel all or a portion of the loan, in 
accordance with Sec. 668.165(a)(2), (a)(3), (a)(4), and (a)(5).
    (ii)(A) The institution must offer any amount of a post-withdrawal 
disbursement that is not credited to the student's account in 
accordance with paragraph (a)(4)(i) of this section to the student, or 
the parent in the case of a PLUS loan, within 30 days of the date of 
the institution's determination that the student withdrew, as defined 
in paragraph (l)(3) of this section, by providing a written 
notification to the student, or parent in the case of PLUS loan funds. 
The written notification must--
    (1) Identify the type and amount of the title IV funds that make up 
the post-withdrawal disbursement that is not credited to the student's 
account in accordance with paragraph (a)(4)(i) of this section;
    (2) Explain that the student or parent may accept or decline some 
or all of the post-withdrawal disbursement that is not credited to the 
student's account in accordance with paragraph (a)(4)(i) of this 
section; and
    (3) Advise the student or parent that no post-withdrawal 
disbursement will be made to the student or parent if the student or 
parent does not respond within 14 days of the date that the institution 
sent the notification, unless the institution chooses to make a post-
withdrawal disbursement in accordance with paragraph (a)(4)(ii)(D) of 
this section.
    (B) If the student or parent submits a timely response that 
instructs the institution to make all or a portion of the post-
withdrawal disbursement, the institution must disburse the funds in the 
manner specified by the student or parent within 90 days of the date of 
the institution's determination that the student withdrew, as defined 
in paragraph (l)(3) of this section.
    (C) If the student or parent does not respond to the institution's 
notice, no portion of the post-withdrawal disbursement that is not 
credited to the student's account in accordance with paragraph 
(a)(4)(i) of this section may be disbursed.
    (D) If a student or parent submits a late response to the 
institution's notice, the institution may make the post-withdrawal 
disbursement as instructed by the student or parent or decline to do 
so.
    (E) If a student or parent submits a late response to the 
institution and the institution does not choose to make the post-
withdrawal disbursement in accordance with paragraph (a)(4)(ii)(D) of 
this section, the institution must inform the student or parent 
electronically or in writing concerning the outcome of the post-
withdrawal disbursement request.
    (iii) A post-withdrawal disbursement must be made from available 
grant funds before available loan funds.
    (b) Withdrawal date for a student who withdraws from an institution 
that is required to take attendance. (1) For purposes of this section, 
for a student who ceases attendance at an institution that is required 
to take attendance, including a student who does not return from an 
approved leave of absence, as defined in paragraph (d) of this section, 
or a student who takes a leave of absence that does not meet the

[[Page 59039]]

requirements of paragraph (d) of this section, the student's withdrawal 
date is the last date of academic attendance as determined by the 
institution from its attendance records.
    (2) An institution must document a student's withdrawal date 
determined in accordance with paragraph (b)(1) of this section and 
maintain the documentation as of the date of the institution's 
determination that the student withdrew, as defined in paragraph (l)(3) 
of this section.
    (3)(i) An institution is ``required to take attendance'' if the 
institution is required to take attendance for some or all of its 
students by an entity outside of the institution (such as the 
institution's accrediting agency or state agency).
    (ii) If an outside entity requires an institution to take 
attendance for only some students, the institution must use its 
attendance records to determine a withdrawal date in accordance with 
paragraph (b)(1) of this section for those students.
    (c) Withdrawal date for a student who withdraws from an institution 
that is not required to take attendance. (1) For purposes of this 
section, for a student who ceases attendance at an institution that is 
not required to take attendance, the student's withdrawal date is--
    (i) The date, as determined by the institution, that the student 
began the withdrawal process prescribed by the institution;
    (ii) The date, as determined by the institution, that the student 
otherwise provided official notification to the institution, in writing 
or orally, of his or her intent to withdraw;
    (iii) If the student ceases attendance without providing official 
notification to the institution of his or her withdrawal in accordance 
with paragraph (c)(1)(i) or (c)(1)(ii) of this section, the mid-point 
of the payment period (or period of enrollment, if applicable);
    (iv) If the institution determines that a student did not begin the 
institution's withdrawal process or otherwise provide official 
notification (including notice from an individual acting on the 
student's behalf) to the institution of his or her intent to withdraw 
because of illness, accident, grievous personal loss, or other such 
circumstances beyond the student's control, the date that the 
institution determines is related to that circumstance;
    (v) If a student does not return from an approved leave of absence 
as defined in paragraph (d) of this section, the date that the 
institution determines the student began the leave of absence; or
    (vi) If a student takes a leave of absence that does not meet the 
requirements of paragraph (d) of this section, the date that the 
student began the leave of absence.
    (2)(i)(A) An institution may allow a student to rescind his or her 
official notification to withdraw under paragraph (c)(1)(i) or (ii) of 
this section by filing a written statement that he or she is continuing 
to participate in academically-related activities and intends to 
complete the payment period or period of enrollment.
    (B) If the student subsequently ceases to attend the institution 
prior to the end of the payment period or period of enrollment, the 
student's rescission is negated and the withdrawal date is the 
student's original date under paragraph (c)(1)(i) or (ii) of this 
section, unless a later date is determined under paragraph (c)(3) of 
this section.
    (ii) If a student both begins the withdrawal process prescribed by 
the institution and otherwise provides official notification of his or 
her intent to withdraw in accordance with paragraphs (c)(1)(i) and 
(c)(1)(ii) of this section respectively, the student's withdrawal date 
is the earlier date unless a later date is determined under paragraph 
(c)(3) of this section.
    (3)(i) Notwithstanding paragraphs (c)(1) and (2) of this section, 
an institution that is not required to take attendance may use as the 
student's withdrawal date a student's last date of attendance at an 
academically-related activity provided that the institution documents 
that the activity is academically related and documents the student's 
attendance at the activity.
    (ii) An ``academically-related activity'' includes, but is not 
limited to, an exam, a tutorial, computer-assisted instruction, 
academic counseling, academic advisement, turning in a class assignment 
or attending a study group that is assigned by the institution.
    (4) An institution must document a student's withdrawal date 
determined in accordance with paragraphs (c)(1), (2), and (3) of this 
section and maintain the documentation as of the date of the 
institution's determination that the student withdrew, as defined in 
paragraph (l)(3) of this section.
    (5)(i) ``Official notification to the institution'' is a notice of 
intent to withdraw that a student provides to an office designated by 
the institution.
    (ii) An institution must designate one or more offices at the 
institution that a student may readily contact to provide official 
notification of withdrawal.
    (d) Approved leave of absence. (1) For purposes of this section 
(and, for a title IV, HEA program loan borrower, for purposes of 
terminating the student's in-school status), an institution does not 
have to treat a leave of absence as a withdrawal if it is an approved 
leave of absence. A leave of absence is an approved leave of absence 
if--
    (i) The institution has a formal policy regarding leaves of 
absence;
    (ii) The student followed the institution's policy in requesting 
the leave of absence;
    (iii) The institution determines that there is a reasonable 
expectation that the student will return to the school;
    (iv) The institution approved the student's request in accordance 
with the institution's policy;
    (v) The leave of absence does not involve additional charges by the 
institution;
    (vi) It is the only leave of absence granted to the student in a 
12-month period, except as provided for in paragraph (d)(2) of this 
section;
    (vii) The leave of absence does not exceed 180 days in any 12-month 
period;
    (viii) Upon the student's return from the leave of absence, the 
student is permitted to complete the coursework he or she began prior 
to the leave of absence; and
    (ix) If the student is a title IV, HEA program loan recipient, the 
institution explains to the student, prior to granting the leave of 
absence, the effects that the student's failure to return from a leave 
of absence may have on the student's loan repayment terms, including 
the exhaustion of some or all of the student's grace period.
    (2) Notwithstanding paragraph (d)(1)(vi) of this section, provided 
that the total number of days of all leaves of absence does not exceed 
180 days in any 12-month period, an institution may treat--
    (i) One leave of absence subsequent to a leave of absence that is 
granted in accordance with (d)(1)(vi) of this section as an approved 
leave of absence if the subsequent leave of absence does not exceed 30 
days and the institution determines that the subsequent leave of 
absence is necessary due to unforeseen circumstances; and
    (ii) Subsequent leaves of absence as approved leaves of absence if 
the institution documents that the leaves of absence are granted for 
jury duty, military reasons, or circumstances covered under the Family 
and Medical Leave Act of 1993.
    (3) If a student does not resume attendance at the institution on 
or before the end of a leave of absence that meets the requirements of 
this section, the institution must treat the student as a withdrawal in 
accordance with the requirements of this section.
    (4) For purposes of this paragraph--

[[Page 59040]]

    (i) The number of days in a leave of absence are counted beginning 
with the first day of the student's initial leave of absence in a 12-
month period.
    (ii) A ``12-month period'' begins on the first day of the student's 
initial leave of absence.
    (iii) An institution's leave of absence policy is a ``formal 
policy'' if the policy--
    (A) Is in writing and publicized to students; and
    (B) Requires students to provide a written, signed, and dated 
request for a leave of absence prior to the leave of absence. However, 
if unforeseen circumstances prevent a student from providing a prior 
written request, the institution may grant the student's request for a 
leave of absence, if the institution documents its decision and 
collects the written request at a later date.
    (e) Calculation of the amount of title IV assistance earned by the 
student.
    (1) General. The amount of title IV grant or loan assistance that 
is earned by the student is calculated by--
    (i) Determining the percentage of title IV grant or loan assistance 
that has been earned by the student, as described in paragraph (e)(2) 
of this section; and
    (ii) Applying this percentage to the total amount of title IV grant 
or loan assistance that was disbursed (and that could have been 
disbursed, as defined in paragraph (l)(1) of this section) to the 
student, or on the student's behalf, for the payment period or period 
of enrollment as of the student's withdrawal date.
    (2) Percentage earned. The percentage of title IV grant or loan 
assistance that has been earned by the student is--
    (i) Equal to the percentage of the payment period or period of 
enrollment that the student completed (as determined in accordance with 
paragraph (f) of this section) as of the student's withdrawal date, if 
this date occurs on or before completion of 60 percent of the--
    (A) Payment period or period of enrollment for a program that is 
measured in credit hours; or
    (B) Clock hours scheduled to be completed for the payment period or 
period of enrollment for a program that is measured in clock hours; or
    (ii) 100 percent, if the student's withdrawal date occurs after 
completion of 60 percent of the--
    (A) Payment period or period of enrollment for a program that is 
measured in credit hours; or
    (B) Clock hours scheduled to be completed for the payment period or 
period of enrollment for a program measured in clock hours.
    (3) Percentage unearned. The percentage of title IV grant or loan 
assistance that has not been earned by the student is calculated by 
determining the complement of the percentage of title IV grant or loan 
assistance earned by the student as described in paragraph (e)(2) of 
this section.
    (4) Total amount of unearned title IV assistance to be returned. 
The unearned amount of title IV assistance to be returned is calculated 
by subtracting the amount of title IV assistance earned by the student 
as calculated under paragraph (e)(1) of this section from the amount of 
title IV aid that was disbursed to the student as of the date of the 
institution's determination that the student withdrew.
    (5) Use of payment period or period of enrollment. (i) The 
treatment of title IV grant or loan funds if a student withdraws must 
be determined on a payment period basis for a student who attended a 
standard term-based (semester, trimester, or quarter) educational 
program.
    (ii)(A) The treatment of title IV grant or loan funds if a student 
withdraws may be determined on either a payment period basis or a 
period of enrollment basis for a student who attended a non-term based 
educational program or a nonstandard term-based educational program.
    (B) An institution must consistently use either a payment period or 
period of enrollment for all purposes of this section for each of the 
following categories of students who withdraw from the same non-term 
based or nonstandard term-based educational program:
    (1) Students who have attended an educational program at the 
institution from the beginning of the payment period or period of 
enrollment.
    (2) Students who re-enter the institution during a payment period 
or period of enrollment.
    (3) Students who transfer into the institution during a payment 
period or period of enrollment.
    (f) Percentage of payment period or period of enrollment completed. 
(1) For purposes of paragraph (e)(2)(i) of this section, the percentage 
of the payment period or period of enrollment completed is determined--
    (i) In the case of a program that is measured in credit hours, by 
dividing the total number of calendar days in the payment period or 
period of enrollment into the number of calendar days completed in that 
period as of the student's withdrawal date; and
    (ii) In the case of a program that is measured in clock hours, by 
dividing the total number of clock hours in the payment period or 
period of enrollment into the number of clock hours--
    (A) Completed by the student in that period as of the student's 
withdrawal date; or
    (B) Scheduled to be completed as of the student's withdrawal date, 
if the clock hours completed in the period are not less than 70 percent 
of the hours that were scheduled to be completed by the student as of 
the student's withdrawal date.
    (2)(i) The total number of calendar days in a payment period or 
period of enrollment includes all days within the period, except that 
scheduled breaks of at least five consecutive days are excluded from 
the total number of calendar days in a payment period or period of 
enrollment and the number of calendar days completed in that period.
    (ii) The total number of calendar days in a payment period or 
period of enrollment does not include days in which the student was on 
an approved leave of absence.
    (g) Return of unearned aid, responsibility of the institution. (1) 
The institution must return, in the order specified in paragraph (i) of 
this section, the lesser of--
    (i) The total amount of unearned title IV assistance to be returned 
as calculated under paragraph (e)(4) of this section; or
    (ii) An amount equal to the total institutional charges incurred by 
the student for the payment period or period of enrollment multiplied 
by the percentage of title IV grant or loan assistance that has not 
been earned by the student, as described in paragraph (e)(3) of this 
section.
    (2) For purposes of this section, ``institutional charges'' are 
tuition, fees, room and board (if the student contracts with the 
institution for the room and board) and other educationally-related 
expenses assessed by the institution.
    (3) If, for a non-term program an institution chooses to calculate 
the treatment of title IV assistance on a payment period basis, but the 
institution charges for a period that is longer than the payment 
period, ``total institutional charges incurred by the student for the 
payment period'' is the greater of--
    (i) The prorated amount of institutional charges for the longer 
period; or
    (ii) The amount of title IV assistance retained for institutional 
charges as of the student's withdrawal date.
    (h) Return of unearned aid, responsibility of the student. (1) 
After the institution has allocated the unearned funds for which it is 
responsible in accordance with

[[Page 59041]]

paragraph (g) of this section, the student must return assistance for 
which the student is responsible in the order specified in paragraph 
(i) of this section.
    (2) The amount of assistance that the student is responsible for 
returning is calculated by subtracting the amount of unearned aid that 
the institution is required to return under paragraph (g) of this 
section from the total amount of unearned title IV assistance to be 
returned under paragraph (e)(4) of this section.
    (3) The student (or parent in the case of funds due to a PLUS Loan) 
must return or repay, as appropriate, the amount determined under 
paragraph (h)(1) of this section to--
    (i) Any title IV loan program in accordance with the terms of the 
loan; and
    (ii) Any title IV grant program as an overpayment of the grant; 
however, a student is not required to return 50 percent of the grant 
assistance that is the responsibility of the student to repay under 
this section.
    (4)(i) A student who owes an overpayment under this section remains 
eligible for title IV, HEA program funds through and beyond the earlier 
of 45 days from the date the institution sends a notification to the 
student of the overpayment, or 45 days from the date the institution 
was required to notify the student of the overpayment if, during those 
45 days the student--
    (A) Repays the overpayment in full to the institution;
    (B) Enters into a repayment agreement with the institution in 
accordance with repayment arrangements satisfactory to the institution; 
or
    (C) Signs a repayment agreement with the Secretary, which will 
include terms that permit a student to repay the overpayment while 
maintaining his or her eligibility for title IV, HEA program funds.
    (ii) Within 30 days of the date of the institution's determination 
that the student withdrew, an institution must send a notice to any 
student who owes a title IV, HEA grant overpayment as a result of the 
student's withdrawal from the institution in order to recover the 
overpayment in accordance with paragraph (h)(4)(i) of this section.
    (iii) If an institution chooses to enter into a repayment agreement 
in accordance with paragraph (h)(4)(i)(B) of this section with a 
student who owes an overpayment of title IV, HEA grant funds, it must--
    (A) Provide the student with terms that permit the student to repay 
the overpayment while maintaining his or her eligibility for title IV, 
HEA program funds; and
    (B) Require repayment of the full amount of the overpayment within 
two years of the date of the institution's determination that the 
student withdrew.
    (iv) An institution must refer to the Secretary, in accordance with 
procedures required by the Secretary, an overpayment of title IV, HEA 
grant funds owed by a student as a result of the student's withdrawal 
from the institution if--
    (A) The student does not repay the overpayment in full to the 
institution, or enter a repayment agreement with the institution or the 
Secretary in accordance with paragraph (h)(4)(i) of this section within 
the earlier of 45 days from the date the institution sends a 
notification to the student of the overpayment, or 45 days from the 
date the institution was required to notify the student of the 
overpayment;
    (B) At any time the student fails to meet the terms of the 
repayment agreement with the institution entered into in accordance 
with paragraph (h)(4)(i)(B) of this section; or
    (C) The student chooses to enter into a repayment agreement with 
the Secretary.
    (v) A student who owes an overpayment is ineligible for title IV, 
HEA program funds--
    (A) If the student does not meet the requirements in paragraph 
(h)(4)(i) of this section, on the day following the 45-day period in 
that paragraph; or
    (B) As of the date the student fails to meet the terms of the 
repayment agreement with the institution or the Secretary entered into 
in accordance with paragraph (h)(4)(i) of this section.
    (vi) A student who is ineligible under paragaraph (h)(4)(v) of this 
section regains eligibility if the student and the Secretary enter into 
a repayment agreement.
    (i) Order of return of title IV funds. (1) Loans. Unearned funds 
returned by the institution or the student, as appropriate, in 
accordance with paragraph (g) or (h) of this section respectively, must 
be credited to outstanding balances on title IV loans made to the 
student or on behalf of the student for the payment period or period of 
enrollment for which a return of funds is required. Those funds must be 
credited to outstanding balances for the payment period or period of 
enrollment for which a return of funds is required in the following 
order:
    (i) Unsubsidized Federal Stafford loans.
    (ii) Subsidized Federal Stafford loans.
    (iii) Unsubsidized Federal Direct Stafford loans.
    (iv) Subsidized Federal Direct Stafford loans.
    (v) Federal Perkins loans.
    (vi) Federal PLUS loans received on behalf of the student.
    (vii) Federal Direct PLUS received on behalf of the student.
    (2) Remaining funds. If unearned funds remain to be returned after 
repayment of all outstanding loan amounts, the remaining excess must be 
credited to any amount awarded for the payment period or period of 
enrollment for which a return of funds is required in the following 
order:
    (i) Federal Pell Grants.
    (ii) Federal SEOG Program aid.
    (iii) Other grant or loan assistance authorized by title IV of the 
HEA.
    (j) Timeframe for the return of title IV funds. (1) An institution 
must return the amount of title IV funds for which it is responsible 
under paragraph (g) of this section as soon as possible but no later 
than 30 days after the date of the institution's determination that the 
student withdrew as defined in paragraph (l)(3) of this section.
    (2) An institution must determine the withdrawal date for a student 
who withdraws without providing notification to the institution no 
later than 30 days after the end of the earlier of the--
    (i) Payment period or period of enrollment, as appropriate, in 
accordance with paragraph (e)(5) of this section;
    (ii) Academic year in which the student withdrew; or
    (iii) Educational program from which the student withdrew.
    (k) Consumer information. An institution must provide students with 
information about the requirements of this section in accordance with 
Sec. 668.43.
    (l) Definitions. For purposes of this section--
    (1) Title IV grant or loan funds that ``could have been disbursed'' 
are determined in accordance with the late disbursement provisions in 
Sec. 668.164(g).
    (2) A ``period of enrollment'' is the academic period established 
by the institution for which institutional charges are generally 
assessed (i.e. length of the student's program or academic year).
    (3) The ``date of the institution's determination that the student 
withdrew'' is--
    (i) For a student who provides notification to the institution of 
his or her withdrawal, the student's withdrawal date as determined 
under paragraph (c) of this section or the date of notification of 
withdrawal, whichever is later;
    (ii) For a student who did not provide notification of his of her 
withdrawal to

[[Page 59042]]

the institution, the date that the institution becomes aware that the 
student ceased attendance;
    (iii) For a student who does not return from an approved leave of 
absence, the earlier of the date of the end of the leave of absence or 
the date the student notifies the institution that he or she will not 
be returning to the institution; or
    (iv) For a student whose rescission is negated under paragraph 
(c)(2)(i)(B) of this section, the date the institution becomes aware 
that the student did not, or will not, complete the payment period or 
period of enrollment.
    (v) For a student who takes a leave of absence that is not approved 
in accordance with paragraph (d) of this section, the date that the 
student begins the leave of absence.
    (4) A ``recipient of title IV grant or loan assistance'' is a 
student for whom the requirements of Sec. 668.164(g)(2) have been met.

(Approved by the Office of Management and Budget under control 
number 1845-0022)

(Authority: 20 U.S.C. 1091b)

    6. Section 668.24 is amended by revising paragraph (c)(1)(iv)(C) 
and (c)(1)(iv)(D) to read as follows:


Sec. 668.24  Record retention and examinations.

* * * * *
    (c) * * *
    (1) * * *
    (iv) * * *
    (C) The amount, date, and basis of the institution's calculation of 
any refunds or overpayments due to or on behalf of the student, or the 
treatment of title IV, HEA program funds when a student withdraws; and
    (D) The payment of any overpayment or the return of any title IV, 
HEA program funds to the title IV, HEA program fund, a lender, or the 
Secretary, as appropriate;
* * * * *
    7. Section 668.25 is amended by revising paragraph (c)(4)(ii) to 
read as follows:


Sec. 668.25  Contracts between an institution and a third-party 
servicer.

* * * * *
    (c) * * *
    (4) * * *
    (ii) Calculate and return any unearned title IV, HEA program funds 
to the title IV, HEA program accounts and the student's lender, as 
appropriate, in accordance with the provisions of Secs. 668.21 and 
668.22, and applicable program regulations; and
* * * * *
    8. Section 668.26 is amended by revising paragraph (b)(7) to read 
as follows:


Sec. 668.26  End of an institution's participation in the title IV, HEA 
programs.

* * * * *
    (b) * * *
    (7) Continue to comply with the requirements of Sec. 668.22 for the 
treatment of title IV, HEA program funds when a student withdraws.
* * * * *
    9. Section 668.83 is amended by revising paragraph (c)(2)(ii)(C) to 
read as follows:


Sec. 668.83  Emergency action.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (C) The institution, or servicer, as applicable, lacks the 
administrative or financial ability to make all required payments under 
Sec. 668.22; and
* * * * *
    10. Section 668.92 is amended by revising paragraph (b)(2) to read 
as follows:


Sec. 668.92  Fines.

* * * * *
    (b) * * *
    (2) Required refunds, including the treatment of title IV, HEA 
program funds when a student withdraws under Sec. 668.22.
* * * * *
    11. Section 668.95 is amended by revising paragraph (b)(2)(i) to 
read as follows:


Sec. 668.95  Reimbursements, refunds, and offsets.

* * * * *
    (b) * * *
    (2) * * *
    (i) Refunds or returns of title IV, HEA program funds required 
under program regulations when a student withdraws.
* * * * *
    12. Section 668.164 is amended by revising paragraph (g)(1) to read 
as follows:


Sec. 668.164  Disbursing funds.

* * * * *
    (g) * * *
    (1) Ineligible students who may receive a late disbursement. (i) An 
institution may make a late disbursement under paragraph (g)(2) of this 
section, if the student became ineligible solely because--
    (A) For purposes of the Direct Loan and FFEL programs, the student 
is no longer enrolled at the institution as at least a half-time 
student for the loan period; and
    (B) For purposes of the Federal Pell Grant, FSEOG, and Federal 
Perkins Loan programs, the student is no longer enrolled at the 
institution for the award year.
    (ii) Notwithstanding paragraph (g)(1)(i) of this section, a student 
who withdraws from an institution during a payment period or period of 
enrollment can receive additional disbursements of title IV, HEA 
program funds in accordance with the requirements of Sec. 668.22 only.
* * * * *
    13. Section 668.171 is amended by revising paragraph (b)(4)(i) to 
read as follows:


Sec. 668.171  General.

* * * * *
    (b) * * *
    (4) * * *
    (i) Refunds that it is required to make under its refund policy, 
including the return of title IV, HEA program funds for which it is 
responsible under Sec. 668.22 and the payment of post-withdrawal 
disbursements under Sec. 668.22; and
* * * * *
    14. Section 668.173 is amended by revising paragraphs (a) 
introductory text, (b) introductory text, (b)(1)(i) and (b)(1)(ii) to 
read as follows:


Sec. 668.173  Refund reserve standards.

    (a) General. The Secretary considers that an institution has 
sufficient cash reserves (as required under Sec. 668.171(b)(2)) to make 
refunds that it is required to make under its refund policy, including 
the return of title IV, HEA program funds for which it is responsible 
under Sec. 668.22 and the payment of post-withdrawal disbursements 
under Sec. 668.22 if the institution--
* * * * *
    (b) Timely refunds. An institution demonstrates that it makes 
required refunds, including payments required under Sec. 668.22, if the 
auditor or auditors who conducted the institution's compliance audits 
for the institution's two most recently completed fiscal years, or the 
Secretary or a State or guaranty agency that conducted a review of the 
institution covering those fiscal years--
    (1) * * *
    (i) The institution made late refunds to 5 percent or more of the 
students in that sample. For purposes of determining the percentage of 
late refunds under this paragraph, the auditor or reviewer must include 
in the sample only those title IV, HEA program recipients who received 
or should have

[[Page 59043]]

received a refund or for whom a repayment of unearned title IV, HEA 
program funds was made or should have been made under Sec. 668.22; or
    (ii) The institution made only one late refund or repayment of 
unearned title IV, HEA program funds for a student in that sample; and
* * * * *

Appendix A to Part 668 [Removed]

    15. Remove and reserve appendix A to part 668.

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

    16. The authority citation for part 682 continues to read as 
follows:

    Authority: 20 U.S.C. 1071, to 1087-2, unless otherwise noted.

    17. Section 682.207 is amended as follows by:
    A. Adding a new paragraph (b)(1)(v)(E).
    B. Revising the OMB control number following the section.


Sec. 682.207  Due diligence in disbursing a loan.

* * * * *
    (b) * * *
    (1) * * *
    (v) * * *
    (E) If a lender disburses a loan directly to the borrower for 
attendance at an eligible foreign school, as provided in paragraph 
(b)(1)(v)(D)(1) of this section, the lender must, at the time of 
disbursement, notify the school of--
    (1) The name and social security number of the student;
    (2) The name and social security number of the parent borrower, if 
the loan disbursed is a PLUS loan;
    (3) The type of loan;
    (4) The amount of the disbursement, including the amount of any 
fees assessed the borrower;
    (5) The date of the disbursement; and
    (6) The name, address, telephone and fax number or electronic 
address of the lender, servicer, or guaranty agency to which any 
inquiries should be addressed.
* * * * *
(Approved by the Office of Management and Budget under control 
number 1845-0022)

    18. Section 682.209 is amended by revising paragraph (i) to read as 
follows:


Sec. 682.209  Repayment of a loan.

* * * * *
    (i) Treatment by a lender of borrowers' title IV, HEA program funds 
received from schools if the borrower withdraws. (1) A lender shall 
treat a refund or a return of title IV, HEA program funds under 
Sec. 668.22 when a student withdraws received by the lender from a 
school as a credit against the principal amount owed by the borrower on 
the borrower's loan.
    (2)(i) If a lender receives a refund or a return of title IV, HEA 
program funds under Sec. 668.22 when a student withdraws from a school 
on a loan that is no longer held by that lender, or that has been 
discharged by another lender by refinancing under Sec. 682.209(f) or by 
a Consolidation loan, the lender must transmit the amount of the 
payment, within 30 days of its receipt, to the lender to whom it 
assigned the loan, or to the lender that discharged the prior loan, 
with an explanation of the source of the payment.
    (ii) Upon receipt of a refund or a return of title IV, HEA program 
funds transmitted under paragraph (i)(2)(i) of this section, the holder 
of the loan promptly must provide written notice to the borrower that 
the holder has received the return of title IV, HEA program funds.
* * * * *
    19. Section 682.604 is amended by revising paragraph (c)(4) to read 
as follows:


Sec. 682.604  Processing the borrower's loan proceeds and counseling 
borrowers.

* * * * *
    (c) * * *
    (4) A school may not credit a student's account or release the 
proceeds of a loan to a student who is on a leave of absence, as 
described in Sec. 668.22(d).
* * * * *
    20. Section 682.605 is amended by revising paragraphs (a) and (b) 
to read as follows:


Sec. 682.605  Determining the date of a student's withdrawal.

    (a) Except in the case of a student who does not return for the 
next scheduled term following a summer break, which includes any summer 
term or terms in which classes are offered but students are not 
generally required to attend, a school must follow the procedures in 
Sec. 668.22(b) or (c), as applicable, for determining the student's 
date of withdrawal. In the case of a student who does not return from a 
summer break, the school must follow the procedures in Sec. 668.22(b) 
or (c), as applicable, except that the school shall determine the 
student's withdrawal date no later than 30 days after the first day of 
the next scheduled term.
    (b) The school must use the withdrawal date determined under 
Sec. 668.22(b) or (c), as applicable for the purpose of reporting to 
the lender the date that the student has withdrawn from the school.
* * * * *
    21. Section 682.607 is amended to read as follows:


Sec. 682.607  Payment of a refund or a return of title IV, HEA program 
funds to a lender upon a student's withdrawal.

    (a) General. By applying for a FFEL loan, a borrower authorizes the 
school to pay directly to the lender that portion of a refund or return 
of title IV, HEA program funds from the school that is allocable to the 
loan upon the borrower's withdrawal. A school--
    (1) Must pay that portion of the student's refund or return of 
title IV, HEA program funds that is allocable to a FFEL loan to--
    (i) The original lender; or
    (ii) A subsequent holder, if the loan has been transferred and the 
school knows the new holder's identity; and
    (2) Must provide simultaneous written notice to the borrower if the 
school makes a payment of a refund or a return of title IV, HEA program 
funds to a lender on behalf of that student.
    (b) Allocation of a refund or returned title IV, HEA program funds. 
In determining the portion of a refund or the return of title IV, HEA 
program funds upon a student's withdrawal for an academic period that 
is allocable to a FFEL loan received by the borrower for that academic 
period, the school must follow the procedures established in part 668 
for allocating a refund or return of title IV, HEA program funds.
    (c) Timely payment. A school must pay a refund or a return of title 
IV, HEA program funds that is due in accordance with the timeframe in 
Sec. 668.22(j).

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

    22. The authority citation for part 685 continues to read as 
follows:

    Authority: 20 U.S.C. 1087 et seq., unless otherwise noted.

    23. Section 685.211 is amended by revising paragraph (c) to read as 
follows:


Sec. 685.211  Miscellaneous repayment provisions.

* * * * *
    (c) Refunds and returns of title IV, HEA program funds from 
schools. The Secretary applies any refund or return of title IV, HEA 
program funds that the Secretary receives from a school under 
Sec. 668.22 against the borrower's outstanding principal and notifies 
the borrower of the refund or return.
* * * * *

[[Page 59044]]

    24. Section 685.215 is amended by revising paragraph (k) to read as 
follows:


Sec. 685.215  Consolidation.

* * * * *
    (k) Refunds and returns of title IV, HEA program funds received 
from schools. If a lender receives a refund or return of title IV, HEA 
program funds from a school on a loan that has been consolidated into a 
Direct Consolidation Loan, the lender shall transmit the refund or 
return and an explanation of the source of the refund or return to the 
Secretary within 30 days of receipt.
* * * * *
    25. Section 685.305 is amended to read as follows:


Sec. 685.305  Determining the date of a student's withdrawal.

    (a) Except as provided in paragraph (b) of this section, a school 
shall follow the procedures in Sec. 668.22(b) or (c), as applicable, 
for determining the student's date of withdrawal.
    (b) For a student who does not return for the next scheduled term 
following a summer break, which includes any summer term(s) in which 
classes are offered but students are not generally required to attend, 
a school shall follow the procedures in Sec. 668.22(b) or (c), as 
applicable, for determining the student's date of withdrawal except 
that the school must determine the student's date of withdrawal no 
later than 30 days after the start of the next scheduled term.
    (c) The school shall use the date determined under paragraph (a) or 
(b) of this section for the purpose of reporting to the Secretary the 
student's date of withdrawal and for determining when a refund or 
return of title IV, HEA program funds must be paid under Sec. 685.306.

(Authority: 20 U.S.C. 1087 et seq.)

    26. Section 685.306 is amended to read as follows:


Sec. 685.306  Payment of a refund or return of title IV, HEA program 
funds to the Secretary.

    (a) General. By applying for a Direct Loan, a borrower authorizes 
the school to pay directly to the Secretary that of a refund or return 
of title IV, HEA program funds from the school that is allocable to the 
loan. A school--
    (1) Shall pay that portion of the student's refund or return of 
title IV, HEA program funds that is allocable to a Direct Loan to the 
Secretary; and
    (2) Shall provide simultaneous writ-ten notice to the borrower if 
the school pays a refund or return of title IV, HEA program funds to 
the Secretary on be-half of that student.
    (b) Determination, allocation, and payment of a refund or return of 
title IV, HEA program funds. In determining the portion of a student's 
refund or return of title IV, HEA program funds that is allocable to a 
Direct Loan, the school shall follow the procedures established in 34 
CFR 668.22 for allocating and paying a refund or return of title IV, 
HEA program funds that is due.

(Authority: 20 U.S.C. 1087a et seq.)

[FR Doc. 99-28315 Filed 10-29-99; 8:45 am]
BILLING CODE 4000-01-U