[Federal Register: February 2, 1996 (Volume 61, Number 23)]
[Proposed Rules]               
[Page 4197-4201]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]

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Part IX

Department of Education


34 CFR Chapter VI

Federal Student Assistance Programs; Improved Oversight; Proposed Rule

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34 CFR Chapter VI

Federal Student Assistance Programs Under Title IV of the Higher 
Education Act of 1965, as Amended

AGENCY: Department of Education.

ACTION: Advance notice of proposed rulemaking.


SUMMARY: The Secretary invites comments on the Department of 
Education's proposal for improved oversight of the student aid programs 
authorized by Title IV of the Higher Education Act of 1965, as amended 
(HEA). An early draft of the proposal was posted on the World Wide Web 
on December 6, 1995. The Secretary particularly invites comments on the 
Department's plans to provide regulatory relief to institutions of 
higher education that have consistently demonstrated a very high level 
of performance in administering Title IV programs and strong financial 
    The Secretary intends to develop a notice of proposed rulemaking, 
with an opportunity for further public comment, to implement parts of 
the draft proposal after considering the comments received in response 
to this advance notice. Other parts of the proposal may be implemented 
through administrative actions by the Department. Still others may 
require statutory changes.

DATES: Comments may be submitted until March 4, 1996.

ADDRESSES: Adam Ochlis, U.S. Department of Education, 600 Independence 
Avenue, SW (Room 4050, ROB-3), Washington, DC 20202 or, by e-mail, 

FOR FURTHER INFORMATION CONTACT: Adam Ochlis, telephone (202) 708-9104. 
Individuals who use a telecommunications device for the deaf (TDD) may 
call the Federal Information Relay Service (FIRS) at 1-800-877-8339 
between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.



    The Department of Education has recently undertaken a series of 
initiatives to simplify regulations and administrative processes for 
the Federal student aid programs authorized by Title IV of the HEA and 
to ensure compliance with the requirements of those programs. In an 
effort to provide regulatory relief, on April 25, 1995, the Secretary 
invited institutions of higher education to submit proposals to 
reinvent the administration of those programs through the use of the 
experimental sites authority in section 487A(d) of the HEA. 60 FR 
20326. In June 1995, the Secretary completed a page-by-page review of 
all student financial aid regulations to identify those that should be 
eliminated or improved and reported the results of the review to the 
    On August 8, 1995, the Secretary announced his intention to expand 
the Quality Assurance Program under section 487A of the HEA by 
increasing the number of participating institutions and using the 
experimental sites authority to encourage management innovation. 60 FR 
    In late November and early December 1995, the Secretary published 
several sets of regulations that will (1) reduce administrative and 
paperwork burdens on schools, students, and their families; (2) 
strengthen the Department's oversight of the student aid programs by 
focusing compliance efforts; (3) ensure that better consumer 
information is disclosed by schools to students and their families; and 
(4) make further improvements in the William D. Ford Federal Direct 
Loan Program. The Secretary will also consider whether to develop 
proposals for statutory amendments to eliminate unnecessary 
administrative burden.
    At the same time, the Department has undertaken management 
initiatives to ensure that institutions participating in the student 
aid programs comply with administrative and fiscal requirements. Since 
January 1993, the Department has terminated the participation of more 
than 300 institutions--nearly twice the number of the previous seven 
years combined. The Secretary believes the Department's strengthened 
enforcement has both deterred unqualified institutions from applying to 
participate and improved compliance by participating institutions. The 
Department is developing a risk analysis system and case management 
techniques to further improve its ability to focus its monitoring and 
enforcement activities on institutions that pose the greatest risk to 
Federal funds.

Proposal for Improved Oversight in Federal Student Aid

    The draft proposal on which the Secretary invites comments builds 
upon the Department's actions to date. Under the proposal, the 
Department would adopt regulations to provide further relief from 
administrative burden, particularly to institutions that have records 
of outstanding performance in administering Title IV programs and 
strong financial responsibility. Because such regulatory relief would 
permit a redeployment of resources, the Department would focus its 
monitoring and oversight activities on institutions that present a high 
risk to Federal funds. Finally, the Department would work to improve 
the ability of students to obtain information about the educational 
programs they are considering for enrollment.
    On December 6, 1995, the Department posted the draft proposal on 
its World Wide Web home page under the subheading of the Office of 
Postsecondary Education. The Department has also presented the proposal 
to some national higher education associations and the National 
Advisory Committee on Institutional Participation and Oversight. 
Further presentations are planned for the National Advisory Committee 
on Student Financial Assistance and representatives of institutions, 
States, accrediting agencies, national higher education associations, 
and other members of the higher education community.
    The Secretary welcomes comments on all aspects of the Proposal for 
Improved Oversight in Federal Student Aid. An updated version of the 
proposal appears immediately after the questions below. In particular, 
the Secretary requests comments on the following questions:
    1. The proposal states the Department's intention to provide 
extensive regulatory relief to institutions that have consistently 
demonstrated outstanding administration of Title IV programs and strong 
financial responsibility.
    (a) What criteria should the Department use to determine that an 
institution has consistently demonstrated outstanding administration of 
Title IV programs?
    (b) What criteria should the Department use to determine that an 
institution is financially strong? How should the criteria for 
financial strength vary by sector (public institutions, private non-
profit institutions, and private for-profit institutions)?
    2. The proposal suggests examples of areas in which regulatory 
relief could be provided to institutions with outstanding records in 
administering Title IV programs and strong financial responsibility. In 
what other areas could administrative burden on these institutions be 
eased? How much lead time would institutions need before this relief 
was provided?
    3. How should the Department ensure the continued administrative 
excellence and financial strength of the institutions that are provided 
extensive regulatory relief? 

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    4. The proposal cites examples of administrative relief that the 
Department has provided and will provide to all participating 
institutions. In what other areas could administrative burden be 
reduced without statutory change or diminished accountability for 
Federal funds?
    5. The proposal describes the Department's efforts to provide 
regulatory relief to institutions participating in the Quality 
Assurance program. Should the Department propose regulations to set 
eligibility criteria for specific forms of relief related to 
institutional performance in specific administrative areas?
    6. The proposal describes management practices and possible 
statutory changes that the Department is considering to improve its 
oversight of institutions that pose a high risk to Federal funds. What 
other administrative and regulatory measures within current statutory 
authority should the Department consider to prevent unqualified 
institutions from participating in Title IV programs in the first 
instance and to terminate the participation of those that should not 
continue? What additional statutory changes should the Department 
consider for these purposes?
    7. The proposal describes some characteristics of an institution 
that might indicate that it should be subjected to greater monitoring 
and oversight. Are there other indicators (for example, an adverse 
opinion on a financial statement, or a material finding on a compliance 
audit) that the Department should consider for this purpose?
    8. The proposal describes efforts undertaken by the Department to 
improve students' access to information about educational programs. 
What other steps should the Department take to accomplish this 
objective? Should the Department use such student consumer information 
about performance, such as completion and graduation rates, in 
identifying institutions for regulatory relief or for heightened 
    An updated version of the draft proposal follows.

Proposal for Improved Oversight in Federal Student Aid (Draft--
Updated January 1996)

    The Department of Education is proposing to strengthen and 
restructure its oversight of institutions that are participating in 
Title IV student aid programs. Under this proposal, the Department 
would continue to increase its oversight of institutions that pose 
significant risks to Federal funds and of new institutions, which may 
experience problems in administering Title IV programs. The Department 
would also provide regulatory relief to institutions that have 
consistently demonstrated a very high level of performance in 
administering Title IV programs and strong financial responsibility. 
Because increased regulatory relief would reduce the Departmental 
resources needed to monitor institutions that pose little risk to 
Federal funds, the Department could concentrate its monitoring 
resources on institutions that pose greater risk. This proposal builds 
upon regulatory relief initiatives and efforts to strengthen the 
monitoring and oversight of at-risk institutions that are already 
underway in the Department.
    The Department will use this proposal to advance discussions with 
Congress and the higher education community on the role of the Federal 
government in managing Title IV programs and providing better 
information to students. The Department requests comments and 
suggestions on this proposal and other ideas for improving the system 
of oversight of Federal student aid programs. The Department will work 
closely with the higher education community to develop the specifics of 
the proposal, including administrative and financial performance 
criteria to identify institutions eligible for regulatory relief and 
institutions needing increased oversight and support.

Regulatory Relief

    Under the proposal, the Department would engage in regulatory 
relief on two levels. First, the Department would continue to reinvent 
its regulations to reduce administrative and paperwork burden on all 
institutions where overly restrictive requirements do not improve 
accountability or protect the Federal fiscal interest. The Department 
has already streamlined the recertification application and revised the 
FAFSA form to include all statutorily-required student certifications 
that were previously on separate forms. The Department is also 
developing a less complex refund policy for all institutions; 
ultimately, statutory changes would be necessary to simplify the refund 
policy to the extent desired.
    Second, under this proposal, institutions that have consistently 
demonstrated outstanding administration of Title IV programs and strong 
financial responsibility would be eligible for additional regulatory 
relief. The Department would use its experimental sites authority to 
provide this flexibility.
    Possible criteria for determining that an institution has 
demonstrated outstanding administration of Title IV programs could 
    * An unqualified opinion on financial statements;
    * No material findings in compliance audits for the previous
five years;
    * Demonstrably sound internal controls (such as accounting,
financial, and internal management controls);
    * Low default rates (adjustments would be made for
institutions with a small percentage of students borrowing);
    * A history of successful participation in Title IV
programs, as indicated by such factors as the duration and extent of 
participation in different kinds of Title IV programs (such as the 
student loan, Pell grant, and campus-based programs) and the quality of 
administrative performance in those programs;
    * Full unqualified certification; and
    * No adverse actions by accrediting agencies during the
institution's last two full accreditation reviews.
    To assess financial responsibility, the Department would develop 
different financial responsibility standards for different sectors. 
Because different accounting standards are applicable to different 
sectors, financial statements are not consistent across sectors. The 
Department would develop financial indicators that, although different, 
nevertheless measure financial health across all three sectors.
    Institutions that met the criteria for strong administrative and 
financial performance would be eligible for such regulatory relief as 
less frequent recertification, less frequent submission of compliance 
audits, and exemption from certain regulatory requirements (such as 
those relating to multiple and delayed disbursement, verification, and 
entrance and exit counseling). A significant percentage of the 
departmental resources currently used to oversee and monitor the 
requirements for strong institutions would be used to focus more 
resources on at-risk institutions.
    Institutions that did not meet all the criteria for strong Title IV 
administrative and financial performance would still be able to apply 
for selective regulatory relief. The Department is already providing 
regulatory relief on a case-by-case basis to a large number of 
institutions under the April 25, 1995 experimental sites initiative 
referred to earlier in this notice. Under the August 8, 1995 Quality 
Assurance Program initiative, also referred to earlier, participating 
institutions may request specific regulatory relief on the basis of 
their improved administrative capability. 

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Increased Monitoring and Oversight of At-Risk Institutions

    Under the proposal, the Department would increase monitoring and 
oversight of at-risk institutions. At-risk institutions might include 
those subjected to a limitation, suspension, or termination action in 
the previous several years; those on provisional certification 
(including all new institutions); those on reimbursement; or those 
subject to termination because of high default rates (including 
institutions appealing these rates). At-risk institutions would be 
subject to the full set of Department regulations and increased 
oversight and would receive increased technical assistance from the 
Department. Examples of increased regulation and oversight for at-risk 
institutions that the Department could implement through changes in 
administrative practices include--
    * At-risk institutions would face a higher probability of
intensive program reviews by the Department;
    * At-risk institutions with a history of deficiencies would
be subject to termination actions by the Department unless they 
improved their performance in the administration of Title IV programs 
to adequate levels within specific time frames;
    * At-risk institutions that had two or three major program
review findings, such as failure to implement satisfactory progress 
standards or failure to adhere to the refund policy, would be 
terminated from participation in all Title IV programs; and
    * New institutions that did not demonstrate good performance
would remain on provisional certification for five years rather than 
for three years, as is currently required.
    Some changes could be effected only by statutory amendments. 
Possible statutory changes that the Department is considering include--
    * Requiring a personal financial guarantee against
liabilities from the owner of any proprietary institution placed on 
provisional certification and holding individuals with financial 
authority and responsibility at proprietary institutions personally 
liable for an institution's unpaid refunds;
    * Holding institutions that unsuccessfully appeal high
default rates liable for the default costs and subsidies that are paid 
by the Department on loans to that school during the appeal process. 
The Department could also require a school that chooses to receive 
loans during the appeal process to post surety in an amount sufficient 
to cover these costs;
    * Extending to all non-degree vocational programs the
current requirement that short-term vocational programs graduate and 
place 70 percent of their students; and
    * Permitting the Department to establish a new expiration
date for a Program Participation Agreement for at-risk institutions and 
thus require a full application for recertification and enable the 
Department to make decisions based on current information.
    The Department is developing the administrative and information 
systems needed to carry out the improved oversight of at-risk 
institutions. These will include a system of risk analysis 
incorporating a variety of factors (for example, high default rates and 
material findings in compliance audits or program reviews) that will 
help identify administrative and financial problems. The risk analysis 
system will enable the Department to improve its targeting of 
institutions for compliance reviews based on administrative and 
financial performance and concentrate resources on institutions with 
potentially serious problems. Making this system viable will require 
improvement of information in the Department's databases such as the 
National Student Loan Data System, the full development of the 
Postsecondary Education Participants System, and the development of 
good tracking systems. The Department is taking steps to increase data 
integrity and is committed to providing the systems required.
    To improve its oversight of at-risk institutions, the Department is 
moving toward a new approach for monitoring institutional performance 
in Title IV programs. Currently, the Department reviews institutional 
performance through four largely independent processes--
recertification, analysis of financial statements, review of compliance 
audits, and program review. While recertification requires some cross-
analysis of these different areas, the system does not otherwise 
facilitate decisions based on all the information the Department has 
concerning an institution. The new system will consolidate these 
processes as much as possible by using case management as the core 
process. This will allow decision-making based on all information 
concerning a school that may be relevant to Title IV compliance, 
including information supplied by outside entities such as accrediting 

Student Information

    The improved oversight system would also ensure that institutions 
provide better information about educational programs for students to 
use in making informed decisions about where to enroll. This 
information would help ensure that market forces work better to 
eliminate inadequate institutions and programs from participation in 
Title IV programs and help students make better decisions.
    Under the Student Right to Know Act, all institutions must make 
their completion and graduation rates available in their catalogs or 
other material readily available to all prospective students who 
request this information. The provision of this information should 
allow a prospective student to consider the likelihood of completing 
the program at an institution, the potential benefit to be derived from 
investing the required time and money in that program, and similar 
information about programs at other institutions. Final regulations to 
implement the Student Right to Know Act were published on December 1, 
1995. 60 FR 61776. These regulations require institutions to begin 
disclosing completion and graduation rates for students who enter the 
institution after July 1, 1996. Completion and graduation rates will be 
calculated for full-time, undergraduate certificate- or degree-seeking 
    In addition to information required under the Student Right to Know 
Act, the Administration has proposed legislation that would require 
institutions that offer non-degree programs to report information about 
these programs and information on the outcomes of previous students to 
one-stop career centers that would provide this information to 
prospective students. This information could include completion rates, 
placement rates, licensure exam pass rates, or the percentage of 
graduates that meet certain skill standards. Although the specific 
provisions included in the Administration bill were not passed, the two 
versions of the job training bill being discussed by the Congress in 
late January included related provisions.
    The Department will continue to develop and support legislation and 
efforts to improve information for students and families on the 
outcomes of both degree and non-degree programs at institutions 
participating in the Title IV student aid programs. The Department 
plans to continue this focus in specific proposals included in the next 
reauthorization of the HEA.

Invitation to Comment

    Interested persons are invited to submit comments and 
recommendations regarding this draft proposal. Comments will be 
available for public inspection, during and after the comment period, 
in Room 4050, Regional Office Building 3, 

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7th and D Streets, SW., Washington, DC, between the hours of 8:30 a.m. 
and 4 p.m., Monday through Friday of each week except Federal holidays.

    Dated: January 29, 1996.
Richard W. Riley,
Secretary of Education.
[FR Doc. 96-2262 Filed 2-1-96; 8:45 am]