Archived Information

Reauthorization of the Higher Education Act


Part G--General Provisions

Section-by-Section Analysis

Section 481. Section 481 of the bill would amend the definitions in section 481 of the Act. Section 481(1) of the bill would amend the definition of an institution of higher education in section 481(a) of the Act, and section 481(4) of the bill would eliminate the definition of an "eligible program" in section 481(e) of the Act to reflect the changes that would be made to the definition of an institution of higher education in proposed new section 101(a) of the Act by section 101(b) of the bill. In combination, these amendments are intended to clarify the definitions and to move more of the definition of an institution of higher education for purposes of Title IV of the Act, currently in section 481(a) of the Act, to proposed new section 101(a), so that the interrelationship of the two definitions is more easily understood and to eliminate duplicative provisions.

Section 481(1) of the bill would also specify that an institution located outside of the United States would not meet the definition of an institution of higher education to the extent that it offers any distance learning program or courses. It is very difficult to monitor foreign institutions for their compliance with the requirements of the FFEL program (the only title IV program in which these institutions may participate), and the potential for abuse is particularly great in the developing area of distance learning. Given the monitoring difficulties and high risk for program abuse, it would not be an effective use of the Department's resources to permit U.S. students enrolled in foreign institutions to borrow FFELs for distance learning programs or courses offered by those institutions. Other changes to the treatment of foreign institutions are proposed in proposed new section 121(g) of the Act, and sections 472, and 484 of the bill.

Section 481(1) of the bill would also update and modify the limitations on an institution's eligibility to participate in the title IV programs in sections 481(a)(3)(A) and (B) of the Act. Under current law, an institution does not qualify as eligible to participate in the Title IV programs if, for the latest complete award year, more than 50% of the institution's courses were correspondence courses unless the institution meets the definition of a technical institute or vocational school under section 521(4)(C) of the Carl D. Perkins Vocational and Applied Technology Education Act. In addition, an institution does not qualify as eligible to participate in the title IV programs if it enrolls 50 percent or more of its students in correspondence courses, unless the Secretary waives the applicability of this limitation to an institution that provides a 2­year or 4­year program of instruction for which the institution awards an associate or baccalaureate degree.

Section 481(1) of the bill would: 1) update the references in sections 481(a)(3)(A) and (B) of the Act from correspondence courses to distance learning (as defined in proposed new section 481(c) and discussed below); 2) eliminate the never-used exception for institutions that meet the Perkins Act definition; and 3) modify the current law limitations so that an institution that offered more than 50 percent of its courses through distance learning, or enrolled 50 percent or more of its students in distance learning, would not be eligible to participate in the title IV programs unless the institution provides at least a 2­year or 4­year program of instruction for which the institution awards an associate or baccalaureate degree.

Although many forms of title IV student financial assistance were initially available for students in "correspondence courses," there were several instances of notorious program abuse in the 1970's and 1980's at institutions (primarily proprietary institutions) that offered correspondence programs. As a result, statutory and regulatory restrictions on the amount of aid students could receive to fund study by correspondence increased over time, and in 1992, the restrictions in sections 481(a)(3)(A) and (B) were added to the Act. The proposed amendments to these provisions would permit some institutions to have greater flexibility in implementing distance learning programs, while retaining appropriate safeguards by limiting the distance learning offerings of institutions that do not have degree-granting programs.

Finally, section 481(1) of the bill would extend ineligibility based on high default rates, based on the FFEL provision (as amended in section 435 of the bill), to apply to all title IV aid programs.

Section 481(2) of the bill would amend the definition of a proprietary institution of higher education in section 481(b) of the Act. The revised definition would include proprietary institutions that offer degree programs as well as training to prepare students for gainful employment, and would cross-reference the revised definition of an institution of higher education in proposed new section 101(a) of the Act (other than the requirement that the institution be a public or private nonprofit institution).

In addition, section 481(b) of the Act, as amended, would continue the current so-called "85-15" requirement that a proprietary institution could not receive more than 85 percent of its revenues from title IV. Finally, section 481(2) of the bill would amend section 481(b) of the Act to include within the definition a postsecondary educational institution that changes from a proprietary institution to a nonprofit institution, for a period of at least two complete fiscal years following the change. This amendment is designed to deter an institution from circumventing the 85/15 requirement by switching its status from for-profit to nonprofit.

Next, current section 481(c) of the Act, which contains a definition of a "postsecondary vocational institution," would be eliminated by section 481(3) of the bill. As a result, community colleges offering short-term programs would no longer be subject to a two-year waiting period for eligibility to participate in title IV programs. We understand that the current requirement was not intended to apply to State-supported institutions.

In its place, "distance learning" would be defined in proposed new section 481(c) of the Act as an educational process that is characterized by the separation, in time or place, between instructor and student. Distance learning could include courses offered principally through the use of: television, audio, or computer transmission, such as open broadcast, closed circuit, cable, microwave, or satellite transmission; audio or computer conferencing; video cassettes or discs; or correspondence. Distance learning makes higher education more accessible by freeing the student, who is now often faced with balancing education, work and family commitments, from time and place constraints.

Federal student financial assistance is currently geared toward the more traditional, classroom-based delivery of postsecondary education. As alternative forms of postsecondary education delivery evolve, the delivery of student financial aid must keep pace, through the use of flexible and innovative policies and procedures. The amendments proposed in this bill are intended as a first step in accommodating the growing demand for, and developing technology of, delivering postsecondary education through distance learning, while providing adequate safeguards against program abuse in this new, and hard-to-monitor, area. As our knowledge of distance learning increases, we will be able to do more to ensure that distance learners will have the same level of access to student financial assistance as campus-based learners.

Section 482. Section 482 of the bill would amend the "Master Calendar" provisions in section 482 of the Act. Section 482(1) of the bill would amend section 482(a) of the Act to eliminate outdated references to multiple data entry, in conformance with the changes proposed in section 483 of the bill, and would clarify that the dates specified in that provision pertain only to the development and distribution of Federal student aid forms.

Section 482(2) of the bill would amend section 482(c) of the Act, which currently requires that the Secretary must publish any regulations affecting the Federal student assistance programs by December 1 in order for those regulations to be applicable to the following award year. Section 482(c) of the Act would be amended by: 1) limiting the applicability of the master calendar provisions in section 482(c) to regulations governing the calculation of awards and the delivery of funds to students, such as regulations governing student consumer disclosures, student eligibility, need analysis, cost of attendance, determination of award amounts, and delivery of funds to students; 2) moving the publication deadline from December 1 to November 1; and 3) authorizing the Secretary to designate regulatory provisions that institutions or other entities may choose to implement before the otherwise applicable effective date. These changes would provide the Secretary and program participants with greater flexibility, as well as more lead time, in implementing regulations.

Section 483. Section 483 of the bill would amend section 483 of the Act to reflect the amended section's broader focus, which would include provisions relating to technological development, as well as provisions relating to the production and processing of the student financial aid application form.

First, section 483(a) of the Act would be amended to clarify that the common financial aid reporting form produced, distributed and processed by the Secretary may include electronic versions, and may be used as a FFEL application (when the Department's use of technology in the student aid delivery system makes it appropriate to do so). Section 483(a) of the Act would also be clarified by specifying that the common form is used to determine the expected family contribution and, if appropriate, cost of attendance of a student seeking financial assistance.

Next, section 483(a) of the Act would be modified to authorize the Secretary to approve one or more additional versions of the common financial aid reporting form (including electronic versions) for use in combination with other forms used by an institution of higher education or other entity for purposes such as admission or determinations with respect to financial assistance other than title IV assistance, if the Secretary determines that such version meets the requirements of this subsection and such other requirements, such as ensuring usability, data quality and security, as the Secretary may deem necessary. The Secretary could also approve methods to transfer data from another form used by the institution or other entity to the common reporting form developed by the Secretary. Although the Secretary has no immediate plans to begin charging fees, the bill would also authorize the Secretary to charge the institution or other entity a fee to offset the additional costs of approving the combined form and processing the need and eligibility information collected on such form, and permit the Secretary to retain such fees to offset such costs.

New section 483(a) of the bill would also eliminate the current reference to eight, nonfinancial data items that the Secretary may include on the common form, that are selected in consultation with the States to assist the States in awarding State student financial assistance. Instead, no specific number or limitation to "nonfinancial" data items would be included in the amended section 483(a)(1) of the Act; the data items to be selected in consultation with the States would be those that the Secretary determines are appropriate for inclusion. A conforming change would also be made to section 483(a)(1) of the Act to eliminate a reference to a Pell Grant provision that would be eliminated in section 401 of the bill.

Next, section 483(a)(3) of the Act would be amended to eliminate the requirement that the Secretary, to the extent practicable, enter into not less than five contracts for processing the common reporting form. This five contract requirement is artificial and unnecessary micromanagement; the Secretary enters into contracts as needed to meet the needs of the Department and its customers.

Section 483(a)(4) of the Act would be amended to eliminate outdated references to the multiple data entry process, to focus on the Secretary's ownership of the data collected under section 483 of the Act, and to ensure that any entity, not just a contractor, that is using or processing this data is subject to the requirements of proposed new section 483(a)(5) of the Act. These entities would be required to adhere to all editing, processing, and reporting requirements established by the Secretary to ensure consistency, and would be prohibited from entering into arrangements to sell or share the data.

Section 483(a)(5) of the Act would be amended to eliminate the outdated requirement that the Secretary reimburse all contractors at predetermined rates. Instead, this provision of the Act would permit the Secretary to reimburse institutions, or third-party servicers for institutions, for filing electronic applications, reapplications, or corrections.

Section 483(2) of the bill would amend section 483(b)(1) of the Act to reflect that the Secretary has developed the streamlined reapplication for and process required under current law, and add the requirement that institutions, if they request the reapplication for their students be sent directly to the institutions, must use this process now that it has been developed. There have been some instances in which institutions have requested the reapplications be sent directly to them (primarily for ease of packaging and providing additional customized information), and the institutions have failed to forward the reapplications to their students.

Section 483(3) of the bill would update a reference, in section 483(c) of the Act, to the House Committee on Education and the Workforce.

Section 483(4) of the bill would eliminate sections 483(e) and (f) of the Act. Section 483(e) of the Act currently requires that any title IV financial aid application include the name, signature, and other information regarding the preparer of the application. The vast majority of students either leave this section of the form blank, or provide erroneous information, so this requirement is of little, if any, value. Section 483(f) of the Act currently contains an outdated cross-reference.

Section 483(5) of the bill would add new subsections (e), (f), and (g) to section 483 of the Act. Proposed new section 483(e) of the Act would require the use of a promissory note applicable to more than one academic year, or type of loan, or both, for title IV loans made for periods of enrollment beginning on or after July 1, 2000, unless the Secretary determines that a later implementation date is required to ensure that the necessary technology is in place. The Secretary would also be authorized to develop and test the use of this new promissory note on a pilot basis. Students would continue to be subject to annual loan limits and eligibility requirements and would be required to reaffirm their desire to borrow either in writing or electronically every year. In implementing this provision, the Secretary will seek to ensure that students understand the nature and extent of their debt obligation under the new promissory note. This change will eliminate the burden on schools of handling paper promissory notes annually. The proposal will result in faster loan processing. Implementation of a multi-year note will result in reduced administrative burden on the Department, cost savings for the federal government, and is a step towards the implementation of Project EASI.

Proposed new section 483(f) of the Act would authorize the Secretary to waive or modify through regulation any statutory requirement regarding the aid application and delivery processes, if the Secretary determines that the waiver or modification would better meet the needs of students and program participants, and allow the Department to employ up-to-date technology and business practices. The Secretary would be required to consult with representatives of students, institutions of higher education, and other entities involved in the aid application and delivery processes prior to exercising this authority. The Secretary is often unable to take new approaches to the financial aid delivery system as a result of statutory language which fails to take into account innovations in technology and business processes. This authority will facilitate the Secretary's efforts to reengineer the student aid delivery system by giving him additional flexibility in delivering the student financial assistance programs.

Proposed new section 483(h) of the Act would authorize the Secretary to pay charges necessary to obtain essential data. By being able to pay entities for providing essential data, e.g., applicant data and data corrections by institutions, the Secretary would be able to encourage and provide support for the continued expansion of the use of electronic processes in the delivery of student aid.

Section 484. Section 484 of the bill would make a number of changes to the student eligibility provisions in section 484 of the Act. First, sections 484(1) and (2) of the bill would update cross references in sections 484(b)(2) and (d) of the Act. Next, section 484(3) of the bill would eliminate section 484(e) of the Act, which currently permits an eligible institution to certify student eligibility for a FFEL prior to completing the review for accuracy of the information submitted by the applicant, if certain conditions are met. An institution should not certify an FFEL loan application unless it believes that all the information on the application is accurate. This provision of current law is attempting to address the issue of verification, not certification. Section 484(e) of the Act is unnecessary.

Section 484(4) of the bill would amend section 484(f)(1) of the Act, which currently states that a student is ineligible to receive any title IV grant, loan, or work assistance if the eligible institution determines that the student fraudulently borrowed in violation of the annual FFEL, Direct Loan, or Perkins Loan limits in the same academic year, or if the student fraudulently borrowed in excess of the aggregate maximum loan limits for any of these loan programs. Section 484(4) of the bill would eliminate the reference to "fraudulently" in section 484(f)(1) of the Act. Without this amendment, the current provision has little practical effect, since it is highly unlikely that an institution will be able to prove that a student "fraudulently" borrowed more than he or she was entitled to borrow for a year or in the aggregate. That is, the institution will be unlikely to be able to prove that the student knowingly and willfully obtained funds in that manner. Moreover, it is highly unlikely that the institution will be able to make that determination within the same year, in time for this provision to have an impact. The student would still be protected by section 484(f)(2) of the Act, and would not lose eligibility for an inadvertent violation of loan limits, provided that the student repaid the amounts borrowed in excess of those limits.

Section 484(5) of the bill would eliminate sections 484(k), (l), and (o) of the Act. Section 484(k) of the Act sets out a special rule for student eligibility while enrolled in correspondence courses, and section 484(l) of the Act sets out the student eligibility rules pertaining to telecommunications courses. Both provisions would be superseded by the definition of distance learning in proposed new section 481(c) of the Act. Section 484(o) of the Act currently states that a student may receive title IV assistance while in a program of study abroad approved for credit by the student's home institution. This provision has never been needed; students enrolled in study abroad programs have always been eligible for student aid. Moreover, section 484(a)(1) of the Act contains sufficient authority to ensure eligibility for title IV assistance for students enrolled in a study abroad program.

Finally, section 484(6) of the bill would redesignate sections 484(m), (n), and (p) of the Act as sections 484(l), (m), and (n) of the Act, to conform with the elimination of the subsections described above.

Section 485. Section 485 of the bill would make some minor clarifications to section 484A of the Act, and add new subsections (c) and (d) to that provision. Proposed new section 484A(c) of the Act would specify that a State court judgment that is obtained to collect on a student loan (or grant overpayment) obligation that is assigned or transferred to the Secretary may be registered with a Federal district court for enforcement. Guaranty agencies have assigned several million defaulted FFELs to the Secretary, and have in many instances secured State court judgments. These judgments offer little benefit to the Federal taxpayer unless the judgments can be simply and expeditiously enforced by the Department of Justice. This provision would eliminate the need for new litigation and expedite the recovery process. It is patterned after the highly successful effort of the HEAL program, which similarly ensures that State court judgments obtained by its lenders are quickly enforceable as Federal judgments by the United States Attorney's offices.

Section 486. Section 486(a) of the bill would completely rewrite section 484B of the Act pertaining to refunds. Section 484B of the Act currently requires all participating institutions to have a fair and equitable refund policy, under which the institution returns unearned charges to the sources of student aid, in the order specified by statute, and the student when the student ceases attendance at the institution. The current law defines a fair and equitable refund policy as one that provides a refund of at least the larger amount calculated under requirements of State law, under any approved refund standards established by the institution's accrediting agency, or under the pro rata refund calculation prescribed in section 484B. Proposed new section 484B of the Act would replace this approach with provisions that apply only to the return of title IV grant and loan funds, and would be linked to the disbursement schedule for those funds.

Proposed new section 484B of the Act would prescribe in statute a schedule that would be used to determine the amount of Title IV aid a student has earned when he or she ceases attendance (in effect, a retroactive disbursement schedule that is applied when a student ceases attendance) without regard to the actual costs incurred by the student. This title IV requirement would focus on the amount the student earned from title IV sources only, and, apart from some minimum levels of consumer protection proposed in provisions relating to withdrawals by first-time students in the first two weeks of the payment period (discussed below), and to the requirement that all recognized accrediting agencies have in place fair and equitable refund policies (in proposed new section 111(a)(5) of the Act, as added by title I of the bill), title IV requirements would not control the institution's overall refund policy.

Proposed new section 484B was developed after consideration of the feedback received from focus group meetings with the financial aid community on the current refund requirements, which are viewed by the financial aid community as burdensome, complicated, and unfair. This simplified, title IV-only approach would be easier for institutions to implement, easier for a student to understand, and easier for the Department to monitor than the current requirements. Proposed new section 484B of the Act would appropriately balance the needs of institutions, states, and accrediting agencies with the interests of the taxpayer and the need to provide a basic level of consumer protection for students.

Proposed new section 484B(a)(1) of the Act would set out the general rule for the return of title IV grant or loan assistance if a student (other than a first-time student in the first two weeks of the payment period) withdraws from, or otherwise fails to complete, a payment period (defined at 34 CFR 668.4, and where possible based on the traditional intervals in an academic year, such as the semester, trimester, or quarter). This provision would require that any title IV grant or loan assistance, other than the amount of such assistance that is "earned" by the student as of his or her last date of attendance, be returned to its title IV source in the order specified in proposed new sections 484B(c)(2) and (3) of the Act.

Proposed new section 484B(a)(2) of the Act would specify the way in which the amount of grant or loan assistance "earned" by the student would be calculated. First, the percentage of grant or loan assistance provided under this title that has been earned by the student would be determined. That percentage would equal the percentage of the payment period completed as of the student's last date of attendance, if that date occurs before the completion of more than 60 percent of the payment period; after the 60% point in the payment period, a student would earn 100% of the title IV funds. After determining the percentage of title IV grant or loan assistance that has been earned by the student, that percentage would be applied to the total amount of title IV grant or loan assistance that was disbursed, or that could have been disbursed to the student for the payment period, as of his or her last date of attendance. As described in proposed new section 484B(a)(3) of the Act, if the student received less grant or loan assistance than the percentage earned, the difference would be disbursed to the student, under current regulations pertaining to late disbursements. If the student received more grant or loan assistance than the percentage earned, these excess funds would be required to be returned by the institution or the student, or both, in accordance with proposed new section 484B(c) of the Act, discussed below.

Proposed new section 484B(b) of the Act would contain the return of funds requirements relating to a first-time student, which would be defined as a student who had not previously attended at least one class at the institution, or had received a full refund for previous attendance at the institution. A student would continue to be considered a first-time student until he or she withdrew after attending at least one class at the institution, or completed the payment period. These requirements would apply in lieu of the calculation in proposed new section 484B(a), as well as any applicable refund policy of the institution, and are intended to provide a two-week "cooling-off" period for first-time students.

If a first-time student withdraws within the first two weeks of the payment period, the institution would be required to cancel all institutional charges to the student, other than an optional administrative fee of up to $100, as well as charges for meals provide by the institution to the student prior to his or her last date of attendance. The institution and the student would be required to return all funds received for institutional charges or other educational expenses for the payment period to the sources of these funds, other than the institution's administrative fee and meal charges, and up to $100 in title IV funds in excess of institutional charges that the student could retain as a partial offset against other costs of attendance (for example, the purchase of books and supplies that could not be returned).

Proposed new section 484B(c)(1) would require an institution to return excess funds (as calculated under proposed new section 484B(a)), up to the amount of institutional charges assessed the student. If the institution's applicable refund policy provides for a larger amount to be refunded than the excess title IV funds to be returned, the institution would be required to provide the difference to the student.

Proposed new section 484B(c)(2) of the Act would set out the student's responsibility to return, to their title IV sources, any excess funds remaining after the institution has returned the amount is required to return under proposed new section 484B(c)(1) of the Act.

Proposed new section 484B(c)(3) of the Act would specify the order of return of excess funds by an institution or the student, as the case may be, and would replace the order of return of refunds currently in section 485(a)(1)(F) of the Act. Under current law, a refund of unearned funds charged to a title IV recipient is to be returned in the following order: 1) the title IV loan programs (order specified by statute and regulation), 2) the title IV grant programs (order specified by statute), 3) any other title IV programs, 4) other Federal, State, private, institutional aid sources and 5) the student. Proposed section 484B(c)(2) of the Act would require institutions to return excess title IV funds to title IV programs in the following order: 1) unsubsidized FFELs; 2) subsidized FFELs; 3) PLUS Loans under the FFEL program; 4) unsubsidized Direct Loans; 5) subsidized Direct Loans; 6) PLUS Loans under the Direct Loan program; 7) Federal Perkins Loans; 8) Federal Supplemental Educational Opportunity Grants; 9) Federal Pell Grants; and 10) any other title IV program. The order of return of funds would no longer include funds from sources other than title IV.

Proposed new section 484B(d) of the Act would define "last date of attendance" for purposes of this provision as the date that the student last attended the institution for academic purposes, or participated in an academically related activity, as defined by the Secretary (current guidance on this issue includes examples of academically related activity such as taking an examination, or meeting with a faculty member), and would describe students' and institutions' responsibilities concerning the last date of attendance. Since the last date of attendance is critical to the determination of the percentage of the payment period that the student completed, as well as the calculation of the amount of grant or loan assistance that the student earned, the student, who is in the best position to know this date and who is the beneficiary of the grant and loan assistance, would be required to provide the institution that he or she attends written notification of his or her withdrawal, including his or her last date of attendance. If the student fails to provide this official, written notification to the institution, the student would not earn any grant or loan assistance, and all such assistance would be required to be returned by either the institution or the student, or both, in accordance with proposed new section 484B(c). However, if the institution has in place, and adheres to, a written policy for documenting attendance, and does document a last date of attendance for the student, a student who did not provide written notification of his or her withdrawal to the institution may still earn grant and loan assistance under this proposed new section. In addition, each participating institution would also be required, for each payment period, to identify each student who has withdrawn from the institution without providing written notification of his or her withdrawal, in order to determine if any title IV funds are required to be returned under proposed new section 484B of the Act.

Proposed new section 484B(e) would specify how, for purposes of the calculation of the amount of grant or loan assistance earned by a student under this provision, the "percentage of the payment period completed" would be determined. If a program is measured in credit hours, the percentage would be determined by dividing the total number of days comprising the payment period into the number of days completed in that period as of the student's last date of attendance. If a program is measured in clock hours, the percentage would be determined by dividing the total number of clock hours comprising the payment period into the number of clock hours completed by the student in that payment period as of the student's last date of attendance. If a program consists of distance learning, the percentage would be determined in accordance with regulations prescribed by the Secretary. Distance learning is an evolving means of delivering education, and until more is learned about this developing area of technology and its impact on the title IV programs, the Secretary needs a greater degree of flexibility in this area in order to ensure accountability.

Section 486(b)(1) of the bill would revise the consumer information requirements in section 485(a)(1)(F) of the Act to require an institution participating in title IV to disclose to prospective and enrolled students: 1) details of the refund policy of the institution, and any other refund policy with which the institution is required to comply; 2) the requirements for the return of title IV assistance if the student did not begin attendance at the institution; and 3) the requirements under proposed new section 484B of the Act for the return of title IV grant or loan assistance when a student ceases or does not begin attendance at an institution, including a specific statement informing the student of his or her rights as a first time student under proposed new section 484B(b) of the Act, as well as his or her responsibility to provide a written notification of withdrawal and a last date of attendance to the institution, and the consequences to the student of failing to do so. These changes would ensure that a student would be well informed about the manner in which the amount of title IV grant or loan funds to be returned is calculated, as well as any other applicable refund procedures, so that he or she will be better able to evaluate the consequences of withdrawing from school, and the consequences of enrolling and not providing a written notification of withdrawal and last date of attendance to the institution.

Finally, section 486(b)(2) of the bill would update a cross-reference in section 485(f)(1)(I) of the Act, in order to reflect the changes made in title I of the bill.

Section 487. Section 487 of the bill would amend section 485(a) of the Act to add reporting requirements for programs that are two academic years or less and provide training to prepare students for gainful employment in a recognized occupation. These new requirements would require that program completion rate, the percentage of students who completed the program and who obtain employment, the percentage of students who completed the program and who obtain employment in an occupation related to the program, and the earnings at placement of students who completed the program be made available to current and prospective students.

Section 488. Section 488 of the bill would amend section 485(b) of the Act to permit an eligible institution to provide the exit counseling required by that provision electronically, in accordance with any conditions on the use of electronic exit counseling that the Secretary may specify. This provision would permit institutions to take advantage of developing technology and create computer programs that would individualize exit counseling and allow students to receive counseling at their convenience. Institutions would continue to provide all required information to students, but would no longer be required to provide this information in person if the counseling is done electronically.

Section 489. Section 489 of the bill would amend section 487 of the Act to eliminate outdated references to State postsecondary review entities, to correct an erroneous cross-reference and to make some minor stylistic changes, and to conform the penalty provisions applicable to institutions with the penalty provisions in the FFEL program, as amended by section 434 of the bill. In addition, under proposed new section 487(c)(1)(A)(iii), the Secretary would specify in regulation the requirements for the submission of financial and compliance audits by a foreign institution. It is anticipated that at least some foreign institutions would be required to submit audits less frequently than annually, as is currently required for most participating institutions, because the vast majority of foreign institutions only minimally participate in the FFEL program (either the institutions only participate to the extent that attendance at the institution qualifies a FFEL borrower for an in-school deferment, or have very low loan volumes), and the Department has encountered substantial administrative difficulty in its effort to certify and monitor all foreign schools in the same manner as all other Title IV schools. Problems in certifying and monitoring foreign institutions include the myriad complications inherent in monitoring schools on foreign soil. The Department believes that the costs and resources needed to fully monitor these schools that have, over time, posed limited problems with respect to title IV compliance, can be better spent elsewhere.

Section 490. Section 490 of the bill would amend section 487A of the Act in three principal respects. First, the section would be retitled Alternative Programs for Management Improvement, and the two types of programs authorized by the section ­­the Quality Assurance Program and Experimental Sites ­­would be treated in separate subsections.

Second, section 487A(a) of the Act would be amended to expand the scope of the Quality Assurance Program, in order to permit participating institutions to develop and implement more comprehensive, individualized, management systems to enhance program integrity in their delivery of student financial aid. These systems could include, but would not be limited to, processing and disbursement of student financial aid, verification of student financial aid application data, and related student services. The Secretary would be authorized to exempt participating institutions from any title IV statutory or regulatory requirements that were addressed by the institution's comprehensive management system and to substitute such quality assurance requirements as the Secretary deemed necessary to ensure accountability and compliance with the purposes of the title IV programs.

Finally, section 487A(b) of the Act would be amended to expand the scope of the Secretary's authority to test the impact and effectiveness of proposed regulations or new management initiatives through the use of experimental sites. In addition to institutions of higher education that are participating in the title IV programs, guaranty agencies and lenders would also be permitted to participate as experimental sites under section 487A(b) as amended. The Secretary would be authorized to exempt participating institutions, guaranty agencies and lenders serving as experimental sites from any title IV statutory or regulatory requirements that would bias the results of these experiments in student aid administration.

Section 491. Section 491 of the bill would redesignate section 487B of the Act as section 487C of the Act, and insert a new section 487B. Proposed new section 487B of the Act would authorize the Secretary to implement by regulation a system of oversight of the title IV student financial aid programs, based on the performance of institutions in administering those programs and the financial strength of those institutions. As a part of that system, Secretary would be authorized to waive or modify any title IV statutory or regulatory requirements, that relate to an institution's administration of student financial aid programs. For example, the Secretary might reduce the frequency of audit submissions required from institutions that have very low student loan volumes. However, the Secretary could provide such a waiver or modification only upon a determination, based on the institution's performance in administering those programs and its financial strength, that the waiver or modification would pose no substantial threat to program integrity.

Section 492. Sections 492(1) and(4) of the bill would add a new subsection (e) to section 488A of the Act that would clarify that student financial assistance is not subject to garnishment or attachment in order to satisfy any debt other than a debt owed to the Secretary and arising under title IV of the Act. There have been numerous attempts by private creditors of students to attach or garnish student aid funds held by a school for a student. In the typical case, a creditor (such as a landlord or prior business creditor) sues an individual, who is now a student, and secures a judgment for a certain amount of money. The creditor discovers that the student has few assets or income except for title IV student aid, and then tries to get a court order allowing the attachment of the student IV aid to pay the debt. At that point, since any attachment or garnishment order would be directed to the school as the custodian of the student aid funds, the institution is drawn into the proceedings. It is often very burdensome for the institution to convince the State courts that hear these cases that the student aid funds are provided for the very limited purpose of paying the student's costs of attendance at the institution and that the attachment or garnishment of those funds for private debts is inconsistent with that purpose. This amendment would help ensure consistent, national treatment and ensure that student aid funds are used for their intended purpose.

Section 491(2) of the bill would amend section 488A(a)(5) of the Act to specify that an individual subject to administrative wage garnishment has an opportunity for a hearing, not only on the existence or amount of the debt, but also regarding whether the deduction of 10 percent of disposable pay would impose an undue hardship on the individual, and whether a lesser amount should be withheld. Under current law, the individual has the opportunity for a hearing concerning the "terms of the repayment schedule," an imprecise phrase. As amended, the provision would provide greater specificity regarding the individual's hearing rights.

Finally, section 491(3) of the bill would amend section 488A(b) to specify the instances in which an individual is entitle to judicial review of an administrative wage garnishment, and the standard of review that a judge would be required to use in such a review. Under current section 488A of the Act, guaranty agencies and the Secretary are authorized to carry out administrative wage garnishment to collect student loans. Under that section, borrowers are authorized to sue employers who discriminate against them in employment matters on the basis of such a garnishment, and guaranty agencies and the Secretary are authorized to sue employers who fail to honor a garnishment order. The statute currently provides for a pre­garnishment hearing opportunity, but contains no provision for judicial review by the borrower of either the decision issued by the hearing official or for the garnishment action in general.

Determinations by the Secretary are subject to judicial review in Federal courts, and decisions by State guaranty agencies are reviewable under State statutes that generally make decisions of State agencies reviewable. This amendment would make determinations by the Secretary, State guaranty agencies, and non­profit guaranty agencies all subject to judicial review, and all subject to the same standard of review as applies to court review of the Secretary's actions: whether the determination was arbitrary, capricious, an abuse of discretion, or contrary to law. All borrowers subject to this very forceful collection action should have the same opportunity for a judicial review of these actions, without regard to whether they happen to owe debts held by ED, by a State guaranty agency, or by a private guaranty agency.

Section 493. Section 493 of the bill would add a new section 489A to part G of title IV of the Act. Proposed new section 489A would authorize the Secretary to waive or modify the application of any title IV statutory or regulatory provision in two narrow circumstances that are very different from each other--distance learning programs and program modifications in response to natural disasters--but that both require a greater degree of Secretarial flexibility to address the unusual qualities of each situation. The Secretary could exercise this authority when necessary to address the unique characteristics of a program or course of distance learning (or other nontraditional method for providing education or training to students), including prescribing new regulatory requirements exclusively for these programs or courses, and to monitor effectively such programs or courses. Distance learning is an evolving means of delivering education, and until more is learned about this developing area of technology and its impact on the title IV programs, the Secretary needs to have as much flexibility as possible to ensure a good "fit" between the student aid programs and distance learning, and to ensure accountability in the field of distance learning.

In addition, the Secretary could exercise this authority, which would include the reallocation of program funds or the alteration of application deadlines or information requirements, as the Secretary determines necessary to address the unique circumstances of individuals who have suffered financial harm in an area declared by the President to be the site of a natural disaster, as well as to issue guidance regarding such adjustments in an expedited manner and without regard to the rulemaking requirements of section 437 of the General Education Provisions Act. This authority would eliminate the need to make adjustments in appropriations Acts to accommodate the student aid needs of individuals harmed in these unfortunate and all-too-frequent occurrences.

Section 494. Section 494 of the bill would add a new section 490A to the Act. Proposed new section 490A of the Act would provide the Secretary with the authority to issue administrative subpoenas in pursuing termination actions against institutions. While the Secretary currently has the authority to compel institutions to produce requested records incident to the investigative process, the need for subpoena power increases with investigative actions that require review of third-party records. The Secretary often needs information from other sources such as ability-to-benefit testers, state boards, and accrediting agencies. The request for this information is often denied without a subpoena. The Secretary has had only partial success in obtaining the assistance of Office of the Inspector General (OIG) and the use of its subpoena authority to support the Department's actions. A grant of subpoena power directly to the Secretary would strengthen the Department's ability to act independently of the OIG in termination cases. In addition, in instances where the Secretary is seeking the cooperation of officials from third-party agencies, as well as former employees of institutions, the issuance of an administrative subpoena would enhance the Department's ability to defend its position.

Investigative administrative subpoena authority is available to a wide range of agencies, including both those traditionally considered to be independent regulatory agencies, and those traditionally considered to be part of the executive branch. Administrative investigative subpoena power is available, for example, to the financial regulatory agencies (e.g., RTC, FDIC, NCUA), to the SEC, to regulators of pension benefits (e.g. DOL), to labor and employment regulators, including the EEOC, to safety inspectors (e.g. OSHA), and agricultural inspectors (Department of Agriculture), among others. The Department of Education needs similar authority in order to obtain the information necessary to ensure program integrity and properly defend its position in termination cases.

Finally, this amendment is not intended to alter the relationship of the authority of the Secretary of Education to the authority of the Secretary of the Treasury in HEA matters for which the Secretary of the Treasury has oversight responsibility (for example, in issues pertaining to the Student Loan Marketing Association) either alone or in conjunction with the Secretary of Education.

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Last updated: April 4, 2002 by [pss]

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