Honorable Howard P. "Buck" McKeon
House of Representatives
Washington, DC 20515

Dear Representative McKeon:

Thank you for your June 3, 2002, letter regarding the Department's determination of financial responsibility for postsecondary institutions participating in the Federal student aid programs authorized by Title IV of the Higher Education Act of 1965, as amended.

We take seriously our obligation to ensure that each postsecondary institution participating in the Federal student aid programs provides the services to students that it describes in its official publications and statements, allocates the necessary administrative resources to ensure proper administration of the student aid programs, and satisfies all of its financial obligations.

In determining an institution's financial responsibility, the Department calculates a primary reserve ratio. This ratio is a measure of an institution's expendable resources and is one indicator of its overall financial health. We are aware that some institutions believe that the current guidance does not properly account for long-term debts that might not be associated with prior expenditures on plant, property and equipment. Consequently, we are reviewing the policy guidance contained in Dear Colleague Letter GEN-01-02 with respect to calculating the primary reserve ratio.

The Department's ongoing management improvement effort is focused on adopting and enhancing management controls that will help us effectively monitor our programs. We are also reviewing our policies--and making changes as necessary--to ensure that all of our programs achieve their intended results while protecting the taxpayers' interests. We will hold our program participants and other grantees accountable for results; we will not tolerate waste, fraud and abuse in any of our programs.

Thank you for your interest in this topic. I will inform you of the results of our review.

Sincerely,

/s/

Rod Paige