Shoptalk 535, January 12, 2010

Industry Update

Neg Reg update

As reported in Shoptalk editions 530 and 531, the fall 2009 Negotiated Rulemaking (Neg Reg) sessions are in full swing. For this round of Neg Reg, ED has established two committees, or "teams," to develop proposed regulations on a variety of issues. Team I is discussing issues relating to program integrity, while Team II is considering topics specific to foreign institutions.

Team I held its second meeting on December 7-11, 2009. As a reminder, this team is considering the following topics:

Definition of a high school diploma for the purpose of establishing institutional eligibility to participate in the Title IV programs, and student eligibility to receive Title IV aid
Ability to benefit
Misrepresentation of information to students and prospective students
Incentive compensation
State authorization as a component of institutional eligibility
Gainful employment in a recognized occupation
Definition of a credit hour
Agreements between institutions of higher education
Verification of information included on student aid applications
Satisfactory academic progress
Retaking coursework
Return of Title IV funds (R2T4) for term-based programs with modules or compressed courses
R2T4 and taking attendance
Disbursements of Title IV funds

The team has so far reached tentative agreement on the issue of retaking coursework, while the other topics remain under consideration. Discussion of several of these issues, such as defining acceptable high school diplomas, incentive compensation, and gainful employment in a recognized occupation, has proven to be challenging due to their complexity.

Definition of a high school diploma
Attainment of a high school diploma, or its recognized equivalent, is a key eligibility requirement for many students to receive Title IV program funds, and is also an admission requirement for "regular students" enrolled at schools participating in Title IV programs. To ensure that Title IV funds are provided only to qualified, eligible students, ED is proposing criteria and tracking processes for schools to use in determining if students have completed acceptable high school programs for this purpose. These measures may include defining high-level attributes of acceptable high school program completion, as well as researching unfamiliar high school credentials to verify if they are acceptable (eliminating issues with illegitimate schools, such as diploma mills). Current discussions revolve around identifying these attributes or criteria, and determining responsibilities and documentation processes for schools.

Incentive compensation
One component of an institution's Program Participation Agreement is a prohibition on providing any commission, bonus, or other incentive payment to any individual or entity engaged in recruiting or admission activities or in making decisions regarding the award of Title IV funds, when that payment is based directly or indirectly on success in securing enrollments or financial aid. The regulations implementing this provision of the HEA specify 12 types of payment and compensation plans that do not violate this statutory prohibition ("safe harbors"), as detailed in 34 CFR 668.14(b)(22)(ii).

One option under discussion is to eliminate the regulatory safe harbor provisions, and instead allow the regulations to simply mirror the language in HEA Section 487(a)(20). Another proposal would be to retain some safe harbor provisions in order to minimize confusion among institutions in attempting to comply with the HEA requirements. The team also suggested that ED develop definitions for unclear or ambiguous terms that appear in the HEA.

Gainful employment in a recognized occupation
Some postsecondary education or training programs qualify students to receive federal student aid by virtue of the fact that they "prepare students for gainful employment in a recognized occupation." Although accrediting agencies currently exercise considerable control over approval of such programs by evaluating curricula and student outcomes, the committee is considering various means by which a clearer link can be established between institutions' programs and occupations recognized by the U.S. Secretary of Labor. Regulations developed in this area would apply to undergraduate and graduate non-degree programs at public and private nonprofit institutions, as well as all programs (including degree programs) at for-profit institutions.

The intent of this proposal is to ensure that a student is prepared for gainful employment in a recognized occupation upon completion of a program of study.

Some of the topics on this team's agenda are under discussion as a result of comments ED received during the public hearings it held last summer. Two of these issues, verification and satisfactory academic progress, may be of particular interest to schools.

Verification of information included on student aid applications
The team is considering how the current verification regulations should be modified to align with recent statutory changes to the need analysis provisions and with operational improvements in the application processing system, such as the IRS data retrieval process (see Shoptalk edition 530). ED has proposed removing the specific reference to a 30 percent verification requirement, since it is based on a statutory provision that no longer exists, and attempting to more narrowly focus verification requirements on certain data elements for specific students. ED is not proposing to increase the number of students it selects for verification in exchange for the more targeted verification approach.

The negotiators are also discussing how to address changes that occur within an award year, subsequent to the student's completion of the FAFSA. ED has also proposed that all changes occurring as a result of verification of a student's application — with the exception of a student who is not eligible for need-based aid — be submitted to the Central Processing System (CPS), even if the changes do not affect the student's Pell grant eligibility.

Satisfactory academic progress (SAP)
Modifying and strengthening the SAP regulations, in order to better ensure that students who are receiving Title IV aid are progressing appropriately in their academic programs within a reasonable time period, is the intent of this agenda topic. One of the primary items under consideration is a change in the frequency with which an institution evaluates SAP, while still preserving institutional flexibility. Another issue being considered is the length of time a student not maintaining SAP may be permitted to continue to receive Title IV aid upon appeal. Finally, the team is discussing the development of clearer explanations of certain elements of the SAP process, such as "appeal," and "probationary period."

More information
Team I will hold its third session on January 25-29, 2010. At this final, scheduled meeting, the negotiators will attempt to achieve consensus on the issues and the proposed regulatory language. ED has developed a Team I Web page, available at www.ed.gov/policy/highered/reg/hearulemaking/2009/integrity.html, that includes the Team I list of negotiators, the committee's organizational protocols, and the issue summaries developed by ED (excerpts of which were provided above).

A similar page exists for the Team II committee at www.ed.gov/policy/highered/reg/hearulemaking/2009/foreign-schools.html. Team II is holding its second meeting on January 11-15, and its third meeting will occur on February 22-26.

To provide comments on the issues under consideration, please consult the list of negotiators provided on ED's Neg Reg Web page for the appropriate team.

Once the Neg Reg sessions have concluded, ED will publish proposed rules and provide an opportunity for public comment. Final rules will be published no later than November 1, 2010, and will be effective July 1, 2011.

Loan Purchase Programs update

On January 5, ED published Ensuring Continued Access to Student Loans Act (ECASLA) announcement #79, which announces a 0.71 percent participant yield rate for the quarter ending March 31, 2010. This rate should be used when calculating Participant (i.e., ED's) Yield on Participation Principal balances that have been funded by ED during the quarter of January 1, 2010, through March 31, 2010.

More information
The complete announcement and attachments are available on ED's ECASLA website at http://federalstudentaid.ed.gov/ffelp.

Reminder: Extenuating circumstances provisions for PLUS loans

The Ensuring Continued Access to Student Loans Act (ECASLA) created a specific expansion of the extenuating circumstances under which a lender may approve a PLUS loan, even if adverse credit is identified in the applicant's credit history for loans disbursed on or after July 1, 2008. This provision allows a lender to approve such a loan, provided the lender determines that during the period beginning on January 1, 2007, and ending on December 31, 2009, an applicant is or has been 180 days or less delinquent on mortgage loan payments on the applicant's primary residence or on medical bill payments for the applicant or the applicant's family, and has not or is not more than 89 days delinquent on the repayment of any other debt.

More information
Please see the Common Manual, Subsection 7.1.B for additional guidance.

Current special allowance rates: quarter ending December 30, 2009

The following rates apply for the quarter ending December 30, 2009:

For the quarter ending December 31, 2009, the average rate for three-month commercial paper (financial) was 0.21 percent. This rate is also used to compute the Participant Yield paid to the Department on loans subject to the loan participation purchase program. For loans where the special allowance payment is based on the bond equivalent rate of 91-day Treasury Bills, the average rate during the quarter ending December 31, 2009, for 91-day Treasury Bills was 0.07 percent.

The FFELP special allowance rates for the most recent quarter are available at www.tgslc.org/policy.

Questions
For questions about special allowance rates, contact your TG lender consultant at (800) 252-9743.