NAICU Washington Update

Final Program Integrity Regulations Published: Many Changes Ahead

December 22, 2010

"Credit hour" defined by federal government; state authorization role strengthened; incentive compensation regulations stripped of safe harbors; new reporting and disclosures required for certificate courses

On October 29, 2010, the Department of Education issued most of its final regulations to curb fraud and abuse in the student aid programs (see NAICU Alert).  The regulations are lengthy, complex, and controversial. The formula for gainful employment, which is the most contentious of all the rules, will not be issued until early in 2011 and won't be implemented until July 1, 2012. (The reporting, disclosures, and new programs requirements were provided in October.)

The regulations cover 14 issues, and come after a year-long process that included several months of field hearings, a failed negotiated rule-making process, and two sets of draft regulations published on June 18, 2010, and July 29, 2010. The proposed rules generated more than 90,000 comments, including those by NAICU and the traditional higher education community. This was the largest number of comments ever received by the Department of Education, although all but about 1,000 comments were not substantive and had been generated through a grassroots opposition campaign by for-profit colleges.

The most controversial regulations for NAICU member institutions are the regulations that establish a federal definition of credit hour and new regulations on state authorization. Regarding the credit hour definition, NAICU is concerned that it puts the federal government squarely and inappropriately in the middle of an academic decision-making process, and limits our ability to respond to new models of higher education.

With respect to state authorization, NAICU is concerned that states could use these new requirements as an excuse to set up new oversight functions of private, not-for-profit colleges that go well beyond the grant of authority to operate as postsecondary institutions - which is the sole requirement in the law. Although we urged in our comment letter that each of these regulations be struck, both remain in somewhat modified form.

In addition to these two issues, other issues of significance are: gainful employment, incentive compensation, and misrepresentation. Also noteworthy, because of its short timeline, is the need to have a process in place for validating the authenticity of suspicious high school diplomas for students applying for admission for the 2011-12 academic year. 

Most of the regulations issued in the first round (with some exceptions on state authorization and FAFSA verification) are effective as of July 1, 2011, and none may be implemented earlier than that date.

Here is a summary of the final regulations on program integrity, except for the second half of the gainful employment regulations which have not yet been issued:

Gainful Employment:  All institutions must report information on programs meeting the definition of a gainful employment program, which includes all certificate programs at non-profit colleges for which students use Title IV aid.

Please ensure that you have inventoried which programs at your institution will qualify. The information includes -

  • identification of students enrolled and those completing a program, as well as the Classification of Instructional Program (CIP) code(s) of the programs;
  • the debt from private and institutional loans of program completers and whether those students went on to higher credentialed programs;
  • and the name, CIP code, and identifying information of program students in all gainful employment programs at an institution.

The institution also must disclose to prospective students - 

  • the occupations the program prepares students for (and a link to O*NET),
  • on-time graduation rates, job placement rates, tuition and fee charges,
  • access to information on room and board and other living expenses,
  • and the median loan debt incurred by program completers.

To prevent institutions from trying to "protect" failing programs by merely changing the program names, institutions must give notice when introducing a new program. If the Department of Education has concerns, institutions will be asked to formally apply for approval.

The Department will be issuing the second half of the final "gainful employment" regulations in early 2011. These will specify the acceptable thresholds for repayment and debt to income ratios, as well as the penalties for not reaching them. This information is part of what the Department will consider in assessing whether a program meets the gainful employment standards that will be issued in further detail in early 2011.

In general, those anticipated regulations will establish that a prescribed percentage of each program's students are in repayment of their loans (at least $1.00 towards principal in a year) within two years of graduation.  The program's students also must meet specified student loan debt to income ratios. The personal income data will be drawn from the IRS.

Federal Definition of Credit Hour:  There has never been a federal definition of credit hour in either law or regulation. The regulations establish such a definition as meaning "an amount of work represented in intended learning outcomes and verified by evidence of student achievement" that is determined by an institution to be equivalent to either a Carnegie unit or an equivalent amount of work over time.

Accreditation reviews are the primary means by which the Department intends to assure compliance, and regulatory language regarding such reviews is strengthened accordingly. In addition, the regulations attempt to ensure that students taking short-term courses measured in credit hours are not receiving more student aid than is proportionate to the actual course time requirement.

State Authorization: The Higher Education Act requires every institution of higher education to be authorized by a state as a condition of eligibility for federal student aid. However, until now, the Department has never issued detailed regulations regarding such authorization.

The regulations require that an institution be "established by name" by a state as a postsecondary educational institution. Institutions may be exempted from state regulation under certain circumstances. An institution offering distance education to students in another state must meet that state's requirements for offering postsecondary distance or correspondence education, and be able to document that it does so.

Finally, each state must have a process to review and appropriately act on complaints about an institution. Each institution must disclose to students and prospective students information about procedures for filing complaints with an accreditor, a state approval or licensing agency, and any other appropriate state agency.

Incentive Compensation:  The regulations no longer contain "safe harbors" for incentive compensation (i.e., paying recruiters on the basis of students enrolled or receiving financial aid). The revised regulations extend to the highest levels of an institution. The regulations do allow for "click-through" payments for on-line recruiting, and the Department is currently assessing whether arrangements know as "revenue sharing" are acceptable, or constitute incentive compensation. The department should be providing additional guidance on this in the near future.

Misrepresentation:  In response to complaints, the Department has strengthened existing misrepresentation regulations in order to take action against institutions engaging in deceptive advertising, marketing, and sales practices. The Department has added new areas that can be subject to misrepresentation, and has added to the list of those to whom misrepresentations can be made - formerly just students and their families.

Validating High School Diplomas:  Institutions must develop and follow a process by which they can determine the validity of secondary school credentials whose legitimacy is called into question by the institution or the Secretary. The process, which must be operational for admissions in for the 2011-12 academic year, is a back-up to an automatic screening process using high school data provided on the FAFSA.

Written Agreements:  In a program-offering agreement between for-profit institutions, the institution awarding a degree must provide at least 50 percent of the instructional program. All institutions providing joint or consortial instruction must provide disclosures to their students regarding various aspects of the arrangement. Non-profits are not limited by the first provision, but must provide information about the arrangement to their students.

FAFSA Verification:  The department has restructured its approach to the verification of information provided on FAFSAs, in order to reduce the burden on students and institutions, and to take advantage of IRS data. These provisions will not be implemented until July 1, 2012.

Satisfactory Academic Progress:  Institutions must have a policy in place to ensure that students are making satisfactory academic progress. Students' progress must be assessed at least once a year.

Repeated Course Work:  Certain repeated courses may be included in calculating a student's eligibility for Title IV financial aid.

Student Eligibility Through Course Work:  The regulations expand eligibility for Title IV to students who demonstrate that they have the ability to benefit from a postsecondary education based on satisfactorily completing six credits of college work, or the equivalent amounts of course work, that are applicable toward a degree or certificate offered by an institution.

Ability to Benefit Tests:  The Department extensively revised the process for approving ability-to-benefit testing (ATB) materials, and specifies how the tests are to be administered - including tests for non-English speakers and persons with disabilities.

Return of Title IV Funds:  Federal financial aid must be returned when students drop out of a program. Determining the date a student withdraws is sometimes difficult, especially in nonstandard or modular course work. The regulations clarify this, and also specify the circumstances under which an institution is required to take attendance for the purpose of calculating a return of federal funds.

Disbursement Deadline:  Some students, particularly at low-cost schools, do not receive student aid funds in time to obtain their books before classes start. The regulations ensure that Pell Grant recipients can acquire books and supplies by the seventh day of their payment periods.

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