[Federal Register Volume 87, Number 208 (Friday, October 28, 2022)]
[Rules and Regulations]
[Pages 65426-65498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23078]
[[Page 65425]]
Vol. 87
Friday,
No. 208
October 28, 2022
Part III
Department of Education
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34 CFR Parts 600, 668, and 690
Pell Grants for Prison Education Programs; Determining the Amount of
Federal Education Assistance Funds Received by Institutions of Higher
Education (90/10); Change in Ownership and Change in Control; Final
Rule
Federal Register / Vol. 87, No. 208 / Friday, October 28, 2022 /
Rules and Regulations
[[Page 65426]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 600, 668, and 690
[Docket ID ED-2022-OPE-0062]
RIN 1840-AD54, 1840-AD55, 1840-AD66, 1840-AD69
Pell Grants for Prison Education Programs; Determining the Amount
of Federal Education Assistance Funds Received by Institutions of
Higher Education (90/10); Change in Ownership and Change in Control
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends regulations for the Federal Pell Grant
program (Pell Grants or Pell), institutional eligibility, and student
assistance general provisions. First, we amend the regulations for
Federal Pell Grants for prison education programs (PEPs), to implement
new statutory requirements to establish Pell Grant eligibility for a
confined or incarcerated individual enrolled in a PEP to implement the
statutory change in the Consolidated Appropriations Act, 2021. Second,
we amend the Title IV Revenue and Non-Federal Education Assistance
Funds regulations (referred to as ``90/10'' or the ``90/10 Rule'') to
implement the statutory change in the American Rescue Plan Act of 2021
(ARP). We further amend which non-Federal funds can be counted when
determining compliance with the 90/10 rule to align allowable non-
Federal revenue more closely with statutory intent. Finally, we amend
regulations to clarify the process for consideration of changes in
ownership and control (CIO), to promote compliance with the Higher
Education Act of 1965, as amended (HEA), and related regulations and
reduce risk for students and taxpayers, as well as institutions
contemplating or undergoing such a change.
DATES:
Effective date: The regulations are effective July 1, 2023.
Applicability date: The 90/10 regulations will apply to
institutional fiscal years beginning on or after January 1, 2023,
consistent with the effective date of the statutory changes to the 90/
10 calculation.
FOR FURTHER INFORMATION CONTACT: For PEPs: Aaron Washington. Telephone:
(202) 987-0911. Email: [email protected]. For 90/10: Ashley
Clark. Telephone: (202) 453-7977. Email: [email protected]. For
Change in Ownership: Brian Schelling. Telephone: (202) 453-5966. Email:
[email protected]. You may also email your questions to
[email protected].
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of this Regulatory Action
These final regulations address three areas: Pell Grants for PEPs,
the 90/10 rule, and institutional changes in ownership. The PEP final
regulations, on which the Affordability and Student Loans Committee
reached consensus, implement statutory changes that extend Pell Grant
eligibility to confined or incarcerated individuals who enroll in
qualifying PEPs. The 90/10 final regulations, on which the
Institutional and Programmatic Eligibility Committee (Committee)
reached consensus, implement statutory changes that require proprietary
institutions to obtain at least 10 percent of their revenue from
sources other than Federal education assistance funds and more closely
align allowable non-Federal revenue with statutory intent. Finally, the
changes to the current CIO regulations provide a clearer and more
defined process for institutions undergoing changes in ownership and
control.
Prison Education Programs
The PEP regulations provide to the Department and stakeholders,
including students, correctional agencies and institutions,
postsecondary institutions, accrediting agencies, and related
organizations, a detailed and clear framework for how to implement the
new section 484(t) of the HEA, which takes effect on July 1, 2023. The
Department amended the regulations in Sec. Sec. 600.2, 600.7, 600.10,
600.21, 668.8, 668.32, 668.43, and 690.62, and added part 668, subpart
P. Section 484(t) of the HEA sets forth PEP requirements that include:
(1) a prohibition on PEPs offered by proprietary institutions; (2)
definitions of a ``confined or incarcerated individual'' and a ``prison
education program;'' (3) the program approval process by the Bureau of
Prisons, State department of corrections, or other entity that is
responsible for overseeing the correctional facility (which we refer to
throughout these final regulations as the oversight entity); (4) a
credit transfer requirement for PEPs; (5) a prohibition against program
offerings by institutions that are subject to adverse actions by the
Department, their accrediting agency, or the relevant State authorizing
agency; (6) requirements that PEPs offer educational programming that
satisfies professional licensure or certification, as applicable; (7)
student enrollment restrictions for programs where ultimate licensure
or employment would be prohibited; (8) the requirement that confined or
incarcerated individuals be enrolled in an eligible PEP in order to
access a Pell Grant; and (9) various Department reporting requirements
for postsecondary institutions offering PEPs.
The final regulations clarify and implement these statutory
requirements by setting clear standards for postsecondary institutions
offering PEPs and outlining the requirements to develop and implement
such programs to gain and maintain access to Pell Grant funds. The
final regulations also ensure that institutions report necessary data
to the Department to assist in assessing program outcomes, also
consistent with statutory requirements under section 484(t)(5) of the
HEA for an annual report by the Secretary regarding the impact of the
new requirements. The final rule establishes important guardrails for
confined or incarcerated individuals and taxpayers, to protect students
from enrolling in programs that will not permit them to benefit by
finding employment in the field after graduation and release, and to
prevent taxpayer funds from financing such programs. It also outlines
title IV program requirements for PEPs related to State authorizing
agencies and accrediting agencies.
Section 484(t)(1)(B)(iii) of the HEA requires an oversight entity,
defined in the final regulations as a State department of corrections
or other entity responsible for overseeing correctional facilities or
the Federal Bureau of Prisons, to determine that any PEP it approved is
``operating in the best interest'' of the confined or incarcerated
individuals it supervises. Congress outlined indicators of ``best
interest''--both inputs and outcomes--which are explained below.
Because oversight entities may not have previously assessed some of the
``best interest'' indicators outlined in statute, such as student
earnings and job placement post-release, the final regulations clarify
how to implement this requirement. To facilitate a thorough and well-
informed program assessment, these final regulations require oversight
entities to seek input from relevant stakeholders in making the ``best
interest'' determination.
90/10 Rule
The final 90/10 regulations amend Sec. 668.28 to change how
proprietary institutions calculate and report to the Department the
percentage of their revenue that comes from Federal sources, in
accordance with section
[[Page 65427]]
487(a) of the HEA. Section 487(a) establishes the requirement that
proprietary institutions derive not less than 10 percent of their
revenue from non-Federal sources. Section 487(d) of the HEA: (1)
defines how proprietary institutions calculate the percentage of their
revenue that is derived from non-Federal sources; (2) outlines
sanctions for proprietary institutions that fail to meet the
requirement in section 487(a); (3) requires the Secretary to publicly
disclose on the College Navigator website proprietary institutions that
fail to meet the requirement; and (4) requires that the Secretary
submit a report to Congress that contains the Federal and non-Federal
revenue amounts and percentages for each proprietary institution.
The ARP amended these sections to require proprietary institutions
to include other sources of Federal revenue, in addition to title IV
revenue from the Department, in the calculation that proprietary
institutions make to determine if they comply with the 90/10 rule.
These final regulations codify this statutory change and inform
proprietary institutions how to determine which Federal funds they must
include in their calculations.
Additionally, the final regulations amend how proprietary
institutions calculate 90/10 to address practices that some proprietary
institutions have used to alter their revenue calculation or inflate
their non-Federal revenue percentage. The final regulations also create
a new requirement for when proprietary institutions must request and
disburse title IV student aid funds to prevent them from delaying
disbursements to the next fiscal year. The final regulations will also
more closely align allowable non-Federal revenue with statutory intent
by clarifying: (1) allowable non-Federal revenue generated from
programs and activities that can count for the purposes of 90/10; (2)
how schools must apply Federal funds to student accounts and determine
the funds' inclusion in the Federal revenue percentage of 90/10; (3)
which revenue generated from institutional aid can count as non-Federal
revenue for purposes of 90/10; and (4) funds that institutions must
exclude from the 90/10 calculation.
The final regulations also modify the steps that proprietary
institutions must take if they fail to derive at least 10 percent of
their revenue from allowable non-Federal sources by requiring them to
notify students of the failure and of the students' potential loss of
title IV aid at that proprietary institution. Additionally, the final
regulations establish the process that proprietary institutions must
follow if they initially determine that they met the 90/10 requirement
for the preceding fiscal year but subsequently determine that they did
not. Lastly, the final regulations provide that a proprietary
institution will be liable for repaying all title IV funds disbursed
for the fiscal year after it becomes ineligible to participate in the
title IV program due to failing 90/10.
Changes in Ownership
To address the risks that some changes in ownership of
postsecondary institutions present to students and taxpayers and to
address the growing complexity of those transactions, the Department,
under the authority of section 498(i) of the HEA, amends regulations
covering changes in ownership in Sec. Sec. 600.2, 600.4, 600.20,
600.21, and 600.31. These changes modify the definitions of
``additional location,'' ``branch campus,'' ``main campus,'' and
``nonprofit institution,'' as well as the terms ``closely-held
corporation,'' ``ownership or ownership interest,'' ``parent,''
``person,'' and ``other entities'' in the context of changes in
ownership that result in a change in control, where the individual or
entity with control has the power to direct the management or policies
of the institution.
Under the final regulations, we require institutions to provide a
minimum 90-day notice to the Department when they are to undergo a
change in control. The Department may apply conditions to the new
Temporary Provisional Program Participation Agreement (TPPPA) after the
change and until we issue a decision on the pending application for
approval of the change. The final regulations also increase
transparency for changes in ownership that do not constitute a change
of control by increasing the reporting requirements to the Department
on such transactions at lower percentages of ownership.
Summary of the Major Provisions of This Regulatory Action
The final regulations make the following changes.
Update appropriate cross-references.
Prison Education Programs (PEPs) (Sec. Sec. 600.2, 600.7, 600.10,
600.21, 668.8, 668.32, 668.43, 668.234 through 668.242, and 690.62).
Extend access to Pell Grants for confined or incarcerated
individuals in qualifying postsecondary education programs and define
an eligible PEP based on the statutory requirements.
Clarify that only public or private nonprofit institutions
as defined in Sec. 600.4, or vocational institutions as defined in
Sec. 600.6, may offer eligible PEPs and require that PEPs offered at a
correctional institution be reported to the Department as an
``additional location.''
Amend requirements for postsecondary institutions to
obtain and maintain a waiver from the Secretary to allow students who
are confined or incarcerated to exceed 25 percent of the institution's
regular student enrollment.
For a PEP designed to meet educational requirements for a
specific professional license or certification, require disclosures to
students of typical State or Federal prohibitions on the licensure or
employment of formerly incarcerated individuals.
Prohibit institutions from enrolling a confined or
incarcerated individual in a PEP that is designed to lead to licensure
or employment in a specific job or occupation where State or Federal
law would prohibit that individual from licensure or employment based
on the type of the criminal conviction for which the student has been
confined or incarcerated.
Define the process and the factors that the oversight
entity will use to determine if a PEP is operating in the best interest
of the confined or incarcerated individuals they supervise, including
consulting with interested third parties and conducting periodic re-
evaluations.
Define the requirements for approval from the Secretary
and the Institutions of Higher Education's (``IHE's'') accrediting
agency for the first PEP at the institution's first two additional
locations at prison facilities.
Require a postsecondary institution to obtain and report
to the Department the release or transfer date of all confined or
incarcerated individuals who participated in its PEP.
Outline the process for winding down eligible programs for
confined or incarcerated individuals that are not operating at a
Federal or State correctional facility and are not approved as eligible
PEPs, prior to July 1, 2023.
Outline the process a postsecondary institution must
follow to reduce a Pell Grant award that exceeds the confined or
incarcerated individual's cost of attendance. Title IV Revenue and Non-
Federal Education Assistance Funds (90/10 Rule) (Sec. 668.28)
Amend the revenue calculation methodology in the 90/10
rule by changing references to ``title IV revenue'' to ``Federal
revenue'' where appropriate to align with the statutory amendment that
changes the 90/10
[[Page 65428]]
revenue requirement to include all Federal revenue.
Outline how the Department will publish, and update as
necessary, which Federal funds it requires proprietary institutions to
include in their 90/10 calculation.
Create a new requirement for when proprietary institutions
must request and disburse title IV, HEA program funds to prevent them
from delaying disbursements to reduce their Federal revenue percentage
for a fiscal year in order to meet the 90/10 revenue requirement.
Clarify the allowable revenue generated from programs and
activities that can be counted as non-Federal revenue for purposes of
the 90/10 revenue requirement to provide additional consumer
protections.
Revise how proprietary institutions apply funds to student
accounts and determine the funds' inclusion in the 90/10 revenue
requirement calculation to incorporate statutory changes, clarify how
grants from non-Federal public agencies that include Federal funds must
be treated, and add additional consumer protection measures.
Revise the provisions governing which revenue generated
from institutional aid can be included in the 90/10 revenue calculation
to remove paragraphs that are no longer applicable, codify existing
practices in regulation, promote consumer protection measures, and
close potential loopholes related to Income Share Agreements (ISAs) or
other alternative financing agreements issued by the institution or a
related party.
Revise the provisions governing which funds must be
excluded from a proprietary institution's calculation of its revenue
percentage to remove regulations that no longer apply and to limit
certain types of revenues that some proprietary institutions have
employed to alter their revenue calculation.
Revise the steps that a proprietary institution must take
to better protect students and taxpayers if it does not generate 10
percent or more of its revenue from allowable non-Federal sources in a
fiscal year. The regulations provide reporting procedures for
proprietary institutions that become aware, based on information
received after the initial 45-day reporting period, that they failed
the revenue requirement for the previous fiscal year.
Changes in Ownership (CIO) (Sec. Sec. 600.2, 600.4, 600.20, 600.21,
and 600.31)
Clarify the definitions of ``additional location,''
``branch campus,'' ``main campus,'' and ``nonprofit institution;'' and
for nonprofit institution, we describe institutional characteristics
that do not generally meet the definition of a ``nonprofit
institution.''
Require that institutions provide the Department with 90
days' notice of an impending change in ownership, ensure that
accreditation and State licensure are in effect as of the day before
the proposed change, and codify practices on submission of financial
statements and provision of financial protection.
Explain the terms by which a TPPPA may be extended to
institutions seeking a change in ownership.
Clarify what constitutes a change in ownership and, more
narrowly, a change in control, distinguishing between natural persons
and entities in Sec. 600.21 and the conditions under which they
constitute a change of control.
Add ``trust'' to the definition of ``person'' and refine
the definitions of the terms ``ownership or ownership interest,''
``parent,'' and ``other entities,'' as applied to changes in
ownership.''
Add to the list of covered transactions the acquisition of
another institution and clarify the application of the regulations in
cases of resignation or death of an owner.
Costs and Benefits: As further detailed in the Regulatory Impact
Analysis, the final regulations have significant impacts on students,
borrowers, educational institutions, taxpayers, and the Department.
The PEP regulations benefit incarcerated individuals, taxpayers,
and communities by creating higher employment and earnings, and lower
recidivism rates, for those who enroll in higher education programs in
prison, as described in the Regulatory Impact Analysis. Institutions
that offer programs in correctional facilities and do not currently
receive Pell Grants may bear some or all costs of that programming.
Institutions that do not currently receive Pell funds for these
programs benefit from these changes. Pell Grant transfers to
institutions and students are estimated to increase by $1.1 billion
from these programs. These transfers are overwhelmingly the result of
the statutory changes made by Congress to make incarcerated students
eligible for Pell Grants again. There are increased costs for the
Department due to various requirements in the final regulations
including, but not limited to: data collection and dissemination,
approval of PEPs, and required reporting to Congress and the public.
There are increased costs to the oversight entity due to the required
``best interest determination'' defined in Sec. 668.241. There are no
direct costs to students. Completing the Free Application for Federal
Student Aid (FAFSA[supreg]) is free (though there is some minimal
burden associated with completing the form) and grants under the Pell
Grant program do not need to be repaid. To qualify for a Pell Grant,
the student must be charged tuition and the charges cannot be covered
by another source. Generally, students do not pay anything to
participate in these programs. However, there could be occasions where
a student only qualifies for a partial Pell Grant and owes a balance to
the postsecondary institution.
Under the final 90/10 regulations, military-connected students will
benefit as proprietary institutions' incentive to aggressively recruit
GI Bill and Department of Defense (DOD) Tuition Assistance recipients
is greatly reduced because Federal assistance for those students will
be treated the same as title IV funds in the 90/10 revenue calculation.
The Department is aware that some proprietary institutions have sought
to enroll additional Department of Veterans Affairs (VA) or DOD
recipients because their dollars provide a larger cushion in their 90/
10 calculation to pursue more title IV, HEA funds, sometimes to the
detriment of those veterans and service members. The regulatory changes
remove that incentive by counting all Federal education assistance
funds on the 90 side of the 90/10 calculation. These changes produce
some savings to the taxpayer in the form of reduced expenditures of
title IV, HEA aid to institutions that are not able to adapt and lose
title IV eligibility. As indicated in the Regulatory Impact Analysis,
we estimate transfers are reduced by -$292 million from the changes to
the 90/10 provisions. These reduced transfers are mostly a result of
the statutory changes made by Congress to amend the 90/10 provision. In
as much as only repayment of principal on institutional loans and ISAs
may be counted as revenue, the regulatory changes may further decrease
proprietary institutions' incentive to rely on such potentially costly
student financing options to meet 90/10 requirements. Costs to
institutions include the need to ensure compliance with the
regulations. For example, institutions unable to generate sufficient
non-Federal revenues through their eligible programs may create
programs that are not title IV eligible to generate revenue to meet 90/
10 requirements.
The changes to the CIO regulations benefit institutions and the
Department by clarifying requirements as well as providing timely
feedback for institutions undergoing CIO
[[Page 65429]]
transactions. Students and borrowers benefit from the 90-day CIO notice
requirement that provides students with timely information that impacts
their education and enables them to make future decisions based on that
knowledge. Costs to institutions include compliance and the paperwork
burden associated with the increased reporting and disclosure
requirements.
On July 28, 2022, the Secretary published a notice of proposed
rulemaking (NPRM) for these parts in the Federal Register (87 FR
45432). These final regulations contain changes from the NPRM, which we
explain in the Analysis of Comments and Changes section of this
document.
Public Comment: In response to our invitation in the NPRM, 142
parties submitted comments on the proposed regulations.
We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
technical or other minor changes or recommendations that are out of the
scope of this regulatory action or that would require statutory
changes.
Analysis of Public Comment and Changes: Analysis of the comments
and of any changes in the regulations since publication of the NPRM
follows.
General Comments Regarding the Negotiated Rulemaking Process
Selection of Negotiators and Negotiated Rulemaking Process
Comments: A few commenters wrote that there should have been other
negotiators to represent other interests or sectors, including ISAs,
proprietary institutions, and veterans. A few commenters stated that
the Committee members were not sufficiently familiar with the issues
involved in 90/10. One commenter questioned why the Department selected
a Committee member whose employer was under investigation by the
Department of Veterans Affairs (VA) Office of Inspector General. One
commenter claimed that the Department did not provide adequate time for
Committee negotiators to consider the Department's proposed language.
Finally, one commenter stated that because 90/10 negotiations happened
in caucus that the consensus language does not meet the statutory
requirement that negotiations provide for a comprehensive discussion
and exchange of information.
Discussion: Section 492 of the HEA provides that the Secretary
``select individuals with demonstrated expertise or experience in the
relevant subjects under negotiation, reflecting the diversity in the
industry, presenting both large and small participants, as well as
individuals servicing local areas and national markets.'' The
Department identified the relevant subjects to be negotiated and
invited the public to nominate negotiators and advisors. The Department
reviewed the qualifications of nominees and made selections for
Committee members. Further, during the first negotiation session,
negotiators had the opportunity to suggest additional Committee members
by consensus. The Committee added one additional Committee member
representing civil rights organizations through this process. We have
used this process for many years and believe it meets the statutory
requirements for selecting negotiators. Further, none of the commenters
identified nominated individuals who should have been selected but were
not.
On October 4, 2021, the Department published a Federal Register
document announcing public hearings on 90/10 (86 FR 54666). We held
those hearings October 26-27, 2021. The Department also accepted
written public comments from October 4, 2021, through November 2, 2021.
We then held three weeks of virtual negotiated rulemaking sessions on
January 18-21, 2022, February 14-18, 2022, and March 14-18, 2022, that
we livestreamed.
The Committee adopted by consensus a set of protocols that allowed
any Committee member, including the Federal negotiator, to call for a
caucus with other Committee members. The protocols also stated that the
Department would provide its proposed language prior to the start of
the week's negotiation sessions, which the Department did with its
initial proposed 90/10 language. During the last week of negotiations,
the Federal negotiator and the negotiator representing proprietary
institutions called for caucuses to discuss possible 90/10 regulatory
language with a small group of negotiators during the final session.
The Federal negotiator presented this language to the full Committee
for discussion and review before taking the consensus check. This
process met the statutory requirements and provided ample time for
discussion of the regulations.
Changes: None.
Public Comment Period
Comments: A few commenters asked the Department to extend the
public comment period an additional 30 days. These commenters pointed
out that there were several large regulatory packages that impact the
higher education sector out for public comments at once, and the
commenters also observed that Executive Orders 12866 and 13563 cite 60
days as the recommended length for public comment. One commenter asked
the Department why the Department's proposed regulations related to
Title IX received more time for public comment than these regulations.
Discussion: As discussed previously, the Department's negotiated
rulemaking process provides ample time for public comment and
engagement before the public comment period. Additionally, the proposed
regulations for 90/10 were the same as the regulations agreed to by
consensus in March 2021, providing the public with additional time to
review the Department's proposed regulations. Further, the regulations
related to Title IX are not subject to the negotiated rulemaking
process, and therefore the public did not have the same opportunity to
weigh in on the regulations before they were published for public
comment. The Executive orders provide a recommendation for an
appropriate time for public comment, but that timeline is not a
requirement, nor does it take into account the Department's individual
process for regulating under the HEA. The Department declines to extend
the comment period for an additional 30 days.
Changes: None.
Prison Education Program (PEP) (Sec. Sec. 600.2, 600.7, 600.10,
600.21, 668.43, 668.234 through 668.242, and 690.62)
General Support
Comments: Several commenters submitted general letters of support
by noting that the regulations will benefit both taxpayers and
incarcerated individuals and may ultimately lead to lower recidivism
rates, which could lead to a smaller prison population.
Discussion: We thank the commenters for their support.
Changes: None.
General Opposition
Comments: Many commenters stated that the regulations will be
bureaucratic, burdensome, and costly and that the additional proposed
regulatory requirements go beyond the statutory framework.
Discussion: The Department disagrees with these comments and
believes the regulations strike an appropriate balance between imposing
requirements that will increase access to incarcerated individuals,
improving the quality of PEPs, and limit administrative burden to
schools, correctional agencies, and other stakeholders.
We also disagree that the regulations exceed the scope of the
statutory
[[Page 65430]]
authority for PEPs. The Department has the authority to expand on and
clarify statutory text, and we believe that the requirements in the
final regulations are a logical outgrowth of the HEA. For example, the
main concern from commenters was the prescriptive nature of the best
interest determination and the accompanying requirement to assess PEP
outcomes under Sec. 668.241. While the HEA requires the oversight
entity to determine if a PEP is operating in the best interest of the
confined or incarcerated individual, it does not prescribe how often
and when that process should be undertaken. The regulations supply that
necessary clarification.
The statute also requires the oversight entity to approve PEPs, but
we heard from non-Federal negotiators and from commenters that the
oversight entities may not be equipped to make these determinations
because they are not education experts. By identifying what factors to
consider, who to consult, and how often to revisit the determinations,
we created a formal process with clear measurements that will be
consistent across all oversight entities.
We also believe that the oversight entity should continue to
reassess PEPs operating in a correctional facility because a PEP will
not always be operating in the best interest of its population. For
example, changes over time in program offerings, instructors, academic
counseling, transfer of credits, or labor market trends might impact a
PEP, such that it no longer operates in the best interest of the
confined or incarcerated individuals. We believe that mandatory
periodic assessment will ensure that PEPs serve the programmatic and
financial purposes for which they were authorized. We have set
reasonable standards, with extensive public input, to ensure that the
process is not overly burdensome to the oversight entity.
Commenters also raised concerns about the initial two-year approval
period, accreditation requirements, and reporting requirements. We
respond to those comments and other commenter concerns in the
individual sections devoted to those topics below.
Changes: See the discussion under Best Interest Determination
(Sec. 668.241) for changes the Department has made in the final
regulations.
General Comments
Comments: One commenter requested that the Department require
standardization of access to technology for confined or incarcerated
individuals across the United States and within States.
Discussion: The Department does not have the authority to require
postsecondary institutions or correctional facilities to standardize
technology across all spaces. Further, technology requirements will
vary between PEPs, and a one-size-fits-all approach could inhibit the
flexibility of institutions to offer appropriate forms of technology in
their PEPs.
Changes: None.
Comments: One commenter stated that the Department should extend
Pell Grant eligibility to individuals who have been released from a
correctional facility. That commenter also recommended that the
Department increase the amount of the Pell Grant.
Discussion: Under existing law, individuals released from a
correctional facility will qualify for Pell Grant funds if they
otherwise continue to meet all applicable eligibility requirements and
enroll in eligible postsecondary programs.
The Department does not have the authority to adjust the maximum
Pell Grant award because that amount is established annually through
Congressional appropriations.
Changes: None.
Comments: One commenter stated that all Pell Grant funding received
by a confined or incarcerated individual must go directly to support
the individual's education and should not be used to support the
postsecondary institution's main campus or other non-PEP locations.
Discussion: The Department lacks the authority to adopt the
commenter's suggestion. The Department maintains authority over the use
of Pell Grant funds only to the extent that the grants are
appropriately calculated, awarded, and disbursed to students. As long
as the institution follows all applicable laws and Department
regulations, once Pell Grant funds have been correctly disbursed, the
Department does not control institutional budgets or how institutions
use funds that have been correctly applied to institutional charges.
Changes: None.
Comments: One commenter noted that the subcommittee that discussed
these regulations during negotiated rulemaking should have included
greater representation from oversight entities (which are defined in
Sec. 668.235). The commenter requested that in the future any issue
that does not fit well with the regulatory agenda should have its own
negotiated rulemaking instead of discussing the topic in a
subcommittee.
Discussion: We believe the subcommittee had appropriate
representation from oversight entities. The eight-member subcommittee
included representatives from both State departments of corrections and
State correctional education directors, and the representative from
State departments of corrections was added during negotiated rulemaking
specifically to ensure additional representation in that area.
Moreover, the Department has successfully used subcommittees during
several prior rulemakings to gain additional critical feedback from
specialists with experience related to the issues to be discussed. Use
of a subcommittee during the Affordability and Student Loans Committee
Meetings was appropriate and valuable because the eight subcommittee
members provided substantial background on the topic of postsecondary
education in carceral settings to the main committee, offered numerous
recommendations that were adopted by the main committee, and ultimately
expressed their support for the draft regulations to the main committee
at the conclusion of the negotiations, all of which enabled the main
committee to reach consensus on the proposed regulatory language. Three
members of the subcommittee also had a seat on the main committee,
including representatives for independent students, private nonprofit
institutions, and State departments of corrections. An additional
member of the subcommittee presented information to the main committee
and was available during the November and December sessions to answer
questions.
Changes: None.
Comments: Many commenters requested that the Department provide
guidance to ensure smooth implementation of the regulations, including
guidance or additional actions the Department should take on the
following topics:
The Second Chance Pell experiment under the Experimental
Sites Initiative.
How to apply for PEP, step-by-step.
Overcoming barriers to completing the FAFSA[supreg] and
verification of application information.
Supporting students with delinquent or defaulted Federal
student loans.
Automatically enrolling confined or incarcerated
individuals with Federal loan debt into income-driven repayment plans.
Cancelling Federal student loans if the borrower is
incarcerated for a minimum of five years.
Supporting individuals post-release in collaboration with
the Office of Career, Technical, and Adult Education.
The grievance or complaint process for confined or
incarcerated individuals.
[[Page 65431]]
Protecting confined or incarcerated individuals who do not
meet Satisfactory Academic Progress (SAP) standards for confined or
incarcerated individuals.
Monitoring issues related to lack of access to technology
and accessing coursework online.
Dependency overrides for confined or incarcerated
individuals.
Return of Title IV funds (R2T4) calculations for confined
or incarcerated individuals.
The conditions for Pell restoration in the event of
closure of an institution.
Releasing and making public an annual listing of PEPs by
correctional facility and State.
Developing an interagency communications process between
the oversight entity, accrediting or State approval agency, and the
Department.
Establishing that correctional facilities that are
additional locations need not be included in Clery Act campus
reporting.
The roles and responsibilities of accrediting and State
approval agencies, especially regarding accreditation requirements in
Sec. 668.237.
The timelines for reporting requirements under Sec.
668.239.
The best interest determination under Sec. 668.241(a),
including data sources or infrastructure that are available to
stakeholders.
The role of the advisory committee.
The role of community-based organizations.
Discussion: The Department appreciates the recommendations for
additional guidance and actions the Department should take to support
confined or incarcerated individuals and address other implementation
issues that may arise. The Department plans to publish guidance
addressing many of the topics identified by commenters. The Department
is also currently developing a dedicated landing page for PEP resources
about prison education programs, and we have also created a central
mailbox, [email protected], for ongoing PEP questions from stakeholders.
Changes: None.
Definitions (Sec. 600.2)
General Comments
Comments: One commenter requested definitions and clarification of
several phrases in the preamble to the NPRM, including ``greater
oversight'' and ``high program standards.'' The commenter also asked
what metrics we will use to ascertain whether a PEP is providing
confined or incarcerated individuals with education that meets high
program standards, and how frequently and through what mechanism we
will evaluate and report on such high program standards.
Discussion: The Department elects not to provide definitions of
these terms or to outline these operational processes in regulation.
Instead, the Department will consider providing guidance to
postsecondary institutions, accrediting and State approval agencies,
and oversight entities, as appropriate.
Changes: None.
Additional Location
Comments: Several commenters requested that the Department remove
juvenile justice facilities and jails from the definition of
``additional location'' and exempt programs offered at such facilities
from statutory and regulatory PEP requirements. They argued that the
``scale'' and cost associated with the regulations will harm small
programs.
Discussion: The Department declines to remove juvenile justice
facilities and local jails from the ``additional location'' definition.
The statute does not provide an exemption or waiver for such programs.
To qualify for Pell Grant funds, the statute requires that all confined
or incarcerated individuals be enrolled in an eligible PEP that adheres
to statutory requirements. These regulations reinforce statutory
protections for the benefit of all confined or incarcerated individuals
by ensuring that PEPs also comply with requirements of the Department,
the State authorizing agency, the accrediting agency or the State
approval agency, and oversight entities.
Including juvenile justice facilities and jails as additional
locations also allows the Department to track and monitor PEPs offered
at these facilities and include them in data collection, trending, and
reporting. This will help us better understand if certain PEPs need
more oversight or supports, or both.
Finally, as noted in the NPRM, if an institution ceases all
operations at a correctional facility (the additional location of the
postsecondary institution) the confined or incarcerated individual may
be eligible for Pell Grant restoration. 87 FR 45441. Without the
inclusion of these facilities in the definition of an additional
location, confined or incarcerated individuals may not be eligible for
restoration of their Pell Grant if all PEPs at the correctional
facility close.
Changes: None.
Comments: One commenter noted that some of their institution's
programs operating in a prison setting are extensions of their existing
academic programs and are not distinct programs operating at a
correctional facility. The commenter asked if these types of programs
would need to be reported as additional locations.
Discussion: Even if the program the postsecondary institution plans
to offer at the correctional facility is an extension of a program
offered either at the main campus or at another additional location,
the program still must meet the definition of and be approved as a PEP.
In addition, the correctional facility where that program is offered
must be reported as an additional location.
Changes: None.
Comments: One commenter requested that correctional facilities only
offering correspondence courses be removed from the definition of
``additional location,'' because the postsecondary institution would be
unable to consistently review the facility or gain access to locations
where the confined or incarcerated individuals complete their
coursework.
Discussion: The Department declines to adopt the commenter's
request. We seek to hold all programs accountable to the standards
outlined in these final regulations, regardless of the method of
delivery. With the monitoring and oversight required under these
regulations, the Department will be able to track and monitor PEPs
offered at these facilities and include them in data collection,
trending, and reporting. This will help us to better understand if
certain PEPs need more oversight and supports.
The Department also noted in the NPRM that if an institution ceases
all operations at a correctional facility (the additional location of
the postsecondary institution), enrolled students may be eligible for
Pell Grant restoration. 87 FR 45441. Without the inclusion of
facilities where only correspondence courses are offered, confined or
incarcerated individuals may not be eligible for restoration of their
Pell Grant in the event all PEPs at the correctional facility close.
Changes: None.
Confined or Incarcerated Individual
Comments: The same commenters that requested removal of juvenile
justice facilities and jails from the definition of ``additional
location'' also requested removal of these facilities from the
definition of ``confined or incarcerated individual.'' They argued that
the ``scale'' of the regulations and cost associated with the
regulations would harm small programs.
Discussion: The Department declines to make this change, for the
reasons
[[Page 65432]]
described in the ``additional location'' discussion above.
Changes: None.
Comments: Several commenters suggested additions to the types of
individuals who are not considered to be confined or incarcerated,
including individuals in pretrial detention, individuals under
correctional custody in temporary release programs, or individuals
living in a halfway house.
Discussion: To be eligible for a Pell Grant, those meeting the
definition of a ``confined or incarcerated individual'' must enroll in
a PEP. Section 484(t)(1)(a)(i) of the HEA defines a ``confined or
incarcerated individual'' as ``an individual who is serving a criminal
sentence[.]'' An individual who is not serving a criminal sentence thus
is not considered to be confined or incarcerated for the purposes of
the PEP provision and would not be required to enroll in a PEP to
establish eligibility for Pell Grant funds. The Department also notes
that, under section 484 of the HEA, individuals living in a halfway
house are not considered to be incarcerated and therefore would qualify
for Pell Grant eligibility through enrollment in any eligible program,
whether or not it is a PEP. While the Department did not amend the
definition of ``confined or incarcerated individual,'' we plan to
release guidance as necessary to assist postsecondary institutions with
questions that may arise regarding student eligibility.
Changes: None.
Conditions of Institutional Eligibility (Sec. 600.7)
Comments: One commenter asserted that the waiver of the enrollment
cap for incarcerated individuals under Sec. 600.7(c) is overly narrow
because the commenter believed it would only apply to a subset of PEPs
that had already received an initial waiver. The commenter also
believed that some of the considerations listed in Sec. 600.7 may not
be appropriate when determining whether to grant a waiver.
Discussion: The commenter appears to have misunderstood the
application of Sec. 600.7, which applies to any institution seeking a
waiver to exceed the 25 percent enrollment cap on incarcerated
individuals. As provided in the regulations, an institution that does
not already have a waiver must wait at least two years from the date of
its first approved PEP before applying for a waiver. We thank the
commenter for making the Department aware of implementation
considerations and note that we accepted a proposed revision from a
different commenter below that will make the waiver language clearer.
While we do not anticipate a large number of applications that will
exceed the 25 percent cap on enrollment of confined or incarcerated
individuals, the Department intends to provide guidance for
institutions that wish to exceed the 25 percent cap, as necessary. We
also do not anticipate a large number of applications will exceed the
25 percent cap. The Department plans to provide direct one-on-one
assistance to postsecondary institutions that wish to apply for the
waiver to assist with regulatory compliance.
Changes: None.
Comments: One commenter asked whether non-profit institutions that
exclusively provide educational services to students who are
incarcerated will be required to apply for a waiver.
Discussion: The only automatic exemption in Sec. 600.7(c) is for
public institutions chartered for the explicit purpose of educating
confined or incarcerated individuals. The Department declines to
include private non-profit institutions in this automatic exemption.
Public institutions are likely to be backed by the full faith of a
State government, and there are stronger centralized administrative
processes and support systems in place. We believe that these State
processes will ensure that a postsecondary institution that is
chartered for the purpose of exclusively providing educational services
to confined or incarcerated individuals will receive a thorough review
by an entity within the State government and be found capable of
fulfilling the needs of confined or incarcerated individuals. Private
non-profit institutions would thus have to apply for the waiver.
Changes: None.
Comments: One commenter noted that the draft language in Sec.
600.7(c) refers to two 5-year waiver periods allowing expansion first
to 50 percent and then to 75 percent incarcerated student enrollment,
but that it is unclear what happens after the second five-year period
has elapsed, specifically whether the Department would automatically
extend the waiver if there was no reason to limit or terminate it.
Discussion: The Department will not automatically extend the
waiver. At the end of the five-year period following the Department's
initial approval of the waiver, if the Department has not otherwise
informed the institution that it is revoking the institution's waiver,
up to 75 percent of the institution's regular enrolled students may be
confined or incarcerated individuals. However, at each recertification,
defined under Sec. 668.13, the Department will review whether the
postsecondary institution is eligible to maintain its waiver. We
believe that monitoring an institution's administrative capability and
financial health at recertification is important because the
administrative capability and financial responsibility of an
institution can fluctuate. Failures in either of those areas could call
into question whether the institution is best situated to maintain its
waiver or have it revoked. Additionally, the Department's
recertification evaluation provides an opportunity to evaluate whether
the oversight entity has determined whether the program continues to be
offered in the best interest of students and whether the program
continues to meet all of the Department's requirements for PEPs. We
have the authority to review for compliance as a normal part of
operational considerations and decline to include additional regulatory
language to this effect.
The Department agrees, however, that certain language in proposed
Sec. 600.7(c)(4)(i)(B) is unclear regarding the extent of available
waivers. That provision allows up to 75 percent of an institution's
students to be confined or incarcerated ``for the five years''
following the period described in Sec. 600(c)(4)(i)(A) (which allows
enrollment up to 50 percent). Because the regulations are intended to
cap institutions at 75 percent enrollment of confined or incarcerated
individuals, the cited five-year clause is unnecessary.
Changes: To clarify that enrollment of incarcerated individuals at
postsecondary institutions will be capped at 75 percent enrollment, the
Department amends Sec. 600.7(c)(4)(i)(B) to clarify that, following
the period described in paragraph (c)(4)(i)(A), no more than 75 percent
of the institution's regular enrolled students may be confined or
incarcerated.
Comments: One commenter questioned the rationale for the 75 percent
enrollment cap given that the Department has the authority to limit or
terminate the waiver at any point if it determines the institution does
not meet the waiver requirements.
Discussion: Section 102 of the HEA says that an institution of
higher education is not an eligible institution for the purposes of the
title IV aid if the institution has a student enrollment in which more
than 25 percent of the students are incarcerated, except that the
Secretary may waive the limitation for a public or nonprofit
institution that provides a two- or four-year program of instruction
(or both) for which the institution awards a bachelor's degree, or an
associate's degree or a
[[Page 65433]]
postsecondary diploma, respectively. Because it is optional for the
Secretary to waive the limitation, the Department has authority to set
reasonable upward limits through regulation. A subcommittee member
recommended the 75 percent limit on enrollment of confined or
incarcerated individuals, and the Department formally adopted the
recommendation, which was agreed to by the committee. The Department
believes that the upper limit strikes an appropriate balance between
increasing options to serve this population and the heightened demands
and responsibilities of operating successful PEPs. Public postsecondary
institutions that are specifically chartered for educating confined or
incarcerated individuals are exempt from the 75 percent cap on
enrollment.
Some postsecondary institutions currently have a waiver to exceed
25 percent enrollment of confined or incarcerated individuals.
Institutions that received a waiver prior to the implementation date of
these regulations are currently permitted to enroll up to 100 percent
of confined or incarcerated individuals and are automatically granted a
waiver. However, we will limit the growth of incarcerated enrollment at
those institutions to ensure consistent program quality and adequate
oversight. Beginning on the implementation date of July 1, 2023,
enrollment of incarcerated individuals in any such institution will be
limited to 50 percent in the first five years after the regulations
take effect, and the cap will be raised to 75 percent if the
institution is granted an additional waiver after the initial five-year
period.
Changes: None.
Comments: One commenter asked whether the entire postsecondary
institution becomes ineligible for the title IV, HEA programs, or if
only the PEP would lose eligibility if the Secretary limits or
terminates an institution's waiver of the limitation on the percentage
of regular students who may be confined or incarcerated.
Discussion: Under Sec. 600.7(c)(6), the entire postsecondary
institution becomes ineligible at the end of the award period that
begins after the Secretary's action, unless the institution comes back
into compliance or reduces its enrollment of confined or incarcerated
individuals to no more than 25 percent of its regular enrolled
students.
Changes: None.
Comments: One commenter asked the Department to restructure Sec.
600.7(c) to separate the waiver from the waiver denial.
Discussion: The Department agrees with the recommended edit and
believes the change will improve the clarity of the regulations.
Changes: Paragraph (c)(1) will now be split into paragraphs
separately addressing waiver grant and waiver denial.
Commenter: One commenter asked the Department to define
``demonstrated program success'' and explain what is meant by ``expand
the number of incarcerated students.''
Discussion: The Department intends to provide details of the waiver
application process, such as information about program success and
expanding the number of an institution's confined or incarcerated
students, in subregulatory guidance.
Changes: None.
Comments: One commenter asked how the Secretary will utilize the
required reviews, assessments and reporting by the accrediting agencies
and the oversight entity to approve, deny, or delay the waiver request
and increase.
Discussion: The accrediting agency and oversight entity must
provide approval at various points the throughout the process. We note
here and under the preamble discussion for Sec. 668.237 that the PEP
is not eligible if either the oversight entity or the accrediting or
State approval agency denies approval. The PEP must meet all regulatory
requirements to be an eligible PEP. The Department plans to release
more subregulatory guidance to postsecondary institutions wishing to
apply for a waiver and to institutions that already have the waiver.
Changes: None.
Comments: One commenter asked for clarification concerning the
Secretary's revocation and reduction of the waiver under paragraph
(c)(6)(i).
Discussion: If the institution demonstrates to the Secretary that
it met all the requirements under paragraph (c)(1) prior to the end of
the award year that begins after the Secretary's action to limit or
terminate the waiver, then the institution may keep the waiver and need
not reapply or reduce its confined or incarcerated student enrollment.
Changes: None.
Date, Extent, Duration, and Consequence of Eligibility (Sec. 600.10)
Comments: One commenter noted that there should be an ``and'' at
the end of Sec. 600.10(c)(1)(iii).
Discussion: The commenter is correct.
Changes: We have added an ``and'' to the end of Sec.
600.10(c)(1)(iii).
Comments: One commenter stated that the Department should remove
Sec. 600.10(c)(1)(iv), which requires Department approval for the
first eligible PEP offered at an institution's first two additional
locations, because it is too burdensome given other requirements.
Discussion: The Department disagrees that the requirements under
Sec. 600.10(c)(1)(iv) are excessively burdensome to institution. We
also believe that the requirements outlined in the final rule,
including securing all necessary program approvals, will benefit
confined or incarcerated individuals, by ensuring that PEPs serve their
best interests and avoiding needless exhaustion of their Pell Grant
eligibility. The requirements will benefit postsecondary institutions
and oversight entities by providing a clear regulatory framework.
Finally, the rules will benefit the taxpayer by ensuring that Pell
Grant funds are directed to postsecondary institutions that are
compliant.
Changes: None.
Student Eligibility General (Sec. 668.32)
Comment: Multiple commenters stated that the Department must
consider in these regulations ways to prevent postsecondary
institutions and oversight entities from applying additional
eligibility restrictions that are unrelated to academic qualifications.
Commenters suggested the regulations should stipulate that PEPs cannot
bar people based on nature or length of their sentence, for example.
Alternatively, the commenters suggested that, at a minimum, the
Department must require postsecondary institutions and oversight
entities to disclose to accreditors, the Department, and confined or
incarcerated individuals any additional eligibility restrictions they
intend to put in place, including but not limited to restrictions based
on sentence, release date, convictions, and facility-based disciplinary
infractions.
Discussion: The Department declines to add additional disclosures
as requested for a few reasons. First, we do not have the authority to
regulate an institution's admissions requirements. Additionally, the
Department also does not have the authority to mandate how the
oversight entity manages its internal operations, including
restrictions on enrollment in postsecondary programs. If a confined or
incarcerated individual is eligible for Pell Grant, meaning the
individual has met all student eligibility requirements under the HEA
and the regulations, and the individual has been accepted into a PEP,
that individual cannot be denied the Pell Grant for which they are
eligible. Furthermore, there is no statutory or regulatory
[[Page 65434]]
provision that would prohibit a postsecondary institution from
enrolling or admitting a confined or incarcerated individual into a PEP
due to nature or length or the individual's sentence. For example, an
institution could choose to admit a student that is likely to be
released within a year even if the student's program is two years in
length.
Changes: None.
Comments: One commenter asked the Department to clarify that
confined or incarcerated individuals enrolled in PEPs through
correspondence are eligible for a Pell Grant.
Discussion: A confined or incarcerated individual who is enrolled
in a correspondence course as defined in Sec. 600.2 is eligible for a
Pell Grant, as long as the standards for student, program, and
institutional eligibility are met. It is important to note, however,
that if an institution offers correspondence courses to a student that
is confined or incarcerated at a correctional facility and the student
can complete at least 50 percent of the program through such
correspondence courses, the institution must add that facility as an
additional location.
Changes: None.
Institutional Information (Sec. 668.43)
Comments: One commenter disagreed that postsecondary institutions
should be responsible for providing information regarding whether an
occupation typically involves State or Federal prohibitions on the
licensure or employment of formerly confined or incarcerated
individuals. The commenter asserted that responsibility for making and
reporting this determination lies with the State correctional agency.
The commenter stated that providing such information would be costly
and time consuming because of the diversity of convictions and changes
in State law.
Discussion: The Department disagrees with the commenter. The
postsecondary institution is the entity offering the educational
programming and, as such, needs to be aware of licensing and employment
conditions in the field. Therefore, it is best situated to ascertain
State or Federal prohibitions on licensure or employment. Moreover, if
a postsecondary institution chooses to offer a PEP in a State, it
already must comply with Sec. 668.236(a)(7) and (8), which require the
program to satisfy certain educational requirements for professional
licensure or certification, and thus the additional requirements in
Sec. 668.43 are not significant.
The Department notes that postsecondary institutions are not
required to be aware of State or Federal prohibitions on licensure or
employment in States where they do not offer a PEP, unless the
postsecondary institution offers it in a Federal correctional facility.
For a Federal correctional facility, the institution is only required
to be aware of any prohibitions in the State where most confined or
incarcerated individuals will reside post release. See discussion of
Sec. 668.236.
Changes: None.
Comments: A few commenters requested that the Department require
postsecondary institutions to disclose the use of any third-party
vendors involved in the development, management, maintenance, and
provision of programs, as well as involvement in marketing,
recruitment, and enrollment management of programs, regardless of the
way in which the vendor classifies or identifies its services to
clients or the public.
Discussion: Postsecondary institutions are subject to all
applicable requirements under Sec. 668.25, which pertain to contracts
between an institution and a third-party servicer. Also, the Department
plans to establish procedures for eligible PEP applications. Therefore,
we decline to add specific regulations for PEPs. If the Department
needs more information about third-party vendors, we have authority
under Sec. 668.239(a) to require the submission of reports.
Changes: None.
Comments: One commenter requested clarification on the word
``other'' in Sec. 668.43(a)(5)(vi). The commenter stated that neither
paragraph (a)(5)(vi) nor the preceding paragraph (a)(5)(v) refers to a
specific State or group of States that would be distinguished from the
``other'' States referred to in paragraph (a)(5)(vi).
Discussion: The ``other'' States referenced toward the end of Sec.
668.43(a)(5)(vi) are those not already identified earlier in the
sentence through Sec. 668.236(a)(7) and (8). Section 668.236(a)(7) and
(8), respectively, require a PEP to meet any applicable educational
requirements for professional licensure or certification, and not offer
education that is designed to lead to licensure or employment for a
specific occupation if there are prohibitions on licensure or
employment, ``in the State where the correctional facility is located,
or, in the case of a Federal correctional facility, in the State where
most of the individuals confined or incarcerated in such a facility
will reside upon release[.]'' The ``other'' State reference in Sec.
668.43(a)(5)(vi) refers to any other State that falls outside those
states identified in Sec. 668.236(a)(7) and (8).
Changes: None.
Comments: A few commenters stated that the Department should
provide institutions with a central location where they can access
information about licensure restrictions in a particular State or
disclose information about licensure restrictions and update that
information annually.
Discussion: State licensure restrictions will likely continue to
change and there is no language in the HEA or regulations that requires
institutions or other organizations to report licensure restrictions to
the Department. Therefore, at this time we decline to create a central
location to access such information. The Department endeavors to
provide up-to-date resources and technical assistance to postsecondary
institutions, but it is incumbent upon postsecondary institutions,
prior to and while offering a PEP, to remain current with State and
Federal licensure restrictions and ensure they are correctly
implementing the requirements in Sec. 668.236(a)(7) and (8).
Additionally, institutions can avail themselves of resources
provided by other organizations. For example, the National Reentry
Resource Center maintains a National Inventory of Collateral
Consequences of Conviction at https://niccc.nationalreentryresourcecenter.org that may be useful to
institutions and students.
Changes: None.
Comments: One commenter indicated that the Department should expand
its requirement that postsecondary institutions provide information
about PEPs that typically involve State or Federal prohibitions on the
licensure or employment of formerly incarcerated individuals, to
require similar information from all educational programs designed or
advertised as leading to a required license for employment in a State.
The commenter acknowledged that the request may not be a logical
outgrowth of the PEP regulations.
Discussion: The Department agrees that this requirement would not
be a logical outgrowth of regulations focused on PEPs and, therefore,
declines to make the requested change.
Changes: None.
Definitions (Sec. 668.235)
Comments: One commenter requested that the Department eliminate the
definitions of ``feedback process'' and the ``advisory committee'' due
to the complexity and cost.
[[Page 65435]]
Discussion: Because the definitions of ``feedback process'' and
``advisory committee'' are tied to many concepts throughout subpart P,
including the best interest determination in Sec. 668.241, we decline
to remove these definitions.
Changes: None.
Comments: A few commenters suggested that the Department define PEP
and proposed this definition: ``an education or training program that
meets the definitions in Sec. 668.236. The [PEP] is created
exclusively for incarcerated individuals as defined in Sec. 600.2 who
are eligible for and will be awarded a Federal Pell Grant to pay for
the program's cost of attendance, as defined in 20 U.S. Code Sec.
1087.''
Discussion: We decline to make this change because Sec. 668.236
defines a PEP and believe that adding an additional definition would be
redundant. We agree with the commenter, however, that a PEP is distinct
from an institution's other eligible programs, and that the definition
of ``confined or incarcerated individual'' under Sec. 600.2 only
allows a PEP to be offered at locations that are classified as Federal,
State, or local penitentiaries, prisons, jails, reformatories, work
farms, juvenile justice facilities, or other similar correctional
institutions.
Changes: None.
Relevant Stakeholder
Comments: Several commenters requested that the Department add
various stakeholders to the definition, including community colleges,
boards, commissions, associations, and departments at the State level
that oversee, coordinate, or otherwise represent community colleges,
employers, workforce development boards, industry associations and
community-based organizations; community-based organizations that
provide reentry services; employers who have demonstrated a commitment
to hiring justice-involved individuals; and current and former confined
or incarcerated individuals.
Discussion: We do not believe it is necessary to add additional
members to the relevant stakeholder definition. We are not convinced
that an oversight entity could feasibly gather information from all of
the new groups that commenters proposed in a reasonable timeframe. This
could create administrative burden that could limit the implementation
of PEPs. We note that the Department's definition permits the oversight
entity to include additional stakeholders as appropriate.
Changes: None.
Oversight Entity
Comments: Several commenters suggested removing the Bureau of
Prisons and State departments of corrections from the definition of
``oversight entity'' or expanding the definition to include other
members.
Discussion: Section 484(t)(1)(B)(ii) of the HEA confers authority
on ``the appropriate State department of corrections or other entity
that is responsible for overseeing correctional facilities, or by the
Bureau of Prisons'' to approve PEPs at any correctional facility it
oversees. The Department proposed using the term ``oversight entity''
as a short-hand reference for that statutory list. The Department does
not have the authority to amend the list. While the statute allows for
some flexibility by including ``or other entity that is responsible''
for oversight, it will be within the purview of the Bureau of Prisons,
State departments of corrections, and the correctional facilities
themselves to determine if a different entity also has the requisite
level of control.
Changes: None.
Feedback Process
Comments: One commenter stated that the advisory committee
mentioned in the definition of feedback process should be mandatory.
Discussion: The Department believes that relevant stakeholder input
through the feedback process is sufficient. Requiring an advisory
committee could also be too burdensome for some oversight entity
systems. Additionally, the Federal Bureau of Prisons would likely need
to follow the Federal Advisory Committee Act if it convened an advisory
committee, which would significantly limit the development of PEPs.
Changes: None.
Comments: One commenter asked the Department to include examples of
input that the relevant stakeholders can provide to the oversight
entity to assist with PEP operation, including information on reentry
services, services offered by a community-based organization that are
available to confined or incarcerated individuals, and information on
in-demand industries or occupations with career opportunities available
to formerly incarcerated individuals.
Discussion: The Department believes that these are all excellent
examples of input that the relevant stakeholders can provide to the
oversight entity. We decline to prescribe these in regulation, however.
Changes: None.
Eligible Prison Education Program (Sec. 668.236)
Comments: One commenter suggested that the Department require all
PEPs to partner with a community-based organization offering reentry
services and counseling.
Discussion: As a part of the application process for the first PEP
at the first two additional locations, the Department requests
information about reentry services, see Sec. 668.238(b)(5), and the
Department strongly encourages institutions to offer reentry services
to students enrolled in PEPs. However, the Department declines to
require reentry services as a part of every PEP. Because the statute
does not require reentry services and we are prohibited from regulating
on educational program offerings, we believe that requiring each
program to maintain such services is beyond our authority.
We also note that oversight entities are required to consider
whether a PEP's academic services, including in advance of reentry, are
comparable to similar services that the institution offers to its on-
campus students. We believe that this consideration will provide
institutions with an incentive to create strong reentry services for
students enrolled in their PEPs.
Changes: None.
Comments: One commenter was opposed to excluding proprietary
institutions from offering PEPs under Sec. 668.236(a)(1).
Discussion: The HEA specifically excludes proprietary institutions
from offering PEPs. See HEA, section 484(t)(1)(B)(i) (limiting PEP
offerings to institutions of higher education as defined in sections
101 or 102(a)(1)(B) of the HEA, which do not include proprietary
institutions).
Changes: None.
Comments: Several commenters questioned whether every PEP would get
a two-year initial approval, who gives the two-year initial approval,
what the accrediting or State approval agencies must do for the initial
approval process, on what basis the oversight entity should make the
two-year initial approval, and finally, how the term ``initial'' is
defined in different contexts in the regulations.
Discussion: Every PEP must be approved by the oversight entity,
which will permit initial operation of the program for up to two years.
Every PEP is eligible to be considered for initial approval by the
oversight entity for two years. The oversight entity has sole authority
to provide the two-year initial approval. Initial approval may be
granted without making a best interest
[[Page 65436]]
determination. Specifically, to allow flexibility and time to build the
PEP, there are no specific requirements for the initial approval, and
the oversight entity can use whatever information it has available.
After two years, the oversight entity must assess all PEPs using the
requirements in Sec. 668.241(a). The accrediting or State approval
agency must follow the requirements under Sec. 668.237. The Department
intends to provide guidance to further explain the regulatory text, as
necessary.
Changes: None.
Comments: One commenter asked what happens if a PEP is not approved
after the initial two-year period.
Discussion: If a PEP is not determined to be operating in the best
interest of confined or incarcerated individuals, the PEP would lose
eligibility. The Department will provide additional information on the
process for the loss of eligibility in future guidance, as necessary.
Changes: None.
Comments: One commenter suggested that the Department reduce the
two-year initial approval period to one year because, in the
commenter's opinion, two years is too long to remove a failing program.
Discussion: The Department declines to make this change, because we
believe that one year is not sufficient time to make reasonable
determinations about whether a program is operating in the best
interests of students. If an oversight entity has concerns about the
quality of a program in the initial two-year period, it has the
authority at any time to revoke approval of a PEP to operate in a
facility that it oversees, even after the oversight entity has approved
the program. Additionally, the Department has the authority under part
668, subpart G, to terminate the eligibility of a program that it has
determined does not meet our PEP regulatory requirements.
Changes: None.
Comments: Multiple commenters offered that the initial two-year
approval period under Sec. 668.236(a)(3) is too short. The commenters
claimed that such a short period will disincentivize institutions from
offering slow-growing or small programs and that the initial two-year
period is not based in evidence or research.
Discussion: The Department noted in the proposed rule that the two-
year timeframe would ensure confined or incarcerated individuals
receive the protections of the best interest framework in a timely
manner, while recognizing the need for some time to gather the
necessary information to meet the statutory requirement for a data-
informed decision by the oversight entity. Two years is sufficiently
long enough to assess outcomes for shorter programs and will ensure
accountability for poorly performing programs.
During negotiations, in response to similar concerns, the
Department amended its proposed language in Sec. 668.241 to make the
assessment of certain ``best interest'' indicators--namely program
outcomes--permissive instead of mandatory. This change will relieve
institutions of conducting outcome assessments at the two-year point
where no data may yet be available, while retaining an assessment of
program inputs to ensure the foundation for the program remains strong.
Finally, we note that a two-year assessment timeframe is used
elsewhere in the title IV, HEA regulations to establish continuity of
operations and experience at new institutions. In Sec. 600.6(a)(5),
for example, to establish institutional eligibility, a postsecondary
vocational institution must be in existence for at least two years.
Changes: None.
Comments: Multiple commenters requested that the Department add
language to Sec. 668.236(a)(4) either requiring or encouraging
transferability of credits to more than one institution in the State in
which the correctional facility is located.
Discussion: The Department declines to make this change, because
section 484(t)(1)(B)(iv) of the HEA states that credits from a PEP must
transfer to ``at least 1 institution of higher education[.]'' A
postsecondary institution, the oversight entity, or the accrediting or
State approval agency could set higher standards. The Department
strongly encourages institutions to ensure that credits earned by
students in PEPs are transferable to more than one other eligible
institution, thus providing students enrolled in such programs with as
many options as possible for continuing their education following
release from incarceration.
Changes: None.
Comments: One commenter stated that Pell Grant eligibility through
a PEP should be expanded to include enrollment in liberal arts
subjects.
Discussion: Neither the HEA nor the applicable PEP regulations
prohibit enrollment in liberal arts subjects offered through a PEP.
Changes: None.
Comments: In regard to Sec. 668.236(a)(6) and (b), one commenter
wrote that the text itself specifies that an institution already
offering one or more PEPs that are subject to an initiated adverse
action may maintain eligibility for those existing PEPs, provided that
they submit a teach-out plan. However, when read together, these
provisions state that ``An eligible PEP means an education or training
program that . . . [i]s offered by an institution that is not subject
to a current initiated adverse action,'' which, according to the
commenter, would seem to create a blanket policy of ineligibility for
programs offered by institutions subject to an adverse action.
Discussion: We believe the paragraph is clear both in the general
description of the program and in defining the limited situation in
which a program loses approval to enroll new students while teaching
out those who are currently enrolled.
Changes: The Department made non-substantive technical edits to
restructure the paragraphs to improve the flow and clarity of the text.
Comments: One commenter suggested that the Department further
regulate on the teach-out plan required under Sec. 668.236(b)(2), to
require that the plan include options for confined or incarcerated
individuals beyond transferring to a postsecondary institution once
they are no longer incarcerated.
Discussion: The definition of ``teach-out plan'' is in Sec. 600.2
and the requirements related to teach-out plans and agreements for
accrediting agencies are in Sec. 602.24(c). The Department declines to
establish additional requirements for teach-out plans. The Department
has not generally regulated on the contents of a teach-out plan because
they are not one size fits all. The postsecondary institution's
accrediting or State approval agency could also set standards for the
teach-out plan.
Changes: None.
Comments: One commenter asked what would happen when a fully
informed student is aware of licensure restrictions in advance but,
nevertheless, desires to earn that credential and attempt to overturn
an unjust licensure restriction. The commenter also recommended
providing resources to approved PEPs, State Higher Education Executive
Offices (SHEEOs), community-based partners, and prospective employers
to help them advocate for the removal of unjust licensure restrictions
that prevent people with felony convictions from attaining their
educational and career goals.
Discussion: There is no exception in the regulations to waive the
requirements under Sec. 668.236(a)(8). While the Department
acknowledges the commenter's concern, Sec. 668.236(a)(8) was adopted
to protect confined or
[[Page 65437]]
incarcerated individuals from unnecessary exhaustion of their Pell
Grant benefits, and to ensure PEP enrollees receive the full benefit of
their education. These goals are undermined if time and money are spent
pursuing training in an employment field barred to the student. If a
State or Federal law prohibits licensure or employment of the formerly
incarcerated individual in the State the correctional facility is
located, or, for a Federal correctional facility, the State the most
individuals will reside upon release, then that individual cannot
enroll in the PEP. In general, the Department cannot lobby, recommend
lobbying, or provide resources to aid in lobbying a State legislature
for the purpose of removal or modification of laws.
Changes: None.
Comments: One commenter asked the Department to require oversight
entities and postsecondary institutions to annually review collateral
consequences relevant to education and workforce training pathways and
add new pathways that align with confined or incarcerated individual's
interests and labor market demands in the State and region under Sec.
668.236(a)(8).
Discussion: The Department does not have the authority to mandate
that a postsecondary institution offer a PEP or add new pathways that
better align with students' interests and labor market demands in the
State or region. It is the postsecondary institution's choice whether
to offer a PEP.
For institutions that choose to offer a PEP, while we can prohibit
them from enrolling students in programs for fields where they know
their students will be barred, we cannot dictate how they otherwise
structure the academic component of the PEP. The Department's authority
in postsecondary education matters is limited to issues relating to
Federal student aid, the use of Federal funds, and the specific
programs administered by the Department. The Department is prohibited
from exercising any direction, supervision, or control over curriculum
or a certain type of PEP.
Changes: None.
Comments: One commenter suggested that we consider advising
postsecondary institutions that, where they offer a vocational program
affiliated with employment bans for a confined or incarcerated
individual with certain convictions, the provider should offer another
non-degree or degree program that does not lead to such licensure or
employment prohibitions.
Discussion: The Department does not have the authority to require
that postsecondary institutions offer a confined or incarcerated
individual specific prison education programming. We also do not have
any regulations prohibiting a postsecondary institution from providing
non-degree programs.
Changes: None.
Comments: One commenter stated that the requirement to meet ``any
applicable education requirements'' in Sec. 668.236(a)(7) and (c)(1)
and (2) is too broad in scope and would not allow for the materiality
of education requirements to be considered. The commenter stated that
postsecondary institutions may not have the resources to make these
decisions annually.
Discussion: The requirements in Sec. 668.236(a)(7) and (8) (and
corresponding requirements in Sec. 668.236(c)(1) and (2)) are based in
statute and further clarified through the regulation. The Department
has the authority to set reasonable parameters in regulation. PEPs may
not be widely accessible within a correctional facility and confined or
incarcerated individuals may have to rely on the postsecondary
institution's determinations regarding educational requirements for and
prohibitions on licensure or employment to a greater extent than would
individuals who are not incarcerated. A postsecondary institution is
not required to offer a PEP in a State where it is unsure about
educational or licensure requirements or where it does not wish to
remain up to date regarding these requirements. The Department believes
many postsecondary institutions will recognize the benefits of the
regulatory framework for confined or incarcerated individuals.
Changes: None.
Accreditation Requirements (Sec. 668.237)
Comments: One commenter asked whether the regulations define the
actions an accrediting agency should take to determine the academic
quality of a program for an established PEP through the Second Chance
Pell program, or whether an accrediting agency would be allowed to
fully use their process and professional assessment standards in
determining the academic quality of a program.
Discussion: The accrediting agency must evaluate the first PEP at
the first two additional locations. Additionally, the accrediting
agency must conduct a site visit at those locations to evaluate the
first additional PEP offered by a new method of delivery. They must
also approve the methodology for how the institution made the best
interest determination under Sec. 668.241. We fully specify the
accreditation requirements for PEPs in these final regulations.
Changes: None.
Comments: One commenter called for the elimination of Sec. 668.237
because accrediting and State approval agencies already have standards
by which they evaluate educational programs, regardless of location.
The commenter stated that prescribing additional program evaluations is
unnecessary and burdensome and will discourage participation in PEPs.
Discussion: The Department disagrees with the commenter. First, we
wish to make clear that the policies and standards of accrediting and
State approval agencies differ, and the Department's regulations for
agency recognition do not require the evaluation of every new program
or location. Furthermore, PEPs are unique in that participants may only
have one educational option at their correctional facility. The
Department has chosen to mandate additional safeguards so that the PEP
is beneficial to the confined or incarcerated individual. We also
believe that requiring that the accrediting or State approval agency
take a more proactive role in ensuring quality in PEPs is a logical
outgrowth of the statutory requirements. Section 484(t)(1)(B)(v) of the
HEA specifically provides, for example, that an institution offering a
PEP cannot be subject to an adverse action in the last five years ``by
the institution's accrediting agency or association.''
Finally, the Department has similar rules for other programs, such
as direct assessment programs under Sec. 668.10(a)(5), that require
evaluation by the accrediting or State approval agency to establish
eligibility for title IV purposes.
Comments: One commenter believed that programs offered via
correspondence courses should be exempt from the Department's
requirements for accreditation review because postsecondary
institutions are already required to be approved for that method of
delivery by their accrediting or State approval agency. The commenter
stated that the accreditation requirements would add unnecessary burden
to correctional facilities and postsecondary institutions.
Discussion: The Department disagrees with the commenter, as we seek
to hold all programs regardless of the method of delivery to the
standards outlined in these final regulations. The Department believes
that offering educational programming through any method of delivery in
a correctional facility for the first time may present various
challenges that require creative thinking and collaboration amongst
several stakeholders. A new method of delivery
[[Page 65438]]
in a correctional facility may also involve unique obstacles that
institutions are unaccustomed to, which in turn could result in risks
to confined or incarcerated individuals that may not have been
addressed when the accrediting agency or State approval agency last
approved the institution's use of distance education or correspondence
courses. The accrediting and State approval agencies are uniquely
authorized to confirm educational quality and we believe they must do
so for all methods of delivery.
Changes: None.
Comments: One commenter asked the Department to require that any
postsecondary institution offering a PEP at an additional location for
a program that also exists on the postsecondary institution's main
campus be included in any programmatic accreditation that may be held
by the institution for that same program.
Discussion: The Department declines this recommendation because it
can only require a postsecondary institution to hold accreditation by a
nationally recognized accrediting agency for title IV purposes. We do
not have the authority to require an institution to obtain programmatic
accreditation for its PEPs.
Changes: None.
Comments: One commenter requested that, under Sec. 668.237(b)(1),
we require the accrediting or State approval agency, in addition to the
oversight entity, to review and approve all PEPs.
Discussion: The Department disagrees with this commenter and
believes that such a requirement would be overly burdensome to
postsecondary institutions and accrediting and State approval agencies.
If the PEP is a ``significant departure from existing offerings or
educational programs, or method of delivery,'' Sec. 602.22(a)(1)(i)
and (a)(1)(ii)(C) already require review and approval by an accrediting
agency prior to implementation.
Further, by requiring the Secretary's approval of the first PEP at
the first two additional locations the regulations mirror the
requirements of the accrediting and State approval agencies. We believe
that a postsecondary institution that can sufficiently demonstrate
satisfactory standards need not seek direct approval from the
accrediting or State approval agency for every PEP. The regulations do
not preclude an accrediting or State approval agency itself from
requiring every PEP to be approved, however.
Changes: None.
Comments: Several commenters stated that the Department should
approve the PEP prior to the accrediting or State approval agency
approval required under Sec. 668.237(b)(1).
Discussion: The Department disagrees with commenters because we
must have a completed application to decide whether the PEP meets all
regulatory requirements, particularly for the first PEP at the first
two additional locations.
Changes: None.
Comments: One commenter asked for clarification on Sec.
668.237(b)(1), specifically about the process for a postsecondary
institution that has recently completed the accreditation process for
the first or second additional location at a correctional facility and
is in compliance.
Discussion: Rather than regulating on operational process, the
Department intends to provide this information through guidance.
Changes: None.
Comments: Several commenters suggested that the Department remove
the requirement under Sec. 668.237(b)(3) for site visits, because
postsecondary institutions have no control over correctional
facilities. Instead, the commenters suggested that the Department
require program evaluation, review of contact, and Learning Management
System delivery.
Discussion: The Department disagrees with the commenters'
suggestion. While the postsecondary institution does not have control
over the correctional facility, it is important for the accrediting or
State approval agency to ensure educational quality is still being
achieved in unfamiliar or atypical settings. We believe that it is very
important to have in-person on-site visits so that the accrediting or
State approval agency can review how confined or incarcerated
individuals are learning regardless of the method of delivery of the
instruction.
Changes: None.
Comments: One commenter asked whether they could assume that the
next site visit to a correctional facility would occur during the next
accreditation cycle rather than no later than one year after initiating
the PEPs in the first two additional locations, if an existing Second
Chance Pell school's accrediting agency completed their site visit
within 5 years of the July 1, 2023, regulations and found the
institution to be compliant.
Discussion: Under the regulations, a site visit must occur no later
than one year after initiating the PEP at the first two additional
locations. The Department wants to ensure that the PEP complies with
all applicable accreditation requirements in these final regulations.
We also want to ensure that sites are visited shortly after a PEP
begins, to confirm that there are adequate faculty, facilities, student
support systems, and other resources. The next accreditation cycle for
an institution could potentially be years into the future and would be
too long for an accrediting or State approval agency to wait to confirm
that the PEP met their standards. It would also be too long for a PEP
that was not providing quality education and could mean significant
numbers of students exhaust sizable portions of their Pell eligibility
in furtherance of a worthless credential from a low-quality program.
Changes: None.
Comments: Several commenters asked for clarification about how the
accreditation requirements in Sec. 668.237(b)(4) relate to the best
interest determination in Sec. 668.241(a)(1) and whether that
requirement is an additional evaluation. The commenters also asked
whether the accrediting agency has the authority to invalidate the
oversight entity's best interest determination if the agency does not
find the oversight entity's methodology sufficiently rigorous.
Discussion: These are two separate and unique approvals in the
regulations. The Bureau of Prisons or the State department of
corrections (oversight entity) conducts the best interest determination
under Sec. 668.241. The other is the review and approval by the
accrediting or State approval agency of methodology used the oversight
entity in making the determination that the PEP is in the best interest
of the confined or incarcerated individuals under Sec. 668.237(b)(4).
Under Sec. 668.237(b)(4) the accrediting or State approval agency
has reviewed and approved the methodology for how the institution, in
collaboration with the oversight entity, determined that the PEP meets
the same standards as substantially similar programs that are not PEPs
at the institution for the elements listed under Sec. 668.241(a)(1)(i)
through (iv).
Finally, the PEP is not eligible if either the oversight entity or
the accrediting or State approval agency denies approval. The PEP must
meet all regulatory requirements to be an eligible PEP.
Changes: None.
Application Requirements (Sec. 668.238)
Comments: One commenter recommended the removal of Sec. 668.238.
Discussion: The Department believes an application process is
necessary to ensure that the PEP is able to comply with all applicable
standards. We require a similar process for direct assessment programs
under Sec. 600.10(c).
[[Page 65439]]
The Department is not proposing to approve all PEPs, but only the first
PEP at the first two additional locations. We believe this is a
reasonable requirement.
Changes: None.
Comments: One commenter stated there need to be explicit timeframes
for each step of PEP approval.
Discussion: The Department will work expeditiously to review and
approve or deny applications, but we choose not to provide timeframes
for those approvals.
Changes: None.
Comments: One commenter requested that any eligible programs that
participated in the Second Chance Pell experiment under the
Experimental Sites Initiative should be automatically approved to avoid
a bottleneck of applications.
Discussion: The Department will not exempt any postsecondary
institutions or programs from the application process. Approving the
first PEP at the first two additional locations will ensure that the
PEP is able to comply with all applicable regulations. The Department
continues to consider options for institutions currently participating
in the Second Chance Pell experiment to transition to the new statutory
and regulatory requirements and will announce its transition plans for
the experiment at a later date.
Changes: None.
Comments: One commenter noted that the way Sec. 668.238(a) is
written implies that after one postsecondary institution gets approval
to offer a PEP at a particular correctional facility, another
postsecondary institution would not need approval to operate a PEP at
that correctional facility. The commenter suggested the paragraph be
updated to read: ``Following the Secretary's initial approval of an
institution's prison education program, additional prison education
programs offered by the same institution at the same location may be
determined eligible without further approval from the Secretary . . .''
Discussion: The Department agrees that this will clarify the
regulation. Every postsecondary institution, without exception, must
have the first PEP at the first two additional locations where the
postsecondary institution offers that PEP approved by the Department.
Changes: We have revised Sec. 668.238(a) to provide that following
the Secretary's initial approval of an institution's prison education
program, additional prison education programs offered by the same
institution at the same location may be determined eligible without
further approval from the Secretary except as required by Sec. 600.7,
Sec. 600.10, Sec. 600.20(c)(1), or Sec. 600.21(a), as applicable, if
such programs are consistent with the institution's accreditation or
its State approval agency.
Comments: One commenter suggested that the Department require a
memorandum of understanding between the PEP and oversight entity that
requires library services and resources.
Discussion: The Department does not have the authority to regulate
library services or resources.
Changes: None.
Comments: One commenter stated that that people are leaving prison
having earned a significant number of credits but have no pathway to an
actual degree and have exhausted their Pell Grant eligibility. The
commenter stated that postsecondary institutions should be required to
submit to the Department and oversight entity a curricular plan that
details how the program's course offerings will lead to a degree. The
commenter requested that the Department amend Sec. 668.238(b)(1) to
add a clause at the end as follows: ``A description of the educational
program, including the educational credential offered (degree level or
certificate), the field of study, and curricular plan or pathway for
degree completion.''
Discussion: The Department's authority in postsecondary education
matters is limited to issues relating to Federal student aid, the use
of Federal funds, and the specific programs administered by the
Department. We are prohibited for exercising any direction,
supervision, or control over curriculum. We cannot evaluate the PEP
curriculum but would expect a review of curricula by accrediting
agencies and State approval agencies.
Changes: None.
Comments: A few commenters stated that the oversight entity should
be required to prove that it properly gathered input from all the
relevant stakeholders. The commenters said the Department should add a
rule that requires the oversight entity to disclose all the feedback it
received from stakeholders to the postsecondary institution,
accrediting agency or State approval agency, and the Department. The
commenters also said the Department should require postsecondary
institutions to include this documentation in their application to the
Department.
Discussion: The Department declines to make this change, because we
have language in Sec. 668.241(f) that requires a postsecondary
institution to maintain records related to the eligibility of a PEP,
which includes ensuring that the oversight entity responsible for
determining that the PEP is being offered in students' best interest
appropriately conducted outreach to stakeholders as part of its
evaluation of the program.
Changes: None.
Comments: One commenter requested that the Department insert
language into Sec. 668.238(b)(4) encouraging PEPs to align their data
collection methodology and metrics with those required by the
Integrated Postsecondary Education Data System, to ensure comparability
of data across programs and ease the burden of submission.
Discussion: The Department does not want to hinder flexibility and
innovation by requiring the standardization of methods.
Changes: None.
Comments: One commenter stated that requiring the postsecondary
institution to explain the oversight entity's methodology for approving
the PEP in Sec. 668.238(b)(4) is significant, overly broad, and not
well defined.
Discussion: Upon further review, the Department acknowledges that
the oversight entity will not have to make the best interest
determination for the first two years of the prison education program
and therefore the postsecondary institution could not detail the
methodology the oversight entity used in making the best interest
determination under Sec. 668.241(a). The information that the
Department will now request is simply any information from the
postsecondary institution that the oversight entity used to approve the
prison education program. The Department will not prescribe this
information in regulation to allow the oversight entity and
postsecondary institution flexibility to be innovative in the
application.
Changes: The Department will amend Sec. 668.238(b)(4) to provide
that an institution's PEP application must provide information
satisfactory to the Secretary that includes documentation detailing the
methodology including thresholds, benchmarks, standards, metrics, data,
or other information the oversight entity used in approving the PEP and
how all the information was collected.
Comments: One commenter stated that the Department needs to be more
specific about information on reentry services requested in the
application under Sec. 668.238(b)(5). The commenter proposed breaking
the paragraph into academic counseling which refers to the educational
and career support students receive to help guide their enrollment in
the prison education program and beyond; academic reentry counseling
which refers to the support students
[[Page 65440]]
receive to plan and prepare for continuing their education post-release
from incarceration; and reentry counseling which refers to preparing
students for all facets of reentry, including securing housing, parole
preparation, merit release, etc.
Discussion: While we decline to make this change in regulation, any
postsecondary institution seeking approval of a PEP is welcome to
provide this type of information to the Department. Reentry services
are not required in the definition of a PEP in Sec. 668.236, but if
they are offered, the Department would appreciate that information.
Changes: None.
Comments: One commenter requested that the Department make clear
that postsecondary institutions can partner with community-based
organizations that have expertise in the field of prison education to
help provide orientation, tutoring, and academic counseling.
Discussion: In Sec. 668.238(b)(5), the Department notes that it is
aware that postsecondary institutions partner with community-based
organizations to provide certain types of services. This is allowable
as long as the postsecondary institution is following applicable rules
regarding title IV aid, including those relating to written
arrangements under Sec. 668.5.
Changes: None.
Comments: One commenter stated that Sec. 668.238(b)(9), which
allows the Department to request ``[s]uch other information as the
Secretary deems necessary,'' is too open-ended. The commenter stated
that postsecondary institutions may not be able to comply with the
Department's request if the information and supported data are not
collected through current information technology data systems.
Discussion: The Department needs to be able to ask applicants for
more information if any area of an application is lacking. The
Department does not intend to request information from postsecondary
institutions that they cannot obtain, and if the Department does so,
the postsecondary institution will have the opportunity to note that it
cannot obtain the information and why.
Changes: None.
Comments: Several commenters asked that the Department create
specific application requirements relating to correspondence PEPs,
because the regulations would be burdensome, not feasible and cost
prohibitive for those programs.
Discussion: As noted throughout the discussion section, the
Department will hold PEPs offered through all methods of delivery to
the same standards. The Department therefore declines to adopt the
commenter's suggestion.
Changes: None.
Comments: One commenter asked whether a postsecondary institution
may offer PEPs in States other than where its main campus is located.
Discussion: A postsecondary institution may offer PEPs in States
other than where its main campus is located. Note that every
correctional facility where a postsecondary institution offers a PEP
and enrolls a confined or incarcerated individual must be reported as
an additional location of the postsecondary institution, even if the
prison education program is offered through distance education or
correspondence courses.
Changes: None.
Reporting Requirements (Sec. 668.239)
Comments: One commenter asked the Department to mandate additional
PEP reporting requirements including which PEP courses are equivalent
to courses offered on the main campus and are eligible for credit
transfer; the share of confined or incarcerated individuals accessing
Pell grants who complete the course; and the share of confined or
incarcerated individuals accessing Pell grants who fail to complete the
course, indicating the reasons, including transfer or release.
Discussion: The Department will have information on completion and
withdrawal rates in our internal systems or databases. While we decline
to incorporate other information collection into the regulation, we
will consider these suggestions when developing an information
collection under Sec. 668.239(a).
Changes: None.
Comments: A few commenters believe that the Department should not
require postsecondary institutions to report information about transfer
and release through an agreement with the oversight entity under Sec.
668.239(c). One of those commenters suggested that the Department
modify the National Student Loan Data System to allow the oversight
entity to directly provide this information.
Discussion: While we appreciate the commenter's input and emphasis
on the most efficient method to collect this important data, the
Department declines to remove the requirements for institutions to
obtain this information. The HEA requires that the Department provide
annual publicly available reports to Congress about PEPs. Some of that
information is about outcomes, including earnings outcomes or
individuals who continue their education post-release. The Department
needs information about transfer or release dates to fulfill the
statutory mandate, and it is unclear whether the Department can collect
such information from the large number of separate agencies and
facilities that would otherwise be required.
The Department will also provide data through various systems to
the oversight entity and postsecondary institutions to assist in
completing the best interest determination.
We commit to continue to analyze the feasibility of information
collection directly from oversight entities or correctional facilities,
and the regulatory language allows for that option. If the Department
ultimately decides to collect such information from oversight entities
or correctional facilities, we will not require institutions to obtain
the information separately. We also intend to provide guidance
regarding how and where transfer and release date information must be
reported.
Changes: None.
Comments: One commenter expressed concern regarding the potential
reporting under Sec. 668.239(a). This section allows the Department to
publish a notice in the Federal Register requesting data from
participating institutions. The commenter is concerned that the
Department will require postsecondary institutions to report data
beyond the specific data items prescribed in the HEA. The commenter was
concerned that we will request additional data from the oversight
entities and institutions that they may not typically collect. The
commenter noted that postsecondary institutions may not have effective
information technology systems that are capable to collecting some of
the data that the Department may request.
Discussion: Because the Department is required to submit an annual
report to Congress, we must be able to collect applicable data items.
We cannot publish in regulation all of the data elements that we will
need from participating institutions, because we may need to update
data items. The Department must have the flexibility to amend, change,
rescind, or further develop collection items. We have used similar
processes in other contexts. For example, we publish an annual notice
regarding the application verification of FAFSA[supreg] information.
The Department has not always added verification criteria; in fact, in
response to data analysis and feedback received, we removed several
verification items over the years and endeavored to streamline
requirements annually. We hope to do the same with any notice regarding
PEPs.
[[Page 65441]]
Changes: None.
Limitation or Termination of Approval (Sec. 668.240)
Comments: One commenter stated that the scope of the Department's
authority to limit or terminate a PEP for violating any terms of
proposed subpart P is unreasonable, too restrictive, does not consider
the materiality of violation observed, and does not provide a process
to appeal and time to cure the violation. The commenter suggested we
clarify term violation and related materiality and establish a process
for an institution to appeal and a time to cure the violation.
Discussion: The Secretary's action to remove a PEP would be the
same as an action to remove any other eligible program, meaning that
the action would be taken under part 668, subpart G; through a
revocation action under Sec. 668.13(d) for a provisionally certified
institution; or addressed during an institution's application for
recertification.
The decision to terminate, revoke, or end the approval during
recertification of a PEP will be based upon the Department's evaluation
of the violation and in consideration of the institution's ability to
administer the program. While the Department declines to create a
separate process in regulation for removing PEPs, we acknowledge the
commenter's concerns about materiality. We have changed the language to
clarify these decisions will be made on a case-by-case basis. The
Department will work with postsecondary institutions to resolve
reasonable issues or minor violations throughout of the PEP
requirements.
Changes: We have revised Sec. 668.240(a) to state that the
Secretary may limit or terminate or otherwise end the approval of an
institution to provide an eligible prison education program if the
Secretary determines that the institution violated any terms of the
subpart or that the institution submitted materially inaccurate
information to the Secretary, accrediting agency, State agency, or
oversight entity.
Best Interest Determination (Sec. 668.241)
Comments: Many commenters submitted concerns regarding the required
assessment of the PEP by the oversight entity. Commenters generally
stated that the Department was proposing to regulate beyond
congressional intent and the Department's statutory authority. The
commenters noted that postsecondary institutions and oversight entities
may choose not to offer PEPs due to the regulatory burden and cost.
Commenters argued that there was little research to support the
requirement to assess items proposed in regulation.
Many commenters also noted that the oversight entity may not have
the expertise, data, training, or resources in the postsecondary
education to set thresholds and benchmarks for the indicators related
to outcomes, such as earnings and job placement rates of formerly
confined or incarcerated individuals who have been released. Several
commenters stated that the regulations do not consider labor market
biases or post-release employment barriers to formerly incarcerated
students.
The following are recommendations made by commenters to improve the
best interest determination:
[middot] Make all best interest indicator assessments permissive
instead of mandatory, by changing ``must'' to ``may'' assess.
[middot] Remove the exception for exceptional circumstances from
the assessment of transferability of credits to any location of the
institution that offers a comparable program.
[middot] Make all the indicators optional except transferability of
credits and academic and career advising for at least four years due to
lack of data.
[middot] Replace the indicators with faculty contact hours,
meaningful engagement with peers, and ability to engage in research.
[middot] Replace the indicators with civic engagement, family
reunification, and increased self-efficacy.
[middot] Assess other dimensions including physical, mental, and
emotional issues.
[middot] Add as optional metrics information about reentry
services, whether credentials gained align with current labor market
needs for in-demand industry sectors, and credentials that confined or
incarcerated individuals gain through their participation that led to
in-demand careers.
[middot] Add an optional metric of how much regular and meaningful
involvement programs have between students, faculty, and program
administrators at the correctional facility.
[middot] Replace metrics with access to support services and
academic resources, tutoring, library resources and services, and
technology.
[middot] Add additional indicators that include whether the mode of
course instruction for the prison education program is substantially
similar to the primary instructional format at the home institution,
preferably weighting in-person over virtual instruction, whether the
demographics of the confined or incarcerated individual match the wider
prison population, regardless of the main campus population of the home
institution, and whether the prison education program staff and faculty
represent or have experience or background working with or pertaining
to underrepresented populations and groups, including individuals
directly impacted by systemic racism, generational cycles of poverty
and exclusion, or incarceration.
[middot] Remove threshold requirements for the indicators related
to outcomes.
[middot] Modify the indicator related to earnings post release to
include a succeeding sentence to outline if earnings data for
individuals who graduated from the prison education program has been
recorded, that data should carry more weight than a comparison to
graduates of programs offered by the institution writ large.
[middot] Clarify and rearrange indicators related to transfer.
[middot] Specify how the earnings indicator is calculated.
[middot] Revert to the statutory language for the assessment of
earnings.
[middot] Replace the oversight entity with the accrediting or State
approval agency as the entity that determines best interest.
[middot] Remove the oversight entity from the best interest
determination.
[middot] Replace the oversight entity with the relevant
stakeholders for the best interest determination.
Discussion: The Department disagrees with commenters that we are
regulating beyond congressional intent and the Department's statutory
authority. We have the general authority to regulate on the HEA unless
otherwise directly prohibited from doing so in statute. We thank the
community for its feedback on the best interest determination section.
However, we acknowledge the wide-ranging comments and suggestions about
the proposed best interest indicators, in particular those indicators
focused on student outcomes. Based on persuasive commentary, we have
decided to make all outcomes indicators optional but maintain the
requirement that the current input indicators must be assessed by the
oversight entity. We believe the input indicators are foundational
requirements. It is important that the oversight entity assess whether
confined or incarcerated individuals are receiving these necessary
supports as a part of the PEP.
The Department believes that assessment of inputs and outcomes is
paramount in establishing a standardized framework for the oversight
entity. We reiterate that the oversight entity is not required to deny
a PEP if it fails to satisfy one of the
[[Page 65442]]
indicators. The oversight entity can take the totality of circumstances
into account, which we have purposefully left undefined for flexibility
in making decisions that are unique to each correctional facility and
each PEP.
While assessment of outcomes indicators is optional, we encourage
the oversight entity to assess as many of them as possible. As we
stated in the NPRM, we intend to provide the oversight entity with data
to assist in making outcomes assessments, and we will do so even if the
oversight entity chooses not to assess one or more of the outcomes
metrics. The Department also will assess outcomes, because the HEA
requires the Department to provide a publicly available annual report
to Congress that includes numerous outcomes measures.
The Department may:
Publicly report on the rates of confined or incarcerated
individuals continuing their education post-release. As the Department
obtains transfer and release dates from postsecondary institutions, we
could calculate rates of reenrollment using our internal data systems.
Publicly report of job placement rates. The Department may
be able to calculate and report on job placement rates through
employment information that may be available via the College Scorecard
using Internal Revenue Service (IRS) data or using the employment
information of high school graduates from the U.S. Census Bureau.
Publicly report on earnings of formerly confined or
incarcerated individuals through program-level earnings via the College
Scorecard using IRS data.
Publicly report on rates of recidivism of PEP graduates
through data obtained through reporting to the Department from States
required by the Workforce Innovation and Opportunity Act. There may be
additional data on recidivism from the Bureau of Justice Statistics and
the U.S. Sentencing Commission that the Department may also be able to
incorporate into a published analysis.
Publicly report about rates of program completion of
confined or incarcerated individuals. Postsecondary institutions
currently report graduation rates to the Integrated Postsecondary
Education Data System (IPEDS) and the Department produces completion
rates of title IV recipients through the College Scorecard.
Finally, there may be other items that the Department reports on as
required by statute or if the Department requests information from the
postsecondary institutions through a Federal Register notice as
required in Sec. 668.239(a).
With respect to the indicator related to transfers in Sec.
668.241, the Department accepts the suggestion to remove the exception
for exceptional circumstances surrounding the student's conviction. It
is not our intention to encourage postsecondary institutions to deny
admission to formerly incarcerated students that were once enrolled in
PEPs, and we are persuaded by the commenter that such language could
form the basis for an institution's decision for such a denial.
With respect to the earnings indicator related to earnings, we have
amended the language to no longer suggest a comparison to the earnings
of a typical high school graduate. Although the Department continues to
believe that post-graduation earnings are an important indicator of
quality in postsecondary programs, we are persuaded by commenters that
due to the ongoing barriers to employment for formerly incarcerated
individuals and the resulting discrepancies in earnings between typical
high school graduates and such individuals, it is not appropriate to
compare the earnings of confined or incarcerated students who complete
programs and are released from incarceration and the earnings of high
school graduates.
The Department declines to add additional indicators or to further
edit the remaining indicators to the regulation, but the oversight
entity in collaboration with the relevant stakeholders through the
feedback process has the flexibility to add other pertinent indicators
relevant to PEP success.
The Department also declines to replace the oversight entity with
the accrediting agency or relevant stakeholders. Section 484(t) of the
HEA is clear that the oversight entity has sole authority to approve a
PEP and make the best interest determination.
With these changes, the Department is confident that there are
sufficient existing guardrails in the final regulations to protect
confined or incarcerated individuals from subpar prison education
programs, support postsecondary institutions and oversight entities,
and safeguard the taxpayer investment.
Changes: We have revised Sec. 668.241(a) to make the three outcome
indicators--postsecondary enrollment following release, job placement
rates, and earnings for graduates--optional factors that an oversight
entity may consider in its determination of whether a program is
operating in students' best interest.
Comment: One commenter suggested requiring that PEPs transcript
credits in the same way that they would transcript courses offered to
students who are not confined or incarcerated individuals.
Discussion: The Department does not have the authority to regulate
an institution's transcripts.
Changes: None.
Comments: One commenter suggested that the Department require the
oversight entity to identify how it determines the appropriate
stakeholders, including any applicable conflict of interest standards.
Discussion: Under the statute, the oversight entity has the
authority the approve a PEP and determine that it is in the best
interest of confined or incarcerated individuals. Relevant stakeholders
provide nonbinding feedback to the oversight entity. The list of
relevant stakeholders is reported to the Department under Sec.
668.241(f). We decline to add additional requirements, but we do
believe that these final regulations will create a more informed,
holistic process.
Comments: One commenter suggested that the feedback process under
Sec. 668.242(b)(1) be open to the public.
Discussion: The feedback process allows relevant stakeholders to
provide nonbinding input to the oversight entities. The Department does
not intend to regulate further on the parameters of the feedback
process, to allow the oversight entity flexibility to set up that
process.
Changes: None.
Comments: One commenter suggested that the Department provide
guidance on how many indicators a PEP is permitted to not meet under
Sec. 668.241(b)(2) but still be deemed as operating in the best
interest of confined or incarcerated individuals.
Discussion: The statute allows the oversight entity to not only
approve a PEP's operation in a correctional facility but also to
determine that it is operating in the best interest of the enrolled
confined or incarcerated individuals. Apart from identifying the
factors that the oversight entity may and must consider in making its
determination, the Department will provide flexibility to the oversight
entity and not regulate further in this area.
Changes: None.
Comments: Several commenters suggested that the Department further
articulate an appeal process under Sec. 668.241(c) if the oversight
entity declines to permit a PEP from operating at a correctional
facility. The commenters suggested that the appeal process include an
explanation for the rejection, timeframes for an appeal,
[[Page 65443]]
incorporating a vote from the relevant stakeholders and a mediation
process with the Department.
Discussion: The Department agrees that an appeal process is a best
practice and supports the use of an appeal process by oversight
entities wherever possible. However, the oversight entities include the
Federal Bureau of Prisons and the State departments of corrections, and
the Department does not have the authority to directly regulate the
process of another Federal or State agency.
Changes: None.
Comments: One commenter suggested that the Department note in
regulation that it will review the standards utilized by the oversight
entity at recertification or in program reviews to ensure consistency
and compliance across the oversight entities.
Discussion: The Department will ensure that postsecondary
institutions are complying with the regulations during program reviews
and at recertification. As stated under Sec. 668.241(f), the
postsecondary institution must maintain documentation about the PEP,
which can be used by the Department for program reviews or
recertification reviews.
Changes: None.
Comments: One commenter suggested that the Department include
language that permits an approved PEP to continue in approved status if
the institution provides all required materials to the oversight entity
for approval 240 days in advance of the expiration of the program
participation agreement. Section 668.241(e)(1) requires an institution
to obtain final evaluations of each PEP not less than 120 days before
the expiration of the institution's Program Participation Agreement
(PPA), but there is no provision for delays by the oversight entity.
The commenter requested the addition of regulatory language that
permits approved programs to continue to be approved if the institution
provides all required materials to the oversight entity for approval
240 days in advance of the expiration of the PPA. This, according to
the commenter, would put the onus on the oversight entity to act in a
timely fashion.
Discussion: The Department will consider the totality of
circumstances on a case-by-case basis during the recertification
process. The Department will consider whether the postsecondary
institution is actively working with the oversight entity and the
oversight entity indicates that it is actively reviewing the PEP. The
Department declines to regulate on a formal process for case-by-case
considerations.
Changes: None.
Comments: One commenter stated that the term ``subsequent final
evaluations'' under Sec. 668.241(e)(1) is not clear.
Discussion: ``Subsequent final evaluations'' refers to the
requirement that the oversight entity make a best interest
determination at least 120 days prior to expiration of the
postsecondary institution's program participation agreement, in
perpetuity, as long as the institution seeks to maintain the
eligibility of the PEP.
Changes: We have removed the word ``final'' from Sec.
668.241(e)(1).
Comments: One commenter inquired whether the cross-reference to
paragraph (c) in Sec. 668.241(e)(1) was correct.
Discussion: The cross-reference was incorrect. We updated the
paragraph for clarity.
Changes: The paragraph will now state that after its initial
determination that a program is operating in the best interest of
students under paragraph (a), the institution must obtain subsequent
evaluations of each eligible prison education program from the
responsible oversight entity not less than 120 calendar days prior to
the expiration of each of the institution's Program Participation
Agreements, except that the oversight entity may make a determination
between subsequent evaluations based on the oversight entity's regular
monitoring and evaluation of program outcomes.
Comments: Under Sec. 668.241(e)(2)(i), the regulation requires the
postsecondary institution to submit data on ``all'' students for the
oversight entity to determine continued approval. One commenter
requested that the Department delete the word ``all,'' because in
limited circumstances, data may not be available to the postsecondary
institution.
Discussion: The Department agrees in part with the recommendation.
It is not our intent for an oversight entity to deny a PEP for reasons
beyond an institution's control, because the institution may lack data
that is unavailable, for example, or that was not part of the oversight
entity's determination of whether the program was being operated in
students' best interest. We do not agree, however, with the commenters
who suggested that the regulation should not apply to all students.
Instead, we believe that the regulation should require the institution
to provide all applicable data for students who were enrolled in the
PEP, which would exclude data that the oversight entity did not require
to make its determination and any data that are unavailable and cannot
be obtained by the institution.
Changes: Section 668.241(e)(2)(i) will be updated to reflect
application of ``applicable'' factors, providing that each subsequent
evaluation must include the entire period following the prior
determination and be based on the applicable factors described under
paragraph (a) for all students enrolled in the program since the prior
determination.
Comment: One commenter suggested to remove the word ``for'' before
``public disclosure'' in Sec. 668.241(f)(1).
Discussion: The Department views this as a style preference and
declines to make the change.
Changes: None.
Comments: One commenter suggested that all documentation related to
records mandated under Sec. 668.241(f) be made public.
Discussion: The Department believes that requiring the oversight
entity or postsecondary institution to publish all documentation
related to the decision-making process would discourage participation.
There are also confined or incarcerated individual privacy
considerations that would be particularly problematic given the small
size of many of these programs. The oversight entity or postsecondary
institution would not be able to publish data that would indirectly
identify an individual from the information provided.
The HEA requires the Department to release an annual data report
that is available to the public, and we believe that will provide
valuable information to both institutions and other policymakers
sufficient to evaluate prison education programs.
Changes: None.
Comments: One commenter stated that State departments of
corrections will require financial assistance to offset material and
human resources needed to implement the regulations in Sec. 668.241.
Discussion: The HEA does not provide for an administrative cost
allowance for oversight entities, and the Department does not have the
authority to establish such an allowance.
Changes: None.
Comments: One commenter asked the Department to define several
terms, including ``unique constraints,'' ``career advising,''
``substantially similar,'' and ``overarching requirement.'' In
addition, the commenter asked many technical questions regarding how
the process of the best interest determination will work.
[[Page 65444]]
Discussion: The regulations establish a framework to implement the
statutory provisions. While we believe this framework is sufficiently
clear without providing additional defined terms and decline to provide
technical guidance in this document, the Department intends to provide
guidance to oversight entities and postsecondary institutions regarding
the best interest determination, as required by section 484(t)(2) of
the HEA.
Changes: None.
Transition to a Prison Education Program (Sec. 668.242)
Comment: One commenter requested that the Department specify the
date on which a confined or incarcerated individual needs to be
enrolled in a formerly eligible program in order to qualify for
transitional eligibility. The commenter stated that it is not clear
whether this provision applies to a confined or incarcerated individual
who was enrolled in an eligible program outside a correctional facility
prior to becoming incarcerated. The commenter also stated that it is
unclear whether this provision restricts the ability of title IV-
eligible institutions to offer non-Pell-eligible programs in
correctional facilities.
Discussion: Section 668.242(b) provides that an institution is not
permitted to enroll a confined or incarcerated individual on or after
July 1, 2023, who was not enrolled in an eligible program prior to July
1, 2023, unless the institution first converts the eligible program
into an eligible prison education program as defined in Sec. 668.236.
This provision applies to any individual who is confined or
incarcerated and who is enrolled in any program at a correctional
facility in which the individual is receiving any title IV aid. For
example, if an individual was enrolled in a distance education program
prior to July 1, 2023, and subsequently becomes incarcerated after July
1, 2023, that individual can continue receiving a Pell Grant only until
they have reached the time or eligibility limits under Sec.
668.242(a), unless that distance education program becomes a PEP, which
would include reporting the individual's correctional facility as an
additional location.
Finally, the Department does not have the authority to restrict the
ability of an eligible institution to offer programs that are not
eligible for title IV aid, including Pell Grants, at correctional
facilities.
Changes: None.
Calculation of a Federal Pell Grant (Sec. 690.62)
Comment: One commenter stated that the Department should insert
language requiring PEPs to include the cost of obtaining required
professional credentials for confined or incarcerated individuals in
PEPs in their cost of attendance calculations.
Discussion: The Department will not regulate on cost of attendance
with these final regulations. The Consolidated Appropriations Act of
2021 made changes to allowable costs that may be considered in a
confined or incarcerated individual's cost of attendance, which are
``only tuition, fees, books, course materials, supplies, equipment, and
the cost of obtaining a license, certification, or a first professional
credential[.]'' Therefore, a postsecondary institution may include the
cost of obtaining the first professional credential in the individual's
cost of attendance. The Department will provide additional guidance on
the changes to cost of attendance components established by the
Consolidated Appropriations Act of 2021 in the near future.
Changes: None.
90/10 Rule (Sec. 668.28)
General Support
Comments: Many commenters supported the 90/10 regulations and the
consensus reached on the regulatory changes. Commenters overwhelmingly
supported including financial aid administered by the VA as Federal
revenue in the 90/10 calculation. Additionally, many commenters
supported the changes to allowable non-Federal revenue and encouraged
the Department to enforce the regulations with the full intent of the
law.
Discussion: The Department thanks commenters for their support. We
intend to fully enforce the regulations.
Changes: None.
General Opposition
Comments: Several commenters opposed the proposed regulations on
the basis that the regulations unfairly burden one sector of higher
education and restrict academic choices of students. Several other
commenters opposed the changes to the regulations because they stated
that proprietary institutions will be disincentivized to enroll
veterans because of the regulations and the significant cost of running
a separate and distinct compliance program to remain eligible for VA
funds. These commenters further stated that this will lead to decreased
opportunities for veterans returning to civilian life after their
service. Other commenters opposed the 90/10 rule generally because they
claimed that the rule will cause proprietary institutions to increase
tuition, incentivize proprietary institutions to recruit students who
can pay for tuition without Federal funds, and reduce learning
opportunities for low-income students and American students by
encouraging proprietary institutions to recruit international students.
One commenter suggested that the Department exempt certain
institutions, such as those that offer terminal degree programs, post-
baccalaureate programs, or medical programs from 90/10 because these
institutions are already held to a high standard by other oversight
mechanisms and provide unique value by helping the country fill its
need for medical providers.
Discussion: The ARP modified section 487(a) and (d) of the HEA to
require proprietary institutions to count all Federal funds in the
numerator of their 90/10 calculation. The Department's regulations for
which funds must be counted in the numerator and the formula for how
these institutions must calculate the percentage of their revenue
derived from Federal funds are consistent with statutory requirements.
Further, the statute does not provide a basis to exempt certain
proprietary institutions from this requirement.
Changes: None.
Comments: Several commenters generally opposed the proposed changes
to allowable non-Federal revenue. A few of these commenters requested
additional facts, evidence, data, or other sources the Department
employed as a basis for our assertion that proprietary institutions
have maneuvered to game the system and that there is a need to modify
allowable non-Federal revenue or other components of the 90/10
calculation, including creating a disbursement rule and disallowing the
proceeds from the sale of accounts receivable, in response to these
behaviors.
Discussion: As stated in the NPRM, the Department based its
regulations on observations of 90/10 calculations, audit workpapers,
program reviews, and other oversight activities.\1\ Based on the
Department's observations and its experience enforcing 90/10 (and
previous enforcement of 85/15), the Department believes that the
changes to allowable non-Federal revenue are necessary to uphold the
statutory intent of the 90/10 calculation.\2\
---------------------------------------------------------------------------
\1\ See 87 FR 45454 and 87 FR 45459.
\2\ As an example, Kofoed (2020) demonstrates that proprietary
institutions account for a disproportionate share of GI Bill
spending while graduating relatively few veterans, which he
attributes to the exclusion of GI Benefits from the 90/10
calculation. See Kofoed, Michael (2020). ``Where have all the GI
Bill dollars gone? Veteran usage and expenditure of the Post-9/11 GI
Bill.'' Brookings Institute report available at https://www.brookings.edu/research/where-have-all-the-gi-bill-dollars-gone/.
---------------------------------------------------------------------------
[[Page 65445]]
Changes: None.
Calculating the Revenue Percentage (Sec. 668.28(a)(1))
Statutory Authority and Congressional Intent
Comments: Several commenters stated that the 90/10 regulations
exceed statutory authority and Congressional intent. Some of these
commenters stated that the proposed regulations do not provide a
definition for ``Federal revenue,'' and the lack of a definition gives
the Department an amount of discretion that Congress did not intend. A
few commenters suggested that the Department restart the negotiation
process to define ``Federal funds.''
These commenters further stated that it is clear that Congress
intended for the Department to include VA and DOD education funds used
to attend such proprietary institution as ``Federal education
assistance funds,'' and clarified that they are not disputing that
portion of the regulations. These commenters further stated that
Federal agencies are required to point to clear grants of congressional
authority in order to enact the regulations that are contemplated.
Commenters requested clarification on the congressional authority that
the Department believes allows it to include other types of Federal
education assistance funds as Federal funds beyond DOD and VA funding.
Discussion: The ARP amended the HEA to state that proprietary
institutions should include ``all Federal education assistance funds''
in the numerator of their 90/10 calculation. It is apparent that
Congress intended for institutions to include all other Federal funds,
in addition to title IV funds, used to pay for tuition, fees, and other
institutional charges in the numerator of their 90/10 calculation based
on this language, not just DOD and VA funds. Further, Federal
appropriations for education assistance programs and disbursements to
institutions may change from year to year. We do not want to
inadvertently create an incentive for proprietary institutions to
identify a large source of Federal funds not on the list and then
target students that receive this funding.
The Department defines Federal funds in Sec. 668.28(a)(1)(i) as
title IV, HEA program funds and any other education assistance funds
provided by a Federal agency directly to an institution or student
including the Federal portion of any grant funds provided by or
administered by a non-Federal agency, except for non-title IV Federal
funds provided directly to a student to cover expenses other than
tuition, fees, and other institutional charges. The ARP language is
broad, and a broad regulatory definition aligns with statutory intent.
We do not believe it is necessary to renegotiate the definition of
Federal funds because the current definition implements the statutory
change in the ARP.
Changes: None.
Comments: A few comments stated that in W. Virginia v. EPA, 142 S.
Ct. 2587, 2608 (2022), the Court held that Congress did not grant a
Federal agency the authority necessary to create a regulatory scheme
that the agency had attempted to enact, and under a body of law, known
as the ``major questions doctrine,'' the Court found that, given both
the separation of powers principles and a practical understanding of
legislative intent, an agency must point to ``clear congressional
authorization'' for the authority it claims. These commenters
questioned whether Congress provided clear authorization for the
Department to make any changes to allowable non-Federal revenue in the
proposed 90/10 regulations given that the ARP only modified what funds
must be counted in the numerator. In addition, these commenters stated
the proposed regulations violate the Administrative Procedure Act (APA)
as the regulations are arbitrary and capricious.
Discussion: The ARP modified the statutory provisions in section
487 of the HEA governing which funds institutions must include in the
numerator of their 90/10 calculation. The statute did not prohibit the
Department from amending other portions of the 90/10 regulatory
calculation related to allowable non-Federal funds. Further, it
included a section directing the Department to amend the 90/10
regulations through the negotiated rulemaking process, without any new
limitation on our authority to revise other parts of the 90/10
regulations, as has been done in prior years. The Department has the
statutory authority granted by section 437 of the General Education
Provisions Act to promulgate regulations that are consistent with
statutory requirements and necessary for us to effectively administer
the program using the negotiated rulemaking process required in section
492 of the HEA. Additionally, our rulemaking to determine how to
calculate the 90/10 statutory requirement is not of such political and
economic consequence that involves a major question under W. Virginia
v. EPA. Finally, we have provided our reasoned basis for these
regulations in the proposed and final rules.
Changes: None.
Comments: A few commenters requested clarification on the authority
upon which the Department relied for its proposal that it has the
authority to publish, on a semi-regular basis, ``updates'' as to what
Federal funds should be counted in the 90/10 calculation without any
notice and comment rulemaking or negotiated rulemaking process given
that the ARP requires that its amendments to section 487 of the HEA be
subject to negotiated rulemaking. These commenters stated that we
should provide the public with an opportunity to comment on the
definition of Federal funds.
Several commenters stated the Department has no authority to
enforce the proposed rule prior to the effective date of the
regulations, and that the HEA states that a regulation related to title
IV programs cannot take effect during the current award year. These
commenters further stated the Department lacks the authority under the
HEA to force proprietary institutions to early implement the
regulation, and that the ARP stated that its statutory changes should
follow master calendar. Several commenters questioned the statutory
authority on which we relied to justify enforcing a title IV regulation
prior to the effective date of the final rule. They requested further
clarification on how we will reconcile its application of the proposed
regulations to proprietary institutions with a fiscal year beginning on
January 1, 2023, with the clear statutory authority set forth in 20
U.S.C. 1089(c). These commenters recommended that revenues subject to
the regulation should only be counted after July 1, 2023, regardless of
the institution's fiscal year calendar. In addition, these commenters
stated that the Department cannot retroactively apply these
regulations. Some of these commenters requested that, if the Department
contends that the regulations are not retroactively applied, the
Department provide legal support for the assertion.
Finally, a few commenters requested that we clarify on which HEA
provisions we relied in determining that certain proprietary
institutions, but not all, would be required to comply with the changes
to the 90/10 regulations on January 1, 2023.
[[Page 65446]]
Discussion: Section 668.28(a)(1) defines Federal funds. The updates
published in the Federal Register would simply notify institutions
about which types of specific educational assistance funds are covered
by the regulatory language. This is similar to how the Department
publishes annually in the Federal Register which components of the
FAFSA[supreg] institutions must verify, and this type of guidance does
not require notice and comment.\3\ Therefore, the Department's
rulemaking activity has met the ARP's statutory requirements that the
revisions to section 487 of the HEA be subject to public involvement
and the negotiated rulemaking process.
---------------------------------------------------------------------------
\3\ 34 CFR 668.56.
---------------------------------------------------------------------------
Section 2013 of the ARP has two provisions related to the timing of
this change. First, it requires that these changes be subject to master
calendar requirements. It also states that the amendments to section
487 of the HEA, which describe funds that must be included in the
numerator of the 90/10 calculation, apply to institutional fiscal years
beginning on or after January 1, 2023. This is why the Department chose
to implement the regulations when an institution's fiscal year begins
rather than requiring all institutions to implement the changes on
January 1, 2023. The regulations meet both requirements because the
regulations will apply to institutional fiscal years beginning on or
after January 1, 2023, and institutions will determine their compliance
with the regulations and file their related audited financial
statements after July 1, 2023. The Department would enforce any
consequences of failing 90/10 after July 1, 2023, and the regulations
are, therefore, not retroactive in their application. It is not correct
to characterize this process as ``early implementation'' of the
regulations because the audit submissions and compliance requirements
go into effect July 1, 2023. Proprietary institutions that fail the 90/
10 requirements for the 2023 fiscal year will not be impacted until
early in 2024, and an institution must determine if it fails 90/10
within 45 days after the end of its fiscal year.
Changes: None.
Definition of Federal Funds
Comments: A few commenters supported our definition of Federal
funds as only those used to pay for tuition, fees, and other
institutional charges. These commenters also supported not including in
the definition of Federal funds those that are expressly used for other
purposes, such as housing or books when those are not included in
institutional charges.
Discussion: The Department thanks commenters for their support. Our
definition most accurately reflects statutory intent.
Changes: None.
Comments: Several commenters urged the Department to publish the
list of Federal funds as soon as possible so that proprietary
institutions can begin developing systems and procedures to track these
funds. These commenters emphasized that institutions also need adequate
notice so that they can effectively manage any changes they might need
to make regarding admissions and enrollment. A few commenters asserted
that this lack of clarity on which Federal funds must be included in an
institution's 90/10 calculation at this point of implementation
deprives institutions of fair notice of laws they are supposed to
follow. Many of these commenters urged the Department to delay
implementation of the new 90/10 regulations for a year or publish an
abbreviated list in the first year if we cannot publish the list in a
timely manner.
Discussion: The Department recognizes the need to publish the list
so that proprietary institutions know which funds they must include,
and we plan to publish on a timeline that will provide adequate time to
account for the full list of Federal funds in the first fiscal year
that begins on or after January 1, 2023.
Changes: None.
Comments: One commenter asked if Chapter 31 of the Veteran
Readiness and Employment program would be counted as Federal funds in
the 90/10 calculation. A few commenters recommended the Department
exclude scholarship aid awarded through the Health Professions
Scholarship Program (HPSP), the National Health Service Corps (NHSC)
Scholarship Program, and the Indian Health Service Scholarship (IHSS)
Program from the definition of Federal funds that institutions must
include in the numerator of their 90/10 calculation. These commenters
further recommended that we recognize the unique nature of these
competitively awarded programs and not consider this aid as Federal
funds under these regulations.
Discussion: The Department will publish in the Federal Register the
full list of Federal funds that proprietary institutions must include.
We will publish on a timeline that provides institutions with adequate
time to account for the full list of identified funds. The statute
defines Federal education assistance funds that institutions must count
as Federal funds as funds disbursed or delivered to or on behalf of a
student to be used to attend the institution. Therefore, the list will
include all identified Federal education assistance funds that meet the
definition in statute.
Changes: None.
Comments: Several commenters supported including Federal funds
awarded directly to students as Federal funds in the 90/10 calculation.
A few other commenters opposed including Federal funds paid directly to
students in the numerator of the 90/10 calculation. A few of these
commenters expressed concern with how proprietary institutions should
account for funds disbursed directly to students if the agency does not
provide this information to the institution, and they recommended that
the Department should limit this to only funds that the institution
receives notice of. One commenter recommended that the Department
accept a proprietary institution's use of a certification from an
agency or student that contains the details of Federal funds received
as sufficient basis for the Federal funds it includes in its 90/10
calculation.
Discussion: The Department appreciates commenters' support for
including Federal funds disbursed directly to students in the numerator
of the 90/10 calculation. The ARP amended section 487(a) of the HEA to
require proprietary institutions to include ``Federal funds that are
disbursed or delivered to or on behalf of a student,'' and, thus, it is
a statutory requirement to include all Federal funds disbursed to a
student in the numerator of the 90/10 calculation.
For purposes of 90/10, we understand that proprietary institutions
need a basis to calculate the Federal funds disbursed directly to its
students. The Department considers a certification from an agency
describing the Federal funds that a student received as a sufficient
basis for this calculation. In cases where an agency does not provide
this information to an institution, we will evaluate on a case-by-case
basis whether the institution made a good-faith effort to obtain this
information, including if a student certifies that they received
Federal funds and the amount of funds received.
Changes: None.
Comments: A few commenters requested clarification on whether
proprietary institutions would only need to include revenues from new
Federal sources when those funds paid for institutional costs for the
fiscal year
[[Page 65447]]
starting after the Federal program has been identified on the published
list. These commenters requested further clarification on how
proprietary institutions should manage the termination of students
based on projections that the students' enrollment and reliance on
Federal funds may cause the institution to violate the 90/10 rule.
Additionally, one commenter suggested that the Department allow
proprietary institutions to exclude in their 90/10 calculation newly
identified Federal funds that are added to the Federal Register notice
that a currently enrolled student receives. A few commenters asked that
we publish any updates to the list of Federal funds by November 1 of
the preceding year for an institution to be required to include those
Federal funds in its fiscal year beginning on or after July 1 of the
following year, following the master calendar outlined in section 482
of the HEA. One commenter suggested revising the regulatory language to
state that proprietary institutions will only be required to include
newly added Federal funds that are added to the Federal Register notice
at least six months before the start of an institution's fiscal year.
Discussion: As we stated in the preamble to the NPRM, in instances
where the Department updates the initial Federal Register notice midway
through an institution's fiscal year, the proprietary institution will
be responsible for including those funds paid for institutional costs
the fiscal year starting after the Federal program has been identified
on the published list.\4\ This lead time is also adequate for
institutions to begin accounting for Federal funds from currently
enrolled students, and therefore it is not necessary to allow
institutions to exempt counting newly identified Federal funds that
these students receive. Likewise, it is unnecessary to publish updates
by November 1 or at least six months before the start of an
institution's fiscal year for institutions to include those funds in a
fiscal year beginning on or after July 1 of the following year.
Proprietary institutions are responsible for generating at least 10
percent of their revenue from allowable non-Federal sources. How to
meet this requirement is up to the institutions, provided that they
follow regulatory and statutory requirements. The regulations neither
contemplate, nor require, institutions to terminate the enrollment of
students if they would otherwise fail the 90/10 rule. The Department
hopes that institutions make enrollment decisions that are best for
students and clearly communicate about potential issues in a clear and
timely manner.
---------------------------------------------------------------------------
\4\ See 87 FR 54453.
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Changes: None.
Comments: A few commenters requested clarification upon what basis,
elements, factors, and evidence will the Department evaluate whether an
institution has made a ``good faith'' effort to identify all Federal
funds. They further requested clarification of what process and
procedures the Department will employ to make this determination and
what appeal process proprietary institutions will be provided. A few
commenters also requested clarification on how the Department will
observe institutional due process protections during the determination
and appeal procedures.
Discussion: We will evaluate the facts of a situation on a case-by-
case basis to determine if an institution made a good faith effort to
identify all Federal funds. This evaluation may include what
information was readily available to an institution and the materiality
of funds from that Federal source to an institution's 90/10 measure.
Institutions have opportunities to resolve disputes with Department
staff regarding the 90/10 measure (for example, providing additional
information and/or documentation), or through an administrative process
if a resolution is not reached.
Changes: None.
Appendix C
Comments: Several commenters recommended the Department clarify and
streamline appendix C in the final rule, including by combining certain
refund and adjustment categories and by combining title IV and Federal
funds into one section. A few of these commenters suggested that the
Department work with external certified public accountants to revise
appendix C. Many of these commenters also requested that we include
additional examples of adjustment and revenue categories in appendix C
to allow institutions to reflect revenues more accurately in their 90/
10 calculation. One commenter stated that it is confusing for appendix
C to include an institutional matching payment as a subtraction from
cash payments as usually it is treated as a non-cash write off. In
addition to asking that we publish the list of Federal funds in the
Federal Register at least six months prior the start of an
institution's fiscal year, a few commenters asked the Department to
publish any updates to appendix C at least six months before the start
of an institution's fiscal year.
Many commenters recommended that as these 90/10 changes are
implemented, we should be vigilant in monitoring the cash flows of
institutions, through the calculations derived from the modified
appendix C, to better understand how the new regulations changes
institutional financial behavior and to ensure the regulations are
strongly enforced to protect students and taxpayers.
Discussion: The Department intends to evaluate the impact of the
new 90/10 regulations on institutional financial behavior, as supported
in the comments. Thus, the Department declines to combine Federal funds
and title IV, HEA funds in appendix C so that the Department can more
easily observe how the inclusion of other Federal funds impacts 90/10
rates. Likewise, we decline to collapse and combine the title IV and
Federal funds category to only require institutions to report a topline
dollar amount for Federal funds received because that would make it
difficult for us to ascertain the impact of our new regulations. The
Department expects institutions to apply title IV funds before applying
other Federal funds to student accounts for 90/10 purposes because
these regulations relate to title IV eligibility, and the Department
intends to evaluate how the inclusion of Federal funds effects
institutions' ability to comply with 90/10 requirements.
We understand that appendix C does not include every type of
adjustment an institution may need to make when calculating 90/10.
Appendix C is intended to generally outline how institutions must
calculate 90/10 by providing an example that cannot reflect every
situation. Institutions may need to add other refund or adjustment
categories that are not included in our example to calculate their own
90/10 compliance. We have shown a variety of common line items in an
institution's 90/10 calculation, and therefore we decline to add
additional line items in appendix C. We also clarify that institutions
should include a general adjustment category that reflects one
adjustment amount for Federal funds rather than calculating and
attributing adjustments to specific sources of Federal funds. However,
to comply with title IV administration requirements, institutions must
track adjustments and refunds by category of title IV funds, and the
Department expects that institutions to include this level of detail in
their 90/10 calculation for title IV funds.
We also clarify why we included an example of an institutional
matching payment as a subtraction from cash
[[Page 65448]]
payments rather than a non-cash write-off. There are instances where
institutional matches to programs are cash payments rather than non-
cash write-offs, such as when institutions use state grant funds for
matching payments. How an institution reflects institutional matches in
its 90/10 calculation is dependent upon the source of the match.
As with publishing new Federal funds, institutions would only be
required to comply with changes to appendix C the fiscal year after the
changes are made to appendix C, which provides sufficient time for
institutions to comply. Additionally, appendix C is an example of how
institutions should calculate their 90/10 compliance, and generally we
only change appendix C if there are statutory or regulatory changes to
the 90/10 calculation, which do not happen often.
Changes: None.
Disbursement Rule (Sec. 668.28(a)(2))
Creation of a Disbursement Rule
Comments: Several commenters expressed support for the creation of
the disbursement rule. A few other commenters stated that they do not
believe such a rule is necessary, and few of these commenters stated
that it is unnecessary because the funds will be included in the 90/10
calculation in the following fiscal year. These commenters also claimed
that the disbursement rule conflicts with cash management regulations
and forces proprietary institutions to make what they described as a
false 90/10 calculation. A few commenters also recommended that the
Department add a good faith phrase to the regulations to better ensure
that unintentional and unavoidable delays, resulting from various
extenuating circumstances, will not become the basis for administrative
capability findings or other adverse findings or actions against an
institution.
Discussion: We appreciates the commenters' support. The Department
disagrees with comments that the rule is unnecessary. We have observed
through our review of 90/10 calculations and audit workpapers that some
proprietary institutions delay disbursements to students to the next
fiscal year in order to avoid two consecutive 90/10 failures. The
Department also disagrees with commenters that these regulations
conflict with cash management regulations. Proprietary institutions can
still establish disbursement timelines that are consistent with
regulatory requirements (see Sec. 668.14), and we will evaluate
whether an institution made timely disbursements, deviated from its
standing policy, or created policies for the purpose of impacting its
90/10 revenue calculation. In this evaluation, the Department would
also consider if there were factors outside of the institution's
control that impacted its disbursement timelines, and therefore does
not agree with commenters that there is a need to add this to the
regulations.
Changes: None.
Revenue Generated From Programs and Activities (Sec. 668.28(a)(3))
Activities Necessary for the Education and Training of Its Students
Comments: A few commenters opposed the new requirement that
allowable non-Federal revenue from activities conducted by the
proprietary institution that are necessary for the education and
training of its students be related directly to services performed by
students. These commenters objected to the preamble of the NPRM citing
sales of hair care products as an example of disallowed revenue because
commenters claimed that developing sales skills is important for
students' careers.
Discussion: We disagree with these commenters. Requiring that
allowable revenue from these activities be related directly to services
performed by students more closely aligns with the statutory intent of
90/10.
Changes: None.
Ineligible Education and Training Programs
Comments: Several commenters generally supported the changes to
allowable non-Federal revenue generated from ineligible programs. These
commenters encouraged the Department to monitor the percentage of non-
Federal revenue that proprietary institutions derive from ineligible
programs and publish this information.
Discussion: The Department thanks the commenters for their support.
We intend to monitor non-Federal revenues that institutions include in
their 90/10 calculations through appendix C submissions.
Changes: None.
Comments: Several commenters opposed the changes that ineligible
programs must meet for proprietary institutions to be allowed to count
revenue generated from these programs in their 90/10 calculation. These
commenters observed that ineligible programs have quality oversight
measures, including approval by relevant State agencies or
accreditation by another entity, and the commenters encouraged the
Department to recognize the quality of these programs. These commenters
further stated that other guardrails in the HEA, the existing 90/10
regulations, and the educational marketplace ensure that the ineligible
educational programs are subject to consumer protection standards and
that the programs prepare students for gainful employment.
A few commenters stated that the Department's proposed regulations
concerning the curriculum and content of ineligible programs exceed our
statutory authority. One commenter also asserted that our rationale for
the proposed changes to allowable revenue from ineligible programs is
conjecture and does not meet APA standards.
In response to the Department's request for feedback about how to
provide flexibility to proprietary institutions to offer ineligible
programs that provide value to students while ensuring appropriate
guardrails, many commenters supported ensuring that proprietary
institutions offer ineligible programs that provide value to students.
These commenters stated current regulations have allowed proprietary
institutions to provide student opportunities that not only support
their academic pursuits but complement their skills development and
there has been a push toward badging and micro-credentialing as a
mechanism to affirm student skills. These commenters further stated
that the current language in Sec. 668.28(a)(3)(iii)(A) through (D)
more adequately provides the flexibility for proprietary institutions
to offer ineligible programs that provide value to students. Some of
these commenters suggested that, if the Department wants to enact
consumer protection measures, we may consider amending Sec.
668.28(a)(3)(iii)(E) or using the Guide For Audits of Proprietary
Schools and For Compliance Attestation Engagements of Third-Party
Servicers Administering Title IV Programs to provide specific direction
regarding the standards for industry-recognized credential or
certification rather than the proposed changes to Sec.
668.28(a)(3)(iii) introductory text and (a)(3)(iii)(A) through (D).\5\
These commenters stated that auditors could require that proprietary
institutions provide evidence that a credential is, in fact, industry
recognized by documenting job announcements requiring or preferring
such qualifications. They cautioned us against a narrow definition that
will
[[Page 65449]]
limit student opportunities and maintain the current regulatory
language. A few commenters did not support the idea that the programs
need to be related to the proprietary institution's eligible programs,
stated that this requirement is not stated anywhere in statute or
regulations, and stated that the idea that ineligible programs cannot
offer courses that are also offered in title IV-eligible programs
contracts the idea that they must be related.
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\5\ This guide and accompanying guidance documents can be found
on the Department of Education's Office of Inspector General web
page under Reports and Resources: https://www2.ed.gov/about/offices/list/oig/nonfed/proprietary.html.
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Discussion: We recognize that some ineligible programs have
consumer protection and oversight measures, but others may not since
ineligible programs may not be required to be approved by any entity.
This is unlike title IV-eligible programs, which are all required to
meet the standards of accrediting agencies, State authorizing agencies,
and the Department in order to be eligible to participate in the title
IV program. Previously, when the 90/10 calculation (and previously 85/
15) has been changed, proprietary institutions have made changes to
their programs and related activities to meet the new revenue
requirements. Some changes likely strengthened the programs and
provided better outcomes for students, while other changes were likely
made to exploit ambiguities in the regulations and that provided
questionable or no value for students. We expect that proprietary
institutions will adapt to the statutory change that requires all
Federal funds to be included in the numerator of the 90/10 calculation
to remain compliant with 90/10 requirements. In response to this
change, institutions may seek other ways to bring in non-Federal
revenue. The Department wishes to ensure that those revenues are in
line with the statutory intent of the 90/10 calculation, which is that
an institution provides enough value in its programs to account for at
least 10 percent of its revenues. Thus, the Department is implementing
appropriate guardrails that provide value to students without limiting
the ways that institutions may offer innovative and flexible programs.
These guardrails for ineligible programs were developed through
negotiations with Committee members and reflect consensus of the
Committee.
We appreciate feedback from commenters regarding consumer
protection measures. With the guardrails that the regulations enact, it
is not necessary to modify or curtail ineligible programs that meet the
requirements in Sec. 668.28(a)(3)(iii)(E). The Department may further
consider how we can help auditors and proprietary institutions define
industry-recognized credential in a meaningful yet appropriately broad
manner.
These regulations neither prescribe nor limit the curriculum or
content of ineligible programs. In addition, the regulations only apply
to revenue generated from ineligible programs that the institution
wishes to include in its 90/10 calculation.
The Department agrees with commenters that stated that ineligible
programs are not required to be related to the proprietary
institution's title IV programs in order to be counted in the 90/10
revenue calculation under the proposed regulation and that these
programs may differ. We clarify that we do not expect that ineligible
programs must be related to an institution's title IV programs, but we
do expect it to meet the outlined requirements in Sec.
668.28(a)(3)(iii).
Finally, these guardrails only apply to revenue included in the 90/
10 calculation. Proprietary institutions can continue to offer
ineligible programs that do not meet the criteria outlined in Sec.
668.28(a)(3)(iii), but they cannot include revenue generated from these
programs in their 90/10 calculation.
Changes: None.
Comments: Several commenters opposed modifying Sec.
668.28(a)(3)(iii) to exclude revenue from ineligible programs that
include courses also offered in eligible programs. These commenters
opposed the change because they stated that many ineligible programs
include general education courses or other content-specific courses
that are also included in title IV-eligible programs, and it is more
efficient for institutions to be able to offer the same course in both
programs. One commenter stated that it is illogical to exclude these
courses because revenue generated from the same courses would count in
the 90/10 calculation if included in an eligible program. Commenters
also asserted that it is unrealistic to expect proprietary institutions
to not have any overlapping courses. Additionally, some of these
commenters opined that title IV-eligible courses have demonstrated
quality, and therefore the Department's regulations that do not allow
students in ineligible programs to enroll in these courses do a
disservice to these students. These commenters requested the Department
explain the intention of modifying the non-title IV revenue
requirements to prohibit programs that include courses offered in an
eligible program.
A few commenters stated that they understood why the Department
proposed to exclude revenue from ineligible programs that include
courses also offered in title IV-eligible programs, but they believed
it would be more appropriate to limit the number of courses an
ineligible program could incorporate from eligible programs rather than
outright prohibiting these courses. A few commenters asked how the
Department would define ``course'' for the purposes of Sec.
668.28(a)(3)(iii).
Discussion: We recognize that some proprietary institutions will
need to adapt to meet the new requirement that proprietary institutions
must count all Federal revenue in the numerator of the 90/10
calculation. The Department is concerned this change may incentivize
proprietary institutions to push students to enroll in ineligible
programs that generate 90/10 revenues rather than programs that are
eligible for title IV aid, perhaps even ineligible programs that are
similar to, or piecemeal duplicates of, eligible programs if
institutions are allowed to include revenue from ineligible programs
that offer even a limited number of courses offered in eligible
programs. As some commenters noted, there may be eligible programs that
include general education courses, as well as more specialized content,
and institutions might recruit students to take the specialized content
courses that would not be eligible for title IV funds on a standalone
basis. Revenues from students who only enroll in courses from an
eligible program without enrolling in the eligible program will not be
counted in the institution's 90/10 revenues to avoid instances where
students eligible for title IV funds might be persuaded to pay for some
courses out-of-pocket to alter revenues an institution would report in
the 90/10 calculation. The Department is not preventing institutions
from offering any ineligible programs and these requirements only apply
when an institution wants to include revenue from the ineligible
program in its 90/10 calculation.
Regarding the definition of course in the context of ineligible
programs, the Department would determine on a case-by-case basis if an
institution should not count in its 90/10 calculation revenue from an
ineligible program because the ineligible program included content from
an eligible program for purposes of Sec. 668.28(a)(3)(iii).
Changes: None.
Comments: Several commenters requested clarification on proposed
Sec. 668.28(a)(3)(iii)(B) and language included in the preamble of the
NPRM which stated that a non-eligible course would need to be taught by
one of its instructors of an eligible program. These commenters
believed that statement differs from the proposed regulatory language,
which requires that the course
[[Page 65450]]
be taught by one of the institution's instructors. These commenters
stated the proposed rule does not conform to the consensus language and
that our interpretations as expressed in the NPRM preamble will reduce
educational opportunities for students seeking to enter essential
professions. These commenters further stated that the NPRM preamble
describing the proposed changes to Sec. 668.28(a)(3)(iii) arbitrarily
incorporates new language that changes the requirement to one that
requires the non-title IV eligible educational program's courses be
taught by instructors of a title IV eligible program in order for the
associated revenues to be included in the 90/10 calculation.
Discussion: We agree with commenters that the regulatory language
means that the instructor must be employed by the proprietary
institution, not that the instructor must be an instructor in a title
IV-eligible program. The Department clarifies that courses in an
ineligible program must be taught by one of the institution's
instructors, and that instructor may or may not teach in a title IV-
eligible program. We interpret this language to mean an instructor
employed by the institution, not an instructor under independent
contractor status.
Changes: None.
Comments: One commenter supported the proposed regulations that
would allow institutions to include revenue from ineligible programs
offered at an employer facility. Several commenters opposed the
Department's proposed regulations which would disallow revenue from
ineligible programs not offered at the institution's main campus, an
approved additional location, another school facility approved by the
appropriate State agency or accrediting agency, or an employer
facility. One of these commenters observed that institutions can offer
up to half of title IV-eligible programs at an unapproved location. A
few of these commenters asserted that distance education is a
beneficial mode of education and should be allowed when employers
accept training offered through this modality or when the program is
taught at a main campus approved by the appropriate State licensing or
accrediting agency.
Discussion: The Department appreciates the commenter's support for
allowing institutions to include revenue from an ineligible program
offered at an employer facility. We disagree with commenters that we
should allow proprietary institutions to count funds generated from
programs offered at other unapproved locations or through distance
education as non-Federal revenue in their 90/10 calculations. The
Department worked with the Committee to develop the language regarding
the location of ineligible programs and believes that the regulations
strike a balance between providing necessary consumer protections
guardrails for purposes of 90/10, while allowing proprietary
institutions to incorporate revenue from non-title IV programs of value
to students at other approved locations that provide Title IV programs
and from their main campus. The guardrails negotiated by the Committee
require proprietary institutions to exclude revenue generated from
ineligible programs offered through distance education. Restricting
program revenues for 90/10 to sources from approved locations will
better provide a nexus for those ineligible programs to be offered by
the institution's instructors. This will also ensure that the programs
are offered from locations that have authorization from an
institution's accrediting agency and from the states in which they are
located. Limiting these ineligible programs from distance education or
from unapproved locations will also permit greater oversight of the
reported revenues by the Department. After weighing the potential
benefits and risks, the Department has determined that the risk of
abuse outweighs the potential benefits. We decline to allow
institutions to include revenue generated from these ineligible
programs in their 90/10 calculations. We further note that these
regulations only govern revenue generated from ineligible programs that
an institution counts in its 90/10 calculation and does not exclude a
proprietary institution's ability to offer these programs.
Changes: None.
Comments: A few commenters requested clarification that the
appropriate State agency that can approve an ineligible program may be
the agency responsible for the profession and not the State educational
agency. Commenters stated educational programs not eligible for title
IV funding frequently provide specialized training education in
specific trades, including entry-level healthcare programs, electrical
and plumbing programs, and commercial truck driving. The commenters
further stated that in these cases, State agencies outside of the
States' Department of Education are often charged with approving trade-
specific education programs, such as Boards of Contractors, State
Licensing Authorities, Departments of State, Departments of
Transportation, or the State may contract out the certification process
to a third-party acting under the authority of the applicable State
agency.
Discussion: The Department interprets the appropriate State agency
to mean the agency responsible for approving or licensing the program,
which may not be the State education agency.
Changes: None.
Comments: A few commenters expressed concern that the term ``self-
study'' is ambiguous, and depending on the structure of certain
courses, the term ``self-study'' might mean a course that does not
follow a prescribed lecture format, a course that has little or no
direct student or instructor interaction, a course of independent
study, or an asynchronous distance education course. These commenters
requested clarification from the Department for what constitutes
``self-study.'' One commenter claimed the term is impermissibly vague.
Discussion: The Department disagrees with commenters that the term
self-study is vague and believes the definition of self-study course is
self-evident. Section 487(d) of the HEA states that institutions can
count funds paid by a student or on behalf of a student for an
ineligible program in their 90/10 calculation if the revenue is
generated from an ineligible education or training program if it meets
certain requirements related to industry credentialing or external
approvals from a state or accrediting agency. Self-taught or similar
types of self-directed programs often do not represent anything other
than an off-the-shelf product to which the institution adds no value or
enrichment for its students. Even in instances where they do not
represent an off-the-shelf product, they still represent little value-
added by the institution because they are self-taught or directed. One
of the purposes of the 90/10 calculation is to show that what the
institution offers is of sufficient value that students or others are
willing to invest non-Federal money to attend that institution.
Charging for an off-the-shelf product and counting that as non-Federal
revenue does not reflect any value from the institution any more than
revenues from unrelated products an institution might sell.
Changes: None.
Comments: A few commenters stated that the regulations should allow
institutions to count in their 90/10 calculation revenue from programs
that prepare students for initial licensure in a field because the
proposed regulations allow them to count revenue generated by programs
that help students maintain or supplement licensure.
Discussion: Ineligible programs that prepare students for licensure
would
[[Page 65451]]
generally be considered programs that provide an industry-recognized
credential or certification. Therefore, the Department would consider
revenue generated from these programs as permissible non-Federal
revenue for purposes of 90/10, as long as these programs meet the other
criteria outlined in Sec. 668.28(a)(3)(iii).
Changes: None.
Comments: A few commenters noted that the current 90/10 regulations
permit institutions to include revenues from programs that prepare
students to take an examination for an industry-recognized credential
or certification issued by an independent third party to count as non-
title IV revenue in their 90/10 calculation, and the proposed
regulations remove this provision. These commenters recommended that
the Department continue to allow this practice. A few commenters also
disagreed with the Department's assertion that quality programs
generally prepare students to sit for an exam without an additional
test preparation program. A few commenters also stated that students
may struggle with taking an exam for an industry-recognized credential
and noted that these test preparation courses help those students.
A couple of comments also asked for clarification on the proposed
language. They questioned if institutions could include revenue from
ineligible programs that train students for an industry-recognized
credential that is issued by a third party, not the institution, as
non-Federal revenue in their 90/10 calculation. A few of these
commenters provided examples of programs that they believe the
Department should recognize as allowable revenue.
Discussion: Test preparation programs do not constitute education
or training as required by section 487(d) of the HEA. These courses
represent review material, rather than the substantive training
provided to a student that is supposed to underpin the test preparation
classes. Additionally, the Department does not want to inadvertently
incentivize institutions to offer lower-quality education or training
programs that would have to be supplemented by taking a test
preparation course to pass the exam for an industry-recognized
credential in order to generate institutional revenue from the test
preparation class, or add additional requirements such as test
preparation courses that might unnecessarily raise costs for
students.\6\ Institutions may provide test preparation classes so long
as the revenues are not included in the 90/10 revenue calculation.
---------------------------------------------------------------------------
\6\ 87 FR 45456.
---------------------------------------------------------------------------
The Department clarifies that the institution itself is not
required to provide the industry-recognized credential for the program
to be included in the 90/10 calculation. We consider revenue generated
from ineligible programs that provide education or training needed for
an industry-recognized credential that is issued by a third-party, such
as commercial truck driving or allied health professions, as allowable
non-Federal revenue for purposes of 90/10.
Changes: None.
Application of Funds (Sec. 668.28(a)(4))
Presumption That Federal Funds Are Used To Pay Tuition, Fees, or Other
Institutional Charges
Comments: One commenter recommended that the Department modify the
presumption that Federal funds disbursed directly to a student are used
to pay tuition, fees, and other institutional charges. The commenter
recommended that we clarify that this presumption only applies if the
student makes a payment to the institution and that institutions should
limit the amount that they include as Federal revenue as the smaller
amount of the Federal funds the student received or the payment that
the student made to the institution.
Discussion: The regulations already clarify that proprietary
institutions only make this presumption if a student makes a payment to
the institution. In terms of limiting the payment to the lesser amount
of the Federal funds received or the funds the student paid the
institution, section 487(d) of the HEA states that the institution
should presume that ``any Federal education assistance funds that are
disbursed or delivered to or on behalf of a student will be used to pay
the student's tuition, fees, or other institutional charges.''
Therefore, it would be inconsistent with the statute to limit the
presumption to be either the lesser of the payment or the Federal funds
received.
Changes: None.
Grant Funds Provided by Non-Federal Agencies That Are Comprised of
Federal and State Funds
Comments: Several commenters recommended that the Department not
require proprietary institutions to obtain the breakdown of Federal and
State portions of grant funds from non-Federal agencies because this
would be a de minimis amount and would be unduly burdensome for the
institution. A few other commenters recommended that the dollar amounts
would be so small that the Department should allow institutions to
count the full grant from the non-Federal agency as funds that can
satisfy a student's tuition, fees, or other institutional charges, even
if those grant funds have some Federal dollars. A few commenters
suggested that the Department reduce the burden on institutions by
publishing the Federal and State percentages of grant funds from non-
Federal agencies for institutions to reference. One commenter suggested
that we allow institutions to exclude students from their 90/10
calculations if those students received grant funds from a non-Federal
agency and the proprietary institution is unable to determine the
breakdown of Federal and State funds for the grant. Finally, one
commenter asked to what lengths an institution should go to obtain this
breakdown of grant funds.
Discussion: The Department disagrees with assertions that it will
be unduly burdensome for institutions to obtain the Federal portion of
grant funds. Non-Federal agencies are required to follow strict
accounting procedures for Federal funds, and proprietary institutions
should be able to work with the relevant agencies to obtain this
breakdown.\7\ Institutions, not the Department, are the best situated
entities to be familiar with grants from non-Federal agencies and to
work with those agencies to obtain additional information as necessary.
The statute clearly intends for all Federal funds to be captured in the
numerator of the 90/10 calculation, and it would be inconsistent with
the statute to allow institutions to count certain Federal funds as
reducing other Federal funds or to not count a student's other Federal
revenue in limited situations where the institution cannot obtain the
breakdown of Federal and non-Federal funds. The regulations clarify
that in instances where the institution cannot determine the amount of
Federal funds, the institution must exclude the entirety of the funds
from the calculation.
---------------------------------------------------------------------------
\7\ OMB Circular A-87, revised May 10, 2004: www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A87/a87_2004.pdf.
---------------------------------------------------------------------------
Although institutions must exclude funds for which they cannot
determine the breakdown, we expect institutions to attempt to determine
the Federal and non-Federal breakdown of grant funds. The Department
would evaluate whether the institution sufficiently attempted to
determine the Federal and non-Federal components of grant funds on a
case-by-case basis in when the
[[Page 65452]]
institution is unable to obtain this breakdown.
Changes: None.
Funds Allocated Under Workforce Innovation and Opportunity Act (WIOA)
Comments: A few commenters stated the classification of WIOA-type
funds as Federal education assistance funds would violate section
487(d)(1)(C)(ii) of the HEA, which states that an institution can apply
funds provided under a contractual arrangement with a Federal, State,
or local government agency for the purpose of providing job training to
select individuals to satisfy a student's tuition, fees, or other
institutional charges before it applies Federal funds to those charges.
The commenters further stated that we have long recognized that WIOA
funds fit this definition because WIOA funds are provided under a job
training contract funded for the purpose of providing job training to
dislocated workers and individuals who are unemployed, underemployed,
or disabled. They opined that the Department has long permitted
proprietary institutions to apply WIOA-type funds to tuition and fees
prior to applying title IV funds. The commenters suggested that even
under the ARP, an institution must continue to apply first any WIOA-
type funds to a student's tuition, fees, or other institutional
charges. One commenter concluded that categorizing WIOA-type funds as
Federal education assistance funds and as job training funds applied
first would render the presumption rule superfluous as to WIOA-type
funds, in violation of Supreme Court precedent.\8\
---------------------------------------------------------------------------
\8\ The comment cited McNeill v. United States, 563 U.S. 816,
822 (2011) citing United States v. Wilson, 503 U.S. 329, 334 (1992)
(``[A]bsurd results are to be avoided'')
---------------------------------------------------------------------------
Discussion: Institutions can apply non-Federal portions of WIOA-
type funds to tuition, fees, and other institutional charges. Section
487(d)(1)(C)(ii) of the HEA refers to the application of funds that the
institution receives from a contract. The section does not categorize
those funds as Federal and non-Federal. It would be inconsistent with
the statutory change enacted by the ARP, which states that institutions
must include all Federal education assistance funds in the numerator of
their 90/10 calculation, to continue to allow institutions to first
apply Federal portions of WIOA-type funds to tuition, fees, and other
institutional charges before applying other Federal funds.
Changes: None.
Revenue Generated From Institutional Aid (Sec. 668.28(a)(5))
Institutional Loans
Comments: Many commenters supported the Department's proposal to
clarify that only principal payments on institutional loans count as
non-Federal for 90/10 purposes. One commenter also supported the
Department clarifying that institutional scholarships defined in Sec.
668.28(a)(5) exclude funds from the institution, its owners, or
affiliates.
Discussion: We thank the commenters for their support. We clarified
appendix C to show how institutions should record this when calculating
90/10. We modified the line item for institution loans in appendix C to
show how institutions should notate the full amount they received from
students repaying institutional loans in the first column, but
institutions should calculate and only include the principal payment
amount in the second adjusted amount column.
Changes: We revised the line item showing institutional loans in
appendix C.
Income Share Agreements
Comments: Many commenters generally supported the Department's
proposed guardrails that institutions must abide by in order to include
revenue from ISAs in their 90/10 calculation. Many of these commenters
also supported not allowing institutions to count proceeds from the
sale of ISAs in their 90/10 calculation.
Discussion: The Department thanks these commenters for their
support.
Changes: None.
Comments: Several commenters opposed the proposed requirement that
only the portion of cash payments that represent ``principal payments''
on ISAs or alternative financing agreements should be included in 90/10
calculations. These commenters stated that because ISAs do not have
principal balances or charge interest, and because the amount that
students may ultimately pay under an ISA (if any) is indeterminable
until after the end of the end of the ISA, no portion of any student's
payment is a payment of principal, and there is no established
methodology for imputing or inferring what amount of a student's
payment can reasonably be attributed to ``principal.'' These commenters
stated that, in its current form, the proposed rule unreasonably fails
to provide sufficient guidance to proprietary institutions that provide
ISAs to comply with the proposed requirements. They recommended that we
should count the entirety of each payment until the total amount of
payments exceeds the amount financed and any amount exceeding the
amount financed should not count as non-Federal revenue.
A few other commenters requested additional clarification on
whether the principal payments on the income share agreement or other
financing agreement must be aligned with current institutional charges,
or whether principal payments made following matriculation, but still
related to an institutional charge, may be counted. The commenters
stated that this would arise in a situation in which the borrower has
graduated, but the terms of the payment extend beyond the completion
date.
Discussion: The Department does acknowledge the commenters'
assertions that ISAs may be structed differently than traditional
private loans and may use different terminology than ``principal'' and
``interest'' for similar concepts. In the normal course of business, an
entity must record what portion of payments they receive from students
is considered profit and what portion is considered a return of
capital. For 90/10 purposes, a portion of student payments must be
allocated to profit, and a portion must be allocated as a return of
capital. Institutions must limit the return of capital included in
their 90/10 calculation to the amount of capital originally applied to
tuition, fees, and other institutional charges according to the
application of payments for the 90/10 calculation. We revised our
terminology to be broader in two paragraphs and also revised the ISA
line item in appendix C to reflect that the total amount of student
payments that an institution receives is not the same amount that it
counts in its 90/10 calculation. We modified Sec. 668.28(a)(5)(ii)(B)
to provide that the agreement clearly identifies the maximum time and
maximum amount a student would be required to pay, including the
implied or imputed interest rate, any fees, and any revenue generated
for a related third-party, the institution, or any entity described
above for that maximum time period, and Sec. 668.28(a)(5)(ii)(C) to
provide that all payments must be applied with a portion allocated to
the return of capital and a portion applied to profit and that revenue,
interest, or fees would not be included in the calculation.
We continue to believe that institutionally-issued ISAs and other
alternative financial products should be treated the same as
institutional loans in the 90/10 calculation. Institutions may only
count in their 90/10 calculation the principal payments made on private
institutional loans, and it is appropriate
[[Page 65453]]
to have similar requirements for ISAs. If the Department allowed an
institution to include the full payments on ISAs up to the amount of
institutional charges, this may incentivize the use of ISAs because
institutions would be able to count the student's full payment amount
in their 90/10 calculation rather than only a portion of the payment.
The Department, the Truth in Lending Act (TILA), and its
implementing Regulation Z \9\ require that institutions provide
numerous disclosures on private institutional loans so that borrowers
can make an informed financial choice. Students should be able to make
meaningful comparisons between ISAs and traditional loans. ISAs and
other alternative financial products should be required to provide
similar disclosures so that students can compare the various financial
options available to them. The Department declines to remove the
disclosure requirements and believes that institutions base the imputed
or implied interest rate it discloses based on the maximum time and
amount that a student would be required to repay. These requirements
only apply to revenue from ISAs or other alternative financing
agreements that institutions wish to count in their 90/10 calculation,
and these regulations do not apply to ISAs or alternative financing
agreements that institutions do not wish to include in their 90/10
calculation or to ISAs or alternative financing agreements financed by
an unrelated third-party that does not meet any of the criteria
described in Sec. 668.28(a)(5)(ii).
---------------------------------------------------------------------------
\9\ 12 CFR part 1026.
---------------------------------------------------------------------------
In response to questions about the application to tuition, fees,
and other institutional charges, the Department clarifies that ISAs and
other alternative financing products should be treated like
institutional loans. This means that the relevant tuition, fees, and
other institutional charges that the institution should identify in its
agreement and consider when determining the portion of a student's
payment that counts in its 90/10 calculation are those at the time the
student signs the agreement. Institutions are also required to take
into consideration the amount of payments for tuition and fees that
were allocated to payments of Federal funds under the presumption in
Sec. 668.68(a)(4). The institution is responsible for keeping track of
the relevant tuition, fees, and other institutional charges that were
not deemed to be paid for with title IV funds to ensure that when the
student begins making payments on the product, the institution does not
count in its 90/10 calculation payments that exceed the tuition, fees,
and other institutional charges that were not paid by title IV funds.
We have clarified that regulation to convey more clearly which
institutional charges are relevant to the agreement.
Changes: We clarified Sec. 668.28(a)(5)(iii)(A) to better
communicate what stated institutional charges the agreement must not
exceed. The Department revised Sec. 668.28(a)(5)(iii)(B) to provide
that the agreement clearly identifies the maximum time and maximum
amount a student would be required to pay, including the implied or
imputed interest rate and any fees and revenue generated for a related
third-party, the institution, or any entity described above, for that
maximum time period, and Sec. 668.28(a)(5)(ii)(C) to provide that all
payments are applied with a portion allocated to the return of capital
and a portion allocated to profit and that revenue, interest, and fees
are not included in the calculation. We also revised the line item in
appendix C showing how institutions should count payments on ISAs
covered by Sec. 668.28(a)(5)(ii) in their 90/10 calculation.
Comments: Commenters stated that the Department lacks the legal
authority to establish an interest rate limit, either real or imputed,
on ISAs for 90/10 purposes or for any other purpose. These commenters
stated that, even if the Department has such authority, the proposed
regulation is arbitrary and favors more traditional private student
loans over ISAs without any countervailing policy benefits. The
commenters further suggested that, if the Department is correct in its
concurrence with the Consumer Financial Protection Bureau's (CFPB's)
assertion that ISAs are private education loans, then the Department
has no more authority to restrict the imputed interest rates of ISAs
then it has to restrict interest rates for more traditional private
education loans. These commenters stated that interest rate limits on
ISAs are regressive and opined that the regulation fails to fully
define ISAs or alternative financing mechanisms. A couple of commenters
asked if an institution could subsidize the interest rate if so that it
would, in effect, be same as or lower than the comparable Direct Loan
interest rate.
A few commenters stated that ineligible programs, by definition,
are not eligible for title IV funding and noted there are situations in
which individual students may not be eligible for title IV funds. Thus,
they questioned the Department's rationale for requiring that the
implied or imputed interest rate of ISAs not exceed the interest rate
on comparable Federal loans since students may not be eligible for
those loans. They also recommended that we amend the section governing
interest rates for ISAs to include all borrower types, and not just
undergraduates and graduates.
Discussion: In light of the comments the Department received
regarding the structure of ISAs, we have removed the proposed limit on
the interest rate that ISAs can assess if they are included in an
institution's 90/10 calculation. We have decided to remove this
proposed requirement because, as commenters noted, the rate will vary
from student to student and at various times over a students' payment
trajectory if their income changes.
Changes: The Department removed the proposed limit on the interest
rate for an ISA that an institution must disclose to a student if the
ISA funds are included in its 90/10 calculation in Sec.
668.28(a)(5)(ii)(D). As a technical change, we moved proposed Sec.
668.28(a)(5)(iii) to Sec. 668.28(a)(6)(vii), redesignated proposed
Sec. 668.28(a)(5)(iv) as Sec. 668.28(a)(5)(iii), and redesignated
proposed Sec. 668.28(a)(6)(vii) as Sec. 668.28(a)(6)(viii). We moved
this paragraph because this provision is more appropriately included in
the paragraph that outlines what funds must be excluded from an
institution's 90/10 calculation.
Comments: A few commenters requested clarification on whether Sec.
668.28(a)(5), specifically the paragraph about ISAs, applies to both
eligible and non-eligible programs. These commenters observed that the
example in appendix C of revenue generated from ineligible programs
does not include an example of these payments. A few commenters urged
the Department to be mindful of student affordability concerns and
allow institutions to include payments on ISAs or other alternative
financing agreements in their 90/10 calculations with appropriate
guardrails.
Discussion: Institutions can generate non-Federal revenue from
payments on ineligible programs from sources identified under Sec.
668.28(a)(5). As previously stated, appendix C is an example and is not
intended to reflect every line item an institution may include.
Finally, we believe these regulations align with commenters who urged
us to allow institutions to include ISAs with appropriate guardrails.
Changes: None.
Comments: A couple of commenters asked us how we would evaluate the
relationship between a vendor and an institution and if the term
limitation applies to both ISAs and private loans.
[[Page 65454]]
Discussion: We revised Sec. 668.28(a)(5)(ii) to clarify the
relationships covered by these regulations. The Department would
evaluate if the relationship between a vendor and an institution meets
these criteria to determine if the ISA or alternative financing
agreement is covered by this section. ISAs and private loans must meet
the Department's established criteria for private loans, and those
would be the applicable term limitation for them. (See 34 CFR part
601.) We also note that TILA and Regulation Z outline additional
requirements for private education loans.
Changes: The Department revised the relationships covered by Sec.
668.28(a)(5)(ii) to include agreements with the institution only or
with any entity or individual in the institution's ownership tree, or
with any common ownership of the institution and the entity providing
the funds, or if the entity or another entity with common ownership has
any other relationships or agreements with the institution.
Comments: A few commenters asked the Department what we would
consider to be an ISA or alternative financing agreement.
Discussion: We would generally consider an agreement with a student
or prospective student that is not a traditional loan but involves the
institution or related party, as defined in Sec. 668.28(a)(5)(ii),
paying or reducing tuition, fees, or other institutional charges with
the anticipation that a student will repay that entity later using
other defined repayment terms as an ISA or other alternative financing
agreement.
Changes: None.
Institutional Scholarships
Comment: One commenter argued that the Department should include
``tuition discount'' in its definition of allowable revenue from
institutional scholarships because that is included in section
487(a)(1)(D)(iii) of the HEA, which describes allowable revenue from
institutional scholarships.
Discussion: The commenter is correct about the content of this HEA
section. However, section 487(d)(1)(a) of the HEA requires that
proprietary institutions calculate their revenue for purposes of 90/10
through cash basis accounting. Tuition discounting is not a cash
payment on a student's ledger, and therefore it would not be able to be
counted as allowable institutional revenue using this method of
accounting.
Changes: None.
Funds Excluded From Revenues (Sec. 668.28(a)(6))
Institutional Matches and Returned Federal Funds
Comments: One commenter asked the Department to clarify if
institutional matching funds for Federal programs that are not title IV
programs are excluded from a proprietary institution's 90/10
calculation. The commenter stated that they assumed the Department
means to treat institutional matching funds the same for both title IV
and Federal programs. The commenter also requested that the Department
clarify if it intends for proprietary institutions to exclude all
Federal funds that are required to be refunded or returned, or if the
Department intends only for institutions to exclude title IV funds that
must be returned under Sec. 668.22. Similarly, the commenter stated
that they assume the Department means to treat Federal funds the same
as title IV funds for purposes of exclusions.
Discussion: The commenter is correct, and we have changed Sec.
668.28(a)(6)(iii) and (iv) to clarify our intent. The final rule
excludes from the proprietary institutions' revenue calculation all
funds provided by the institution as matching funds for all Federal
programs. The exclusion is not limited to just title IV programs.
However, we clarify that if institutions use any qualified outside
funds, such as state grants, to satisfy institutional matching
requirements for Federal funds, institutions can include those
qualified funds in their 90/10 calculation. This is consistent with
what we allow for institutional matching funds for title IV programs.
Likewise, the final rule excludes from proprietary institutions'
90/10 calculation the amount of all Federal funds, not just title IV
funds, that must be returned to their respective granting agencies.
Changes: The Department changed Sec. 668.28(a)(6)(iii) to provide
that, for the fiscal year, the institution does not include the amount
of institutional funds used to match Federal funds. Further, the
Department changed Sec. 668.28(a)(6)(iv) to provide that, for the
fiscal year, the institution does not include the amount of Federal
funds refunded to students or returned to the Secretary under Sec.
668.22 or required to be returned to the applicable program.
Sale of Accounts Receivable
Comments: Several commenters supported the Department's proposal to
exclude proceeds from selling accounts receivable in an institution's
90/10 calculation. Several other commenters supported allowing
proprietary institutions to count proceeds from accounts receivable as
non-Federal revenue in their 90/10 calculation. Many of these
commenters indicated that the HEA does not authorize the Department to
deny an institution from taking accelerated tuition payments, which
they stated is what proceeds from the sale of accounts receivable
represent. A few commenters observed that institutions are currently
allowed to count revenue from accounts receivable in their 90/10
calculation and asked the Department to explain its rationale for
changing current practice. A few commenters requested clarification
whether Sec. 668.28(a)(6) is intended to exclude any amount of this
revenue, or only the portion of the sale that is not tied back to
tuition, fees, and institutional charges.
Discussion: The Department disagrees with commenters that the
proceeds from sales of accounts receivable represent payments of
tuition, fees, or other institutional charges for the purposes of
education or training. As stated in the NPRM, through program reviews
and oversight activities, the Department has observed instances where
sales of institutional loans were made at inflated prices to entities
that were later identified as being parties to other business
relationships with the institution.\10\ Even instances where the sales
of accounts receivables are to unrelated business entities, the
Department has determined that those proceeds should be excluded
because they are not for tuition and fees provided by the institution
that should be counted in the 90/10 revenues. These payments are from
entities that are purchasing assets in an expectation that they may be
able to profit from collecting on those debts. Since these sales to
other parties are not made to pay tuition and fees for students,
excluding these proceeds from the institution's revenues for the 90/10
calculation is consistent with intent of the statute.
---------------------------------------------------------------------------
\10\ 87 FR 45459.
---------------------------------------------------------------------------
Changes: None.
Sanctions (Sec. 668.28(c))
Requirement That a Proprietary Institution Notify Students if It Fails
90/10
Comments: Many commenters supported the Department's proposed
regulations to require an institution to notify students if it does not
pass 90/10. A few commenters recommended that the Department not
require institutions
[[Page 65455]]
to notify students because it might encourage students to prematurely
leave the school when the failure may be minor or a calculation error.
One commenter recommended that Sec. 668.28(c)(3) note that proprietary
institutions, when informing students of the institution's 90/10
failure for a particular fiscal year, may also provide a statement
about the institution's remedial plan for seeking to achieve 90/10
compliance in the next fiscal year. One commenter asked the Department
to define what it considers a notification.
Discussion: We appreciate support from commenters who agree that an
institution should notify students if it fails 90/10 in a fiscal year.
The Department disagrees with commenters that do not think an
institution should be required to notify students because students
should have timely information about a potential loss of title IV
eligibility at that institution so that they can make informed
enrollment decisions. Nothing in the Department's requirement that
institutions notify students prohibits institutions from describing the
steps that they are taking or will take to address the 90/10 failure.
Institutions are the best judge of how to communicate information
to their students, but we would generally expect that a notification
would be published on an institution's website, emailed to students,
and communicated in some medium that all students can and do access.
Additionally, the notification should use plain language and clearly
communicate that a consecutive failure would mean that students are no
longer able to use their title IV funds at the school.
Changes: None.
Notifying the Department if an Institution Later Determines That It
Failed 90/10
Comments: A few commenters requested clarification of Sec.
668.28(c)(4) and what the Department considers immediate notification
that the institution obtained additional information and calculated
that it had failed the 90/10 calculation more than 45 days past the
fiscal year end date. A few commenters recommended we include a
timeframe with a specific number of business days instead of requiring
an ``immediate'' notification.
Discussion: We decline to include a certain number of business days
that an institution must notify the Department because we recognize
that institutions may obtain new information under different
circumstances, and it is more appropriate to maintain the flexibility
to determine if the institution provided an immediate notification.
Generally, we would interpret the plain language reading to mean that
institutions notify the Department as soon as they obtain this
additional information.
Changes: None.
Liability for Title IV Funds Disbursed After Losing Eligibility Due to
90/10 Failure
Comments: A few commenters opposed the Department's proposal to
institute full liability for title IV funds disbursed after an
institution fails 90/10 and encouraged us to continue our current
practice of using the estimated loss formula to assess liability. These
commenters observed that initial determinations of 90/10 compliance
made in good faith may be overturned months later after many loan
disbursements have been made based on additional information the
institution obtains. These commenters argued that if the institution
acted in good faith, the Department should not gain a double recovery
on loan payments from students and punish the school. One commenter
opined that this proposal seems designed to close any proprietary
institution that loses title IV eligibility due to failing 90/10.
Several commenters requested clarification for when an
institution's liability begins. A few commenters stated that an
institution can only be liable for funds it disburses after it
determines that it failed 90/10.
Discussion: The Department clarified Sec. 668.28(c)(5) that
institutions are liable for title IV funds that they disburse beginning
on the first day of the fiscal year immediately following their second
consecutive 90/10 failure. Instituting full liability beginning on the
first day of the fiscal year after an institution loses title IV
eligibility due to two consecutive 90/10 failures will better protect
the integrity of taxpayer dollars. Based on the Department's
experience, institutions monitor their compliance with 90/10 throughout
the fiscal year and are aware when they are going to fail, or are close
to failing, the standards. Establishing full repayment liability is
necessary to discourage institutions from disbursing title IV funds
after losing eligibility or delaying conducting their 90/10 calculation
in order to prolong title IV eligibility where the institution would
otherwise benefit by having its students being responsible to repay the
ineligible loan funds that the institution received on their behalf.
The decision to continue disbursing funds when there is a loss of
eligibility, or a high risk of a loss of eligibility, falls solely with
the institution and therefore the institution should solely be
responsible for the repayment of those funds. The Department disagrees
with commenters that claimed that we do not have the authority to
assess liability for any part of a fiscal year before the institution
determines that it fails 90/10. Section 487(d) of the HEA establishes
that a failure of the 90/10 revenue requirements for two consecutive
years makes the institution ineligible. The regulations try to mitigate
any liabilities for title IV funds provided to ineligible institutions
by requiring the institutions to monitor and report promptly when an
institution fails the 90/10 requirement for a fiscal year. Institutions
that are at-risk of losing title IV eligibility for a second
consecutive 90/10 failure should monitor their funding closely,
including making inquiries of students about the sources of aid they
may be receiving from Federal sources. Further, institutions are
required to submit their 90/10 calculation within 45 days of the end of
their fiscal year and, in most situations, institutions know or should
know within that window if they failed 90/10.
Changes: The Department added language to Sec. 668.28(c)(5)
clarifying when liability begins.
Change in Ownership (Sec. Sec. 600.2, 600.4, 600.20, 600.21, and
600.31) (HEA Sections 101, 102, 103, 410, and 498)
General Support
Comments: A few commenters offered unqualified support for the
Department's suggested changes to the change in ownership (CIO)
regulations. Many commenters offered some support, if only for our
intent to clarify and improve the CIO regulations and the need to
create regulations to address what commenters described as significant
problems, while also offering suggestions for or objections to some of
the proposed changes.
Discussion: The Department thanks commenters for their support. We
have attempted to clarify and otherwise improve the CIO process for all
concerned parties.
Changes: None.
General Opposition
Comments: Some commenters expressed concern that the Department is
over-regulating since CIOs are uncommon and suggested this overreach is
a result of some large, prominent, and disruptive failed transactions.
Commenters disagreed that the regulations would provide greater clarity
as the Department argued. Other commenters expressed opposition to
individual components of the CIO regulations. One commenter
[[Page 65456]]
recommended that, rather than promulgate these regulations, the
Department should work with Congress to clarify the CIO provisions as
Congress works to reauthorize the HEA.
Discussion: There are several reasons for the Department pursuing
these changes to the CIO regulations, including to provide greater
clarity in, and codification of, current practice, as well as address
distinct problems identified by the referenced Government
Accountability Office (GAO) report at https://www.gao.gov/products/gao-21-89. As noted in the NPRM, and as reported in 2020 by the GAO,
between January 2011 and August 2020, of 59 changes of ownership
(involving 20 separate transactions) involving a conversion from a for-
profit entity to a nonprofit entity, one entire chain that comprised 13
separate institutions was granted temporary continued access to title
IV, HEA aid but ceased operations prior to the Department reaching a
decision on whether to approve the requested conversion to nonprofit
status. Three-fourths were sold to a nonprofit entity that had not
previously operated an institution of higher education, increasing the
risk that students may not get the educational experience for which
they are paying. One-third had what GAO termed ``insider involvement''
in the purchasing of the nonprofit organization (i.e., someone from the
former for-profit ownership was also involved with the nonprofit
purchaser), suggesting greater risk of impermissible benefits to those
insiders. Altogether, the 59 institutions that underwent a change in
ownership resulting in a conversion received more than $2 billion in
taxpayer-financed Federal student aid in Award Year 2018-19.
Given the high impact that will likely result from these
transactions, we believe these regulations are necessary to carry out
our statutory obligation to prudently implement and oversee the title
IV, HEA student assistance programs. We respond to specific comments
about pieces of the CIO regulations in the appropriate sections.
Changes: None.
Comments: Some commenters requested further clarification regarding
what they described as the insufficiency of the current regulatory
framework and requested the Department provide further explanation of,
and justification for, the regulatory changes. These commenters stated
that the amended definitions do not provide sufficient clarity and that
the definitional changes could result in profound disruption to
institutions undergoing the CIO process. These commenters further
stated the Department does not sufficiently justify under the APA the
need for the changes to the definitions and should provide actual,
realistic, and evidence-based justifications.
Discussion: The GAO report on nonprofit conversions is sufficient
justification for these regulatory changes. It demonstrated both a
significant increase in the number of CIOs, as well as significant
title IV funds flowing to institutions involved in CIOs (and as
specifically reviewed in the report, conversions to nonprofit status).
Moreover, in reviewing numerous CIO applications, we believe these
regulations will provide necessary clarity about what will and will not
lead to a successful CIO process. This clarity will in turn help
institutions undertaking a CIO to meet the standards in these
regulations more easily. We disagree that the definitions are unclear;
for example, the amended definition of ``nonprofit institution'' adds a
description of institutional characteristics that do not generally meet
the definition, which will ensure that institutions do not reach an
inaccurate interpretation. We also disagree that these amended
definitions will contribute to the disruption of institutions going
through changes in ownership. Instead, the regulations create a more
structured process that includes deadlines for when the Department must
receive certain information and clarifies the standards for what
constitutes a CIO. We also increase the percentage of ownership
interest that will, by definition, constitute a change of ownership and
control, sparing institutions that previously may have had to undergo
lengthy CIO reviews for certain ownership changes that did not in fact
represent a change in control. Finally, 20 U.S.C. 1221e-3 and 3474
authorize the Secretary to promulgate regulations relating to programs
administered by the Department and as the Secretary determines
necessary and appropriate to administer and manage the functions of the
Department.
Changes: None.
Value of CIOs
Comments: Some commenters emphasized that CIOs are often in the
best interests of schools and taxpayers in that they allow for new
investment in institutions or the continued healthy operations of
institutions. These commenters further stated that CIOs typically occur
because an interested buyer has more resources to inject into the
school to strengthen it, the current owner is planning to retire or
leave the industry, or an investment fund has timed out. These
commenters added that CIOs can prevent the closure of institutions that
may be struggling, thereby preventing disruption to students'
educational programs, and saving both taxpayers and institutions from
covering the cost of avoidable closed school discharges.
Discussion: The changes will not preclude CIOs, and the Department
acknowledges, as some commenters have stated, that a CIO can be
beneficial for a school. That is true in some, but not all
circumstances, so the changes also strive to protect students and
taxpayers.
Changes: None.
Regulatory Implementation
Comments: In response to questions from the Department about when
to implement these regulations, several commenters recommended at least
one full academic year to allow institutions an appropriate amount of
time to implement the regulations. A few commenters suggested delaying
the rule up to 3 years. Other commenters requested clarity on how the
new regulations would apply to institutions currently in the process of
a CIO. They argued that these regulations should not apply to
transactions currently in process. Several other commenters argued for
the need to address this pressing problem without commenting on a
specific implementation date.
Discussion: In considering the implementation question further, the
Department believes it is appropriate to follow the master calendar
provision in section 482 of the HEA and have these regulations take
effect on July 1, 2023. The Department is concerned that as the number
of applications for CIOs continues to grow it is important to put in
these rules clarifying the process as soon as possible. Doing so will
help institutions put together transactions that are reviewed in a more
efficient manner. We disagree with waiting one or as many as three
years for the implementation of these regulations. Given that these
regulations consider the structuring of transactions rather than the
way institutions operate, we do not believe that institutions will need
significant time to adjust the way they administer the title IV
programs to meet these requirements. As such, we see no need to delay
the implementation date.
Regarding CIOs that are underway, because these regulations will go
into effect on July 1, 2023, any transaction that is slated to close on
or after July 1, 2023, would be subject to the requirements in this
regulation. However, the 90-day advance notice requirement would not go
into effect
[[Page 65457]]
until July 1, 2023, as well. That means any transaction that is
scheduled to close between July 1, 2023, and October 1, 2023, would not
be subject to this 90-day requirement since that would require
submitting a notice prior to the effective date of the regulations.
Changes: None.
GAO Report and Risk
Comments: Commenters requested clarification on the types of
transactions that have proven extremely risky for students and
taxpayers. Some commenters requested clarification on how the
referenced GAO report that focused on nonprofit conversions informed
the Department's approach to transactions that do not involve
conversions.
Commenters stated that risk is an unavoidable part of any
transaction and asked what level of risk we would be willing to accept.
Commenters further stated that the Department provides no evidence of
assessments of ``imminent or excessive risk'' to students and taxpayers
and requested examples of previous transactions that constituted an
unacceptable amount of risk.
Discussion: The GAO report explains the kind of risk that
conversions entail and has been linked to. As noted above, the GAO
report deals with conversions. However, all CIOs--whether they involve
conversions or not--involve risk. When a new entity takes control of an
institution, we are concerned with whether the institution has the
ability and financial resources to operate the school. We have seen
instances where a new institution either lacked the financial resources
or was too burdened with debts or other obligations (whether to former
owners or other creditors) to succeed. In other instances, an entity
that has never operated a school struggles to maintain a school, or an
entity that has operated a smaller school struggles to operate a larger
school or to integrate additional campuses and locations into their
operations. Because the concerns vary and are often case-specific, the
Department believes that the regulations lay out a concrete process
that will ensure we receive the information we need to make a thorough
review of a CIO, discourage the instances that have been the most
concerning in the past, and provide flexibility for institutions that
may previously have been subject to a CIO review because they met the
current 25 percent threshold, but the proposed transaction did not
actually involve a change in control.
Evidence that we could adduce to support regulating in this
instance is based on Department experience with a wide variety of
CIOs--each of which is fact-specific--and does not lend itself to
exposition in this final rule.
Changes: None.
Definitions (Sec. 600.2)
Comments: Some commenters expressed concern related to the amended
definitions for ``additional location'' and ``branch campus'' and asked
why those definitions refer to ``physical'' facilities. These
commenters questioned what impact these changes have on the definition
of ``prison education programs,'' which are considered additional
locations but can be offered through distance education.
Commenters requested further clarification regarding these
definitions on the inclusion of ``separate'' from the main campus when
``geographically apart'' is a more precise term. Some commenters asked
what a location is called that has less than 50 percent of an academic
program.
Finally, commenters suggested the Department define ``ownership
structure.''
Discussion: We refer to additional locations and branch campuses as
physical locations to emphasize that they are ``brick and mortar''
places of education. PEPs are similar in that they consist of actual
locations where students are collectively located and receiving
education together even if that is just, for example, a computer lab
dedicated to distance education.
We agree that some precision might have been lost in the change to
the word ``separate'' and have added back the word ``geographically''
in the definition of ``additional location'' and ``branch campus.''
``Ownership structure'' refers to the entities and individuals
involved in the ownership of an institution.
We do not define in regulation a special term for a location that
offers less than 50 percent of a program.
Changes: We have changed ``separate'' to ``geographically
separate'' in the definitions of ``additional location'' and ``branch
campus'' in Sec. 600.2.
Distance Education (Sec. 600.2)
Comments: Commenters stated that the amended definition of
``distance education'' is ambiguous and asked whether it is only
relevant to the Department's internal reporting systems. These
commenters contended that requiring distance education programs to be
offered and approved from the main campus would create significant
disruptions to students and unnecessary costs for institutions without
a discernable benefit.
These commenters further stated that institutions have used the
flexibility afforded under current regulatory guidance to offer
distance education programs from locations that will benefit the most
students and some students will lose eligibility for State grant funds
if a distance education program can only be offered from a main campus
that is in a different State.
Some commenters stated that requirements related to distance
education should not be included in CIO regulations and should instead
be promulgated in a distance education rulemaking package to ensure
that affected institutions are aware of the proposed changes.
Commenters recommended that we allow distance education programs to be
offered from branch campuses. Some commenters recommended that if the
proposed changes to the definition of ``distance education'' are
finalized, we should alleviate institutional burden by grandfathering
existing distance education programs and delaying the effective date
for three years to allow students to graduate from existing programs.
Some commenters also referred to waiving fees and costs whenever
possible, presumably referring to fees that some States and accrediting
agencies charge, because the Department does not charge fees.
Commenters stated the regulation does not take into account the
varying State standards related to physical presence. They noted that
many States have physical presence triggers that describe these
standards, and whether institutions are physically located in a State
or offer instruction in a State may or may not trigger a State
licensure requirement under applicable State laws. Commenters requested
clarification that an institution only needs to provide CIO approvals
from States in which its operations trigger a license requirement and
greater clarity on how ``physically located'' will be interpreted.
Discussion: As described in the NPRM, the Department's primary goal
for updating the definition of distance education is to ensure
equitable treatment to students enrolled in distance education,
including for closed school discharges. However, we are persuaded by
the commenters that the change we proposed could create significant
unintended challenges for students and institutions that requires
additional consideration. We also believe that there could be other
ways to address programs that are offered fully through distance
education programs. Therefore, we removed the proposed addition to the
regulations
[[Page 65458]]
stipulating that distance education must be associated with an
institution's main campus. However, we do not plan to change the
Department's longstanding practice of associating distance education
with an institution's main campus that we sought to codify in these
regulations. Institutions should report to the Department any distance
education programs offered that are not associated with the
institution's main campus. The Department intends to explore this issue
further.
Changes: We have removed proposed paragraph (6) from the definition
of ``distance education.''
Nonprofit Institution (Sec. 600.2)
Comments: Some commenters supported the Department's position that
we do not exclusively rely on the IRS to determine whether an
institution is a nonprofit, as the IRS framework is not designed to
implement title IV and fails to further title IV goals in certain
respects. These commenters recommended that to reduce uncertainty, we
should articulate a clearer rationale for the definition of a nonprofit
institution. Other commenters expressed concerns that the expanded
definition is beyond what is currently in statute.
Some commenters stated that only the IRS has the ability to
determine the tax-status of an organization. Commenters further
requested clarification on the statutory justification under the HEA
for the Department to make a determination on the tax-status of an
institution. Similarly, some commenters argued that we should not adopt
tests on excess benefits that are more stringent than what the IRS
requires. In addition, commenters requested clarification on the
Department's experience making these determinations. Commenters also
questioned whether we have legal authority to make a determination on
the tax-status of an institution under W. Virginia v. EPA, 142 S. Ct.
2587, 2608 (2022). Some commenters requested clarification on how we
plan to treat institutions that do not meet the nonprofit definition
but are owned by nonprofit entities under State law and are considered
tax-exempt organizations for IRS and State tax purposes.
Some commenters stated ``net earnings'' in paragraph (1) is
inconsistent with the statutory definition of nonprofit. Commenters
also stated that the term ``private shareholder'' implies that the
benefit can occur only between a nonprofit, tax-exempt entity and a
for-profit entity, or between a nonprofit, tax-exempt entity and an
individual. These commenters suggested statutory and regulatory
definitions demonstrate that it is improper to define a nonprofit
institution by excluding an institution if any part of its net earnings
``benefits'' any ``private entity'' if that ``private entity'' is
another 501(c)(3) organization.
Discussion: We agree with the commenters that it would not be
appropriate to rely solely on IRS determinations of tax-exempt status
to decide if an institution is nonprofit. Although tax-exempt status
under the Internal Revenue Code (IRC) and the definition of nonprofit
institution under the regulations for purposes of participation in HEA
programs are related, these are not the same concepts. The Department
does not determine the tax status of institutions or their owner
entities. Having 501(c)(3) status is only one element of the definition
of a nonprofit under the regulations. However, when we determine
whether the institution's revenues provide an impermissible private
benefit, we are also guided--but not bound--by authority developed by
the IRS, as well as the tax court and other courts addressing the issue
of private or excess benefit transactions. Through this final
definition, we clarified what qualifies as a nonprofit institution for
the purpose of HEA program participation and do so under the authority
provided to the Secretary under 20 U.S.C. 1221e-3 and 3474 to
promulgate appropriate regulations.
The Department is concerned about excess benefit transactions even
when they benefit another nonprofit entity, because they remove funds
from the institution that should benefit its students. We will consider
these on a case-by-case basis.
Changes: None.
Comments: Some commenters asked for clarification on how we would
treat a situation where an institution is deemed to be nonprofit at the
state level but not by the Department. They asked if such an
institution met a State-level requirement for nonprofit institutions
but not for proprietary institutions, would the Department consider
that institution to be out of compliance?
Discussion: The Department cannot determine that an institution is
a nonprofit without the State also concluding that under its laws.
However, the Department could conclude that an institution deemed a
nonprofit under State law should still be treated as a proprietary
institution for title IV aid. In either situation, the institution
would need to abide by the State requirements for a nonprofit
institution, and there is no conflict.
Changes: None.
Comments: Commenters argued that the HEA definition of a nonprofit
institution borrowed language from the Internal Revenue Code to define
a nonprofit, with the exception of an additional clause to say that no
part of the net earnings ``may lawfully inure'' to the private benefit
of a shareholder or individual. Commenters argued that the proposed
definition of a nonprofit institution adopts a different test of what
constitutes private inurement than what is contemplated in the HEA.
Discussion: The 501(c)(3) tax exempt status conferred by the IRS,
while a single requirement under the regulations, is not the only
requirement for nonprofit status to participate in the HEA programs.
Changes: None.
Comments: Commenters raised concerns that the lack of a definition
of ``entity'' and requested greater clarity. One commenter argued that
the lack of a definition could result in the Department fighting with
more institutions about their tax status.
Discussion: The proposed changes to these regulations will provide
greater clarity without including a definition for entity and we
disagree this will foment disagreements. The Department refers to
``entity'' in its regulations at Sec. 600.31 to mean a legal entity
and does not believe there will be any confusion.
Changes: None.
Comments: A commenter suggested that the definition of a nonprofit
should be revised to state that ``nonprofits formerly structured as
proprietary institutions cannot have net earnings that benefit a
private entity or person.'' They argued that because the excess revenue
is used for the mission of a nonprofit institution that a range of
stakeholders at private nonprofit institutions, including parents,
faculty, staff, board members, and others can have a beneficial stake
in the revenue.
Discussion: The Department does not think it would be appropriate
to limit the definition only to institutions that were previously
proprietary institutions. We review many CIOs that are not conversions
from proprietary to nonprofit status, and we believe we must have
consistent rules for all of these reviews. The situation described by
the commenters differs from what the Department addressed with net
earnings requirements. An institution that invests excess net earnings
in the improvement of its educational enterprise or building an
endowment is not specifically benefiting a private individual in the
ways described in paragraphs (2) through (4) of the definition. In
addition, institutions that newly apply
[[Page 65459]]
to participate in HEA programs must also meet the definition.
Changes: None.
Comments: Some commenters thought that the word ``generally'' in
the lead phrase ``For example, a nonprofit institution is generally not
an institution that . . .'', presents a loophole that would permit some
institutions to maintain improper debts and arrangements with former
owners after a change in ownership. Some commenters argued that
including the word ``generally'' provided enough flexibility for the
Department to address some limited situations where an institution
should be approved as a nonprofit and that adding specific
clarifications of what those situations could be in the rest of the
definition created too many carve outs. Other commenters suggested that
any agreement with a former owner, current or former employee, or board
member should disqualify the institution from the definition of
nonprofit, regardless of whether the payments and terms are reasonable.
Along similar lines, commenters recommended removing carve-outs that
permit revenue-sharing and other contractual arrangements with
affiliates of former owners. A commenter also argued that we should
further explain the instances in which we would not find this general
definition. One commenter suggested that we add the same language to
paragraph (2)(i) that is included in paragraph (2)(iii)(C) to allow for
debt owed to a former owner of the institution or a natural person or
entity related to or affiliated with the former owner in cases where
the Secretary determines that the payments and terms under the
agreement are comparable to payments and terms in an arm's-length
transaction at fair market value. The commenter also suggested
clarifying in paragraphs (2)(ii)(C) and (2)(iii)(C) that the provision
applies specifically to paragraphs (2)(ii)(A) and (B) and (2)(iii)(A)
and (B), respectively. The commenter suggested these changes stating
that they would strike a better balance between ensuring the
transaction benefits students, institutions, and taxpayers without
impeding the evolution of institutions. One commenter asked the
Department to clarify whether nonprofit institutions may have debt
arrangements with their former owners as long as they are reasonable
based on the fair market value, and if so, whether we could explain the
standards we will apply in evaluating those arrangements.
Discussion: We intentionally used the word ``generally'' in the
proposed definition for nonprofit institution. The Department has
denied requests to convert to nonprofit status where debts to former
owners are based on inflated or unsupportable valuations and,
therefore, do not permit an institution to meet the definition of a
nonprofit.
As to the prohibition on a debt owed to a former owner, we have
seen that those kinds of arrangements allow continuing direct or
indirect control by that former owner. As such, we do not think the
suggestion of applying a fair market test would be appropriate for that
type of relationship.
A review may include a variety of factors when to assess whether
there is an impermissible benefit to a private entity. These depend on
the details of the transaction and what types of agreements are
involved, particularly as to debt financing or servicing agreements. It
would be imprudent to try to list them all or to codify them in the
regulations at the risk of omitting some or giving the impression that
those listed will necessarily be used and those left out will not.
However, providing some specificity as to what those items may be is
important for granting clarity, and we identified them in the
regulatory language. The Department believes the additional paragraphs
that follow the lead-in language that uses the word ``generally''
provide sufficient detail to clarify that exceptions to these
requirements will be limited and unusual.
Changes: None.
Comments: Some commenters argued that the proposed definition of a
nonprofit institution is internally inconsistent with other regulatory
requirements for a CIO. They noted that becoming a nonprofit
institution is the triggering event for the CIO process, but the
proposed definition of a nonprofit would involve the Department
determining if the institution is nonprofit. They argued this created
inconsistency since the nonprofit status would trigger the CIO review,
but the CIO review is now needed to determine the nonprofit status.
Discussion: The Department review is to determine whether the
institution will be recognized as a nonprofit for purposes of the HEA
programs, and this is not inconsistent having a CIO review triggered
when a nonprofit entity under state law with an IRS tax-exempt status
acquires an institution, or if the existing owner of an institution
converts under state law from a for-profit corporation (or other legal
entity) to a non-profit corporation (or other legal entity), without
the institution actually undergoing a change in ownership through, for
example, an asset sale or a membership interest or stock sale.
Changes: None.
Comments: Commenters stated that Congress did not intend for public
institutions of higher education to be categorized as nonprofit
institutions and the Department's existing definition appropriately
reflects that intention. These commenters further stated that if public
institutions are included as ``private shareholders,'' we need to
clarify the prohibition with former owners in paragraph (2) because
public institutions do not have former owners. Similarly, these
commenters suggested clarifying that paragraph (3) does not apply to
public institutions.
Discussion: The Department disagrees. HEA section 101(a)(4)
specifically defines an ``Institution of higher education'' as a public
or ``other'' nonprofit. In referring to ``other'' nonprofit
organizations, Congress made clear that the public institutions it was
referring to were also nonprofit organizations. We also disagree that
paragraphs (2) and (3) should not apply to public institutions. It is
possible that there could be prior owners if an institution converts
from proprietary to public status.
Changes: None.
Comments: One commenter argued that the Department should refer to
nonprofit institutions as being ``controlled'' rather than ``owned or
operated'' since nonprofit entities are not typically owned. They
argued that it is more common for one nonprofit entity to exercise
control over another rather than own it.
Discussion: Institutions are owned by entities regardless of
whether a nonprofit entity that owns an institution is owned by others.
Changes: None.
Comments: One commenter recommended that if an institution can show
that the transaction has been reviewed by a State agency that oversees
nonprofit entities, this should suffice as proof that no excess benefit
was provided to former owners. This commenter further stated that a
fairness opinion that looks at transactions holistically should provide
the Department with sufficient comfort that there is no excess benefit
and that the transactions contemplated are at fair market value. The
commenter provided suggested regulatory text for their suggestions.
Discussion: The Department disagrees with the commenter. The
commenter provided an indication of one State that does such reviews.
It is unclear, however, if that State's review would examine the same
situations that concern us. We seek to ensure that an institution is a
nonprofit solely for the
[[Page 65460]]
purposes of the HEA programs that we administer. It is also unclear how
many States conduct similar reviews.
The Department also disagrees with simply accepting a fairness
opinion. The fairness opinion would not guarantee that it addresses all
the issues that we need to consider in our review of the CIO for title
IV purposes. We have sufficient expertise and resources to review and
analyze materials submitted in support of a transaction (including
market valuation or appraisals) and do not currently plan to defer to
conclusions reached by outside parties.
Changes: None.
Comments: Several commenters argued for providing additional
limitations on the situations in which agreements with prior owners
would not be acceptable. They argued that the excess benefit should
have to be material or provided to an owner who had a certain
percentage ownership stake in the institution. Another commenter argued
that there could be situations in which the net earnings of the
institution benefit a prior owner, but it should not be unlawful. They
provided an example of transactions in which a buyer pays the seller
back over time or finances the purchase.
Discussion: If the relationship with the prior owner is a debt
obligation, it precludes nonprofit status. Other agreements will be
evaluated in the context of market rates or actual costs for any
services and whether the agreement is at arm's length.
Changes: None.
Comments: Commenters requested clarification whether the Department
will apply the same reasonableness standard to evaluate the revenue-
sharing arrangements with the persons or entities referenced at
paragraphs (2)(ii)(A) and (2)(iii)(A) and paragraphs (2)(ii)(B) and
(2)(iii)(B). Some commenters requested clarification regarding why we
use a different standard for market analysis of revenue-sharing
arrangements than the standard for market analysis of leases and other
agreements. These commenters also requested clarification on what each
standard means and how the standards differ.
Discussion: The difference in the language between paragraphs
(2)(ii)(A) and (2)(iii)(A) and paragraphs (2)(ii)(B) and (2)(iii)(B) is
due to the difference between revenue-sharing agreements and other
types of agreements. The same reasonableness standard will apply in
both cases, but the differences in the types of agreements will affect
the factors we review in making our determination.
Changes: None.
Comments: Commenters recommended excluding charitable grants and
contributions from consideration as revenue sharing agreements, as
fundraising can extend to personal financial contributions. They raised
concerns that conditional pledges or matching commitments might be
considered revenue sharing. Additionally, according to these
commenters, board members and former employees can gift conditional
contributions such as matching gifts, donor-advised funds, and split-
interest agreements to nonprofit institutions.
Discussion: It is not clear why charitable grants and contributions
would be considered revenue-sharing agreements, but we will review all
relevant information when determining whether an institution meets the
definition of nonprofit.
Changes: None.
Fair-Market Value Assessment (Sec. 600.2)
Comments: We received a number of comments related to determining
fair market value, including how that relates to restrictions on
agreements with former owners.
Some commenters stated the Department needs to further strengthen
oversight over market price. Other commenters requested clarification
on how we will determine ``market price,'' what factors we will to do
so, what evidence we will use to evaluate reasonableness or fair market
value, as well as to provide the relevant statutory authority. Some
requested that we include the factors used to determine market price in
the regulations. Relatedly, commenters recommended that institutions be
able to submit specific documentation such as valuations, appraisals,
and market studies to demonstrate fair market value while another asked
for clarity on what documentation schools will be required to submit.
Some commenters suggested that the market assessment would pose a
barrier to future business relationships or mergers between proprietary
institutions and nonprofit or public institutions.
Some commenters recommended that the regulations should not require
the Secretary to determine market price for arrangements or
transactions between existing nonprofit institutions. These commenters
stated the application of these regulations to existing nonprofit
institutions outside the context of conversions will have a chilling
effect on transactions between existing nonprofit institutions. They
further recommended that all such agreements can be deemed permissible
if there is a determination that the terms are reasonable.
Discussion: As already noted, we have performed and will continue
to perform a review of materials submitted by parties to a transaction
so we can ensure that the transaction does not violate the Department's
definition of nonprofit. To restrict our consideration to tangible
assets alone is not tenable because intangible assets affect an
institution's value and the reasonableness of consideration paid for a
transaction. However, we will continue to carefully scrutinize inflated
intangibles when analyzing valuation studies submitted to support
requests for nonprofit status.
The Department does not intend to halt all valuations before
further considering the GAO report. Moreover, the GAO report found that
we had strengthened our CIO process. Additionally, there are no current
processes for the IRS to engage with us on specific cases when we
conduct our review to determine whether an institution is a nonprofit
for the purposes of participating in programs under the HEA. As noted
in the GAO report, we have conducted a rigorous and substantive
analysis since 2016 to determine whether an institution is a nonprofit
for the purpose of participation based on the pertinent regulations and
does not depend solely on whether an institution is a 501(c)(3)
organization under the IRC--which is only one of the requirements under
the existing regulations.
To remove the allowance for market-value agreements between
institutions and affiliates of former owners would eliminate the
possibility for arrangements that are beneficial for all parties, so we
will retain that allowance.
The Department sees no persuasive evidence that expecting parties
engaged in a CIO ensure that the sums being paid represent a fair
market valuation will chill beneficial and appropriate requests for
nonprofit status. Taking control of an institution can carry
significant expense. Overpaying for a transaction in the short-term or
through long-term could hamper the ability of the new owner to make any
necessary investments in educational instruction and quality. We see no
evidence that requiring parties to a transaction to demonstrate that
the transaction is based on an assessment of fair value is a burdensome
requirement. Moreover, this comports with standard expectations for due
diligence in an arm's length transaction. We are eager to review
ownership changes and requests for nonprofit status in a way that is
fair and beneficial for all parties in the
[[Page 65461]]
transaction, as well as for students and taxpayers.
Changes: None.
Comments: Commenters argued that if the agreement is determined to
be offered at or below the fair-market value the Department should not
restrict how that price is financed. They argued that if the former
owner offers better financial terms on a fair-market price transaction
we should allow it, and the word ``generally'' should permit such cases
and not rule out all debts to former owners.
Discussion: It is not unusual to see the pricing for a CIO to be
structured in a way that long-term value accrues to the former owner
through financing arrangements or through restrictive service
agreements. While we will not approve owner-financed arrangements as
nonprofit, we intend to evaluate other arrangements between the parties
that impact the valuation of the CIO, including longer-term
requirements that may limit an institution's resources or inhibit its
ability to enter into arm's-length transactions with other parties.
Changes: None.
Comments: Commenters argued that the Department should not simply
assume that a revenue-sharing agreement between an institution and a
former owner is acceptable just because it is offered at a fair-market
value. They argued that the concern about revenue sharing is not just
the price, but the incentives it creates for the institution with
respect to its former owner. They argued that the regulations should
specifically state that there could be certain circumstances when
revenue-sharing agreements that are at a fair-market price could still
not be allowed. The commenters also suggested explicitly stating that
debt agreements that are related to an institution's profits or
revenues are not allowable, nor would debt instruments that limit the
institution's ability to set policy or priorities be allowable.
Discussion: We agree that evaluating long-term arrangements between
the seller and purchaser in a CIO is essential to evaluating the
transaction. The examples the commenter highlighted are why the
regulatory language intentionally uses the market price as an instance
that may allow for an agreement for a prior owner. Because this
language is not definitive it would provide the flexibility that the
commenter requests for denying such arrangements if a thorough review
of the specific details of the CIO merits it.
Changes: None.
Comments: Some commenters argued that the limitations on revenue
sharing with prior owners should also be extended to cover successor
owners or assignees. They argued that without this criterion, a former
owner would simply sell the agreement to another entity and continue to
profit.
Discussion: We disagree with the commenters that any regulatory
changes are needed to address this issue. The regulatory text captures
any relationship with the prior owner. This would capture the
assignment of the contract to another individual or entity.
Changes: None.
Comments: Commenters argued that the Department should apply a fair
market test to all other agreements used by schools to ensure they are
reasonable. One commenter pointed to agreements with football coaches
who may be receiving private inurement and excess benefits as an
example of a transaction to evaluate.
Discussion: We do not believe the commenters' examples are
analogous to other types of arrangements captured in the definition of
a nonprofit. The commenter offers no evidence that the arrangements
with football coaches would represent a revenue-sharing agreement or an
obligor to a debt owed to a former owner.
Changes: None.
Comment: One commenter argued that we should eliminate the option
for an allowable revenue sharing agreement with a former owner if it is
based upon market price. They argued that the Department should specify
that it be the nonprofit market price if we retain this option.
Discussion: We disagree with the proposal to eliminate the
consideration of agreements based upon market price. With respect to
the nonprofit market price, we do not think such a requirement is
appropriate. We believe the requirement that the terms of the revenue-
sharing agreement are reasonable based upon the market price and that
price bears a reasonable relationship to the cost of the services or
materials provided provides us enough flexibility to ensure that
institutions are unable to engage in the kind of transactions we have
seen in the past that has allowed former owners to impermissibly profit
from a CIO.
Changes: None.
90-Day Reporting Requirement (Sec. 600.20)
Comments: Some commenters supported the addition of a 90-day notice
requirement. Others requested further clarification on how the
Department determined the 90-day window for the notice requirement.
Some commenters suggested that 90 days would not provide the Department
sufficient notice and adequate time to review proposed transactions.
One of these commenters suggested that notice should be provided 120
days in advance. Commenters requested clarification on the elements,
requirements, and provisions required for notifications to be
compliant.
Other commenters requested clarification on the consequences of an
institution failing to submit a notice or meet other application
timelines.
Some commenters supported the 90-day notice requirement but wanted
further clarification on how the Department will respond once it has
received notice. Commenters requested clarification on whether this
pre-acquisition review would be an abbreviated pre-acquisition review
(APAR) or comprehensive pre-acquisition review (CPAR) and what happens
if we do not respond within the 90-day period. Commenters asked how
this requirement would alleviate the issues the Department has raised
with regard to staffing and making timely decisions on transactions.
Commenters also asked why we settled on 90 days as the amount of
requested advance notice.
Commenters recommended that the Department issue a pre-acquisition
review letter prior to the proposed closing date that identifies
whether the new owner will be required to post a letter of credit and
identifies any impediments to the approval of the change and conditions
that the Department might impose if it approves the school's
eligibility under the new ownership or structure. Commenters suggested
that having this information prior to closing benefits the current and
future owners as well as students who may be harmed by adverse actions
taken by the Department that may have been avoided if information was
provided to parties prior to closing.
Commenters recommended that to avoid disputes occurring after a CIO
has been closed, issues such as qualifications of a business appraiser,
the appropriateness of a valuation methodology and then the
acceptability of the results of a valuation process are all matters
that a nonprofit buyer should be able to present to the Department in
advance of the closing of the nonprofit buyer's purchase of the assets
of an institution without resetting the 90-day clock. The commenters
also argued that these items should be added to a pre-closing
validation review process. Some commenters stated that the proposed
process has the potential to greatly prolong the transaction review and
recommended the 90-day timeframe should only reset for a substantive
[[Page 65462]]
change. Another suggested that the clock should not reset if there is a
change to the ownership structure.
One commenter suggested that the Department should provide a
contingency that allows the waiving of the 90-day advance notice
requirement for an institution that is in financial distress.
Discussion: The purpose of the 90-day notice is to prevent an
institution from being in a situation where there is little time for
the Department to consider the change in ownership and the institution
is put into a title IV-ineligible status, even if temporarily. Ninety
days is not the amount of time in which we will conduct a review of the
proposed CIO. We believe the 90-day period is important for adding
structure to the CIO process and setting proper expectations. Too often
to date the Department has reviewed numerous proposed CIO options with
an institution over a period of months, only to be presented with a
completely new proposal just days before (or even after) a transaction
closes. It is not unusual for an institution or its counsel to ask us
for guidance on a proposed CIO just a few weeks or even days before a
scheduled closing. Such an approach wastes resources for the Department
and the institutions. It can also cause confusion over what elements
have or have not been reviewed. Providing clearer structure and having
institutions give the Department 90 days advance notice will make the
CIO process work better for all involved. Failing to provide this
timely notice could result in a period of title IV ineligibility for an
institution.
Institutions that wish to have more information about what the
Department expects may also submit a preacquisition review request
separately from the 90-day notice--and may do so well in advance of the
notice. Because we have ended CPARs, this would be an abbreviated
review. See the September 15, 2022, Electronic Announcement on https://fsapartners.ed.gov/knowledge-center for more information. The
abbreviated review would inform institutions whether a new owner letter
of credit will be required to meet the requirements of a materially
complete application.
The Department declines to provide any exceptions for the 90-day
advance notice. In the Department's experience, it is highly unusual
for an institution to face financial distress where the CIO plans are
solidified at least 90 days prior to the CIO. The institutions that
have financial struggles typically have been in situations where the
CIO structure was unsettled prior to the transaction taking place.
The required elements for the 90-day notice are provided in
paragraphs (g)(1)(i) and (iii) of Sec. 600.20.
Institutions should include all relevant information available to
them when they provide their initial notice. This will prevent the 90-
day clock from resetting and prolonging the process; an institution
would have an incentive to submit rough proposals that end up not
resembling the ultimate transaction, which would defeat the purpose of
the advance notification.
Changes: None.
Comments: A few commenters stated the 90-day advance notice and
requiring the institution and its new owners to provide the materially
complete application within 10 days after the CIO are duplicative.
Commenters argued that some of the information requested for the 90-day
advance notice is more detailed than it needs to be at this stage of
the process. The commenters noted that we currently request a lot of
detailed information even though we only evaluate if we are going to
request a letter of credit based upon the new owner's financial
statements. Similarly, a commenter argued that the Department should
more clearly specify what we need for the 90-day advance notice versus
the post-acquisition application. They also argued that information
provided on the 90-day advance notice should not need to be duplicated
on the post-acquisition application. For example, they argued that if
the institution provided evidence of its State license in the 90-day
advance notice then the post-acquisition should only need to show that
such license remained in effect as of the day before the change in
ownership.
Discussion: The Department does not think it is necessary to change
to the regulatory text any further. Where an institution provides the
same information on the 10-day post-acquisition application that it
provided on the 90-day advance notice, it could submit copies of what
it already provided. We do not think it would difficult or burdensome
for an institution to resubmit documentation that it has already
provided. Additionally, it establishes that any changes to that
information must be reported and ensures that all necessary
documentation is in one place.
Changes: None.
Student Notification (Sec. 600.20(g)(4))
Comments: Some commenters stated that providing notice to students
of a potential CIO would cause undue stress and confusion, noting most
students are unaware of school ownership and are not interested in that
information. Commenters further stated that students may interpret the
notice as negative news about the institution and therefore choose not
to enroll or to withdraw without completing their program. These
commenters recommended that the institution receiving a preacquisition
review letter provide evidence to the Department within 10 days that it
has either notified students of the proposed CIO or formally notified
the Department that the proposed transaction is being terminated.
Institutions often do not continue with the CIO, which according to
these commenters, is another reason not to require student notification
so early in the process. Other commenters recommended notice be
provided on the earlier of 10 days prior to the CIO or within 10 days
after receipt of any required pre-closing accreditation approval and
receipt of a pre-acquisition review response. Another commenter
suggested that the Department require notice to students closer to when
the transaction will be completed but did not specify a date. A
different commenter suggested the institution should inform the
Department no later than 2 business days before closing and provide
proof of student notification at the same time. Some commenters
recommended that the Department eliminate any student notification
requirement or require the notification after the transaction is
complete.
Commenters also asked if a banner or other type of announcement on
an institution's website would be sufficient to notify students.
Discussion: We disagree with the commenters that a notification to
students is inappropriate. While many students may not be concerned
with who owns their school, some are. We believe this notification is
as necessary as those made to consumers who receive a notification that
their mortgage is being transferred to a new lender. Students have a
right to know where their money is going and, in this case, who owns
the school they attend.
We appreciate the suggestions from the commenters about multiple
options for when to require notice to students. However, we disagree
with the suggestions to provide notice either after the transaction or
just a few days before it occurs. Providing notice so late in the
process diminishes the usefulness of the notification, would act as an
unfair surprise to students, and would provide them little time to
consider whether it affects their plans for enrollment.
We believe that it is best to align the student notification
requirements with those for notifying the Department. Doing so ensures
that institutions
[[Page 65463]]
provide consistent information and that students have more time to
consider their options. As articulated elsewhere in this final rule,
part of our goal with these regulations is to ensure that there is a
more structured process for CIOs and fewer instances in which
institutions have to resolve significant issues before closing
transactions. We believe this approach will mean that agreements will
be further along by the time institutions approach the Department and
will contain greater detail than they might have in the past. This will
also reduce the likelihood that institutions need to inform students
about CIOs that do not occur.
Regarding the requirements for making the student notification,
institutions must inform students individually via email or some other
method of the proposed change in ownership. Electronic notifications
provided directly to individual students would be acceptable, but a
simple message on a web page would not be sufficient.
Changes: None.
Temporary Provisional Program Participation Agreements (Sec. 600.20)
Comments: Commenters supported clarifying the Department's ability
to withdraw title IV eligibility based on a review of a change in
ownership. They also supported the Department adding conditions to an
institution's TPPPA when a prospective owner of the institution does
not have sufficiently acceptable audited financial records. Commenters
recommended that we include additional financial and regulatory
conditions, such as heightened cash monitoring 1 or 2, into TPPPAs.
Commenters further recommended that when for-profit institutions
convert to nonprofit status, we should continue to consider them as
for-profit institutions until the Department has made a decision on the
conversion. The commenters noted that this should include being subject
to 90/10 and meeting the statutory requirement to show that their
programs prepare students for gainful employment in a recognized
occupation. Some commenters recommended an institution may only
participate under a provisional PPA for a total consecutive period of 3
years and at the expiration, the institution must have executed a non-
provisional PPA with the Department.
Other commenters argued that institutions must know what conditions
they would be subject to before an acquisition is completed and should
receive notice of any TPPPA conditions prior to the transaction
closing. They said institutions would not be able to plan for unknown
conditions and said such a situation would have a chilling effect on
transactions. These commenters expressed concern that more limited pre-
transaction review will only lead to more prolonged post-transaction
review before ultimately issuing a provisional PPA. These commenters
recommended institutions not subject to growth restrictions due to a
CIO, or institutions that were subject to growth restrictions but have
since provided acceptable new owner financial statements, may apply to
remove such restrictions while the post-transaction review is pending.
These commenters further recommended that we should review and act on
substantive change applications in the ordinary course and without
waiting to complete our CIO review.
Discussion: The nature of CIO reviews and the contents of TPPPAs
depend on the unique aspects of each case. Because of this, automatic
inclusion of certain conditions is not justified. However, the
Department agrees that it makes sense that for-profit institutions
seeking to convert to nonprofit status should remain as for-profit
until we approve a conversion. The Department amended Sec.
600.31(d)(7) accordingly. Making this change will result in any
conditions that are associated with being a private for-profit
institution, such as the 90/10 rule or demonstrating that programs
provide gainful employment in a recognized occupation, will continue.
We believe it is beneficial to be able to issue new TPPPAs after
the initial TPPPA for a CIO approval has ended on a case-by-case basis
if the situation warrants it.
As we improve the CIO review process through these regulations,
institutions should see increased efficiency and clarity in the
process. The goal of these regulations is that by providing more detail
in the regulations, the Department will be able to direct its resources
toward reviews that result in a transaction ultimately occurring. This
is in opposition to our current practice where it is not uncommon for
the Department to conduct detailed reviews of multiple proposals for a
single institution, none of which end up being what the final
transaction looks like. Spending less time on reviews that do not
result in a transaction will free up resources to expedite the overall
review process and address the concerns of commenters about added
delays.
As we discuss in various places in this rule, the CIOs the
Department receives are increasingly complicated and require a
significant amount of time to review. Accordingly, it would not be
feasible for us to inform institutions about what TPPPA conditions we
might require based solely on the application received 90 days before
closing. The Department notes the risks institutions mention here are
no different than what exists today, where we must currently decide
whether title IV aid should continue after the transaction and there is
a possibility that we could terminate Federal financial aid after the
transaction occurred.
We disagree with commenters that institutions that are subject to
growth restrictions or request a substantive change should be able to
apply to have those restrictions removed or the change approved while
the post-acquisition review is ongoing. We are concerned that removing
a growth restriction or approving such a change that may not ultimately
allow title IV aid to continue would risk increasing the number of
students who must then find another institution that accepts Federal
aid or that institutions might then try to argue that disapproving aid
would be unfair to the newly enrolled and existing students.
Institutions are not entitled to operate at a particular size or make
substantive changes while we review their CIO application.
Changes: We clarify in Sec. 600.31(d)(7) that for-profit
institutions undergoing a change in status to nonprofit will remain in
for-profit status until the review is complete.
State Authorization and Accreditation Approvals (Sec. 600.20)
Comments: Commenters agreed with having the most recently granted
State and accrediting agency approvals readily available for the
Department's review of a materially complete application. However, they
stated that the requirement to provide this information as of the day
before the CIO is overly burdensome and may be hard to obtain from
States or accreditors. Commenters recommended the Department require
institutions certify that approvals they submitted are current, up-to-
date, and not withdrawn.
Commenters requested clarification on what constitutes acceptable
supplemental documentation demonstrating an approval was in effect the
day before a CIO occurred. Commenters suggested a signed letter on
agency letterhead would suffice, but the 10-day requirement would pose
difficulties. Commenters recommended meeting this requirement with
either an email from the agency or a screenshot from the agency's
website obtained no earlier than the day before the CIO. Other
commenters raised concerns about the ability to obtain this
[[Page 65464]]
documentation from multiple states since some require approval to be
obtained after the transaction goes through. They provided regulatory
text to address this concern.
Some commenters argued that the Department should only have to
provide evidence of the most current grant of accreditation or State
licensure. Others argued for an extension if the institution could show
it tried to get the documentation but has yet to receive it from the
agency.
Discussion: The Department will consider whatever documentation is
presented by institutions to show the requisite approvals have been
met. Section 600.20.(g)(3)(i) states that the day-before evidence of
approval supplements the documentation the institution submits as part
of a materially complete application.
We believe the commenter concerned with different State and
accrediting agency approvals misunderstood the requirement. The
Department is requiring documentation that the institution has the
required State approval and accreditation as of the day before
transaction--not documentation reflecting the CIO. The concerns about
post-acquisition approval should not be relevant.
We believe the documentation showing the State licensure (or
equivalent authorization) and accreditation were in effect the day
before the transaction is critical to maintain. Doing so provides
safeguards regarding the institution's eligibility that would not be
present if such approvals had lapsed.
We disagree that we should provide for any extension if an
institution attempts but has yet to obtain documentation. A CIO
involves the potential continued flow of as much as tens of millions of
taxpayer dollars a year. Institutions should obtain and submit all
necessary documentation timely.
Changes: None.
Audited Financial Statements (Sec. 600.20)
Comments: One commenter argued that the requirement to submit
audited financial statements for the last two completed fiscal years
would force transactions to only occur during a set period. The
commenter argued that institutions would not have audits finished until
several months after the end of the fiscal year, depending on if the
auditing schedule was under the institution's control. The commenter
recommended instead that we require the two most recently completed
financial statements plus an audited current balance sheet if the
Department desired.
Discussion: We disagree with the commenter. We are not persuaded
that it is more important for an institution to be able to complete a
transaction when it wants than for the Department to ensure that the
continued flow of potentially tens of millions of taxpayer dollars is
going to institutions in sufficient financial shape. Accepting the
commenter's proposal would risk receiving financial statements that are
months and perhaps close to a year out of date. For institutions that
are highly dependent upon tuition and meeting enrollment targets, that
time gap could result in a meaningfully different financial picture.
Moreover, except in very rare cases where an institution is at risk of
a precipitous closure, there is no reason to rush a change of ownership
transaction. The CIO process will be better served if transactions are
well thought through and developed. If doing so means waiting to ensure
we have up-to-date financial information, we see no significant
downside.
Changes: None.
Financial Protection (Sec. 600.20)
Comments: Commenters stated the Department should provide the
elements, bases, and factors to determine the amount of financial
protection. Commenters further stated the Department should provide the
factors used to determine when a 25 percent or 10 percent surety is
insufficient.
Several commenters recommended requiring at least a 50 percent
letter of credit when an owner does not have prior audited financial
statements. One commenter argued that it is legally required to ask for
a 50 percent letter of credit. Commenters recommended raising letter of
credit requirements from 25 percent to 50 percent for owners who cannot
demonstrate financial responsibility.
Some commenters stated the proposed financial protections and past
practices are unlawful because of financial responsibility requirements
elsewhere in the HEA. These commenters stated neither 10 percent nor 25
percent equal the fifty 50 percent requirement set forth in the HEA,
presumably referring to the 50 percent requirement for financial
responsibility set forth in section 498(c)(3) of the HEA, which bases
the surety amount on ``prior year volume of title IV aid'' rather than
on ``annual potential liabilities.'' One commenter said that the 10
percent or 25 percent amount for an LOC fails to account for the true
costs of potential discharges, which often span well beyond the ``prior
year'' volume of title IV aid. Another commenter argued that the
Department should require at least a 25 percent letter of credit for
institutions that had one but not two years of audited financial
statements and a 50 percent letter of credit for institutions that had
no audited financial statements.
Other commenters argued that the Department should not allow for
the possibility of requiring additional letters of credit after a
transaction closes because it would chill transactions. They argued
that the Department was not clear if institutions that have a CPAR or
APAR pending or submitted after the rule change will be notified of an
additional letter of credit during the pre-acquisition review.
Some commenters also objected to basing letters of credit on the
volume of title IV aid received by institutions under common ownership.
They argued that those institutions are not related to the transaction
and that those other institutions are already subject to financial
responsibility requirements.
Discussion: The 10 percent and 25 percent protection amounts codify
the current practice by the Department to specifically address a new
owner who does not have acceptable financial statements to meet the
audited financial statement requirements for a materially complete
application following a CIO. As noted in the NPRM, the Department
believes that there may be situations where additional financial surety
is needed to ameliorate financial or administrative risk based upon a
case-by-case determination. This would reflect situations such as when
a much smaller institution acquires a much larger one. For situations
like that, a letter of credit requirement based only on the title IV
volume of the smaller institution would severely underestimate the
financial risk that the transaction presents. With respect to the
comment that said the minimum requirement must be 50 percent, the
financial protection addressed in the regulation is not the financial
protection required when an institution fails to meet the financial
ratios described in the HEA. As such, the Department does not consider
the requirement to be either unlawful or insufficient--it requires a
separate element of surety when a new owner does not have two years of
financial statements to meet the requirements of a materially complete
application. A failure to meet the financial ratios is addressed in the
financial responsibility regulations in subpart L.
There is significant variation in CIOs, as no two deals will have
the same
[[Page 65465]]
terms, ownership structures, or other elements. The variability in CIOs
thus necessitates a more flexible approach than might exist for other
situations, such as what kinds of conditions the Department should
enforce when an institution fails a financial responsibility score. As
a result, adding financial conditions, including heightened cash
monitoring, depends on individual cases and is not appropriate for a
rule that applies more broadly.
Changes: None.
Updating Application Information--5 Percent Reporting Requirement
(Sec. 600.21)
Comments: Commenters suggested that the 5 percent ownership
reporting requirement is unlikely to result in more meaningful
visibility. Commenters requested further clarification on the
determination that the cost of the reporting burden will be minimal.
They stated that there are frequent and inconsequential changes to
owners of institutions with low percentages of ownership, and such
owners typically have no role in the operations of the institution.
Commenters further stated that the low threshold of the reporting
requirement will create compliance issues and additional administrative
burden to update electronic applications. These commenters recommended
that the requirement not apply to passive investors such as those
individuals or entities who invest in a fund that is actively managed
by a partnership. These commenters stated these investors have no role
in the control or operations of an institution or any entity in an
institution's ownership structure and recommended the Department
maintain the current 25 percent reporting requirement. One commenter
suggested that the 5 percent requirement should only apply to voting
ownership. One commenter noted that such minor changes could occur a
few times a month. Other commenters recommended the reporting
requirement should be increased to 10 percent to better capture voting
interests and not require reporting of purely financial interests.
Some commenters recommended the alignment of Sec. Sec. 600.21 and
600.31 by incorporating details on change in control into Sec. 600.31.
The commenters suggested that the reporting requirements in Sec.
600.21 could simply cross-reference the events described in Sec.
600.31 that the Department wants an institution to report.
Commenters asked what specific evidence and experience the
Department relies on about CIOs that institutions seek to evade
Department oversight.
Discussion: As has been noted, we expect the new 5 percent
reporting requirement will increase visibility into the ownership of
institutions in a way that is not burdensome. This will allow the us to
obtain more information without greatly increasing burden on schools.
When combined with the considerable decline in burden from the change
to the 50 percent review threshold, we will have more insight while
allowing for an overall burden reduction.
The Department disagrees with suggestions to limit reporting to
non-passive investors or those with voting interests. We believe that
would increase burden as it could result in arguments between schools
and the Department about what constitutes a passive owner. Moreover,
the Department believes a more complete view of all ownership is
important. This type of reporting will also make it possible for the
Department to see acquisition of ownership over time, such as someone
who steadily acquires shares until they become a 50 percent owner.
While the Department maintains that this information is important,
we agree that it is not critical to obtain it on the same timeline as
other information mentioned in this rule. Accordingly, we are adjusting
the reporting timeline for these types of changes to require
institutions to report them every quarter.
Changes: We adjusted Sec. 600.21(a)(6)(i) to shift the 10-day
reporting requirement to quarterly based on the institution's fiscal
year for changes representing at least 5 percent but under 25 percent
(either on a single or combined basis). However, when an institution
plans to undergo a change in ownership, all unreported ownership
changes of 5 percent or more in the existing ownership must be reported
prior to submission of the 90-day notice. Thereafter, any changes of 5
percent or more in the existing ownership must be reported within the
10-day deadline, up through the date of the change in ownership.
Automatic Recertification (Sec. 600.20)
Comments: Commenters requested clarification on the interaction
between the proposed changes to Sec. 600.20(h), which explains the
requirements for an extension of a temporary provisional program
participation agreement and Sec. 668.13(b)(3), which provides an
automatic recertification. Commenters stated the Department proposed
deleting Sec. 668.13(b)(13) in negotiated rulemaking, but the deletion
was not included in the proposed regulation.
Discussion: The month-to-month extension of the temporary approval
for the duration of the review of the CIO application is unrelated to
the provisional certification periods in Sec. 668.13.
Changes: None.
Fifty Percent CIO Review Threshold (Sec. 600.31)
Comments: Commenters recommended the Department maintain the 25
percent CIO review threshold. These commenters stated that the
Department should maintain the current review threshold because there
are so few CIOs and owners might try to purposefully avoid scrutiny by
acquiring an ownership interest just below the 50 percent threshold.
They expressed concern that even at or below 25 percent, an owner or
group of owners could exert effective control over an institution as
long as no other owner has a similarly large ownership share. Other
commenters stated that to determine whether any of the transactions at
the 50 percent or above threshold are really hiding a genuine change of
control, the Department will need to review them anyway and may not
find the heightened limits alleviate the workload or sharpen the focus.
Some commenters stated that the Department has not sufficiently
explained why the 50 percent threshold is appropriate. These commenters
also noted that the assertion that a 25 percent threshold is too
burdensome is not sufficient to justify a 50 percent threshold.
Although these commenters expressed concern related to loosening
the standards, they recommended a 35 percent threshold, standing alone,
or combined with a 20-percent standard for related parties, which is in
line with the IRS. Other commenters recommended that we amend the
regulations to better capture written voting agreements and include
language to not include temporary proxies given for a particular
meeting or part of a meeting.
Other commenters supported the 50 percent threshold and recommended
eliminating the addition or removal of an entity that submits financial
statements to satisfy financial responsibility requirements as an
automatic CIO resulting in a change in control.
Discussion: It has been the Department's experience that changes in
control typically do not occur at the 25 percent level. Therefore, we
can eliminate considerable unnecessary
[[Page 65466]]
burden for the Department and institutions by increasing this threshold
to 50 percent. This standard comports more with our experience than the
current 25 percent standard or the suggested 35 percent IRS standard.
Voting agreements and proxies are considered on a case-by-case basis.
Moreover, the 50 percent threshold only mandates when a CIO review must
occur. The regulations make clear that levels below 50 percent will be
subject to the CIO regulations when a change of control occurs despite
being under the 50 percent threshold. The enhanced reporting
requirements under Sec. 600.21 will allow the Department to monitor
these potential shifts in control more closely.
The entity that submits financial statements is key to the
financial strength of the institution. That is typically the highest
level of unfractured ownership, but we want to ensure that we maintain
flexibility for other circumstances.
Changes: None.
Executive Orders 12866 and 13563
Regulatory Impact Analysis
Under Executive Order 12866, the Office of Management and Budget
(OMB) must determine whether this regulatory action is ``significant''
and, therefore, subject to the requirements of the Executive order and
subject to review by OMB. Section 3(f) of Executive Order 12866 defines
a ``significant regulatory action'' as an action likely to result in a
rule that may--
(1) Have an annual effect on the economy of $100 million or more,
or adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local, or
Tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule);
(2) Create serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlement grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles stated in the
Executive order.
The Department estimates the quantified annualized economic and net
budget impacts to be $835 million, consisting of an $879 million net
increase in Pell Grant transfers and $-44.3 million reduction in loan
transfers among students, institutions, and the Federal Government,
including annualized transfers of $82.7 million at 3 percent
discounting and $81.9 million at 7 percent discounting. Most of these
transfers are due to statutory changes made by Congress that are
addressed by these regulations. Additionally, we estimate annualized
quantified costs of $3.4 million related to paperwork burden and $1.1
million of administrative costs to the government. Therefore, this
final action is ``economically significant'' and subject to review by
OMB under section 3(f) of Executive Order 12866. Pursuant to the
Congressional Review Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs designated this rule as a ``major
rule,'' as defined by 5 U.S.C. 804(2). Notwithstanding this
determination, based on our assessment of the potential costs and
benefits (quantitative and qualitative), we have determined that the
benefits of this regulatory action will justify the costs.
We have also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, Executive Order
13563 requires that an agency--
(1) Propose or adopt regulations only on a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and taking into
account--among other things and to the extent practicable--the costs of
cumulative regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives, rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives--such as user fees or
marketable permits--to encourage the desired behavior, or provide
information that enables the public to make choices.
Executive Order 13563 also requires an agency ``to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' The Office of
Information and Regulatory Affairs of OMB has emphasized that these
techniques may include ``identifying changing future compliance costs
that might result from technological innovation or anticipated
behavioral changes.''
We are issuing these final regulations to address inadequate
protections for students and taxpayers in the current regulations and
to implement recent changes to the HEA. In choosing among alternative
regulatory approaches, we selected those approaches that maximize net
benefits. Based on the analysis that follows, the Department believes
that these regulations are consistent with the principles in Executive
Order 13563.
We have also determined that this regulatory action would not
unduly interfere with State, local, and Tribal governments in the
exercise of their governmental functions.
As required by OMB Circular A-4, we compare these final regulations
to the current regulations. In this regulatory impact analysis, we
discuss the need for regulatory action, potential costs and benefits,
net budget impacts, and the regulatory alternatives we considered.
1. Need for Regulatory Action
The Department has identified a significant need for regulatory
action to address inadequate protections for students and taxpayers in
the current regulations and to implement recent changes to the HEA.
Pell Grants for Confined or Incarcerated Individuals
In the Consolidated Appropriations Act, 2021, Congress added a new
provision allowing confined or incarcerated individuals to access Pell
Grants for enrollment in approved PEPs. Regulatory changes are
necessary to implement the law and to ensure access to high-quality
postsecondary programs for incarcerated individuals. Among existing
higher education programs in prisons, there is considerable variation
in available resources, operational requirements, and the depth of
stakeholder partnerships they have established.\11\ Research shows that
high-quality prison education programs increase learning and skills
among incarcerated students, and increase the likelihood of stable
employment post-incarceration.\12\ Individuals who were
[[Page 65467]]
formerly incarcerated face significant challenges in finding employment
when returning to their communities. Many lack vocational skills and
have little or no employment history, leading to high rates of
unemployment and low wages for these individuals.\13\ In a study funded
by the U.S. Department of Justice, researchers found that postsecondary
correctional education programs are highly cost-effective, and can help
incarcerated individuals reenter the employment arena and reduce
recidivism.\14\
---------------------------------------------------------------------------
\11\ Castro, E.L., Hunter, R.K., Hardison, T., & Johnson-Ojeda,
V. (2018). ``The Landscape of Postsecondary Education in Prison and
the Influence of Second Chance Pell: An Analysis of Transferability,
Credit-Bearing Status, and Accreditation.'' The Prison Journal,
98(4), 405-26. https://doi.org/10.1177/0032885518776376.
\12\ Ibid.
\13\ Coady, N.M. (2021). A Qualitative Evaluation of Prison
Education Programs in Delaware: Perceptions of Adult Male Returning
Citizens. ProQuest Dissertations Publishing. Retrieved from
www.proquest.com/openview/af55946da2d8d2213f500ffaa89a3102/1.pdf.
\14\ Davis, L., et al. ``How Effective is Correctional
Education, and Where Do We Go From Here?'' Rand Corp. (2014).
www.rand.org/pubs/research_reports/RR564.html.
---------------------------------------------------------------------------
The Department has explored postsecondary education for
incarcerated individuals through its Second Chance Pell experiment,
first announced in 2015.\15\ The goal of the experiment has been to
learn about how Federal Pell Grant funding expands postsecondary
educational opportunities for incarcerated individuals and explore how
such funding fosters other positive outcomes.\16\ Data reported to the
Department indicate that recipients of Second Chance Pell Grants
successfully completed a high percentage of the credits they
attempted.\17\ The institutions participating in the Second Chance Pell
experiment reported that their programs had positive effects related to
public safety, as well as safe working and living conditions in their
carceral facilities. Further research has illustrated that correctional
education programs contribute to successful rehabilitation and
subsequent reentry for those who were incarcerated, thereby improving
safety within the facilities that offer postsecondary programming and
recidivism and public safety outcomes overall.\18\
---------------------------------------------------------------------------
\15\ Department of Education Experimental Sites Initiative site,
Updated June 8, 2022, https://www2.ed.gov/about/offices/list/ope/pell-secondchance.pdf.
\16\ Second Chance Pell Fact Sheet. (n.d.). In U.S. Department
of Education. https://www2.ed.gov/about/offices/list/ope/pell-secondchance.pdf.
\17\ U.S. Department of Education. (2020, August). Experimental
Sites Initiative Second Chance Pell: Evaluation Report for Award
Years 2016-2017 and 2017-2018. Federal Student Aid. Retrieved from
https://experimentalsites.ed.gov/exp/pdf/20162018SecondChancePellESIReport.pdf.
\18\ Chesnut, K., & Wachendorfer, A. (2021, April). Second
Chance Pell: Four Years of Expanding Access to Education in Prison.
Vera Institute of Justice. Retrieved from www.vera.org/publications/second-chance-pell-four-years-of-expanding-access-to-education-in-prison.
---------------------------------------------------------------------------
Correctional education can offer rehabilitation to incarcerated
individuals, because the programs are able to capitalize on acquired
education and skills. Soft skills in particular, such as communication
and interaction with others, are a significant benefit of correctional
education.\19\ In one study of correctional education in Delaware, the
surveyed participants noted that the program provided ``credentialing
and a variety of skills . . . that they may not otherwise have obtained
due to lack of confidence, missing opportunities to participate in
educational programs offered in the community, [and] incapability of
making time to commit to such programs outside of incarceration.'' \20\
---------------------------------------------------------------------------
\19\ Bennett, B. (2015). ``An Offender's Perspective of
Correctional Education Programs in a Southeastern State.'' Walden
Dissertations and Doctoral Studies. 457. https://scholarworks.waldenu.edu/dissertations/457.
\20\ Coady, N.M. (2021). A Qualitative Evaluation of Prison
Education Programs in Delaware: Perceptions of Adult Male Returning
Citizens. ProQuest Dissertations Publishing. Retrieved from
www.proquest.com/openview/af55946da2d8d2213f500ffaa89a3102/1.pdf.
---------------------------------------------------------------------------
The Department's framework for PEPs will clarify and implement
statutory requirements for the benefit of incarcerated individuals and
other stakeholders, including correctional agencies and institutions,
postsecondary institutions, accrediting agencies, and related
organizations. Our final regulations clarify definitions of confined or
incarcerated individuals and PEPs that align with the statute. These
regulations clarify the processes that the oversight entity (including
a State department of corrections or the Bureau of Prisons) will follow
in determining whether a PEP is operating in the best interests of the
students. Consistent with the statute, the final regulations will
prevent proprietary institutions or institutions subject to certain
adverse actions from offering PEPs. These final regulations also
provide protections for incarcerated individuals against programs that
do not satisfy applicable licensure or certification requirements or
where such students are typically prohibited under Federal or State law
from employment in the field due to the nature of a student's
conviction. Under the final rule, institutions must disclose whether
their program is designed to lead to occupations in which formerly
incarcerated individuals typically face barriers in other States. These
final regulations are designed to clarify how oversight entities can
meet statutory requirements, and to guide PEP educational institutions
and practitioners on access to, and eligibility for, Federal Pell
Grants.
90/10 Rule
The ARP amended section 487 of the HEA to require that proprietary
institutions count all Federal funds used to attend the institution as
Federal revenue in the 90/10 calculation, rather than only counting
title IV, HEA program funds. In FY 2021, proprietary institutions were
eligible to receive funding from at least 26 non-title IV Federal
programs. The largest two non-title IV, Federal programs with
documented funding provided to proprietary institutions were Post-9/11
GI Bill education benefits, which accounted for approximately $1.3
billion in FY 2021, and the DOD Tuition Assistance program, which
accounted for $185 million in that year. Some proprietary institutions
have aggressively recruited service members and veterans in order to
use funds from GI Bill education benefits and DOD Tuition Assistance to
comply with the current 90/10 requirement since these funds helped
offset title IV, HEA program funds in the calculation.\21\
---------------------------------------------------------------------------
\21\ See, for example, Hollister K. Petraeus, ``For-Profit
Colleges, Vulnerable G.I.'s,'' The New York Times (Sept. 21, 2011),
www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html; and For-Profit Higher Education: The Failure to Safeguard
the Federal Investment and Ensure Student Success, U.S. Senate,
Health, Education, Labor and Pensions Committee, Majority Committee
Staff Report (Jul. 30, 2012), www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf.
---------------------------------------------------------------------------
In addition, the changes to Sec. 668.28 modify allowable non-
Federal revenue in the 90/10 calculation to better align the
regulations with statutory intent and to address practices proprietary
institutions have used to alter their 90/10 calculation or inflate
their non-Federal revenue percentage. These combined changes include:
(1) Creating a new requirement for when proprietary institutions
must request and disburse title IV, HEA program funds to prevent
delaying disbursements to the subsequent fiscal year in order to reduce
their Federal revenue percentage for the preceding fiscal year. The
changes to the disbursement rules in Sec. 668.28(a)(2) will prevent
such practices.
(2) Clarifying the regulatory requirements that ineligible programs
must meet in order to be included in the 90/10 calculation. The
Department is concerned that these sources of non-Federal revenue may
provide an incentive for institutions to create, offer, and market
programs with little oversight or few consumer protections, or to
create programs that bear little, if
[[Page 65468]]
any, relationship to eligible programs subject to the 90/10 revenue
requirement in order to increase the amount of non-Federal funds
proprietary institutions receive in a fiscal year to comply with 90/10.
The changes to Sec. 668.28(a)(3) will prevent such revenue from being
included to inflate the amount of non-Federal funds.
(3) Creating guardrails for ISAs and other financing agreements
between students and proprietary institutions. Payments made by
students or former students on institutional loans or alternative
financing agreements currently count as non-Federal revenue in a
proprietary institution's 90/10 calculation, and thus some proprietary
institutions may have an incentive to encourage students to utilize
these products, which may be more costly to borrowers and lack the same
consumer protections as Federal student loans.\22\ The addition of
Sec. 668.28(a)(5)(ii) will mitigate incentives for institutions to use
these products to meet the 90/10 revenue calculation.
---------------------------------------------------------------------------
\22\ See, for example, Loonin, D. (2011). Piling On: The Growth
of Proprietary School Loans and the Consequences for Students.
Student Loan Borrower Assistance Program at the National Consumer
Law Center. Received from www.studentloanborrowerassistance.org/wp-content/uploads/File/proprietary-schools-loans.pdf and Consumer
Financial Protection Bureau (Jan 20, 2022). Consumer Financial
Protection Bureau to Examine Colleges' In-House Lending Practices.
Retrieved from www.consumerfinance.gov/aboutus/newsroom/consumer-financial-protection-bureau-to-examine-colleges-in-house-lending-practices. Ritter & Weber 2021 The Emergence of Income Share
Agreements Chapter 14 in Social Finance, Inc., Federal Reserve Bank
of Atlanta, and Federal Reserve Bank of Philadelphia, Workforce
Realigned: How New Partnerships are Advancing Economic Mobility.
Risks identified include ``deceptive marketing, high implied annual
percentages rates in the event of high realized incomes, potentially
insufficient protections for low incomes or disruptive life events
or low incomes, and potentially burdensome aggregate income shares
for individuals who take on multiple ISAs or combine ISAs with
loans.'' Retrieved from https://socialfinance.org/wp-content/uploads/Workforce-Realigned-Full-Book.pdf on October 8, 2022.
---------------------------------------------------------------------------
(4) Modifying revenue that must be excluded from the 90/10
calculation. The Department is modifying allowable revenue generated
from institutional aid and funds that cannot be included in the 90/10
calculation to prohibit proprietary institutions from including revenue
from the sale of ISAs, alternative financing agreements, or
institutional loans in their 90/10 calculation. The revenue to the
institution from these transactions is for an asset sale and not a
payment by that party for the education provided by the institution as
intended under the 90/10 revenue requirement. Thus, the Department does
not consider funds generated from these sales as representative of
funds paid to the institution for the purposes of education and
training. The addition of Sec. 668.28(a)(6)(vi) and (vii) will
explicitly exclude proceeds from such sales from being counted as non-
Federal revenue in the 90/10 calculation.
Finally, we also remove several outdated provisions, such as those
related to the Ensuring Continued Access to Student Loans Act (ECASLA)
of 2008.
Changes in Ownership
The Department has received a growing number of CIO applications in
recent years. We processed over 150 transactions from October 2018
through the end of 2021; dozens more remain pending. Moreover, the CIO
applications that we received and reviewed have been increasingly
complex and require significant effort and expertise to review,
particularly given that the current regulations are not always clear
for institutions or the Department. Some of these CIOs include
institutions converting from proprietary to nonprofit status, which
further complicates the Department's review and presents a greater risk
to students and taxpayers. Given this changing landscape of CIO
applications, the Department needs to further clarify and define the
CIO process to better protect students and taxpayers from potentially
risky transactions, restrain profit-motives at the expense of student
outcomes, and to provide the Department and institutions with clearer
processes and regulations to mitigate loss and noncompliance. These
improvements will enable the Department to identify high-risk
transactions and require financial protection as needed.
Accordingly, these final regulations clarify the requirements for
institutions undergoing CIOs, including by requiring adequate advance
notice of such transactions to ensure the Department can assess the
requirements of continued participation in the title IV, HEA programs
prior to completion of the transaction. Further, these regulations will
increase transparency into CIOs to better enable the Department to
identify individuals with control over the institution, while reducing
the burden of reviewing transactions in which a change in ownership is
unlikely to result in a change in control. These final regulations also
clarify that the Department may apply terms for continued participation
in the Federal financial aid programs to ensure that we are able to
take appropriate steps to protect students and taxpayers from risky
transactions. Changes to the definition of a ``nonprofit institution''
will clarify the requirements for operating such institutions to
prohibit enrichments to private parties, ensuring that proprietary
institutions are not able to receive approval as nonprofit institutions
without sufficiently addressing their business practices and the profit
interests of former owners.\23\
---------------------------------------------------------------------------
\23\ Shireman, R. (2020). How For-Profits Masquerade as
Nonprofit Colleges, The Century Foundation. https://tcf.org/content/report/how-for-profits-masquerade-as-nonprofit-colleges/.
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To provide additional clarity to institutions and ensure
consistency in the application of the regulations, the Department is
also finalizing some technical changes to adjust the definitions of
additional locations and branch campuses of the institution to conform
with current practice and clarify how the Department views such
locations.
2. Summary of Comments and Changes From the NPRM
----------------------------------------------------------------------------------------------------------------
Provision Regulatory section Description of change from NPRM
----------------------------------------------------------------------------------------------------------------
Pell Grants for Confined or Incarcerated Individuals
----------------------------------------------------------------------------------------------------------------
Participation Percentage................ Sec. 600.7(c)(4)(i)(B)... Following the period described in
paragraph (c)(4)(i)(A), no more than 75
percent of the institution's regular
enrolled students may be confined or
incarcerated.
Waiver.................................. Sec. 600.7(c)............ Waiver will now be split into paragraphs
separately addressing waiver grant and
waiver denial.
[[Page 65469]]
Institution Location.................... Sec. 668.238(a).......... Following our initial approval of an
institution's PEP, additional PEP
offered by the same institution at the
same location may be determined eligible
without further approval from the
Secretary except as required by Sec.
600.7, Sec. 600.10, Sec.
600.20(c)(1), or Sec. 600.21(a), as
applicable, if such programs are
consistent with the institution's
accreditation or its State approval
agency.
Documentation........................... Sec. 668.238(b)(4)....... Documentation detailing the methodology
including thresholds, benchmarks,
standards, metrics, data, or other
information the oversight entity used in
approving the PEP and how the
information was collected.
Limitation or Termination of Approval... Sec. 668.240............. The Secretary may limit or terminate or
otherwise end the approval of an
institution to provide an eligible
prison education program if the
Secretary determines that the
institution violated any terms of the
subpart or that the institution
submitted materially inaccurate
information to the Secretary,
accrediting agency, State agency, or
oversight entity.
Best Interest Determination............. Sec. 668.241............. Revised so all outcome indicators are
optional but maintain that the current
input indicators as mandatory to assess
and removed ``barring exceptional
circumstances surrounding the student's
conviction'' from the assessment of
transferability of credits.
Best Interest Final Evaluations......... Sec. 668.241(e)(1)....... After its initial determination that a
program is operating in the best
interest of students under paragraph
(a), the institution must obtain
subsequent evaluations of each eligible
prison education program from the
responsible oversight entity not less
than 120 calendar days prior to the
expiration of each of the institution's
Program Participation Agreements, except
that the oversight entity may make a
determination between subsequent
evaluations based on the oversight
entity's regular monitoring and
evaluation of program outcomes.
Period Following Best Interest Sec. 668.241(e)(2)(i).... Include the entire period following the
Determination. prior determination and be based on the
applicable factors described under
paragraph (a) for all students enrolled
in the program since the prior
determination.
----------------------------------------------------------------------------------------------------------------
90/10
----------------------------------------------------------------------------------------------------------------
ISA..................................... Sec. 668.28(a)(5)(ii).... Clarified ISA agreements covered by the
requirements in Sec.
668.28(a)(5)(ii)(A) through (C).
Covered Institutional Charges........... Sec. 668.28(a)(5)(ii)(A). Clarified ISA or alternative financing
agreement must identify what
institutional charges the agreement
covers, and those charges cannot be more
than the stated institutional charges at
the time the student signs the
agreement.
Required Disclosures.................... Sec. 668.28(a)(5)(ii)(B). Clarified that the ISA or alternative
financing agreement must disclose: the
maximum time and amount a student would
be required to repay, the maximum amount
a student would be required to repay,
the implied or imputed interest rate,
and any fees or revenue generated for a
third-party.
90/10 Calculation....................... Sec. 668.28(a)(5)(ii)(C). Clarified that revenue, interest, and
fees are not included in the 90/10
calculation.
ISA Interest Rate....................... Sec. 668.28(a)(5)(ii)(D). Removed the proposed limit on the
interest rate for an ISA that an
institution must disclose to a student
if the ISA funds are included in its 90/
10 calculation.
Federal Funds........................... Sec. 668.28(a)(6)(iii)... Revised funds to be the amount of
Sec. 668.28(a)(6)(iv).... institutional funds used to match
Federal funds.
Revised language to state the amount of
Federal funds refunded to students or
returned to the Secretary under Sec.
668.22 or required to be returned to the
applicable program.
Institutional Loans and ISAs............ Appendix C................. Revised the line item for institutional
loans to show that institutions should
count the full payment amount in the
amount column and only the amount of
principal payment in the adjusted amount
column.
Revised the line item for payments on
ISAs counted under institutional aid to
show that institutions should count the
full payment amount in the amount column
and only the payment amounts that
represent a return of capital in the
adjusted amount column.
----------------------------------------------------------------------------------------------------------------
Change in Ownership
----------------------------------------------------------------------------------------------------------------
Definitions............................. Sec. 600.2............... Eliminated proposed paragraph (6) from
the ``distance education'' definition.
Definitions............................. Sec. 600.2............... Revised definition of additional location
and branch campus from ``separate'' to
``geographically separate.''
State authorization and accreditation Sec. 600.20.............. Clarified that for-profit institutions
approvals. undergoing a change in status to
nonprofit will remain in the former
until the review is complete.
Reporting changes....................... Sec. 600.21.............. Clarified that certain ownership changes
at the 5 percent level can be reported
quarterly instead of within 10 days.
----------------------------------------------------------------------------------------------------------------
[[Page 65470]]
3. Discussion of Costs and Benefits
3.1 Pell Grants for Confined or Incarcerated Individuals:
From the 1990s until the amendments made by the Consolidated
Appropriations Act, 2021, the HEA prohibited students who are
incarcerated in a Federal or State penal institution from participating
in the Federal Pell Grant program, which provides need-based grants to
low-income undergraduate and certain post-baccalaureate students to
promote access to postsecondary education. This restriction prevents
many otherwise eligible incarcerated individuals from accessing
financial aid and benefiting from the postsecondary education and
training that can be crucial to their successful reentry into society
and their communities upon the completion of their sentences. The HEA
was amended to eliminate this restriction for students who meet the
definition of confined or incarcerated individuals and who enroll in
eligible PEPs. The Department is implementing the statutory requirement
to extend Federal Pell Grant eligibility to incarcerated individuals
and increase their participation in high-quality educational
opportunities.
Costs of the Regulatory Changes:
These final regulations will impose some additional costs on the
Department, educational institutions, oversight entities, and
accrediting agencies.
First, adding eligible Pell Grant recipients as provided for by
Congress will expand the costs of the Pell Grant program for the
Federal government. The Department expects these costs to be more than
offset by the benefits noted in the benefits section, however,
especially in the form of lower recidivism rates and increased
employment opportunities. Research has found that the average cost to
incarcerate an inmate in the United States totals more than $33,000 per
year.\24\ However, participating in correctional postsecondary
education programs reduces a former inmate's recidivism risk by 28
percent.\25\
---------------------------------------------------------------------------
\24\ www.vera.org/downloads/publications/the-price-of-prisons-2015-state-spending-trends.pdf.
\25\ Bozick, R., Steele, J., Davis, L., & Turner, S. Does
providing inmates with education improve postrelease outcomes? A
meta-analysis of correctional education programs in the United
States. J. Experimental Criminology 14, 389-428 (2018). https://doi.org/10.1007/s11292-018-9334-6.
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Second, the educational institutions offering in-prison instruction
will face some additional costs of achieving and maintaining compliance
with new, higher standards. Thus far, correctional education programs
have not had to comply with the same requirements as programs that
receive title IV and Federal Pell Grant funding, although institutions
that participate in the Second Chance Pell experiment have already met
some of the program requirements for incarcerated individuals.
Additional costs of meeting the higher standards may include the cost
of seeking and obtaining approval of initial PEP offerings from the
accrediting agency and the Secretary, as well as the costs of providing
the data necessary for the oversight entity to determine whether the
PEP is operating in the best interests of students. Correctional
facilities may also face some increased costs related to providing
appropriate facilities and resources, including staffing, to support
the PEP as they partner with higher education institutions. Both
institutions and correctional facilities would also face increased
costs associated with required support services for their students,
including appropriate academic and career counseling, as well as
support to help prospective students complete the Free Application for
Federal Student Aid[supreg].
Additionally, oversight entities may incur additional costs to
oversee the development and operation of eligible PEPs. For example,
under Sec. Sec. 668.236 and 668.241, the oversight entity must develop
an appropriate process to approve PEPs and determine if they are
operating in the best interest of students. The ``best interest''
determination will require assessment of several identified inputs and
outcomes and will require collaboration with relevant stakeholders. All
of these steps will increase costs for the oversight entity.
With the expansion of PEPs, additional costs will be incurred by
the oversight entities to ensure that the programs are providing
quality education and opportunities for incarcerated individuals. With
more programs to evaluate, the oversight entities will need to account
for additional time and complexity of the review process, as well as
the potential need for new staff to accommodate a higher volume of PEP
reviews and additional monitoring tasks related to the enhanced metrics
that PEPs must submit. Additional costs may also arise from having to
implement technological solutions to accommodate the higher and more
in-depth review process and program monitoring, especially as PEPs
continue to expand.
Accrediting agencies may also face costs related to the approval of
PEPs and the required site visit. However, the accrediting agency may,
in turn, require the institution of higher education to cover the
additional costs associated with the final regulations, transferring
these costs from the accrediting agencies to institutions.
Finally, the Department will incur some additional burden and cost
associated with its obligation to oversee PEPs and to support oversight
entities and institutions. For instance, we offered to provide a
significant amount of data to the oversight entities to assist them in
making the best interest determination. The Department also intends to
provide needed technical assistance to the field. We estimate that the
costs of systems changes needed to reflect the regulatory requirements,
oversight to ensure institutional compliance through program review
functions, and training support to provide technical assistance to the
field will total approximately $1.1 million.
Benefits of the Regulatory Changes:
Many of the individuals in the growing prison population have lower
levels of educational attainment compared to the general population.
Research finds that ``only 15 percent of incarcerated adults earn a
postsecondary degree or certificate either prior to or during
incarceration, while almost half (45 percent) of the general public
have completed some form of postsecondary education''. The same study
notes that about two-thirds of incarcerated adults have a high school
diploma or equivalent.\26\ This creates an opportunity for significant
expansion of correctional education programs, including postsecondary
educational programs, which would begin to address those unmet needs.
---------------------------------------------------------------------------
\26\ Ositelu, M., Equipping Individuals for Life Beyond Bars,
New America (November 2019), www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/.
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Extending Pell Grants to eligible PEPs will provide numerous
economic and public safety benefits to incarcerated individuals, to
their communities when they return, and to States and the Federal
government in the form of more successful rehabilitation of imprisoned
individuals, lower recidivism rates, higher employment rates, increased
earnings, greater contribution to the economy, and ultimately cost
savings for the government. These effects and benefits are enabled
through increased educational attainment.
Numerous studies have shown that providing education programs to
incarcerated individuals is a significant factor in successful
rehabilitation and subsequent reentry. First, research demonstrates
that correctional education is associated with higher self-confidence
and self-worth for confined
[[Page 65471]]
or incarcerated individuals, which can lead confined or incarcerated
individuals who attend postsecondary education to engage in fewer
instances of misconduct than those who did not attend.\27\
Postsecondary education programs in prisons also improve incarcerated
individuals' cognitive skills, especially for individuals with learning
disabilities, by teaching critical thinking skills, encouraging debate,
and helping students apply course lessons to their own lives, all of
which may help them better adjust to social values and expectations
upon reentry.\28\ This is a critical benefit, given that an estimated
30 to 50 percent of the adult prison population has a learning
disability.\29\ Correctional education programs also improve literacy
levels for incarcerated individuals with limited past educational
experience, which increases their post-release chances of furthering
their studies and securing employment.\30\ One of the most critical
benefits correctional education programs provide to incarcerated
individuals is the development of skills necessary for post-release
employment. Those adults who participate in postsecondary education or
job training programs while incarcerated are more likely to have higher
literacy and numeracy proficiency than their peers who do not
participate in such programs, helping to close the gaps in literacy and
numeracy skills between the incarcerated population and the general
public.\31\ A study conducted by the Education Division of the Indiana
Department of Correction (IDOC) comparing the outcomes of incarcerated
individuals who participated in a postsecondary education program in
the correctional facility with those who did not found that employment
rates and time employed following release was much higher for those who
participated in the program. Their incomes were also higher.\32\
---------------------------------------------------------------------------
\27\ Lahm, K.F. (2009). Educational participation and inmate
misconduct. Journal of Offender Rehabilitation, 48, 37-52.
www.tandfonline.com/doi/abs/10.1080/10509670802572235.
\28\ Vandala, N.G. (2019). The transformative effect of
correctional education: A global perspective. Cogent Social
Sciences, 5(1). https://doi.org/10.1080/23311886.2019.1677122.
\29\ Koo, A. (2015). Correctional education can make a greater
impact on recidivism by supporting adult inmates with learning
disabilities. J. Crim. L. & Criminology, 105. https://scholarlycommons.law.northwestern.edu/jclc/vol105/iss1/6.
\30\ Jones Young, N.C., & Powell, G.N. (2015). Hiring ex-
offenders: A theoretical model. Human Resource Management Review,
25(3), 298-312. www.sciencedirect.com/science/article/abs/pii/S1053482214000692?via%3Dihub.
\31\ Ositelu, M.O. ``Equipping Individuals for Life Beyond
Bars.'' New America, 4 Nov. 2019, www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/.
\32\ Nally, J., Lockwood, S., Knutson, K., & Ho, T. (2012). An
evaluation of the effect of correctional education programs on post-
Releasrecidivism and employment: An empirical study in Indiana.
Journal of Correctional Education (1974-), 63(1), 69-89.
www.jstor.org/stable/26507622.
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In addition to the benefits provided to PEP participants, there are
also significant public safety benefits for their communities. Over the
last two decades, numerous studies have been conducted on the impact of
prison education on post-release outcomes for previously incarcerated
individuals.\33\ The recidivism rate represents the rate at which
individuals who were previously incarcerated re-offend and are re-
admitted to correctional facilities and is often used as a measure of
success for correctional education programs. Aggregating the findings
from 57 studies published or released between 1980 and 2017, one study
found that confined or incarcerated individuals participating in
correctional postsecondary education programs are 28 percent less
likely to recidivate when compared with confined or incarcerated
individuals who did not participate in correctional education
programs.\34\
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\33\ Bozick, R., Steele, J., Davis, L., & Turner, S. Does
providing inmates with education improve postrelease outcomes? A
meta-analysis of correctional education programs in the United
States. J. Experimental Criminology 14, 389-428 (2018). https://doi.org/10.1007/s11292-018-9334-6.
\34\ Ibid., 389-428.
---------------------------------------------------------------------------
Reducing recidivism also reduces economic, public safety, and
personal costs, and correspondingly increases benefits in those
categories, for correctional facilities, governments, and our Nation as
a whole. Using a hypothetical pool of 100 inmates, a 2014 RAND study
illustrated the powerful economic benefit of correctional education
programs by comparing the direct costs of such correctional education
programs with the costs of reincarceration. The study found that the
direct costs of reincarceration were far greater than the direct costs
of providing correctional education. For a correctional education
program to be cost-effective or ``break-even,'' it would need to reduce
the 3-year reincarceration rate by between 1.9 and 2.6 percentage
points. The study's findings indicate that participation in
correctional education programs is associated with a 13-percentage-
point reduction in the risk of reincarceration in the 3 years following
release, far exceeding the break-even point thereby generating real
benefits to society.\35\
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\35\ Davis, L.M., et al., ``How Effective Is Correctional
Education, and Where Do We Go from Here? The Results of a
Comprehensive Evaluation.'' Santa Monica, CA: RAND Corporation,
2014. www.rand.org/pubs/research_reports/RR564.html.
---------------------------------------------------------------------------
3.2 90/10:
The ARP amended section 487 of the HEA by modifying which Federal
funds proprietary institutions must count in the numerator of their 90/
10 calculation. The final regulations amend Sec. 668.28 to reflect
statutory requirements implemented in the ARP.
Additionally, these regulations modify allowable non-Federal
revenue in the 90/10 calculation to better align the regulations with
the statutory intent of the 90/10 calculation and address practices
proprietary institutions have used or may be incentivized to use to
alter their 90/10 calculation or inflate their non-Federal revenue
percentage. Examples of such practices include: delaying disbursements
to avoid failing 90/10 in two consecutive years, offering ineligible
programs with little or no oversight or programs unnecessary to the
education or training of students, and selling institutional loans or
ISAs to count the proceeds from the sale in their 90/10 calculation.
These regulations also create accountability protections and disclosure
requirements. For instance, the regulations require proprietary
institutions to notify students if the institution fails the 90/10
calculation in a fiscal year and notify students that they may lose
title IV eligibility at that institution after another year of failing
the calculation. These regulations also promote consumer protection and
close potential loopholes related to ISAs and other alternative
financing agreements. These changes will result in costs to certain
proprietary institutions. Institutions unable to generate sufficient
non-Federal revenues may seek to generate revenue to meet 90/10
requirements through such methods as creating programs that are not
title IV eligible, a permissible source of revenue as long as these
ineligible programs meet the requirements established in the
regulations. They could also try to recruit more students who can pay
without needing title IV financial aid. Students at proprietary
institutions that fail the 90/10 calculation may no longer be able to
attend due to lack of aid or school closure. However, according to
research on similar sanctions, most of the students diverted from
proprietary institutions will likely enroll in other institutions,
often community colleges, which are typically lower cost.\36\
[[Page 65472]]
Moreover, the study finds evidence that borrowing and default decline
after students switch sectors. We anticipate that most students,
proprietary institutions that provide programs that attract more non-
Federal investment, public and nonprofit institutions, taxpayers and
the Department will benefit from these regulations. Proprietary
institutions that attract greater amounts of non-Federal investment,
possibly because their programs are of greater value, will benefit
because institutions that cannot secure as much non-Federal investment
will either have to leave the title IV programs or need to refocus on
providing better programs instead of devoting as much efforts to
aggressively recruiting service members so they can manage their 90/10
rate. Similarly, public and private nonprofit institutions will benefit
from not having to compete with institutions that are focused on
avoiding issues with their 90/10 ratio, leading instead to greater
competition over who offers programs with better returns. Taxpayers and
the Department will benefit because ensuring greater levels of non-
Federal investment in proprietary institutions will exert greater
market forces on these institutions to deliver better value. The result
is that the Federal investment will produce better returns.
---------------------------------------------------------------------------
\36\ Cellini, S.R., Darolia, R., & Turner, L.J. (2020). Where do
students go when for-profit colleges lose Federal Aid? American
Economic Journal: Economic Policy, 12(2), 46-83, http://doi.org/10.1257/pol.20180265.
---------------------------------------------------------------------------
Costs of the Regulatory Changes:
We expect that the changes to the 90/10 regulations will result in
costs to the Department and proprietary institutions in several areas.
First, the regulations will result in some additional burden and
compliance costs for proprietary institutions. For example, proprietary
institutions will be responsible for identifying and counting more
sources of Federal funds in their 90/10 calculation, including Federal
funds delivered directly to students. These institutions will also need
to adjust their 90/10 revenue sources and measures based upon the
changes in the regulations. Additionally, institutions may need to make
changes to programs to align with the new regulations, which will
result in extra compliance costs for proprietary institutions. The
Department expects that proprietary institutions seeking to meet the
90/10 requirements may improve the overall quality of their programs to
attract and enroll more students who pay for courses with sources other
than Federal funds. These improvements may include making changes to
improve the quality and visibility of their programs; or partnering
with employers willing to pay institutions with their own funds,
ensuring alignment with labor market needs. Further, institutions may
create programs that are not eligible for title IV, HEA funds or other
Federal funds to generate revenue to comply with the final 90/10 rule.
As noted in the NPRM, we are concerned that allowing institutions to
count funds from these ineligible programs may serve as an incentive
for proprietary institutions to create and market low-quality
ineligible programs.
Second, proprietary institutions that are unable to meet the 90/10
requirements will lose eligibility for Federal aid after failing for
two consecutive years. This may cause an interruption in the academic
program for some students. These students may also incur additional
costs and burdens associated with identifying other educational
opportunities and transferring across institutions, including searching
for institutions that offer their desired program of study, paying to
have their transcript sent to the new institution, and possibly losing
progress toward their credential if the new institution does not accept
all their previous coursework. However, the Department believes that--
as in other cases where institutional accountability rules were
strengthened--students are likely to transfer to higher-quality, and
possibly more affordable, programs at other institutions.\37\
---------------------------------------------------------------------------
\37\ Cellini, S.R., Darolia, R., & Turner, L.J. (2020). Where do
students go when for-profit colleges lose Federal aid? American
Economic Journal: Economic Policy, 12(2), 46-83, http://doi.org/10.1257/pol.20180265.
---------------------------------------------------------------------------
Lastly, these regulations include other sources of Federal funds in
addition to title IV, HEA funds as Federal sources of revenue for the
purposes of calculating 90/10. Rather than specifying all Federal
funding sources in the regulations, the Department opts to identify
non-title IV, HEA Federal education assistance funds that must be
included in the numerator of the 90/10 calculation in a notice
published in the Federal Register, with updates as needed. We will
incur minimal additional administrative costs related to the salary
expenses of staff who identify Federal funds and update the Federal
Register notice as needed.
Benefits of the Regulatory Changes:
The 90/10 rule benefits multiple groups of stakeholders,
particularly military-connected students, proprietary institutions that
offer programs of value to students and employers, public and non-
profit institutions, and taxpayers.
First, military-connected students receive the most significant and
immediate benefits from the regulations. The ARP amendment aimed to end
some allegedly predatory practices to recruit service members and
veterans because their GI Bill and DOD Tuition Assistance education
benefits could help proprietary institutions meet their non-Federal
revenue requirements under the current 90/10 regulations.\38\
Approximately 33 institutions would have failed the 90/10 requirements
in 2018-19 if DOD and VA dollars were included as Federal funds.
Seventeen institutions would have failed for two years in 2019-20,
which would have resulted in their loss of title IV program
eligibility. Most institutions (about 1,740 of approximately 1,800
institutions) would have passed in both years. Under these regulations,
proprietary institutions at risk of failing the calculation no longer
have an incentive to aggressively target GI Bill and DOD Tuition
Assistance recipients because these programs are counted as Federal
funds for purposes of 90/10. This revision also provides service
members and veterans greater opportunities to consider their enrollment
options at various institutions without potential undue influence or
aggressive recruiting from proprietary institutions. Without such
aggressive recruiting, military-connected students might be more likely
to choose higher-value programs, generating potentially better
employment and earnings gains for this population. This is especially
true in light of the lower earnings gains for proprietary institutions
noted elsewhere.
---------------------------------------------------------------------------
\38\ See, for example, www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html; www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf;
www.chronicle.com/article/for-profit-college-marketer-settles-allegations-of-preying-on-veterans/; www.insidehighered.com/quicktakes/2015/10/09/defense-department-puts-u-phoenix-probation;
https://oag.ca.gov/news/press-releases/attorney-general-becerra-announces-settlement-itt-tech-lender-illegal-student; and https://files.eric.ed.gov/fulltext/ED614219.pdf.
---------------------------------------------------------------------------
Other students who are considering enrolling in proprietary
institutions will also benefit. For example, proprietary institutions
will not be able to use temporary measures, such as delaying
disbursements or selling institutional loans, to mask potential
challenges with meeting the 90/10 requirements or to avoid losing
eligibility following a failure of the 90/10 calculation during the
fiscal year. All students will also benefit from the Department's
assessment of institutional liability for all title IV funds disbursed
after an institution becomes ineligible due to two consecutive 90/10
failures. This disincentivizes institutions to continue disbursing
title IV funds after they lose eligibility. Consequently, students are
less likely to receive title IV aid that
[[Page 65473]]
their school should not have disbursed. This preventive effort will
also benefit taxpayers by decreasing improper payments that would occur
if we were unable to collect the liability from the institution.
Next, the final regulations will promote consumer protection for
prospective and currently enrolled students by requiring certain
disclosures in institutional financing agreements. This provides
additional protections for students accessing ISAs or alternative
financing arrangements by increasing transparency about the terms of
the arrangement and, in some cases, may result in better terms offered
by the institution.
Lastly, students and taxpayers benefit when we more closely align
allowable non-Federal revenue with the statutory intent of the HEA. By
requiring proprietary institutions to bring in at least 10 percent of
their revenue from non-Federal sources, such as tuition revenue, the
final regulations require institutions to demonstrate a willing market
beyond taxpayer-financed Federal education assistance and reduce their
reliance on Federal subsidies. Institutions may have to attract more
students who are willing to pay a greater share of program expenses
with their personal funds, form more partnerships with employers, or
take other steps to make non-Federal actors willing to invest their own
money. Greater non-Federal investment could improve the return on
Federal investments as the competition to attract non-Federal revenue
will encourage better value. Institutions that do not comply with the
90/10 regulations lose eligibility for title IV, HEA funds. This may
save some taxpayer dollars, depending on where the students who would
have attended those institutions enroll and the relative price of those
other institutions. These proprietary institutions will then need to
operate without access to title IV, HEA financial aid dollars; identify
and enroll students who pay with funds other than title IV funds,
including by making any necessary changes to better market their
programs; or partner with employers willing to pay institutions with
their own funds, ensuring alignment with labor market needs and
reducing the reliance on taxpayer dollars. Furthermore, a loss of
access to title IV aid may also result in lower tuition prices at these
institutions, as prior research has shown that proprietary schools that
participate in title IV have higher tuition than similar programs at
institutions that do not participate.\39\
---------------------------------------------------------------------------
\39\ Cellini, Stephanie Riegg, and Claudia Goldin. 2014. ``Does
Federal Student Aid Raise Tuition? New Evidence on For-Profit
Colleges.'' American Economic Journal: Economic Policy, 6 (4): 174-
206.
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3.3 Change in Ownership (CIO):
With the growing complexity of CIO transactions in recent years,
the Department is finalizing regulations to ensure a clearer, more
streamlined process for CIOs that ensures compliance with the HEA and
related regulations. Addressing CIOs is important because they can
affect the financial structure of institutions in ways that can limit
their ability to invest in educational success. They can also affect
the accountability structures that may or may not be attached to an
institution that receives millions or tens of millions of dollars a
year. Among the riskiest of those transactions for students and
taxpayers are conversions from proprietary to nonprofit status. Between
2011 and 2020, there have been 59 such conversions, involving 20
separate transactions.\40\ Of these, three-fourths of the institutions
were sold to an entity that had not previously operated an institution
of higher education; 13 institutions with a common ownership structure
closed before we were able to decide whether to approve or deny the
request for conversion.
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\40\ Government Accountability Office (GAO), Higher Education:
IRS and Education Could Better Address Risks Associated with Some
For-Profit College Conversions, December 2020. www.gao.gov/products/gao-21-89.
---------------------------------------------------------------------------
A full, comprehensive CIO review--which can take between 7 months
and 1 year, on average, for a CIO that includes a conversion, and 6
months for a CIO that does not--is a significant administrative burden
for both the institution and the Department. Some institutions close
transactions for the sale to a new owner but are unprepared to meet the
regulatory requirements for a CIO, resulting in emergency situations
where there is a potential loss of institutional eligibility and
precipitous closure. These final regulations seek to reduce that risk
by ensuring adequate notice is given prior to the sale closing date so
that we can assess whether the institution can meet the regulatory
requirements under the time constraints of Sec. 600.20(g) and (h).
This also provides sufficient time for the Department to request a
letter of credit if the new owner does not have audited financial
statements that satisfy the requirements of Sec. 600.20(g)(3)(iv). In
addition, these final regulations clarify the requirements for approval
of a CIO application and establish appropriate documentation
requirements.
In addition to revising the CIO regulations, the ownership and
control reporting regulations, and the definition of a nonprofit, these
regulations also modify or add to definitions set forth in Sec. 600.2.
These regulations clarify definitions related to campus locations, such
as ``main campus,'' ``branch campus,'' and ``additional location.''
Costs of the Regulatory Changes:
The primary sources of costs with the CIO portion of these final
regulation are increased burden for institutions from provisions that
would enhance the Department's review of CIOs and institutional
participation in the Federal student aid programs. This final rule also
provides for increased oversight of proprietary institutions seeking to
convert to nonprofit status and increased reporting requirements for
CIOs. The Department is not anticipating significant transfers to the
Department from the CIO regulations, as this rule considers the
structure under which an institution that is already participating in
the title IV programs may continue to operate. Though a CIO could
result in the Department not continuing title IV aid, we more often
impose conditions. Where there is a requested conversion to nonprofit
status, arrangements with outside parties preclude approval of
nonprofit status.
Some of these regulatory provisions will not impose additional
burden on affected institutions. For instance, although institutions
must expend resources to submit a required notice to the Department at
least 90 days in advance of the transaction, the information provided
is principally the same as the information required for a materially
complete application which must be submitted 10 business days following
the closing of the transaction. Providing earlier notice will enable us
to provide faster determinations related to any potential letter of
credit requirement, and to avoid losses of eligibility for institutions
that would be unable to meet the requirements of Sec. 600.20(g) and
(h) immediately after the transaction, as required by the regulations.
Other aspects of the regulations simplify and codify existing
Department practice, which do not increase burden to institutions.
However, some provisions require institutions undergoing CIOs after
the effective date of the regulations to submit additional
documentation and meet new requirements. For example, institutions must
provide notice to their students of a forthcoming CIO at least 90 days
in advance, requiring the
[[Page 65474]]
development of communications and resources for students. In addition,
we currently require transactions to be reported to the Department only
if the transaction affects at least a 25 percent ownership interest.
These final regulations lower the reporting threshold for a CIO to
cover changes of ownership interest of 5 percent or more. Accordingly,
a greater number of institutions will need to meet these reporting
requirements and affected institutions will incur some costs to meet
them. We anticipate these costs will be modest as the process for
reporting such a change will not be difficult or time consuming.
However, these final regulations limit reviews of changes in control,
which are more burdensome for the institution, generally to those
involving a transfer of at least 50 percent control, rather than the
current 25 percent. The Department believes that this will provide
additional transparency benefits, while reducing the burden on
institutions from more onerous changes in control reviews under
circumstances where a change in control likely has not occurred. We
believe these savings will outweigh the expense from the additional
reporting. The Department anticipates the reporting burden cost range
will be minimal due to the limited number of these events that occur
and the minimal cost of the reporting. Additionally, any costs from the
CIO regulations will only be associated with those institutions
undergoing a CIO, which are relatively uncommon compared to the total
number of institutions that participate in the title IV programs. The
Department anticipates that the administrative costs to the agency of
implementing these changes will be very limited, given the relatively
small number of such transactions and the fact that many of these
requirements are consistent with current practice.
Benefits of the Regulatory Changes:
The Department believes that the benefits and burden reduction that
will result from the CIO regulations will outweigh these new costs. We
anticipate the regulations will significantly benefit students,
taxpayers, institutions, and the Department.
Students, taxpayers, institutions, and the Department will all
benefit from the regulatory changes for CIOs, including those involving
oversight of proprietary institutions converting to nonprofit status.
Changes in ownership and control pose significant risk, especially when
the transaction involves a significant amount of debt, a burdensome
servicing agreement, the acquisition of a large institution or chain,
or a conversion to nonprofit status with ongoing and burdensome
obligations to a former owner or other entity. Some cases resulted in
school closures (and associated closed school discharges), requiring
the investment of enforcement and oversight resources by States and the
Federal government, and improperly exempting some institutions from
regulations governing proprietary institutions--such as the 90/10 rule.
Students, taxpayers, and the Department will benefit from increased
transparency around a proposed transaction, providing more time for the
Department to conduct oversight and ensure the transaction is properly
conducted and does not result in an interruption of title IV, HEA
funds. Institutions will also benefit from an earlier submission that
allows us to provide feedback on whether the institution will be able
to meet the requirements of a materially complete application before
the CIO occurs. Knowing whether the Department requires an institution
to submit a new owner letter of credit as part of the transaction can
be critical. This advanced notice enables institutions to obtain a
letter of credit with less time constraints and may also impact whether
the institution will have a CIO.
Students and taxpayers will benefit from greater assurances that
schools are complying with regulatory requirements in CIO transactions
and meeting the definition of a ``nonprofit institution.'' Current and
prospective students will benefit from the requirement that the
institution provide notice to students at least 90 days prior to a CIO
because the requirement will ensure that students receive important
information that may impact their education in a timely manner, and
that they are able to make future education decisions based on that
knowledge. Students and taxpayers will also benefit from increased
oversight of proprietary institutions converting to nonprofit status,
including requiring that proprietary institutions continue to comply
with regulatory requirements such as 90/10 unless and until they have
met the requirements to be approved as a nonprofit institution by the
Department. Taxpayers benefit from additional financial protection such
as letters of credit when the required audited financial statements of
a new owner are not available (consistent with current practice), as
well as from any additional financial protections that may be deemed
necessary by the Secretary based on the risk of the transaction.
Educational institutions will benefit from greater clarity as to
how the rules apply to CIO transactions. The revised definition of
``nonprofit institutions'' will ensure that institutions seeking such a
designation are not using business arrangements that improperly benefit
related parties. This can occur, for example, when a prior owner
retains control of the institution through a contractual relationship,
or when the prior owner continues to enjoy revenues generated by the
institution through a debt obligation or a servicing agreement. This
clarification will aid institutions in knowing how to comply, and
complying, with the statutory and regulatory requirements for title IV
HEA programs.
These final regulations will also enable a proprietary institution
that seeks to convert to nonprofit status to understand the factors
considered by the Department more clearly prior to submitting an
application. As these institutions assess potential transactions, they
will more easily be able to identify permissible and impermissible
contracts and agreements with other private parties. The 90-day notice
will also benefit institutions by ensuring that the Department can
review owners' audited financial statements to determine whether we
require a letter of credit (or other financial surety) prior to the
transaction closing. The Department may also provide notice prior to
the CIO that we require additional financial surety to minimize
financial or administrative risk that the institution may present to
taxpayers on a case-by-case basis.
The Department will also benefit from clearer regulations and
processes that are more easily interpreted and applied. Clearer
definitions related to distance learning, including for ``main
campus,'' ``branch campus,'' and ``additional location,'' will simplify
and reduce the Department's reviews of institutions and of CIO
transactions by ensuring greater consistency. The Department will also
benefit from the changes made to the reporting requirements, as
lowering the threshold from 25 percent to 5 percent will increase
transparency and enable more oversight of changes in control. This
greater visibility into voting blocs and lower-level ownership changes
will enable the Department to determine where institutions may have
undergone a change in control, warranting greater scrutiny by the
Department. These regulations will require reporting regardless of the
type of corporate structure of the institution. These CIOs do not occur
often, limiting the added burden from the reporting requirement. The
Department will also experience less burden as a result of the change
in the threshold for a change in control review from all changes in
ownership
[[Page 65475]]
over 25 percent to a 50 percent or greater change in ownership and
control or where we have reason to believe a change in control has
occurred.
4. Net Budget Impacts
These final regulations are estimated to have a net Federal budget
impact in savings of $-44.3 million for loan cohorts 2025 to 2032, and
$879 million in net changes to Pell Grants. A cohort reflects all loans
originated in a given fiscal year. Consistent with the requirements of
the Credit Reform Act of 1990, budget cost estimates for the student
loan programs reflect the estimated net present value of all future
non-administrative Federal costs associated with a cohort of loans. For
the final regulations, the baseline was updated to include
modifications for the PSLF waiver, the IDR waiver, the payment pause
extension to December 2022, and the August 2022 announcement that the
Department will discharge up to $20,000 in Federal student loans for
borrowers who make under $125,000 as an individual or $250,000 as a
family. This did not affect the net budget impact of these regulations
as the impact on loans of the 90/10 provisions in these final
regulations affects future cohorts only and the modifications affect
past loan cohorts. Pell Grant estimates also affect future awards and
were not directly affected by the modifications in question. The
budgetary effects of the regulations are primarily attributable to
providing Pell Grants to confined or incarcerated individuals in
qualifying prison education programs. The Department does not
anticipate significant budgetary impacts related to the change in
ownership provisions and anticipates a small Federal budgetary savings
due to the 90/10 provisions. The specific effects for each provision
are described in the following subsections covering the relevant
topics.
Pell Grants for Confined or Incarcerated Individuals
The changes to the Pell Grant program to allow Pell Grants for
confined or incarcerated individuals, as provided for by Congress, are
expected to increase educational opportunities for confined or
incarcerated individuals, while maintaining appropriate guidelines for
program quality and requiring reporting for tracking the extent and
performance of PEPs.
To estimate the potential increase in Pell Grant awards related to
these changes, the Department assumed, based on current figures and
previous experience with Pell Grant availability for incarcerated
individuals, that 2 percent of the incarcerated population of
approximately 1.6 million individuals will participate in eligible
PEPs. The size of the incarcerated population fluctuates and there are
differing estimates of the number of incarcerated individuals, which is
also affected by the pandemic. For example, the Department of Justice's
Bureau of Justice Statistics estimates a population of 1.4 million as
of year-end 2019 with a decline to 1.2 million as of year-end 2020,\41\
while the Vera Institute of Justice estimates there are 1.8 million in
prisons and jails as of mid-2020 and 1.77 million as of mid-2021.\42\
Given the uncertainty, the Department chose 1.6 million as a midpoint
between estimates. We expect that most participating individuals will
not have an opportunity to enroll full time due to the limited
availability of courses in carceral settings. Due to these enrollment
intensity constraints, incarcerated Pell recipients are unlikely to
receive the maximum grant available. Based on experience from the
Second Chance Pell experiment, where average awards were nearly 60
percent of the maximum award, the average award used to develop the
estimate was prorated to approximately $3,800 in the first year,
generating the estimated costs in Table 1.
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\41\ Bureau of Justice Statistics, Prisoners in 2020--
Statistical Tables, December 2021, available at Prisoners in 2020--
Statistical Tables (ojp.gov).
\42\ Vera Institute of Justice, People in Jail and Prison,
Spring 2021, available at www.vera.org/downloads/publications/people-in-jail-and-prison-in-spring-2021.pdf.
\43\ The Federal Pell Grant program has discretionary costs
associated with the maximum award set in the annual appropriation
and mandatory costs associated with the additional award amount
determined by statute. These changes affect both mandatory and
discretionary costs.
Table 1--Estimated Financial Transfer Effects of PEPs
[$millions] \43\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost of Expanding Pell Eligibility to Incarcerated Individuals (PB23 Assumptions)
---------------------------------------------------------------------------------------------------------------------------------------------------------
Academic year
(AY) 2023-24 AY 2024-25 AY 2025-26 AY 2026-27 AY 2027-28 AY 2028-29
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discretionary Program Cost.............................. 96 100 101 101 102 103
Mandatory Program Cost.................................. 23 22 22 22 22 23
-----------------------------------------------------------------------------------------------
Total Program Cost.................................. 119 122 123 123 124 126
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discretionary Outlays................................... 32 63 99 101 101 102
Mandatory Outlays....................................... 11 23 22 22 22 22
-----------------------------------------------------------------------------------------------
Total Outlays....................................... 43 86 121 123 123 124
--------------------------------------------------------------------------------------------------------------------------------------------------------
AY 2029-30 AY 2030-31 AY 2031-32 AY 2032-33 10-year total
----------------------------------------------------------------------------------------------------------------
Discretionary Program Cost...... 104 104 105 104 1,020
Mandatory Program Cost.......... 23 23 23 23 226
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Total Program Cost.......... 127 127 128 127 1,246
----------------------------------------------------------------------------------------------------------------
FY 2029 FY 2030 FY 2031 FY 2032 10-year total
----------------------------------------------------------------------------------------------------------------
Discretionary Outlays........... 103 104 104 104 913
[[Page 65476]]
Mandatory Outlays............... 23 23 23 23 214
-------------------------------------------------------------------------------
Total Outlays............... 126 127 127 127 1,127
----------------------------------------------------------------------------------------------------------------
Based on these assumptions, the estimated cost of the regulatory
changes related to Pell Grants for confined or incarcerated individuals
is approximately $1.1 billion over 10 years. The amount of Pell Grants
awarded based on these changes will depend heavily on the number of
institutions that choose to participate and the number of students that
they enroll. Another factor that will affect the increase in transfers
is how quickly institutions begin to offer PEP programs. We assume a
fast roll-out since institutions will have been aware of these changes
for several years before the regulations take effect, but the ramp-up
could be more gradual, shifting the timing back and reducing the
overall transfers.
90/10 Rule
To help estimate the effect of the final 90/10 regulations, the
Department analyzed information about additional Federal aid received
by institutions subject to the 90/10 requirements and found that an
additional 92 institutions with $524.8 million in Pell grants and $1.09
billion in loan volume in AY 2019-20 would be above the 90 percent
threshold, and 49 institutions would be above the 90 percent threshold
for both 2018-19 and 2019-20, risking eligibility for title IV, HEA
funds. The baseline update included the modifications for the Public
Service Loan Forgiveness (PSLF) waiver, the Income-Driven Repayment
(IDR) waiver, the payment pause extension to December 2022, and the
August 2022 announcement that the Department will discharge up to
$20,000 in Federal student loans for borrowers who make under $125,000
as an individual or $250,000 as a family. However, these modifications
did not affect the net budget impact of the 90/10 provisions. These
final regulations affect future cohorts only and the modifications
affect past loan cohorts.
However, the Department recognizes that institutions have
historically managed to meet the 90/10 threshold, and we expect most
institutions will be able to adapt to the new requirements.
Additionally, students will still qualify for similar levels of aid
even if they choose to attend a different institution or shift sectors.
Therefore, we do not expect a 100 percent loss of loan volume and aid
awarded for those institutions that we would otherwise estimate would
be out of compliance under the final regulations. We estimate that the
inclusion of additional types of Federal aid in the 90/10 calculation
will decrease Pell Grants awarded by -$248 million from AY 2024-25 to
AY 2032-33 and have a net budget impact of $-44.3 million from reduced
loan volumes for cohorts 2025-2032.
The following tables demonstrate the expected change in Pell Grants
awarded and loan volumes that resulted in the estimated net budget
impact of $-292 million. Our estimates are based on institutional data,
including Post-9/11 GI Bill benefits and DOD Tuition Assistance
programs. They do not account for funds that go directly to students to
cover tuition, fees, or other institutional charges, and they do not
include other sources of Federal funds disbursed by State or local
entities.
To estimate the reduction in loan volume related to the change in
the 90/10 regulations, the Department assumed that institutions with a
90/10 rate over 95 percent under the final regulations would not be
able to reduce their rate below 90. While institutions in the 2018-19
and 2019-20 90/10 files used for this estimate did not have the same
motivations that will exist under the final regulations because the 90/
10 calculation was different for them, no institution with a 90/10 rate
above 95 in the first year was under 90 in the second year in the
Department's analysis. Seventeen institutions with $94.9 million in
Pell Grants and $194.1 million in loans were above the 95 percent rate,
representing between 0.2 percent to 3.3 percent of proprietary volume
depending on the institution's 2-year or 4-year level classification
and grant or loan type. Student choice will affect the potential
reduction, as students will be eligible to receive similar title IV
amounts if attending a different institution. The Department has
generally assumed a high percentage of students at schools that close
or close programs because of 90/10 would pursue education and receive
aid elsewhere. Additionally, a previous study has found that 60-70
percent enrollment losses at proprietary institutions due to sanctions
were offset by increased enrollment at community colleges.\44\ For this
estimate, we assume that 60 percent of students would pursue their
education elsewhere if their initial choice were not available due to
the changes to the 90/10 regulations. Finally, we anticipate that the
reduction in volume will decrease over the years as institutions over
the threshold no longer participate and others adapt to the new
threshold. To account for this, we reduced the percentage applied to
the Pell Grant and loan volume by 30 percent in 2027-28 and 2028-29, 40
percent in 2029-30 and 2030-31, and 50 percent in 2031-32 and 2032-33.
Table 2 shows the effect on Pell Grants of the final regulations.
---------------------------------------------------------------------------
\44\ Cellini, S.R., Darolia, R., & Turner, L.J. (2020). Where do
students go when for-profit colleges lose Federal Aid? American
Economic Journal: Economic Policy, 12(2), 46-83, http://doi.org/10.1257/pol.20180265.
Table 2--Estimated Reduction in Pell Grant Transfers From 90/10 Regulations
--------------------------------------------------------------------------------------------------------------------------------------------------------
AY 2023-24 AY 2024-25 AY 2025-26 AY 2026-27 AY 2027-28 AY 2028-29
--------------------------------------------------------------------------------------------------------------------------------------------------------
PB23 Baseline:
Discretionary Cost ($m)............................. 24,342 27,581 28,041 28,509 28,994 30,385
Mandatory Cost ($m)................................. 5,310 5,670 5,754 5,840 5,934 6,246
-----------------------------------------------------------------------------------------------
Total Cost ($m)................................. 29,652 33,251 33,795 34,349 34,928 36,631
Recipients.............................................. 6,380,000 6,990,000 7,113,000 7,237,000 7,372,000 7,656,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
AY 2023-24 AY 2024-25 AY 2025-26 AY 2026-27 AY 2027-28 AY 2028-29
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 65477]]
PB23 Baseline:
Total Cost.......................................... 29,652 33,251 33,795 34,349 34,928 36,631
% of Pell Grants at Institutions with 90/10 rates over .............. 0.000% 0.134% 0.134% 0.094% 0.094%
95 after 60% student adj applied.......................
-----------------------------------------------------------------------------------------------
Total Policy Cost................................... .............. .............. (45) (46) (33) (34)
Discretionary Policy Cost............................... .............. .............. (38) (38) (27) (29)
Mandatory Policy Cost................................... .............. .............. (8) (8) (6) (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Discretionary Outlays................................... .............. .............. (13) (24) (34) (32)
Mandatory Outlays....................................... .............. .............. (4) (8) (7) (6)
-----------------------------------------------------------------------------------------------
Total Outlays....................................... .............. .............. (17) (32) (41) (38)
--------------------------------------------------------------------------------------------------------------------------------------------------------
The reduction in loan volume was processed as a reduction in the
baseline volumes by loan type and risk group. Student loan model risk
group is a combination of institutional control and academic level with
2-year or less proprietary, 2-year or less private non-profit and
public, 4-year first-year/sophomore, 4-year junior/senior, and graduate
students as the groups. In assigning the volume associated with 4-year
programs to a risk group, we assumed 66 percent of volume will be in
the 4-year first year/sophomore risk group and 34 percent in of volume
the 4-year junior/senior risk group. Application of the adjustment
factors to the loan volumes in the President's budget for FY 2023
baseline with modifications for the PSLF and IDR waivers, the December
payment pause extension, and broad-based debt relief shown in Table 3
resulted in the $-44.32 million loan estimate shown in Table 4.
Table 3--Loan Volume Adjustment Factors
----------------------------------------------------------------------------------------------------------------
Cohort range 2025-2026 % 2027-2028 % 2029-2030 % 2031-2032 %
----------------------------------------------------------------------------------------------------------------
2-year proprietary:
Subsidized.................................. 0.645 0.452 0.387 0.323
Unsubsidized................................ 0.632 0.443 0.379 0.316
PLUS........................................ 0.265 0.185 0.159 0.132
4-year FR/SO:
Subsidized.................................. 0.112 0.078 0.067 0.056
Unsubsidized................................ 0.144 0.101 0.086 0.072
PLUS........................................ 0.004 0.002 0.002 0.002
4-year JR/SR:
Subsidized.................................. 0.112 0.078 0.067 0.056
Unsubsidized................................ 0.144 0.101 0.086 0.072
PLUS........................................ 0.004 0.002 0.002 0.002
GRAD:
Unsubsidized................................ 0.075 0.053 0.045 0.038
Grad Plus................................... 0.008 0.005 0.005 0.004
----------------------------------------------------------------------------------------------------------------
Table 4--Estimated 90/10 Effect on Loans
[$mns]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2025 2026 2027 2028 2029 2030 2031 2032 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Subsidized........................................... -2.35 -3.18 -2.63 -2.50 -2.28 -2.21 -1.96 -1.89 -18.99
Unsubsidized......................................... -2.58 -4.31 -3.76 -3.60 -3.30 -3.15 -2.81 -2.72 -26.22
PLUS................................................. 0.13 0.18 0.13 0.11 0.10 0.09 0.08 0.08 0.90
--------------------------------------------------------------------------------------------------
Total............................................ -4.79 -7.31 -6.26 -5.99 -5.48 -5.26 -4.69 -4.54 -44.32
--------------------------------------------------------------------------------------------------------------------------------------------------------
These reductions in transfers depend on institutional and student
responses that are uncertain. In deciding whether to continue their
education, students will depend on the availability of programs of
interest at other institutions that fit their commuting or other
constraints. Fewer institutions may be able to get their rate below 90
or more students may decide not to pursue their education if the
institution they would have chosen is not available. Both of those
scenarios would further reduce Pell Grant and loan transfers. For
example, if the 49 institutions with rates above 90 under the final
regulations in both years were assumed to not be able to get below the
threshold, the estimated savings in Pell would be -$521 million and in
loans -$84 million for a total of $605 million in reduced transfers to
[[Page 65478]]
students. The mix of institutions and the volume they represent means
the assumption about what rate or which institutions could adapt and
get below the threshold does have a significant effect on the net
budget impact.
Change in Ownership
The final regulations clarify the definitions of ``additional
location'' and ``branch campus,'' which will promote clearer reporting
and a common understanding regarding ownership structures within
postsecondary education. The final CIO regulations will also increase
reporting to ensure greater transparency into CIO transactions and
strengthen the Department's review of changes in control. Increased
oversight of CIO transactions and changes to the definition of a
``nonprofit institution'' may affect the distribution of title IV aid
across sectors, as the Department will approve conversions from for-
profit status to non-profit status only when institutions have met the
requirements of a ``nonprofit institution,'' and some students' choice
of institution may be affected. However, the Department does not expect
a significant budgetary impact from the CIO provisions and would not
estimate one without additional data demonstrating a clear effect.
5. Accounting Statement
As required by OMB Circular A-4, we have prepared an accounting
statement showing the classification of the expenditures associated
with these final regulations. This table provides our best estimate of
the changes in annual monetized transfers as a result of these final
regulations. Expenditures are classified as transfers from the Federal
government to affected student loan borrowers.
Table 5--Accounting Statement: Classification of Estimated Expenditures
[In millions]
------------------------------------------------------------------------
Category Benefits
------------------------------------------------------------------------
Increased access to educational Not quantified.
opportunities for incarcerated
individuals.
Increased protection of Not quantified.
military-connected students
from aggressive recruitment
and greater exertion of market
forces on proprietary
institutions.
Improved information about Not quantified.
changes in ownership.
------------------------------------------------------------------------
------------------------------------------------------------------------
Category Costs
------------------------------------------------------------------------
Discount Rate........................... 7% 3%
Costs of compliance with paperwork $3.4 $3.4
requirements...........................
Increased administrative costs to $11.1 $11.1
Federal government to update systems to
implement the regulations..............
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
7% 3%
Reduced Pell Grants and loan transfers $-27.1 $-28.3
to students as some institutions lose
eligibility from revised 90/10.........
Increased Pell Grant transfers to $109 $111
institutions providing educational
opportunities to incarcerated
individuals............................
------------------------------------------------------------------------
6. Alternatives Considered
As part of the development of these regulations, the Department
engaged in a negotiated rulemaking process in which we received
comments and proposals from non-Federal negotiators representing
numerous impacted constituencies. These included higher education
institutions, consumer advocates, students, financial aid
administrators, accrediting agencies, and State attorneys general. Non-
Federal negotiators submitted a variety of proposals relating to the
issues under discussion. Information about these proposals is available
on our negotiated rulemaking website at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
In response to comments received and further internal consideration
of these final regulations, the Department reviewed and considered
various changes to the proposed regulations detailed in the NPRM. We
described the changes made in response to public comments in the
Analysis of Comments and Changes section of this preamble. We summarize
below the major proposals that we considered but ultimately chose not
to implement in these regulations. In developing these final
regulations, we contemplated the budgetary impact, administrative
burden, and anticipated effectiveness of the options we considered.
6.1. Pell Grants for Confined or Incarcerated Individuals:
With regard to Pell Grants for confined or incarcerated
individuals, the Department considered establishing regulations that
merely restated the statutory requirements. However, because the
requirements were new to institutions, oversight entities, and other
stakeholders, we believed the field would benefit from greater clarity
and detail in the regulations. As a result, we opted to negotiate on
the specific requirements in the regulations and were pleased to reach
consensus on those items.
With regard to an oversight entity's holistic determination that a
PEP is operating in the best interest of students, the Department
considered a variety of metrics, both from the HEA and those more
widely used within the higher education system.
The Department received many comments on the proposed regulations
opposing the best interest determination made by the oversight entity.
Many commenters contended that the best interest determination focused
too much on outcomes and not enough on inputs. Commenters were
concerned that the oversight entity would not have the expertise to
assess outcomes, and that the assessment would be overly burdensome,
complex, and costly. In response to these comments, in the final
regulations, the Department changed the best interest determination to
make an assessment of outcomes (earnings, continuing education, and job
placement post release) permissive rather than mandatory. The
Department believes that a review of inputs and an optional review of
outcomes strikes a better balance between ensuring high-quality PEPs
and minimizing undue burden on oversight entities.
[[Page 65479]]
The Department also considered allowing institutions to enroll
students in eligible PEPs that lead to occupations that typically
involve prohibitions on licensure and employment for formerly
incarcerated individuals, if the affected individuals attest that they
are aware of the restrictions. We are concerned, however, that such
programs would not generally be a productive use of students' limited
Pell Grant eligibility or time, or of taxpayer dollars. While we
acknowledge that some individuals may be able to meet such restrictive
licensure requirements, if the typical student in such a program would
not be able to find employment or obtain licensure, we are concerned
that students may enroll in programs that exhaust their Pell Grant
lifetime eligibility before they are able to complete a credential that
would allow them to earn a job in the field. The Department is aware
that many States have engaged in efforts to reduce barriers to
employment for formerly incarcerated individuals, which we strongly
encourage. Our regulations ensure that institutions must regularly re-
review State requirements to ensure they keep up with any such changes
and make potential students aware.
6.2. 90/10 Rule:
In addressing the statutory changes to the 90/10 requirements made
by the ARP, the Department considered including only DOD and Department
of Veteran Affairs (VA) funds as additional Federal funds considered
for 90/10 calculations, since these are the two largest programs with
data that demonstrate a significant amount of funds flow to some
proprietary institutions outside of title IV, HEA funds and because
military-connected students have been targeted by some proprietary
institutions in the past. The Department also considered including
other large sources of Federal funds, such as WIOA, but excluding
smaller sources. However, the Department determined to include all
Federal education assistance programs, with the exception of funds that
go directly to students that expressly cover costs outside of tuition,
fees, and other institutional charges. The Department took this
approach to be consistent with the statutory language in the ARP, which
refers to ``Federal education assistance funds'' and because Federal
appropriations for education assistance programs and disbursements to
institutions may change from year to year. Consequently, the Department
does not want to inadvertently create a new loophole where proprietary
institutions identify a large source of Federal funds, such as WIOA,
and target students that receive this funding.
The Department considered including only Federal funds that go
directly to proprietary institutions, to eliminate any burden on
proprietary institutions to obtain timely information about funds that
go directly to students, especially if a student needs to pay back an
agency for funds received due to dropping a class, enrollment intensity
decreasing, or other reasons. The Department also considered including
all student funds, including those earmarked for purposes other than
tuition and fees, such as housing. However, to be consistent with the
ARP and HEA, the Department decided to include funds that go directly
to students for tuition, fees, and other institutional charges. The
Department did not include funds that go directly to students that are
earmarked for purposes other than tuition, fees, and other
institutional charges because this funding does not apply to
institutional charges, as required by the HEA.
The Department considered listing all Federal educational
assistance programs in the regulations. However, these programs and the
underlying facts that determine institutional eligibility may change
over time, so the Department instead decided to identify sources of
funds that are to be included in a Federal Register notice, which gives
greater flexibility to account for changes over time and can be updated
as needed.
6.3. Change in Ownership:
The Department considered establishing a definition of ``nonprofit
institution'' that would preclude all revenue-based or other agreements
with a former owner, as opposed to just those that exceed reasonable
market value. However, we determined that there could be agreements
with a former owner that should not disqualify an institution from
nonprofit status.
The Department considered maintaining the current definitions that
require the Department to evaluate whether there has been a change of
control at 25 percent of a change in ownership interest, rather than 50
percent, as under the final regulations. However, in general we have
found that control below 50 percent is relatively rare. To accommodate
concerns that institutions might begin to establish changes of control
at, for example, 49 percent to evade the CIO requirements, we lowered
the threshold for reporting changes in ownership to 5 percent from 25
percent and retained discretion for the Secretary to review and
determine a change of control at a threshold below 50 percent based on
information available to the Secretary. While the Department also
considered requiring reporting of all changes in ownership at any
level, we instead determined 5 percent is appropriate to avoid
unnecessary reporting on extremely minor changes and to limit
unreasonable burden on institutions.
The Department considered whether to maintain the provision that
requires the Secretary to continue an institution's participation in
the title IV, HEA programs after a CIO with the same terms and
conditions that governed its participation before the CIO. However, we
are concerned that such terms may not adequately account for the added
risk the institution may present to students and taxpayers as a result
of the transaction. Based on our past review of CIO applications, we
are aware of numerous cases in which the transaction fundamentally
altered the operations of the institution. We believe that additional
conditions and new terms are more appropriate for institutions
undergoing a CIO and are accordingly including language that allows the
Department to establish such appropriate terms.
7. Regulatory Flexibility Act
The Secretary certifies, under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), that this regulatory action will not have a
significant economic impact on a substantial number of ``small
entities.''
The Small Business Administration (SBA) defines ``small
institution'' using data on revenue, market dominance, tax filing
status, governing body, and population. Most entities to which the
Office of Postsecondary Education's (OPE) regulations apply are
postsecondary institutions; however, many of these institutions do not
report such data to the Department. As a result, for purposes of this
final rule, the Department will continue defining ``small entities'' by
reference to enrollment,\45\ to allow meaningful comparison of
regulatory impact across all types of higher education
institutions.\46\
---------------------------------------------------------------------------
\45\ Two-year postsecondary educational institutions with
enrollment of less than 500 full-time equivalent (FTE) and four-year
postsecondary educational institutions with enrollment of less than
1,000 FTE.
\46\ In previous regulations, the Department categorized small
businesses based on tax status. Those regulations defined ``non-
profit organizations'' as ``small organizations'' if they were
independently owned and operated and not dominant in their field of
operation, or as ``small entities'' if they were institutions
controlled by governmental entities with populations below 50,000.
Those definitions resulted in the categorization of all private
nonprofit organization as small and no public institutions as small.
Under the previous definition, proprietary institutions were
considered small if they were independently owned and operated and
not dominant in their field of operation with total annual revenue
below $7,000,000. Using FY 2017 IPEDs finance data for proprietary
institutions, 50 percent of 4-year and 90 percent of 2-year or less
proprietary institutions would be considered small. By contrast, an
enrollment-based definition applies the same metric to all types of
institutions, allowing consistent comparison across all types.
[[Page 65480]]
Table 6--Small Institutions Under Enrollment-Based Definition
----------------------------------------------------------------------------------------------------------------
Level Type Small Total Percent
----------------------------------------------------------------------------------------------------------------
2-year................................ Public.................. 328 1182 27.75
2-year................................ Private................. 182 199 91.46
2-year................................ Proprietary............. 1777 1952 91.03
4-year................................ Public.................. 56 747 7.50
4-year................................ Private................. 789 1602 49.25
4-year................................ Proprietary............. 249 331 75.23
-------------------------------------------------------------------------
Total............................. ........................ 3381 6013 56.23
----------------------------------------------------------------------------------------------------------------
Source: 2018-19 data reported to the Department.
Table 7 summarizes the number of institutions affected by these
regulations.
Table 7--Estimated Count of Small Institutions Affected by the
Regulations
------------------------------------------------------------------------
Small As percent of
institutions small
affected institutions
------------------------------------------------------------------------
Pell Grants for Confined or 136 4.02
Incarcerated Individuals.........
90/10............................. 1,650 17.00
Change in Ownership............... 203 10.00
------------------------------------------------------------------------
The Department has determined that the economic impact on small
entities affected by the regulations will not be significant. As seen
in Table 8, the average total revenue at small institutions ranges from
$2.3 million for proprietary institutions to $21.3 million at private
institutions. These amounts are significantly higher than the $2,953 to
$4,593 in estimated costs per small institution for the regulations
presented in Table 9.
Table 8--Total Revenues at Small Institutions
------------------------------------------------------------------------
Average total
revenues for Total revenues
Control small for all small
institutions institutions
------------------------------------------------------------------------
Private........................... 21,288,171 20,670,814,269
Proprietary....................... 2,343,565 4,748,063,617
Public............................ 15,398,329 5,912,958,512
------------------------------------------------------------------------
Note: Based on analysis of IPEDS enrollment and revenue data for 2018-
19.
The impact of the PEP regulations will be minimal to small
institutions and will involve meeting disclosure requirements and
complying with oversight entity and the Department requirements.
The changes to 90/10 will have a minor impact on proprietary
institutions. These impacts include calculating the non-Federal revenue
and providing a notification to students and the Department if an
institution fails to comply with the 90/10 requirement.
While the CIO regulations have the potential to impact small
entities, so there will be a minor burden on institutions that undergo
a CIO to notify students at least 90 days prior to a proposed CIO. We
believe this burden will be minor and the notification can be
disseminated electronically. The reduction in the reporting threshold
for changes in ownership from 25 to 5 percent will impact more small
entities than in the past; however, the burden associated with this
increase in reporting is minimal and relatively uncommon. The
Department anticipates that lowering the reporting threshold will not
result in many institutions having to meet reporting requirements as
the Department anticipates that even at the lower threshold, this is
still not a common occurrence. In addition, the reporting burden is
minimal for those who will have a reporting burden.
[[Page 65481]]
Table 9--Estimated Costs for Small Institutions
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Compliance area Number of
small
institutions
affected Cost range per institution ($)
Estimated overall cost range
for small institutions
affected ($)
----------------------------------------------------------------------------------------------------------------
Pell Grants for Confined or 44 750 1,125 32,996 49,495
Incarcerated Individuals
disclosure requirement.........
90/10 non-Federal revenue 1,650 750 1,500 1,237,368 2,474,736
calculation....................
90/10 failure student 11 141 187 1,547 2062
notification...................
CIO notification to students.... 71 188 281 13,313 19,967
CIO increased reporting burden.. 203 1,125 1,500 228,351 304,468
----------------------------------------------------------------------------------------------------------------
Paperwork Reduction Act of 1995
As part of its continuing effort to reduce paperwork and respondent
burden, the Department provides the general public and Federal agencies
with an opportunity to comment on proposed and continuing collections
of information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Department can properly assess the impact
of collection requirements on respondents.
Sections 600.7, 600.10, 600.20, 600.21, 668.28, 668.43, 668.237,
and 668.238 of this final rule contain information collection
requirements. These final regulations include requirements for
institutions to: obtain a waiver allowing them to enroll more than 25
percent of their students as incarcerated students; obtain approval to
offer PEPs; submit an application seeking continued title IV
participation for a change in ownership; report changes in ownership or
control; and, for proprietary institutions, demonstrate compliance with
the 90/10 rule. Under the PRA, the Department has or will at the
required time submit a copy of these sections and an Information
Collection Request to OMB for its review. For some of the regulatory
sections, including those relating to PEPs, PRA approval will be sought
via a separate information collection process. Specifically, the
Department will publish notices in the Federal Register to seek public
comment on these collections.
A Federal agency may not conduct or sponsor a collection of
information unless OMB approves the collection under the PRA and the
corresponding information collection instrument displays a currently
valid OMB control number. Notwithstanding any other provision of law,
no person is required to comply with, or is subject to penalty for
failure to comply with, a collection of information if the collection
instrument does not display a currently valid OMB control number. In
the final regulations, we will display the control numbers assigned by
OMB to the information collection requirements adopted in these final
regulations.
Section 600.7--Conditions of institutional eligibility;
Section 600.10--Date, extent, duration, and consequences of
eligibility;
Section 600.20--Notice and application procedures for establishing,
reestablishing, maintaining, or expanding institutional eligibility and
certification;
Section 600.21--Updating application information; and
Section 668.238--Application requirements.
Requirements: Under Sec. 600.7(c)(1), the Secretary will not
approve an enrollment cap waiver for a postsecondary institution's
Prison Education Program (PEP) until the oversight entity is able to
make the ``best interest determination'' described in Sec. 668.241,
which will be at least 2 years after the postsecondary institution has
continuously provided a PEP.
Section 600.10(c)(1)(iv) requires an institution to obtain approval
from the Secretary to offer the institution's first eligible PEP at its
first two additional locations at correctional facilities.
Section 600.20(g)(1)(i) requires institutions to notify the
Department at least 90 days in advance of a proposed change in
ownership. This includes submission of a completed form, State
authorization and accrediting documents, and copies of audited
financial statements. It also includes reporting any subsequent changes
to the proposed ownership structure at least 90 days prior to the date
the change in ownership is to occur.
We are amending the reporting requirements in Sec. 600.21(a)(6) to
distinguish between reportable changes in ownership and changes of
control and between natural persons and legal entities.
Under Sec. 600.21(a)(14), institutions must report initial or
additional PEPs and locations for PEPs.
Section 600.21(a)(15) also requires reporting on changes in
ownership that do not result in a change of control and that are not
otherwise specified on the list of types of changes in ownership that
must be reported, to ensure that novel ownership structures are covered
under the regulations.
Section 668.238(a) requires postsecondary institution to seek
approval for the first PEP at the first two additional locations as
required under Sec. 600.10. The application requirements for such PEPs
are in Sec. 668.238(b). For all other PEPs and locations not subject
to initial approval by the Secretary, postsecondary institutions must
submit the documentation outlined in Sec. 668.238(c).
Burden Calculation: All of these regulatory changes will require an
update to the current institutional application form, 1845-0012. The
form update will be completed and made available for comment through a
full public clearance package before being made available for use by
the effective date of the regulations. The burden changes will be
assessed to OMB Control Number 1845-0012, Application for Approval to
Participate in Federal Student Aid Programs.
Section 600.20--Notice and application procedures for establishing,
reestablishing, maintaining, or expanding institutional eligibility and
certification.
Requirements: Section 600.20(g)(4) requires institutions to notify
enrolled and prospective students at least 90 days prior to a proposed
change in ownership.
Burden Calculation: We believe that this will result in burden for
the institution. Based on the GAO report cited earlier, using the 59
institutional changes of ownership over a period of 9 years, we
estimate that 7 institutions annually will require 20 hours to develop
the required notice and create
[[Page 65482]]
and send an email message to all current and prospective students for a
total of 140 hours (7 x 20 hours = 140 hours). The burden change will
be assessed to OMB Control Number 1845-NEW, Change of Ownership
Notification to Students.
Change of Ownership Notification to Students--OMB Control Number: 1845-NEW
----------------------------------------------------------------------------------------------------------------
Cost at $46.59
Affected entity Respondent Responses Burden hours per hour for
institutions
----------------------------------------------------------------------------------------------------------------
Proprietary..................................... 7 7 140 $6,522.60
---------------------------------------------------------------
Total....................................... 7 7 140 6,522.60
----------------------------------------------------------------------------------------------------------------
Section 668.28--Non-Federal revenue (90/10).
Requirements: Section 668.28(a)(2) outlines how proprietary
institutions calculate the percentage of their revenue that is Federal
revenue and creates an end-of-fiscal-year deadline for proprietary
institutions to request and disburse title IV funds to students.
Additionally, in Sec. 668.28(c)(3) we establish disclosures for
proprietary institutions that fail to derive at least 10 percent of
their fiscal-year revenues from allowable non-Federal funds.
Burden Calculation: We believe that the changes to Sec.
668.28(a)(2) will result in burden for the institution. As of April
2022, there were 1,650 proprietary institutions eligible to participate
in the title IV, HEA programs. We believe that all proprietary
institutions will be required to perform this calculation. We believe
that it will take 1,650 institutions an estimated 24 hours each to
gather information about the eligible students and payment information
to perform the required calculations and request any required
disbursements for a total of 39,600 hours (1,650 institutions x 24
hours = 39,600 hours). The estimated costs for institutions to meet
this requirement are $1,844,964.
We believe that the changes to Sec. 668.28(c)(3), which requires
institutions to notify students when the institution fails the 90/10
revenue test, will result in a burden for the institution. For the
2019-2020 Award Year, there were 33 institutions that failed to meet
the 90/10 revenue test when adding in Post 9-11 GI Bill and DOD Tuition
Assistance funds. Using this number of institutions as representative
of the number of institutions that would annually fail the 90/10
revenue test, we estimate that 33 institutions will require 4 hours to
develop and post the required notice on the institution's intranet and
internet sites for a total of 132 hours (33 institutions x 4 hours =
132 hours). The estimated costs for institutions to meet this
requirement are $6,150.
The total burden assessed to OMB Control Number 1845-0096 is
estimated at 39,732 hours and estimated costs of $1,851,114.
Student Assistance General Provisions--Non-Title IV Revenue Requirements (90/10)--OMB Control Number: 1845-0096
----------------------------------------------------------------------------------------------------------------
Cost at $46.59
Affected entity Respondent Responses Burden hours per hour for
institutions
----------------------------------------------------------------------------------------------------------------
Proprietary..................................... 1,650 1,683 39,732 $1,851,114
---------------------------------------------------------------
Total....................................... 1,650 1,683 39,732 1,851,114
----------------------------------------------------------------------------------------------------------------
Section 668.43--Institutional Information.
Requirements: Under Sec. 668.43(a)(5)(vi), an institution must
disclose if an eligible PEP is designed to meet educational
requirements for a specific professional license or certification that
is required for employment in an occupation (as described in Sec.
668.236(a)(7) and (8)). In that case, the postsecondary institution
must provide information regarding whether that occupation typically
involves State or Federal prohibitions on the licensure or employment
of formerly confined or incarcerated individuals. This requirement
applies in the State where the correctional facility is located or, in
the case of a Federal correctional facility, in the State where most of
the individuals confined or incarcerated in such facility will reside
upon release.
Burden Calculation: We believe that, of an estimated 400
institutions that will participate in PEPs, 20 percent or 80
institutions will have programs that will require such research and
disclosure. We further believe that, of an estimated 800 programs at
those institutions, 20 percent or 160 programs will require such
research and disclosure. We anticipate that to fully research the
licensure requirements in the required State or States and prepare
documentation for students in the eligible PEP, an institution will
need 25 hours per program for an estimated total burden of 4,000 hours
(160 x 25 = 4,000). The burden of 4,000 hours will be assessed to OMB
Control Number 1845-0156 with an estimated cost of $186,360.
Accreditation Participation and Disclosures--OMB Control Number: 1845-0156
----------------------------------------------------------------------------------------------------------------
Cost at $46.59
Affected entity Respondent Responses Burden hours per hour for
institutions
----------------------------------------------------------------------------------------------------------------
Private, not-for-profit......................... 14 28 700 $32,613
[[Page 65483]]
Public.......................................... 66 132 3,300 153,747
---------------------------------------------------------------
Total....................................... 80 160 4,000 186,360
----------------------------------------------------------------------------------------------------------------
Section 668.237--Accreditation requirements.
Requirements: Section 668.237 requires program evaluation at the
first two additional locations to ensure institutional ability to offer
and implement the PEP in accordance with the accrediting agency's
standards. The final regulations require the accrediting agency to
conduct a site visit no later than one year after the institution has
initiated a PEP at its first two additional locations at correctional
facilities. Additionally, the final regulations require accrediting
agencies to review the methodology used by an institution in
determining that the PEP meets the same standards for substantially
similar non-PEP programs.
Burden Calculation: Of the current 54 recognized accrediting
agencies, it is estimated that 18 accrediting agencies may be called
upon to perform such required reviews for institutions under their
oversight. It is estimated that each of these accrediting agencies will
require 8 hours per institution to evaluate the written applications
for the first two PEP programs offered or any change in methodology
review. With an estimated 400 institutions participating in the PEP
program, accrediting agencies will require 3,200 hours to complete this
initial review (400 institutions x 8 hours = 3,200 burden hours).
We estimate that, under the final regulations, accrediting agencies
will require 50 hours to prepare for the site visit, perform the site
visit, and report the findings. With an estimated 400 institutions
participating in the PEP program, accrediting agencies will require
20,000 hours to complete this initial review (400 institutions x 50
hours = 20,000 burden hours).
We estimate that accrediting agencies will require an estimated 8
hours to perform the methodology review under the final regulations.
With an estimated 400 institutions participating in the PEP program,
accrediting agencies will require 3,200 hours to complete this initial
review (400 institutions x 8 hours = 3,200 burden hours).
The total estimated burden for accrediting agencies to perform
these tasks for the PEP evaluations is 42,400 hours under the OMB
Control Number 1840-NEW.
Prison Education Program Accreditation Requirements--OMB Control Number 1840-NEW
----------------------------------------------------------------------------------------------------------------
Cost $46.59
Affected entity Respondent Responses Burden hours per hour for
institutions
----------------------------------------------------------------------------------------------------------------
Not-For-Profit Private.......................... 18 12,000 26,400 $1,229,976
---------------------------------------------------------------
Total....................................... 18 12,000 26,400 1,229,976
----------------------------------------------------------------------------------------------------------------
Consistent with the discussions above, the following chart
describes the sections of the final regulations involving information
collections, the information being collected, the collections that the
Department will submit to OMB for approval and public comment under the
PRA, and the estimated costs associated with the information
collections. The monetized net cost of the increased burden for
institutions and students was calculated using wage data developed
using Bureau of Labor Statistics (BLS) data. For institutions, we have
used the median hourly wage for Education Administrators,
Postsecondary, $46.59 per hour according to BLS as of May 2021.
www.bls.gov/oes/current/oes119033.htm.
Table 10--Collection of Information
----------------------------------------------------------------------------------------------------------------
Estimated cost $46.59
Regulatory section Information collection OMB control No. and institutional unless
estimated burden otherwise noted
----------------------------------------------------------------------------------------------------------------
Sec. Sec. 600.7, 600.10, 600.20, Sec. 600.7(c)(1) 1845-0012; Burden will Costs will be cleared
600.21, and 668.238. specifies procedures for be cleared at a later through separate
the Secretary to approve date through a information
an enrollment cap waiver separate information collection for the
for incarcerated collection for the form.
individuals at a form.
postsecondary institution.
Sec. Sec.
600.10(c)(1)(iv) and
668.238(a) require an
institution to obtain
approval from the
Secretary to offer the
institution's first
eligible PEP at its first
two additional locations
at correctional facilities.
Sec. 600.20(g)(1)(i)
requires institutions to
notify the Department at
least 90 days in advance
of a proposed change in
ownership.
Sec. 600.21(a)(6)
specifies reporting
requirements for changes
in ownership and changes
of control.
Sec. 600.21(a)(14)
requires institutions to
report on PEPs.
[[Page 65484]]
Sec. 600.21(a)(15)
requires reporting on
changes in ownership that
do not result in a change
of control and that are
not otherwise specified in
the regulations.
Sec. 668.238(b) specifies
the application
requirements for PEPs. For
all other PEPs not subject
to initial approval by the
Secretary, postsecondary
institutions must submit
the documentation outlined
in Sec. 668.238(c).
Sec. 600.20...................... Sec. 600.20(g)(4) 1845--NEW; 140 hours.. $6,522.60.
requires institutions to
notify enrolled and
prospective students at
least 90 days prior to a
proposed change in
ownership.
Sec. 668.28...................... Sec. 668.28(a)(2) 1845-0096; 39,732 $1,844,964.
clarifies how proprietary hours.
institutions calculate the
percentage of their
revenue from Federal
education assistance
programs.
Sec. 668.28(c)(3)
establishes disclosures
for proprietary
institutions that fail the
90/10 calculation.
Sec. 668.43...................... Sec. 668.43(a)(5)(vi) 1845-0156; 4,000 hours $186,360.
requires a disclosure if
an eligible PEP is
designed to meet
educational requirements
for a specific
professional license or
certification that is
required for employment in
an occupation.
Sec. 668.237..................... Sec. 668.237 specifies 1840--NEW; 26,400 $1,229,976.
how accrediting agencies hours.
will review PEPs..
----------------------------------------------------------------------------------------------------------------
The total burden hours and change in burden hours associated with
each OMB Control number affected by the regulations follows:
------------------------------------------------------------------------
Total burden Change in
Control No. hours burden hours
------------------------------------------------------------------------
1840-NEW................................ 26,400 +26,400
1845-0096............................... 39,737 +39,732
1845-0156............................... 583,171 +4,000
1845-NEW................................ 140 +140
-------------------------------
Total............................... 649,448 +70,272
------------------------------------------------------------------------
We have prepared Information Collection Requests for these
information collection requirements. If you wish to review and comment
on the Information Collection Requests, please follow the instructions
in the ADDRESSES section of this document. Note: The Office of
Information and Regulatory Affairs in OMB and the Department review all
comments posted at www.regulations.gov.
In preparing your comments, you may want to review the Information
Collection Requests (ICRs), including the supporting materials, in
www.regulations.gov by using Docket ID ED-2022-OPE-0062. These proposed
collections are identified as proposed collections 1840-NEW, 1845-0096,
1845-0156, 1845-NEW.
If you want to review and comment on the ICRs, please follow the
instructions provided below. Please note that the Office of Information
and Regulatory Affairs and the Department review all comments posted at
www.regulations.gov.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. Comments
submitted in response to this document should be submitted
electronically through the Federal eRulemaking Portal at
www.regulations.gov by selecting Docket ID ED-2022-OPE-0062. Please
specify the Docket ID and indicate ``Information Collection Comments''
if your comment(s) relate to the information collection for this rule.
For Further Information: Electronically mail [email protected].
Consistent with 5 CFR 1320.8(d), the Department is soliciting
comments on the information collection through this document. OMB is
required to make a decision concerning the collections of information
contained in these final regulations between 30 and 60 days after
publication of this document in the Federal Register. Therefore, to
ensure that OMB gives your comments full consideration, it is important
that OMB receives your comments by November 28, 2022.
Intergovernmental Review
This program is subject to Executive Order 12372 and the
regulations in 34 CFR part 79. One of the objectives of the Executive
Order is to foster an intergovernmental partnership and a strengthened
federalism. The Executive order relies on processes developed by State
and local governments for coordination and review of proposed Federal
financial assistance.
This document provides early notification of our specific plans and
actions for this program.
[[Page 65485]]
Assessment of Educational Impact
In the NPRM we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have determined
that these final regulations do not require transmission of information
that any other agency or authority of the United States gathers or
makes available.
Federalism
Executive Order 13132 requires us to ensure meaningful and timely
input by State and local elected officials in the development of
regulatory policies that have federalism implications. ``Federalism
implications'' means substantial direct effects on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. The final regulations do not have federalism implications.
Accessible Format: On request to one of the program contact persons
listed under FOR FURTHER INFORMATION CONTACT, individuals with
disabilities can obtain this document in an accessible format. The
Department will provide the requestor with an accessible format that
may include Rich Text Format (RTF) or text format (txt), a thumb drive,
an MP3 file, braille, large print, audiotape, or compact disc, or other
accessible format.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. You may
access the official edition of the Federal Register and the Code of
Federal Regulations at www.govinfo.gov. At this site you can view this
document, as well as all other documents of this Department published
in the Federal Register, in text or Adobe Portable Document Format
(PDF). To use PDF, you must have Adobe Acrobat Reader, which is
available free at the site.
You may also access documents of the Department published in the
Federal Register by using the article search feature at
www.federalregister.gov. Specifically, through the advanced search
feature at this site, you can limit your search to documents published
by the Department.
List of Subjects
34 CFR Part 600
Colleges and universities, Foreign relations, Grant programs-
education, Loan programs-education, Reporting and recordkeeping
requirements, Selective Service System, Student aid, Vocational
education.
34 CFR Part 668
Administrative practice and procedure, Aliens, Colleges and
universities, Consumer protection, Grant programs-education, Loan
programs-education, Reporting and recordkeeping requirements, Selective
Service System, Student aid, Vocational education.
34 CFR Part 690
Colleges and universities, Education of disadvantaged, Grant
programs-education, Reporting and recordkeeping requirements, Student
aid.
Miguel A. Cardona,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
parts 600, 685, 668, and 690 of title 34 of the Code of Federal
Regulations as follows:
PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED
0
1. The authority citation for part 600 continues to read as follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,
and 1099c, unless otherwise noted.
0
2. Section 600.2 is amended by:
0
a. Revising the definitions of ``Additional location'' and ``Branch
campus''.
0
b. Adding in alphabetical order a definition of ``Confined or
incarcerated individual''.
0
c. Removing the definition of ``Incarcerated student''.
0
d. Adding in alphabetical order a definition of ``Main campus''.
0
e. Revising the definition of ``Nonprofit institution''.
The additions and revisions read as follows:
Sec. 600.2 Definitions.
* * * * *
Additional location: (1) A physical facility that is geographically
separate from the main campus of the institution and within the same
ownership structure of the institution, at which the institution offers
at least 50 percent of an educational program. An additional location
participates in the title IV, HEA programs only through the
certification of the main campus.
(2) A Federal, State, or local penitentiary, prison, jail,
reformatory, work farm, juvenile justice facility, or other similar
correctional institution is considered to be an additional location
even if a student receives instruction primarily through distance
education or correspondence courses at that location.
* * * * *
Branch campus: A physical facility that is geographically separate
from the main campus of the institution and within the same ownership
structure of the institution, and that also--
(1) Is approved by the Secretary as a branch campus; and
(2) Is independent from the main campus, meaning the location--
(i) Is permanent in nature;
(ii) Offers courses in educational programs leading to a degree,
certificate, or other recognized education credential;
(iii) Has its own faculty and administrative or supervisory
organization; and
(iv) Has its own budgetary and hiring authority.
* * * * *
Confined or incarcerated individual: An individual who is serving a
criminal sentence in a Federal, State, or local penitentiary, prison,
jail, reformatory, work farm, juvenile justice facility, or other
similar correctional institution. An individual is not considered
incarcerated if that individual is subject to or serving an involuntary
civil commitment, in a half-way house or home detention, or is
sentenced to serve only weekends.
* * * * *
Main campus: The primary physical facility at which the institution
offers eligible programs, within the same ownership structure of the
institution, and certified as the main campus by the Department and the
institution's accrediting agency.
* * * * *
Nonprofit institution: (1) A nonprofit institution is a domestic
public or private institution or foreign institution as to which the
Secretary determines that no part of the net earnings of the
institution benefits any private entity or natural person and that
meets the requirements of paragraphs (2) through (4) of this
definition, as applicable.
(2) When making the determination under paragraph (1) of this
definition, the Secretary considers the entirety of the relationship
between the institution, the entities in its ownership structure, and
other parties. For example, a nonprofit institution is generally not an
institution that--
(i) Is an obligor (either directly or through any entity in its
ownership chain) on a debt owed to a former owner of the institution or
a natural person or
[[Page 65486]]
entity related to or affiliated with the former owner of the
institution;
(ii) Either directly or through any entity in its ownership chain,
enters into or maintains a revenue-sharing agreement, unless the
Secretary determines that the payments and the terms under the revenue-
sharing agreement are reasonable, based on the market price and terms
for such services or materials, and the price bears a reasonable
relationship to the cost of the services or materials provided, with--
(A) A former owner or current or former employee of the institution
or member of its board; or
(B) A natural person or entity related to or affiliated with the
former owner or current or former employee of the institution or member
of its board;
(iii) Is a party (either directly or indirectly) to any other
agreements (including lease agreements) under which the institution is
obligated to make any payments, unless the Secretary determines that
the payments and terms under the agreement are comparable to payments
in an arm's-length transaction at fair market value, with--
(A) A former owner or current or former employee of the institution
or member of its board; or
(B) A natural person or entity related to or affiliated with the
former owner or current or former employee of the institution or member
of its board; or
(iv) Engages in an excess benefit transaction with any natural
person or entity.
(3) A private institution is a ``nonprofit institution'' only if it
meets the requirements in paragraph (1) of this definition and is--
(i) Owned and operated by one or more nonprofit corporations or
associations;
(ii) Legally authorized to operate as a nonprofit organization by
each State in which it is physically located; and
(iii) Determined by the U.S. Internal Revenue Service to be an
organization described in section 501(c)(3) of the Internal Revenue
Code (26 U.S.C. 501(c)(3)).
(4) A foreign institution is a ``nonprofit institution'' only if it
meets the requirements in paragraph (1) of this definition and is--
(i) An institution that is owned and operated only by one or more
nonprofit corporations or associations; and
(ii)(A) If a recognized tax authority of the institution's home
country is recognized by the Secretary for purposes of making
determinations of an institution's nonprofit status for title IV
purposes, is determined by that tax authority to be a nonprofit
educational institution; or
(B) If no recognized tax authority of the institution's home
country is recognized by the Secretary for purposes of making
determinations of an institution's nonprofit status for title IV
purposes, the foreign institution demonstrates to the satisfaction of
the Secretary that it is a nonprofit educational institution.
* * * * *
0
3. Section 600.4 is amended by:
0
a. Revising paragraph (a) introductory text; and
0
b. Removing the parenthetical authority citation at the end of the
section.
The revision reads as follows:
Sec. 600. Institution of higher education.
(a) An institution of higher education is a public or other
nonprofit educational institution that--
* * * * *
0
4. Section 600.7 is amended by revising paragraph (c) to read as
follows:
Sec. 600.7 Conditions of institutional eligibility.
* * * * *
(c) Special provisions regarding confined or incarcerated
individuals. (1)(i) The Secretary may waive the prohibition contained
in paragraph (a)(1)(iii) of this section, upon the application of an
institution, if the institution is a nonprofit institution that
provides four-year or two-year educational programs for which it awards
a bachelor's degree, an associate degree, or a postsecondary diploma
and has continuously provided an eligible prison education program
approved by the Department under subpart P of 34 CFR part 668 for at
least two years.
(ii) The Secretary does not grant the waiver of the prohibition
contained in paragraph (a)(1)(iii) of this section if--
(A) For a program described under paragraph (c)(3)(ii) of this
section, the program does not maintain a completion rate of 50 percent
or greater; or
(B) For an institution described under paragraph (c)(2) or (3) of
this section--
(1) The institution provides one or more eligible prison education
programs that is not compliant with the requirements of 34 CFR part
668, subpart P; or
(2) The institution is not administratively capable under 34 CFR
668.16 or financially responsible under 34 CFR part 668, subpart L.
(2) If the nonprofit institution that applies for a waiver consists
solely of four-year or two-year educational programs for which it
awards a bachelor's degree, an associate degree, or a postsecondary
diploma, the Secretary may waive the prohibition contained in paragraph
(a)(1)(iii) of this section for the entire institution.
(3) If the nonprofit institution that applies for a waiver does not
consist solely of four-year or two-year educational programs for which
it awards a bachelor's degree, an associate degree, or a postsecondary
diploma, the Secretary may waive the prohibition contained in paragraph
(a)(1)(iii) of this section on a program-by-program basis--
(i) For the four-year and two-year programs for which the
institution awards a bachelor's degree, an associate degree, or a
postsecondary diploma; and
(ii) For the other programs the institution provides, if the
confined or incarcerated individuals who are regular students enrolled
in those other programs have a completion rate of 50 percent or
greater.
(4)(i)(A) For five years after the Secretary grants the waiver, no
more than 50 percent of the institution's regular enrolled students may
be confined or incarcerated individuals; and
(B) Following the period described in paragraph (c)(4)(i)(A) of
this section, no more than 75 percent of the institution's regular
enrolled students may be confined or incarcerated individuals.
(ii) The limitations in paragraph (c)(4)(i) of this section do not
apply if the institution is a public institution chartered for the
explicit purpose of educating confined or incarcerated individuals, as
determined by the Secretary, and all students enrolled in the
institution's prison education program are located in the State where
the institution is chartered.
(5) The Secretary limits or terminates the waiver described in this
section if the Secretary determines the institution no longer meets the
requirements established under paragraph (c)(1) of this section.
(6) If the Secretary limits or terminates an institution's waiver
under paragraph (c) of this section, the institution ceases to be
eligible for the title IV, HEA programs at the end of the award year
that begins after the Secretary's action unless the institution, by
that time--
(i) Demonstrates to the satisfaction of the Secretary that it meets
the requirements under paragraph (c)(1) of this section; and
(ii) The institution does not enroll any additional confined or
incarcerated individuals upon the limitation or termination of the
waiver and reduces its enrollment of confined or
[[Page 65487]]
incarcerated individuals to no more than 25 percent of its regular
enrolled students.
* * * * *
0
5. Section 600.10 is amended by revising paragraph (c)(1) to read as
follows:
Sec. 600.10 Date, extent, duration, and consequence of eligibility.
* * * * *
(c) * * *
(1) An eligible institution that seeks to establish the eligibility
of an educational program must obtain the Secretary's approval--
(i) Pursuant to a requirement regarding additional programs
included in the institution's Program Participation Agreement (PPA)
under 34 CFR 668.14;
(ii) For the first direct assessment program under 34 CFR 668.10,
the first direct assessment program offered at each credential level,
and for a comprehensive transition and postsecondary program under 34
CFR 668.232;
(iii) For an undergraduate program that is at least 300 clock hours
but less than 600 clock hours and does not admit as regular students
only persons who have completed the equivalent of an associate degree
under 34 CFR 668.8(d)(3); and
(iv) For the first eligible prison education program under subpart
P of 34 CFR part 668 offered at the first two additional locations as
defined under Sec. 600.2 at a Federal, State, or local penitentiary,
prison, jail, reformatory, work farm, juvenile justice facility, or
other similar correctional institution.
* * * * *
0
6. Section 600.20 is amended by revising paragraphs (g) and (h) to read
as follows:
Sec. 600.20 Notice and application procedures for establishing,
reestablishing, maintaining, or expanding institutional eligibility and
certification.
* * * * *
(g) Application for provisional extension of certification. (1) If
a private nonprofit institution, a private for-profit institution, or a
public institution participating in the title IV, HEA programs
undergoes a change in ownership that results in a change of control as
described in Sec. 600.31, the Secretary may continue the institution's
participation in those programs on a provisional basis if--
(i) No later than 90 days prior to the change in ownership, the
institution provides the Secretary notice of the proposed change on a
fully completed form designated by the Secretary and supported by the
State authorization and accrediting documents identified in paragraphs
(g)(3)(i) and (ii) of this section, and supported by copies of the
financial statements identified in paragraphs (g)(3)(iii) and (iv) of
this section;
(ii) The institution promptly reports to the Secretary any changes
to the proposed ownership structure identified under paragraph
(g)(1)(i) of this section, provided that the change in ownership cannot
occur earlier than 90 days following the date the change is reported to
the Secretary; and
(iii) The institution under the new ownership submits a
``materially complete application'' that is received by the Secretary
no later than 10 business days after the day the change occurs.
(2) Notwithstanding the submission of the items under paragraph
(g)(1) of this section, the Secretary may determine that the
participation of the institution should not be continued following the
change in ownership.
(3) For purposes of this section, a private nonprofit institution,
a private for-profit institution, or a public institution submits a
materially complete application if it submits a fully completed
application form designated by the Secretary supported by--
(i) A copy of the institution's State license or equivalent
document that authorized or will authorize the institution to provide a
program of postsecondary education in the State in which it is
physically located, supplemented with documentation that, as of the day
before the change in ownership, the State license remained in effect;
(ii) A copy of the document from the institution's accrediting
agency that granted or will grant the institution accreditation status,
including approval of any non-degree programs it offers, supplemented
with documentation that, as of the day before the change in ownership,
the accreditation remained in effect;
(iii) Audited financial statements for the institution's two most
recently completed fiscal years that are prepared and audited in
accordance with the requirements of 34 CFR 668.23;
(iv)(A) Audited financial statements for the institution's new
owner's two most recently completed fiscal years that are prepared and
audited in accordance with the requirements of 34 CFR 668.23, or
equivalent financial statements for that owner that are acceptable to
the Secretary; or
(B) If such financial statements are not available, financial
protection in the amount of--
(1) At least 25 percent of the institution's prior year volume of
title IV aid if the institution's new owner does not have two years of
acceptable audited financial statements; or
(2) At least 10 percent of the institution's prior year volume of
title IV aid if the institution's new owner has only one year of
acceptable audited financial statements; and
(v) If deemed necessary by the Secretary, financial protection in
the amount of an additional 10 percent of the institution's prior year
volume of title IV aid, or a larger amount as determined by the
Secretary. If any entity in the new ownership structure holds a 50
percent or greater direct or indirect voting or equity interest in
another institution or institutions, the financial protection may also
include the prior year volume of title IV aid, or a larger amount as
determined by the Secretary, for all institutions under such common
ownership.
(4) The institution must notify enrolled and prospective students
of the proposed change in ownership, and submit evidence that such
disclosure was made, no later than 90 days prior to the change.
(h) Terms of the extension. (1) If the Secretary approves the
institution's materially complete application, the Secretary provides
the institution with a temporary provisional Program Participation
Agreement (TPPPA).
(2) The TPPPA expires on the earlier of--
(i) The last day of the month following the month in which the
change of ownership occurred, unless the provisions of paragraph (h)(3)
of this section apply;
(ii) The date on which the Secretary notifies the institution that
its application is denied; or
(iii) The date on which the Secretary co-signs a new provisional
program participation agreement (PPPA).
(3) If the TPPPA will expire under the provisions of paragraph
(h)(2)(i) of this section, the Secretary extends the provisional TPPPA
on a month-to-month basis after the expiration date described in
paragraph (h)(2)(i) of this section if, prior to that expiration date,
the institution provides the Secretary with--
(i) An audited ``same-day'' balance sheet for a proprietary
institution or an audited statement of financial position for a
nonprofit institution;
(ii) If not already provided, approval of the change of ownership
from each State in which the institution is
[[Page 65488]]
physically located or for an institution that offers only distance
education, from the agency that authorizes the institution to legally
provide postsecondary education in that State;
(iii) If not already provided, approval of the change of ownership
from the institution's accrediting agency; and
(iv) A default management plan unless the institution is exempt
from providing that plan under 34 CFR 668.14(b)(15).
* * * * *
0
7. Section 600.21 is amended by:
0
a. Revising paragraphs (a) introductory text and (a)(6);
0
b. Adding paragraphs (a)(14) and (15); and
0
c. Revising paragraph (b).
The revisions and additions read as follows:
Sec. 600.21 Updating application information.
(a) Reporting requirements. Except as provided in paragraph (b) of
this section, an eligible institution must report to the Secretary, in
a manner prescribed by the Secretary no later than 10 days after the
change occurs, any change in the following:
* * * * *
(6)(i) Changes in ownership. (A) Any change in the ownership of the
institution, whereby a natural person or entity acquires at least a 5
percent ownership interest (direct or indirect) of the institution but
that does not result in a change of control as described in Sec.
600.31.
(B) Changes representing at least 5 percent but under 25 percent
(either on a single or combined basis) must be reported quarterly
(instead of within 10 days) based on the institution's fiscal year.
However, when an institution plans to undergo a change in ownership,
all unreported ownership changes of 5 percent or more in the existing
ownership must be reported prior to submission of the 90-day notice
required by Sec. 600.20. Thereafter, any changes of 5 percent or more
in the existing ownership must be reported within the 10-day deadline,
up through the date of the change in ownership.
(ii) Changes in control. A natural person or legal entity's ability
to affect substantially the actions of the institution if that natural
person or legal entity did not previously have this ability. The
Secretary considers a natural person or legal entity to have this
ability if--
(A) The natural person acquires, alone or together with another
member or members of their family, at least a 25 percent ownership
interest (as defined in Sec. 600.31(b)) in the institution;
(B) The entity acquires, alone or together with an affiliated
natural person or entity, at least a 25 percent ownership interest (as
defined in Sec. 600.31(b)) in the institution;
(C) The natural person or entity acquires, alone or together with
another natural person or entity, under a voting trust, power of
attorney, proxy, or similar agreement, at least a 25 percent ownership
interest (as defined in Sec. 600.31(b)) in the institution;
(D) The natural person becomes a general partner, managing member,
chief executive officer, trustee or co-trustee of a trust, chief
financial officer, director, or other officer of the institution or of
an entity that has at least a 25 percent ownership interest (as defined
in Sec. 600.31(b)) in the institution; or
(E) The entity becomes a general partner or managing member of an
entity that has at least a 25 percent ownership interest (as defined in
Sec. 600.31(b)) in the institution.
* * * * *
(14) Its establishment or addition of an eligible prison education
program at an additional location as defined under Sec. 600.2 at a
Federal, State, or local penitentiary, prison, jail, reformatory, work
farm, juvenile justice facility, or other similar correctional
institution that was not previously included in the institution's
application for approval as described under Sec. 600.10.
(15) Any change in the ownership of the institution that does not
result in a change of control as described in Sec. 600.31 and is not
addressed under paragraph (a)(6) of this section, including the
addition or elimination of any entities in the ownership structure, a
change of entity from one type of business structure to another, and
any excluded transactions under Sec. 600.31(e).
(b) Additional reporting from institutions owned by publicly traded
corporations. An institution that is owned by a publicly traded
corporation must report to the Secretary any change in the information
described in paragraph (a)(6) or (15) of this section when it notifies
its accrediting agency, but no later than 10 days after the institution
learns of the change.
* * * * *
0
8. Add Sec. 600.22 to read as follows:
Sec. 600.22 Severability.
If any provision of this subpart or its application to any person,
act, or practice is held invalid, the remainder of the subpart or the
application of its provisions to any person, act, or practice will not
be affected thereby.
0
9. Section 600.31 is amended by:
0
a. In paragraph (b), revising the definitions of ``Closely-held
corporation'', ``Ownership or ownership interest'', ``Parent'', and
``Person'';
0
b. Revising paragraph (c)(3);
0
c. Removing paragraph (c)(4);
0
d. Redesignating paragraphs (c)(5) through (7) as paragraphs (c)(4)
through (6), respectively;
0
e. In newly redesignated paragraph (c)(5), removing the phrase
``paragraph (d)'' and adding, in its place, the phrase ``paragraphs
(c)(3) and (d)'';
0
f. Revising paragraphs (d)(6) and (7);
0
g. Adding paragraph (d)(8);
0
h. Revising paragraph (e); and
0
i. Removing the parenthetical authority citation at the end of the
section.
The revisions and addition read as follows:
Sec. 600.31 Change in ownership resulting in a change in control for
private nonprofit, private for-profit and public institutions.
* * * * *
(b) * * *
Closely-held corporation. Closely-held corporation (including the
term ``close corporation'') means--
(i) A corporation that qualifies under the law of the State of its
incorporation or organization as a statutory close corporation; or
(ii) If the State of incorporation or organization has no statutory
close corporation provision, a corporation the stock of which--
(A) Is held by no more than 30 persons; and
(B) Has not been and is not planned to be publicly offered.
* * * * *
Ownership or ownership interest. (i) Ownership or ownership
interest means a direct or indirect legal or beneficial interest in an
institution or legal entity, which may include a voting interest or a
right to share in profits.
(ii) For the purpose of determining whether a change in ownership
has occurred, changes in the ownership of the following are not
included:
(A) A mutual fund that is regularly and publicly traded.
(B) A U.S. institutional investor, as defined in 17 CFR 240.15a-
6(b)(7).
(C) A profit-sharing plan of the institution or its corporate
parent, provided that all full-time permanent employees of the
institution or its corporate parent are included in the plan.
(D) An employee stock ownership plan (ESOP).
Parent. The legal entity that controls the institution or a legal
entity directly or indirectly through one or more intermediate
entities.
[[Page 65489]]
Person. Person includes a natural person or a legal entity,
including a trust.
* * * * *
(c) * * *
(3) Other entities. (i) The term ``other entities'' means any
entity that is not closely held nor required to be registered with the
SEC, and includes limited liability companies, limited liability
partnerships, limited partnerships, and similar types of legal
entities.
(ii) The Secretary deems the following changes to constitute a
change in ownership resulting in a change of control of such an entity:
(A) A person (or combination of persons) acquires at least 50
percent of the total outstanding voting interests in the entity, or
otherwise acquires 50 percent control.
(B) A person (or combination of persons) who holds less than a 50
percent voting interest in an entity acquires at least 50 percent of
the outstanding voting interests in the entity, or otherwise acquires
50 percent control.
(C) A person (or combination of persons) who holds at least 50
percent of the voting interests in the entity ceases to hold at least
50 percent voting interest in the entity, or otherwise ceases to hold
50 percent control.
(D) A partner in a general partnership acquires or ceases to own at
least 50 percent of the voting interests in the general partnership, or
otherwise acquires or ceases to hold 50 percent control.
(E) Any change of a general partner of a limited partnership (or
similar entity) if that general partner also holds an equity interest.
(F) Any change in a managing member of a limited liability company
(or similar entity) if that managing member also holds an equity
interest.
(G) Notwithstanding its voting interests, a person becomes the sole
member or shareholder of a limited liability company or other entity
that has a 100 percent or equivalent direct or indirect interest in the
institution.
(H) An entity that has a member or members ceases to have any
members.
(I) An entity that has no members becomes an entity with a member
or members.
(J) A person is replaced as the sole member or shareholder of a
limited liability company or other entity that has a 100 percent or
equivalent direct or indirect interest in the institution.
(K) The addition or removal of any entity that provides or will
provide the audited financial statements to meet any of the
requirements in Sec. 600.20(g) or (h) or 34 CFR part 668, subpart L.
(L) Except as provided in paragraph (e) of this section, the
transfer by an owner of 50 percent or more of the voting interests in
the institution or an entity to an irrevocable trust.
(M) Except as provided in paragraph (e) of this section, upon the
death of an owner who previously transferred 50 percent or more of the
voting interests in an institution or an entity to a revocable trust.
(iii) The Secretary deems the following interests to satisfy the 50
percent thresholds described in paragraph (c)(3)(ii) of this section:
(A) A combination of persons, each of whom holds less than 50
percent ownership interest in an entity, holds a combined ownership
interest of at least 50 percent as a result of proxy agreements, voting
agreements, or other agreements (whether or not the agreement is set
forth in a written document), or by operation of State law.
(B) A combination of persons, each of whom holds less than 50
percent ownership interest in an entity, holds a combined ownership
interest of at least 50 percent as a result of common ownership,
management, or control of that entity, either directly or indirectly.
(C) A combination of individuals who are family members as defined
in Sec. 600.21, each of whom holds less than 50 percent ownership
interest in an entity, holds a combined ownership interest of at least
50 percent.
(iv) Notwithstanding paragraphs (c)(3)(ii) and (iii) of this
section--
(A) If a person who alone or in combination with other persons
holds less than a 50 percent ownership interest in an entity, the
Secretary may determine that the person, either alone or in combination
with other persons, has actual control over that entity and is subject
to the requirements of this section; and
(B) Any person who alone or in combination with other persons has
the right to appoint a majority of any class of board members of an
entity or an institution is deemed to have control.
* * * * *
(d) * * *
(6) A transfer of assets that comprise a substantial portion of the
educational business of the institution, except where the transfer
consists exclusively in the granting of a security interest in those
assets;
(7) A change whereby the institution's ownership changes from an
entity that is for-profit, nonprofit, or public to another one of those
statuses. However, when an institution's ownership changes from a for-
profit entity to a nonprofit entity or becomes affiliated with a public
system, the institution remains a proprietary institution until the
Department approves the change of status for the institution; or
(8) The acquisition of an institution to become an additional
location of another institution unless the acquired institution closed
or ceased to provide educational instruction.
(e) Excluded transactions. A change in ownership and control timely
reported under Sec. 600.21 and otherwise subject to this section does
not include a transfer of ownership and control of all or part of an
owner's equity or partnership interest in an institution, the
institution's parent corporation, or other legal entity that has signed
the institution's PPA--
(1) From an owner to a ``family member'' of that owner as defined
in Sec. 600.21(f);
(2) As a result of a transfer of an owner's interest in the
institution or an entity to an irrevocable trust, so long as the
trustees only include the owner and/or a family member as defined in
Sec. 600.21(f). Upon the appointment of any non-family member as
trustee for an irrevocable trust (or successor trust), the transaction
is no longer excluded and is subject to the requirements of Sec.
600.20(g) and (h);
(3) Upon the death of a former owner who previously transferred an
interest in the institution or an entity to a revocable trust, so long
as the trustees include only family members (as defined in Sec.
600.21(f)) of that former owner. Upon the appointment of any non-family
member as trustee for the trust (or a successor trust) following the
death of the former owner, the transaction is no longer excluded and is
subject to the requirements of Sec. 600.20(g) and (h); or
(4) A transfer to an individual owner with a direct or indirect
ownership interest in the institution who has been involved in the
management of the institution for at least two years preceding the
transfer and who has established and retained the ownership interest
for at least two years prior to the transfer, either upon the death of
another owner or by transfer from another individual owner who has been
involved in the management of the institution for at least two years
preceding the transfer and who has established and retained the
ownership interest for at least two years prior to the transfer, upon
the resignation of that owner from the management of the institution.
* * * * *
[[Page 65490]]
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
0
10. The general authority citation for part 668 is revised to read as
follows:
Authority: 20 U.S.C. 1001-1003, 1070g, 1085, 1088, 1091, 1092,
1094, 1099c, 1099c-1, and 1231a, unless otherwise noted.
* * * * *
0
11. Section 668.8 is amended by revising paragraph (n) to read as
follows:
Sec. 668.8 Eligible program.
* * * * *
(n) Other eligible programs. For title IV, HEA program purposes,
eligible program includes a direct assessment program approved by the
Secretary under Sec. 668.10, a comprehensive transition and
postsecondary program approved by the Secretary under Sec. 668.232,
and an eligible prison education program under subpart P of this part.
Sec. 668.11 [Redesignated as Sec. 668.12]
0
12. Redesignate Sec. 668.11 as Sec. 668.12.
0
13. Add a new Sec. 668.11 to subpart A to read as follows:
Sec. 668.11 Severability.
If any provision of this part or its application to any person,
act, or practice is held invalid, the remainder of the part or the
application of its provisions to any person, act, or practice will not
be affected thereby.
0
14. Section 668.14 is amended by revising paragraph (b)(16) to read as
follows:
Sec. 668.1 Program participation agreement.
* * * * *
(b) * * *
(16) For a proprietary institution, the institution will derive at
least 10 percent of its revenues for each fiscal year from sources
other than Federal funds, as provided in Sec. 668.28(a), or be subject
to sanctions described in Sec. 668.28(c);
* * * * *
0
15. Section 668.23 is amended by:
0
a. Revising paragraph (d)(3); and
0
b. Removing the parenthetical authority citation at the end of the
section.
The revision reads as follows:
Sec. 668.23 Compliance audits and audited financial statements.
* * * * *
(d) * * *
(3) Disclosure of Federal revenue. A proprietary institution must
disclose in a footnote to its audited financial statement the
percentage of its revenues derived from Federal funds that the
institution received during the fiscal year covered by that audit. The
revenue percentage must be calculated in accordance with Sec. 668.28.
The institution must also report in the footnote the dollar amount of
the numerator and denominator of its 90/10 ratio as well as the
individual revenue amounts identified in section 2 of appendix C to
this subpart.
* * * * *
0
16. Section 668.28 is revised to read as follows:
Sec. 668.28 Non-Federal revenue (90/10).
(a) General--(1) Calculating the revenue percentage. A proprietary
institution meets the requirement in Sec. 668.14(b)(16) that at least
10 percent of its revenue is derived from sources other than Federal
funds by using the formula in appendix C to this subpart to calculate
its revenue percentage for its latest complete fiscal year. For
purposes of this section--
(i) For any fiscal year beginning on or after January 1, 2023,
Federal funds used to calculate the revenue percentage include title
IV, HEA program funds and any other educational assistance funds
provided by a Federal agency directly to an institution or a student
including the Federal portion of any grant funds provided by or
administered by a non-Federal agency, except for non-title IV Federal
funds provided directly to a student to cover expenses other than
tuition, fees, and other institutional charges. The Secretary
identifies the Federal agency and the other educational assistance
funds provided by that agency in a notice published in the Federal
Register, with updates to that list published as needed.
(ii) For any fiscal year beginning prior to January 1, 2023,
Federal funds are limited to title IV, HEA program funds.
(2) Disbursement rule. An institution must use the cash basis of
accounting in calculating its revenue percentage by--
(i) For each eligible student, counting the amount of Federal funds
the institution received to pay tuition, fees, and other institutional
charges during its fiscal year--
(A) Directly from an agency identified under paragraph (a)(1)(i) of
this section; and
(B) Paid by a student who received Federal funds; and
(ii) For each eligible student, counting the amount of title IV,
HEA program funds the institution received to pay tuition, fees, and
other institutional charges during its fiscal year. However, before the
end of its fiscal year, the institution must--
(A) Request funds under the advanced payment method in Sec.
668.162(b)(2) or the heightened cash monitoring method in Sec.
668.162(d)(1) that the students are eligible to receive and make any
disbursements to those students by the end of the fiscal year; or
(B) For institutions under the reimbursement or heightened cash
monitoring methods in Sec. 668.162(c) or (d)(2), make disbursements to
those students by the end of the fiscal year and report as Federal
funds in the revenue calculations the funds that the students are
eligible to receive before requesting funds.
(3) Revenue generated from programs and activities. The institution
must consider as revenue only those funds it generates from--
(i) Tuition, fees, and other institutional charges for students
enrolled in eligible programs as defined in Sec. 668.8;
(ii) Activities conducted by the institution that are necessary for
the education and training of its students provided those activities
are--
(A) Conducted on campus or at a facility under the institution's
control;
(B) Performed under the supervision of a member of the
institution's faculty;
(C) Required to be performed by all students in a specific
educational program at the institution; and
(D) Related directly to services performed by students; and
(iii) Funds paid by a student, or on behalf of a student by a party
unrelated to the institution, its owners, or affiliates, for an
education or training program that is not eligible under Sec. 668.8
and that does not include any courses offered in an eligible program.
The non-eligible education or training program must be provided by the
institution, and taught by one of its instructors, at its main campus
or one of its approved additional locations, at another school facility
approved by the appropriate State agency or accrediting agency, or at
an employer facility. The institution may not count revenue from a non-
eligible education or training program for which it merely provides
facilities for test preparation courses, acts as a proctor, or oversees
a course of self-study. The program must--
(A) Be approved or licensed by the appropriate State agency;
(B) Be accredited by an accrediting agency recognized by the
Secretary under 34 CFR part 602;
(C) Provide an industry-recognized credential or certification;
(D) Provide training needed for students to maintain State
licensing requirements; or
[[Page 65491]]
(E) Provide training needed for students to meet additional
licensing requirements for specialized training for practitioners who
already meet the general licensing requirements in that field.
(4) Application of funds. The institution must presume that any
Federal funds it disburses, or delivers to a student, or determines was
provided to a student by another Federal source, will be used to pay
the student's tuition, fees, or institutional charges up to the amount
of those Federal funds if a student makes a payment to the institution,
except to the extent that the student's tuition, fees, or other charges
are satisfied by--
(i) Grant funds provided by--
(A) Non-Federal public agencies that do not include Federal or
institutional funds, unless the Federal portion of those grant funds
can be determined, and that portion of Federal funds is included as
Federal funds under this section. If the Federal funds cannot be
determined no amount of the grant funds may be included under this
section; or
(B) Private sources unrelated to the institution, its owners, or
affiliates;
(ii) Funds provided under a contractual arrangement with the
institution and a Federal, State, or local government agency for the
purpose of providing job training to low-income individuals who need
that training;
(iii) Funds used by a student from a savings plan for educational
expenses established by or on behalf of the student if the savings plan
qualifies for special tax treatment under the Internal Revenue Code of
1986; or
(iv) Institutional scholarships that meet the requirements in
paragraph (a)(5)(iv) of this section.
(5) Revenue generated from institutional aid. The institution may
include the following institutional aid as revenue:
(i) For loans made to students and credited in full to the
students' accounts at the institution and used to satisfy tuition,
fees, and other institutional charges, the principal payments made on
those loans by current or former students that the institution received
during the fiscal year, if the loans are--
(A) Bona fide as evidenced by standalone repayment agreements
between the students and the institution that are enforceable
promissory notes;
(B) Issued at intervals related to the institution's enrollment
periods;
(C) Subject to regular loan repayments and collections by the
institution; and
(D) Separate from the enrollment contracts signed by the students.
(ii) Funds from an income share agreement or any other alternative
financing agreement in which the agreement is with the institution only
or with any entity or individual in the institution's ownership tree,
or with any common ownership of the institution and the entity
providing the funds, or if the entity or another entity with common
ownership has any other relationships or agreements with the
institution, provided that--
(A) The institution clearly identifies the student's institutional
charges, and those charges are the same or less than the stated rate
for institutional charges;
(B) The agreement clearly identifies the maximum time and maximum
amount a student would be required to pay, including the implied or
imputed interest rate and any fees and revenue generated for a related
third-party, the institution, or any entity described in paragraph
(a)(5)(ii) introductory text, for that maximum time period; and
(C) All payments are applied with a portion allocated to the return
of capital and a portion allocated to profit. Revenue, interest, and
fees are not included in the calculation.
(iii) For scholarships provided by the institution in the form of
monetary aid and based on the academic achievement or financial need of
its students, the amount disbursed to students during the fiscal year.
The scholarships must be disbursed from an established restricted
account and may be included as revenue only to the extent that the
funds in that account represent--
(A) Designated funds from an outside source that is unrelated to
the institution, its owners, or its affiliates; or
(B) Income earned on those funds.
(6) Funds excluded from revenues. For the fiscal year, the
institution does not include--
(i) The amount of Federal Work Study (FWS) wages paid directly to
the student. However, if the institution credits the student's account
with FWS funds, those funds are included as revenue;
(ii) The amount of funds received by the institution from a State
under the LEAP, Special Leveraging Educational Assistance Partnership
(SLEAP), or Grants for Access and Persistence (GAP) program;
(iii) The amount of institutional funds used to match Federal
education assistance funds;
(iv) The amount of Federal education assistance funds refunded to
students or returned to the Secretary under Sec. 668.22 or required to
be returned under the applicable program;
(v) The amount the student is charged for books, supplies, and
equipment unless the institution includes that amount as tuition, fees,
or other institutional charges;
(vi) Any amount from the proceeds of the factoring or sale of
accounts receivable or institutional loans, regardless of whether the
loans were sold with or without recourse;
(vii) Any amount from the sale of an income share agreement or
other financing agreement; or
(viii) Any funds, including loans, provided by a third party
related to the institution, its owners, or affiliates to a student in
any form.
(b) [Reserved]
(c) Sanctions. If an institution does not derive at least 10
percent of its revenue from sources other than Federal funds--
(1) For two consecutive fiscal years, it loses its eligibility to
participate in the title IV, HEA programs for at least two fiscal
years. To regain eligibility, the institution must demonstrate that it
complied with the State licensure and accreditation requirements under
34 CFR 600.5(a)(4) and (6), and the financial responsibility
requirements under subpart L of this part, for a minimum of two fiscal
years after the fiscal year it became ineligible;
(2) For any fiscal year, it becomes provisionally certified under
Sec. 668.13(c)(1)(ii) for the two fiscal years after the fiscal year
it failed to satisfy the revenue requirement in this section. However,
the institution's provisional certification terminates on--
(i) The expiration date of the institution's program participation
agreement that was in effect on the date the Secretary determined the
institution failed the requirement of this section; or
(ii) The date the institution loses its eligibility to participate
under paragraph (c)(1) of this section;
(3) For any fiscal year, it must notify students of the possibility
of loss of title IV eligibility;
(4) For any fiscal year, it must report the failure no later than
45 days after the end of its fiscal year, or immediately thereafter if
subsequent information is obtained that shows an institution
incorrectly determined that it passed the revenue requirement in this
section for the prior fiscal year; and
(5) It is liable for any title IV, HEA program funds it disburses
after the last day of the fiscal year it becomes ineligible to
participate in the title IV, HEA program under paragraph (c)(1) of this
section, excluding any funds the institution was entitled to disburse
under Sec. 668.26.
[[Page 65492]]
0
17. Appendix C to subpart B of part 668 is revised to read as follows:
Appendix C to Subpart B of Part 668--90/10 Revenue Calculation
Section 1: Sample Student Account at the Institution/Funds Applied in
Priority Order
Sample Student Account Ledger
--------------------------------------------------------------------------------------------------------------------------------------------------------
Line Date Charge/Payment Memo Debit Credit Balance
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................ 12/31/2021 Federal Direct Loan. ................... ................. 1,000.00 (1,000.00)
2................................ 1/1/2022 Tuition and Fees.... ................... 17,000.00 ................. 16,000.00
3................................ 2/1/2022 Cash Payment........ ................... ................. 175.00 15,825.00
4................................ 2/1/2022 Federal Funds 1..... ................... ................. 2,000.00 13,825.00
5................................ 2/1/2022 FSEOG............... (Fed. 375/Inst. ................. 500.00 13,325.00
125).
6................................ 5/1/2022 Cash Payment........ (Federal funds 3).. ................. 500.00 12,825.00
7................................ 7/1/2022 Federal Pell Grant.. ................... ................. 1,700.00 11,125.00
8................................ 7/1/2022 Institutional ................... ................. 500.00 10,625.00
Scholarship.
9................................ 7/1/2022 Federal Direct Loan. ................... ................. 1,500.00 9,125.00
10............................... 7/1/2022 Cash Payment........ (Federal funds 4).. ................. 3,700.00 5,425.00
11............................... 8/1/2022 Federal Funds 2..... ................... ................. 3,725.00 1,700.00
12............................... 9/1/2022 City Grant.......... ................... ................. 2,200.00 (500.00)
13............................... 9/1/2022 Refund Check........ ................... 500.00 .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
Amount in the
Line item in the sample sample
------------------------------------------------------------------------
Funds Applied First
------------------------------------------------------------------------
12............................ Grant funds for the 2,200.00
student from non-
Federal public
agencies or private
sources independent
of the institution.
Funds provided for
the student under a
contractual
arrangement with a
Federal, State, or
local government
agency for the
purpose of providing
job training to low-
income individuals.
Funds used by a
student from savings
plans for
educational expenses
established by or on
behalf of the
student that qualify
for special tax
treatment under the
Internal Revenue
Code.
8 Qualified 500.00
institutional
scholarships
disbursed to the
student.
Adjustment: If the
amount of Total
Funds Applied First
is more than Tuition
and Fees, then
Adjusted Total Funds
Applied First is
reduced by the
amount over Tuition
and Fees.
------------------------------------------------------------------------
Total Funds Applied First........................ 2,700.00
------------------------------------------------------------------------
Title IV Aid
------------------------------------------------------------------------
1............................. Prior Year Title IV 1,000.00
Carried Over Credit
Balance.
9............................. Federal Direct Loan.. 1,500.00
7............................. Federal Pell Grant... 1,700.00
5............................. FSEOG (subject to 500.00
matching reduction)
($500 -$375 FSEOG
and $125
Institutional Match)
Federal Work Study
Applied to Tuition
and Fees (subject to
matching reduction).
5............................. Adjustment: The -125.00
amount of FSEOG
funds disbursed to a
student and the
amount of FWS funds
credited to the
student's account
are reduced by the
amount of the
institutional
matching funds.
Adjustment: If the
amount of Adjusted
Total Funds Applied
First + Total
Student Title IV
Revenue is more than
Tuition and Fees,
then Adjusted Total
Student Title IV
Revenue is reduced
by the amount over
Tuition and Fees.
Adjustment: If Title
IV funds are
returned for a
student under Sec.
668.22, then Student
Title IV Revenue is
reduced by the
amount returned.
------------------------------------------------------------------------
Adjusted Total Title IV Aid...................... 4,575.00
------------------------------------------------------------------------
Other Federal Funds Paid Directly to the Institution
------------------------------------------------------------------------
4............................. Federal Funds 1...... 2,000.00
11............................ Federal Funds 2...... 3,725.00
Adjustment: If the
amount of Adjusted
Total Funds Applied
First + Adjusted
Total Student Title
IV Revenue + Total
Other Federal Funds
Paid Directly to the
Institution is more
than Tuition and
Fees, then Adjusted
Total Other Federal
Funds Paid Directly
to the Institution
is reduced by the
amount over Tuition
and Fees.
------------------------------------------------------------------------
Adjusted Total Other Federal Funds Paid Directly 5,725.00
to the Institution.
------------------------------------------------------------------------
Other Federal Funds Paid to Student
------------------------------------------------------------------------
6............................. Federal Funds 3...... 500.00
10............................ Federal Funds 4...... 3,700.00
[[Page 65493]]
Adjustment: If the -200.00
amount of Adjusted
Funds Applied First
+ Adjusted Student
Title IV Revenue +
Adjusted Total Other
Federal Funds Paid
Directly to the
Institution + Total
Other Federal Funds
Paid Directly to
Student is more than
Tuition and Fees,
then Adjusted
Federal Funds Paid
Directly to Student
is reduced by the
amount over Tuition
and Fees.
------------------------------------------------------------------------
Adjusted Total Other Federal Funds Paid Directly 4,000.00
to Student.
------------------------------------------------------------------------
Cash Payments
------------------------------------------------------------------------
3............................. Student payments..... 175.00
5............................. Adjustment: The 125.00
amount of FSEOG
funds disbursed to a
student and the
amount of FWS funds
credited to the
student's account
are added to cash
for the
institutional
matching funds.
Adjustment: If the -300.00
amount of Adjusted
Total Funds Applied
First + Adjusted
Total Student Title
IV Revenue +
Adjusted Total Other
Federal Funds Paid
Directly to the
Institution +
Adjusted Total Other
Federal Funds Paid
to Student + Total
Cash and Other Non-
Title Payments are
more than Tuition
and Fees, then
Adjusted Total Cash
and Other Non-Title
Payments is reduced
by the amount over.
Tuition and Fees.....
------------------------------------------------------------------------
Adjusted Total Cash and Other Non-Title IV Aid... 0
------------------------------------------------------------------------
Adjusted Total All 17,000.00............
Federal and Cash
Payments.
------------------------------------------------------------------------
Section 2--Revenue by Source--One Student Example
----------------------------------------------------------------------------------------------------------------
Line item in the sample Amount disbursed Adjusted amount
----------------------------------------------------------------------------------------------------------------
Student Title IV Revenue
----------------------------------------------------------------------------------------------------------------
1....................................... Title IV Credit Balance Carried 1,000.00 1,000.00
Over from Prior Year.
9....................................... Federal Direct Loan............. 1,500.00 1,500.00
7....................................... Federal Pell Grant.............. 1,700.00 1,700.00
5....................................... FSEOG (federal portion only).... 375.00 375.00
----------------------------------------------------------------------------------------------------------------
Total Student Title IV Revenue........................................ 4,575.00 4,575.00
----------------------------------------------------------------------------------------------------------------
Federal Funds Paid Directly to the Institution
----------------------------------------------------------------------------------------------------------------
6....................................... Federal Funds 1................. 2,000.00 2,000.00
10...................................... Federal Funds 2................. 3,725.00 3,725.00
----------------------------------------------------------------------------------------------------------------
Total Student Federal Funds Paid Directly to the Institution.......... 5,725.00 5,725.00
----------------------------------------------------------------------------------------------------------------
Student Federal Funds Paid Directly to the Student
----------------------------------------------------------------------------------------------------------------
4....................................... Federal Funds 3................. 500.00 500.00
11...................................... Federal Funds 4................. 3,700.00 3,700.00
13...................................... Refunds Paid to Student......... ................. -200.00
----------------------------------------------------------------------------------------------------------------
Adjusted Student Federal Funds Paid Directly to Student............... 4,200.00 4,000.00
-----------------------------------------------------------------------
Adjusted Student Federal Revenue.................................. 14,500.00 14,300.00
----------------------------------------------------------------------------------------------------------------
Student Non-Federal Revenue
----------------------------------------------------------------------------------------------------------------
12...................................... Grant funds for the student from 2,200.00 2,200.00
non-Federal public agencies or
private sources independent of
the institution.
8....................................... Institutional scholarships 500.00 500.00
disbursed to the student.
3,5,13.................................. Student payments................ 300.00 0
----------------------------------------------------------------------------------------------------------------
Student Non-Title IV Revenue.......................................... 3,000.00 2,700.00
-----------------------------------------------------------------------
Total Federal and Non-Federal Revenue............................. 17,500.00 17,000.00
----------------------------------------------------------------------------------------------------------------
[[Page 65494]]
Section 2--Revenue by Source--Calculation
------------------------------------------------------------------------
Amount disbursed Adjusted amount
------------------------------------------------------------------------
Student Title IV Revenue
------------------------------------------------------------------------
Title IV Credit Balance Carried 45,000.00 45,0000.00
Over from Prior Year.............
Federal Direct Loan............... 1,500,000.00 1,500,000.00
Federal Pell Grant................ 400,700.00 400,700.00
FSEOG (subject to matching 11,500.00 8,625.00
reduction).......................
-------------------------------------
Total Student Title IV Revenue 1,957,200.00 1,954,325.00
------------------------------------------------------------------------
Refunds Paid to Students.......... ................. -35,500.00
------------------------------------------------------------------------
Student Federal Funds Paid Directly to Student
------------------------------------------------------------------------
Federal Funds 3................... 50,000.00 50,000.00
Federal Funds 4................... 3,700.00 3,700.00
-------------------------------------
Total Student Federal Funds 53,700.00 53,700.00
Paid Directly to Student.....
Refunds Paid to Student........... ................. -200.00
Adjusted Student Federal Funds 53,700.00 53,500.00
Paid Directly to Student.........
Adjusted Student Federal Revenue.. 3,575,625.00 3,517,050.00
Adjusted Student Title IV Revenue. 1,957,200.00 1,918,825.00
------------------------------------------------------------------------
Federal Funds Paid Directly to the Institution
------------------------------------------------------------------------
Federal Funds 1................... 200,000.00 200,000.00
Federal Funds 2................... 1,355,725.00 1,355,725.00
Federal Portion of Other Funds.... 9,000.00 9,000.00
-------------------------------------
Total Student Federal Funds 1,564,725.00 1,564,725.00
Paid Directly to the
Institution..................
Refunds Paid to Students.......... ................. -20,000.00
Adjusted Student Title IV Federal 1,564,725.00 1,544,725.00
Funds Paid Directly to the
Institution......................
------------------------------------------------------------------------
Revenue From Other Sources (Totals for the Fiscal Year)
------------------------------------------------------------------------
Activities conducted by the 25,000.00 25,000.00
institution that are necessary
for education and training.......
Funds paid to the institution by, 143,000.00 143,000.00
or on behalf of, students for
education and training in
qualified non-Title IV eligible
programs.........................
-------------------------------------
Revenue from Other Sources.... 168,000.00 168,000.00
------------------------------------------------------------------------
Adjusted Non-Federal Revenue and 587,800.00 559,500.00
Revenue from Other Sources.......
-------------------------------------
Total Federal and Non-Federal 4,163,425.00 4,076,550.00
Revenue......................
------------------------------------------------------------------------
------------------------------------------------------------------------
Student non-Federal revenue Amount Adjusted amount
------------------------------------------------------------------------
Grant funds for the student from
non-Federal public agencies or
private sources independent of
the institution..................
--State Grant (9.0451 percent 99,500.00 90,500.00
Federal Funds)...................
--ABC Scholarship................. 500.00 500.00
Funds provided for the student
under a contractual arrangement
with a Federal, State, or local
government agency for the purpose
of providing job training to low-
income individuals...............
Funds used by a student from
savings plan for educational
expenses established by or on
behalf of the student that
qualify for special tax treatment
under the Internal Revenue Code..
Qualified institutional 500.00 500.00
scholarships disbursed to the
student..........................
Student payments
--Third Party Loans............... 50,000.00 50,000.00
--Third Party Loans-related Party/ 107,000.00 100,000.00
Institutional Loans..............
--ISA Institutional or Related 37,000.00 25,000.00
Party............................
--ISA............................. 75,000.00 75,000.00
--Student Cash.................... 50,300.00 50,300.00
-------------------------------------
Student Non-Title IV Revenue.. 419,800.00 391,800.00
Refunds Paid to Student........... -300.00
-------------------------------------
Adjusted Non-Federal Revenue.. 419,800.00 391,500.00
------------------------------------------------------------------------
Numerator 3,517,050.
Denominator 4,076,550 = 86.27 percent.
[[Page 65495]]
Section 3--Calculating the Revenue Percentage
------------------------------------------------------------------------
-------------------------------------------------------------------------
[sum] Adjusted Student Federal Revenue * / [sum] Adjusted Student
Federal Revenue + [sum] Adjusted Non-Federal Revenue and Revenue from
Other Sources = 90/10 Revenue Percentage.
------------------------------------------------------------------------
* Adjusted Student Federal Revenue = Adjusted Student Title IV Revenue +
Adjusted Other Federal Funds Paid Directly to the Institution +
Adjusted Other Federal Funds Paid Directly to Student
[sum] Adjusted Student Federal Revenue = The sum of the amounts of all
Federal funds, as adjusted, for each student at the institution during
the fiscal year to whom the institution disbursed Title IV Aid and
Other Federal Funds and Federal funds that students directly receive.
[sum] Adjusted Non-Federal Revenue = The sum of the amounts of items
applied first and adjusted cash payments for each student at the
institution during the fiscal year whose non-Federal funds were used
to pay all or some of those student's Tuition and Fee charges.
0
18. Section 668.32 is amended by:
0
a. Revising paragraph (c)(2)(ii); and
0
b. Removing the parenthetical authority citation at the end of the
section.
The revision reads as follows:
Sec. 668.32 Student eligibility--general.
* * * * *
(c) * * *
(2) * * *
(ii) If the student is a confined or incarcerated individual as
defined in 34 CFR 600.2, is enrolled in an eligible prison education
program as defined in Sec. 668.236;
* * * * *
0
19. Section 668.43 is amended by:
0
a. In paragraph (a)(5)(iv), removing the word ``and'' at the end of the
paragraph;
0
b. In paragraph (a)(5)(v)(C), adding the word ``and'' at the end of the
paragraph;
0
c. Adding paragraph (a)(5)(vi); and
0
d. Removing the parenthetical authority citation at the end of the
section.
The addition reads as follows:
Sec. 668.43 Institutional information.
(a) * * *
(5) * * *
(vi) If a prison education program, as defined in Sec. 668.236, is
designed to meet educational requirements for a specific professional
license or certification that is required for employment in an
occupation (as described in Sec. 668.236(a)(7) and (8)), information
regarding whether that occupation typically involves State or Federal
prohibitions on the licensure or employment of formerly confined or
incarcerated individuals in any other State for which the institution
has made a determination about State prohibitions on the licensure or
certification of formerly confined or incarcerated individuals;
* * * * *
0
20. Section 668.171 is amended by revising paragraphs (d)(4) and
(f)(1)(vii) to read as follows:
Sec. 668.171 General.
* * * * *
(d) * * *
(4) For its most recently completed fiscal year, a proprietary
institution did not receive at least 10 percent of its revenue from
sources other than Federal funds, as provided under Sec. 668.28(c);
* * * * *
(f) * * *
(1) * * *
(vii) For the non-Federal revenue provision in paragraph (d)(4) of
this section, no later than 45 days after the end of the institution's
fiscal year, as provided in Sec. 668.28(c)(4).
* * * * *
0
21. Add subpart P to read as follows:
Subpart P--Prison Education Programs
Sec.
668.23 Scope and purpose.
668.235 Definitions.
668.236 Eligible prison education program.
668.237 Accreditation requirements.
668.238 Application requirements.
668.239 Reporting requirements.
668.240 Limitation or termination of approval.
668.241 Best interest determination.
668.242 Transition to a prison education program.
Sec. 668.23 Scope and purpose.
This subpart establishes regulations that apply to an institution
that offers prison education programs to confined or incarcerated
individuals. A confined or incarcerated individual enrolled in an
eligible prison education program is eligible for Federal financial
assistance under the Federal Pell Grant program. Unless provided in
this subpart, confined or incarcerated individuals and institutions
that offer prison education programs are subject to the same
regulations and procedures that otherwise apply to title IV, HEA
program participants.
Sec. 668.235 Definitions.
The following definitions apply to this subpart:
Additional location has the meaning given in 34 CFR 600.2.
Advisory committee is a group established by the oversight entity
that provides nonbinding feedback to the oversight entity regarding the
approval and operation of a prison education program within the
oversight entity's jurisdiction.
Confined or incarcerated individual has the meaning given in 34 CFR
600.2.
Feedback process is the process developed by the oversight entity
to gather nonbinding input from relevant stakeholders regarding the
approval and operation of a prison education program within the
oversight entity's jurisdiction. A feedback process may include an
advisory committee.
Oversight entity means--
(1) The appropriate State department of corrections or other entity
that is responsible for overseeing correctional facilities; or
(2) The Federal Bureau of Prisons.
Relevant stakeholders are individuals and organizations that
provide input as part of a feedback process to the oversight entity
regarding the approval and operation of a prison education program
within the oversight entity's jurisdiction. These stakeholders must
include representatives of confined or incarcerated individuals,
organizations representing confined or incarcerated individuals, State
higher education executive offices, and accrediting agencies and may
include additional stakeholders as determined by the oversight entity.
Sec. 668.236 Eligible prison education program.
(a) An eligible prison education program means an education or
training program that--
(1) Is an eligible program under Sec. 668.8 offered by an
institution of higher education as defined in 34 CFR 600.4, or a
postsecondary vocational institution as defined in 34 CFR 600.6;
(2) Is offered by an eligible institution that has been approved to
operate in a correctional facility by the oversight entity;
(3) After an initial two-year approval, is determined by the
oversight entity to be operating in the best interest of students as
described in Sec. 668.241;
(4) Offers transferability of credits to at least one institution
of higher education (as defined in 34 CFR 600.4 and 600.6) in the State
where the correctional facility is located, or, in the case of a
Federal correctional facility, in the State where most of the
individuals confined or incarcerated individuals in
[[Page 65496]]
such facility will reside upon release as determined by the institution
based on information provided by the oversight entity;
(5) Is offered by an institution that has not been subject, during
the five years preceding the date of the determination, to--
(i) Any suspension, emergency action, or termination of programs
under this title;
(ii) Any final accrediting action that is an adverse action as
defined in 34 CFR 602.3 by the institution's accrediting agency; or
(iii) Any action by the State to revoke a license or other
authority to operate;
(6) Subject to paragraph (b) of this section, is offered by an
institution that is not subject to a current initiated adverse action;
(7) Satisfies any applicable educational requirements for
professional licensure or certification, including any requirements to
sit for licensure or certification examinations needed to practice or
obtain employment in the sectors or occupations for which the program
prepares the individual, in the State where the correctional facility
is located or, in the case of a Federal correctional facility, in the
State where most of the individuals confined or incarcerated
individuals in such facility will reside upon release, as determined by
the institution not less than annually based on information provided by
the oversight entity; and
(8) Does not offer education that is designed to lead to licensure
or employment for a specific job or occupation in the State if such job
or occupation typically involves prohibitions on the licensure or
employment of formerly confined or incarcerated individuals in the
State where the correctional facility is located, or, in the case of a
Federal correctional facility, in the State where most of the
individuals confined or incarcerated individuals in such facility will
reside upon release, as determined by the institution not less than
annually based on information provided by the oversight entity.
(b) With respect to the criterion in paragraph (a)(6) of this
section--
(1) If an accrediting agency initiates an adverse action, the
institution cannot begin its first or a subsequent prison education
program unless and until the initiated adverse action has been
rescinded; and
(2) If the institution currently offers one or more prison
education programs and is subject to an initiated adverse action, the
institution must submit a teach-out plan and if practicable, a teach-
out agreement, as defined in 34 CFR 600.2, to the institution's
accrediting agency.
(c) With respect to the criterion in paragraph (a)(8) of this
section--
(1) In the case of State and local correctional facilities, the
postsecondary institution may not enroll any student in a prison
education program if the student is prohibited or barred by any Federal
law, or law in the State in which the correctional facility is located,
from licensure or employment in the sectors or occupations for which
the program prepares the individual based on any criminal conviction or
specific types of criminal convictions; or
(2) In the case of a Federal correctional facility, the
postsecondary institution may not enroll any student in a prison
education program if the student is prohibited or barred by any Federal
law, or law in the State in which more than half of the confined or
incarcerated individuals in such facility will reside upon release,
from licensure or employment in the sectors or occupations for which
the program prepares the individual based on any criminal conviction or
specific types of criminal convictions.
(3) Prohibitions on licensure or employment do not include local
laws, screening requirements for good moral character, or similar
provisions; State or Federal laws that have been repealed, even if the
repeal has not yet taken effect or if the repeal occurs between
assessments of the postsecondary institution by the oversight entity;
or other restrictions as determined by the Secretary.
Sec. 668.237 Accreditation requirements.
(a) To be an eligible program under Sec. 668.236, a prison
education program must meet the requirements of the institution's
accrediting agency or State approval agency.
(b) In order for any prison education program to qualify as an
eligible program, the accrediting agency must have--
(1) Evaluated at least the first prison education program at the
first two additional locations to ensure the institution's ability to
offer and implement the program and that the program meets the agency's
accreditation standards, and included it in the institution's grant of
accreditation or pre-accreditation;
(2) Evaluated the first additional prison education program offered
by a new method of delivery to ensure the institution's ability to
offer and implement the program and that the program meets the agency's
standards, and included it in the institution's grant of accreditation
or pre-accreditation;
(3) Performed a site visit as soon as practicable but no later than
one year after initiating the prison education program at the first two
additional locations; and
(4) Reviewed and approved the methodology for how the institution,
in collaboration with the oversight entity, made the determination that
the prison education program meets the same standards as substantially
similar programs that are not prison education programs at the
institution.
Sec. 668.238 Application requirements.
(a) An institution that seeks to offer a prison education program
must apply to the Secretary to have its first prison education program
at the first two additional locations determined to be eligible
programs for title IV, HEA program purposes. Following the Secretary's
initial approval of an institution's prison education program,
additional prison education programs offered by the same postsecondary
institution at the same location may be determined eligible without
further approvals from the Secretary except as required by 34 CFR
600.7, 600.10, 600.20(c)(1), or 600.21(a), as applicable, if such
programs are consistent with the institution's accreditation or its
State approval agency requirements.
(b) The institution's prison education program application must
provide information satisfactory to the Secretary that includes--
(1) A description of the educational program, including the
educational credential offered (degree level or certificate) and the
field of study;
(2) Documentation from the institution's accrediting agency or
State approval agency indicating that the agency has evaluated the
prison education program and has included the program in the
institution's grant of accreditation and approval documentation from
the accrediting agency or State approval agency;
(3) The name of the correctional facility and documentation from
the oversight entity that the prison education program has been
approved to operate in the correctional facility;
(4) Documentation detailing the methodology, including thresholds,
benchmarks, standards, metrics, data, and other information, the
oversight entity used in approving the prison education program and how
all the information was collected;
(5) Information about the types of services offered to admitted
students, including orientation, tutoring, and academic and reentry
counseling. If
[[Page 65497]]
reentry counseling is provided by a community-based organization that
has partnered with the eligible prison education program, institution,
or correctional facility to provide reentry services, the application
also must provide information about the types of services offered by
that community-based organization;
(6) Affirmative acknowledgement that the Secretary can limit or
terminate approval of an institution to provide a prison education
program as described in Sec. 668.237;
(7) Affirmative agreement to submit all required reports to the
Secretary pursuant to Sec. 668.239;
(8) Documentation that the institution has entered into an
agreement with the oversight entity to obtain data about transfer and
release dates of confined or incarcerated individuals, which will be
reported to the Department of Education; and
(9) Such other information as the Secretary deems necessary.
(c) For the second or subsequent eligible prison education program
at a location, to meet the requirements under 34 CFR 600.21, an
institution must submit--
(1) Documentation from the institution's accrediting agency noting
that the institution complies with Sec. 668.236(a)(6) and was not
subject in the last five years to any final accrediting action that is
an adverse action by the institution's accrediting agency;
(2) Documentation from the institution confirming that it was not
subject in the last five years to any State action to revoke a license
or other authority to operate; and
(3) Documentation that the institution has entered into an
agreement with the oversight entity to obtain data about transfer and
release dates of confined or incarcerated individuals, which will be
reported to the Department of Education pursuant to Sec. 668.239.
Sec. 668.239 Reporting requirements.
(a) An institution must submit reports, in accordance with
deadlines established and published by the Secretary in the Federal
Register.
(b) The institution reports such information as the Secretary
requires, in compliance with procedures the Secretary describes.
(c) The institution reports information about transfer and release
dates of confined or incarcerated individuals, as required by the
Secretary, through an agreement with the oversight entity.
Sec. 668.240 Limitation or termination of approval.
(a) The Secretary may limit or terminate or otherwise end the
approval of an institution to provide an eligible prison education
program if the Secretary determines that the institution violated any
terms of this subpart or that the institution submitted materially
inaccurate information to the Secretary, accrediting agency, State
agency, or oversight entity.
(b) If the Secretary initiates action limiting or terminating an
institution's approval to operate an eligible prison education program,
the institution must submit a teach-out plan and, if practicable, a
teach-out agreements (as defined in 34 CFR 600.2) to its accrediting
agency upon occurrence of the event.
Sec. 668.241 Best interest determination.
(a) An oversight entity's determination that a prison education
program is operating in the best interest of students--
(1) Must include an assessment of--
(i) Whether the experience, credentials, and rates of turnover or
departure of instructors for the prison education program are
substantially similar to other programs at the institution, accounting
for the unique geographic and other constraints of prison education
programs;
(ii) Whether the transferability of credits for courses available
to confined or incarcerated individuals and the applicability of such
credits toward related degree or certificate programs is substantially
similar to those at other similar programs at the institution,
accounting for the unique geographic and other constraints of prison
education programs;
(iii) Whether the prison education program's offering of relevant
academic and career advising services to participating confined or
incarcerated individuals, while they are confined or incarcerated, in
advance of reentry, and upon release, is substantially similar to
offerings to a student who is not a confined or incarcerated individual
and who is enrolled in, and may be preparing to transfer from, the same
institution, accounting for the unique geographic and other constraints
of prison education programs; and
(iv) Whether the institution ensures that all formerly confined or
incarcerated individuals are able to fully transfer their credits and
continue their programs at any location of the institution that offers
a comparable program, including by the same mode of instruction; and
(2) May include an assessment of--
(i) Whether the rates of recidivism, which do not include any
recidivism by the student after a reasonable number of years of release
and which only include new felony convictions, defined as each sentence
of imprisonment exceeding one year and one month (see United States
Sentencing Guideline section 4A1.1(a)), meet thresholds set by the
oversight entity;
(ii) Whether the rates of completion reported by the Department,
which do not include any students who were transferred across
facilities and which account for the status of part-time students, meet
thresholds set by the oversight entity with input from relevant
stakeholders;
(iii) Whether the rate of confined or incarcerated individuals
continuing their education post-release, as determined by the
percentage of students who reenroll in higher education reported by the
Department, meets thresholds established by the oversight entity with
input from relevant stakeholders;
(iv) Whether job placement rates in the relevant field for such
individuals meet any applicable standards required by the accrediting
agency for the institution or program or a State where the institution
is authorized. If no job placement rate standard applies to prison
education programs offered by the institution, the oversight entity may
define, and the institution may report, a job placement rate, with
input from relevant stakeholders;
(v) Earnings for such individuals, which could include measuring
such earnings against a threshold established by the oversight entity;
and
(vi) Other indicators pertinent to program success as determined by
the oversight entity.
(b) An oversight entity makes the best interest determination--
(1) Through a feedback process that considers input from relevant
stakeholders; and
(2) In light of the totality of the circumstances.
(c) If the oversight entity does not find a program to be in the
best interest of students, it must allow for programs to re-apply
within a reasonable timeframe.
(d) After the two years of initial approval under Sec. 668.236,
the oversight entity must determine that the prison education program
is operating in the best interest of students, under paragraph (a) of
this section.
(e)(1) After its initial determination under paragraph (d) of this
section that a program is operating in the best interest of confined or
incarcerated individuals, the institution must obtain subsequent
evaluations of each eligible
[[Page 65498]]
prison education program from the responsible oversight entity not less
than 120 calendar days prior to the expiration of the institution's
Program Participation Agreements. The oversight entity may also make a
determination between subsequent evaluations based on the oversight
entity's regular monitoring and evaluation of program outcomes.
(2) Each subsequent evaluation must--
(i) Include the entire period following the prior determination and
be based on the applicable factors in paragraph (a) of this section for
all students enrolled in the program since the prior determination;
(ii) Include input from relevant stakeholders through the oversight
entity's feedback process; and
(iii) Be submitted to the Secretary no later than 30 days following
completion of the evaluation.
(f)(1) The institution must obtain and maintain documentation of
the methodology by which the oversight entity made each determination
under this section and under Sec. 668.236(a)(2) and (3) for review by
the institution's accrediting agency, for submission to the Department
for approval of the first program at the first two additional
locations, to document input from relevant stakeholders through the
oversight entity's feedback process in paragraphs (b)(1) and (e)(2)(ii)
of this section, for reporting to the Department, and for public
disclosure.
(2) The institution must maintain the documentation described in
paragraph (f)(1) of this section for as long as the program is active
or, if the program is discontinued, for three years following the date
of discontinuance.
Sec. 668.242 Transition to a prison education program.
For institutions operating eligible prison education programs in a
correctional facility that is not a Federal or State penal institution:
(a) A confined or incarcerated individual who otherwise meets the
eligibility requirements to receive a Federal Pell Grant and is
enrolled in an eligible program that does not meet the requirements
under subpart P of this part may continue to receive a Federal Pell
Grant until the earlier of--
(1) July 1, 2029;
(2) The student reaches the maximum timeframe for program
completion under Sec. 668.34; or
(3) The student has exhausted Pell Grant eligibility under 34 CFR
690.6(e).
(b) An institution is not permitted to enroll a confined or
incarcerated individual on or after July 1, 2023, who was not enrolled
in an eligible program prior to July 1, 2023, unless the institution
first converts the eligible program into an eligible prison education
program as defined in Sec. 668.236.
PART 690--FEDERAL PELL GRANT PROGRAM
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22. The authority citation for part 690 continues to read as follows:
Authority: 20 U.S.C. 1070a, 1070g, unless otherwise noted.
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23. Section 690.62 is revised to read as follows:
Sec. 690.62 Calculation of a Federal Pell Grant.
(a) The amount of a student's Pell Grant for an academic year is
based upon the payment and disbursement schedules published by the
Secretary for each award year.
(b)(1)(i) For a confined or incarcerated individual enrolled in an
eligible prison education program, no Federal Pell Grant may exceed the
cost of attendance (as defined in section 472 of the HEA) at the
institution that student attends.
(ii) If an institution determines that the amount of a Federal Pell
Grant for that student exceeds the cost of attendance for that year,
the amount of the Federal Pell Grant must be reduced until the Federal
Pell Grant does not exceed the cost of attendance at such institution
and does not result in a title IV credit balance under 34 CFR
668.164(h).
(2)(i) If a confined or incarcerated individual's Pell Grant,
combined with any other financial assistance, exceeds the student's
cost of attendance, the financial assistance other than the Pell Grant
must be reduced by the amount that the total financial assistance
exceeds the student's cost of attendance.
(ii) If the confined or incarcerated individual's other financial
assistance cannot be reduced, the student's Pell Grant must be reduced
by the amount that the student's total financial assistance exceeds the
student's cost of attendance.
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24. Add Sec. 690.68 to read as follows:
Sec. 690.68 Severability.
If any provision of this subpart or its application to any person,
act, or practice is held invalid, the remainder of the subpart or the
application of its provisions to any person, act, or practice will not
be affected thereby.
[FR Doc. 2022-23078 Filed 10-27-22; 8:45 am]
BILLING CODE 4000-01-P